Double Your Fun: Tracking Strategic Planning For a Brighter Future

When it comes to strategic planning, I often start with guidance from Harvard Business School professor Michael Porter. Porter was the first to develop a research-based understanding of competitive strategy, and his approach begins with the dramatic premise that operational effectiveness is not a strategy! Of course, to have a shot at sustainability and success, any enterprise would do well to focus efforts on running an effective shop. But simply improving how you do business is not sufficient to succeed over the long term. Porter’s claim was meant to be provocative because he wanted strategists to avoid falling into the operations trap. The trap is solely focusing on running an effective shop, which can be imitated by competitors all of whom are also working to improve their operations.

When you consider immensely larger competitors such as big banks or fintechs, competing on operations alone probably won’t work. I can assure you that your budget and staffing for your new banking app is tiny compared to what Bank of America is spending on theirs. And yes, credit unions certainly want to offer competitive rates to members and potential members, but good rates alone won’t cut it either. Porter notes that firms who rely on operational effectiveness alone will inevitably be outflanked by competitors who can be similarly effective and are also building strategic advantages such as product differentiation and/or a deep focus on meeting the needs of specific consumer segments. Credit unions need to walk and chew gum – they should run an effective shop and also identify, choose and develop a competitive strategy that rests on being different. How can your credit union create unique value for members and potential members that is difficult for others to copy?

The Future Demands Strategic Differentiation

In strategic planning, credit unions often throw everything into a single process. The outcome can be muddled and end up over-indexed on the side of objectives that seek to improve operational effectiveness. Far less common is a holistic strategic plan that explicitly seeks to achieve competitive advantage. Operational effectiveness is important, but it is not sufficient to ensure future sustainability. What is also really important is figuring out how you are going to connect with new, especially younger members and provide next-generation financial services that fulfill their needs. That is where “running a tight ship” will fall short over the long haul. The credit union of the 20th century (bless our brilliant and creative forebears!) will not survive the 21st century without major upgrades to a competitive strategy and value proposition that speaks meaningfully to members hailing from the 21st century. It is their century, after all. Old fuddie-duddies like me are just living in it until our kids take over. What is to be done? To ensure you are covering both bases and building a clear and coherent strategy, divide your planning into two tracks.

Tracking for Success

An alternative approach to strategic planning calls for clearly dividing the process into two tracks, one focused on improving operational effectiveness and one devoted to developing long-term strategic advantage. The first takes into account all those analyses and enhancements to identify and leverage efficiencies, strengthen processes, and find ways to match or beat peers on operational metrics. The second track is more focused on changes that will position the credit union for a bright future. Senior Management and the Board should understand both efforts and learn how to support each of them from their unique perspectives.

Track One: Operational Effectiveness

The first track is always in play and strategy sessions should result in an annual plan for improving operational effectiveness. The key question is: How can we run a tighter ship? The types of questions and initiatives might include: How can we lower our efficiency ratio or NIM? How can we grow inexpensive, longer-term deposits? Is it time for a core conversion? These efforts can be measured, benchmarks set, and KPIs measured by Senior Management with oversight from the Board.

Track Two: Competitive Strategy

The second track toward building competitive advantage over the long term is where credit unions often fall short. Devote time to this work! Start from your mission and map out where you want to be in 5, 10, 25 years. The key question is: How can we be viable in the future? The types of questions and initiatives are broader and might include: What financial problems will our future members have and how can we help solve them? What makes us truly different from our competitors and how can we strengthen that difference? What should we stop doing to better advance our priorities? This effort is more difficult to measure, but it is critical to long-term success. One example might include an integrated community development approach that combines household financial well-being, targeted “healthy community” philanthropy and small business investment to create a value proposition that promotes robust communities and economic prosperity for all. Don’t fall into the trap of avoiding long term investments into changes that cannot be easily quantified or that will not deliver in a single annual cycle. Advancing strategy requires vision, discipline, and a willingness to sometimes sacrifice short-term gains. Continuity of purpose and effort are critical here.

Combine, Measure, Socialize

Does a two-track planning process lead to two business plans and scorecards? Ideally not. After the heavy rocks have been identified and set into place, build a combined business plan for the coming year that clearly defines and includes next steps from each track. This is where the work of integrating the two tracks is finalized and where you should build in mutually-reinforcing activities. Metrics and KPIs are essential for first track goals. A combination of metrics and milestones are often more relevant for second track goals. Socializing both the long-term vision and the short-term business plan across the credit union is another important step. Each staff needs to have an understanding of the work to be done and how they can move the needle.

By delineating two tracks in your planning process, you will not lose sight of needed reflection and problem-solving for both business and strategic improvements. You get to double your fun. Don’t avoid the challenging work of designing and implementing changes that will create strategic advantage for your credit union over the long term. Adopting the two tracks in your strategic planning process means you will be more directly and clearly addressing the credit union’s short-term needs and opportunities for the coming year and, at the same time, identifying and building a pathway to longer term success.