The Requirements of Being # 2

Everyone wants to be number one. No one wants to come in second place; except credit unions in their business strategy. Chip Filson comments on why almost all CU managers and boards would describe their goal as being a fast follower or second-to-market.


Who will win the super bowl? Is Florida/Miami truly the college national champion? Everyone wants to be number one. No one wants to come in second place. Just ask Al Gore.

Except credit unions in their business strategy. Almost all managers and boards would describe their goal as being a ''fast follower'' or second-to-market. Very few credit union CEO's want to be on the leading edge of the financial services business.

Being # 2 Has Worked

There are a lot of reasons why being #2 in business strategy makes sense. The tradition of credit unions is to offer new products long after their appearance in other financial services firms. Both regulation and resource constraints made this so. Credit unions ''invented'' virtually none of the consumer savings and loan products or the delivery strategies or marketing techniques used today. Yet the collective credit union track record since deregulation is as good as if not better than other depository institutions.

Credit unions often lack the market opportunity or scale to make innovation feasible. Moreover boards and managers receive no personal benefits from devising new business solutions. And if they fail, the downside could result in job loss or in some cases credit union failure. Why take a chance when you don't have to is the philosophy that guides many credit union business strategy decisions.

Being # 2 Still Has Key Success Factors

But the strategy is not as simple as follow-the-leader and everything will work out OK. Moreover it does not mean that credit unions cannot come out winners. Microsoft in many ways is a second-to-market company, and it dominates many aspects of its industry. What are the conditions for success when using a fast follower strategy?

The first key success factor is identifying which leaders to track. What organization is setting the pace? Do you look inside the financial services industry or outside? Many business consultants have pointed out that industry-changing innovations have come from the outside. Often these are small or start-up firms. Established companies are more interested in protecting their markets from new innovations.

Should a fast-follower track an innovative credit union or look at a leading part of the financial service industry such as on-line brokers? Should leaders be sought by looking at new delivery channel innovation coming from mail order, telephone-centered firms or new marketing approaches from the leading consumer brands businesses?

In addition to the issue of who to track is the question of what to track. Should a credit union be looking at a product or technology innovation or should they be looking at new organizational capabilities. Nowhere is this distinction clearer than in reaction to Internet based solutions. Some have embraced the new delivery channel believing that the strategic advantages are self-evident. Others believe that the secret to Internet success is to incorporate the Internet's requirements across all of the firm's existing business processes.

Member Focus still Required

A second key success factor once a firm identifies who and what to follow are keeping in touch with members. Often second-to-market can bring a better member experience, not just a new way to doing something for the member. But which segment of the members should be tracked. Should we follow Tom Peter's philosophy of identifying our best customers and staying close to them no matter what happens? Or should we be looking at the non-user member or the emerging segments that may be critical to future strategy, for example the emerging Internet generation?

A similar choice is often debated today when decisions are made about changing rates on savings which benefits the older, higher balance member versus lowering loan rates, which tends to benefit younger members who have fewer established household relationships. However the strategic issue is more than segment selection. It also entails providing a better experience for the member. For example is Internet ''account aggregation'' merely technology bringing convenience for members to view numerous financial realtionships? Or is account aggregation intended to help the member improve their financial well-being and decision-making. The challenge for credit unions which adopt account aggregation as a second to market service, is to bring a superior member benefit.

The firm that not only deploys new technology but also uses it to enhance the member's overall satisfaction is likely to be the winner for long lasting relationships. For what current or potential member group are we trying to provide a superior experience-the member who comes to the branch, uses the phone center, or prefers the Internet?

Strategy In Context

Another requirement of successful strategy is to evaluate it in the context of broader market forces. The dominant change affecting all companies is the Internet. But there is a distinction between operating in an e-business environment and having an e-commerce strategy. E-commerce is frequently the integration of the Internet with an existing product and market presence. This channel expansion is certainly a requirement, but it may not suffice for strategic advantage once every firm is routinely Internet enabled.

E-business is a broader concept that looks at how the firm will connect in a networked world. The net alters access paths to the customer. The challenge is to identify where the credit union wants to be in this online universe. For example do we want to be a destination site or a portal? How does a credit union get on the network? What kind of partners with what kinds of ''connectedness'' is the credit union choosing? If the credit union's Internet business partners, whether these be Internet home banking providers, ISP hosts, or even core data processor do not have an Internet strategy compatible with the credit union's business requirements, then the credit union may not be effectively positioned to compete in the networked environment.

What are we fast in?

To be a fast follower, also entails some organizational ability beyond tracking leaders. When strategy shifts to implementation, what is it that the credit union must be good at to be successful in a second-to-market context? This capability may entail partnering skills with other suppliers or firms. Or it can require technology implementation with new interfaces and data integration capability. Or it may entail new sales skills with the staff.

To be able to go as fast as member needs require in a second to market strategy depends on organizational capabilities to implement change effectively once a direction is identified.

Second to Market But First in Implementation

As the rise and fall of firms illustrates, first to market with a good idea is not a sufficient strategy. Second-to-market can be viable if a firm is aware of the key success factors. For an organization can be second conceptually in introducing an innovation, but first to implement successfully.

Credit unions have significant advantages in the implementation challenge. We have a ''common bond'' target market within which we can move and change quickly. There is access to scale, providing shared risk and learning if cooperative networks with key partners are built.

However if second-to-market is seen as a ''me-to'' effort, merely following the crowd, then there may be much less advantage to this strategic position.

The key is to identify who appears to be heading in the direction your credit union needs to go. Who are the individuals and organizations that you believe will make a difference this year in creating new strategy successes? Identifying those ''leaders'' could be your most important strategic decision for your credit union not just this year but for many years to come.




April 9, 2001



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