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Driverless Car Innovation Drives Impact on Financial Services Industry

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It’s not too soon to start thinking about the possible strategic implications of driverless cars and driverless car technology on the financial services industry. Billions of dollars are being invested by numerous companies and sectors to propel the use of driverless technology.

Self-driving or driverless car technology has an impact on the financial services industry.

The impacts can be far reaching. To leverage possible opportunities requires advanced critical and strategic thinking. We thought the article 24 Industries Other Than Auto That Driverless Cars Could Turn Upside Down, by CB Insights, would help jump-start your critical thinking.

Remember, all advancements come with tremendous opportunities. Your job is to find and leverage them!

Read more about the mix of technology and the credit union industry in our blog archive.

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Three Practical Ideas For Intentionally Strategic Boards

The following article was written by c. myers and originally published in the CUES Professional Development Library on August 14, 2017.

Board governance is a hot topic, as it should be. Effective boards and board members are essential to the success of the credit union industry. And it’s a fact that boards need to continue to evolve to be more strategic as the environment becomes more complex. In the last 10 years, the average credit union asset size has almost doubled, while the number of credit unions over $500 million has increased 80 percent. The resulting growing pains present organizational challenges for boards, just as they do for employees.

As credit unions continue to grow in an increasingly complex and rapidly evolving environment, it is essential that boards do not skim over strategic opportunities and challenges and do not take deep dives into operations.

Many credit union boards have found the following practical ideas beneficial for being intentional about keeping a strategic view:

1.  Rehearse tomorrow today to stay focused on the future

High performing boards are doing more of this. Changes in the environment, especially competition and technology, are coming so fast that boards need to constantly be thinking ahead. This exercise is deceptively simple, but it can build strategic thinking skills while helping position the credit union for the future. All it involves is creating a future scenario and thinking through how the credit union could respond.

For example, the driverless automobile is likely to set off an avalanche of change over time. To explore this more deeply, create a scenario, such as, “It is the year 20xx and X percent of vehicles on the road are self-driving.”

Hint: Use a percentage that is significant enough to push the group’s thinking but not so big that it will be dismissed as inconceivable. Have some questions ready to guide thinking, but also use some open-ended questions. Then ask, “Is there anything we should be doing today to prepare?”

There are many scenarios that challenge credit union business models and make great candidates for rehearsing tomorrow today. In the example above, an institution that is reliant on auto lending should be asking whether driverless automobiles will reduce auto loan demand and, if they will, how the credit union will shift its business model to make up for lost revenue. It’s also important to ask how driverless automobiles could benefit the business model. Thinking in advance about opportunities is as beneficial as thinking about challenges.

The goal isn’t to come up with the “right” answers, but to think through the possibilities. The only wrong answers are those that assume that the scenario will never happen, or that the credit union will magically be fine without coming up with some specifics on what would need to change.

2.  Establish a common understanding of what is strategic and what is not

As a group, create examples of strategic and operational items. This often results in productive conversation that furthers everyone’s understanding. The list can also become a tool to help with onboarding. Another important step is to create working agreements about how the group will handle operational conversations. For example, a working agreement could state that as soon as conversation becomes operational, anyone in the group can interrupt to bring it back to a strategic level. Another working agreement could be that when there is a good reason to dive into operations, the speaker should explain why.

3.  Determine whether the committee structure is contributing to an overly operational board

In the past, for very small credit unions, it might have been appropriate for the board to be involved in some operations. This is extremely rare now, but these types of legacy committees sometimes persist, even though the purpose is no longer appropriate for the board. Review committees with an eye to whether their functions are too operational and make changes, if needed.

There are only so many hours a board member can devote to the credit union. Every moment spent on operations is time taken away from strategy, which is where the board can bring the most value. Boards need to remain ever-mindful of the road ahead and the far horizon, spend a minimum amount of time looking in the rear-view mirror, and provide guidance to management so they can do what they do best.

C. myers is a Phoenix-based firm that has partnered with credit unions since 1991. The company’s philosophy is based on helping clients ask the right, and often tough, questions in order to create a solid foundation that links strategy and desired financial performance.

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c. notes – Continuous Process Improvement Supports Strategy

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WESTCONSIN CREDIT UNION:  A PROCESS IMPROVEMENT CASE STUDY

If you grew up in western Wisconsin, you probably knew this credit union as a great place to bank that’s full of friendly, helpful people. It has celebrated a long history of successes starting with its agricultural roots and continuing to today’s modern mix of urban and rural membership. Meet $1.1 billion WESTconsin Credit Union (WESTconsin), headquartered in Menomonie, Wisconsin. This organizationJoin WESTconsin Credit Union is focused—and one of the things they’re focused on is process improvement. Why process improvement? Well, there’s efficiency and expense control, but for WESTconsin, process improvement is more than that.

Superior processes are an integral part of the strategy. In 2015, the credit union decided that, in order to deliver meaningful member experiences, it must develop a new core strength: Simple, streamlined processes for members and employees. Clearly, this translates into more than improving some key processes. To make it a true core strength, the credit union must establish an organizational framework for continuous process improvement across the enterprise. Think of it as a process for:

Think of it as a process for determining which processes to improve and when…

  • Determining which processes to improve and when
  • Executing on process improvements
  • Monitoring and communicating key metrics
  • Determining when processes are revisited

This framework keeps the organization focused on continuous process improvement.

When WESTconsin decided to make processes a strategic area of focus, they asked c. myers to help with a pilot process improvement for consumer lending. That was a little over a year ago. Today, the credit union has a process improvement/project management specialist in place and is working with c. myers to establish its enterprise process improvement framework. WESTconsin is still on its journey, but we recently checked in with Mark Willer, Chief Lending Officer (CLO), to get his perspective on the experience so far.

WHAT DOES IT TAKE TO MAKE “SIMPLE, STREAMLINED PROCESSES” A CORE STRENGTH?

Willer explained that for WESTconsin, process improvement is perfectly aligned with its mission, core values, and value proposition. Simple, easy, and fast are part of a Process Improvement quality member experience, which is part of the strategy. This link between process improvement and the credit union’s highest-level strategy translates to unwavering support from the senior team for the process improvement strategic initiative.

Commitment from the top is one of the keys to success for incorporating process improvement into the very essence of the credit union. It is not uncommon to see organizations hire a process improvement specialist only to find success evasive because the support at the top isn’t strong enough or focused enough.

The fact that the process improvement mandate comes from the top signals its importance. Part of that support means that each major process improvement endeavor has an executive sponsor that sees it through to completion.

Executive sponsor key roles:

  • Assuring the improvements align with business goals
  • Supporting the team and removes obstacles
  • Acting as a vocal and visible champion

GETTING STARTED

As a first step toward simple, streamlined processes, WESTconsin tackled consumer lending, creating a clear objective: Improve and optimize the consumer lending process, resulting in x% of qualified A & B consumer loans being decisioned within x minutes. The objective was directly related to the credit union’s strategy.

The specific piece of consumer lending the Our goal was never to cut staff, but to increase capacity by making the process fast and simple with fewer errors.credit union wished to improve when engaging c. myers was the vehicle lending process. This piece wasn’t broken—not by a long shot—but in considering the competitive environment, leadership asked themselves some questions:

  • How can we create a more rewarding member experience?
  • How can we create a more rewarding employee experience?
  • How can we compete more efficiently, doing more without needing to add staff?

Within months of completing their process improvement, they saw the following progress in their vehicle lending numbers:

Year-over-year percentage change measured 6 months after process improvement engagement

Figure 1:  Year-over-year percentage change measured 6 months after process improvement engagement

There is often a strong correlation between faster approval times and higher funding ratios, because faster approval times represent an important aspect of the member experience. The following example doesn’t reflect WESTconsin’s numbers, but consider the impact to the bottom line that an 8% increase in funding of approved applications (apps) can have. In this example, the credit union receives 3,000 apps per month (36,000 per year), approves 80%, and funds 75% of the approved apps. Using an average loan balance of $20K, this results in $432M in fundings per year. If the percentage of approved apps funded increases by 8%, from 75% to 83%, the credit union funds $46M more per year.

The additional funding represents a boost to the bottom line without bringing in or processing any more applications.

What If Funding Increased 8%

THE RECIPE: SUCCESSFULLY IMPROVING A PROCESS

WESTconsin used a proven method for effective process improvement that included the doers in order to:

  • Understand what was really happening in the process
  • Generate creative solutions
  • Create buy-in for the identified improvements

The team was excited about the changes and helped make them stick. Moreover, no additional staff was added to support the new process.

…no additional staff was added to support the new process.In addition to involving the doers, keys to successful process improvement include having a clear objective, clearly documenting the decisions that are made along with the rationale behind them, creating a game plan to help with execution, and using metrics to monitor the process.

ADVICE FROM WESTCONSIN CREDIT UNION

When asked what advice Willer would give to other organizations that are considering process improvement, here’s what he offered:

  • It starts at the top. Senior management needs to be solidly behind any process improvement initiatives
  • Don’t hesitate. Do it now. Look at what’s coming up behind you—how quickly the competition is evolving 

Don't try to do it on your own, initially. Partner with someone who has been successful.

  • Don’t try to do it on your own, initially. Partner with someone who has been successful. Otherwise, it’s easy to get stuck in the details
  • Don’t go into it thinking of cutting staff. Think in terms of adding capacity
  • Use the 80/20 rule when designing processes. Focus on what will work best in 80% of situations
  • Be prepared to communicate continuously, repeating the message often, especially when shifting staff roles
  • Leaders need to be prepared to take the necessary time and make some tough decisions

Emphasis on an exceptional member experience has long been a driver of WESTconsin’s business model. Nevertheless, the definition of an exceptional member experience continues to evolve. Just a few years ago, the ability to conduct business on a smartphone at any hour of the day, or to be able to complete a loan without setting foot in a branch, was not on anyone’s radar screen, and it certainly Every good customer experience your member has elsewhere redefines the quality of your member experience. wasn’t an expectation. But both traditional and non-traditional competitors are redefining consumer expectations. Providing an experience that members are excited to share with others requires regular evaluation of what that experience is, in addition to actually providing it.

INTO THE FUTURE

As WESTconsin continues on its journey toward making simple, streamlined processes for members and employees a core strength, many more processes will be improved and an enterprise process improvement framework will be put in place. In the meantime, the benefits of process improvement are already being felt.

By choosing to create a strategic focus on shutterstock_100931980process improvement, this highly successful credit union is positioning itself to continue delivering exceptional member experiences far into the future—even as the definition of “exceptional member experience” changes over time.

ABOUT C. MYERS

We have partnered with credit unions since 1991. Our philosophy is based on helping clients ask the right, and often tough, questions in order to create a solid foundation that links strategy and desired financial performance.

We have the experience of working with over 550 credit unions, including 50% of those over $1 billion in assets and about 25% over $100 million. C. myers helps credit unions think to differentiate and drive better decisions through facilitating more than 130 Strategic Planning, Strategic Leadership Development, Process Improvement, and Project Management sessions each year, and providing A/LM, Liquidity, and other financial analyses.

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Remaining Relevant Through Leveraging Technology and Member Needs

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Illustrated Apple® iPhone®As you are probably well aware, Apple’s® iPhone® turned 10 years old recently.  Of the many articles written to commemorate this occasion, a couple in particular caught our eye.  In iPhone Review Redux:  10 Years Later, So Slow, So Small (Source:  The Wall Street Journal), the author describes her experience trying to use an original iPhone for a week in today’s world.  She says, “I made it 12 hours.”  As groundbreaking as the iPhone was back in 2007, that’s a little hard to imagine.  However, given the author’s experience with comparatively slow speeds, poor graphics and sound, a 2-megapixel camera, and no Siri®, we start to realize just how far technology has come in the last decade.  Of course, with these technological developments have come changes in how consumers interact with each other and the organizations with which they do business.  Take stock of how things have changed around your credit union in the last 10 years from a technology perspective.  Have you added new technology?  Upgraded?  Does your credit union have technology today it did not have in 2007?  Is your member interaction different today than it was a decade ago?  The answer to all of these questions is probably a resounding Yes!

Now, fast-forward, as does the article In 10 Years, Your iPhone Won’t Be a Phone Anymore (Source:  The Wall Street Journal).  In this article, the author imagines a future where the consumer is more wired-in than ever before.  Smarter, wearable technology, artificial intelligence, augmented reality—it’s almost overwhelming.  Our gadgets may literally direct our daily lives, according to this article.  Whether or not the future turns out the way this article describes, we can surely bet it will make the technology we have today seem ancient, just as the current iPhone makes the original model look outdated.  How will your credit union’s technology change?  Technology changes how consumers interactWhat new technologies might there be in 10 years that do not exist today?  How might your members choose to do business with you in 2027?  Are you leveraging the data that is already available today, and new data that may be available in the future, to make decisions and anticipate member needs?

These changes not only impact traditional competition, but also have facilitated new entrants looking to disrupt the industry.

How will your value proposition be apparent in this environment?  Consider strategic sessions revolving around this topic with outcomes focused on actions that can be taken in the near term, intermediate term, and long term to be positioned for relevancy in the future.

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Strategic Budgeting/Forecasting Questions: Connect Strategic Initiatives with Financial Direction

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Strategic initiatives impact results – members may be better served and membership may grow, assets may grow, and earnings and net worth may increase. Some strategies may cause temporary or long-term reductions in membership, assets, earnings, or net worth. Budgets and forecasts should incorporate the anticipated impacts of strategic initiatives and establish common expectations for results. Connecting the dots to better understand the financial implications of strategic initiatives can lead to greater success.

In this and subsequent blogs, we will review 6 questions strategic boards can discuss during the budgeting and forecasting process to better connect the dots. These 6 questions are merely a starting point and will undoubtedly lead to more questions during the process, creating more thorough communication and a greater understanding of strategic plans.

Question 1 – What is the expected financial direction of each strategic initiative?

Begin with a simple, high-level assessment of strategic initiatives. Identify each strategic initiative with a short description. Then, consider what you believe will be the earnings impact next year and in the following years. For this exercise don’t focus on the numbers, just consider the direction of the impact. Draw a quick table or use a spreadsheet as follows:

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Consider that not all strategic initiatives will generate increases to earnings. The important point is to understand why. Some initiatives may hurt earnings in the short term to achieve longer-term improvements, while others might only reduce earnings. For example, a strategy might be to increase member giveback through reduced overdraft fees or installing additional ATMs for improved member access.

In this example, initiative #1 is to become the lending machine – perhaps to make the process more efficient and create capacity – or to generate more loans for the credit union. This initiative may include a project to implement new technology or acquire talent. In Year 1, the project is expected to incur costs that would reduce earnings, or the ROA. We indicate that in the chart with a downward arrow. By Year 2, however, we expect to see some additional loans or experience cost savings that would improve ROA. We show that with an upward arrow.

Continue to complete the chart.

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In Year 3 and beyond, the impact to ROA of the lending machine strategic initiative is expected to continuously increase.  We can use multiple arrows to show the additional impact expected.

For strategic initiative #2, to decrease account opening time, there’s no hard dollar costs in Year 1 as the credit union conducts an internal review and designs process improvements.  In Year 2 and beyond, the efficiencies are expected to lower costs and drive some additional new accounts, thereby increasing ROA.

Beyond looking at each strategic initiative, notice that now the aggregate expected impact of all initiatives can begin to be understood.  If all or a significant number of initiatives have negative ROA impacts, that can be an indication of needing to consider other, offsetting strategies to generate additional revenue.  Or, it may make sense to accept lower earnings for some period.  That would be important to recognize and to make sure that everyone, including the board and management, is on the same page with the expectation so there are no surprises.

After completing this exercise, board members and management can be better prepared to review the budget with a high-level expectation for how it may look.  If projections don’t align with expectations, more “why” questions can be asked and differences understood.  As financial results occur and new budgets are created, this can be a great tool to keep as a reference.  Strategic initiatives can be reassessed for what was originally expected versus what actually happened, and to determine what changed and why.