SEATTLE–It’s strategic planning season for credit unions, and questions for 2017 and beyond will involve a rising rate environment, technology and security and, as always, how to best grow. John Lass said in his planning work with credit unions he begins with three questions.
Lass, the former SVP, Strategy and Business Development with CUNA Mutual Group who now leads Lass Advisory Services, works with both CUs and fintechs and other start-ups in Silicon Valley. Lass notes that “one of the leading causes of organizational failure is the inability to transition from one growth stage to the next.”
Below, Lass shares his insights on strategic planning and more as part of CUToday.info’s The Corner.
CUToday.info: When you meet with a credit union or other organization for the first time, how does the strategic planning process begin and what are you looking for?
Lass: I begin by asking three questions. First, is there alignment among the board, the CEO, and the senior management about where the credit union is heading? Is there a clear vision? Second, is the credit union capable of growth? What are the factors that might inhibit its ability to grow? Third, what should the credit union’s most important strategic priorities be? The last question leads to a hypothesis that we test as the planning process moves forward.
I also need to understand how the board and the CEO coordinate and interact around strategic planning. In the Fortune 500 world, where I consulted for many years, strategy development is the domain of the CEO and the management team who bring strategy recommendations to the board. The board provides guidance, but its role is to review for ratification and approval. A board should not get deeply involved in the specifics. This is also a best practice in the world of not-for-profit and cooperative organizations.
Some credit union directors want direct involvement in the strategy development process, so it can be necessary to clarify roles and responsibilities. Kenneth Dayton, former Chairman of Dayton-Hudson Corporation, said: “Governance is not management.” It is always important to distinguish between the two roles and understand how they work together in a successful planning process.
CUToday.info: Is there a common failing you see in the strategic planning process?
Lass: Deciding what not to do is just as important as deciding what you will do. Credit union boards and CEOs often have a difficult time embracing this concept. There is often a tension in this tradeoff, because credit union leaders want to provide as much value to their members in as many ways as possible.
However, the essence of strategy lies in making hard choices. It is about concentrating scarce resources to create a powerful value proposition with a specific strategic focus. The military historian Von Clausewitz summed it up best by saying, “He who defends all borders defends none.”
Not long ago a credit union CEO told me, “For years I’ve been trying to give my members the best possible products at the lowest possible prices in the most convenient way possible. Now I realize I cannot do all three.”
Von Clausewitz and the credit union CEO were expressing a deep strategic truth. You can choose to be a product leader or you can be a price leader or you can differentiate based upon customer intimacy. But you cannot excel at all three value propositions simultaneously.
CUToday.info: In a recent article in CUToday.info, you spoke to taking a long view when it comes to fintech disruption? But how does an organization know the best time horizon around which it should be planning?
Lass: My short answer is credit unions should look ahead five years in terms of technology and distribution channel investments.
A shorter timeframe really isn’t feasible given the lead-time required to significantly shift resource allocations (e.g. branch lease commitments) or to launch new platforms.
On the other hand, trying to look more than five years into the future seems unrealistic given the rapid pace of change in technology and shifting consumer preferences. Take the payments space as an example. Credit unions were quick to adopt Apple Pay, which seemed like a great idea a few years ago. However, consumer adoption has been slower than projected. Now the payments buzz is all about Venmo and clearXchange. I do not know if the ultimate payments solution has yet emerged.
On the other hand, credit unions need to give adequate attention to technology innovations that could be true societal game changers. At the top of my list of paradigm changers is the autonomous (i.e. self-driving) automobile. In my view, the impact could be equivalent to that of the Internet. And don’t forget – credit unions do a great deal of auto lending.
CUToday.info: You often work with tech start-ups in Silicon Valley? How does their planning processes differ from credit unions, and what might CUs learn from that environment?
Lass: Extremely rapid growth is a requirement for a tech start-up in Silicon Valley, not just an option. Failure to grow key metrics (e.g. user base or annual recurring revenue) by at least 100% a year could mean the end of venture funding and the inability to hire critical talent.
A planning process in Silicon Valley has to anticipate and manage the stresses and challenges of doubling or tripling in size every year – new leaders, new talent, new products, new markets. It is a very dynamic process, and not one for the faint of heart.
Given the credit union capital structure, no credit union is able to grow at that pace. Except in the case of merger, even the most successful credit unions will grow at most 15-20% per year over time. Nonetheless, I believe credit unions can learn from Silicon Valley by embracing the urgency of the growth imperative.
Several years ago I asked Cutler Dawson, CEO of Navy Federal CU, if it was important for Navy Federal to grow. He answered: “Yes.” I then asked why. He said: “If we stop growing we cannot remain relevant to our members’ needs.” That is a brilliant answer and one that encompasses the urgency we need.
CUToday.info: Obviously, most credit unions are in the throes of planning for 2017. Is there a common theme you are hearing/seeing, and, similarly, are there some noticeable differences in approach?
Lass: I see three themes commonly emerging at credit unions today: 1) How do we implement an effective data strategy? 2) How should we shape our distribution channels in order to provide a true omni-channel experience to our members? 3) Do the fintechs offer practical solutions we should embrace?
There are still perennial themes such as operating efficiency, development of new sources of fee income, and so on. But the three noted above are top of mind for many boards and management teams.In terms of difference in approach, let me focus on data strategy. The concept of “big data” is topical, and numerous vendors are pitching “big data” solutions to credit unions.
There are two challenges in that regard. First, not everything being presented as “big data” really is big data. Big data implies machine-based learning - some of the data systems on the market are simply not that.
Second, not every credit union is ready for a big data solution. In order to be effective, machine-based learning solutions require massive amounts of analyzable data and an efficient campaign management system to present a wide variety of offers to members.
There is nothing wrong with using rules-based and event-based marketing schemes, rather than jumping prematurely to a big data solution. What is important is to select a data strategy and tools that really fit the competencies and resources of the credit union deploying them.
For more information: www.lassadvisoryservices.com.