Strategies Into Practice: Scenario Planning for Credit Unions
By Franck Schuurmans, Ph.D., CAE
Director of Non-Profit Practice, DSI
Since 1995, DSI has worked with the Credit Union Executives'
Society (CUES) in Madison Wisconsin to help its members anticipate and
plan for changes in the industry. CUES provides education and research
for executives and directors who work at credit unions in North America
and the Caribbean. While credit unions offer many services of banks, such
as savings accounts and loans, they occupy a unique place in the world
of finance because they are member-owned financial cooperatives. Originating
in Europe during the middle of the 19th century, they have survived in
their original form in the United States while in Europe credit unions
have long ago migrated to highly professional, bank-like institution.
Today, about 9,000 credit unions remain in the United States, although
roughly 750 credit unions hold 85% of all the assets. This consolidation
is likely to continue. Since the early 1980s, credit unions, like all
other financial institutions, have had to work in an increasingly deregulated
environment, which has dramatically changed the face of competition and
the demands and offerings in the market place.
To meet these challenges, DSI first offered a weeklong program to senior executives on strategic planning that is now in its eighth year. Among many topics, the program included an overview of DSI's scenario-based strategic planning methodology. While this offered a good thinking framework for executives in the program, important questions remained about the potential scenarios that credit unions might face.
DSI teamed with CUES to produce a series of industry-wide scenario reports for members. The first set of scenarios in 1998/1999 focused on the intensity of competition and the role of technology. The resulting four scenarios depicted four very different worlds that credit unions might face in the years to come. Did we get it right? Across the four scenarios, we identified many of the key forces that were critical in reshaping the industry. Not surprisingly, however, in the heady high-tech days of the late 1990s, many executives and directors believed only one scenario to be relevant. This was the "Chameleon" scenario which portrayed a world of hyper competition with a high degree of acceptance of innovative technology. This scenario seemed like a certain bet to many managers. Yet, in truth, the value of scenario planning demonstrated itself because in reality the changes of the past five years have been much less disruptive and far more incremental than many expected at the turn of the last century. While competition intensified, it did not completely change the game and technology faltered, failing to deliver on the hype. This is the advantage of preparing for multiple futures. What looks like a sure thing at the outset often doesn't materialize as expected.
2010 Scenarios for Credit Unions
DSI just released a new set of scenarios for the Credit Union Executives
Society at the Annual Convention in the Bahamas on June 21. As before,
DSI team members interviewed experts in the field and developed a broad
survey of forces. Based on this input, DSI identified a series of important
trends and uncertainties, with two top key strategic uncertainties being:
- Competitive Environment: How intense the competitive environment
becomes, and
- State of Marketplace Heterogeneity: How heterogeneous or homogeneous will consumer preferences and product offerings become.
Working with a blue print that involved all the uncertainties and trends that were surfaced during the research, the team developed four vastly different stories of what future credit unions may encounter.
The four worlds considered for 2010 are more complex than a simple definition of the matrix depicted above. These possible futures lie in varying degrees across the two enumerated axis and play out over a set of uncertainties and trends as noted in the blueprint.
The matrix frames four 2010 scenarios: one in which competition and diversity are both low (Cocooning); one in which competition and diversity are both high (Metamorphosis); one in which competition is high and diversity low (Survival of the Fittest); and one in which competition is low but diversity is high (Taking Flight).
- In Cocooning, both competition and diversity are stalled. This is a cozy environment for credit unions from the perspective of competitive and consumer preferences. Additionally, external geopolitical conditions create a dangerous world in which safety and soundness is preferred to trying new things and strategies.
- Metamorphosis is the cocoon's polar opposite; competition is frenzied and diversity intense. All bets are off in this world where a plethora of competitors aim to reach a highly diverse, radically changing consumer population. The importance of technology and the loosening of regulations further allow new business models to flourish while transforming how financial institutions conduct business and deliver products and services.
- In between the extremes is Survival of the Fittest, a world where competition is intense but consumers are more homogeneous. As Darwin theorized over a century ago, those with the capability to adapt to a changing environment and embrace variety will thrive in this scenario. Consumers exhibit predictable product preferences while an onslaught of new and existing competitors creates a world of guerilla warfare for share of wallet.
- Taking Flight rides between polar opposites in a world where protective regulations stymie competition but diverse consumers demand unique products. This world requires credit unions to take flight into areas of technology, marketing and operations in ways not previously done in order to meet the "my way" demands of consumers shopping in this scenario's familiar competitive environment.
Will the future that unfolds actually follow one of these four blueprints
exactly? It is very unlikely. These scenarios, however, help to bound
the future and provide insights into the capabilities that are needed
to meet each of these different worlds. The exercise is not designed to
focus in on a single point forecast, but rather designed to help open
the minds of managers in considering the future. These four archetypal
worlds that individual credit unions may face, and which they can adapt
to their local and regional circumstances, provide much food for thought
for both executives and the board of directors.
