By Steve Williams
The 2007 strategic planning season has kicked into full gear and credit unions are facing one of the most difficult industry environments in several decades. While softening credit quality, a housing slowdown and a difficult yield curve have contributed to credit union headaches, the true source of our industry's struggle is hyper-competition.
Credit unions are in a heated fight today to stay relevant with their members, especially when aggressive pricing offers and new innovations are presented to consumers daily. During this year's planning sessions, credit union executives will need to craft strategies that address this hyper-competitive environment.
The key to effective strategic planning is to avoid piling on the adjectives. Remember your high school grammar class? An adjective is a word that describes something. Many credit union strategic plans are full of terms like "best-in-class," "innovative" and "proactive" to describe their future direction. The problem is that these adjectives aren't worth much.
Instead of spending time on this glossy prose, credit union executives would be better served by focusing on defining their business model.
A business model is a simple and brief description of how a company creates value for customers and differentiates itself against competitors. A study conducted by IBM Global services in 2006 found that companies that innovate with new business models far outperform those companies that focus solely on product and service innovation.
The key to defining your business model is to clearly define the strategic choices your team has made – to truly stake out a unique strategic positioning. For instance, Southwest Airlines' business model strives for low-cost, and its point-to-point route system and no-frills approaches support its business design. Top-performing bank Northern Trust has designed a business model that targets cities with the highest proportion of millionaires nationwide and offers a higher level of private-banking style service. eBay has built a distinct business model that makes it the world's largest retailer without holding any inventory.
Actually defining your business model is tough work. There will be temptations to fill the definition with broad generalities that avoid making strategic choices. Some credit unions may claim they can be low-cost and high-touch simultaneously or an innovator that takes a conservative approach to risk management. These self-inflicted oxymorons do nothing to clarify the credit union's strategic direction.
The following questions can be used as a checklist to avoid this trap:
- Who are we trying to target as members?
- How do we differentiate our products?
- How do we differentiate service and delivery?
- How do we market/sell our product?
- How do we price our services?
- What unique processes or core competencies have we developed?
- How do we develop our human capital to support our differentiation?
To illustrate, here's an example of a fictional credit union that I would say has defined its business model well:
Acme Credit Union targets young, technology-savvy professionals who work in the Metropolitan area. We strive to create the strongest relationship pricing and loyalty offerings to these members and focus primarily on delivering to these members via electronic channels. Our marketing approach emphasizes content-based education materials and online tools that recognizes how our target members research and select financial products. We also are actively involved in sponsoring community and professional events that our target members often frequent.
We have developed a major competency in retail real estate lending and we strive to maintain the most user-friendly, low-cost process for online mortgage and home equity loan origination. To support the highest level of service for these target members, Acme has developed a unique training program for our Financial Advisors who deal exclusively with members via the Internet and telephone.
Notice how this business model definition will help Acme Credit Union focus its resources and energy on a specific target market: young professionals, via a technology-based delivery strategy, its lead real estate lending products and its competencies in relationship pricing. Think how much more powerful the execution of this strategy can be because of the credit unions focus.
Commoditization is rampant in the financial services industry today. Has your credit union defined its business model with clarity?
Steve Williams is a principal with Cornerstone Advisors Inc., Scottsdale, Ariz., which specializes in best practices, strategy and technology advisory services and is CUES’ partner in CUES Tech Port. Hear more from Steve on this topic at CUES’ CEO Network, Nov. 4-7 in Key Biscayne, Fla.
