Cfo%20council innovation%20at%20work timothy%20harrington

INNOVATIONNow an essential tool for Credit Unions

Timothy Harrington, CPA, CEOTEAM Resources1-800-788-9542tharrington@forTeamResources.comwww.forTeamResources.com

Is change difficult?

Maybe the reason it seems that price is all your members care about is...... that you haven't given them anything else to care about

Is change difficult?

“You Betcha!”

Change Ain’t for Sissies

Power of Habit is very difficult to overcome

What time is it?

“Change is not necessary.Survival is not MANDATORY.

Edwards Deming

Important Mathematical Formula

If the RCE > RII then…

Where:RCE = Rate of Change External to organizationRII = Rate of Innovation Internal at organization

RCE > RII =

If the Rate of Change External to your organization

is greater than the Rate of Innovation Inside your

organization, the end is in sight.

What Is Innovation?

It is not:• The result of a lone genius inventor. • Just about ideas• About individuality in thinking

Rather it is:

• A collaborative process where people in many area contribute to implementing new ideas. Teams are very important to the process.

• About products and reengineering and processes, both future and present processes.

• Involving people who will challenge the status quo.

(The person who moans and groans and complains may be the source of the next great innovation)

Where Does Innovation Begin?

It begins with an idea which comes from: Nowhere...Such ideas usually die unless a

fertile ground exists to develop them. or A goal...An outlandish or unreasonable demand

or goal, one that a continuous improvement process will not reach, often may spark innovation.

How Do You Get These Ideas?

With pressure!Being under the gun, with a deadline, adds a sense of consequence to the task and a purpose to spur it.

By facing a challenge...seemingly unreasonable!Studies show that positive thinkers rise to a challenge. The more they are likely to face defeat, the more they want to beat it.

By abandoning old paradigms!Abandoning the status quo, like rules, policies, and set procedures. Only when you leave the rules behind, can you be free to create. This is critical to successful innovation.

Innovation Blockages

We tried that before That's stupid That's not in the rules It's against our policy We don't have the budget We don't have the time We'll never get it approved That's not what they're looking for


In 1880, Thomas Edison said that the phonograph was of no commercial value

In 1920 Robert Milliken, Nobel Prize winner in physics said; "There is no likelihood man can ever tap into the power of the atom."


In 1927 Harry Warner, Warner Brothers Pictures said (in reference to the desirability of adding a sound track to silent movies); "Who the hell wants to hear actors talk?"

In 1943 Thomas Watson, Chairman of IBM said; "I think there is a world market for about 5 computers".


In December, 1977, Ken Olsen, President of Digital Equipment Company said; "There is no reason for an individual to have a computer in their home".

Innovation Process

1. Look to the Past2. Goof off and read3. Use the Brains who work for you4. Get cozy with the customerj5. Try to fail quickly

Look to the Past

Ideas that worked elsewhere (before) might work for us today

Goof off an Read

"Time wasting is an excellent source of innovation“Robin Chase, founder ZipCar

Set aside a space in the CU for a dreaming room. A place to recharge your batteries or Sharpen the Saw as Stephen Covey puts it

Use the Brains You Work With

Small failures encourage big success-IBM story-Take blame for your staff’s failures

One CU has a meeting monthly where all VPs must bring 5 new ideas

-stupid, irrelevant, outlandish-they’re all accepted

“You only need one good idea a year.”Warren Buffet

• “Tell the CEO” – Intranet Suggestion Box by-passing supervisors

• Give the winner a trip to Las Vegas!• Air, hotel and show…not the chips!

Pay for innovative ideas

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Get Cozy with Members

Let your members tell you how to get their businessTwitterFacebookMember suggestionsFocus Groups

Get a group of local college students to do market research for you…for class credit

Try to Fail Quickly

If you find an idea you like,don’t ask an employee to study it along

with all their regular work.

Give them time to focus on it until they have concluded:

-it’s a great idea worth pursuing-oh my God, run!!!

We are living in a radically changing world

“The biggest organizational challenge of the 21st Century will be to change fast enough to survive.”

Peter DruckerPolaroid, Wang Labs, Montgomery Ward, Tower

Records. Chrysler? Blockbuster Video?

Be Unreasonable

“The reasonable person adapts to the conditions that surround him. The unreasonable person tries to adapt the surrounding conditions to himself. All progress depends on the unreasonable people.”

George Bernard Shaw

Encouraging Unreasonableness

We need to reward innovation.Creative Unreasonableness

If it ain’t broke…

What if we don’t get innovative?

Maytag versus Whirlpool

We have to remain: RELEVANT

We’re in a Commodity Business

How do you differentiate yourself?

Product or Industry Lifecycle

Tired of others stealing your business?

Pay Day LendingAdvertise Guaranteed Direct Deposit

Better: Guaranteed Early Payday

Different Generations

Merged Set (X + Y = Dot Com)

Gen Y

Gen X

Dot ComGeneration

Financial Products Dot Comers Find Appealing

1) Auto loans

2) Auto leasing


3) Investment services

4) Credit cards that pay Cash Back


5) Line of Credit

6) Student loans


7) Debit/Check Cards

8) Travel/vacation loans


9) Free CheckingAnd/or high rate checking9) Home loans

10)Social lending

11)Value of credit unions

Practical Ways CUs Can Market to Dot Com Generation

1) Position credit union as information source

2) Emphasize convenience especially with credit

3) Present lots of options (choice = power)

4) Must use technology


5) Don’t gear all marketing efforts to Boomers6) Remember family membership/target parents7) Attract newlyweds


9) Target schools

10)Conduct unconventional marketing and get involved in events they’re involved in

“Purchasers buy 20% more using proximity chips than with other payment methods.”

Financial Services Technology MagazineNovember 2007

This means more interchange income…20% more

NFC chips allow P 2 P payments without accessing the internet. Cell phone to cell phone payments.

Electronic Contact – Proximity Payments

Social Lending

High Rate Checking

• Need 10 debit card transactions per month• Need direct deposit or one other ACH per

month• Need e-Statements• Or you only get 0.10% interest and free

ATM transactions at any ATM

INNOVATIONNow an essential tool for

Credit Unions

Timothy Harrington, CPA, CEOTEAM Resources1-800-788-9542tharrington@forTeamResources.comwww.forTeamResources.com

“If we want things to stay as they are, things

will have to change”

TancrediFrom “The Leopard” by Guiseppe Tomasi di Lampedusa

Strategic Planning

The competitive ‘banking’ environment requires that a credit union must look ahead and around and determine “where do we go from here?”

The credit union must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.

Strategic Planning is not an Event

It is aProcess

Mission

A Mission is ‘why’ you exist• What market or social needs you

intend to serve or meet?• Who are you going to serve?• Why does the market need you?

Vision Statement

Vision: Right Direction• What will be different 3-5 years from now• Multi-year planning horizon• Basis for budgeting, annual plan• 4 Tests:

– Clear– Concise– Compelling– Quantifiable

Clarity of Vision is important

Purpose of Strategy

To develop Market Advantage in some areaThere is no “one size fits all” strategyYou can’t be “all things to all people” Marketplace is extremely competitive

You must create a reason for people to come to you

Environmental Scan• The environmental scan includes the following

components:– Internal analysis of the firm – Analysis of the firm's industry (task environment) – External macro-environment

• Internal analysis can identify the CU’s Strengths and Weaknesses

• External analysis reveals Opportunities and Threats. SWOT analysis

S.W.O.T.• The SWOT analysis provides information to

help match:– resources and capabilities to:– the competitive environment in which it operates

Strengths Opportunities

Weaknesses Threats

SWOT Matrix

Internal External

S.W.O.T. Matrix

A SWOT matrix helps you link your Strengths with Opportunities, etc.

Strengths Weaknesses

Opportunities S-O Strategies W-O Strategies

Threats S-T Strategies W-T Strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths

W-O strategies overcome weaknesses to pursue opportunities

S-T strategies identify ways that the CU can use its strengths to reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

S.W.O.T. Matrix

To attain superior profitability, the firm seeks to develop a competitive advantage.

A competitive advantage can be based on cost or differentiation.

Strategy Formulation

When the CU is able to deliver the same benefits as competitors but:

a. At a lower cost (cost advantage) or b. Delivers benefits that exceed those of competing products (differentiation advantage)

A Market Advantage allows the CU to:a. Create superior value for its customers b. Create profits for itselfc. Grow

Market Advantage

Know Where You’reStarting From

Environmental ScanEnvironmental Analysis

Understand TrendsNationalRegional/localInternal

Internal TrendsProduct Usage

CheckingElectronicDebit/Credit CardsBy Delivery System

Financial TrendsBalancesKey Ratios

What was intended? What was the cause?

What was intended? What was the cause?

Core Values

Core Values: Right Behavior• How we will engage with each other• Qualities we want to be known for• Limited number: 5-6 at most

Know yourBusiness Model

Know your Strategy

What is a Business Model?

A business model is a unique strategy that produces revenue from specific sources and incurs expenses in specific ways. The revenue and cost structures will be different for each business model.

Some business models are built to produce profits, some are not.

Which is yours?

As a % of Average Assets 12/31/10 12/31/97Yield: Interest income 4.46 7.63Less: Cost of funds (1.21) (3.64) Net Interest Margin 3.25 3.99Less: Operating costs (3.07) (3.32)Less: Provision for loan losses (0.78) (0.44) Net loss before other income (0.60) 0.23Plus: Non-interest income 1.33 0.78Minus: Corporate Stabilization (0.22) Equals: Net Profit or Loss (ROA) 0.51 1.02

Different Business ModelsDifferent Results

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“Going into battle without a plan is foolhardy. But as soon as the

shooting starts, the plan is useless.”

General Dwight D. Eisenhower

“Planning is everything. Plans are nothing”

General Dwight D. Eisenhower

Market Advantage

Find 1 thing at which you can be an expert

If you are exceptionally good at 1 thing:• Members will seek you out for those things• Members will forgive you for all those

things you are not so good at

Where Can You Create a Market Advantage?

1. Price – Nearly always wins… If you have a business model that supports it

2. Placement – Convenient Locations 3. Product – innovative or unique4. Promotion – brand yourself well5. Quality of Service6. Low Operating Costs

Thinking Strategically

• Look at Marketplace• Look at effective companies outside banking

Wal-Mart, Starbucks, Subway, Nordstrom, Ritz-Carlton, McDonalds

• Look at your trends• Understand (or guess) at member needs• Identify what successes already exists that can be

amplified (emergent)• Identify what you need to move forward

Where are you positioned?

WalMart– Low cost– Wide selection– Few but good employees

Home Depot– Low cost– Wide selection– Few employess– Mass market

– Cookie cutter service– Broad distribution

Nordstroms– Higher prices– Fine quality– Customer is always right

Ace Hardware– Higher prices– Smaller selection, but good

quality– Helpful, individual service

Community Banks– Personal service– Part of community

Many Strategies to Choose From

• Limited Sponsor or Target Market • Low Operating Cost Strategy• Superior Service Quality Strategy• Convenience Strategy• Multiple Relationship Strategy• Share the Load Strategy (fees)

Change is inevitable.

Growth is optional!

Limited Sponsor or Targeted Market

In Some Ways, the Easiest• Focus everything on the Sponsor• Brand yourself with them• Work that relationship• Be involved• Survey the employees for Loyalty (NPS)

Low Operating Cost Strategy

Branches Evolve

84

1.10% Interest on

Checking

85

0.96% Operating Expense to Assets Ratio

CU Average = 3.33%

DORT FCU

86

First Atlantic FCU

87

CU Avg As a % of Average Assets 12/31/10 MD CUYield: Interest income 4.51 4.43Less: Cost of funds (1.25) (1.45) Net Interest Margin 3.26 2.98Less: Operating costs (3.33) (1.73)Less: Provision for loan losses (0.78) (0.10) Net loss before other income (0.85) 1.15Plus: Non-interest income 1.46 0.54Minus: Corporate Stabilization (0.16) (0.19)Equals: Net Profit or Loss (ROA) 0.45 1.50

ROA at Low Operating Cost CU

88$850 Million CU with no Cash in Branches, all automated

This Credit Union is able to Develop a PRICE Advantage

Significantly Lower Loan PricesSignificantly Higher Deposit Prices

“If the rate of change inside the organization

is less than the rate of change outside the organization, the

end is in sight.”

Jack Welch, Former CEOGeneral Electric

Superior Service Quality Strategy

Superior Service

If you are going to ‘hang your hat’ on Superior Service

It has to stand out so significantly that members will rave about your service to their friends

And you need to measure it

Superior Service

“If you don’t measure it,you can’t manage it.”

Dr. Edwards Deming

Book

“The Ultimate Question”

By Fredrik Reicheld

“How likely are you to recommend our products or services to friends, families and colleagues.”

Net Promoter Score

Net Promoter Score subtracts the % of Detractors from the % of Promoters

75% - 20% = 55 NPS

0 1 2 3 4 5 6 7 8 9 10

Detractors Promoters

Superior Service Examples

Nordstroms Department Stores– Service to customer above all else– Hard work and individual productivity– Never being satisfied– Excellence in reputation, being part of something

special

I build strong relationships and create Ritz-Carlton guests for life. I am always responsive to the expressed and unexpressed wishes and needs

of our guests. I am empowered to create unique, memorable and personal experiences for

our guests. I understand my role in achieving the Key Success Factors, embracing

Community Footprints and creating The Ritz-Carlton Mystique. I continuously seek opportunities to innovate and improve The Ritz-Carlton

experience. I own and immediately resolve guest problems. I create a work environment of teamwork and lateral service so that the

needs of our guests and each other are met. I have the opportunity to continuously learn and grow. I am involved in the planning of the work that affects me. I am proud of my professional appearance, language and behavior. I protect the privacy and security of our guests, my fellow employees and the

company's confidential information and assets. I am responsible for uncompromising levels of cleanliness and creating a

safe and accident-free environment.

Ritz-Carlton Gold Standards

Umpqua Bank Taking retail to a new level

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CU Avg As a % of Average Assets 12/31/10 SS CUYield: Interest income 4.54 5.08Less: Cost of funds (1.29) (1.20) Net Interest Margin 3.25 3.88Less: Operating costs (3.07) (4.75)Less: Provision for loan losses (0.81) (0.40) Net loss before other income (0.63) -1.27Plus: Non-interest income 1.26 2.55Minus: Corporate Stabilization (0.22) (0.20)Equals: Net Profit or Loss (ROA) 0.41 1.08

Spread at Superior Service CU

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Convenience Strategy

Smart Principles

• Say YES… 1 to say YES, 2 to say NO!• Make each customer feel special!• Always keep customer promises!• Recover! To Err is human; to Recover is

divine• Think like our customer

Commerce Bank Strategy• Convenience!

Branches, branches, everywhere

• Live tellers that love your deposits

• Heavy retail emphasis

• Sales educated staff

• Free checking, money orders, open weekends and holidays

• One to approve a loan, two to deny it

• Offer insurance and investments

Las Vegas area CU Strategy

• Convenience! No one in Las Vegas more than 1.5 miles from our branch

• Sales emphasis • Sales training and

expectations

• No Tellers, Machines and Sales Staff

• Sell insurance and investments

• Offer PayDay loans

Detroit area CU Strategy

• Convenience! 20 branches in Greater Detroit by 2013

• Building a sales staff• “The Michigan First

Way”

• Slowly phasing out tellers and replacing with Sales Staff

• Great Centralized Call Center

CU Avg As a % of Average Assets 12/31/10 MF CUYield: Interest income 4.54 5.46Less: Cost of funds (1.29) (1.06) Net Interest Margin 3.25 4.40Less: Operating costs (3.07) (5.16)Less: Provision for loan losses (0.81) (0.82) Net loss before other income (0.63) (1.58)Plus: Non-interest income 1.26 2.83Minus: Corporate Stabilization (0.22) (0.23)Equals: Net Profit or Loss (ROA) 0.41 1.02

Spread at Convenience CU

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Multiple Relationship Strategy

Average 6-7 Products per household

All employees incentive based

Sales No Longer an Option

• Top Management has to learn how to sell

• Hire differently– Hire for attitude,

train for aptitude• Pay differently• The highest level

service is sales

• Teach your staff how to sell,

If they don’t want to learn to sell, teach them how to write a resume

Sales No Longer an Option

• Sell products• Sell services• Sell what the

member wants and needs

• Sell relationships • Sell over-all value

• Don’t sell price• Can’t afford to be

lowest loan rate and highest deposit rate

• Sales training and service cost money

• Measure:– Products per Mbr/HH– Balance per Mbr/HH

Spread at Multiple Relationship CU

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CU Avg As a % of Average Assets 12/31/10 CO CUYield: Interest income 4.54 4.20Less: Cost of funds (1.29) (0.73) Net Interest Margin 3.25 3.47Less: Operating costs (3.07) (2.73)Less: Provision for loan losses (0.81) (1.00) Net loss before other income (0.63) (0.26)Plus: Non-interest income 1.26 1.33Minus: Corporate Stabilization (0.22) Equals: Net Profit or Loss (ROA) 0.41 1.07

Share the Load Strategy (fees)

Every member of our Co-op has a shared obligation to make this CU

successful. They can do it with balances, or by paying service charges

Spread at Share the Load CU

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CU Avg As a % of Average Assets 12/31/10 MOMMsYield: Interest income 4.54 8.03Less: Cost of funds (1.29) (0.74) Net Interest Margin 3.25 7.29Less: Operating costs (3.07) (6.96)Less: Provision for loan losses (0.81) (2.37) Net loss before other income (0.63) (2.04)Plus: Non-interest income 1.26 3.19Minus: Corporate Stabilization (0.22) (0.26)Equals: Net Profit or Loss (ROA) 0.41 (1.11)

High Volume/Low Balance

• 3 branches• Low income

members / high transaction members

• Tellers are very expensive……but members don’t use electronic delivery systems as frequently or consistently

• Where does income come from?– High yields on Loans

and fees and service charges

• Where do costs go?– Tellers– Collections

“If you don’t know where you’re going, any road will get you there”

Casey Stengel

“The significant problems we have cannot be solved at the same level of thinking with which we

created them”Albert Einstein

Really smart guy

Tim Harrington

Tim Harrington, CPAT.E.A.M. Resources7049 E. Tanque Verde Rd. PMB 136Tucson, Arizona 85715(800) [email protected]

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Cfo%20council innovation%20at%20work timothy%20harrington