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Don’t Let the “HOW” Stand in the Way of the “WHAT” in Strategic Planning

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3 minute read – We find that one of the pitfalls of the strategic planning process is that too much focus is placed on the “how” (implementation) before the “what” (strategy) has been decided. Often, decision-makers will gravitate toward the “how” because it feels more tangible but also because it seems to help determine the likelihood of success. This focus can limit a credit union’s strategy to what can we do today versus what should we do – even if we don’t know how to do it right now. The importance of not letting the “how” stand in the way of the “what” can’t be understated in light of the threats to credit unions’ relevancy and sustainability.

Take Apple’s iPhone and Quicken Loans’ Rocket Mortgage as examples. They both started with the “what.”

For Apple, the goal was to:

…develop a phone with an integrated music player, operated by a touch screen.” They’ve clearly accomplished that and more. However, consider the fact that nothing like this existed at the time. Most phones still had physical keypads and didn’t play music. The “how” was so extensive that “it involved rethinking every part of the phone from how to check voice mail to how to display a calendar.” (Apple Engineer Recalls the iPhone’s Birth, Wall Street Journal)

Rocket Mortgage likewise started with the “what” and then moved onto the “how:”

The goal was to allow a person to get a mortgage or refinance their home while standing in line for a cup of coffee.” Like the iPhone, it took Quicken years to figure out how to allow a person to apply and receive conditional approval in less than 10 minutes. Some of the “how” questions they had to answer were, “How do you pull income information…How do you pull asset information from sources that already exist? How do you pull property information? How do you give someone complete transparency into the interest rate and fees and how a person can adjust the interest rate and see what it does to the fees.” (This Could Be the Mortgage Industry’s iPhone Moment, Tech Crunch)

Apple and Quicken Loans faced a daunting amount of “how” questions but that didn’t deter them from landing on the “what” they felt was best for their company.

For credit unions, the message is clear – start with the “what.” Answer questions like:

  • What is happening in the environment around us?
  • What are potential threats, opportunities, etc. that could occur in the future that we want to test drive today?
  • What should our business model be (target market, value proposition, core purpose)?
  • What are our long-term decision filters and strategies for moving the organization forward?
  • What are our measures of success?

Once these questions have been answered and the “what” has been decided then shift to questions of “how,” such as:

  • How will we implement our strategy?
  • How will we improve our processes and manage our projects in order to implement our strategic planning initiatives?
  • How will our mindsets and talent need to evolve?

With the myriad of threats to relevancy and sustainability, it is critical for decision-makers to not let the “how” hinder the “what” that is best for the credit union’s future.

This post was originally published in May 2016, and has been republished due to its current relevancy. 

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6 Questions Credit Unions Should Answer to Strengthen Their Strategy

It is no secret that decisions are more complex and far-reaching, and margins are razor thin. Traditional and non-traditional opponents on the battlefield keep multiplying and plotting to get your members’ business, all while credit unions have to allocate their finite resources to the regulatory avalanches, such as NCUA’s NEV test, RBC, and CECL.

Below are six questions to answer in order to develop a relevant and sustainable business model:

  1. Do we have strategic clarity regarding our business model?

    2. Evaluating the business model includes an understanding of who is in the target market, as well as reaching clarity on the value proposition, competitive positioning, and internal core differentiators.

  2. Do we have enough of the right talent?

    3. Having the right amount of talent is critical. A good balance of critical and strategic thinkers, problem-solvers, who can motivate people to get the right things done and in the right order, will generate success within the ever-changing environment.

  3. Are we counting the right business every day and acting on it?

    4. As consumer adoption of technology continues to cause the competitive landscape to change, actionable business intelligence will be essential for credit unions going forward. There is often a treasure trove of data at the credit union’s disposal, but turning it into revenue and generating opportunities timely will be the challenge.

  4. Are our third parties doing what we want, when we want?

    5. The majority of credit unions have dozens of third parties that are essential for a wide range of services, and many of these third parties directly impact a credit union’s brand. Optimizing requires critical thinking and deliberate human resource allocation.

  5. Are we truly a learning organization?

    6. Often, decision-makers say they want their organizations to be innovative. Being innovative means trying new things and if appropriate, failing fast, learning, and applying the learnings to the next pilot program. However, many are truly afraid to make mistakes, and fear of mistakes is in direct conflict with being innovative. This is not to say that decision-makers should be reckless. Rather, to pilot new things on a smaller scale and then, if appropriate, roll them out. If the pilot does not meet stated objectives, then fail fast and move on.

  6. Are we an effective marketing organization?

    7. As consumer behaviors change and attention spans shrink, it is essential to adjust marketing efforts. Targeted and purposeful marketing is no longer an option. Consumers are inundated with marketing messages from just about every sector. Additionally, credit unions should ensure that their operations support their marketing efforts. It would be unfortunate if the marketing efforts generated a great amount of consumer interest, and the credit union was not operationally ready. It is not uncommon for us to see follow up on opportunities from digital channels inappropriately handled.

Answering these six questions can strengthen a credit union’s strategy. The best way to approach this is to begin and have fun as you explore the answers and evolve your strategic thinking.

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Investment Decisions: Reaching for Yield

As deposits continue to grow and loan growth is a struggle, many credit unions are wondering what they can do with their overnight funds to pull in some extra yield.  Below is a case study of a credit union that has positive earnings and not much interest rate risk as seen by the 9.54% net worth ratio not at risk if short- and long- term rates increase to 5% as they were in 2007.
Like many credit unions, the credit union in this case study has a large amount of money in overnight funds, which totals about 15% of assets.  What would it look like if the case study credit union reached for 20bps of yield by taking 5% of assets earning 25bps in overnights and invested it in plain vanilla 3-year agency bullets at a rate of 45bps?
The additional 20bps of yield from the agency bullets would help the overall ROA about 1bp but add 50bps of risk to net worth if rates go back to where they were in 2007.  The credit union still has 9.04% net worth not at risk with short- and long-term rates are 5%.  However, decision makers should consider if a 50-to-1 risk/reward tradeoff is beneficial.  More importantly, they should ask the question:  How will this decision and tradeoff impact our business model? (For more on investment decisions and business model, see our post:  “My investment portfolio is not working for me!”)
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“My investment portfolio is not working for me!”

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This is a statement heard more frequently in the past couple of years.  For those thinking it, here are some questions worth considering.

Question 1:  Is my lending process working for me?

The economy shows glimmers of improvement, with home values up and consistent increases in new auto sales as some evidence.  Before turning to investments, make sure your core business is maximized.  It is important to count your business – every day; as noted in the article Thriving In A World Of Shrinking Margins, questions to consider include:

  • How many loan applications are we getting? How many are we approving? How many are we funding?
  • If our approvals are low (compared to the number of applications), are we attracting the wrong borrowers and, in the process, hurting our reputation?
  • If our funding rate is low (compared to the number of approvals), what can we do to improve it?

Question 2:  Is my business model working for me?

If you feel your loan department is doing the best it can, then a bigger question may need to be asked: Are we chasing the right target market? Consider that, at the end of 2000, the credit union industry had 20% of its loans in new autos and 20% of its loans in used autos.  Fast forward to 2007, as the recent recession was about to flex its muscles, the numbers had dropped to 16%, respectively.  As of September 2012, the percentages stood at 10% and 18%, respectively.  The numbers represent a declining market share in new autos.

Count your business and find other numbers that can tell a story:

  • How many branch transactions do you have today relative to just 3 years ago?
  • How many online banking and mobile transactions do you have today compared to 3 years ago?
  • Segment your borrowers by age and you may be surprised that your borrowers are not as young as you think.

The trends in auto loans, branch use, electronic transactions and the shifting demographic of borrowers are signs that a business model that was successful in 2000 may need some fine tuning for a sustainable future.

A fine-tuned business model may realign priorities and resources and you may not need to rely so much on your investment portfolio.

Question 3:  Is it a good thing that my investment portfolio is not working for me?

Some credit unions have a high loan-to-asset ratio and strong earnings and still feel like they’re leaving money on the table because their relatively small investment portfolio is earning little. Before focusing on the performance of one slice of your financial structure, understand how the whole structure is working together. It may be that a low-yielding investment portfolio may be providing you with interest rate risk protection you need from the longer-term loans you made for the benefit of your membership.

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10 Reasons Things Went Wrong… Has Anything Really Changed?

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For years, we have been emphasizing a list of 10 reasons (not in order of priority) risks are not appropriately managed in the financial services industry.  Many of these reasons contributed to the volatile economic environment we find ourselves in today.

  1. Mindset—We can take action when bad things happen so things will never be as bad as risk simulations are showing—forgetting that the point at which we address a problem is directly related to the number of viable options we have for solving it
  2. Decision-makers don’t agree on appetite for risk
  3. Decision-makers agree on appetite for risk but don’t make the tough decisions to manage within their appetite
  4. Decision-makers take on more risk than they are truly comfortable taking because “everyone else is doing it”— so it must be right…
  5. Lack of effective communication between decision-makers and risk quantifiers
  6. Short-term decision making
  7. Decision-makers not linking strategy and A/LM (financial structure management)
  8. Contingency plans are not tested to determine if they are adequate
  9. Using old decision drivers and measures of success in a new environment—following peers
  10. Improper risk quantification providing a false sense of security

Click here to view the expanded version…

Recent history has shown us the havoc caused by inadequate risk management, and we are concerned that the havoc will continue or worsen if something doesn’t change.

Many in the financial services industry continue to worry over tightening margins, threats to non-interest income, diminished loan growth—the list goes on.  However, we urge all stakeholders to consider the long-term viability of their credit union rather than rely on short-term decision making (#6).

We are seeing more and more credit unions focus on short-term “Band-Aids” instead of taking a longer-term view of making sustainable changes to the way they do business.  Short-term solutions often come with long-term consequences—some of which could be another cycle of credit losses, assessments or even renewed stabilization efforts.

There are no easy, quick fixes for the financial services industry.  The situation requires a thorough evaluation of the sustainability of current business models and, most likely, redefining measures of success.

Events

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Making Sense of CECL: An Interactive Workshop

During this hands-on workshop (limited availability), attendees will navigate the uncharted waters of CECL together, using tools designed to explore various methodologies and implications to the credit union business model.  You’ll work with your unique data and collaborate with other credit unions as you bring the various aspects of CECL into focus.

  • Understand CECL requirements, methodologies, and data considerations
  • Strategize the impact to your business model
  • Discuss various options to calibrate forecasts and assumptions
  • Plan your implementation

By design, FASB has not prescribed the “right answer.”  As a result, there are opportunities for you to consider and many decisions for you to make.  The sooner you start thinking about how to implement CECL at your credit union, the better off you’ll be.

You’ll participate in discussions and walk through exercises and examples to help you link implementation with strategic outcomes.

  • What are the strategic implications of various loss estimate methodologies for your credit union?
  • How could CECL impact business models and strategic decisions going forward?
  • What are things to consider regarding different methodologies?
  • What factors should be considered in forecasts and how much forecasting is enough?
  • How well do forecasted losses connect with your credit union’s unique experience?

In preparation for the session, we’ll work with you on the types of data to collect so you can arrive at the workshop ready to hit the ground running.

It’s much more than covering minimum requirements; this workshop will help participants be better equipped to consider strategic implications, reduce pitfalls, make the most of opportunities, and implement CECL in a meaningful way.

Participants will earn up to 16 CPE credits

Content level: Intermediate

Instructional Delivery Method: Group Live

Location:  Course is in sunny Phoenix, Arizona at our headquarters next to the South Mountain Preserve, the nation’s largest municipal park, with 51 miles of trails for hiking, biking, and horseback riding. You may even want to make a long weekend of it and visit Sedona or the Grand Canyon. We also are near several local favorites like the Desert Botanical Garden and the Phoenix Zoo.

CPE Field of Study: Accounting                                               

Prerequisite Education or Experience: Basic familiarity with credit union financial statements and a basic understanding of credit loss reserve determination

Advance Preparation Requirements: In preparation for the session, we’ll work with you on the types of data to collect so you can arrive at the workshop ready to hit the ground running

Who Should Attend: A team of up to 4 people per credit union that includes the CFO. The CLO and CIO are encouraged to attend and others, such as the CEO and CRO, are welcome

Fees, Refund, and Course Cancellation Policy

Fee: $2,500 per credit union

Refunds will not be given for cancellations received less than 30 days prior to the session; however, a substitute from your credit union is welcome.

In the rare case that a class must be cancelled, c. myers will make every effort to do so 30 days or more in advance of the class, in which case we are not responsible for travel costs or penalties incurred.

Complaint Resolution Policy

c. myers will make every effort to resolve complaints regarding NASBA compliance within a reasonable amount of time and in a confidential manner. A formal complaint must be submitted in writing and must set forth a statement of the facts and the specific remedy sought. Submit complaints to:

c. myers corporation
Attn: CPE Program Administrator
8222 South 48th Street
Suite 275
Phoenix, AZ 85044

CPE Program Administrator: 800.238.7475

National Registry of CPE Sponsors, A/LM Education

c. myers corporation is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.NASBARegistry.org

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Making Sense of CECL: An Interactive Workshop – Full

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During this hands-on workshop, attendees will navigate the uncharted waters of CECL together, using tools designed to explore various methodologies and implications to the credit union business model.  You’ll work with your unique data and collaborate with other credit unions as you bring the various aspects of CECL into focus.

  • Understand CECL requirements, methodologies, and data considerations
  • Strategize the impact to your business model
  • Discuss various options to calibrate forecasts and assumptions
  • Plan your implementation

By design, FASB has not prescribed the “right answer.”  As a result, there are opportunities for you to consider and many decisions for you to make.  The sooner you start thinking about how to implement CECL at your credit union, the better off you’ll be.

You’ll participate in discussions and walk through exercises and examples to help you link implementation with strategic outcomes.

  • What are the strategic implications of various loss estimate methodologies for your credit union?
  • How could CECL impact business models and strategic decisions going forward?
  • What are things to consider regarding different methodologies?
  • What factors should be considered in forecasts and how much forecasting is enough?
  • How well do forecasted losses connect with your credit union’s unique experience?

In preparation for the session, we’ll work with you on the types of data to collect so you can arrive at the workshop ready to hit the ground running.

It’s much more than covering minimum requirements; this workshop will help participants be better equipped to consider strategic implications, reduce pitfalls, make the most of opportunities, and implement CECL in a meaningful way.

Participants will earn up to 16 CPE credits

Content level: Intermediate

Instructional Delivery Method: Group Live

Location:  Course is in sunny Phoenix, Arizona at our headquarters next to the South Mountain Preserve, the nation’s largest municipal park, with 51 miles of trails for hiking, biking, and horseback riding. You may even want to make a long weekend of it and visit Sedona or the Grand Canyon. We also are near several local favorites like the Desert Botanical Garden and the Phoenix Zoo.

CPE Field of Study: Accounting                                               

Prerequisite Education or Experience: Basic familiarity with credit union financial statements and a basic understanding of credit loss reserve determination

Advance Preparation Requirements: In preparation for the session, we’ll work with you on the types of data to collect so you can arrive at the workshop ready to hit the ground running

Who Should Attend: A team of up to 5 people per credit union that includes the CFO. The CLO and CIO are encouraged to attend and others, such as the CEO and CRO, are welcome

Fees, Refund, and Course Cancellation Policy

Fee: $1,000 per credit union

Refunds will not be given for cancellations received less than 30 days prior to the session; however, a substitute from your credit union is welcome.

In the rare case that a class must be cancelled, c. myers will make every effort to do so 30 days or more in advance of the class, in which case we are not responsible for travel costs or penalties incurred.

Complaint Resolution Policy

c. myers will make every effort to resolve complaints regarding NASBA compliance within a reasonable amount of time and in a confidential manner. A formal complaint must be submitted in writing and must set forth a statement of the facts and the specific remedy sought. Submit complaints to:

c. myers corporation
Attn: CPE Program Administrator
8222 South 48th Street
Suite 275
Phoenix, AZ 85044

CPE Program Administrator: 800.238.7475

National Registry of CPE Sponsors, A/LM Education

c. myers corporation is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org