The business world searches endlessly for efficiency, but underestimates the importance of discovery.
That was the message from Tony Eccles, professor and programme director at the London Business School. Eccles told participants of an educational session at the Credit Union Executives Society's annual convention here that credit unions-just as any other business-can be handicapped by a belief that no longer is true.
The problem, he explained, comes from an unwillingness to change what had been a winning formula or risk disrupting an existing profit stream. Success, by definition, is good for a company, but its downside can include contentment, inertia and complacency.
"The more efficient one is with a system, the less likely one will change," he said.
The business/financial world is not the only arena where this type of thinking occurs. Eccles said the field of astronomy held incorrect assumptions about gas giants as recently as 30 years, until one scientist questioned orthodoxy. In British politics a few decades ago, a newly elected prime minister announced England no longer would use the gold standard for its currency. When the outgoing prime minister was asked why he did not make the change, he replied he did not realize he had the choice.
"Orthodoxies can be a problem," said Eccles. "Ask a question: if someone took over management of your credit union tomorrow, what is the first thing he or she would change? When you have the answer, then, why don't you do that?"
A History of Short-Sightedness
History is full of examples of businesses that fell in love with their existing processes to the point they ignored innovation. Eccles cited the differing strategies of food giants Kellogg and Nestle during their attempts to introduce new products in India. In 1999, Kellogg's "Chocos" debuted. Sales briefly climbed before hitting a plateau.
The problem? India has a cereal-eating habit, but at lunch, not for breakfast. Therefore, most Indians were not interested in the relatively expensive, sweetened cereal Kellogg produced.
Nestle, in contrast, performed extensive market research and developed a line of convenient, "Indianized," cheap snack foods with an extensive distribution system.
"Kellogg's view was: the market will come around to our way. Nestle examined the market and adapted to it," Eccles observed.
In the early 1920s, David Sarnoff of RCA was rebuffed when he urged the company to invest in a dramatic new technology, the radio. The "wireless music box" has no imaginable commercial value, he was told, because no one would pay for a message sent to nobody in particular.
Eccles' analysis: These naysayers based their assumption on the customer paying because that was what they knew, and they could not look at the concept in any other way.
As a final example he asked: what company turned down the MP3 player and why? The answer: Sony, because it had its popular Walkman line of cassette tape and CD players, and did not want to cannibalize the market.
The lesson: "If you don't cannibalize yourself, someone will do it for you," said Eccles. "If we don't adapt, competitors will not sit there in mute admiration and give up the market."
"These are very exciting times, especially in medicine and physics," he continued. "All kinds of things are happening, which means the world we live in is less stable."
There are many ways for credit unions to avoid the mistakes other companies have made. Eccles recommends open communication, questioning habits and beliefs, speculating on different possible futures with "what if" scenarios, and encouraging a supportive climate for novel thoughts.
Too much time is spent on operational efficiency, and too little time is spent on innovation, he said. Making things happen is good, but finding new things and new ways also is important.
Eccles said strategy too often is seen as heresy when it challenges orthodoxy. Businesses make assumptions about best practices, industry standards, regulatory and governance needs, and other aspects of their operational universe. Some of these assumptions are correct ("sense"), while some are incorrect ("nonsense"). Some assumptions-both correct and incorrect-are shared by competitors ("common sense" and "common nonsense"), some are not shared ("uncommon sense" and "uncommon nonsense").
The trick, he said, is to be able to recognize what is sense and what is nonsense.
"Credit unions and businesses have a certain world view. The competition has another view. Nonsense is a belief that may have been true once, but isn't any more. Credit unions and businesses can be handicapped by a belief that no longer is true. They can gain an advantage by expanding their uncommon sense through discovery and by eradicating uncommon nonsense. In addition, they can reduce disadvantage by appropriating their competitors' uncommon sense and abandoning their common nonsense."
CU, Heal Thyself
The law of business entropy states: whatever is an advantage for a while, eventually dissipates, Eccles said. Therefore, virtually every part of a company-processes, the business model, supply chain, assumptions and beliefs, customer segmentation, partnerships and joint ventures, and technology-must be reinspected again and again.
Professor Eccles gave his audience a summer homework assignment. He advised each board member on hand to figure out his or her respective credit union's "uncommon sense"-or the things it does right that its competitors don't do-and come up with ways to best extend and exploit them. Additionally, he told them to root out their CU's "uncommon nonsense"-the things it does incorrectly that its competitors don't do-and eradicate them.
"Sometimes, it is hard to know what our members want because we know too much," he said.
