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Building a Better Talent Machine for the Future

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7 minute read – The following blog post was written by c. myers and originally published by CUES on November 22, 2021.

We’re experiencing upheaval and uncertainty in the employment arena.  One of the most common issues we’re hearing and talking about in strategic planning engagements is talent—more specifically, how to retain and engage the right team members, and attract and onboard the right candidates for your desired value proposition and business model.  As you plan how to respond, it’s helpful to break down what’s happening in the environment, determine which effects will be with us long term and consider the challenges from different angles.

Both retention and hiring are difficult right now.  At the most basic level, while it’s uneven between industries and regions, there is a labor shortage.  There are several contributing factors, some of which will likely last longer than others.  The most cited reasons for the unemployed to delay getting a job include fear of catching the virus and childcare responsibilities that are harder to meet with the uncertainty around schools and day care.  Other factors include the extra $300 per week in unemployment insurance payments, which has recently ended, and the stimulus money received earlier in the pandemic.  About 2 million more retirements than expected during the pandemic also contributed to the shortage.

It’s interesting to note that there was less than one unemployed person for every job opening before the pandemic, too.  But it feels different this time.

A reason for the difference is that the number of people voluntarily leaving their jobs has been higher than usual.   The Great Resignation, as it has been called, is partly driven by a backlog of resignations as people who otherwise would have left their jobs stayed put during the uncertainty of the pandemic, and are now ready to make a change.

But out of everything that’s happening, perhaps the most difficult aspect to gauge is that people have taken a step back and reevaluated their situations.  Work arrangements fundamentally changed for over a year – long enough to give people the space to think about their priorities, for example, family time, commutes, what they want and don’t want from their employment, and where their jobs fit into their lives.  This has led some to purposefully seek something different in their work.

Talent Market Challenges Will Continue

The bottom line is that the talent market is going to be competitive for a while.  Most institutions are concluding that they need to compete differently to get the talent they need.  And while it’s natural to lament the current challenges, those challenges also present tremendous opportunities to build a better talent machine that will serve the organization far into the future.

What’s important to team members is the subject of much discussion and many articles.  Organizations are focused on providing more of what team members want and offering a clear value proposition to candidates.  Viewing the company through the lens of the team members’ experience is important, but it’s also critical to ask what’s important to the organization and what type of work culture is desired that will meet the organization’s needs and team members’ needs?

Here are some strategic thinking questions to help gain clarity as an approach is developed:

  • Think about the reasons for labor challenges, some of which were discussed earlier.  Include specific factors for our market.  Which do we think will be short-term and which will be long-term?
  • How can we turn our talent development, recruitment and management into a competitive advantage?
  • What kind of a talent organization do we want to be?  In other words, what is our desired strategic people plan (our talent structure and competencies to take us into the future)?
    • How can we achieve our strategic people plan?  How can we refocus our talent retention, development and recruitment efforts for this purpose?
    • Which areas of the organization need more depth or more bandwidth?  How do we anticipate that changing in the next five to 10 years?
    • How are the competencies required to support our business model changing?
    • Will we highly value self-starters, innovators, collaborators or experimenters?  Will we provide more certifications and training or do we want people to drive their own development?
  • What is our desired value proposition as an employer?  Why?
  • Imagine the best place you can think of to work.  Go beyond pay and benefits.  What are the most important aspects?
  • Who are our high performers?  Why?  Were they developed internally?  If so, how?  If not, what would it have taken to do so?  How will our definition of high performer change in the future?
  • Some people just want jobs and are not interested in professional advancement.  What conditions make that a good exchange for the organization?
  • Think about those who clearly understand the purpose and strategy of the organization.  Did they drive toward that knowledge themselves?  What were the defining moments or events that cultivated this deeper engagement?  What level were they in the organization when they started to “get it”?  How can we use this knowledge to get more team members engaged on a deeper level?
  • What are the characteristics of those who thrive in our organization?  Why?  Are those the characteristics that will serve the organization in the future?
  • What are we going to do differently that is truly enough to meet our talent challenges?

As you engage in strategic thinking around these questions, recognize that if your desired outcomes amount to building a better talent machine for the future, a change in culture may be in order.  This is not a task to be handed to the human resources department to “fix.”  It will require senior leaders working together to make it happen.  To shift the culture, people at many levels need to think and act differently.  The senior leaders must model new behaviors and discuss them regularly until they become ingrained in the culture.

Individual organizations don’t have much control over supply and demand for labor, but you do have opportunities to match team members’ and candidates’ desires and needs with the desires and needs of the organization.  Imagine looking back in five or 10 years and realizing that team members are generally more satisfied and engaged, and the workplace landscape, as a whole, is better than it once was—all thanks to a pandemic that rapidly and radically shifted how we think about work.

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c. myers live – Scenario Planning: A Tool to Prepare for the Future

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Scenario planning has always been a key tool for institutions to use as they prepare for the future.  In this c. myers live, we discuss ways scenario planning can help institutions think critically about potential outcomes and gain clarity on actions they may take in the future.

To gain more insight on scenario planning, read our blog post.

About the Hosts:

Rob Johnson

rob johnson headshotRob, one of five c. myers owners, has a reputation for deep, original thinking on asset/liability management and every conceivable modeling methodology, as well as analysis of investments, liquidity, aggregate risk, concentration risk, and other related topics. While Rob is a familiar face to the managements and boards of many of the largest credit unions, he has helped credit unions of all sizes tackle some of their toughest challenges, such as rebuilding capital and navigating safely and soundly with the smallest of margins. He has become quite familiar to many leaders in the regulatory world, both as an educator and a thought leader.

Learn more about Rob

Brian McHenry

brian mchenry headshotBrian, one of five c. myers owners, has worked closely with credit union Boards and managements of all sizes in a variety of capacities. As a strategic planning facilitator, CEOs regularly praise Brian’s industry knowledge, calming communication skills, ability to authentically engage anyone with whom he interacts, and ability to keep discussions focused on linking strategy with desired measures of success.

Learn more about Brian

Other ways to listen to c. myers live:

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4 Components of Scenario Planning

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scenario planning9 minute read – Preparing for the future is critical for every business, in order to ensure it is relevant and able to manage risk and take advantage of opportunities.  Of course, this would be easier to do if leaders knew what the future held, or at least had a semi-transparent crystal ball.  So how do leaders prepare for the future when it’s impossible to know what the future holds?

One of the ways to prepare is through scenario planning, which can help leaders think through a range of futures.  Scenario planning is not new – however, it has become more important as the pace of change accelerates, and the feeling of uncertainty has grown.

Scenarios can, and often should, be used in every part of the business planning process, from strategic planning and strategic financial planning, to leadership development and critical thinking.  Given the extent of how scenarios can be used and how much can go into them, we have identified four high-level components that leaders should consider as part of their scenario planning process.

Clarity of Objectives

Be clear on the objectives and make sure there is alignment on what you are trying to accomplish with scenarios and scenario planning.  This sounds straightforward and, in many ways, it is.  So why call it out?  In the scenario planning process, leaders are trying to balance the need for structure with the desire to create an environment of freethinking.  Having clear objectives helps accomplish this.  Also, this step is often missed which, again, given the balance of structure and freethinking, leads to a less productive scenario planning process.

Types of Scenarios

The number of scenarios an organization could test is endless.  So how do organizations go about organizing their scenarios and deciding which ones to test?

One way to organize is to think through the environmental factors and trends that could impact the organization, as well as the potential impact of factors that are unique to your organization.  These are, respectively, called systemic and idiosyncratic scenarios.

Systemic scenarios focus more on macro or environmental issues that have a broader impact on the financial services industry or economy.  Examples of this are inflation and talent shortages.

Idiosyncratic scenarios are focused on unique impacts to a specific institution based on its business model, geography, and so on.  Examples of this are natural disasters or a major competitor that moves into the market.

Using this approach, teams can develop a list of systemic and idiosyncratic scenarios that the organization should work through.  Also, keep in mind that idiosyncratic scenarios may develop out of a systemic scenario.  For example, the team may say talent shortage is a systemic scenario that every institution is dealing with.  However, losing key senior team members unexpectedly is an idiosyncratic scenario that is unique to that institution.  Taking that example one step further, a scenario could be the organization losing one or two members that are key to the success of their business model.

Once the team has a list of scenarios, they can then work through a process of ranking them to help prioritize where to focus.  In the example below, a leadership team brainstormed primarily systemic scenarios and then scored them based on their potential impact and likelihood of impact over the next 5 years:

 

Ranking Scenario

Qualitative vs. Quantitative

Once the scenario(s) have been decided, teams can determine how they want to approach the scenario by asking:  Is the desire to get results that are quantitative, qualitative, or both?

A qualitative approach will often focus on the potential impact to customers, team members, partners, and processes.  This approach could include working through questions like:

  • What events could potentially occur?
  • How could it change consumer and/or team member behaviors?
  • How could the events impact our business model?
  • What different actions would be needed?

A quantitative approach can be financial, but doesn’t have to be.  It might include more data and numbers that need to be analyzed as part of the scenario.  If the scenario does have a financial component, then using different tools like ALM models, forecasting models, loan production analyzers, and credit risk analytics would be part of the work.

Some scenarios will focus more on qualitative approaches, like talent shortages, while others will be more quantitative like inflation.  In reality, scenarios will have elements of both.  Initially, individuals, teams, and organizations may gravitate towards one approach over the other given their preference.  However, it is important to develop competencies for incorporating both quantitative and qualitative views.

A key for leaders is to decide where they want to spend their energy when it comes to the approach.

Depth

The same scenario can be addressed at different levels depending on its importance and the resources a team wants to allocate.  So, it can be helpful to ask:  What level and depth should we work through?

Organizations do not need to commit large amounts of time or go straight to an analysis tool to get started.  They might start simple and decide later whether more depth is needed.  Said differently, don’t let time and resource constraints be an obstacle to working through a scenario.  For example, there may be a scenario the team wants to explore based on their prioritization but time is limited – maybe they only have 15 minutes.  Even in this time, the team could get started.

The team could take a qualitative approach by doing a 180-second exercise and listing out the potential impacts and/or opportunities.  Alternatively, the team could take a quantitative approach, list the impacts, and do napkin math of the potential financial outcomes to Return on Assets (ROA) and Net Worth (NW).  The team could then decide if they need to dig deeper and add additional depth to the thinking on the scenario.

The level of depth can be extensive.  The example below provides a concept for how leaders can think through the level of depth appropriate for the scenario:

Again, not every scenario will require Level 3 depth.  The key is to think through what the organization needs in working through the scenario.  Then, based on resources and time, determine the level of depth needed, which could evolve throughout the process.

Inflation Scenario

To pull this all together, we are going to walk through an example using inflation.  In this example, a team has identified inflation as a systemic scenario and wants to take a quantitative approach.  Given the level of importance of the scenario and the desired outcomes, the team determines they’ll need to go to a Level 2 depth.

As part of working through the scenario, the team determines there are many views of inflation with varying impacts.  Some types of inflation could have a positive financial impact while others may have a negative financial impact.  As a result, the team identifies 6 inflation paths that could impact their organization:

Having worked through the paths, the team starts to model out the financial impacts.  Since the paths have more than one isolated variable, they use a forecasting model to run out the paths so they can connect multiple variables.  They then compare the results so they can see the range of impacts:

In most cases, inflation would hurt ROA anywhere from 16 basis points to 47 basis points.  However, there is a path (D) where inflation would actually help ROA.  This is important for leaders to know, especially as some scenarios, such as inflation, would seem to be all about risk on the surface.

Next Steps

On the other side, this could help your organization decide against other actions or, at least, provide you with a better understanding of the pros and cons of the actions you’re taking.  Look for common actions that would help the organization across most paths.  This can help prioritize actions the team can take, even if there is uncertainty about which path may occur.

Similarly, the team can identify which actions are helpful in specific paths but may actually be detrimental in another path.  Again, in preparing for the future, knowing the risk and the return of each action is invaluable.

Teams should follow a similar process across a wide range of scenarios.  They should keep an inventory of actions and then look for commonalities where certain actions would help in many scenarios.  This could elevate the urgency for taking a particular action now or in the near future.

The future is uncertain, but that doesn’t mean leaders, teams, and organizations can’t prepare.  Scenario planning is a key tool for organizations to think through tomorrow today and determine actions they can take.  While scenario planning can go to a great level of depth, it can also be fairly simple, straightforward, and fun.  Make sure you’re involving cross-functional teams to ensure broad, diverse, and deep thinking.  The key is to get started and keep practicing so it becomes an ingrained competency.

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Mortgages – A Few Things to Consider

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5 minute read – Where is the mortgage market headed?  In 2021, the trend toward purchase money has become more prominent, but projections from FNMA would suggest this pattern could accelerate dramatically in 2022.

fannie mae

If Fannie Mae’s forecast is accurate, refis could decrease from 64% of originations in 2020, to 57% in 2021, slipping all the way down to 40% in 2022.  So how well is your institution positioned to handle this shift?  The following are a handful of considerations:

  • Why should they choose you?  What is your mortgage lending value proposition?  If your rates and fees are competitive but the process is slow, what specifically needs to change, and when, to meet the demands of the purchase market?  For example, how could you represent a preapproval for a member differently that helps them look stronger when competing for properties?  Are you willing to commit to fast closing timelines or tout average close times that are better than average?
  • Will they say it was easy?  Buying a home should be fun, not stressful.  But with the massive refi activity in recent years, many institutions have been completely overwhelmed and service levels have suffered on both refis and purchase mortgages.  What changes need to be made to your processes and service delivery?  When did you last review your internal and external service level agreements (SLAs) to ensure they are clearly articulated and understood by your team?  How consistently are your SLA’s being met?
  • What relationships do you need?  For example, how important are relationships with realtors, brokers, and title companies to generate volume and live up to your SLAs?  If those are a key part to your success, what can you do to win their business?
  • How can your 3rd, 4th, and 5th party relationships affect your brand?  If you are heavily reliant on vendors to deliver on your value proposition, how will you continuously assess and ensure they are delivering on their end, so your brand does not get damaged?
  • What if refis remain strong?  What do you need to do now to ensure you can continue to leverage refi opportunities while positioning your institution to be a key player in the purchase business? The possibility that refis can remain strong is supported by a survey conducted by Bankrate.  The study suggested that 74% of homeowners who had a loan before the pandemic have yet to refinance as of July 2021.
  • What about financial impact?  From a budget and ALM perspective, make sure you are testing the impact of reduced mortgage volume, particularly if your institution is not as well positioned to compete on purchase mortgages.  For example, how much revenue was generated on refis?  What if a certain percentage of that goes away in 2022?  What other revenue generating options should be explored if you are not positioned to make up the revenue in the purchase market?
  • What about risk appetite?  With the increase in home values seen in most markets, many refis were booked at relatively low LTVs.  Purchase mortgages may be at materially higher Loan-to-Value (LTV).  Should you change your criteria, such as requirements around Debt-to-Income (DTI), employment history, credit score or LTV?
  • How ready are you if 2nd mortgages make a comeback?  There could be more opportunity for 2nd mortgages, particularly if mortgage rates steadily increase and refis slow.  Now is a good time to make sure your fixed and variable home equities are competitive and your institution is well positioned to deliver these products.

Revenue creation and relationship cultivation are key.  If mortgages are a big strategic focus for your organization, don’t underestimate the value of investing time to continuously think critically about how to remain highly competitive in this quickly evolving market.  Remember, the point at which you address an opportunity is directly related to the number of viable options you have to leverage.

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Time to Think Strategically About Cryptocurrency and DeFi…Even if You Are Not a Fan

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3 minute read – Cryptocurrency and decentralized finance (DeFi) are gaining more attention every day, especially as there are more products and services that look and act like traditional banking services.  

For perspective, consider the following: 

  • There are over 20,000 crypto ATMs in the United States, including many inside Walmart.  Consumers and businesses can earn credit card rewards in crypto.  Some businesses are paying a portion of employee compensation in crypto.  
  • Cities in the United States, including Miami, San Francisco, Portsmouth, and New York are open to using crypto.  
  • Using DeFi, a borrower typically needs to provide collateral in the form of other crypto assets.  That’s it.  No credit checks, verifications of income, or any of the other requirements of traditional financial institutions.  For a simple explanation, watch this video from Nexo. 

Opinions are mixed on crypto and DeFi in general.   On one side, you have critics like Warren Buffet who have called it “…rat poison squared.”  

However, proponents tout: “While banks have office hours and observe holidays, DeFi never sleeps, whereas institutions use paperwork and committees to reach decisions, DeFi relies on algorithms.” 

Regulators are also starting to focus more on crypto.  They are evaluating how existing regulatory frameworks cover crypto and DeFi, and what changes are needed to provide protection. 

Even though the crypto market enjoys a lack of regulation, it is still important for decision-makers of traditional financial institutions to consider how to best respond given their regulatory framework and unique business model and strategy.   

One key strategic question to consider is – If current trends in cryptocurrency and DeFi continue, how can this help or hurt our strategic direction and business model in the next 24 months, 5 years, and beyond 5 years?  

When mobile banking started to emerge, there were many leaders at the time who thought it was a fad.  It is too soon to know if this fast-evolving trend is just a fad.  However, the consequences of assuming it won’t impact financial institutions, and therefore not learning about it, can lead to unpleasant surprises.   

For many, thinking strategically about crypto and DeFI will require a huge mindset shift.  When thinking about it, try to focus on the value proposition DeFi offers.  

Remember, DeFi proponents tout:  “While banks have office hours and observe holidays, DeFi never sleeps.  Whereas institutions use paperwork and committees to reach decisions, DeFi relies on algorithms.” 

Thinking strategically does not mean you have to make sweeping changes to your strategy or business model.  As you go through the process, it can be helpful to simply be open to the possibility of discovering incremental actions you could take now with your infrastructure and business practices.   

And don’t forget, learning can be fun!