Assets: Buildings and IT
The Challenge: Converting Assets
and their members are living in an era of disruptive technology.
The pace and scope of change is bringing new ways of meeting personal
financial needs. So comprehensive is this Internet-driven revolution
that one CEO has likened the era to riding on a tectonic plate.
The entire geography of the business and economic world is shifting
to a wholly new global configuration.
is this fundamental, assets that organizations have created can
become liabilities if those assets prevent the organization from
doing something else to remain competitive. These "assets"
aren't just the resources recorded on the balance sheet. They also
include the internal processes, programs and products that compose
the way of doing business. Moreover, the organization's most important
assets, its people, can also inhibit the transitions organizations
must undergo to remain relevant in an era of change.
"There's no percentage in getting attached to your product.
. . when founders get attached to their seminal ideas, the world
they helped change goes right on changing, and in no time they are
a drag on their own companies." Jim Clark in Netscape Time.
Many of the
products in credit unions are traditional. In fact, new kinds of
services are often labeled "non traditional." Recently,
a CEO told me about a review his credit union had undertaken of
collateral protection. The credit union primarily serves the military
community. Auto loans are a significant part of their loan portfolio.
Four full-time employees oversee the collateral protection program
that provides insurance if a borrower has an accident in which the
losses on the auto are not insured or fully covered by the borrower's
In an effort
to manage expenses, the credit union looked at all services, including
the need for collateral protection. The average borrower was a career
military person, an occupation that has a strong tradition of personal
responsibility. The credit union judged that the risk of losses
from members with an auto loan but no insurance was lower than the
continuing costs of administering the program. A twenty-year plus
program was stopped, four jobs were changed and a raft of paperwork
Another credit union has undertaken an urgent 90-day study of alternatives
to continuing sponsor support of key operational areas including
all personnel, payroll and benefits administration and alternate
delivery systems if in-plant offices were to be closed. Since its
founding, this credit union has benefited from a close tie with
its pharmaceutical company sponsor. From the company's point of
view, the credit union, which has over $250 million in assets, is
seen as a department of the company. The CEO reports to the finance
office and is given an annual review by an officer of the company.
union's management and board have determined that corporate mergers
and divestments reconfiguring the drug industry mean that the credit
union should not tie its fate solely to the plans of the sponsor.
What was viewed for years as a form of benevolent support and mutual
benefit, now appears a risky scenario. The credit union is looking
at all areas to estimate changes in costs should they have to take
over the tasks provided by the sponsor.
its ability to do business in a flexible manner, the credit union
will have to find alternatives for personnel administration, office
locations and even some marketing activity. Sponsor support in this
case has become a liability as the financial services and pharmaceutical
businesses respond to very different market forces.
Assets: Buildings and IT
Credit union branches, even head offices, are often symbols of success.
These are the visible assets that are used to communicate the less
tangible resources that make up the financial products on the balance
sheet. These marks of success are frequently based on business circumstances
that occur at a particular time and place.
change. Recently I was asked to assist in planning with a board
to show the different strategies that could justify a branch office.
In the board's view, all branches needed to be full service, including
tellers who would cash checks and take deposits, functions which
were easily provided by ATM's located in the facilities.
The CEO wanted
to experiment with a variety of branch strategies and move transaction
services to electronic means. The board was concerned with serving
members who did not want to learn to use automated delivery.
These planning challenges are not unique. In some instances we have
been able to convince the board that traditional views of the value
of a branch have to be updated. In other cases, the board has held
fast to one model of branch activity.
believe the asset in the form of the branch or head office is extremely
valuable because it shows the credit union's presence and commitment
to a community. Leased offices are not an option, certainly not
for the head office. Buildings are needed to make a statement. The
irony is that the "statement" that looks perfect for the
current business may not fit future needs. The fixed asset commitment
may limit mobility and become a hindrance when new market approaches
The folly of misplaced bricks and mortar was less consequential
when that was how every competitor played the game. Today clicks
replace bricks as members move to new views of the credit union.
The use of the Internet can even redefine a credit union. A credit
union that had a large nationwide field of membership recently completed
a full service website. To its surprise the profile of members using
the Internet was very different from those in its traditional business
model. Computer-based members wanted a greater variety of products
and services and needed more sophisticated information.
In the area
of technology, most credit unions rely on a data processing relationship
or an internal unit that is critical to its functioning. The host
system's capabilities set the framework for much of what a credit
union can and cannot do. The core concept of the DP function as
a transaction processor is now giving way to the need for relationship
management. This new requirement to integrate a member's total credit
union activity with other data to support pricing strategies and
1-to-1 marketing is very different from the old function. Open connectivity
with Internet solutions is essential. Integration with other databases
and service providers is key in a networked era.
rapid improvements in chip technology and broadband transmissions
are causing much faster obsolescence and therefore write-offs for
all technology-based investments. But the more that is invested,
the greater the reluctance to keep bringing in the new. In many
cases it is the mindset in an organization and not the asset itself
that determines whether an investment remains an asset.
Although it is truism to say that people are an organization's most
important asset, there is also the reality that this asset can become
a liability. The following are two examples of managing this situation.
In one instance
a credit union had a strategic goal of doubling the balance sheet
assets in five years while keeping the headcount constant. A hope
was to encourage a completely different way of thinking about the
role and skills of all employees. Does the credit union still have
to do its own item processing? Can marketing be outsourced? Can
training and essential human resource functions be managed by a
what is the role of the credit union staff when they have contact
with the member in person, by the phone or email? The credit union
is seeking to add value to every member contact but in fundamentally
different ways than in the past. Information management, advice
and sales are the skills being developed for the new business model
centered around managing member assets.
In a second
case, a company had developed a very sophisticated Internet strategy
relying on the skills of several employees who were self-taught
in the emerging technologies of website design. Increasingly the
organization relied on the judgment and capabilities of these few
employees. Unlike branch management, having redundant Internet capabilities
in the firm was not an option. As the company became more reliant
on these technically savvy persons, the organization's agility declined.
What the employees were interested in got done; if other technologies
were needed but not within the skill set of the staff, the new resources
were not used. Finally the employees did the inevitable and left
for greener pastures.
To the surprise
of the company, the solutions for replacing the skills through a
combination of outsourcing and job redesign with remaining employees
opened up a whole new set of solutions. To everyone's surprise,
better and timelier responses became possible.
When I asked
the CEO about the change, he used a football analogy. He said, "everybody
thought the Detroit Lions would have a much worse team this year
when Barry Sanders retired. (Sanders was an all pro running back.)
Actually they found they had a stronger 'team' even without one
of the NFL's premier players. We discovered the same thing."
Challenge: Converting Assets
Very capable employees with seemingly unmatched knowledge and skills
can become liabilities if they stop growing. Jim Clark, in his book
Netscape Time, said it best:
is that you're always striving for some kind of security, but you're
never really secure. . . not if you know what's good for you, that
is. The only safety in business is to keep growing. Once you stop,
there is no place to go but down. . . The status quo is deadly because
it ends growth and eliminates the ability to change."
In other words
the more "fixed" assets become, whether these be assets
on the balance sheet in the form of buildings and computers or in
the organization's skills, the greater the chance they could be
barriers in an era of sweeping change. In many cases this fixed
aspect is more of mind set about change than an intrinsic characteristic
of the situation. The challenge then is not necessarily to add more
assets to sustain success, but rather to manage the continued conversion
of assets already acquired.