Module I Introduction to Scenario Planning I-1 California Credit Union League 2008 Big Sky...

Module IModule IIntroduction toIntroduction toScenario PlanningScenario Planning

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California Credit Union League2008 Big Sky Conference

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membershipmember

Making Decisions

me

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What Is a “Strategic Plan”?

A strategic plan is a set of management decisions regarding what actions the credit union will be taking in order to move the credit union along the path toward the attainment of its ultimate vision.

Source: Decision Strategies International, Inc.4

Terms/Definitions

Vision.Integrating gestalt, stretch oriented, guiding

light (direction for the future).• Example: Kennedy's vision to attain leadership in

space exploration following Soviet's Sputnik launch. This vision was inspired by geo-political considerations and military defense needs.


Terms/Definitions

Mission.Tangible goals derived from and essential to

the vision. Sometimes the mission statement also includes values or norms that the organization strives for.

• Example: Get US astronauts on the moon by end of 1960s.


Terms/Definitions

Key Success Factor (KSF).Critical dimensions of success in achieving

the vision/mission.• Example: Appropriate propulsion technology using

booster rockets and reliable fuels; possess lunar landing vehicle.


Terms/Definitions

Strategy.Conceptual approach for achieving KSF or

mission.• Example: Fund R&D in universities to develop

advanced proprietary rocket technology.


Terms/Definitions

Option.Concrete implementable alternative to

achieve KSF, strategy, or mission.• Example: Locate the program in MIT's space

program.


Terms/Definitions

Action Plan. Organizational program to implement a

strategic option or strategy (with time lines, review points, etc.).

• Example: Assign 5 NASA engineers full-time under leadership of Dr. Smith.


Terms/Definitions

Budget. A financial plan to accomplish an action plan

within a certain time frame. The budget may also include non-financial resources.

• Example: Fund MIT program with $47 million over 5 years.


III. Industry and Market

Analysis

I. Introduction

II. External Environmen

t

V. Strategic Vision

VI.Strategic Options

VII. Implementatio

n

IV. Organizational Self-Analysis

I. Introduction.We must be aware of some common strategic thinking

traps, and embrace a disciplined strategy process to

evade them.

Scenario Planning ProcessSummary



Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


II. External Environment.What impact will economic,

social, political, technical, and industry forces have on the business marketplace and

organizational performance? What are the important trends

and uncertainties that will shape our future? What might tomorrow be like?.




Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


III. Industry & Market Analysis.

Which sectors and segments currently offer the highest financial return and why? We

need to understand each segment strategically to ascertain whether and how to

compete in it in the future.



Strategic Planning ProcessSummary – Pages 17-18


Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


IV. Organization Self-Analysis.

How do we define ourselves as an organization? How do we explain our history, purpose, and behavior as a company? What are the resources and capabilities we possess

that provides value to customers and shareholders? How do we sustain ourselves

in a changing world?


Strategic Planning ProcessSummary


Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


V. Strategic Vision.

What is the overall strategic direction that will give us competitive success? What are the

future key success factors in our chosen

business and markets? What do we want to be and accomplish as an organization? Where

should we compete and how do we want to do it?




Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


VI. Strategic Options.

What concrete options will best enable us to achieve

our strategic vision? Which strategic initiatives

are most critical at this time? How should we assess and rank our strategic options?




Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n


VII. Implementation.

What steps should be taken to ensure that strategic initiatives produce their intended results?

How do we sustain these strategic initiatives? What can be done to

improve our capacity for performance and innovation? What specific changes will be needed to ensure that our strategic vision is

realized?


Module I: Overview

III. Industry and Market Analysis

II. External Environment


VII. Implementation


V. Strategic Vision

I. Introduction

Purpose: - To discuss the benefits of strategic planning - To outline some of the strategic pitfalls in various processes - To introduce a cohesive six-step planning process


Encyclopedia Britannica: Top Performer

Oldest English language encyclopedia Published 15 editions over 225 years Sales grew 8.1% per year in 1980s Record Sales in 1989: $627 million Sold 117,000 copies at $1,300 each in 1990 Profitable in 19 of previous 20 years Translated into many foreign languages


Encyclopedia Britannica I

1.What are the variety of ways one might describe the business of the Encyclopedia Britannica?

2.Who are the potential customers and competitors you might look for if these different definitions were adopted?


Encyclopedia Britannica

BUSINESS Education

COMPETITORS/CUSTS Cust: Professors; young,

married w/ children; school textbook distributors; students; researchers; journals; libraries; magazine publishers

Comp: Libraries; magazines; other encyclo companies; book stores;


Encyclopedia Britannica

BUSINESS Information / knowledge

COMPETITORS/CUSTS Cust: Everyone Comp: Media-related

industries; Internet


Encyclopedia Britannica: Struggling to Survive…

Emergence of CD-ROM encyclopedia circa 1990 CD-ROM adds graphics, sound, video, etc. Much cheaper to manufacture and store Sales dropped 53% from 1990 to 1994 Lacked resources to develop new technology Competing with Microsoft, Times-Mirror,

Bertelsmann Management looked for buyer around $450 million CEO Peter Norton retired in 1995


Encyclopedia Britannica II

1.In hindsight, how should the managers at Encyclopedia Britannica have defined their business and industry?Delivering knowledge


Why Great Companies Fail

Corporate arrogance and hubris Insufficient attention to weak signals Lack of vision and risk taking Trapped in yesterday’s business models Biases of internal decision processes Wrong incentives: short-term & risk averse OTHERS:


The Evolution of Strategic Level I: Financial Planning

Strategy is only implicit Budget is primary planning tool

Level II: Forecast-Based Planning Multi-year budgets Use of forecasting models Assumes high predictability

Level III: Strategic Thinking Focus on strategic issues Dynamic, creative portfolio management Explores multiple futures

Level IV: Strategic Management Wide-spread strategic thinking capability Alignment of visions across units and functions Integration of strategy and reward system


A Six-Step Approach to Strategic Planning



V. Strategic Vision


VII. Implementation


• Strategic Segments• Customer Analysis• Competitor Analysis

• Core Capabilities• Values/Culture• Key Assumptions

Meta-Scenarios

• Key Success Factors

• Creative Generation• Option Selection

• Plans/Budgets• Milestones• Incentives

I. Introduction


Benefits of the Six-Step

Overcomes 3 strategy pitfallsOverconfidence Wrong framesConfirmation bias

Encourages innovative options that position the company for multiple futures

Leads to a concrete, comprehensive vision Encourages a balance of learning and

performance


Strategy Pitfall #1: Overconfidence

We often don’t know what we don’t know We might be very overconfident about key

assumptions in our own industry A good planning process challenges

managers who might be overconfident


Overconfidence is Common “There is no reason for any individual to have a

computer in their home.”Ken Olson, President of DEC 1977

“With over fifty foreign cars already on sale here, the Japanese auto industry isn’t likely to carve out a big slice of the U.S. market for itself.”

Business Week, August 1968

“I think there is a world market for about five computers.”

Thomas J. Watson, Chairman of IBM 1943


Strategy Pitfall #2: Wrong Frames

Commonly held mental frames often shape whole industries.

These beliefs and assumptions can distort our perception so that we miss what, in hindsight, should have been obvious.

Often, these paradigms are unconscious or so firmly rooted that they are beyond question.


Strategy Pitfall #2: Wrong Frames

We see what we are prepared to see People filter out what doesn’t fit To see things anew, we need new frames


GM’s Frame (circa 1968)

Key Assumptions... GM is in the business of making money, not cars Success is the result of rapid adaptation, not

technological leadership Cars are primarily status symbols: people want to

upgrade The U.S. car market is isolated from the rest of the

world Fuel will remain cheap and abundant The government is an enemy and so are unions


Credit Union Industry Frames

1. What are some of the mental models and assumptions people within your credit union might use to describe your industry? What metaphors are often used to describe your business?



1. What are some of the mental models and assumptions people within your credit union might use to describe your industry? What metaphors are often used to describe your business?



2. What are some of the relevant issues that these mental frames illuminate and hide?



2. What are some of the relevant issues that these mental frames illuminate and hide? Profitability is irrelevant We should not fee for services Don’t know who our competition is We have to sell to survive / thrive Members are customers too It’s a risky business / risk = reward We MUST make money to continue in business Eggs in one basket never works Loyalty must be earned False sense of security One size fits all is a lie Education inflates our sense of self-worth


Credit Union Frame (Today)

Key Assumptions May Include... Member knowledge continues to improve Baby boomers redefine aging and retirement Credit union consolidation continues in the US Expanded fields of membership continues Non-bank financial services providers increase

share Credit unions increasingly embraced as “trusted

mediators” Internet banking increases Telephone banking increases


Credit Union Frame (Today)

Key Questions May Include... Will credit unions enjoy an increasing share of wallet? Will new channels of distribution proliferate for CU? Will the economy experience a significant downturn? Will credit unions be taxed in the United States? Will most Americans have Internet or broadband

access? How much will credit union member loyalty go down? Will credit union car loan volume see a major

decrease?


Strategy Pitfall #3: Confirmation Bias

We mostly seek to confirm our beliefs People rarely seek to disconfirm their beliefs A proper balance of confirmation and

disconfirmation is necessary to properly address an issue


Confirmation Bias

Most of us have a natural tendency to favor data that confirms our current beliefs and to dismiss evidence that would challenge them.

James R. Emshoff and Ian I. Mitroff, two professors working at the Wharton Applied Research Center in the mid 1970’s, studied strategy formulation in America’s largest companies. In dozens of companies, they found well paid executives simply using the latest sophisticated computer information systems to produce data supporting the strategies they had already decided to adopt. “The key issue isn’t getting the right facts but challenging the right assumptions,” they noted.

Decision Traps, pp. 75-76


Confirmation Bias

1.What are some of the most cherished beliefs in credit unions? In what ways do we “confirm” these beliefs?

2.What are some disconfirming questions that might be used to challenge and falsify these assumptions if they are, in fact, incorrect?


Encouraging Innovative Thinking

Breakthrough

Incremental

Process Reengineering

Process Innovation

TQM

Outsourcing

Signing on aNew Dealer

Product LineExtension

New ProductLaunch

By-Passing NormalDistribution Channels

StrategicAlliance

Cost Reduction(Existing Business)

Revenue Enhancement(New Business)


Encouraging Innovative Thinking at One CU

Breakthrough

Incremental

Financial Planning Dept.



Mergers

Commercial Lending Dept. Strategic

Alliances

General InsuranceSubsidiary

Traditional Product

Launch(s)Look at Conditional

Sales Contract Network

Review Service Charge Fees

Outsourcing Non-Core Items

Traditional Cost Controls

Member Card Launch/P.O.S.

Performance Management System Fee for Service

Reward System for Employees

PC Banking

Off-Balance SheetLending

Act as Intermediator for all Member Business

Pioneer Plus ProgramDiversify Service

through CUSO

Fully Licensed Staff Wealth Management

Existing Business Strategy

Innovative New Business Strategies to Investigate/Implement


A Concrete, Comprehensive Vision

Educational Employees Credit Union’s vision is to be the most valued,

respected and progressive provider of financial services to all educational employees and their family members

within our field of membership

Educational Employees Credit Union


A Concrete, Comprehensive Vision (con’t)

Educational Employees Credit UnionHow to get there: We expect to move from our present to our future set of core

competencies through the following actions: Develop diverse delivery systems Ability to respond rapidly to changing market needs Speed of service High motivated and knowledgeable staff - culture change Global access to information infrastructure on members Sales culture based on market segmentation Value added products and service through pricing and product

differentiation for: Seniors, Generation X’ers, Low income households, and high-end baby boomers



Educational Employees Credit UnionHow to get there: Example: Ability to respond to rapidly changing

market needs. Action Steps

• Assign projects to project leaders or develop cross-departmental project teams

• Give individuals or teams working on implementation authority to act autonomously and make major decisions related to implementation

• Designate a person who’s primary or only function is to research and report on upcoming automation and its potential usage



Educational Employees Credit UnionHow to get there: Example: Ability to respond to rapidly changing

market needs.Impact: Faster delivery of new products/ services

would allow us to compete in the increasingly competitive financial services environment. It is also one way of ensuring member loyalty by being responsive to their financial needs.


Six Step Process Balances Learning and Performing

Performance Organization Internally oriented Focused on making the

numbers Rewards consistency Dislike of ambiguity and

deviations Rule and procedure

oriented

Learning Organization Inquisitive and

externally focused Experimental and

innovative Shares information:

fluid Rewards risk-taking Relies on cross-

functional teams

DUAL COMMITEMENT

IS REQUIRED!


Balanced Emphasis

LEARNING ORGANIZATION

Digital EquipmentCredit LyonnaisGM (in the 70’s)

Philips ElectronicsApple ComputerFedEx (Europe)

Weak

IBM (1980s)Electric UtilitiesWestern Union

MicrosoftRubbermaidHewlett-Packard

Strong

PERFORMANCEORGANIZATION

WeakStrong


How Firms Respond When Facing Adversity

1. Cost Reduction Downsizing Out-sourcing

2. Process Reengineering Faster and better service Horizontal organization

3. Reinvent the Industry (CNN; Wal-Mart; Enron; Apple)

4. Reinvent the Company (Disney; Nike; Xerox; HP)


Learning Organizations

How innovative is your CU? Consider all projects submitted for funding by your

CU over the past five years. Assess for each one (on a scale from 1-10):1. What was the project’s basic intent: to save money

(efficiency) or to create new revenue?2. How innovative was this project: conventional or

path-breaking? Now plot all these projects on a grid of the type

shown on Powerpoint slides (with the oval size proportional to the investment involved).


Encouraging Innovative Thinking

Breakthrough

Incremental




Learning Organizations

How well-balanced is your organization in its portfolio of strategic initiatives? Consider as well the major innovations in your industry. Where does it rank compared to other industries?Some major innovations in the credit union and

banking industry:• ATMs• PC banking• Debit cards• Next????



Analysis

I. Introduction


t

V. Strategic Vision


VII. Implementatio

n




A Learning Model

Re-freezeUnfreeze Change

Highlight why current values and beliefs are dysfunctional

• POW’s harsh treatment / re-programming• Novice nun initiation rites• Strategic planning creates discomfort

Offer alternatives that appear to improve the situation

• Explain Communist ideology to POW’s• Argue case for salvation and eternal grace• Logic of new visions

Reinforce new beliefs and values through rewards and punishment

• Rewards for POWs who switch/ defect• Admission into sacred community with rituals• Committing resources to new strategic options

Sources: Kurt Lewin; Edgar Schein

Module IIModule IIExternal EnvironmentExternal Environment


Module II: Overview

External Environment considers:- long term trends- key uncertainties




VII. Implementation


V. Strategic Vision

Output: Multiple scenarios tailored to your credit union

I. Introduction


Objectives:

To sketch out strategically different futures your credit union may face. The focus here is on external forces beyond your control and your perceptions of them.

To challenge existing mindsets and develop comprehensive alternative views of the future.

External Environment


Understanding the External Environment

Does your credit union explore the external environment comprehensively or piecemeal?

What tools or approaches does it use? What are the strengths and weaknesses of

these tools? What are the most relevant issues in the

external environment that are likely to impact your credit union?


Signs You Don’t Grasp the External Environment

Continuously blindsided by external events Focused on organizational and other internal

issues Don’t understand member behavior Reacting to external events (rather than

anticipating them) Lack a vision of the future


Challenges to Understanding Future External Environment

Your credit union may lack a sound process for identifying blind spots

Adverse external change causes your credit union to focus on the present, just to keep pace

No vehicle for generating new perspectives No mechanism for integrating diverse

perspectives


Benefits of Understanding the External Environment

Allows you to take advantage of change & discontinuities

Prevents you from making poor investments Broadens your market perspectives Improves your strategic options & decisions Aligns your strategy with the outside world


Building Comprehensive Views of the Future

Among the many tools a manager can use for strategic thinking, Scenario Planning stands out for its ability to capture a whole range of perspectives and possibilities in rich detail.


The Scenario Method A Scenario is a richly detailed portrait that describes the salient

features of one possible future environment. The potential futures for most business environments can usually be satisfactorily examined with three or four alternatives scenarios.

Everyone uses some mental frame when imagining the future. Scenario planning deliberately surfaces and examines these alternative perspectives to gain a more comprehensive and realistic view of future possibilities.

Scenarios can be used to evaluate how robust current strategies might be in different future environments. They can also stimulate the search for new, more resilient and reliable strategic options.


S 1

S 2

S 3

S 4

Present Future

Num

ber o

f Pos

sibl

e Fu

ture

Wor

lds

S 6

S 5

Scenarios combine existing trends and key uncertainties into a few future worlds that are internally consistent and within the realm of the possible. The purpose of these scenarios is not to cover all eventualities, but to discover the boundary zone of future outcomes and to expand management’s thinking horizon.

Scenarios


Scenario Planning: The Ground Rules

Anything and anyone can be challenged Every “fact” has multiple interpretations Conflict (among ideas, not people) is

encouraged Flexibility and creativity in thought is

rewarded A disciplined process is required


About Scenarios

Scenarios aim to expand our awareness about the future

The value of scenarios lies in the insights they yield

Scenarios are not predictions--but possibilities Scenario planners assume the future cannot be

accurately predicted and that trying to do so may be damaging

Scenarios have proved to be a practical means of introducing uncertainty into the strategic process


About Scenarios (continued)

Scenarios are intended to push the envelope of possibilities that we may not have considered before or had taken seriously.

They should challenge tunnel vision and make you look at the radar screen to see what things are out there shaping the future… YOUR FUTURE!!

There are no good or bad scenarios, per se.

How you react to them is most important!


Determine the Scope of the

Scenarios

Determine Important Issues & Gather Information

Identify the Dominant External Forces

Determine Trends and Key Uncertainties

Develop Detailed Scenarios

Overview of the Scenario Building Process


Step One: Determining the Scope

A. Define time frameInfluenced by rate of technological change,

product life cycles, competitors, strategic thinking capability

B. Establish boundaries of analysisGeography, products, markets, technology

C. Identify key stakeholdersIndustry players, customers, suppliers, new

entrants


Setting Stage & Scope

Gathering Information

Identifying Forces

Main Trends

Key Uncertainties

Creating a 2x2 Matrix

Building Scenarios

Blue Print

Snap-shots

Scenario Drivers

External Environment Summary


Stage and Scope at Your CU

Time Frame



Boundaries – External

Boundaries – Internal



Boundaries – External Field of membership Charter / credit union Regulation / guidelines Technology Capitalization Liquidity Talent pool Rates

Boundaries – Internal Internal policies /

guidelines Organizational

structure Talent pool Liquidity


Stage and Scope at Your CU Federal Credit Union

StakeholdersMembers


Stage and Scope at Your CU Federal Credit Union

Stakeholders


Determine the Scope of the Scenarios




Develop Detailed Scenarios



Step 2: Determining Important Issues & Gathering Information

If you could ask the mythical Oracle of Delphi only three questions about the external environment in the future, what would they be?

What resources might you use to gain new insights about these and other questions?



A. Identify issues that will have strategic relevance to you (to focus on)What three questions would you like

answered about the future?Identify types of information that could help

your credit union strategically.• What information would help you evaluate present

strategies and develop viable alternatives for the future?

• Look at the past and think about what you wish you could have known then that you know now.


Three Oracle of Delphi Questions




Resources

Resources




Identify the Dominant

External Forces


Discuss Detailed Scenarios



Step Three: Identifying Forces

Forces: Current or future developments that are likely to influence Your CU in the future

List the most important forces (from 5-25)Consider economic, political, social,

technological, industryBe sure forces are listed at a similar level of

abstraction / detailFormulate your forces directionally (e.g. “an

increase in…” and focus on fundamental drivers, not just the symptoms)


Step Three: Identifying Forces





Determine Trends and Key

Uncertainties

Discuss Detailed Scenarios


Step Four: Determine Trends and Uncertainties

UncertaintiesTrendsIm

port

ance

Low HighUnpredictability

Low

High

• Trends are defined as those forces that are important and highly predictable

• Uncertainties are defined as those forces that are important yet have a highly unpredictable outcome


Proposed Trends

Trends identified: Example: The level of member technology

sophistication and usage will increase

Trends are concrete forces that are important to our businessand that we believe are likely to occur. In general, we’re willingto bet our Your CU’s strategy on these trends ...


Proposed Trends


Proposed Uncertainties Uncertainties are concrete forces that are important to our business and whose outcome is highly unpredictable. In general, these are important guideposts, but we should be prepared for them to play out in different ways.

Uncertainties identified: Example: The economy will change

dramatically


Proposed Uncertainties






Discuss Detailed

Scenarios



Step Five: Developing Detailed Scenarios

Select the two most important uncertainties Ex:Technology Ex: Credit Union Industry Environment

Define two outcomes for each Ex: Technology: Moderate / Radical Ex: Industry: Moderate / Radical

Place them in a two-by-two table Provide titles for each cell

A. Constructing a 2x2 Matrix


CREDIT UNION INDUSTRY

Scenario 1

TEC

HN

OLO

GY

Scenario 2

MODERATE RADICAL

MO

DE

RA

TER

AD

I CA

L

Step Five (A): Your CU

Scenario 3 Scenario 4


Step Five (B): Build a Scenario Blueprint

Using the uncertainties from earlier, assign outcomes to each of the scenarios by setting up a grid in which:Columns are scenariosRows are key uncertainties

Play out each uncertainty in a way that best fits that scenario

Add the main trends (which apply to all scenarios)


ForcesScenario 1:Scenario Name Scenario Opportunities

U1U2U3U4

U5

U6U7

U8

U9

AllTrends

Moderate change Continued loan growth / liquidity constraintsModerate change Upgrade core system (scenario insensitive)Moderate changeNo significant change Rejoin League / individual activism - banker attacks continue (state level)Stable work force 1) Increasing pool of qualified staff - Maximize benefits of average 2) Demographic changes drive higher costs tenure increasingContinued enhancements Upgrade delivery systems / branch expansionStatus quo 1)Development of business to business relationship

2) Pick up other Kaiser facilities as SEGsFew new meaningful changes Implementation of member business services - continued refinement (competition driven)Moderate change Penetration into sponsor group

Building a BlueprintBusiness As Usual


Definition of Scenario 1SCENARIO NAME

Status quo – there will be changes, but at a controllable rate

Economy grows (declines) at a steady rate – stable environment (2-4% annual change)

Field of membership expansion through existing opportunities / methodology Continuing migration to community charters

(10-20/year) No taxation Credit union model holds “Normal” contraction of the industry Continuing banker attacks (state level)


Definition of Scenario DSCENARIO NAME

Module IIIModule IIIIndustry and Industry and Market AnalysisMarket Analysis


Module III: Overview



t


VII. Implementation


V. Strategic Vision

I. Introduction

Industry and Market Analysis- strategic segments- customer analysis- competitor analysis

Output:A segmentation scheme tailored to your credit union; competitive insight


Understanding the Industry and Market

Does your credit union examine its products and customers in a strategic way ?

How and why does it do this? What are the strengths and weaknesses of

this approach? Can you identify your most profitable

products and / or markets?


Understanding the Industry & Market

How we define our business determines our ability to recognize customers and competitors as well as opportunities and threats

What?Customer Functions / Products

Who?Customer Groups

How?Activities & Technologies


Signs You Don’t Understand the Industry & Market

Products are developed to be “all things to all people”

Can’t identify your most profitable customers Can’t identify your most profitable products Being “cherry-picked” by competitors Don’t understand customer or competitor

behavior


Benefits of Understanding the Industry & Market

Allows you to choose battles more effectively Focuses resources on “strategic” initiatives Lets you serve your customers better Allows you to launch / maintain profitable

products Improves strategic decisions Aligns your strategy with the outside world


Objective: To recognize why and how various segments in your industry differ in their strategic value to you. This means better understanding your customers, competitors and each segment’s key success factors.

Comprehensive and well-defined industry analysis makes it easier to recognize strategic segments with high versus low profit potential. It becomes possible to evaluate various segments based on their overall attractiveness rather than one or two vivid factors that may distort the full picture of potential hazards and opportunity.

Industry and Market Analysis


Industry and Market Analysis

The Key Insights will be: A strategic segmentation of your business. A better descriptive analysis of each segment,

especially regarding customers, competitors and partners.

A deeper understanding of each segment’s strategic structure and value creation potential.

Key Challenges: Only fight battles you can win -- ignore bad segments. Different strategic segments require different battle

plans.


Identify Strategic Segmentation Criteria

Develop a Segmentation Matrix

Select Strategic Segments

Analyze Segments

Deeper StrategicAnalysis of Segments

Overview of Industry and Market Analysis


Business Segmentation Schemes

Traditionally, industries have been segmented by: Product

Distinguish products sold to same market Market

Focus on end user One product satisfies customer groups differently

Product-Market Different strategies for each segment Increased management complexity

Geography Segments Different strategies for each distinct region Loses sight of main objective: to gain competitive advantage


Strategic Segmentation Strategic segmentation goes beyond traditional business

segmentation. It attempts to highlight and delineate the important but essentially different battlefields the firm is or might be competing in. This involves analyzing a particular industry through a variety of lenses to understand the competitive dynamics in current business segments and discover potential opportunities and dangers in the surrounding segments.

Strategic segmentation seeks to move beyond the limits of any one individual frame and uses multiple frames to understand the challenges and potential present within an industry. After a thorough analysis from many perspectives it is possible to develop a comprehensive assessment of each segment’s value.


Strategic Segmentation

Combines multiple dimensions of competition Focuses on important strategic segments

Exhibit strategic similarities within segments Differentiate strategically among segments

Different strategic segments represent different battlefields, each with its own rules and competitive strategies

Each segmentation map is a simplification: it distorts (like any map) to bring out the salient features and suppress detail


Step One: Identify Possible Strategic Segmentation Criteria

Segment the industry or sector along the following dimensions:in terms of products and services currently

offered by yourself and others;in terms of major market segments (i.e. major

customer groupings);in terms of distinct geographic segments;explore other segmentation criteria to develop

yet other segmentation lenses.


Your CU Criteria and Categories

Products/Services: Lending Products, Investment Products, Convenience Products, Relationship Products, Alliances, PC Banking, Financial Counseling, Debit/Credit Cards, Automated Services, Branch Services

Market Segments: Credit Driven, Upscale, Middle Market, Middle Income Depositor, Fee Driven, Low Income Depositor (Age / Income / Balance & Mix (Profitability))

Geographic Segmentation: Local (9 Bay Counties), Regional (Northern/Southern California), State, National, International

Other Criteria: Select Employee Groups, Channel Usage (Technological, Traditional, Multi-Channel) User, Consumer Services, Commercial Services, Cultural (Hispanic, Asian, etc.) , Education, Life Stage/Life Style


Step Two: Develop A Segmentation Matrix

Select the two most strategic criteria -- those dimensions that most differentiate the various competitors and products

Build a segmentation matrix Complete cells with relevant information Combine cells that are too similar Define and describe your segments

Segmentation Matrix for Your CU

Lending Products & Services

HELOCsAutomobilesMortgagesGold/Plat cards

MortgagesPlatinum cardsHELOCsAutomobile (new)

AutomobilesMortgagesPlatinum cardsHome equity loans

Automobile (used)Unsecured LOCCredit cards

Investment & Deposit Products & Services

IRAsTerm certificatesMoney marketsMutual fundsAnnuitiesChecking

Term certificatesIRAsMoney marketsMutual fundsAnnuities

Checking Term certificatesChecking

Convenience Products & Services(Delivery)

Direct depositDebit cardsMOMOnline bankingBranchATMs

Online bankingATMsDirect depositBranch

Online bankingMOMDebit cardATMsDrive-ups

Debit cardsATMsDrive-ups

Relationship Products & Services / Alliances

SharebuilderFOLIOfnInsurancesEstate planning

SharebuilderFOLIOfnInsurancesEstate planning

Balance (credit counseling)MBI / GapCLCD

BalanceMBIGap

FinancialProducts

andServices

Mix

Life Stage / Life Cycle **Middle Mkt / MID Upscale Credit Driven Fee Driven / LID$1 (45%) $94.2 (17%) $128.7 (16%) <$5.2> (15%)

** Undetermined impact of member business services


Step 3: Analyze Segments Gather relevant information for each segment

Market size and share Products and services Competitors and their strategies Distribution channels Suppliers, regulators, unions, etc.

Profile customers those seeking ease in transactions those seeking wealth accumulation those seeking financial advice, etc.

Perform profitability analyses


Products & Services Offered

HELOCs; Automobiles; Mortgages; Gold/Platinum Cards; 2nd MortgageIRAs; Term Certificates; Money Markets; Mutual Funds; Annuities; Checking

Types of Members Encountered

Age: MM 43; MID 60 Avg Deps: MM $6.1k; MID $12.5kIncome: MM $61k; MID $54k Avg Loans: MM $21k; MID $15.8k

Distributors and Channels

Direct deposit; Debit cards; MOM; Online banking; Branch; ATMs; Call Center

Major Players:Competitors

Washington Mutual; Bank of America; Wells Fargo; Their CU;

Complementors Personal Trust; Insurance (Life, Property & Casualty, etc.); Sharebuilder; FOLIOfn; Estate planning

Other ImportantFactors

As this group ages, they shift from key loan to key depositor segmentsAbility (proven) to migrate segments into electronic/remote services and deliveryDuration: MM: 8.2 yrs MID: 13.5 yrs

Analyzing SegmentsMiddle Market / Middle Income Depositors (45%)

Descriptive Analysis


Analyzing SegmentsBasic Competitor Analysis

Major Competitors

Our Credit Union

WashingtonMutual

Bank of America Wells Fargo

Key Elements in Their Strategic Vision

ProfitabilityLending growth

Important Strategies

Relationship developmentHELOCs/MtgsRisk-based pricing

Non-int incomeConvenienceMortgagesHome equities(Visa access)Consumer

Mortgage refisHome equitiesAutomobilesCommercial

Cross-sellingCredit cardsMortgages / HEquitiesCommercial

Core Capabilities

ServiceReal estate solutions

ConvenienceTechnologyResponse speed

TechnologyResponse speed

Important Strategic Assets

Online loan app(not RE)

Multi-branchExtensive ATMs

Performance Indicators

4 3 1 2


Analyzing SegmentsGap AnalysisMiddle Market / Middle Income Depositors

Poor / Weak Good / Excellent

Legend:Our CU = Your CUBoA = Bank of AmericaWAMU = Washington MutualWF = Wells FargoTCU = Their CU

Our CU BoATCUWAMUWF


Analyzing Segments -- Take-Aways

There are multiple ways to define and analyze segments: choose an approach that meets your credit union’s needs

Information gathering can be challenging: false assumptions are often made

Be sure information is available (or can be generated) for the segmentation scheme you choose

Focus on the forest -- not on the trees


ValueCreated

Buyers

GovernmentAction

Potential Entrants

Other Productsor Services (Substitutes)

Suppliers

Intensity ofCompetition

Source: Michael Porter

Step Five (A): Evaluate the Forces of Competition for Each Segment


One Credit Union’s Segmentation

Segment – Middle Market / Middle Income DepositorsBuyers:Substitutes: Service Kiosks, E-Mail, Audio

ResponseSuppliers: Banks, S&Ls, Credit Unions,

Insurance Companies, Mortgage Companies, Auto Dealers

New Entrants: Rivals: Banks, S&L’s, Credit Unions

Step Five (B): Strategic Co-opetition

CUSTOMERSToys “R” Us, Walmart

COMPETITORSAtari, Commodore

(hardware)

COMPLEMENTORSAcclaim, Electronic

Arts(software)

SUPPLIERSRicoh, Sharp (microships),

Marvel, Disney (game characters

NINTENDO

Competitors: Customersvalue a product less whenthey have the other player’sproduct than when they have yours

Complementors: Customersvalue a product more whenthey have the other player’sproduct than when they haveyours alone Nintendo

Example


Understanding Added Value

YOUR ADDED VALUE =

The size of the pie when you are in the gameMINUS

The size of the pie when you are out of the game

How do you assess Added Value: Put yourself in the shoes of the other player

to assess how valuable you are to them

Source: Brandenburger and Nalebuff: Coopetition


Business Examples of Co-opetition

GM, Goodyear and others set up Lincoln Highway Association to catalyze coast-to-coast US Highways

Michelin Tire Company creates Michelin Travel Guides in France and then Europe to stimulate driving

Intel’s Pentium Pro will offer full-screen video (24 fps): $100 Million investment in Proshare with phone companies offering ISDN, and Compaq to add it onto business PCs

Cable companies got started by complementing broadcast TV to extend their reach; now they compete (HBO, CNN, MTV, QVC, etc).


The new reality of business is that any given organization can be your customer, rival, supplier or complementor. A prime example is Microsoft.

Strategic Co-opetition

Savvy players ask two key questions: How can the segment pie be enlarged? How can we increase our slice of the pie?They think both competition and cooperation.Who are the major complementors for: Credit Unions Brokerage Houses Credit Card Companies


Important Reminders About Understanding Your Industry & Market

Segmentation should broaden the way you think about products and markets

Analysis should be conducted to answer strategic questions

Learn to think differently: new strategic decisions will result from this process


Define Business or Industry

Develop Segmentation

Criteria

Create Initial

Segments

Analyze Segments

Descriptively

Create a Segmentation

Map

ConductDeeperAnalysis

Forces of Competition

Co-opetition Analysis

Optional

Industry & Market Analysis Summary

Module IVModule IVOrganizational Self-Organizational Self-AnalysisAnalysis


Module IV: Overview




VII. Implementation


V. Strategic Vision

I. Introduction

Organizational Self-Analysis surfaces - core capabilities

- values / culture - key assumptions

Output:A list of your

credit union’s core competencies,

values and culture


Understanding Your Organization

How do you currently assess your organization’s skills and capabilities?

Can you identify your credit union’s strengths and weaknesses?

How many management levels in your credit union understand these strengths and weaknesses?

How do you make outsourcing decisions? Is your current framework and process for

self-analysis adequate?


Signs Your Credit Union Doesn’t Understand Itself

Can’t assess options effectively Don’t know where to make future investments Budget cuts are made across the board Can’t decide which functions to outsource


Why Self-Analysis is Crucial

Competitive climate is intensifying Regulation is changing Industries are changing (more convergence) Outsourcing is increasing Growth is required for survival Competitors are getting smarter


Identify CoreCompetencies

Rank Core Competencies

Develop a DeeperUnderstanding of Core Competencies

Conduct a Culture Audit

Organization Self-AnalysisObjective: To perform an in-depth analysis of your organization’s strategic strengths and weaknesses by focusing on core competencies.Key steps in the module are:

A. Conceptualize the organization as a portfolio of core competencies.B. Define your important core competencies.

Use rating criteria to determine a limited set of your “core” skills and capabilities.

A. Identify what activities, skills, and resources that are entailed for each of the core competencies.B. Benchmark selected aspects of the core competencies against “best-in-class.”

The aim is to surface internal assumptions and core values that may impact your strategic vision.


A Tool for Self-Analysis: Core Competencies

What are core competencies? Complex set of skills, knowledge, and

resources that reach across the organization Yield a sustainable competitive advantage in

the marketplace Permeate the organization’s culture, evolve

over time, and are based on specific “know-how”


What Is a Core Competence?A “core competence” is a set of interwoven skills that is tied to organizational values.

CoreCompetence

Skill #1 Skill #2 Skill #N

Group of employees who,working together, constitutesbase of organizationalexpertise

A core competenceis composed of…

…a complexset of skills,capabilities, andexpertise...

…that reside inemployees workingcollaboratively within and across skill sets

Source: Advisory Board, 1996

Where do Core Competencies Reside?

1 2 3 654 7 8 9 10 11 12

Business Unit

or DivisionCars

Business Unit

or DivisionMotorcycles

Business Unitor Division

Lawn Mowers

Business Unit

or DivisionGenerators

Core ProductA

Engine Design

Core ProductB

Engine Manufacturing

Core Competence

#1Attracting Top

Engineers

Core Competence

#2ThinkingGlobally

Core Competence

#3FormulaRacing

End ProductsHonda Example


Step One: Identifying Core Competencies

Two approaches(A) Tree : Leverage focus(B) Onion : Outsourcing focus

Should yield similar results Try both if people disagree a lot Each is a mapping tool (it simplifies)


Step One (A): Tree Approach

Identify leaves--existing and planned products Identify branches--SBUs (Strategic Business

Units) Identify trunk-- core products Identify roots-- core competencies

Hint: Start from the top and work your way to the roots of the tree


Tree Approach at One CU

© 1999. Decision Strategies International, Inc.

C o n cu m erL o a ns

L o a n s : H o m e E q u ityV e h ic le , S ig n a tu re,

L in e -O f-C re d itC re d it C a rd s

M o rtg a geL o a n s

L o a n s: M o rtg a g eC o n ve n t io n a l

F H A , V A

P ro te c tio n

In su ra n ce : A D & D,L ife S a v in g sC re d it L ife &

D is a b ilit y

D e p o s its

S a v in g s:S a v in g s A cco u n ts

C h e ck in g , C e rt if ica tesM o n e y M a rke t

In v e s tm e n ts

S to cks:M u tu al F u n d sS to cks , B o n d s,

B ro k e ra geC U S O

F in a n c ia l P la n n in g

In fo rm a t io n:F in a n c ia l C o u n se lin g

a d v ice ,in fo rm a t ion

P a ym e n t S ys te m s

A u to m a tic T ra n s .:D e b it , P O S , C h e cks

A C H , P C H o m eB a n k in g , B ill P a ym e nt

S u p p ort S ys te m s

S u p p o rt S y ste m s:C o m m u n ity , S E G ,

C U In d u s try

Financing Wealth

AccumulationInformation Processing/

Facilitating Transaction

Efficient OperationInherent Trust in CU

NameCooperative Spirit

Products SBU’s Core Products Core Competencies

Your CU – Products (Leaves)SavingsTerm sharesClubMoney marketCheckingIRAsSEPPKEOGH

ACHDirect depositAutomatic xfer servicesBill payHome bankingATM networkPayroll deductionMOMPOSDebit cardWebsiteShared branchOverdraft protectionBalanceTravelers chequesCorporate checksCheck cashing

VehicleSignatureLine of creditCredit cardAsset-basedStock securedShare secured

MortgageHELOCSecond mortgageMortgage servicing

AD&DCLCDGAPMBICPILifeAlternative investmentsLTPCEstate planningProperty & casualtyTrust servicesFinancial planningReverse mortgageDebt cancellationCUSO expansion

Member business lendingMember business deposit servicesMember business support services

SEG employee benefitSponsor relationshipStrategic partners

Your CU – Business Units(Branches)

Deposits Convenience Consumer Lending

MortgageLending

Insurance & Investments

Member Business Services

Relationships

Your CU – Core Products(Trunk)

Wealth Management

Financing Delivery Community

Your CU – Core Competencies(Roots)

Depth & Diversity of Experience

Awareness & Innovation

Risk Management

Your CU – Core Competencies

Diversity Awareness & Innovation

Risk Management

Wealth Management

Financing Delivery Community

Deposits Convenience Consumer Lending

MortgageLending

Insurance & Investments

Member Business Services

Relationships

SavingsTerm sharesClubMoney marketCheckingIRAsSEPPKEOGH

ACHDirect depositAutomatic xfer servicesBill payHome bankingATM networkPayroll deductionMOMPOSDebit cardWebsiteShared branchOverdraft protectionBalanceTravelers checksCorporate checksCheck cashing

VehicleSignatureLine of creditCredit cardAsset-basedStock securedShare secured

MortgageHELOCSecond mortgageMortgage servicing

AD&DCLCDGAPMBICPILifeAlternative investmentsLTPCEstate planningProperty & casualtyTrust servicesFinancial planningReverse mortgageDebt cancellationCUSO expansion

Member business lendingMember business deposit servicesMember business support services

SEG employee benefitSponsor relationshipStrategic partners


Step Two: Ranking Core Competencies

Core competencies must meet the following criteria:Provide advantage over competitorsHard to replicate, imitate, or transferCannot be bought or soldProvide value to customersApplicable across markets or product linesExist broadly across groups of employeesSustainable and durable over time

Step Two: Ranking Core Competencies at Your Credit Union

CORE COMPETENCEDefinition: A core competence is acomplex set of interwoven skills, capabilities and expertise that residein groups of employees workingcollaboratively.

Diversity

Awareness & Innovation

Risk Management

Providesadvantage overcompetitors(1=does not;7=does)

Hard to replicate,imitate, or transfer(1=easy;7=difficult)

Provides value toMember (1=littleor no value; 7=highvalue)

Exists broadlyacross groups ofemployees (1=veryconcentrated; 7=very diffused.)

Applicable acrossmultiple markets orproduct lines (1=veryfocused in one or a few lines; 7=applicableacross many lines)

Sustainable anddurable over time?(1=fleeting, notsustainable; 7=very sustainable)

RATING CRITERIA

5.67

6.33

6.00

5.17

5.33

5.00

6.33

6.33

6.33

5.83

6.33

5.50

6.33

4.50

3.33

5.33

4.83

4.00

Not necessary to exist broadlyMost significant rating criteriaArea of concern


Step Three: Developing a Deep Understanding of Core Competencies

(A) Identify the activities, skills and resources required for the top core competencies

List the activities performed within each of the top core competencies

Identify the knowledge base required for each activity

List the skills used in each activity List the resources required for each activity

Define Problem

Determine Scope of Work

Prepare project mgmt & implementation plan

Coordinate stakeholders

Execute plan

ACTIVITY SKILLS RESOURCESConceptualization, technical skills, problem solving, public interface

Conceptualization, Communication,Public interface, Multidisciplinarytechnical skills

Project mgmt, Analytical skills

Stakeholder recognition, team building, negotiation,communication

Project mgmt, contracting, technicalskills, budgeting & programming

Executive Management,Functional Chiefs, Localconditions knowledge

Technical Specialists

Functional Chiefs

Functional Chiefs,Technical Support

Technical Staff, Network comm.funds, Contractors, Engineeringfacilities & equipment

Ability to deploy multi-disciplinary resourcesEXAMPLE

Develop a hiring model

Develop a reward and recognition program

Promote corporate core values

Training

ACTIVITY SKILLS RESOURCESEstablishing competenciesDefining desirable attributesFocus on business needsAlignment of recruitment process with hiring modelManagement experiencePerspective / “intuition”

TrainingBehavior modeling

TrainingBehavior modeling

CommunicationBehavior modeling

Human Resource DepartmentExecutive Management TeamCUES / CUNAJob Analyses

Compensation modelsOther financial institutions

Planning processManagement meetingsStaff meetings

CUES / CIA / CUNA / NAFCUBAI / HRD / SHRMManagement meetings

DIVERSITY

Develop an empowering leadership program(Encourage (reward) strategic thinking / external thinking (outside CU industry))

Develop reward & recognitionProgram

Implement continuous process improvement program

ACTIVITY SKILLS RESOURCESManagement development EnhancementCoachingCommunicattionMentoringSuccession planningCareer pathing

Behavioral modeling

TrainingEnhanced project managementInterdepartmental communicationProblem resolutionAccountability

Human Resources DepartmentExecutive Management TeamOutside resources / vendors

Human Resources DepartmentManagement Team(s)Employee Focus Groups

Human Resources DepartmentExecutive Management Team

AWARENESS & INNOVATION

ACTIVITY SKILLS RESOURCES

RISK MANAGEMENTRisk-based lending

Organizational structure- Human resources- Branching- Delivery channels

Risk management / assessment(ALM) program

Analytical / trend evaluationDecision-makingReliance on systems / toolsCommunicationTimeliness / monitoring

Human resourceAbility to define / analyze business needsEffective checks and balancesProactive senior managementCommunicationFlexibility / adaptabilityStrategic thinking

ALM / financial understandingAnalytical evaluationStrategic thinking

Experience- Partners / regulators- Networking (CUESnet)Tools (reporting/systems/etc.)Information management

PartnersCost center reporting- Security matrixProfessional literature / workshopsDepartmental representationFunctional expertiseHuman resource best practices

ALM modelsRegulators / examinersIndependent accountantsPartnersEconomic indicators / data

ACTIVITY SKILLS RESOURCES

RISK MANAGEMENTCompliance (training / awareness networking / competence)

Product development / product mix analysis

Information management (systems)-Business resumption

-Testing-Training

Legal / logical thinkingInterpretative / prioritizationDetail orientation

MarketingData analysis-Industry / market-Your CU / KaiserCreativityStrategic thinkingInnovative thinking

System / data analysisData results communication / reportingLogical thinkingStrategic thinkingAnalytical / trend analysisBusiness understandingCreativityProblem resolutionRisk takingProject managementProactive / assertiveSecurityTechnical support

Trade associationsOuthouse councilRegulators (multiple discipline)

MCIFCore systems / sub-systemsIndustry / trade resourcesFront-line staffMember survey / feedbackExternal research / resourcesNetworkingStrategic partners

Core systems / sub-systems-Credit bureau dataPartners / processorsSecuritySupport software


Step Three: Developing a Deep Understanding of Core Competencies

(B) Benchmark selected aspects of the corecompetencies against the “best-in-class”

What are the ways top performers use these core competencies to create advantage?

How close to world-class are we in this competence?

What adjustments are needed to become world-class or the market leader in this competence?

Where Does Your CU Rank with Respect to:

DIVERSITY

Absent Extraordinary

Banking / Government / GapCredit Union NFL / MLB McDonalds / LevisIndustries Technology Subway / Benetton

MTV / Music

Your CU


Step Four: Conducting a Culture Audit

Surface key internal assumptions about your business

Surface your organization’s core values Consider the following tools

Anonymous survey Employee focus groupsInvestigative mission by an outside observerHonest evaluation by strategic team


Determinants of Company Culture

Written and stated values of the firm Examples set by leaders Reward, promotions, and recognition

programs Structure of business processes and systems Heroes about whom tales are told


Important Reminders

Be sure your analysis is properly focused Limit the number of core competencies you

analyze Don’t define assets / infrastructure as core

competencies Be intellectually honest; use data Others can see your culture better than you

can


Culture Questions

What behavior(s) do we actually reward?Commitment to the jobInitiativeRisk taking (within competence level)Excellence in service qualityPositive contributionProblem resolution (proactive solutions)Exhibiting leadership skillsSelling / cross-sellingGoal attainment


Culture Questions

What do people actually believe about how good (and bad) performance is rewarded?Due to switch in compensation models (and

failure of managers to adequately communicate differences in models), misperception of how performance is tied to reward

Inequity in managers’ application / evaluation of performance

• “Who you work for makes a difference.”


Culture Questions

Are we oriented to get results or to follow a process? Now: getting processes in place so that we

can get results (trying to get results where we can)

• Defining “results”• Project management• Team concept of improvement• Evolving from “let’s do it” to “let’s do it right”

Future: results with CPI ongoing What results are considered acceptable?


Culture Questions

Are we oriented to get results or to follow a process? See previous slide

What results are considered acceptable?Actually fixing those things are require fixingMoving to results oriented with ongoing

process improvement


Culture Questions

What rites and rituals do we have?Concentrated knowledge base (the one

person who knows)Attendance award (for “perfect” attendance)

• Entitlement?Individual versus team reward

• Moving on thisLack of courage to address problemsWanting to be liked


Culture Questions How do we communicate?

Effectively• Face-to-face

• Regular management meetings• Operational meetings (four formats)• Listening / soliciting commentary• One-on-one• Open door policy

• Training sessions / PowerPoint• By using examples / role playing• Electronically

• E-mail• Webinars• Outlook

• Honestly


Culture Questions

How do we communicate?Otherwise

• Electronically• E-mail avalanche

• Lack of written communication (case-by-case)


Culture Questions

What do we talk about and what don’t we talk about? Do talk about

• Problems• BHAGs• Projects• Too much “stuff” (not enough meat)

Don’t talk (enough) about• Solutions (sometimes)• “Third rail” issues (e.g., “relationship improvement”)• Soliciting feedback

• Timely basis• Honest• Quality / importance• Acceptance


Culture Questions

How are important and minor decisions made? (Your CU question: How do we define “importance” and/or “priority”) Important

• Quickly (sometimes too quickly, as opposed to “timely”)• Sometimes too slowly• Lack a process of decision making process / project mgmt

• Tell / solicit (consult) / sell• Getting all the affected parties involved on the front end

• Communication on the back end Minor (routine / impact / ? – definition required)

• Within silos• Delegated (empowerment / accountability)


Culture Questions

What is our decision-making process? Major

• Top down approach• Managers involved in initiating research/ideas/etc.

• CEO VPs Mgrs Staff• Moving to more empowerment / involvement of staff in

decision making (support for this at Exec level)Minor

• Departmental level Who is involved?

CEO / Exec. Team


Culture Questions

How are decisions announced?Getting better with timely communicationAnnounced on a need to know basisUtilization of all appropriate tools

• Written• Oral• Email

Working on follow-up


Culture Questions

How is implementation handled?Still some thoughts of “us versus them”

• Seen as “Execs make decisions and staff implements”

Developing a structured project management process

• Utilization of CUES project management model• Enables managers to focus communication toward

individuals• Using project teams at staff level

• Initial meetings with all staff (pared down from there)


Culture Questions

What role do individuals play? Teams? Task forces?See previous discussion

• Making more utilization of teams and task forces• Getting universal participation• Post-mortem will be a critical process to our success


Culture Questions

What are the most common management styles and patterns?Authoritative (tell style)

• Non-negotiables• Core values / mission / vision

Direct (blunt style)• Expediency

Participative (consultative style)Coaching

Evolving / maturing into a more consultative style


Culture Questions

What are the attitudes toward learning at all levels and in all groups?Expectation of continuous learning (part of our

culture)• EX: preparedness to sell Your CU products (on

last employee survey) Is it encouraged or rewarded?

Yes – education is part of performance evalEncouraging more employees to take

advantage of the tuition reimbursement program


Culture Questions

How do people expect learning will be achieved?In-house training programsOffsite training programs/conferences

• Individual development plans• Match against budget per department/branch

Online programs/e-trainingWebinars

Company averagesExecutives: 117 hours per yearStaff: 80 hours


Culture Questions

What is the expected role of a leader: coach, expert, etc.? Coaching in order to develop expertsStrategic thinker (beyond the short term and/

or the short distance)• External thinking

Lead by example (core values)Support (360 degree)


IdentifyCore

Competencies Conduct a

Culture Audit

Analyze CoreCompetencies

TreeMethod

OnionMethod

Optional

Organizational Self-Analysis Summary

V-178

Module VModule VStrategic VisionStrategic Vision


Module V: Overview



t


VII. Implementation


V. Strategic Vision

I. Introduction

Inputs:Your credit union’sScenariosfor the FutureStrategicSegmentationSchemeCore Competenciesand Culture

Output:

An overall strategic vision for your credit union

AnalyzeKeySuccessFactors


Developing a Strategic Vision

Does your credit union currently have a clear strategic vision?Not necessarily clear (focus is clear; desire to

achieve vision is present, but not universal understanding of long-term)

We are continuously developing / shaping our vision (fairly good idea of DIRECTION)

Still defining “who we are” (in transition)Strategy is driving vision (instead of other way

around)



Is that vision shared among all employees?Short-term focus is sharedVision should not be shared until consensus

is reached



How was the vision developed?

How often is it re-visited? Tested?

How well does it align with your FOM’s vision?



Objective: To create a shared strategic vision that positions Your CU well for the future and builds on existing strengths.

Creating and sharing a strategic vision within the organization is one of the most critical steps in building an overall strategy.

A strategic vision is a clearly articulated statement of what the company wants to achieve and how it plans to go about achieving that.


Develop a Key Success Factors (KSF) Matrix

Rank the KSFs

Assess gaps relative to your core competencies

Articulate a clear strategic vision

Share and explain the vision

Overview of Developing Strategic Vision


What is a Strategic Vision?Inadequate Strategic Vision Strong Strategic Vision

Low Tech.

High Tech.

Growth

Cost-containment

Growth

Cost-containment

* The two axes are illustrative of dimensions that can drive strategic vision in your business.

Low Tech.

High Tech.


Signs Your Organization Lacks Vision

Resource allocation seems arbitrary to key employees

Many decisions are made centrally because individuals do not understand what to do

Executive decisions appear highly unpredictable and inconsistent

Managers don’t feel as though their actions make sense in the “bigger picture”

Company takes multiple actions that seem to conflict with each other


Common Pitfalls in Vision Building

Vision focuses the company on the wrong segments and opportunities

Vision is not clearly understood Vision is understood, but not embraced by

key employees


Benefits of Having a Strategic Vision

Provides guidance on where the company wants to be in the future, and how to get there

Identifies which projects should be pursued and which should be dropped

Allows the company to focus its resources productively

Allows the company to adapt to the changing business climate


Many Types of Vision

Do you have the resources and drive to change? Bold Vision--What your company perceives to be the

ideal target and strategy for the future Incremental Vision--What your company perceives to

be the minimum necessary departure from current skills and capabilities

Compromise Vision--A trade off between what the company perceives to be the ideal strategy and the organizational capacity to change


Step One: Develop a Key Success Factors (KSF) Matrix

The KSF Matrix brings together the scenarios you developed in Module II and your industry’s strategic segment analysis from Module III. The combination of these two components, plus the gaps with current competencies, will determine your strategic vision, and help you understand where and how to compete.


Step One (A): Identify Key Success Factors

Key Success Factor: A discriminating capability that firms must possess to create competitive advantage. These cannot be bought from the outside, but must be developed from within.

Example: The ability to integrate delivery channels, allowing point-of-sale convenience and thus superior value.


Categories to Consider for KSFs

Lending Investments Technology Convenience Business models Relationships Marketing Product and service development


Identifying KSFs at One Credit Union

Personalized / Customized Service• Deep knowledge and understanding of member needs• Outstanding personal service for each member• True customization of products and services• Members have input into the design of their

personalized products / services Knowledgeable Staff

• Well-trained staff throughout the organization• Ability to educate members about the credit union’s

products


Step One (B): Completing the KSF Matrix

I II III

A

B

C

D

E KSFE,I KSFE,III

KSFA,I

SCENARIOSSE

GM

EN

TS

KSFC,II

KSFA,III


KSF Matrix Example: Success Factors

Segment A: Loans

Segment B: Deposits

Segment C: Checking

Segment D: Equity & Insurance

1, 4, 9, 10

2, 4, 5, 10

2, 4, 5, 9, 10

1, 2, 5, 6

1, 2, 3, 4, 8, 9

1, 2, 4, 12

2, 4, 7, 9, 10

1, 2, 5, 6

1, 5, 10, 11

1, 2, 3, 4, 5, 6, 10

2, 4, 9, 10

1, 2, 5, 6

1, 2, 10, 12

1, 2, 4, 10, 12

1, 2, 4, 9

1, 2, 5, 6, 7

Scenario I

Homogenization

Scenario II

Niche

Scenario III

New World

Scenario IV

Status Quo


Legend of CU’s Key Success Factors

KSF 1: Strong Image and Reputation Based on Trust KSF 2: High Service Quality (Accuracy, Problem Resolution,

Professionalism and Friendliness of Staff) KSF 3: Speed of Service KSF 4: Improved Member Retention through Multiple Services per Household

KSF 5: Sales Culture Based on Market Segmentation KSF 6: Highly Motivated and Knowledgeable Staff KSF 7: Value Added Products and Services through Pricing and Product Differentiation for: Seniors, Generation Xers, Low Income Households, and High End Baby Boomers KSF 8: Strategic Alliances: Sponsor Group, Outsourcing, Etc. KSF 9: Delivery System Diversity KSF 10: Ability to Respond to Rapidly Changing Market Needs KSF 11: Community Oriented KSF 12: Sponsor Oriented


Step One (C): Identify Table Stakes vs. KSFs

Separate success factors in each cell into two categoriesTable Stakes - Having this capability is a “must”

to be a player in the industryDiscriminating Capability - Having this capability

will differentiate a company and make it a winner Record table stakes separately (remove them

from the matrix) Hone matrix to include 4-6 KSFs per cell


Step Two: Ranking KSFs

Assign weights to the segments and scenariosSegments -- How much emphasis should the

company place on this segment in the future?Scenarios -- How relevant is this scenario to

our vision? Generate a weighted score for each cell, and

in turn each KSF Construct a summary bar chart highlighting

the most robust KSFs


Cell Weights of KSF Matrix

Segment A: Loans

Segment B: Deposits

Segment C: Checking

Segment D: Equity & Insurance

Scenario I

Homogenization

Scenario II

Niche

Scenario III

New World

Scenario IV

Status Quo

Weights

30% 6% 6% 13.5% 4.5%

45% 9% 9% 20.25% 6.75%

15% 3% 3% 6.75% 2.25%

10% 2% 2% 4.5% 1.5%

100% 100%

20% 20% 45% 15% 100%

Total


KSF: Ranking

6356.5

67.5

51.7545.25

7066

35

0

10

20

30

40

50

60

70

80

S2 S3 S4 S6 S8 S9 S12 S13


Step Three: Gap Analysis

Identifies where your credit union is currently positioned regarding each KSF

Identifies where “best-in-class” companies are positioned

Provides company with an understanding of: Where it is today Where it has to be in the future How it might get there



Gap Analysis Take-Aways

Gapping is both a diagnostic tool and a learning process

Gapping is best done with a diverse group of managers: It often leads to important options to incorporate in the strategy

Gapping sometimes identifies “holes” in the company’s knowledge base


Gap Analysis at Your CUTable Stakes

Shared strategic vision – board/management/staff.


SW AirlinesYour CU Your CU Your CU Disney/SonyBoard Staff Mgt Wells Fargo

Local Bank


Step Four: Creating a Vision

Vision determinesFuture product scope -- What offerings will the

company have in the future?Future market scope -- What segments will the

company play in? It could include

Key capabilities requiredSize / growth guidelinesReturn / profit guidelinesBusiness unit visionsKey success factors


Creating a Vision at One Credit Union

Vision: EECU is the most valued, respected and progressive provider of financial services to all educational employees and their family members within our field of membership.

Mission: EECU’s purpose is to understand members’ financial needs and provide quality financial products and services to meet the needs of its membership.


Creating a Vision at One Credit Union (con’t)

Values (these are the values we are striving for) Through our business:

• Be member focused and offer unparalleled member services• Drive bureaucracy out of our internal operations• Move toward household direct transactions through technology• Continually improve the knowledge level of all staff• Be progressive in our use of technology• Continue to educate our members, staff and community about credit

unions• Continually improve employee productivity• Use every resource as efficiently as possible• Continually expand enrollment in our field of membership• Develop and maintain a cooperative partnership with our sponsor

groups and vendors• Improve product penetration in single product households• Encourage participation of volunteers



Values (these are the values we are striving for) Through ourselves:

• Be employee focused and encourage a fun, team-oriented approach to our work environment

• Allow for flexibility and diversity in establishing processes (no one way is absolute -- all ideas will be respected)

• At all levels of the credit union, give and receive graciously, have open and honest communication with NO FEAR of reprisal

• Focus on results not the process• Trust and support individual initiatives to create an empowered

environment• Work together as a team in an atmosphere of respect; we will

recognize and praise even small accomplishments• Breakdown existing barriers to our becoming an efficient team



How to get there We expect to move from our present to our future set

of core competencies through the following actions:• Develop diverse delivery systems• Ability to respond rapidly to changing market needs• Speed of service• High motivated and knowledgeable staff - culture change• Global access to information infrastructure on members• Sales culture based on market segmentation• Value added products and service through pricing and product

differentiation for: Seniors, Generation X’ers, Low income households, and high-end baby boomers


Vision Creation Take-Aways

Be sure to involve key managers with implementation responsibility

Brief key managers ahead of time Create an interactive, consensus oriented

meeting Address the difficult issues: don’t dance

around them


Step Five: Instilling Vision

Board approves vision Consider

• External validity -- are key premises, perceptions, and observations correct and complete?

• Internal validity -- Is the logic of the vision sound?• Trade-Offs -- Are the trade-offs made in ranking

KSFs and setting future directions reasonable?• Operationally -- Is the vision expressed in terms

that give direction and guide managers throughout the organization?


Important Reminders

The strategic vision is one of the most critical outputs of the strategic planning process

Don’t let the drive for “results” overcome the need for learning

Building consensus throughout the vision creation process is critical: otherwise implementation will fail

Developing Strategic Vision at Your Credit Union

Least EFFORT / LEARNING Greatest

Level IIUse example vision as a foundation and short-circuit the process

Level IIIFollow the process step-by-step and build a vision that fits your organization

Level IImpose a top-down vision

• Different approaches can be used, each involving its own level of effort.

• We recommend employing Level II for a first time effort at your credit union.


Developing Strategic Vision Summary

CreateSuccess

Matrix

Identify TableStakes &

KSF’s RankKSF’s

GatherAdditionalResearch on KSF

ConductVision

WorkshopInstillVision

Weigh Scenarios

and Segments

Gap Analysis Re-Core

Competencies

Module I Introduction to Scenario Planning I-1 California Credit Union League 2008 Big Sky...

Documents

Transcript of Module I Introduction to Scenario Planning I-1 California Credit Union League 2008 Big Sky...