Where Strategy Meets Innovation

It was our pleasure to have a stimulating conversation this month with Chris Hendry, president/CEO of IC Credit Union ($618 million, Fitchburg, Mass.). In addition to our firm having the honor to work with this exceptional organization on both governance and strategy, we are proud of this credit union’s achievements in focusing on the best interests of its 35,000 members. We also congratulate Chris on being named CEO of the Year in 2022 by the Cooperative Credit Union Association.

As researched by Filene Research Institute in their second Credit Union Innovation Success Study conducted in partnership with the American Innovation Index, which measures innovation in the overall U.S. economy, its most recent survey from 2023, found that credit unions scored above most banks on the subject of innovation, contrary to most perceptions that they are falling behind. Credit unions experienced a slight increase in their innovation index scores and appeared to be doubling down on their innovation efforts.

Based upon credit unions focusing on the satisfaction of their membership, innovation is a way to ensure loyalty and brand attractiveness. Chris Hendry is using new fintech and artificial intelligence tools with his 120 employees to stay nimble and not be “gobbled up.”

Board education has been an important part of this process, which helps ensure that directors understand the importance of investing in their companies, not just their products. Strategies and investments must change to provide members with an easier, faster experience. For example, shifting calls from their service center to providing online access, which takes five minutes versus a millisecond, is their priority. Focusing on making sure that members don’t feel they are engaging with a bot or anything that sounds robotic is important.

Using data to make more decisions is also a focal point. Closing underperforming branches based on data enables organizations to move more effectively. Eliminating unnecessary brick and mortar enables capital to be utilized in a more appropriate and meaningful fashion. Finding exit strategies and considering mergers and acquisitions when capital is not available is strategically important.

Boards in their assessments are now willing to admit that they are moving too slowly, which you would never hear in years past. Better, newer technologies that bring fintech in to balance off what you can’t do for your members anymore is key to moving forward. Getting rid of antiquated systems helps to retain people, excite them and engage them in all aspects of member focus.

According to Harvard Business Review’s article “The Value of Digital Transformation” from July 31, 2023, while 89% of large companies have a digital and AI transformation going on, only 31% expect a revenue lift from it and only 25% expect cost savings. Companies are trying to figure out whether to lead on innovation or just follow proven strategies, as well as whether these efforts will provide lasting competitive advantages.

The 2024 Credit Union Innovation Readiness Index studies 4,500 U.S. consumers on member satisfaction with credit union offerings. Shockingly, nearly 80% of all credit unions report a favorable return on investment from their payment innovation efforts. This number jumps to 90% for the top performing 30 credit unions. This top group also increased their membership in 2023 and increased their member engagement and satisfaction with online mobile banking services as well, specifically with their mobile apps.

It has been shown by the McKinsey Finalta benchmark and its Corporate Performance Analytics that digital leaders are creating more shareholder value than laggards. Shareholder returns for digital leaders were 8.1% versus 4.9% for laggards. Return on pre-tax tangible equity grew from 15% in 2018 to 19.3% in 2022 for digital leaders versus only 13.6% in 2018 to 15.3% in 2022 for laggards. Digital leaders grew revenue and better contained expense growth. Digital laggards saw zero growth in their customer bases and a decline in retail revenue of 1.4%. Laggards operating expenses grew by 2.3% per year versus digital leaders’ expenses, which grew only 1.3% per year. The most significant data shows that leaders’ digital sales grew from 40% to 70%, while digital laggards only grew from 8% to 17% – a striking difference.

Success in digital sales requires teams to increase their capacity to develop innovation across the entire customer and member experience. Digital leaders decreased their contact center staffing by 11% due to increased fulfillment of online customer demand and self-servicing opportunities.

End-to-end change is required with the strongest differentiating factors being talent and the institution’s operating model. Having the discipline to create an innovation roadmap and work to continuously improve it is key.

Stuart R. Levine is Chairman and CEO of Stuart Levine & Associates in Palm Beach Gardens, Fla.