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What Do Hernia Surgery & Auto Insurance Claims Have in Common?

By Wendy Cleveland, CME

No, this isn't a bad joke. And in most cases, the only similarity you might consider between hernia surgery and filing an auto insurance claim is that both can be rather painful.

However, case studies presented at CUES' CEO Institute III this spring at the University of Virginia's Darden Graduate School of Business Administration demonstrated several similarities between these experiences as provided by two vastly different companies. Progressive Insurance Company's Concierge Program and Shouldice Hospital's hernia operations share the following business model attributes:

• niche markets targeted with specific services: auto insurance claims management and hernia operations.
• creating an experience from an unpleasant situation: To say the least, both a hernia and an auto accident can be less than enjoyable. These two companies try to take away some of the pain by designing an experience that is completely unique.
• high level of personal service: With a commitment to serving their customers, these businesses build strong brand loyalty and capitalize on the power of word-of-mouth marketing.
• focus on process: Efficiency along with service and experience keep costs low.
• innovation/differentiation: Process and experience differentiation are difficult to imitate. Products are easy to copy quickly. This is an extremely important lesson for credit unions, when everyone has a free checking account.
• long-term financial commitment provides a barrier to competitive entry: Risk of failure is high if a competitor must make a large investment to compete directly using the same model. Thus competitors are discouraged from moving ahead.

Presented by Professor Elliott Weiss, these case studies were part of the unique learning experience at CEO Institute.

For executives looking to take their credit unions successfully into the uncertain future, the three-year CEO Institute can assist by providing top-notch education in strategic planning, organizational effectiveness and leadership.

As a recent graduate of CEO Institute, I highly recommend the experien ce to other credit union executives. Now don't worry, this isn't going to be an advertisement cleverly disguised as an informative article, even if it is coming from a marketing executive. Read on to discover the Top Five Things I Learned at CEO Institute (with all due respect to Letterman, I can be briefer).

5. Learning teams provide interesting, unique perspectives from participants with varied experiences. For instance, CEO Institute students came from various functional areas of their CUs, work for CUs of different sizes and memberships, and originate from all over the world. The teams are particularly effective for evaluating case studies such as those previously mentioned, as the varied perspectives of the participants create a rich discussion and raise points individuals may not consider in an isolated environment. At Darden, there are lovely conference rooms assigned to each learning team; the pub is another excellent option for maximum creativity.

4. Each of the three segments of CEO Institute offers a top-notch learning experience at highly respected business schools. While it is not necessary to take them in order, extraordinary relationships can be built with classmates over the course of three years of shared learning and experiences. These relationships expand participants' professional network, providing a powerful resource for each other in critical thinking and problem solving. Be forewarned, there is likely to be photographic evidence of good times.

3. LPI (Leadership Practices Inventory), which is part of CEO Institute III, provides insights into your leadership style that you may not have considered. Like a 360-degree evaluation, it may challenge your self-perceptions by identifying gaps with the perceptions others have of your leadership behaviors. Yes, you could just figure they're wrong and you're right. Of course, true learning comes from moving outside your comfort zone. So get moving!

2 . Falls River, another unique aspect of the program's third segment, is a great place  to discover you're an adrenaline junkie. Not to mention the leadership and teamwork learning opportunities. (Go Hogs!) The power of this experience was more than I could have imagined. It challenged my own perspectives of limitations and exposed new possibilities. One activity particularly challenged a female teammate and me; as we watched the men in the group struggle at times, we knew completing the task as it appeared on the surface would be difficult without incredible upper-body strength. My teammate considered alternatives and tested a couple of theories until finding a workable solution. Once she completed the activity, she talked me through completing it as well. What a sense of accomplishment! How many times do we as CU leaders not consider alternatives beyond the most obvious which may seem insurmountable? [To get an idea of one activity we undertook, see Stephanie (Steph) Sherrodd, VP/retail delivery at Texas Dow Employees Credit Union (in red) with me in the photo.]

1. Strategic planning does not smell like an onion. It can, however, resemble one. In the first segment of CEO Institute, held at the University of Pennsylvania's Wharton School, Paul Schoemaker, Ph.D., reminded us how critical it is to identify and understand our CU's core competencies. He introduced two mapping tools: a tree and an onion. These visuals help CUs simplify the process. For instance, the onion is a set of concentric circles in which all major functions, services and operations are plotted; the center of the "onion" clearly illustrates core competencies.

To learn these Top Five Things and more, consider attending CUES' CEO Institute. It's an invaluable learning experience you will treasure for a lifetime.

Wendy Cleveland, CME, is VP/marketing/business development at $494 million AltaOne Federal Credit Union, Ridgecrest, Calif.

Read another account of CEO Institute: "What I Learned About Myself While Leading a Team Across a Bridge--Blindfolded."

CEO Institute grads can relive their experience by attending CEO Institute Graduate Exchange, Sept. 8-10 in San Diego.

Business Lending in a Tough Economy

By Jim Devine

More than 2,000 credit unions now offer member business loans for a total dollar volume of more than $20 billion. Most of these CUs initiated their MBL activities during the last five years.

For the most part, the CU industry has experienced very little difficulty with the performance of their business loan portfolios. However, many existing loans were booked during a relatively healthy economic period, where the majority of small businesses were performing reasonably well.

So have credit unions really been that good at member business loan underwriting and credit administration? Or have they simply been in the proverbial right place at the right time?

CUs will soon find out how good their initial business loan underwriting efforts have been and whether they truly possess the expertise to manage business credit risk in this very challenging economic environment. It will be imperative for CUs to monitor the operating performance of their small business borrowers to make sure they are maintaining a risk profile consistent with the CU's expectations.

A good business credit risk management system begins with a thorough and consistent approach to the underwriting process. Before approving a given loan request, a business lender must understand that particular small business—and the chemistry of its business model.

As part of this risk assessment process, the lender must be able to identify the critical cash determinants associated with this business. The lender must also clearly identify both the primary and secondary sources of repayment, along with any other business model issues critical to the going-concern performance of the business.

Lending policies should specifically identify how debt service coverage is measured. Most policy manuals describe a minimum coverage ratio in the $1.10-1.25-to-$1.00 range--in other words, the lender wants to see at least $1.10 in capacity to pay for every $1.00 of debt repayment required. But there are different ways to measure capacity to repay. All staff members involved in the member business lending effort should consistently use the same definition of debt service coverage in their underwriting efforts. Jumping around can create real challenges in trying to manage risk from an overall loan portfolio perspective. For this same reason, everyone in the lending foodchain should understand how to measure operating cash flow.

Once the underwriting process has determined that the prospective borrower's operating risk profile meets the CU's standards, the CU can move forward and approve the loan.

Now the real fun begins! In reality, the credit risks begin once the CU has approved and booked the loan.

The truth in lending is that last year's performance does not pay back the business loan you booked today. Future performance will ultimately dictate repayment capability.

Given this scenario, CUs must be in a position to monitor the ongoing performance of their business borrowers, compared to anticipated or expected levels of operating performance.

Good business credit administration processes are built on business model structure expertise. The process should be able to stress test critical cash determinants and detect any deterioration in a borrower's operating performance—in a timely manner.

The objective is to keep the risk profile of the borrower at or below the level that existed when the loan was originally approved. To continually monitor risk levels, CUs must develop and use a business loan risk-rating system.

If a borrower's risk profile increases beyond the profile in place when the loan was approved, the lender must be capable of taking action to address the reasons for the deterioration. The lender must also be able to modify the working relation with the borrower to accommodate the change in the risk profile.

The deteriorating condition of the national economy is inevitably going to put performance pressures on small businesses. CUs are starting to experience their first real challenges with non-performing small business loans. Senior management and MBL officers of every CU engaged in MBL must regularly reassess the condition of their MBL portfolios, as well as their business loan policies and procedures. The goal is to position the CU to appropriately manage business portfolio risks on an ongoing basis.

To deal with this risk management reality, CUs must make a commitment to continue developing their organization's business lending and credit administration skill sets. While many credit unions outsource business loan underwriting, regulators at both the state and federal levels have told the CUs in their jurisdiction that they are still ultimately responsible for making the final credit decision. They are also responsible for managing the loan on an ongoing basis while it is on their books.

Jim Devine is CEO of Hipereon Inc. and co-lead faculty of CUES' School of Business Lending.

Download the free CUES Webinar, "Analyzing Cash Flow," led by Jim and partner Bob Hogan. (At the log-in screen use "analyze" as your password.)

Read more thoughts from Jim Devine.

Wired Staff are a Good Thing—Really

By John Greer, SPHR

Every day we face new challenges brought on by the ever-quickening pace of developments in technology. With the threats of identify theft, spam, phishing, viruses and even USB drives, we're almost afraid of the security holes the next new technology could open up in our systems. At the same time, the two youngest generations of our workforce, Generation X and the Millennials, who grew up with the continual introduction of new technologies, wonder what all the fuss is about. Yes, the same people we are depending on to be the next generation of managers and leaders are looking at us and wondering what we are so afraid of.

About 15 years ago, the topic of emerging technologies came up at a Human Resources Systems Professionals chapter roundtable I was attending. I, working in higher education at the time, spoke up and was touting the value of the then new Internet to everyone in the room. One of my colleagues, who worked for one of the largest regional banks in the area, emphatically replied that her bank would never use the Internet because their IT Director would not allow their network to be open to the security risks of the outside world.

Looking back on that conversation, we see that such a statement was very shortsighted, even a bit ridiculous by today's standards. Yet we say the same things today about the newly emerging technologies of social networking and wikis. We write policies and erect firewalls and Web filters to prevent our employees from accessing and using these new tools. We devote countless hours and dollars to "protect our assets" from the new things, while at the same time many of us actively use these same resources to do our jobs.

There are any number of human resource recruiters, for example, who use social networks such as MySpace and Facebook to check their applicants, to find out the things that aren't listed on the applications. At the same time, their IT departments and policies prevent, or at the very least restrict, their staff from accessing these sites while at work.

A number of larger companies have implemented internal social networks primarily to facilitate communications across the organization. IBM, McDonalds, Oracle and Microsoft have all implemented internal social networks whose primary purpose is to serve as a means to access internal resources and internal consulting services.

Best Buy implemented Blue Shirt Nation, an internal social network, with the initial goal of learning what customers were saying to front-line employees. But in the process the retailer found that the new technology increased employee engagement and reduced turnover. Of the 8,000 employees participating in Blue Shirt Nation, turnover is at 8 percent, significantly below the 40 percent to 60 percent usually seen in similar retail operations. Many, if not most, of these engaged workers are no doubt Gen Xers and Millennials.

Another new technology that has been slow to take off is the wiki. According to Wikipedia, a wiki is "…a collection of Web pages designed to enable anyone who accesses it to contribute or modify content." Wikis are fully searchable information resources which are generally editable by users. Anyone who sees something wrong with an entry can either correct it themselves or quickly get it corrected.

Wikis can replace the traditional operational procedures manual, that four-inch black binder on your bookshelf, that is hard to find and usually out of date. Instead of a book, employees go on line, do a key word search on their question and immediately get the latest and most accurate information on their issue.

Smart Financial Credit Union has recently implemented an internal wiki with over 2,000 pages of how-to information for front-line, back-office and support staff. SmartWIKI is averaging 200 searches each day from a staff of 200. Most of those questions would have previously gone to our phone center, a call center intended primarily to serve our members.

What are we afraid of? What is there to fear? The issues and fears today of data breaches are as real as they were 15 years ago. And the need for access to information and communications is very real, as is the value it brings to organizations. These needs more than outweigh the risks and potential costs.

Now, as in the past, technology will bring solutions to our data privacy issues. Just as today we have Web filters and firewalls to protect our internal networks and data, in the very near future, technology will bring solutions to address our worries about social networking. In the meantime we need to look at technology not as a threat, but as a tool with both good and bad traits. Instead of blocking access to the latest advancement, we must seek to use it to our advantage. We also need to involve our staffs in finding new uses for these tools. Who better to do so than those who have been using them all their lives?

John Greer, SPHR, is SVP/human resources & development for $330 million Smart Financial Credit Union, Houston.

Also read "How Wired Should Employees Be?

Detailing the Difference

By Mary Auestad Arnold

"The values in the CU movement are absolutely right on, but I don't think you've translated them into something members understand."

So said Arkadi Kuhlmann, founder and CEO of ING DIRECT, in opening CUES Experience: Immersion Learning for Marketing, Operations and Technology Leaders, last month in Minneapolis.

Kuhlmann was "absolutely right on" himself. We all know there's a "credit union difference," but how to explain it succinctly and convincingly has been the topic of many a blog post, Credit Union Journal's Frankie Awards, not to mention more credit union strategy meetings than anyone cares to think about.

In the end, most of the results are underwhelming, while a few, like Young & Free Alberta, shine brightly through the haze. Happily, I came across another shining example last week: a credit union that is indeed translating its values into something members can understand and also value. Open UW Credit Union's annual report, and the first thing you read under the header "Doing the Right Thing" is:

"Financial institutions seem to be under a collective dark cloud lately. At UW Credit Union, things are different. For more than 75 years, we've been committed to doing the right thing for our members. It's our guiding business philosophy--to always act in the best interest of our members--and we practice it every day."

Yes, lots of credit unions could say they act in their members' best interests, but how many actually tell their members that's what they're doing? And how many would go on to illustrate how this translates into the way they deliver financial services to members?

On p. 5 of the report, $1 billion UW CU, based here in Madison (full disclosure: I'm not currently a member), explains "Our Difference" by detailing how its business practices impact members' (many of whom are college students) pocketbooks:

• UW CU posts checks in order to minimize overdraft fees. And it limits overdraft fees to no more than three per day.
• UW CU, whenever possible, declines debit card transactions that would overdraw an account and result in a costly bounced check fee on the purchase of a $3 cup of coffee.
• UW CU encourages prepayment of student loans and doesn't penalize students by revoking loan discounts when borrowers prepay.
• UW CU doesn't offer loan products with surprise provisions in the fine print.

Clearly, UW CU's leaders understand that getting a square deal from a financial institution is not a prerequisite for every college student these days, and they have done a fine job of spelling out how the credit union is different in a way that would resonate with their target market. On p. 10 of the report, they also demonstrate how doing the right thing for the environment is good for business, a play to their student members as well as University of Wisconsin-Madison faculty, staff and alumni plus the members of this very green community, all of whom are eligible for membership.

My only question is: Will this message go beyond the annual report (which I would never have seen if CUES CEO Fred Johnson had not put it in my mailbox)? The positioning is not readily visible on uwcu.org, nor have I noticed it in local media advertising. Eric are you out there? This inquiring mind wants to know.

Mary Auestad Arnold is VP/publications for CUES and editor of Credit Union Management.

Read more from CUES Experience on the Nexus Connection blog.

Innovation, Implementation and a Bunch of Collaboration

By Kent Sugg

Five months ago, when the opportunity to work with the Filene Research Institute for six months on a "Radical Sabbatical" was presented to me, I certainly couldn't pass it up. So I expressed my interest, sent my resume, interviewed, and got the job. I was going to work alongside a partner, Maureen Maddox, to help credit unions implement Filene i³  innovations.

Four and a half months in, I'm still helping credit unions implement innovative ideas, but am doing it in a much different way than we expected. While the original plan was to build implementation plans to assist credit unions, we quickly realized that credit unions can implement anything they wish to implement. Our role would be to help push innovative (and unproven) projects off credit unions' backburners, where they too often languish, and assist these credit unions in understanding the value (not measurable by ROI) in implementing innovative ideas.

No worries, though. I recently read The Adventures of Johnny Bunko: The Last Career Guide You'll Ever Need by Daniel Pink, and the first of six lessons is that "there is no plan." So I adapt and we keep moving forward.

Coming in to this sabbatical as a branch operations guy, I had the front-line stuff covered. But what I see and experience while out in the "real world" has completely changed my perspective on credit unions. I already knew what it takes to deliver on the credit union philosophy of "people helping people," because I experienced it first hand in the branch. As I embarked on my new role, I realized when a credit union implements change that affects the lives of thousands of members, that's "people helping people," too. Example: When GECU, El Paso, Texas, implemented its Savings Challenge in 2007, it changed the lives of six families--and proved the benefits of financial education to thousands more.

Here's my take on three key areas of focus during my sabbatical:

Innovation is the act of creating change. It's new, unique and difficult. Innovation allows for differentiation with new products and services and, most importantly, it's the beginning of change. Filene has filled a role within the credit union movement as a change agent. The Filene i³ teams consist of credit union leaders not yet to the CEO level who work together to find ways to use innovation to meet member needs. Filene i³ uses the open source solution model: Once an innovation is developed, it's offered fully and freely to credit unions to implement.

Implementation is the key. Implementation is the most difficult component of change, yet it's also the most rewarding. Innovation is an exciting thing, but if it goes without being implemented it never becomes change, never affects our membership, and never really matters. Innovation without implementation is just a bunch of great ideas. At a credit union, it's everyone's responsibility to be a change agent to enhance service and give members the most beneficial financial relationship possible. As I continue to advocate for the implementation of innovative ideas, I find that change is hard but it's amazing, as the most challenging things always are.

Collaboration is what the credit union movement is all about. My sabbatical experience is a prime example. When my credit union, $1.6 billion Tinker Federal Credit Union in Oklahoma City, chose to collaborate with the Filene Research Institute, it committed to pay my salary and benefits for the six months I'd be "gone." The credit union even filled my old position, so I could fully focus on my new role.

These two organizations created a valuable partnership. Filene gets the benefit of the perspectives I can offer as a front-line credit union professional. In return, Tinker FCU gets the inside track to credit union innovation.

When my sabbatical is over, I'll not only bring back best practices, but I'll be a better developed employee with a firm grasp of what's going on outside our credit union. I will have an understanding of what afflicts credit unions, beyond the press releases, and will instead grasp the real challenges and opportunities I see and experience working with other credit unions, communicating on Twitter, and regularly reading about two dozen credit union blogs.

I'm a stronger employee with a whole new world of experience, opportunities and contacts. I've always been a credit union supporter. But now I'm on a mission to make my credit union and the credit union movement better. I will challenge the status quo in such areas as innovation, strategy, board nominations and elections, and general operations, and I'll ensure we're doing everything we can to embody the spirit of "people helping people."

Nearly a century ago, credit unions were propelled forward by innovative thinking, implementation of change, and collaboration to meet a common goal. In this century's challenging economy, if we look back to move forward, there's no reason we can't excel in the future.

Kent Sugg, member services manager at $1.6 billion Tinker Federal Credit Union, Oklahoma City, is on sabbatical with the Filene Research Institute, where he is working with for six months on i3 project implementation. He also hosts the Drive for Implementation blog.

Read more about innovation in this Credit Union Management supplement.