Most of us in the process of managing credit unions or providing systems, services and advice to credit unions would agree this is the most challenging operating environment we have seen in a long time.
What's more, many economic experts believe the current low-margin environment could last a lot longer, possibly 10 years. Increasing competition from big banks and newer market entrants like ING Direct is having a major slowing effect on our growth and earnings. Our efforts to grow deposits have largely become a price war.
We have exponentially increased our potential member pool, but we're not really growing membership. Many of us are now outsourcing mission-critical functions.
What we don't really want to admit though is that we are stuck in a rut dominated by incremental thinking and short-term balance sheet focus. We can see clearly that the industry we love is in the early stages of decline, but we have so many distractions we continue to put off meaningful dialog about what to do.
Don't get me wrong-it's clear we have to deal with increasing security threats, privacy laws, audit requirements, and manage risk and a million other things that prevent us from spending enough time intelligently planning for the future.
In many cases, our planning and budgeting process has become incremental as well. We have our annual retreat, hear an interesting and entertaining speaker, approve our growth targets and management incentives based on past performance and we're done. We have to do better than that.
We have to start seriously thinking about how we will compete in the future, what members will want and how we can continue to add value to their lives.
Many credit unions are beginning to see that product and service horizons need to be expanded. Many are shifting their primary focus from growth and capital acquisition to increasing value to members and communities. This is the path to the future.
While I don't pretend to have all the answers, I do hope to get you as a credit union leader to think about what you need to be doing differently to remain viable in the future. I also know that if individual credit unions do what it takes to remain viable, so will the industry, regardless of what changes in the regulatory environment may come.
Who determines viability? Take a look at the US auto industry. Management and labor consistently ignore the wants of the auto buying public as they continue to protect their own self-interests. The increasing dominance of Toyota clearly shows us that people will choose value over loyalty.
Our industry is no different-and the public is increasingly choosing other options for financial services. The big banks are eating our lunch in many markets today. Very few credit unions are experiencing significant organic growth and they're investing heavily to get it. I am convinced that viability is maintained only by the delivery of increasing value to members. The vast majority of members, especially the next generation, do not care about our industry or the challenges we face.
They care about the value we deliver to them and they will always want more. OK-enough about the problem. Let's talk about what to do.
1) Make a personal commitment to talk more with your team about value and strategy. We have gotten the idea that strategy is something we talk about annually, or even worse, every three years. Make a commitment to understand what your strategy is and how it needs to change to meet the changing value demands of your customers and your market. Then make that strategy part of the everyday conversation. Make sure you have a clear value proposition and that your major investments in staffing and systems support it. If you don't have time to care about these critical issues, no one else will.
2) Talk to your members about their changing needs. Just as an example, members under 35 today, especially the ones that have long-term potential, want to talk about how to buy a house, not a used car. Find a way to help them without taking on too much risk or putting their neck on the block down the road. Understand what value components are the most important to them. Then build your strategy and your action plans around that value mix.
3) Don't fool yourself into believing that quality service or customer experience is all you need to differentiate yourself. If your satisfaction scores are great but membership and deposits are not growing, something is wrong. We all want to focus on quality, but don't forget how important price and convenience are in the value equation. Figure out how to leverage your resources to build a value proposition that really clicks with members and potential members.
4) Look outside your comfort zone for opportunities to increase value. If you are a community credit union, sooner or later you will have to figure out how to serve market segments you may not have wanted to up to now. Hybrid payday loans and courtesy pay programs provide real value to members as well as increasing revenues. Business lending and transaction services are also products many of your members need and overpay for elsewhere. Small business owners are among the most underserved market segments in America today. You can begin using partners if you need to. Resources abound.
5) Get good at process improvement. Improving existing service delivery processes can add value to members and reduce operating costs. Speaking of operating costs, the future will demand that we all do a better job of creating efficiencies. Most of our products are now commodities and increasingly more difficult to differentiate. And, since competitive pressures will keep margins tight, possibly for an extended period of time, consistent focus on reducing costs will help absorb some of the pressure.
6) Make a commitment to get better at what you do. We all like to read about the credit unions that are achieving great things, even in the face of today's challenges-robust membership growth, industry-best balance sheet growth and profitability-but it takes significant capital investment, staffing, new products and training to exceed average performance. Leading and managing your credit union is a privilege and a responsibility. Make a commitment to maximize the value you deliver with the resources you have been given.
7) Finally, don't convince yourself you are too small to develop an effective strategy and plan for future growth and success-or that you can't afford it. You can do it if you decide to. We all know this job is difficult and there are always plenty of distractions, but there are also plenty of excellent people out there to help you.
Ted Thames provides a highly effective strategy development and planning process for credit unions. He can be reached at tthames<at>q1oresources.com.
LETTERS TO THE EDITOR
Credit Union Journal encourages reader feedback. Letters to the Editor can be sent to Managing Editor Lisa Freeman at lfreeman<at>cujournal.com. Letters can also be faxed to 561-832-2939 or submitted online at www.cujournal.com.