BIRMINGHAM, Ala. — The biggest trend in credit union strategic planning over recent years has been considering it more as a process than an event.
That is the message from Dennis Dollar, principal partner of credit union consultancy Dollar Associates in Birmingham, Ala.
An initial planning session should set broad strategic goals with board and management buy-in, then the management team takes those strategies and forms the tactical action plans under each strategy, according to Dollar.
"On a quarterly basis, management reports to the board for accountability and monitoring purposes their progress in implementing the tactics that further the strategic goals," he explained.
For a three-year plan, the next two planning sessions become a time to have annual updates, review the strategic goals for ongoing timeliness and adjust them accordingly.
"The quarterly reporting keeps the plan fresh for both management and the board, and it makes it remain a priority," he said. "The old adage that action without planning is fatal, but planning without action is futile, certainly comes into play at times with credit unions when they make strategic planning an annual event rather than an ongoing process. Progressive credit unions, larger and smaller, are moving toward a much more process-oriented approach to strategic planning."
Check In With Partners
Chuck Fagan, president and CEO of the Credit Union Executives Society, Madison, Wis., reminded CUs when they are doing external assessments, they need to be sure to include their partners.
"Reach out to them and find out what direction they are going," he advised, noting this group could include core processors or any critical section of the credit union. "You do not want to be going in one direction while they are going another. To every degree possible, you want to be aligned."
According to Fagan, two areas should be included in any 2015 strategic planning agenda are: having a merger and acquisition strategy as part of the long-range outlook; and, placing equal emphasis on the CU's internal environment.
To the former, Fagan pointed out there are three credit unions in Wisconsin that are merging "for all the right reasons," including culture and the way the member bases fit together.
"It is wise to at least discuss a merger and/or an acquisition," Fagan said. "As an industry, we do not want to see merger as a succession plan for a retiring CEO, but sometimes a merger is a way to grow lending or add reach."
As for the internal health of the CU, Fagan counseled CUs to make sure their culture is evolving to recognize the different mix of baby boomers, Gen Ys and Millennials.
"By next year, Millennials are expected to comprise 36% of the U.S. workforce, and by 2020 half of all workers," he said. "They have grown up with a different rewards system, and managers need to know the younger generation became used to being told they were doing a great job almost every day. Credit unions need to get all these different segments working together."
Age of Deposit Dollars
Because it has been said so many times before, Gabe Krajicek, CEO of Austin, Texas-based BancVue, a wholesale financial services firm, said he was "almost embarrassed" to suggest that CUs look for ways to get younger members.
"The subject is not new, but it should be in the top three strategic planning agenda items every year," Krajicek said. "Every credit union we talk to says they struggle to get younger members."
Even more telling than average age of members is the average age of deposit dollars. Credit union executives understand they need to get younger, but Krajicek argued they may not realize the true risk. He suggested CUs attribute an "age" to their deposit dollars, and said they may be dismayed to discover their twenty-something members have only a few hundred dollars on deposit, while their seventy-something or eighty-something members have tens of thousands of dollars in the CU.
"Not to be morbid, but in 10 years many of the older folks are not going to be around anymore. And younger people do not bank with credit unions and community banks. If grandma dies, her deposits are going to go to a mega bank."
Add Sophistication
Andrew Greenawalt, founder and CEO of Continuity Control, New Haven, Conn., said credit unions should add "sophistication" in several areas to be able to compete in today's competitive financial services marketplace.
Continuity Control hears a number of its clients talking about their boards of directors — that there is more pressure from NCUA and from the market side.
"The board model that has worked for decades is seeing some challenges," Greenawalt said. "Credit unions need to add sophistication to their boards and they need to add more sophistication to their organizations overall. Credit unions are recruiting more technically savvy, more progressive board members, and they are investing more in training those directors."
According to Greenawalt, many mid- and large-sized CU are moving IT to the cloud, and there a lot of technology-driven services. He said some institutions are naming chief integration officers as they increasingly are moving away from buying servers and instead are integrating cloud-based services.
"The big question for the board and management is: does the credit union have that expertise in-house, or does it contract with a third party?"
CUs need to have an overall compliance strategy, Greenawalt said. For the longest time, he noted, NCUA examiners served as a "sort of compliance officer" for some credit unions. Today, NCUA expects credit unions to have a mastery of compliance.
"There needs to be a systematic understanding of the process rather than the catch-as-catch-can process that was good enough for so many years," he said. "Many credit unions are adopting a compliance management system to meet what examiners are expecting. But keep in mind this is not something that takes place overnight. Just buying a compliance management system does not solve everything, it is about the culture of the credit union."
What ties all three of these elements together, Greenawalt said, is becoming a more sophisticated organization in 2015 and beyond. He said the move of IT to the cloud "requires more strategic thinking, the board needs to be more sophisticated to support that thinking and the pressure from regulations is not going to go away so the strategy to deal with it needs to be sophisticated."
Don't Forget About Risk-Based Capital
Dollar said a factor entering every strategic planning decision for 2015 is the potential impact of NCUA's new risk-based capital rule. Any credit union looking at branching, new deposit products, enhanced technology, CUSO investments or a modified lending focus will have to overlay its strategic goals in these areas with what risk weights each will be assigned under the risk-based capital rule when it is finalized, he pointed out.
"This far-reaching regulation will not just impact day-to-day decisions, it will have a tremendous impact on future strategic decisions as well," Dollar said. "It is crucial that NCUA take the time to get this right or its impact on strategic risk management could be high. I believe they recognize this danger and will hopefully accommodate some of the concerns being expressed throughout credit union land about the risk-based capital proposal."
