We recently held an extended roundtable session and invited a dozen credit union executives to discuss the state of the industry. We sent out a pre-reading package, and then met for two days of in-depth debate and discussion.
We identified some issues that are of strategic importance to individual credit unions and the overall industry. We wanted to share our thinking in the spirit that it is not too late to positively impact our future.
Our first question: Is the credit union brand vibrant, in decline, or dying? In looking at the factors that drive the need for brand rejuvenation, our conclusion is that the credit union brand is in decline. Years ago members knew the value of a credit union because it was usually right down the hall from their workplace. It was incorporated into the fabric of the sponsoring organization. Today, this is no longer the case. As credit unions have gone beyond a single-sponsor focus, they have lost some of their emotional ownership and uniqueness. The average age of members is getting OLDER. Many people (especially those in the dot-com generation) don't even know what a credit union is-and may not care. This lack of knowledge appreciation has created played a role in the decline.
As we have seen in the last decade, the number of credit unions has decreased dramatically through mergers, conversions, or in some cases simply going out of business. Competition from banks has and will continue to grow in intensity. And there are some serious new contenders in the "trusted advisor" arena. (See As an example, see the H&R Block case - (Harvard Business Case Number: 9-205-013. January 22, 2007) To add fuel to the fire, many credit unions see their last name "Credit Union" as a disadvantage. It doesn't add value; people can't relate to it. It's no longer seen as relevant as it once was. Both words (credit and union) are confusing. These words need to be rejuvenated, downplayed, or possibly replaced.
A View of the Future
The credit union industry is going through a period of transformation. Assuming the current status quo continues, here is the a shared view of a likely view of the future: Over the next 10 years, there will continue to be significant shakeout through consolidation (mergers).
Consistent with the Harvard research on industries going through transformation, there is a consensus that 40% of today's credit unions will not survive.
Small credit union boards and management teams will continue to favor individual self-preservation over organizational preservation. They will maintain their current status quo rather than merge with a larger organization that could offer their member more services and more favorable rates.
The casualties (the 40% who will no longer exist) will be smaller credit unions that cannot keep up, and larger credit unions that cannot get their act together-until it is too late.
The winners will have the courage and bandwidth to transition and adapt.
Collaboration: The CUSO Model
To give the industry a boost, there is an increased interest in cross-credit union collaboration to improve efficiency and reduce costs. Some examples of using a CUSO model to deliver collaborative services:
* Multi-CU Data Center with world-class IT personnel-several credit unions on the same platform in non-competing markets.
* Business Continuity - a company called Ongoing Operations has a shared back-up site, housing for employees (?), and fully redundant facilities for employees.
* Contact Center-PSCU and FSCC both have one.call centers that can be used by multiple credit unions. Define?
* Lending-business lending and indirect lending can be cooperative efforts in terms of process know-how, loan origination, and loan funding.
There may be a need for a CUSO serving small credit unions - so they can offer more sophisticated distribution channels, a broader array of services, etc.
There is a growing trend toward cross-border collaboration - where banks and credit unions would will use the services from the same CUSO.
Thoughts On Stemming The Tide
Toward the end of our roundtable discussion, we came to numerous conclusions to arrest the decline of credit unions in today's marketplace.
Listed below are a few highlights:
* The importance of getting clear on the credit union's core.
* Going back to our roots; finding the two or three major assets you have as an organization, and maximizing them.
* The advantages of being a more focused niche player.
* Quit trying to do everything.
* Find a differentiating advantage and promote that difference.
* Examples: member segment, geographic, product, or delivery channels (but NOT all)
* The value of truly understanding one's "target member" demographics.
* By getting clearer about who you are really serving-and getting good at it, you can create sustainable growth. Build off of your core.
* The value of building the business around these elements.
* Once you know where you're focusing your business, create a strategy around it, and have the discipline to stick to it.
* The need to be more operationally efficient - and to "simplify" the business.
This takes courage. Grandiose plans are exciting but can be distracting. They cause you to lose focus and efficiency, and make it more difficult to sustain your growth over time. It takes capital and increases costs- sometimes dramatically.
Nike Vs. Reebok
The comparison between looking at the pathway that Nike has taken to stimulate its growth vs. and Reebok's has stimulated some meaningful reflection on our own industry. Nike kept true to its core of supporting the competitive athlete. They selected new products that had close adjacency-they were clearly complementary to their core. Reebok's acquisitions did not support their core brand. Reebok's growth went from athletic shoes to work boots to Boston Whaler boats. They had a very fragmented business model. Their focus was not on a consistent customer demographic. Their brand value did not carry over; there were no synergies to leverage. The relative impact on organizational growth, stability and value (as reflected in the two organization's stock price) is dramatic.
Some of the Lessons Learned
Innovation needs to be more strategically focused.
Schizophrenic innovation is risky and costly -a luxury we can no longer afford.
We need the discipline to tighten the fit and make the trade-offs. (And you need to make "trade-offs" with a reason.)
Spend time clarifying and communicating why you're not doing certain things. Help people understand how your tighter business model makes sense.
To thrive in the marketplace, you can't wait for a major change or a destructive event. We have a tendency to pat ourselves on the back about how great we are. We need to strive for continuous improvement and continuous learning. Toyota Motor Corporation has people who spend their full time at work doing this. Their dramatic success in the market shows the impact. Changes need to be made, but they won't be easy.
Everybody in a leadership position needs to have foresight and discipline to move forward. We hope we have stimulated your thinking. Now it is time to act.
Jim Cardwell is CEO of the Cardwell Group. For info: www.connectionsonline.com.
