LAS VEGAS — To thrive in the second half of 2014, credit unions need to do some much-needed — if slightly belated — spring cleaning.
Dr. Brandi Stankovic, partner at credit union consultancy Mitchell, Stankovic & Associates, said CUs need to manage their vital margins by taking a fresh look at themselves, and prepare for leadership transitions as baby boomers continue to retire.
As the U.S. economy has slowly recovered from recession, Stankovic pointed out many people are working more hours for less money.
"On top of that, credit unions are getting hit by new regulations that inhibit growth and take away resources," she said. "The vital margin is about looking at the margin and making it a commodity."
Stankovic suggested the process begin by someone in upper management taking a blank piece of paper — perhaps the CEO going outside the CU for an afternoon to reflect — and deciding what to do to save the credit union.
Do not start with the people the credit union has and the time available, she advised. "Do a fresh slate as if you were coming in from the outside. This may require quitting things that are not working, and firing people who are not working. Tough decisions will have to be made faster."
When crafting this fresh start, Stankovic said it is important to make time as much a part of the margin as capital. She noted many financial institutions have elaborate procedures for managing capital, but their time is largely unmanaged.
"Time needs to be budgeted in the same way as capital," she insisted. "Plan how much time will be spent on certain projects. Meetings are out of control at so many credit unions, and regulations require staff to spend a lot of time on non-income-producing-items. It is vital that credit unions liberate this resource.
"We would not allow employees to steal furniture, but we do allow them to steal time," she added.
Next Generation Of Leadership
Transition has become the norm in credit union leadership, both at the board and executive level. Through this period of rapid change, Stankovic said and executives are trying to create a legacy.
"We will hopefully see good planning for this transition," she said. "The next-level executives should be targeting results and who can help them get there. They will need mentoring and coaching."
There is a new culture of exposure of leadership, Stankovic continued. As such, CUs need to be careful to manage their personal brand and communications.
"As Ice Cube said, 'You better check yo'self before you wreck yo'self.' That means resist instincts and patterns," she explained. "Some people say not to take things personally, but leaders take things personally because they care. One cannot always be cool and unfazed."
The next-gen leaders will figure out what they are good at, and do it over and over again, rather than be limited by patterns, Stankovic predicted. As these young executives move up, she said they should resist the pattern of what they did in the past.
"Seek people who also are good, and be sure to empower the team," she counseled. "The people who come in need to listen to the people who are there first, before they make changes."
The best-case scenario is a CU has a planned transition to avoid the "retire or be fired" concept. To succeed in this process, Stankovic said a well-managed credit union will develop leaders and cross-functional teams.
"The more they can look at positions by function rather than the people they have, the better," she said.
Stankovic advised CUs to be mindful of relationship transference. As retiring CEOs and board members transition out they need to make sure the relationships they have built in the industry over the years are not lost when the new leadership comes in.
"Many CEOs have been in their community for 20 years, or some board members might be from the original SEG, so make sure the relationships with business community, or with the industry, make the transition," she offered.
Retaining New Members
Karan Bhalla, managing director of Santa Rosa, Calif.-based data analytics firm IQR Consulting, said the company's bank and credit union clients have identified retention as a major issue as a marketplace dynamic has made a shift.
Credit unions have done a "great job" with growth and have added a large number of members in the wake of Bank Transfer Day, he pointed out, but retention is "a problem."
"We are looking at attrition management," he said. "The concept of loyalty is changing. As credit unions have brought in younger members, they are finding these members are a lot more calculating."
This new attitude has resulted in incentive-based relationships, Bhalla explained, and these new members are "finicky." He said they want the best mortgage rate and the best car loan rate, so they might spread out their business across multiple institutions.
"They do not have a 15-year exclusive relationship with the credit union," Bhalla observed. In the second half IQR Consulting is looking to predict how members will engage with the credit union.
Bhalla said the goal is to be able to predict when a member will look for a car, based on market and personal factors.
"Activity is more important than just a raw membership number, so engagement is the most important issue credit unions should be looking at," he said. "Life cycle marketing — anticipating what members needs are — is something credit unions have not done well traditionally. Someone might have opened an account as a result of a car loan, and it counted as a member, but they are not engaged."
MCIF Or Data Warehouses?
A few years ago, MCIF was the latest magic marketing tool. A Marketing Customer Information File is a database of all of a credit union's member accounts and relationships. Today, Bhalla said there is competition for MCIF in the market.
Many institutions want to be more data driven, he noted, and analytic data warehouses are coming up against MCIF.
"Eliminating the time lag is a big issue," he said. "By the time the MCIF gets information, the member has already sold his house. MCIF has limitations in extracting information."
With new data tools, advanced analysis is available in some cases through plug-and-play apps. What this means to CUs, Bhalla said, is no longer are they bound by what is offered by a vendor — credit unions can design what they need.
"They can create custom data reports on the fly, and they can create campaigns that identify what members will need on a much faster basis. It makes the credit union more agile," he said.
Strong data analysis, and the resulting ability to perform targeted marketing, is important, Bhalla said, because the "honeymoon period" is ending.
"Auto loans are slowing down after a few good few years. Housing is under some pressure and mortgages are coming down," he said.
"Credit unions have not been focusing on deposits, but in the next six months will make checking accounts and deposit relationships a priority. Marketing is a critical function. It is important to get people in the door and then stay with the credit union."
