Building the Elegant Credit Union

Transcription

1 Building the Elegant Credit Union Several years ago we wrote The Elegant Credit Union based on our extensive experience working with credit unions, banks, insurance companies, and other financial-services institutions across the globe. In that strategic brief, we defined the Elegant Credit Union as embodying the ideal of a member-focused institution: one that is extraordinarily effective at efficiently serving a well-defined member group with the products and services it values most. The brief described the eight critical attributes we d observed in the best credit unions in the world. These attributes are: 1. Clear market definition and aligned value proposition 2. Focused, accountable distribution 3. Data-driven product and member-management practices 4. Highly efficient operating platforms 5. Prudent and proactive risk management 6. Disciplined financial structure and processes 7. Committed leadership 8. Sober and realistic governance. To our surprise, the Elegant Credit Union went viral. It s been well received by progressive credit union leaders across the country. Since then, we ve been fortunate enough to work closely with a number of these leaders to help them transform their organizations into elegant, member-focused institutions. 1

2 Building the Elegant Credit Union The 10 Steps Develop the Implementation Plan 10 Determine Financial Plans 9 Develop the Operating Model 8 Determine the Culture Gap 7 Define the Brand & the Member Experience 6 5 Develop your Value Proposition 4 Determine the Member Segments to Target 3 Define the Strategic Scope of the Business 2 Strategically Choose Your Transformation Team 1 Reality Check and Senior-Level Commitment 2

3 Making it happen: Over the years, we ve developed and perfected an approach for assessing, planning, and traversing the road to elegance. We ve designed a 10-step process, proven and refined with leading financial institutions around the world, to be a straightforward and effective method to systematically transforming financial services organizations. This brief will give you a view into the transformation process by taking a close look at that 10-step process. While described in a progressive fashion, in practice the process often requires iteration across key steps throughout the progression. 1 Reality Check and Senior-Level Commitment You must begin with a clear understanding of the current state of the institution. Most credit unions have evolved several times over their histories, influenced by the dynamics of their communities, their historical select employee groups (SEGs) and member characteristics, their current and past leadership, the competitive environment, and their employee base. These factors and dynamics combine to form a present day reality that must be well understood before deciding the best path forward. When we re asked to complete a current state assessment, we convene an experienced, senior team of financial industry professionals to evaluate each of the credit union s attributes against best-inclass financial-institution standards. This practice, which we execute in an accelerated timeframe, allows us to get a good understanding of the enterprise s current capabilities and identify and prioritize opportunities to enhance the institution. Success in building an elegant credit union requires senior-level commitment and transformation at every level of the organization from the Board Chairman and the CEO to key operational leaders and front-line employees. The leaders of the organization need to understand the strain the changes will make on the organization and commit to persevere or risk a stalled process, wasted energy and investment, and the likelihood that the organization will revert to its former state. Transformation requires vision, pragmatism, and a leadership team with the capacity to change. A key element of the strategy is an assessment of the amount of change the organization can realistically handle and over what timeframe. The organization s capacity for change is critical to developing the process and the timeline for implementing the strategic plan. 3

4 2 Strategically Choose Your Transformation Team Once the senior leaders have committed to the strategic need for change, the next step is to choose the team that will lead the organizational evolution. This kind of systemic change requires focus and passion. And it may not be achievable with the people who got us where we are today. To be successful the team needs several key people: The Evangelist: In most mid-sized financial institutions, the CEO commits to emotionally lead the project and to be the primary voice for change. In this role, the CEO needs to articulate the vision and the imperative for change. As the evangelist, the CEO must communicate the vision clearly and repeatedly to all areas of the organization. Change is hard, and the fear of the unknown has the risk of slowing down or jeopardizing the organization s willingness to embrace the needed organizational evolution. Ongoing communication that paints a vision, celebrates success, and rallies the team is critical to winning the hearts and minds of employees. At the same time, the communication should recognize the anticipated challenges and difficulties so the organization has a realistic view of what to expect. Too often communication is glossed over, relegated to staff that don t have a solid understanding of the vision or lack the skill and know-how to persuade the audience. In the worst case, the messenger lacks the personal conviction of the need for change and risks infusing the organization with fear, uncertainty and doubt. The Program Manager: Building an elegant credit union requires a strong, focused program manager with the time and the skill to understand and coordinate a multi-year change process. The manager must have a solid understanding of the organization and how the pieces fit together and be experienced enough to control a large, complex project. The manager must also have the trust of the CEO and other key influencers and be dynamic and flexible enough to adjust to new information. High-Potential Employees: Along with the Program Manager, successful projects also enlist several high-potential employees from all levels in the organization to be part of the change process and to influence their peers and staff. Outside Experts: Strategic restructuring is a skill not often resident in small and mid-sized companies. The skill, the processes, and the tools required to systematically manage the change, the experience required to avoid the inevitable pitfalls, and the leadership and wisdom gained from assisting multiple organizations transform, are best acquired from specialists. Outside experts bring perspectives informed by working across different institutions in and outside the industry, help sharpen understanding of tradeoffs, and alert leaders to the long-term implications of their decisions. 4

5 3 Define the Strategic Scope of the Business With the team in place, the strategic scope of the credit union must be defined or, more precisely, the mix of competencies, business lines, geography, and customer/member segments on which it will focus going forward. We recommend a practical approach, starting with what works in the current business model and identifying ways to build on the existing success. We then look for opportunities to expand organically, by extending into related products and businesses, or through acquisition. Key considerations include the sustainability of the current business, the availability of organic growth opportunities, the untapped value in the current member base (e.g., cross-selling, upselling, or retention opportunities), the need for scale efficiencies, and the capacity of the organization to adopt and succeed with new approaches. 4 Determine the Member Segments to Target With a clear definition of the strategic scope of the business in hand, it s time to home in on whom to target. While seemingly at odds with the mission of many credit unions that pride themselves on effectively serving a broad member base, clear definition of targeted consumer segments is an essential precursor to building the elegant credit union. Segmentation drives a deeper understanding of different member groups, including key needs and relationship value; and it provides the basic insights necessary to define and deliver a desirable member experience. Segmentation requires business leaders to consider multiple dimensions; for example, segmenting for acquisition and growth may require psychographic, demographic, and other methods to differentiate groups of people from the available marketplace and identify those that offer the best opportunity for market success. Business leaders also need to understand the member value of various segments, so they can tailor their offerings across the value spectrum and develop a strategy to increase the value of unprofitable groups. 5

6 Without segmentation, there is no way to define a differentiated value proposition, align the brand and member experience in a way that resonates broadly, fully realize the potential value of your member base, and determine channel strategy, branch locations, member retention, product mix and more. Credit unions typically segment using two variables age and income. While this straightforward approach can help provide focus and understanding at a high level, most major credit unions especially those in large, more complex marketplaces would be well served to employ a more informative psycho-demographic segmentation that takes into consideration behavior and other attributes that give insight into preferences and buying behaviors. Larger credit unions should also consider current member value, as well as potential and historical value, to aid targeting and decision-making. 5 Develop your Value Proposition Once the targeted segments have been identified, the next step is to define the value proposition specifically for the targets. The value proposition is the combination of products, channel capabilities and locations, service levels, and pricing the credit union can profitably deliver and that will appeal most to the targeted segments. During this process, the credit union needs to ensure the value proposition resonates with target growth segments and that it does not alienate historically profitable members. Delivery on the value proposition often requires building new capabilities or products. Before making any large investments, it s prudent to validate the value proposition with the target. This can typically be achieved through market research or a small pilot program. 6 Define the Brand Promise and Articulate the Desired Member Experience Does the credit union have a defined brand promise? Does the promise align with the strategy and scope of the business? At this stage, it is important for the leaders to examine the existing brand to ensure that it is consistent with the transformation the credit union is seeking. A strong brand promise will provide a north star for management and employees as the company embarks on the journey. If the brand is ill defined, or weak, additional work will need to be done as part of the transformation process. 6

7 With the business strategy and the brand promise as key elements, the next step is to determine the member experience that will appeal to the target segment(s) and that can be delivered profitably. Consumers have ever-increasing expectations from the brands with which they engage. That is especially true for financial services. Understanding the expectations of the target segments, and developing the capabilities to consistently meet those expectations, is the task of the memberexperience plan. The brand will be cemented in members minds based on the cumulative experiences of their interaction with every touch point employees, products, channels, and communications. Thoughtfully designing and continually refining the desired experience combined with organizing and motivating employee to deliver this experience is crucial. Members perceptions of the credit union, and their likelihood to trust the institution with their financial needs, are directly related to the member experience. 7 Define Your Culture and Determine the Gap With Your Current Culture Understanding, managing, and actively evolving the institution s culture is a critical step that is often overlooked, resulting in unnecessary stress on the organization and resistance to change. During this stage of the process, it is beneficial to define the desired culture: the internal values and behaviors necessary to deliver the desired experience and to fulfill the brand promise. With this in hand, you can assess the gap between the desired culture and current behaviors. This gap analysis is essential to developing the execution plan and to gauging the level of organization transformation needed. The head of Human Resources will likely lead the effort to develop and implement a plan to close the culture gap. At this step, the credit union should also identify the brand and member experience training needed for employees so they are able to deliver on the promise and the desired experiences. Ultimately, you want the employees to take ownership for consistently delivering on the promise and to identify and advocate for opportunities to profitably delight members. 7

8 8 Develop the Operating Model The operating model is the point at which the rubber meets the road. It defines how the organization will be structured and how the functions will interact. This difficult work, along with the implementation plan, enables the organization to execute the strategy, deliver on the value proposition, effectively manage target segments, and orchestrate the desired member experience all at a reasonable profit. STRATEGY VALUE PROPOSITION MEMBER EXPERIENCE OPERATING MODEL CULTURE FINANCIAL GOALS BRAND The operating model step includes the following tasks: 1. Identify all the functions the organization has to perform. 2. Determine the appropriate assignment of functions to departments and individual positions. 3. Determine the key performance metrics for each function and key position. 4. Identify the key cross-functional processes that must be built and managed. 5. Determine the critical organizational competencies that must be developed to succeed. 6. Identify the data that needs to be captured and analyzed to operate the business successfully. This includes customer, operational and market data. 7. Determine the key technology components that need to be acquired or built to enable the entire operation. Developing the operating model is complex work and typically requires deep expertise. 8

9 9 Determine the Investment, Regulatory Capital and Funding Plan Determining the funding plan is an iterative process. Chances are the fiscal reality of the vision and the plan will require tough tradeoff decisions. There are a number of financial considerations, including required capital investments (technology, infrastructure), potential restructuring charges, professional services, and the regulatory capital needed to fund growth. A clear understanding of business priorities, combined with a solid understanding of the financial implications, will help to ensure a realistic funding plan. The funding plan will regulate the scope of the project, as well as its timing and its implementation phases. 10 Develop the Implementation Plan A well-defined strategy and operating plan will not succeed without a detailed implementation plan and the program manager and staff necessary to execute on the plan. Too often, this is the point at which organizations fail, or exceed the budget allocated to the effort. Frequently running into thousands of individual tasks, a comprehensive implementation plan is designed to lead the organization through execution on a week-to-week and month-to-month basis from kick-off through project completion. In sequencing implementation plans, we are extremely cognizant of the funding plan and the organization s capacity to change from a cultural perspective and from the physical realities of how much the organization can successfully accomplish over a period of time. Like the funding plan, the organization s capacity to change acts as a regulator on the timeline and phases of the implementation plan. Process definition and implementation, communication, and training are key components to the implementation plan, no different from the technology investments needed for success. In our experience, organizations too often fail to recognize the extent of the people and the organizational changes required, including structure, processes, workflow, and training. As a result, they under-invest in these capabilities and gloss over the necessary implementation steps, including the communication plan for the organization. Essential components of the Implementation Plan Process Definition & Implementation Communication Training 9

10 The Elegant Commitment Done well, transforming your organization into an elegant credit union can ensure it s primed to be exceptionally effective and efficient in serving your members and leave a positive legacy for years to come. However, choosing to embark on the journey is not a decision leaders should make in haste. A transformation of this scope requires a significant commitment that should only be undertaken after careful consideration of the leadership, the organizational capacity, and the investments required to succeed. Success can only be accomplished by starting with a realistic assessment of your current state; assembling the right team; methodically defining your strategy, your brand, the desired member experience, and your culture and translating all of that into an effective operating model and a realistic execution plan. Most important, the Elegant Credit Union requires the vision and commitment of senior-level leaders who are prepared to make the sacrifices and hard-choices required to create an extraordinary, effective, efficient, member-focused institution. For those who do, the effort will be well worth it RedPort International, Inc. All Rights Reserved. 10