NAFCU Services Blog

Every now and again I’ll go back and browse through a favorite business book from my stack, in part because their meaning to me changes with each new experience gained.  The beauty of this blog is that I now get to share with the world, instead of just everyone here at work.  Maybe that will make the process less painful for Kelly, Kirstin and Kristina!

So let me go back to one of my favorite quick business reads of all-time – “The Five Most Important Questions You Will Ever Ask About Your Organization,” by Peter Drucker with commentary from an all-star cast of business luminaries – Jim Collins, Philip Kotler, and others.  It cuts through all the BS you usually find in ‘mass market’ business books and gets right to some basic, timeless key points.

What is most relevant here are not just the top five questions, but the process of asking and answering them, which is often the more useful part of the exercise. You gain more insight from asking others with different perspectives within your organization and outside of it the same questions to see how their answers compare, and by coming to a consensus on direction within your key management team.

So the top five questions to ask about your credit union (or any organization) –

1. What is Our Mission?

“A mission cannot be impersonal, it has to have deep meaning, be something you believe in – something you know is right.” It should be clear, and inspirational – and also should fit on a T-shirt. How many times have you seen a mission statement that could double as a Webster’s Dictionary entry for ‘run-on sentence’”?  Ours here at NAFCU Services: “Innovative solutions for credit union growth and productivity.” Send me an email if you want to order a T-shirt, we offer special NAFCU member discounts. :-)

2. Who is Our Customer?

A deceptively simple question.  Drucker generalizes it by asking  ”Who must be satisfied for the organization to achieve results?” This broadens the concept to include primary customers and supporting customers. For a credit union, your members are surely your customers – but what about their families? Or your Board members?  Or your community?  Or NCUA?  What about a network of car dealers and real estate brokers? To make matters worse, this concept has a nasty way of shifting over time – so knowing your customers (all of your customers) and their needs is an ongoing challenge.

3. What Does The Customer Value?

What satisfies the needs, wants and aspirations of our customers?  Back in my management consulting days, the one thing we most hated to hear at the beginning of a business planning engagement was something like  ”We know what our customers want, we don’t need to survey them.”  Drucker goes into some detail about the importance of understanding the value your organization brings from the perspective of the customer – not from yours.

He gives an example of a homeless shelter that assumed their customers (homeless people) wanted food and shelter, and had created an efficient and successful process of donors and service providers to do just that. They were surprised to find out that their customers (homeless people) shared instead a deep aspiration to not be homeless, which dictated a radically different approach to the mission of the organization, its structure and functions.

A hallmark of the credit union business model is our relationship with our members, which means that it is all too easy to fall into the trap of thinking we know what their ‘needs, wants and aspirations’ are. The last three years have been challenging for all of us, not to mention the fact that the competitive landscape has changed (see Ally Bank for how one competitor is approaching the market with a credit union value proposition).  So have you thought about how to modify the mix of solutions you offer to your members? And when was the last time you asked them what they need?

4. What Are Our Results?

A quantitative approach to measuring effectiveness and success is one of the revolutionary ideas that Drucker brought to business, becoming widely accepted today.  But that doesn’t make the challenge of developing both qualitative and quantitative measures any easier. For credit unions, there are plenty of well-defined quantitative financial metrics. Qualitative is harder, as are the next steps – using the metrics to decide what to strengthen and what to abandon, and holding leadership accountable. If you’re not tracking your results, then how can you learn what you need to improve?  Look at the general goal of ‘improving member relationships’ as an example – would you measure that with a net promoter score? Percentage of credit union members with a mortgage relationship? Percentage of members with more than one lending relationship? Cross-sell success ratio? Retention rates? Referral rates of new members from existing members?

5. What is Our Plan?

Anyone around here knows that this is one of my favorites – strategic and other kinds of planning pay dividends throughout an organization, even if the plan itself is out of date the minute you hit the print button.  Just taking the process seriously yields benefits – but it can’t be one of those ‘check-the-box’ planning exercises that sit on a shelf until next year, just so you can tell your Board you’ve done it.

As Drucker notes, ”In the face of uncertainties, planning defines the particular place you want to be and how you intend to get there.”  I'll ask it a different way -- where do you want to be in five years? If you want to double the number of members, net assets, profitability, car loans, home loans, etc, by 2016, what do you have to do in years one, two, three and four to get there?  What milestone do you have to hit by July, 2011 to hit the year one goal?  What do you have to do today to accomplish the July, 2011 milestone?

This is not just an exercise in math here, it is the plan behind the math.  Let’s say you’re doing 120 car loans a year from indirect lending, working with five dealers (two loans per dealer per month), and want to double the number of car loans. You can either double the number of dealers you’re working with (to ten) – or you can double the yield from each dealer to four per month (or some combination).  If you want to double the number, do you need to hire a new person to develop new relationships with five other dealers?  Is there a large untapped SEG opportunity that might offer potential for a combined car dealer-credit union special offer? Are there opportunities to execute a special program like that independent of a SEG with a locally-focused ad or direct mail campaign?

Or if you want to increase yield, do you hire a new person to deepen the existing relationships?  Do you need to educate the salespeople better on what the credit union has to offer? Or are the loans simply interest rate sensitive? And if so, is there cyclicality to the competition (financing specials from the car companies) that affects interest rate changes? Or are there other sweeteners or pricing on those sweeteners that could differentiate your loan from others (better pricing on GAP, MBP, other types of value-added solutions)? What is the precise mix of rates and sweeteners that will work in your markets?

The fun starts when you pick a strategy, pick a year five (or year three or year one) goal, and then start walking back to day one.

And finally, what is probably the hardest part – self-assessment, which Drucker uses to tie all this together. At the core of any successful organization is the concept of continuous improvement through self-assessment.  As he notes,

”True self-assessment is never finished. Leadership requires constant resharpening, refocusing, never really being satisfied. I encourage you to keep asking the question, ‘What do we want to be remembered for?’ It is a question that induces you to renew yourself – and the organization – because it pushes you to see what you can become.”

So as you think about where you want to be, there are certain questions (yes, more questions) that you can ask yourself to help frame the necessary steps to get there, and what your credit union will look like five years from now.  Drucker outlines five elements for effective planning that can be applied to any organization, your credit union included:

1. Abandonment – what should you stop doing?
2. Concentration – what is working that you should do more of?
3. Innovation – where is tomorrow’s success going to come from?
4. Risk-Taking – where do you take risks, and of what kind?
5. Analysis – what don’t you know that you need to know?

Given the stress that the credit union business model is experiencing from within and without, self-assessment and effective planning have never been more important.