602-840-0606
Toll-Free: 800-238-7475
contact@cmyers.com
602-840-0606
Toll-Free: 800-238-7475
contact@cmyers.com
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Brexit’s Effect On Your Business Model
Consumer Behavior and Technology, Economy, Strategic Planning Blog PostsExcept for those that have been on vacation in a very remote location, all of us have heard or read countless reports about how voters in The United Kingdom (UK) decided to leave the European Union (Brexit), and predictions about the impact to the global economy (Source). This decision will have long-term implications, as UK is the fifth largest economy in the world (Source), and the second largest in the European Union. Thinking strategically about how Brexit and other events that create uncertainty can impact the business model of their credit union is key. Below are brutal facts and a strategic scenario to consider.
Brutal Facts
Margins are squeezed and Brexit can cause more squeezing. On June 1, 2016, the US 10-year Treasury yield was about 1.85%, already very low by historical standards. On the day following the Brexit vote, due to a spike in uncertainty that Brexit created, the yield was down to 1.57%, a decline of 28 basis points (bps) from earlier in the month and nearly 17 bps from the day before. The 10-year Treasury influences the interest rate charged for longer-term loans, such as mortgages.
Germany is the fourth largest economy in the world, followed by UK as the fifth, as noted earlier. As 2014 got underway, Germany’s 10-year government bonds were trading at 1.94% and UK’s were trading at 3.03%. Both rates have been trending downward in order to “jolt lending, spur inflation, and reinvigorate the economy after other options have been exhausted” (Bloomberg, Negative Interest Rates, June 6, 2016). Of particular note, the day following the Brexit vote, Germany’s 10-year bond was trading at a negative interest rate of (0.05%) and UK’s at 1.09%. At that time, Japan, the world’s third largest economy, had a negative yield on its 10-year government bonds.
Strategic Thinking: Rehearse Tomorrow Today
Consider a process which you have regularly scheduled meetings with a team of key players, such as monthly or quarterly, during which the only thing on the agenda is rehearsing tomorrow today, discussed in a previous blog about strategic planning (http://www.cmyers.com/preparing-for-strategic-planning/).
Identify a trend that is happening, such as negative interest rates in other large economies. Create a future scenario in which those trends continue or expand. Ask your team to discuss what that future could look like and list out all areas of the credit union that could be impacted, and be sure to estimate and simulate the financial implications of the scenario, as well as actions the team would consider. Remember, nothing happens in isolation, so combine events.
An example of a scenario about negative interest rates follows. Imagine it is 2018 and the US has slipped into a modest recession, which was triggered, in part, by the uncertainty created in Europe from the passage of Brexit. Loan demand declines and delinquencies increase. The value of the dollar continued to rise as the value of the Euro and British Pound dropped, making US products even more expensive to the rest of the world. Also, increasing uncertainty caused a flight to safety worldwide. The safest investment is US Treasury debt. As a result, the US 10-year Treasury yield is 0.75%, half of what it was at in June 2016, and shorter-term rates, such as the 3-month and 1-year Treasury bills, are paying negative yields. Current 30-year mortgage rates are 2.50% and competitive rates for auto loans to quality borrowers hover around 0.40%. You are being charged 0.10% to hold cash in an overnight account.
Resilient organizations are that way for a number of reasons. One is because they rehearse tomorrow today. Leaders of these organizations are deliberate about preparing their organizations for thriving during disruptions. Negative interest rates may not be the next big disruption, but your preparation for it may help you to thrive during other disruptions.
Don’t Hit Cruise Control on Auto Loans
Consumer Behavior and Technology, Strategic Planning Blog PostsAuto sales, which have been at record levels and hit a peak of 17.8 million units last year according to CU Times, may be reaching a plateau. If your earnings are heavily reliant on sustained and significant production in auto loans, think strategically about the following:
Many credit unions have enjoyed significant growth in autos.
As you strategically evaluate your competitive position with respect to auto lending, don’t lose sight of these three basics:
Heartfelt Thoughts for Orlando
Uncategorized Blog PostsWe would like to take this time to pause from the constant noise around the financial services industry. We feel it is important to remember those who died or were injured as a result of the heinous crime in Orlando. Our heartfelt thoughts go out to the individuals, families, and friends, who were impacted by this unnecessary act of violence.
We recognize that heartfelt thoughts are minimal in light of the amount of healing needed. In time like this we offer this thought.
There is only one thing that remains to us, that cannot be taken away: to act with courage and dignity and to stick to the ideals that have given meaning to life.
– Jawaharlal Nehru, First Prime Minister of India
Strategic Implementation: Huddle Daily for Strategic Success
Process Improvement, Strategic Implementation, Strategic Planning Blog PostsInstitutions are in a constant state of change. Core conversions, new products, and improving processes are just a few examples of change that credit unions go through to help support strategic initiatives; inherent in any of these changes is a need for behavior change.
Often institutions focus on the change itself. The change is implemented, employees are trained, and the institution moves on to the next project. The trouble is old habits are easy to fall back into and hard to change. Employees may have been trained, but the institution hasn’t ensured that their behaviors have changed. As a result, people are trying to use a new core system the same way as the old core system, for example, instead of utilizing the features of the new core to the fullest.
A practice we’ve found to be key in changing behavior is a daily huddle. The objective of the huddle is for everyone in a department or group to meet daily to discuss progress towards a metric or goal, and let everyone provide updates on their projects and tasks. As this is done, the manager or leader can do quick check-ins with employees to make sure process changes are being followed, and encourage others to pitch in if someone needs help or is still unclear about how a specific task is to be completed. Ultimately, the huddle helps create an environment of individual and group accountability.
Tips for daily huddles:
5 Musts Of An Effective Project Manager
Strategic Implementation Blog Posts72% of all projects fail.¹ Effective project management can be a strategic differentiator. One of the most important keys to the success of a big project is the project manager.
Equally important is the senior support necessary to allow an effective project manager to get the job done – even when the project manager isn’t saying what others want to hear, put any misgivings aside and take advantage of the skills the project manager brings to the table. In the end, the project implementation will be better, which can ultimately enhance your members’ and employees’ experiences.
An effective project manager should:
It can be easy for a project manager to blindly accept a business owner’s requests, especially if that business owner has a more senior position in the credit union. Further, it can be infinitely more difficult for a project manager to push back if questioning leadership is not part of the credit union’s culture.
Effective project managers are able to think deeply, ask tough questions, provide pushback, and say “no” when needed – even if it means saying “no” to the boss. So the next time you are thinking “I wish our project manager would just say yes,” think again, and appreciate that an effective project manager is striving to have projects that are well planned, well executed, on time, and within budget.
For more on project management, browse our previous blogs.
¹The Chaos Report, Project Management Institute