By Ted L. Thames, CCE
In early June, I posted a series of 10 key questions that credit union leaders need to be thinking and talking about. About a week later, I examined in more detail the first three. Today we look at questions 4 and 5.
4. Are specific operating strategies clear, relevant to current external conditions and aligned with the value focus?
Michael Porter has given us the best definition of strategy—a unique set of ongoing activities indicating both what the organization will do and will not do relative to its competition to achieve its long-term goals and objectives. Competitive advantage indicates that the set of desired activities will differentiate the institution in a positive way over time.
Credit unions need to develop longer-range strategies in the following areas at a minimum:
Primary Membership Focus – Who is the desired member? This must be known with as much demographic detail as possible.
Marketing and Sales Focus – What are the specific marketing activities, products and pricing strategies you will use to attract these new members and broaden their product and balance relationship with the credit union?
Service Delivery Focus – How will members access products and services and what will the access infrastructure include—both physically and on line?
Technology Focus – How will your technology infrastructure support your credit union's strategic efforts, while providing reliable and effective data and security management, system redundancy and recovery planning?
Human Capital Focus – How will the credit union effectively attract and retain the necessary human talent to deliver increasing value to members, while proactively managing required financial, risk management and member services processes?
I would emphasize that these strategies do not come out of a box. We have all seen plans that are developed in a cookie-cutter fashion based on the opinions and beliefs of the planner. Instead, these strategies must be the product of management consensus and board agreement. They must be made from a base of clear understanding of the historical performance and the strengths and weaknesses of the credit union, as well as the external pressures of the competitive, economic and regulatory environment.
They also have to be formulated with a clear understanding of members' needs and expectations. These statements become the strategic filters for prioritizing strategic initiatives and capital investment.
5. Are your financial goals and objectives aligned with your value focus and operating strategies?
There are many ways to measure success. Our traditional focus has been the growth of membership, assets, earnings and capital. These goals are usually supported by several layers of operational objectives related to specific product categories and non-interest revenue streams.
In recent years, the use of balanced scorecards has been steadily growing to help management link lagging financial performance metrics to leading activity metrics as the understanding of cause and effect grows. More enlightened managers are making attempts to link metrics with specific strategies. Choosing the right metrics allows management to focus on leading as well as lagging indicators.
The discussion can also help clarify cause-and-effect relationships which are invaluable in setting goals for functional managers. A good example of cause and effect is checking. Credit unions that heavily promote free checking, especially tied to direct deposit, find they consistently build low-cost deposits, as well as transaction income from check cards and additional fee income from NSF courtesy-pay services.
The process should lead you to form a set of strategic activities and corresponding metrics answering the following questions:
- If we succeed, what will the financial picture look like?
- To achieve our vision, what must we look like to members?
- To satisfy our members, at which processes must we excel?
- To achieve our vision, how must the organization learn and grow?
By ensuring that objectives and metrics are set at each level, management can eliminate the gap in understanding that often exists at lower levels in the organization. The closer to the ground the objectives and metrics can be set, the greater the strategic linkage and achievement of plan objectives. Developing a balanced scorecard will also build executive team alignment. Focusing on the metrics in monthly management team dialogs is an excellent way to build a culture of accountability and problem solving.
Ted Thames, CCE, is owner of Q10 Resources, a strategy development and planning firm dedicated to the growth and success of credit unions. He is also a credit union strategic planning specialist affiliated with Cornerstone Advisors, Inc. Ted can be reached at 903.343.1176; tthames@q10resources.com or tthames@crnrstone.com.
Balanced Scorecard Reading List
If you’re interested in reading more about balanced scorecards, check out this list of my favorites:
The Balanced Scorecard: Translating Strategy into Action – Kaplan and Norton -- 1996
The Strategy-Focused Organization – Kaplan and Norton – 2001
The HR Scorecard – Becker, Huselid and Ulrich -- 2001
The Workforce Scorecard – Huselid, Becker and Beatty – 2005
Balanced Scorecard Step-By-Step – Niven – 2006 --Ted Thames
Watch for Ted's next installment!
