Is Your Credit Union Competent?

Is your credit union competent? Can that competency be leveraged?

I would argue that few credit unions have developed a level of competency that can be leveraged. I believe this mainly because as credit unions have lost their original sponsorships that served to subsidize operational costs, the prevailing business models have become an ineffective mishmash of strategies.

While credit unions are mostly good at what they do, the reality is that competence is watered down, with divergent areas of focus and strategy competing for time, energy, and financial resources.

If you aren’t quite sure if you have an organizational core competence, or if you feel you do but don’t believe that your competence is unique and therefore “leverageable”, then read on. This post is for you.

What is Competence?

Competence is defined as the ability to do something successfully or efficiently. A simple term that masks a degree of complexity embedded in “competence” as a concept. For a better understanding consider a book published a few years ago called The Discipline of Market Leaders. The book, authored by Michael Treacy and Fred Wiersema, basically distills a few key ideas explored in Michael Porter’s book Competitive Advantage into three unique types of business. These types are called Operational Excellence, Customer Intimacy, and Product Leadership. The book argues that for a company to be above average, to be great, it needs to pick a model and work to develop an excellence in delivering that model. In short, companies need to develop a competence than can be leveraged.

Leveraging Competence

It helps to identify a few examples to better understand the uniqueness and competence requirements of each model. Lets start with Operational Excellence.

The basic idea of this model is that the operational framework within which you develop and deliver your products is a finely-tuned machine, so efficient that you can deliver the products (or services) much more inexpensively than your competitors can. The advantage of the model is that for consumers, there is a noticeable, if not major, price advantage or value.

Consider Southwest Airlines, a successful example of this model in action. The Southwest advantage is that their fares are often lower than any other carrier. The organization as a whole is driven by its goal to transport the flying public, and do so as inexpensively as possible. Everyone in the Southwest family, from ticket agents to baggage handlers, works to drive down the costs of flying, and anything (process, equipment, etc.) that does not add value in the way of reduced costs is never seriously considered for adoption. Their core competence is minimizing the costs of air travel and passing the savings back to their customers. Other examples of this model include discounters such as WalMart and Target, companies that have developed certain retailing efficiencies that allow them to offer the lowest prices on a predetermined selection of goods.

The next model, Customer Intimacy, can best be described as being very efficient at developing a deep and detailed understanding of the needs and trends of customers. Customer intimacy is all about the “extra mile” – taking the extra step to satisfy the unique and varied needs of customers in a way competitors find difficult to match.

Consider Nordstrom, a classic example of the customer intimacy model. If you are a regular Nordstrom customer, you are probably familiar with how much they know about you – your preferences, size, interest in certain labels, and so on (this was true even before the Internet made this process easier). They are apt to reach out to you when something new that meets your interests is on the way so you have an opportunity to procure new merchandise before anyone else. Everyone in the organization is on the lookout to find new and better ways to connect with the customer, and a great deal of money is spent to ensure that the experience customers have is always improving. A major difference between this model and the efficiency model is that this model is not about price. Price for Nordstrom, and other brands that embrace the model, is often higher than competitors. It has to be in order to afford the little things that enhance customer knowledge and understanding. The Ritz Carlton hotel chain, if you can call the Ritz a chain, is also en example of this model.

The final model is Product Leadership. Product Leadership is all about creating the next big thing, something that revolutionizes the landscape, creates buzz, and alters consumer behavior. This model is about being very good at effective research and development, possessing technical excellence in understanding consumer and business trends, and developing new products that speak to those trends.

One of the best examples of this model in action is Apple. Who knew that the world needed iPods? Apparently Apple. Millions of iPods (and the derivative iPhone and iPad) have been sold since the product was launched, and while Apple was not first to market with a portable music player, they were first to design usability with a mass audience in mind. Other examples include Nike, with the creation of a specialized running shoe, and Intel, with its obsession with making computing more powerful year-to-year.

Given the three business models, Operational Excellence, Customer Intimacy, and Product Leadership, and the companies I used to describe these models in action, you can see leveraged core competence in action. Southwest uses their considerable expertise in driving down costs, leveraging that expertise to drive to low fares. For the consumer that desires the lowest dollar cost for a flight, they have little choice but to use Southwest.

So how do you get there? How do you define core competence, and then leverage it as an advantage? By checking off the following major steps:

  • Clearly identifying your corporate core competency.
  • Leveraging your core competency to create real value for members.
  • Leveraging your core competency to set you apart from competitors.
  • Leveraging your core competency to capitalize on new product or service opportunities.

Identifying Corporate Core Competency

Let’s explore each of these steps individually. The first step, identifying your core competence, is perhaps the most difficult. [Our Enterprise Assessment program provides interesting – if not alarming – results from credit union leaders. When asked whether their credit union has a core competence, approximately 9 out of 10 times they respond “don’t know.”]

Go back and review the business models I described from The Discipline of Market Leaders. They provide a great place for you to start in your search for your credit union’s core competence. You may just want to try on one of the models for size as you explore that which could define you.

For the sake of argument, let’s assume you are considering an Operationally Excellent model, and as a result are now looking to drive down the cost of operations so you can offer members the best rates and terms on your product mix. With that one simple decision, you open up broader decision-making clarity! If you desire to drive down costs for the sake of better rates, your organization can then approach each and every management decision in the context of how to offer the best rates. Anything that takes away from that ability, such as free popcorn in the lobby, glossy (expensive) annual report stock, and so forth, are disavowed to better support the lower-cost structure – and ultimately better rates.

Leveraging Core Competency to Create Value

That leads us to the second point in the list: leverage core competencies to create real value for your members. If you are operationally excellent, saving great sums on the production process, yet do not pass that value back to members in some way, then you are not leveraging your competence. The key is to drive value back to consumers, leveraging your expertise to get them a better deal (or better service, or more innovative products, etc. – depending on the focus of your competence).

Leveraging Core Competency to Set Yourself Apart From Competitors

That then leads to using your core competence to set you apart from your competitors. In our example of choosing an Operationally Excellent model, the competence you develop in stripping out non-productive functions, functions that serve no value when it comes to driving down operating expenses in the quest for a better value for consumers, begins to set you apart. Consumers start to learn that if they want exquisite service then your offering is not for them. However, if they want the best financial value, then yours is the go-to institution.

Consider ING Direct circa 2002-2004. They offered a plain, simple savings account with no frills or added services. They even discouraged customers calling them because it added to their cost of operations. They leveraged their low overhead, offering the best rates on a plain savings account anywhere. Consumers loved it. Competitors had no choice but to match rates to keep money from flowing out the door – but they were competing at a disadvantage because they did not possess from the same base core competence. They had infrastructure, service level expectations, and inefficient workflow processes that made their costs higher than ING’s. For these institutions, offering consumers the same rates as ING was, in fact, much more expensive.

Leveraging Core Competency to Capitalize on Opportunity

This leads to the last item on the list, leveraging core competence to capitalize on new products or services. Another way to phrase the statement is leveraging core competence to define and/or select new products. In this case, the way competence is leveraged is as much by saying “no” to new ideas as it is saying “yes” to new ideas.

Reflecting on the scenario of choosing an Operationally Excellent business model, consider that you now make product and service decisions by how that product or service helps you offer the best financial value. “How much does it cost to deliver the product?” may be a key question you ask. The beauty here is that, with your competence in mind, you have a very clear method for analysis.

I have to go back to Southwest Airlines to give life to this process. The story goes that a marketing person went to then-Chairman Herb Kelleher with an idea to offer a chicken sandwich on their flights. Apparently it tested well with focus groups. People loved it, and indicated that it would make their experience with Southwest even better. Mr. Kelleher asked a basic question of this person. How would that sandwich help them offer the lowest fares – after all low fares and not gourmet meals were the reason people flew Southwest. The decision? No sandwich. The simple addition of some bread and a piece of chicken added food costs, storage requirements, additional aircraft service time, and kitchen staff that would have increased fares and diminished the airline’s core competence and price advantage.

It goes without saying that the connection between airlines and financial institutions is a stretch, given that they are different businesses with different focus, cost structures, etc. But don’t get bogged down by the examples. Think about how clarity in the identification and understanding of your own core competence can help your entire organization perform better over time.

The Wrap…

As it stands today, many credit unions have a mishmash of strategy. They want to offer the best rates, and the best service. It certainly isn’t that you can’t try to do both – but you cannot do both and be great. You have to have a higher margin to afford great service. Conversely, you have to have a very efficient operating environment to offer the best rates. Try to imagine a Nordstrom offering WalMart prices and still giving the famed Nordstrom service. Or, even better, the Ritz Carlton offering Motel 6 rates yet still providing you 1,000 thread-count sheets and a wait staff. It boggles the imagination.

Yet here we are as credit unions with a strong desire to know every member that walks through the door, give them top-tier staff to work with, offer the latest in delivery system technology, and at the same time provide them with rates that match up with price-focused competitors. It’s a hard mandate to live by. Over time any institution that works to maintain multi-tiered competencies will lose, and the members will suffer the most for the inefficiency.

Now is the time for each and every credit union that desires long-term survival and competitiveness to find and leverage a core competency – to the exclusion of all else. It is the only way to ensure that desire for success becomes reality.

1 comment

  1. A very timely and relevant post, Tom. Credit unions appear to be in a fortuitous position to be the leaders in providing financial services to the public…but sadly, most are not ready (or competent) to take on that role…perhaps by choice or lack of “know how.”

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