A Balanced Strategy

The credit union industry has always understood the value of strategic thinking and making a commitment to long-term planning. Yet despite this energy and excitement about strategy, only a portion of credit unions are able to truly drive member value creation through their planning processes.

When my firm, CUES Supplier member and strategic provider Cornerstone Advisors, Scottsdale, Ariz., works with banks on strategic planning, the scorecard is very clear: Drive up earnings per share and the institution’s stock price. With their cooperative structure, credit unions have a more complex means of defining value creation.

For credit unions, value creation can be defined as “increasing the value provided through pricing, convenience and advice delivered to members, while generating financial results that ensure sustainability and support the growth of the organization.” Like a balanced scale, credit unions create value by delivering member benefits and financial sustainability, all while keeping a risk profile that allows for consistent success.

In working with hundreds of financial institutions on strategic planning, I have noticed seven key characteristics and habits of the organizations that truly create value. Let’s review how each of these factors drives real member value creation.

Differentiation. While most credit unions understand that being different from competitors is a classic element of strategy, the very best leaders drive this discussion in a disciplined and skeptical way. These organizations work to define key areas in the service experience, product line and operating model where differences can add value.

For instance, one credit union determined that its contact center would drive the engine of its sales processes and that a completely different profile of contact center agent and compensation plan would be needed to support this differentiation. Another determined that a laser focus on the female/mother segment within the family household would be the best way to push a differentiated brand in a market crowded with big banks. These credit unions truly developed different strategic “personalities” that make it easier to develop future priorities and filter new ideas.

Bets are bold and focused. Leaders that drive value realize that pursuing a battle on too many fronts results in dilution and confusion. While there are always more opportunities to pursue than resources allow, great credit union executives know how to unfold their strategies as a series of big chronological bets and commitments.

For instance, one large CU first made a bet for a number of years on expanding past its dominant specialty employer group, including mergers. Then it bet big on performance improvement through a stakeholders and operational improvement focus. Finally, the CU moved to a third stage in which it went to the board for a huge, multi-million dollar commitment to a five-year digital transformation. In making these bets, this credit union also defined what it will not be: It will not be community-focused. It also won’t run complex operations nor expand branches. This type of focused “betting” gives power and leverage to a CU’s value creation.

Creative leaders drive revenue growth. Credit union value creation is primarily a function of finding ways to grow revenue in a commodity industry and slower growth economy. High-performing credit unions do more than wait for loans and shares to come through the doors. Instead, they build a troop of business and product line leaders who are always digging deeper for new ways to grow revenue.

For instance, these credit unions typically have a payments leader who owns the credit and debit card products and implements new ways to increase usage, balances, purchase volume and cross-sell. One of Cornerstone’s clients who created this position saw the role more than pay for itself in increased interchange revenue, reduced fraud losses and greater credit card balances. Also, a large number of credit unions that have recruited talented mortgage leaders who fit the cooperative culture have seen great market share gains and literally millions of dollars in increased gain-on-sale and servicing revenue.

Design matters. One of the most important trends in the future of financial services is that the discipline of design has become recognized as a primary means of creating value. Think about lessons from outside finance. Uber took an old business of hiring transportation and innovated the design of the ordering and paying processes. It wasn’t a new strategy, but a new design. In financial services, robo-investment firms are going after the design of delivering basic investment advice using more technology at a much lower price point. Credit unions that drive value know that everyone wants to grow loans, provide outstanding service and operate efficiently. High-performing credit unions have similar strategies, but are more obsessed with getting design right.

For instance, a large credit union worked for several years to ensure its online membership and account opening process could support its growth ambitions. (Read more about online account opening on p. 24.) With the leadership of a senior virtual delivery executive, this credit union got design right and now opens thousands of accounts online per month.

Metrics drive the culture. Value-creating credit unions go way past basic earnings and “staying on budget” metrics when executing their strategies. Indeed, they create cultures in which each business line, product owner and operational support area has clear metrics for excellence. The mark of a manager in these cultures is the ability to spout off key performance indicators and their positions vs. best-in-class, as well as initiatives being implemented to improve these metrics.

Execution accountability. In recent years, credit unions have recognized the need for more disciplined and professional project management. While this trend has allowed for minor improvements in project performance, high-performing credit unions are marked primarily by the level of accountability they place on their teams for completing strategic initiatives. Put bluntly, high-performing cultures define accountability with consequences for not executing on their commitments. One large credit union now brings execution accountability to its board. It reports the number of delayed projects that are defined as “30-plus days past original due date.” One can bet that this transparency and accountability all the way to the top keeps the entire organization focused on project completion.

The board partnership. Finally, in driving true, consistent value for members, it is critical that the right tempo and cadence be set with directors. There are simply too many value-creating strategies available to credit unions today for an executive’s time to be spent “managing the board.” Credit unions creating the most value have boards that provide active participation into the visioning and strategy development process, but then stay committed to holding management accountable for execution of the plan. High-performing boards do not add distraction with new ideas, dictums or priorities that fall outside the agreed-upon strategic direction and priorities. To make this partnership work strategically, it’s important for credit unions to have a clear measurable scorecard of strategic outcomes that the board can monitor, as well as a tracking report that shows progress toward strategic initiatives such as technology deployment, new products and new market entries. The very best credit unions use simple visual tools to keep a busy volunteer board apprised of strategic goals and deliverables. (Read more about dashboards at cues.org/0716dashboard and cues.org/0915dashboard.)

Great Examples

When these seven factors are working together, great value creation can occur. Let’s take two specific examples for illustration. Since the Great Recession, $2.4 billion Idaho Central Credit Union, Chubbuck, Idaho, and $1.6 billion Elevations Credit Union, Boulder, Colo., have both implemented focused strategic plans geared toward growth and member value. As the table above illustrates, both credit unions have been able to grow the value of their net worth faster than the credit union industry while also adding branches and investing in digital channels and new product lines.

Idaho Central CU has been honored for three years straight as an SNL Financial (now part of S&P Global) top-performing credit union.

Elevations CU became the first credit union in history to win the prestigious national Malcolm Baldrige Award. (Read how 2015 CUES Outstanding Chief Executive Gerry Agnes, CIE, helped make this happen at cues.org/1115goalgetter).

Both of these credit unions have generated tremendous financial value while adding branches, upgrading digital platforms, and adding more products and services. Both credit unions also offer free checking and highly competitive loan, mortgage and credit card offerings. These real-world examples clearly demonstrate that strong leadership teams with partnering boards focused on value creation can do amazing things. These institutions prove the link between strategy and value creation.

As credit unions review their current strategic visions in preparation for a tumultuous 2017, it’s important for leadership to answer seven key questions.

1. Are we working in key areas to clearly differentiate ourselves from our competitors?
2. What are the bold bets and commitments we are making for the future?
3. Do we have the right leaders in each business and product line to creatively grow future revenue?
4. What key member experiences, product solutions and operational processes do we need to redesign to be a best-in-class institution?
5. Do we have the right balanced scorecard to monitor strategy with our board and do we drive excellence with metrics at all levels of the organization?
6. How strongly do we enforce accountability for project execution and how well do we monitor our results?
7. Are there any situations where our board is a distraction or impediment to strategy? How can we address these challenges?

Credit unions are growing and profitable with solid net worth. The time has never been better for leadership teams to build the disciplined connection between strategy and value creation.

Steve Williams is a principal with CUES Supplier member and strategic partner Cornerstone Advisors, Scottsdale, Ariz.