Five building blocks of transformation discipline separate the leaders from the pack.
It’s hard to believe that Apple’s iPhone was introduced more than 15 years ago, ushering in a new era of mobile-first applications and further igniting digital disruption in the banking industry. With more than 89% of U.S. adults using mobile banking today, according to Insider Intelligence’s Mobile Banking Competitive Edge Study, the innovations and experiences being developed and released for consumers and businesses are threatening the established ways credit unions create value for members.
Credit unions now find themselves faced with the need to transform their member experience to a model that blends digital-first delivery with the personal knowledge and helpfulness of CU team members. This journey of transformation is proving to be a long haul.
Research from CUESolutions provider Cornerstone Advisors indicates that most credit unions stand between a quarter and halfway through their digital transformation as of Q4 2021.
Many factors make digital transformation a tough challenge for traditional CUs. For starters, their member bases have been highly concentrated in older demographics, thereby not pushing credit unions to change rapidly.
Moreover, first-generation digital sales platforms were order-taking screens that could not provide the product education and consultative selling of an experienced CU branch sales associate.
Plus, CUs are primarily “buyers” versus “builders” of technology and can only go as fast as the vendor market enables them. Managing a portfolio of vendors around a digital strategy requires focus and unique skill sets.
In addition, most credit unions have just started to attract the transformational talent necessary to complete this journey—expertise in digital, IT integration, user experience, data, marketing and risk management are necessary to truly support the future member experience.
Finally, CUs, like their traditional bank counterparts, have grown up in risk-averse cultures that are not oriented to rapid execution and operational change. They are just beginning to apply the “need for speed” in their ability to quickly review, approve and execute new ways of doing business.
Building the Transformation
In our work with financial institutions, Cornerstone has found that organizations that truly build a formal discipline around their transformation move faster and drive significantly more impactful results than institutions that execute loosely and incrementally.
Several critical building blocks of a transformation discipline separate the leaders from the pack.
Discipline 1: Research and monitor disruption threats and opportunities. There are literally thousands of traditional and emerging competitors in the financial space, and CUs don’t have the resources to react to everything. Instead, executives need a formal process that provides market and competitive intelligence to decide what experiences, products and processes to address.
Discipline 2: Benchmark performance and competitive gaps. It is vital that CUs understand how they are performing across delivery channels and how well they are competing with digital customer acquisition and engagement. Effective benchmarking looks at each member interaction type to understand critical competitive gaps and opportunities to enhance experience. By benchmarking both performance numbers (e.g., growth of digital consumer applications and person-to-person payment adoption) and capabilities (e.g., facial recognition login or new deposit account funding options), CUs can determine where they stand competitively and what gaps need to be filled quickly.
Discipline 3: Identify transformation funding via legacy reductions. CUs create their capital via earnings, so funding a major transformation effort means funding the budget through the revenue and expenses of the operation. To avoid shortchanging future transformation efforts, executives need to take a hard look at legacy expenses like branches, vendor contracts and process efficiency opportunities to free up dollars to invest in digital, data and next-generation marketing. Leadership must take bold steps to reduce the legacy and build the innovation budget.
Discipline 4: Formally define transformation outcomes and the future target operating model. Any road to the future needs a specific destination, and financial institutions often view digital transformation as a technology endeavor versus an urgent mandate to change business outcomes. Rather than just talking about “investing in digital,” leading institutions look to “increase our digital sales by 400% in the next five years” or “more than double our digital net promoter score from 35 to 75 in the next three years.” These specific outcomes provide a rallying cry for the organization and focus efforts and resources in the right places. Additionally, it is critical for business leaders to specifically define the operating model of the future—how services will be delivered, how the CU will be organized, and how systems and processes will come together to create a winning member experience. The operating model acts as a blueprint for the credit union of the future.
Discipline 5: Execute with a transformation road map. The very best CUs make transformation visible in the organization from top to bottom. The art of transformation centers on prioritization and breaking progress into short three- and six-month “sprints” to achieve specific improvements. Leadership must provide clarity about what the organization needs to focus on now (12 months), next (12-24 months), and in the future (more than 24 months out). By forcing prioritization of sprints focused on outcomes, the organization can have the bandwidth to execute and accumulate wins that build momentum. Too many CUs get change overload and execute poorly when they chase every initiative and every industry trend at once. The transformation road map can be multi-dimensional. A technology and vendor contract road map can work below the overall strategic road map to ensure that the nuts and bolts of change are aligned with the priorities of the business and that each vendor is being rigorously reviewed for whether it is doing its part in supporting the new environment.
When this type of rigor is followed, CUs begin to build a new skill set in their professionals and a stronger, more confident operating cadence in their organizations. Cross-functional collaboration can be crisper with defined outcomes, benchmarks, a target operating model and transformation road map to serve as the guide.
At the Journey’s End
The work ahead for credit unions seems monumental at times, but if CUs step up and adhere to a best-practice transformation discipline, a bright, competitive future is realistic. In today’s disrupted, post-COVID world, a void seems to exist between large banks and fintechs that progressive and scaling credit unions can fill. Large banks have bet more on fully digital going forward, and thinly staffed branches and longer contact center wait times aren’t sitting well with customers. Fintechs have been humbled by a major valuation downturn in 2022, and as software platforms, they will never be interested in building the “last mile” of customer service and operational support. Credit unions should use this time to play offense and make bolder, faster changes to their organizations and how they deliver the member experience.
At the end of a transformation road map lie exciting business outcomes that boards and management teams can celebrate. These include robust organic growth, improved efficiencies, a market-leading member experience, deepened member relationships, stronger technology capabilities and an agile organization that’s ready to adapt. cues icon
Brad Smith has spent nearly three decades helping community and regional financial institutions achieve their business goals. As a partner at CUESolutions provider Cornerstone Advisors, Scottsdale, Arizona, Smith heads up the firm’s technology transformation service line. Jim Burson brings to his role as managing director of Cornerstone’s digital transformation and delivery channel practice a deep knowledge of the financial services industry as well as a wide range of executive management and business planning experience.