Ready To Rumble - Guess Who's Back For Round Two ???

One of my favorite sports is that of mixed martial arts. To the people that know me this is often a surprise as I am not really a blood thirsty type of person.  Yet, put mixed martial arts in front of me and suddenly I am intensely focused on the action. I know that people have a wide and differing views on the sport. To fans it can be seen as the ultimate expression of competition and to its detractors it is simply blood sport that grinds up the talent of its participants. I am Sweden on this issue – neither agreeing or disagreeing.

 I remember the first match I ever watched. A very slender quite man entered the circle wearing a traditional white jujitsu gi. His opponent was a boxer that packed an additional twenty pounds of heavy bone crunching muscle.  As they went through the introductions I could not believe how calm this skinny guy in white pajamas from Brazil appeared.  Didn’t he know he was about to get pulverized? The other guy was fresh off of 15 straight victories and looked liked he could punch through concrete. In fact, he was so confident in his punching ability and his power to knock out his opponent he wore only one glove to the match thinking he only needed one punch to win the victory. In his mind he was the only real game in town. Two minutes later the boxer was defeated and the world of mixed martial arts was wondering who the skinny kid from Brazil was.

Fast forward to our current environment and we still see opponents that think that they can beat the competition with only one hand and that they are the only real game in town. Big Banks with somber faces and hats in hand have been claiming that, because of a Federal Reserve rule change and the financial reform bill, they now have to create new fees to make up for the ones the government banned as unfair.  The money that they take with one hand is then passed on to stockholders via dividends  and cooperate executives who collect fat bonus checks. That whooshing sound is the sound of money leaving your members wallet and your  local community.

So how do we as cooperatives face this challenge?  When I look at the page hits for the blog by far the most popular pages are those in which the concept of matching member needs are the central topics. The topics also tend to generate the most comments. A recent and very unscientific poll on the blog revealed that fifty percent of you do offer sales but only as “needs based solutions”.  Twenty percent do not offer sales at all. While the poll is entertaining and extremely unscientific  is does allow us to look at each other and consider our next steps as cooperatives and what exactly that means from a  cultural perspective.

I think before we look forward we need to look back and also look across the table.  As each of us gaze at our competitive landscape it is easy to focus on the credit union across town. Many of you have pulled the call reports and you can see that you have not suffered the losses that your local competition has (turns out participation loans are trickier than people thought) and your opt in campaign back in the spring for courtesy pay has maintained the non interest income stream for another year.  Thanks to some fast and innovative promotions consumer lending is holding steady. People in the community are slightly less worried about losing their jobs so your new and used auto is beginning to trend back towards 2007 levels. 

Before we all congratulate ourselves on a job well done we need to consider that many credit unions were successful in the past in spite of themselves. The margins were such that you did not have to be overly efficient and your staff could just get by using credit union charm and acting as order takers for members.  The past two years have seen many credit unions grapple with hard decisions and forced efficiency gains. For many credit unions the last two years have been crucible moments in which core cultural values have been dusted off and people inside the organization have had to dig deeper to help members in distress.

Now that you have made hard decisions where are you going to take your operation? More importantly where is that Big Bank in your town taking its operation?  Just as credit unions have made hard decisions so have BigBanks. The fall out on both sides has been much like a no holds barred tournament as the weaker have fallen prey to stronger.  In the third quarter alone 41 banks have thrown in the towel for a total of 127 so far this year. The closing of the doors were often no more than changes in the signage as they were quickly taken over by the FDIC (Federal Deposit Insurance Corp.), who  changed the name on the front door (but kept the FDIC sticker) over a weekend. Make no mistake more will evaporate. Last time I did a Google search (again another very unscientific  method )there were 860 banks on the FDIC's list of problem institutions as of September 30. That is up from 829 at the end of June.

Before we all rejoice we should consider that like many of us the BigBanks are again finding their feet and are up for another round. For the third quarter, banking industry profits leaped higher as revenues increased and loan loss reserves subsided. For the group of about 7700 banks and thrifts net income was $14.5 billion. That's up around 12 billion from last year in the third period.

More good news is that the percentage of banks losing money at the end of the quarter was the lowest level since June 2008, when the economy was about to plunge over the cliff. If you were to look back a year ago, almost 33% of all U.S. banks were bleeding red ink. Fast forward today and now, it's less than one in five.

Make no mistake we are all in for a tough round two. Unlike that fight I watched so long ago this time BigBanks are taking off the gloves all together as they work to challenge us in our local markets and in our legislative arenas. Tax exempt status is back on the table as The Independent Community Bankers Association (ICBA) argues bad investments by credit unions have led to the takeover of five corporate credit unions by the National Credit Union Administration (NCUA) during the past 18 months. Big Bank are hiring top talent in your ranks as they again rev up their profit centers. This time around they are focused on gaining back bread and butter consumer relationships from your members. Are you Ready to Rumble ?

Practical Application:

As you look to next year who do you see as your competition for your members attention and in meeting their financial needs?

How are you adjusting your hiring strategies to make sure you bring in the talent you need to take your organization to the next level?

Do your top performers share best practices or are they quite so as to not upset their peers?

How skilled are your staff members at articulating the points of differentiation for your institution?

As Big Banks are flooded with money and are again hiring what is your strategy to retain top talent in your organization?

The Elephants in the Room- Changing Our Culture To Our Landscape

Who Are We Exactly ?

The credit union movement is one of the most dynamic and diverse movements in business today. If you were to attend a credit union chapter meeting you would find leaders from multibillion dollar credit unions sitting at the table with credit unions with just three to four people. The challenges for each of them are very unique. The billion plus dollar credit unions have to deal with scale and increased complexity that comes from having so many members and assets. The small credit union struggles with equally daunting challenges but on the opposite side of the equation as they struggle with little money and tight budgets. For them the question of the day is how they can get an extra printer or a new desk to replace the equipment that is on its last legs.

What Keeps Us Up At Night ? Our Members ???

If you were to poll the group of leaders in a local chapter meeting on what keeps them up at night some would say credit unions need to be focused on small business lending and raising the cap, others might say we need to be talking to lawmakers about alternative capital or the state of corporate credit unions and their need to consolidate and create economies of scales. As fascinating as those topics are a central issue for credit unions is learning to really listen and talk to their members about the value of their services and products. A silent credit union who masters the business of “order taking” is only as good at serving their members as the member is in understanding their own unknown needs. Simply put- members are not financial service experts- they simply don’t know what they don’t know.

Part of the challenge of the debate on "sales" is that credit union’s foster incredible loyalty in their employees and leaders. When speaking to a leader of a large credit union about culture they stated, “We do not hire from the outside except of entry level positions.” You could  appreciate the sense of pride this person felt when he stated he was a branch manager and had been with the company twenty four years. This company was his first job out of college and was central to how he defined his career success. This type of talent pool strategy is not unique to this one credit union. There is undeniable strength in the strategy that the executive management team is able to make sure outside influences don’t change the core culture. On the flip side there are equally daunting drawbacks as the downside to this strategy is that change is a fact  and we all have to adapt to changing external business conditions and market forces.

Just in my short career I and many of you reading the blog have seen financial service industry grow more complex. Big Banks have not stopped in their relentless pursuit of market and wallet share. Twenty years ago there was no Citigroup or Bank of America as we know it today. The players on the field have changed and their tactics have improved in their ability in parting members from their wallets. What does it look like on the other side of the fence?  If you could be a fly on the wall in the Big Bank boiler room what would it look like? Here is my experience that I would like to share as a point of perspective.

A Peek At the Dark Side 

In 2004 a Big Bank opened a new call center two counties away from my home to handle one of their multiple billion dollar card portfolios. The building was a state of the art facility that would house over one thousand associates. Each entrance had an eye scanner that scanned each person’s pupil before allowing them into the building. I was hired as one of the first service and sales managers for the new operation. The day I walked into the building the leadership staff was non-existent except for a newly promoted site Director and one very overworked Human Resources officer. Walking into the empty building and seeing line after line of phone pods I could not help but wonder how we were going to get 600 people hired, trained and operational for Christmas shopping which was six weeks away.

The central task was to train associates to handle incoming calls and answer the typical questions that cardholders have regarding their credit card. This type of activity is typical of most large credit card providers in the industry. If you were to listen in on the call you would hear the associate use carefully selected care phrases (“Mr. Customer, I would be glad to take care of that for you.” or “Thank you for being a Big Bank card member”)  to let the customer know how much their business is valued. This is a standard in the industry as credit providers compete for the same customers that rotate in and out of the various credit card portfolios.

The real challenge comes at the pivot point in the conversation where you have handled the service request and the member is looking to exit the call. This is where some credit unions would end the conversation by thanking the member for being a member of the credit union. This is not where the Big Bank customer service agent is trained and incented to end the conversation. 

The Pivot Point 

The Big Bank associate is trained to continue and using verbal cues from the customer presents an additional product or service for the customer that they might not be aware of. For example, you might have an associate talking to the card holder about the company's card reward program. The associate answers all of the card holders questions and then reads a statement exactly word for word detailing the program and the terms and conditions. Once the card member has agreed the associate clicks the button and then marks down a sale. What the cardholder did not know was that sales associate just made four dollars on that call for adding the reward program.

This is an example of Big Bank “needs based selling” that many card providers are now doing in their call centers. This activity is not something that happens randomly. The associates involved are incented per sale and have desktop prompts that list the next most profitable sales opportunity for the company. The expectations are that associates in this operation would make an offer at least seventy percent of the time. This means your members who have any Big Bank relationship are being bombarded with sales presentations. This does not count television, radio, and web advertisement.

Why Our High Moral Ground Hurts Our Members 

You could have better rates on your credit card, you might even a better rewards program that does not rely on twenty or thirty percent of the users having their points expire. Yet, if your members are not asking you about it and you are not expecting your staff to educate members on it then what is the value of your program to your membership? Your cultural stance on not "selling" to your member has allowed them to remain with a Big Bank product or service that cost them more money. 

So how do you combat this stream of misinformation that is bombarding your members? You have to create a version of service that proactively educates and empowers your membership as they interact with your institution. You have to create an cultural intervention for your staff. The intervention needed is not one of organizational structure but is rather one of culture or operational environment. 

Cultural Change - One Bite At a Time 

This type of cultural change will require the initiative to tackle educational gaps and the definition of what your staff view as a collaborative culture. David Nadler, author of Champions of Change,  wrote about the subtly of the word culture, "In the 1970's and '80s, as U.S firms struggled desperately to figure out why Japanese companies were becoming global powerhouses, some observers seized upon 'culture' as the key ingredient in the Japanese recipe for success." Nadler continued, “The term took on outsized and ambiguous, almost mystical, connotations" The author then provided the substitute term of “operational environment”.

To create this operational change you must address three areas of the operating environment the first being artifacts. Artifacts are observable behaviors, these artifacts are in fact overt manifestations of your credit unions values and beliefs.  Stop and think about the visual experience your staff has when they walk into their work space.

• Are there posters on the walls, papers on the glass doors or windows of manager offices highlighting the member successes they have achieved?
• Does the space around them encourage them to educate and empower your members? For example, when a person walks into the sales offices of an automobile dealer it has a feeling of deals and negotiation in the air. No one is surprised to see someone purchase a car. In contrast, to walk into a law office one would not expect to hear the buzz of capitalism as people haggle over the price of a product.

This same type of change was needed when I walked into the Big Bank operations area. The site was intended to be a customer service and sales site. However, the sales portion was missing from the organizational artifacts. A sales force feeds on energy as each person competes with peers or with themselves to present with enthusiasm a product or service that a consumer is not aware they were initially in need of. Back in 2004 looking around the Big Bank operational floor there was nothing to make you think that people were expected to do any sales. This in turn provides an excuse for those who are not engaged in trying to sell.

Our first step was to change the artifacts on the floor. So we did the following things:

• Giant message boards were placed on the walls. These boards will list top sellers and publicly recognize those associates who are meeting the sales goals.
• Created an "atmosphere of urgency". To accomplish this, associates need to understand the site's performance in comparison with the other twelve Big Bank sites. To create this awareness management displayed where the site's performance was in comparison to other sites.

Values - The Bridge from Vision Statement to Agent Conversation 

Real change has to impact the values of the operation. This level of the operating environment is the organization's espoused values. These are public expressions of what people value as important in your organization. An example of this is our credit union vocabulary. We don’t have "customers" we have "members". We are not banks we are credit unions. To impact this level of the operating environment staff need to hear and learn to speak in context to what the values represent.

How do you change this? You have to start to interject into daily conversations the key metrics and drivers that you expect your staff to be aware of to reach the desired outcome for your department.  Staff need to be able to define in words what success will feel or sound like. A good starting point is to redefine the “key words”.  So going forward “sales” are a chance to “match member needs”. 

Give your staff defined principles to value and follow. The expectation when talking about credit union products and services are that conversation should be based on the context of the conversation in front of the staff member. The goal is to educate and empower members to make informed decisions on the level of economic participation they want with the credit union. 

Celebrate member success stories in which you made a difference to a member. Send them all the way to senior management. Put them on your intranet. Write a blog post about them with your membership and post it on that new Facebook page marketing talked you into. Promote and recognize the values you want to reinforce in the culture you are creating.

As you stop and consider the billions of dollars our members are paying to Big Banks for auto, mortgage, and revolving credit the question of sources for additional capital come into focus. Consider the billions of dollars parked in low interest Big Bank savings accounts and our members oblivious to the power of real economic cooperation. Those are the questions we have to answer. Those are the billion dollar elephants in the room that no one wants to talk about.

Each of us owes it to our membership to educate and empower member owners on the powerful principles of economic cooperatives.  We have to be able to move past credit union charm to real economic empowerment by educating that member in front of us on the value of being a member owner of a credit union.

Don’t just read the blog share your comments and opinions. This blog is meant to be a cooperative experience for us all. 

New Kings To Protest- The Kings of Wall Street

On this Veterans Day you can’t help but think of the personal freedoms we enjoy in the United States and in many parts of the world. When I think of inspiring documents that changed the course of history perhaps no document comes to mind more than that of The Declaration of Independence. It set forth the moral justification of a rebellion against a long-recognized political tradition—the divine right of kings. The central issue was the fundamental question of whether men’s rights were God-given or whether these rights were to be dispensed by governments to their subjects.

This document proudly proclaimed that all men have certain inalienable rights. In other words, these rights came from God. Therefore, the colonists were not rebels against political authority, but a free people only exercising their rights before an offending, usurping power. They were thus morally justified to do what they did. The power of this thought is incredible. 

Today in watching and reading the headlines it is easy to find ourselves pulled down into the petty arguments that are broadcast twenty four/seven by media to perpetuate ratings for advertisers. Big thoughts and soul stirring declarations seem to be buried and forgotten. At least that is what I thought till a few days ago.

This week I had the opportunity to spend a few days with some unbelievably talented people who had come together to understand seven fundamental principles. These principles are the very bedrock of where credit unions came from.  These principles were inspired by the Rochdale Principles, which were named after the first successful co-op, founded in Rochdale England in the 1840s by a group of weavers.These principles are:

1. Voluntary Membership
Credit unions are voluntary, cooperative organizations, offering services to people willing to accept the responsibilities and benefits of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control
Cooperatives are democratic organizations owned and controlled by their members, one member one vote, with equal opportunity for participation in setting policies and making decisions.

3. Members’ Economic Participation
Members are the owners. As such they contribute to, and democratically control, the capital of the cooperative. This benefits member owner in proportion to the transactions with the cooperative rather than on the capital invested.

4. Autonomy and Independence
Cooperatives are autonomous, self-help organizations controlled by their members.

5. Education, Training and Information
Cooperatives provide education and training for members, elected representatives, managers and employees so they can contribute effectively to the development of the cooperative.

6. Cooperation Among Cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, state, regional, national, and international structures.

7. Concern for Community
While focusing on member needs, cooperatives work for the sustainable development of communities, including people of modest means, through policies developed and accepted by the members.

As you think of these seven principles it is easy at first to dismiss them. Yet, the relevance of the seven fundamental concepts is so sorely needed in the world of financial services. Take the concept of voluntary membership.

Currently one of the biggest arguments on the airwaves is that about the size of government and the role of government. Last month riots were all over the news as France came to a standstill as people went on strike. Last week political futures were made and lost as voters in the United States took to the polls to vote to voice their discontent with the economy. This week students protested in England over the rise in tuition costs.

Now more than ever both sides of the political spectrum are looking for solutions that they can live with. This is where the concept of people having the right to voluntarily join together who are willing to accept the responsibility for the success of the group becomes so powerful. Achieving together what each person could not achieve alone. Achieving economic empowerment for all members regardless of gender, social, racial, political or religious status.

Now I know some of you are thinking I have suddenly drunk the Kool Aid and am going too far into the realm of “peace, love, and happiness.” To the contrary what excites me the most about this fundamental principle is that it is boundless. It crosses the political spectrum. It enables people to help people on a voluntary basis without the need for government handouts. It is bootstrap finance as each person contributes and receives benefit based on their economic contributions.

Take one dollar. We all probably have both lost and found one dollar on the street. What can you buy with a dollar? If you are a cooperative with voluntary membership you can create a foundation that charges one dollar per month for a checking account. What you accomplish with that dollar could be amazing. Imagine doing the following:

• Giving 10,000 dollar scholarships to the children of workers who were fatally injured on the job.
• Giving five million dollars as a grant to start a new cancer center.
• Giving a four year scholarship to every high school in the state (over 350 traditional public high schools) a total commitment of 4 million dollars a year.

All of this achieved by one foundation (www.ncsecufoundation.org) by a group of voluntary members who have joined together to empower one another based on economic participation.

These same types of activities happen in small credit unions with only three people who work to serve a thousand members to large multibillion dollar credit unions.

There should be no doubt what our task is today. If we truly cherish the heritage we have received, we must maintain the same virtues and the same character of our stalwart forebears—industry, frugality, self-reliance, and integrity. We have the obligation to maintain what those who came before us pledged with their time, hard work and their fortunes. The opportunity and obligation for doing so is clearly upon us.

It is up to each of you who read this blog and who work so diligently in the credit unions you work at to speak up and make sure that the principles of our past are written in the business plans of tomorrow. That we do not forget the very principles that set us apart from the people who would love to see us disappear.

Today there are new kings to protest. They hold tremendous power and like the days of old they are oblivious to the struggles of those around them. They are the Kings of Wall Street. Like those before us it is up to us to remind ourselves and those we care about that the Divine Right of Kings has passed.

iPhone App...Deal Makers... And Not Being the Next Big Fish

I want to start by sharing a story of two technology sales reps that after having landed a large contract with a credit union for a conversion were awarded to an Alaskan fishing trip. This had become almost a ritual for this sales team as year after year they were able to land the “big fish” contracts. The two friends excited about the upcoming week hired a bush pilot to fly them to a scenic lake for their Alaskan adventure.

Days later after having had both an enjoyable and successful outing the men radioed the pilot to return and retrieve them. On arrival the pilot quickly informed the two salesmen that his small plane would not support them, their equipment, and the added weight of all the “big fish” they had caught. A second flight would be required.

Now, the two sales pros were not interested in paying for a second round-trip. So after quickly conversing between themselves they promised to pack tightly and offered a bonus payment, against his better judgment the pilot reluctantly agreed to attempt the flight.

The sales reps leaned forward and grinned knowingly as the pilot struggled to force the aircraft into the air. Seconds later the plane stalled and crashed into a large, flat marsh at the end of the lake.

Fortunately there were no serious injuries, and after regaining their senses, one of the sales representatives shook his head to clear the cobwebs asked the other, “What happened?” The second also shaking his head replied, “We crashed on takeoff—about a hundred yards from where we ended up last year!”

Too often this same insane cycle of repeating past patterns of behavior, like the two sales reps, is followed by fast talking vendors as they look to create robust margins by selling that there is an easier way, a shortcut or modification that no one else knows about . They pitch a new flavor of Kool Aid that everyone will want to drink.

A recent example of this that comes to mind was when a colleague of mine described talking to a mobile vendor about getting an iPhone app for his financial institution. The institution had a fair amount of online banking penetration and was looking to expand its mobile offering. The price for the iPhone app was “free”. Now of course there would be monthly service fees but the installation would be at no cost.

What was the price of the monthly service fees? The cost was only 1.75 per user per month. The institution had around four to five thousand (paraphrasing here as I can’t remember the exact amount) online banking users hitting the web browser using an Apple product. Real cost of the “free” iPhone app was only 94,000 per year (4500 x 1.75= 7875 x 12 months) the cost for five years was only 470,000 dollars!

I realize everyone is excited about the buzz in new mobile technology. In fact in the first quarter of 2010 over thirty banks or credit unions launched new iPhone applications.

The value proposition for new mobile applications varies depending on who you are talking to. Early adaptors and tech centric advocates will swear it is worth any cost. On the other end of the spectrum those business line owners of brick and mortar branch networks will say it is a waste of capital. My opinion is that the value of the application is somewhere in between.

The real question is what do you need the application to do? Is the primary value for app the marketing buzz it will create? Are you simply looking for a cool factor that will resonate with a younger demographic? Maybe you simply need an iLobby application that links remote deposit capture and branch location to your existing mobile banking solution.

Knowing what you are trying to achieve helps you understand the value you expect for the initial investment and the ongoing variable cost. If the whole goal is to increase your mobile usage and to build up your member self access channels then you have to ask yourself does your basic mobile solution offer the features and benefits you need to accomplish that?

Much like the bush pilot who was lured with false claims and then crashed into the marsh we need to have a real understanding of what the sales reps are trying to bring onto the plane. For most credit unions a 500,000 dollar iPhone application that mimics their existing mobile solution is a weight that will only end with the plane crashing to the ground.


Practical Advice:


Do you see an advantage to be a first mover on expensive tech or is there an advantage to having a fast follower strategy that adopts tech after first movers pay for infrastructure build out ?