We have built-in obsolescence unless we proactively strive to build organizations that are relevant to changing markets.
In the banking sector, we have weathered financial crises of varying degrees of magnitude and now we face a pandemic crisis the likes of which have never been encountered. Such temporary crises (and they are temporary, no matter how disruptive) cannot allow us to take our eyes off the elephant in the room—our ongoing crisis of diminishing relevance.
We can all bear witness to market needs that are changing and to consumer attitudes, preferences and buying habits that are changing. Our historically unassailable business model is under threat.
Worryingly, markets are evolving away from the need for traditional financial services providers like community banks and credit unions. The role that we have played in society since the inception of the banking industry—that of a financial intermediary—is simply not as needed as it was in the past. In every developed country around the world, as financial markets become more efficient, the traditional financial services players are experiencing the disruptive phenomenon called “disintermediation.”
Data from the Office of the Comptroller of the Currency show that in 1970, traditional financial services providers extended about 60% of all credit in this country. We were the financial engines that drove the wheels of the economy. Today that number is less than 20%.
Over that period, we’ve seen a steady but relentless erosion of our market share in our core lines of business. One manifestation of this trend can be seen in the fact that the customer base of most traditional providers is aging along with the institution. The stark reality of that issue is that we have built-in obsolescence unless we proactively strive to build organizations that are relevant to changing markets. As the ultimate leaders of any organizational entity, executive teams and boards of directors must be involved in spearheading that effort.
Great Leaders for the Times
As these inexorable changes threaten our long-term viability, we need exceptionalism in leadership as never before. We need forward-looking leaders who are equipped with strategic thinking capabilities, who can understand the evolving competitive environment, who are equipped to knowledgeably discuss trends analysis and who can recognize the need for more market-driven strategies. If our business model must change, then so must the skills and competencies of our leaders.
Leaders have a common-law responsibility to attempt to ensure the ongoing viability of the organization they govern. Ongoing viability and market relevance will never be achieved unless a solid portion of our leaders’ time is spent looking to the future.
Strategic Planning Approach
I’m a committed proponent of a system of strategy development called discovery-driven planning, and I use it with all my clients. It is a technique first devised by Rita Gunther McGrath of Columbia University, and admired by such experts as the late Clayton Christensen, who called it “one of the most important ideas in management—ever.”
Discovery-driven planning relies on research, data analytics, and logic to develop a strategy that has a strong possibility of success based on confidently predicted market needs in a reasonably predictable future. The technique is specifically designed for use in an environment of change. Regrettably, in my strategy development work with credit unions and community banks, I find that the main inhibitor of change is an aversion to risk. However, we must acknowledge that risk is equally inherent in inaction because there is no such thing as the status quo if your markets are evolving away from you.
Practically every strategy textbook tells us to build a strengths-weaknesses-opportunities-threats analysis. While we absolutely need to assess our weaknesses, and to remain aware of threats on the horizon, there is one primary SWOT category that matters most in meeting consumer needs and keeping institutions viable: opportunities.
Even existing strengths may not be the relevant strengths for future viability. The forward-looking organization needs to do a better job of understanding its markets to recognize and seize opportunities. I’m a great believer in the appreciative inquiry approach to strategy that focuses on positives. If you endlessly address negatives (weaknesses and threats), you are guaranteed to come up with only tactical, reactive responses instead of developing forward-looking strategic objectives.
Making Sure We Meet Needs
While we cling to outmoded approaches to strategy development and fail to equip our leaders with strategic thinking skills, the disruptive companies that are thriving at our expense are adept at assessing market needs, recognizing opportunities and proactively finding market niches in which to excel. Disruption from fintech companies is not something we can ignore. It is with us and it is pervasive. Every single aspect of our business—from the payment system to lending activities and advisory services—is experiencing disruption. How and when are we going to respond? While deregulation has opened unlimited possibilities for traditional providers, we have held ourselves back from capitalizing on them and have allowed a plethora of other players into our markets.
Better, more professional, more effective strategy development is the only way we can address these game-changing challenges. Market-driven, discovery-driven planning is imperative. Any organization that isn’t meeting either a need or a desire in its marketplace cannot be viable in the long term.
The search for ongoing viability demands that a major component of leadership must involve strategic thinking. I always suggest that leaders attempt to step back from the day-to-day management of their organizations in order to try to understand the seismic shifts that are being wrought upon us and then ask themselves the question, “Does our future look brighter than today?” If the answer raises any doubts, it becomes a legal and ethical responsibility to take action.
John Oliver is the founder and principal of FIplanner™ and CUplanner™ and the creator of the comprehensive strategy-development processes of the same name.