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Are Your Predictions Limiting Your Strategic Thinking?

I think there is a world market for maybe five computers.

— IBM president Thomas Watson, 1943.

Apple is already dead.

— Nathan Myhrvold, former CTO of Microsoft, 1997.

Neither RedBox nor Netflix are even on the radar screen in terms of competition. It’s more Wal-Mart and Apple.

— Blockbuster CEO Jim Keyes, 2008.

These Google guys, they want to be billionaires and rock stars and go to conferences and all that. Let us see if they still want to run the business in two to three years.

— Bill Gates, founder of Microsoft, 2003.

Predictions are a tricky business.

Leaders assess how the world might or might not change. Whether it’s new non-traditional competition, cutting-edge technologies, evolving business models, or changing member behaviors, developing successful strategies today relies on decision-makers opening their minds to the possibilities and then choosing a path. Are you thinking creatively enough about how the world might change around you and how to ensure your credit union does not get left behind?

Consider the disruptions in financial services today. Like Blockbuster above, should strategy focus on behemoths like Wal-Mart and Apple, or are there greater threats in newer business models like M-Pesa, SoFi, and The Lending Club? Perhaps the greater threats and opportunities are evolving technologies. All of this is happening on top of traditional competition, regulation, and the economy.

Good strategy begins with careful consideration of possible threats and opportunities. Identifying the future you’re planning for is an important first step. With the future uncertain, even the best-laid plans are likely to run into unanticipated challenges. It can be useful, then, to ask, “What if the strategies we pursue are based on expectations that don’t come to pass?”

We recommend going through a process of test driving difficult and hard-to-imagine environments. Creating stories around such environments and discussing how the credit union could respond can be extremely valuable. Institutions are often amazed at the insight this can provide whether the environment actually occurs.

It’s not easy to foresee the future. We’ll leave you with some great historical examples, demonstrating that even the smartest people can misjudge the future.

 

The Americans have need of the telephone, but we do not. We have plenty of messenger boys.

— William Preece, British Post Office, 1876

This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.

— William Orton, President of Western Union, 1876

Fooling around with alternating current is just a waste of time. Nobody will use it, ever.

— Thomas Edison, 1889

The horse is here to stay but the automobile is only a novelty – a fad.

— President of the Michigan Savings Bank advising Henry Ford’s lawyer, Horace Rackham, not to invest in the Ford Motor Company, 1903

Who the hell wants to hear actors talk?

— Harry M. Warner, co-founder of Warner Brothers, 1926

Stocks have reached what looks like a permanently high plateau.

— Irving Fisher, Professor of Economics, Yale University, 1929

There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will.

— Albert Einstein, 1932

Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.

— Darryl Zanuck, 20th Century Fox, 1946

If excessive smoking actually plays a role in the production of lung cancer, it seems to be a minor one.

— W.C. Heuper, National Cancer Institute, 1954

There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television or radio service inside the United States.

— T.A.M. Craven, Federal Communications Commission commissioner, 1961

With over 50 foreign cars already on sale here, the Japanese auto industry isn’t likely to carve out a big slice of the U.S. market.

— Business Week, 1968

There is no reason for any individual to have a computer in their home.

— Ken Olsen, Chairman and Founder of Digital Equipment Corp., 1977

I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.

— Robert Metcalfe, founder of 3Com, 1995

Two years from now, spam will be solved.

— Bill Gates, 2004

There’s just not that many videos I want to watch.

— Steve Chen, CTO and co-founder of YouTube expressing concerns about his company’s long term viability, 2005

There’s no chance that the iPhone is going to get any significant market share.

— Steve Ballmer, Microsoft CEO, 2007

Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.

— Ben Bernanke, Federal Reserve Chairman, 2007

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Mobile Banking, Evolving Member Behavior and Your Bottom Line

Logically, providing members with on-demand information at their fingertips will influence their decisions and behavior.  Consider these insights on mobile usage reported by the Federal Reserve in a 2012 study:
  • 87% of the U.S. adult population has a mobile phone
  • 64% of mobile banking users have checked their account balance before making a large purchase in the past 12 months, and half of them decided not to purchase as a result of their account balance
  • 42% of smartphone users comparison shop using their phones at retail stores; 64% have changed where they purchased the product as a result
The moral of the story is that more informed consumers will be able to make decisions in their best interest more easily.  For some credit unions that have seen increased usage of mobile services, there has also been an inverse trend in courtesy pay income and late fees. Coincidental or not, the potential relationship is noteworthy.  Nobody will argue that helping members make more informed decisions is a good objective.  However, decision-makers should consider the impact mobile services can have on their institution.

 

Consider the following:
  • If you have members who spend less on courtesy pay or postpone purchases because they are more informed, how will your credit union’s revenue be affected?
  • Will the convenience of offering mobile services attract enough new members to offset the potential loss in the credit union’s revenue?
  • If you attract enough new members to offset revenue loss, will operating expenses increase materially to support the higher volume of members and accounts?
Source:  Consumers and Mobile Financial Services 2013, Board of Governors of the Federal Reserve System, March 2013
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Lessons Learned: Are You Passing Up A Great Opportunity?

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The frequency and magnitude of surprises in 2009 have created a unique learning opportunity that should not be passed up.  Too often, after navigating through a strategic challenge or opportunity, managements move on to the next issue without identifying the lessons learned from the most recent experiences.  This need not be a complex exercise.  In fact, identifying lessons learned can be as simple as answering:

  • What happened?
  • Why did it happen?
  • What is the lesson learned?

Determining why something happened is the key to the lesson.  For example, assume that auto loans have grown 10% so far in 2009.  It might be tempting to identify the lesson learned as:  Even in a down economy, we can grow auto loans at a double-digit pace.  However, the real lesson to be learned lies in why they increased.  For example:

  • Did they grow as a result of a new focus on sales and service?
  • Did they grow primarily because major competitors were losing money and/or had a liquidity crunch and therefore had to cut back on lending?  If so, how long will that last?
  • Did they grow because competitors have gotten out of auto lending due to profitability concerns?
  • Did they grow due to a one-time program like Cash for Clunkers?
  • Did they grow because of offering the lowest rate?

It may not be possible to be certain why auto loans grew, but it is possible to explore the potential reasons and draw a conclusion.

In analyzing lessons learned from the unprecedented events experienced in 2009, also consider key areas of the organization and environment that are impacted:

  • Underwriting:  How effective has our underwriting been at assessing risk?  What could make it better?
  • A/LM decisions:  Did the decisions we made have the desired financial impact?
  • Member behavior:  How did our members behave with regard to spending, borrowing, etc.?
  • Net worth adequacy:  What have we learned about the adequacy of our net worth in light of experiencing higher loan losses, unexpected rate conditions, corporate capital write-downs, NCUSIF assessments and looming threats to non-interest income?  Have these experiences confirmed our long-held beliefs about the right amount of net worth for our institution or should we target a different level going forward?
  • Competitors:  How did their circumstances, financial condition and decisions impact us?

While the previous five issues are key, taking the time to discuss and document lessons learned from any recent experience is invaluable.  Such a process leads to better decision making, fosters strategic thinking (in a time when many are consumed with putting out fires) and creates opportunities for cross-departmental learning.  As a result, the organization is stronger and better able to address challenges and take advantage of opportunities when they arise.