Third quarter 2013 marked the five-year anniversary of the Lehman Brothers collapse, which set off a series of events that profoundly changed the financial services landscape. Despite a struggling economy and a cascade of new regulations from Washington, credit unions have strengthened their position in the market over the past five years. Nearly seven million member-owners joined the credit union movement during this period. Members have added more than $230 billion to their deposit balances and credit unions’ share of the mortgage market has more than doubled. Total capital has risen more than 25% to $118 billion.
As we begin 2014, the financial services environment is again at a turning point. The economy is gaining traction, employment is picking up, and consumers are regaining their confidence. By all measures, things are going well. So why am I about to encourage you to start thinking about how to turn your business model, product line, and culture upside down? As William Shakespeare said, “Better three hours too soon than a minute too late.”
Identify The Problem Before It’s A Problem
In 1991, Encyclopaedia Britannica sold more than 100,000 units of its iconic bound reference set. By 1996, that number had dropped to 3,000. In 2012, the year the publisher announced it would cease production of its printed suite — the company sold 4,321 sets. The Chicago-based company’s announcement in March 2012 elicited speculation of the company’s demise — and some outrage — from the general public, but for Britannica insiders, it was a nonevent.
“We had no need for a wake because we weren’t grieving,” Jorge Cauz, president of Encyclopaedia Britannica, told the Harvard Business Review for a 2013 profile. “We had known for some time that this day was coming. Our employees held a party the day of the announcement, celebrating the fact that Britannica was still a growing and viable company.”
How can a company that has literally just stopped the presses on its flagship product claim to be growing and viable? Because back in the 1980s — before Encyclopaedia Britannica had its best year ever, before it witnessed the slow disintegration of its sales model, before anybody had even dreamed of Wikipedia — Britannica started preparing for the next phase in its rich 200-year-plus existence.
Our people have always kept the mission separate from the medium, which has allowed the company to handle one competitive threat after another.
— Jorge Cauz, president, Encyclopaedia Britannica
“By the time we stopped publishing the print set, its sales represented only about 1% of our business,” Cauz says. “Our people have always kept the mission separate from the medium, which has allowed the company to handle one competitive threat after another.”
Over the past couple of decades, the company has staked a claim in the K-12 “digital learning space,” eliminated door-to-door salesmen, reinvented the brand for an Internet age, and used disruptive forces such as Wikipedia to sharpen its strategy and tout its competitive advantage (which is expert, vetted information).
According to Harvard Business Review, even as far back as the 1970s the editors at Encyclopaedia Britannica knew the future of the business was in digital publishing, and the company began exploring new strategies in the 1980s. It developed electronic, CD-ROM, and web-based versions of its encyclopedia and struggled with incorporating multimedia and interactive experiences. It wasn’t until the late 1990s that the company’s business model, sales strategy, and price point started to align. External forces, such as widespread Internet availability, contributed to the company’s momentum. Encyclopaedia Britannica’s current strategy did not come easy; it required diligent work and underwent several iterations, but it is paying off.
"Over the past five years, we've seen 17% compound annual growth in our digital education services businesses and a 95% renewal rate," Cauz says.
Encyclopaedia Britannic embraced organic change before its business environment was dire. If you wait until you needto change, it’s too late. One way to gauge whether you’re meeting your members’ needs is to ask yourself: “If we ceased to exist, would our members rebuild us?” That’s a popular question that Wright-Patt Credit Union ($2.7B, Fairborn, OH) CEO Doug Fecher likes to pose to his institution’s leaders. The approach forces them to stop worrying about how much the credit union has invested to get where it is and start thinking about the institution’s core mission. Such an exercise can be especially difficult for a long-serving board that is entrenched in the traditional way of doing things, but leaders that want to ensure future success can’t be worried about making a few miscalculations along the way. To remain competitive in tomorrow’s world, you need to be willing to change today.
Differentiate, Differentiate, Differentiate
How did Best Buy survive a recession that took down big box competitors Circuit City, Ultimate Electronics, and CompUSA? Moreover, how does the Minnesota-based electronics company plan to compete in a world where most of what’s on its shelves is available for a better price online? The answer: With a little help from its geeks.
In 2002, Best Buy joined forces with a Minneapolis-based tech support service know as the Geek Squad to offer better technical service and customer support. Best Buy might sell a commodity, but it differentiates itself through service. Its insurance plans protect consumables as well as peace of mind, and when that is not enough, Geek Squad agents across the globe are available for one-on-one support. Agents located at a central repair site in Louisville, KY, await the most challenging cases. According to the CNBC television special Best Buy: The Big Box Fights Back,technicians at Geek Squad City have an impressive 95% success rate in fixing all manner of gadgets that pass along the Kentucky conveyor belt.
When asked what differentiates your credit union in the market, is your go-to answer “service?” Does your definition of service reach further than first-name familiarity with members? Today, the concept of service must include acting in service to the member. This means knowing their needs before they do and solving problems they might not realize they face. For example, after you approve a new mortgage, take the next step and make it easy for them to sell their house.
This is the type of relationship that Internet-only models can’t replicate. If you’re worried coveted Gen Y members fall into this category, don’t be. Yes, they expect hi-tech services, but they also value authenticity, and they’re the first generation projected to earn less than their parents. They need credit unions to steer them on a path toward financial success — that’s a service worth paying for.
How Many Coats Are In Your Closet?
When newly named Burberry CEO Angela Ahrendts brought together more than 60 top managers in 2006 for a strategic planning session, one thing struck her: Despite the dismal British weather, no managers sported the iconic Burberry trench coat on which the fashion house had built its reputation.
“It was a sign of the challenges we faced,” Ahrendts told the Harvard Business Review for a 2013 profile. “If our top people weren’t buying our products, despite the great discount they could get, how could we expect customers to pay full price?”
When Ahrendts dug deeper, she found a troubling array of mismatched Burberry-branded items that spanned the globe and ranged from polo shirts and dog cover-ups to kilts and leashes.
“There’s nothing wrong with any of those products individually, but together they added up to just a lot of stuff,” Ahrendts says.
So Ahrendts launched a strategy that doubled down on Burberry’s trench coat heritage and refocused its brand vision. She centralized Burberry’s design team, which required relocating and dismissing designers from around the world, and closed factories in several countries, this at a time when the recession was hitting the pocketbooks of consumers around the world.
“We’ve always said we’re not immune to the ebb and flow of the macroeconomy, but that doesn’t change our vision,” Ahrendts says. “As a company, we always do what's best for the brand.”
The difficult growing pains have paid off. According to HBR, 60% of Burberry’s business today comes from apparel, and of that, outerwear makes up more than half. Its revenue and operating income has doubled in five years. And as far as outwear goes, shoppers now have more than 300 distinct items to choose from in various styles, colors, and material.
“If you ask a Burberry senior executive how many trench coats he or she owns, the answer is likely to be eight or nine,” says Ahrendts, who confesses to owning more than a dozen herself.
Every credit union needs employees to proudly wear its coats. What percentage of your employees do business with the credit union? I’m not talking about keeping a simple share account so they can say they’re a member. How many have share draft accounts, CDs, auto loans, and mortgages? How many have opened accounts for their own children? How many actively use home and mobile banking or deposit checks using remote deposit capture? If the answers to these questions disappoint you, then it might be time to re-evaluate your offerings. After all, if your own people don’t believe in your product, then why should anybody else?
3 Hours Too Soon
After a rough period, it’s a natural tendency to want to take a breather before tackling the next challenge. But this is a great time to strategize with your leadership team about an alternative future. That kind of discussion is too hard to have when things are going poorly and you’re paralyzed by indecision. So take this time to defy the norm and think creatively about where your next challenge or opportunity may lie.