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Grow or Die – A Strategic View of Growth

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Grow or die. We hear this quite often. But what does it really mean? The game has changed. Credit unions are no longer just competing against other financial institutions. Non-traditional competitors are taking away non-interest income, especially sources such as interchange income. At the same time, non-traditional competitors, such as Lending Club and Sofi, are attacking margins by changing consumers’ definition of banking from a “one-stop-shop” of financial services to de-bundled boutique product offerings.

With serious threats to relevancy, the “grow or die” statement needs to be deeply considered. It is critically important for decision-makers to have clarity on what they mean by growth. What gets measured gets attention – meaning strategic focus and financial resources.

Growth comes in many forms:  Growth in assets, deposits, loans, membership, revenue, etc.

Growth in assets, deposits or membership does not necessarily translate into growth in revenue, income, or growth in members that contribute, or are highly likely to contribute, to the cooperative.

Consider just a few of the many options available to measure success for membership growth. Should the measure of success be:

  • Membership growth?
  • Growth in contributing members?
  • Growth in products and services per member?

In this limited example, a credit union’s strategy, initiatives, and allocation of brain power and financial resources would be different depending on what is determined to be important.

If the measure of success is membership growth, then the type of membership growth should be a topic of strategic discussions. A credit union can quickly grow its membership through youth campaigns, targeting 20-somethings, offering incentives, and of course indirect autos or CD shoppers.

Digging deeper, let’s use the 20-somethings to address just a few of the many questions that come to mind:

  • How long will it take for the youth and 20-somethings (often called pipeline members) to become contributing members to the cooperative?
  • It is not uncommon to see 30%-50% of the new membership growth come from those less than 30 years old. In light of this:
    • Does the credit union have enough contributing members to offset the net cost of the youth and 20-somethings until they become contributing members?
    • How should asset growth goals be adjusted since this group does not yet have a ton of money to save?
  • Does the credit union’s appetite for risk align with the needs of the 20-somethings? If not, what brand damage might be created by inviting them in and saying “no” to their needs?

The above provides just a sliver of the critical and strategic thinking that should be done with respect to measuring growth.

The next time someone says, we need to grow or die, consider asking, what exactly do you mean?

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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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Are Millennials Finding You Attractive ?

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As time marches on, we find Millennials coming into their most financially productive years, and they need financial services. In 2010, Gen Y made up only 17% of vehicle sales. Five years later, that number has grown to 28% of sales, while Baby Boomers and Gen X have flatlined or fallen back (according to J.D. Power and Associates). Many credit unions are considering process improvement in order to refine their processes to better appeal to Millennials but, believe it or not, easy appeals to any generation!

Consider the lending process from a Millennial’s perspective:

  • How long will I have to wait for an answer? (Most things in my life so far have been instantaneous. I have never had to wait for the annual TV broadcast of “The Wizard of Oz” or for the radio station to play my favorite song, or sit through boring commercials)
  • How many hoops do I have to jump through? (I have to drive somewhere to sign something? On paper? I have to gather a bunch of documents?)
  • How many stipulations are on the deal? (Are all of these questions necessary? Why is this application so long? How does the other online place I found do it without all this? Why can’t this be easy like Amazon?)

Are you getting your fair share of Millennials’ business? Can you be found where they are looking? Are you offering the type of experience they value and expect? Have you considered that making things easy will appeal to other generations – not just Millennials?

Facebook recently published a white paper on Millennials and Money that uncovered some key findings. The Millennials on Facebook are turning out to be financially conservative, with a focus on paying off debt and saving. Unlike previous generations, Millennials talk openly about money matters and they talk about them online, crowdsourcing for their financial advice – the modern-day version of word of mouth. Who better to dispense financial advice than credit unions? The question is, are you part of that online conversation?

Even if you are, is the experience you’re providing relevant to this generation? It’s well known that Millennials “live” on mobile, and while they are often multichannel users, they typically start their journeys on mobile. How do you show up? People expect things to be easy and convenient. If you need inspirational ideas for how fast, easy, and convenient the financial experience can be, look no further than the internet for non-traditional competitors like Lending Club or Quicken’s Rocket Mortgage. How does your experience compare? It is commonly said that this generation isn’t loyal. Why should they be if others are offering a far superior experience?

Have you fully revamped your lending and account opening processes – often the first exposure your potential member has to your credit union – with the Millennial in mind? This takes a hard, honest look, which isn’t easy, but keep in mind that some of your toughest competitors have already done it. Don’t forget this benefits other generations. How many Baby Boomers miss going to Blockbuster to rent a movie?

Process improvement is typically conducted with a goal of eliminating waste, which is critical, but tying in the strategic goal of providing a rewarding experience across generations is key to remaining relevant as a financial institution into the future.

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Strategic Planning: The Future of Money?

M-Pesa60 Minutes recently aired a segment on M-Pesa, an alternative currency, which is the preferred method for financial transactions in Kenya. In essence, M-Pesa allows cell phones to perform nearly all financial transactions without the use of a bank account or credit card. The full segment, which goes into more detail than this blog, is located here.

What makes the M-Pesa model unique from other non-traditional competition is the fact that financial institutions are taken out of the equation. The M-Pesa model is sometimes referred to as “bankless banking.” The 60 Minutes segment refers to the cell phone as a “bank in your pocket,” that allows customers to get a loan, pay bills, buy goods, and withdraw cash using PIN security. A plethora of mobile kiosks allows for easy conversion of cash to virtual currency; the need for branches, ATMs, and tellers is virtually non-existent. Less brick and mortar allows for better rates and lower fees for customers.

M-Pesa growth since 2009

No doubt, M-Pesa is an intriguing model but its long-term sustainability remains uncertain. M-Pesa in its exact form may not be the disruptor that changes banking in the United States. However, it is often the next idea (or the one after that) which springboards change.

Credit union planning sessions should include test drives of the future, including a banking environment where non-traditional competition like M-Pesa is a threat. Role playing a scenario like M-Pesa will also allow the credit union to see changes it may need to make today to ensure relevancy in the future.