Following is an excerpt from Chip Filson’s contributing article to the August, 2005 Callahan’s Credit Union Report . This month’s Callahan Report focuses on the importance of the strategic planning process.
“A common challenge in my planning engagements this year has been answering the question, “How do we grow?” Credit unions are rightly concerned about the slowing trends in many key areas, especially gaining new members. I believe that the problem is not just coping with new market forces such as flattening yield curves and smarter consumers who have more options. Rather the primary cause is failure to respond to the changing environment with a new way of thinking, that is, planning, for the future.
|“Where are today’s Marshalls, Eisenhowers, and Trumans who had the vision to see the world in a different way . . .?”
Most credit union planning sessions today continue the social-political tradition of the weekend retreat by combining a vacation experience for volunteers with some general credit union education. Often I contribute to this superficial effort by failing to challenge my hosts with the facts that their members are aging, their capital is not achieving a respectable ROE, and that many are not as efficient as competitors. We are losing share even with a tax advantage. Why?
It is only human to see planning as a linear event, that is, to extend into new markets and future events what has worked in the past. In a stable environment this makes sense. But the financial services environment is anything but stable: consider rapid consolidation, rising rates, new competitors from all financial sectors (including overseas firms), the Internet, an informed consumer (especially for the A credits) and ever increasing wealth in a strong economy.
Traditional planning for credit unions was to combine in one package corporate strategy and market strategy. The first is about how an institution is different, its competencies and how it makes money. The second is about identifying specific markets where these corporate strengths can be applied with acceptable results.
Credit unions were chartered with a field of membership—thus market strategy and corporate strategy were one and the same. Because the market was specified in the by-laws, the only question was how best to serve the designated group -- there was little market choice. But deregulation of the field of membership separated the marketing decisions from corporate strategy. However this was not recognized because most credit unions believed that the membership definition was a constraint and that merely opening doors (you, too,can join the credit union) would bring with it a flood of new members.
Instead membership growth has slowed in both percentage and absolute numbers since 1998 even though many credit unions have converted to community or open charters. Corporate strategy and market strategy have different requirements. Yet many credit unions assumed the capabilities developed in their early efforts would carry over into expanded markets. Credit unions changed their ambitions at the same time the financial marketplace was undergoing radical evolution. Linear thinking is no longer sufficient for strategy….”
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