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How Better Processes Can Help Solve Your Talent Crisis

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As the nation’s unemployment rate continues its downward trend, many credit unions are celebrating higher loan demand and lower loan losses.  But as most employers know, low unemployment levels have a darker side.

Great talent is precious and sometimes elusive.  To survive and thrive in the highly competitive and rapidly evolving financial services industry, high-quality employees are needed for everything from strategic guidance to client-facing interactions and back office functions.

Even when unemployment rates were high, credit unions reported receiving lots of job applications but few of the right applicants.  With today’s better job market comes the added pressure of turnover due to good workers seeking better positions.

There is plenty of advice written on recruiting and retention.  Much of it focuses on benefits, perks, recognition, and employee development.  But one aspect that is often overlooked is the daily work experience.  What is it really like to work at your credit union?  Do your employees feel that they’re part of a high performing team, receiving positive feedback from delighted members and internal customers?  Or are their days filled with performing tasks without a valid purpose and asking members to jump through manufactured hoops?

Talent management and process improvement are inextricably linked.  That may sound strange at first, but high-quality employees want to work in a high-performing organization, and one of the keys to a high-performing organization is good processes.  Good processes deliver better member and employee experiences and can increase member growth and lending, in addition to creating happier members.  All of which leads to an upward spiral toward an engaged workforce that is excited to be a part of the organization.

The most desirable employees want to be associated with the best “bank” in town.  Better processes are one of the keys to making that goal a reality.

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Making Sense of Economic Change

Every day we’re faced with new statistics that may shape our thoughts about where the economy is and where it’s going.  For example, household borrowing grew in 2011 and, as recently as January, was increasing at an annual rate of 8.6%.  GDP has been increasing for the last three quarters and unemployment is decreasing.  But negative trends like rising gas prices and sluggish personal income growth make it unclear where the economy is headed.

How do you wade through the hundreds of statistics to make sense of it?  A better question is:  What would you do differently if you knew? One of the interesting results of a recession is that some companies emerge stronger than they were pre-recession.  In 2009 during the thick of the Great Recession, management author Dr. Donald Sull, a professor at the London Business School, offered several ideas for managing successfully in a downturn including:

  • Instill ongoing cost discipline
  • Force hard choices
  • Seize golden opportunities

Many credit unions would look at the first two bullet points and say that they have been living those tactics for the last few years.  An economic downturn provides the urgency to better manage costs and force hard choices.  Some credit unions found that they could operate more efficiently and reduce some of the expenses that seemed to proliferate during boom times.  Others mustered the organizational will to close a branch that was not performing as hoped.  “The downturn lowers their resistance to change and cuts through complacency,” says Sull.

Is now the time to breathe a sigh of relief and relax?  Identifying opportunities for efficiencies and making hard choices that fit the organization’s strategy are always a good idea, regardless of economic times.  Credit unions that function this way generally find themselves in a better position to weather hard times and seize opportunities when they are presented, such as investing in starting or improving upon a business line.

So what would you do differently if all economic signs pointed to a strong recovery?  Probably lots of things, but the commitment to cost discipline and making difficult choices that has been forged during hard times is worth preserving.

Source:  Seizing the Upside of a Downturn, Donald Sull, Financial Times, 1/22/09

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Bankruptcies on the Rise and the Evolving U.S. Debt Burden

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Building on our last post on U.S. household debt being reduced primarily by default, and with consumer credit drying up, more and more struggling consumers are turning to bankruptcy as the only solution to solve their debt burden.  There were 158,141 U.S. bankruptcy petitions filed last month, a 35% increase over February’s figure.  Moreover, filings in a dozen states increased by double-digit percentages in the first quarter of 2010 compared to 2009 monthly averages (Personal Bankruptcies Hit a High and May Keep Rising, Time.com, April 5, 2010).

With a steady unemployment rate, and even an increasing “underemployment” rate ticking up to 16.9% according to the BEA, how long will the bankruptcy trend last?

Perhaps even more interesting is the vast increase in the debt burden causing the wave of bankruptcies.  According to the Federal Reserve, personal borrowing in the U.S. is ten times greater than in 1960 if you adjust for inflation.

During your strategic planning process, it may be worthwhile to consider the monumental increase in U.S. consumers’ debt burden over time.  What could happen if consumers become more and more debt averse?  Will the challenges facing adult consumers today socialize younger generations for a thriftier lifestyle?

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Which Bills Should I Pay? How Consumer Priorities are Changing

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As the present economic crisis continues to unfold, some noteworthy changes in consumer behavior have started to emerge.  One with far-reaching consequences for credit unions is the increasing tendency for consumers to forgo paying for their mortgages while choosing to pay credit card bills.  Between first quarter 2008 and third quarter 2009, the percentage of consumers who were current on their credit cards while delinquent on their mortgages rose from 4.3% to 6.6%.  During the same time period, those who were current on their mortgages while behind on their credit cards dropped from 4.1% to 3.6%.  (Forget the Mortgage, I’m Paying my Credit Card Bill, usnews.com, 2/8/2010)

A variety of reasons are driving this behavior including the fact that it takes much longer to foreclose on a home than it does to shut down a credit card.  Unemployed consumers may need the credit card more acutely since it can pay for daily necessities while the home foreclosure is months down the road.

Although unemployment is the major cause of mortgage defaults, strategic defaults – where consumers who can afford their payments choose to walk away for financial reasons – may be driving some of this behavior change, too.  Brent White, a University of Arizona law professor, makes a thorough argument in favor of choosing strategic default.  Setting aside the complicated moral questions, if more voices like his are heard, could this become the new socially acceptable norm?

What does it mean in terms of projections for loan losses and new loan volumes?  How will underwriting standards change going forward?  Will a consumer who suffered long-term unemployment and lost a home be given a “pass?”  What about one who chose a strategic default?  It is important to consider these shifts in consumer behavior when doing financial and strategic planning recognizing the good, the bad and the ugly emerging trends.

(White, Brent T., Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis, Updated February 2010)

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Big Questions For 2010

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2010 begins with an immense question attached to it:  Where will the economy go this year?  Confounding any sort of clear answer are the conflicting signs of continued recovery and renewed downturn that came with the close of 2009:

  • The housing market has seen home prices rise for the sixth straight month in October.  However, the recovery appears fragile as one-in-seven households are either in foreclosure or delinquent on payments, while almost one-in-four households are underwater (Real Estate Faces Tough Recovery Slog, WSJ, 1/4/2010)
  • Car sales surged at the end of the year to an annualized rate of 11 million, making December the second-best month of the year.  However, this was still far below the 16 million annualized rate seen as an indicator of a healthy auto industry (Late Surge in Car Sales Raises Hopes for 2010, WSJ, 1/4/2010)
  • The Dow Jones finished up 18.8%, however, unemployment remains around 10% and the Fed, concerned with the fragility of the recovery, continues to keep the Fed Funds rate at a record low of 0-25bps (Fed Will Hold Down Rates, Citing Tenuous Recovery, NY Times, 12/16/09)

It is fair to assume that 2010 will hold its fair share of surprises, opportunities and crises that will require tough decisions and quick, deliberate action on the part of credit unions.  One question credit unions are asking themselves right now is, Are we as prepared as we can be? Below is a brief list of questions to consider to help assess your preparedness for what promises to be an interesting year:

  • Have we thoroughly explored the impact of a further economic downturn on our business model and business plan?  A material recovery?
  • What is our short list (no more than five) of strategic initiatives that must be pursued regardless of the economy to better position the credit union for the long term?
  • Have we created and communicated detailed game plans and do we have a defined project control process to ensure that progress on these strategic initiatives will be accomplished in 2010?
  • Are our board and senior management aligned on the definition of success for 2010?
  • Given the level of uncertainty and the likelihood of “surprises,” have we blocked, in advance, regular time for key decision makers to discuss new issues and make decisions?

With answers to these questions, your credit union will be in a better position to make decisions and react to unforeseen events.  This is especially important, as the point at which you address a problem is directly related to the number of viable options you have for solving it…