The Filene Research Institute in Madison, Wis. regularly studies the errors and missteps credit unions make during their strategic planning process, and has identified several commonalities across CUs of all sizes and FOMs
The top mistake? According to Tansley Stearns, chief impact officer for the credit union think tank, it’s overconfidence. No matter how much of an expert someone is, she said, if that person is overconfident he or she will make mistakes.
The second mistake Stearns pointed to is mental accounting.
“If you do math in your head you might cut training to save an expense and not realize it is an investment,” Stearns said.
Her other suggestions are as follows:
3) Status quo bias: It is natural for human beings to avoid change, and the same applies to organizations. Stearns said there are many CUs that keep products around for years despite the fact they are used only by a small number of members.
4) Loss aversion: “Credit unions are conservative by nature,” Stearns assessed. “They don’t want to have losses, so they focus more on losses that could happen rather than opportunities that could bring them success.”
5) Anchoring: An idea gets repeated often enough that people become “anchored” to it. Stearns said one example is many people at credit unions think 100 basis points of ROA is “right.” “It may not be true, but as an industry we keep that number in our heads and we don’t question it,” she explained.
6) The sunk-cost effect: “You have invested a lot in something. You tried a new product or you opened a new branch in a market and even though it is not giving a return on investment, you keep investing.”
7) Herd behavior: For many CUs, Stearns explained, the thought process does not go any deeper than, “We are going to take on this strategy because the bank up the street is doing it” or “because a lot of credit unions are doing it.” For some it was switching to a community charter. “You have to avoid chasing what the herd is doing rather than doing what is best for the organization,” she advised.
8) Confirmation bias: Someone believes an idea to be true, so he/she will use data to confirm that bias. “Another example is, assuming everyone believes as you do,” Stearns said.
9) Misestimating future pleasure levels: Stearns said people have a tendency to assume something will be more or less pleasurable than it really is, and therefore make the wrong strategic decision thinking something will be better or worse than it is.
Make day a strategic planning session
Stearns echoed the insights of many experts when she recommended that strategic planning not merely be a once-a-year event.
“I encourage credit unions to be cognizant of all nine of these areas,” Stearns said. “These are human mistakes and challenges, having biases. Go through these as a team and realize these are possible outcomes you might run into. One person might not see it in himself or herself, so we need colleagues to call us out. We also need to take a good look in the mirror and honestly say if we have made one of these errors and work on avoiding them in the future.”
Stearns suggested CUs should have strategy discussions all year around and not make them a point-in-time event.
“We spend a lot of time talking about innovation, but realize there has to be failure to innovate well,” Stearns said. “We put failure in the closet and hide from it. Rather than never talk about it, discuss mistakes openly. If you can do that, it helps avoid them in the future.”
