A BHAG for CUs Develop Innovation Competency in 08

Innovation does not generally come from think tanks and academics but rather from employees trying to assist consumers with “pain points.” Included are ideas for making your institution an innovation engine.


Here at the Filene Institute, we’ve learned a few things about innovation. One of the most important is that significant innovation does not generally sprout from think tanks, and it generally does not emanate from CEOs and Boards. Rather it bubbles up from the interface of employees and customers.

The Filene Institute’s trek into innovation has not been a smooth path, and we discovered some things we did not expect. In the late 1990s, our Board revisited Edward Filene’s ideas for innovation and accordingly created the Center for Credit Union Innovation (CUUI). But to tell the truth, it did not fare so well. We discovered that innovation did not find fertile ground in brain trusts or committees of academics. We learned that innovation was somewhat sloppy and messy.

A key lesson: Innovation generally sprouts in the marketplace itself, and as a response to consumer needs. It pops from persons who interact with customers every day. There is the wonderful example of how the frappuccino was developed at Starbuck’s. You think it came from a headquarters laboratory in Seattle? Not for a moment. An employee in a Southern California Starbuck’s thought iced coffee would be a nice treat for customers and so brought a home blender into the store. The employee developed what we now call the frappuccino there with a customer. Thus much innovation spouts from employees on the front line, persons who see customer needs, who see how customers are using – or not using – the employee’s company. Such an understanding of innovation was the genesis of our group called i3 (from ideas, innovation and implementation) at the Filene Institute. Led by Denise Gabel, Chief Innovation Officer for Filene, the group of next generation credit union leaders is encouraged to explore consumer “pain points” in consumer finance.

Three Ingredients for Innovation So how do you stimulate innovation? One of the best answers stems from a study done of the 3M Corporation about 10 years ago and written up in the Harvard Business Review. The 3M study identifies three important ingredients for an organization to develop the innovation competency. First, employees themselves recognize that the notion of striving for improvement, of looking for innovation is part of their jobs. 3M does this by making all the scientists spend at least 15% of their time working on their own independent out-of-the-box ideas.

Second, all of the corporation policies line up with Ingredient #1. Thus 3M has performance goals for innovation, line-items in the budget for innovation, toleration rather than punishment for failure of a radical idea and so on. And third, that there is no resting on laurels. 3M sets a goal of making a significant part of its revenues four of five years out from entirely new products.

Making Your Institution an Innovation Engine How can you develop and embrace an innovation competency? Here are three propositions. First, do lots of reading, not just in the credit union field but in the broader world; it is through reading that you detect trends. Second, develop an innovative culture as was done at 3M. Third, have a line item in the budget for innovation. This gives permission from the Board and the regulator to test new ways of doing things and new business models. Many organizations are entering the financial services market space because consumer need exists and the market continues to offer profitable business opportunity. According to recent dialogue with McKinsey & Company, credit unions are well positioned to innovate in this increasingly crowded financial services arena:

Credit unions are by the people and for the people. A not-for-profit cooperative structure enables credit union to respond to consumer needs. Key is finding mechanisms that show consumers the power of the cooperative structure. Progressive credit unions are experimenting with ways to engage members in “moments of truth” through patronage activities (demonstrates to members that they have an ownership stake) or aligning the credit unions’ value proposition with member psychographic needs (akin to lifestyle aspirations)

Credit unions excel at member service and have earned their members’ trust. Opportunities exist to measure member service, value and loyalty. Credit unions that understand their strategic competitive advantage and what their members tell the world their credit union does well can identify future business opportunities.

Credit unions are swift and nimble. Although credit unions may lack the financial resources of their for-profit competition, credit unions have the ability to react quickly to changing market needs. If leveraged, this can position credit unions for success. As cooperatives, credit unions are well positioned to grow and thrive using opensource innovation. Sharing success stories or lessons learned from a failed strategy is important. Innovation is hard work… “If it was easy, it would already be done!”      

This article comes from the November 2007 Callahan Report. Click here for more information about the executive thought leadership available each month in the Callahan Report.




Dec. 3, 2007



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