How Blue Is Your Ocean?

Value Innovation and Credit Union Strategy Development

ROCH PARAYRE, PhD, SENIOR FELLOW, MACK CENTER FOR TECHNOLOGICAL INNOVATION, THE WHARTON SCHOOL, UNIVERSIT Y OF PENNSYLVANIA AND MANAGING DIREC TOR, DECISION STRATEGIES INTERNATIONAL

How Blue Is Your Ocean? Value Innovation and Credit Union Strategy Development
ROCH PARAYRE, PhD, SENIOR FELLOW, MACK CENTER FOR TECHNOLOGICAL INNOVATION, THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA AND MANAGING DIREC TOR, DECISION STRATEGIES INTERNATIONAL

This publication, in whole or in part, may not be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise) without the prior written permission of Decision Strategies International, Inc., and Filene Research Institute. Requests for permission should be directed to info@thinkdsi.com, or mailed to Decision Strategies International, Inc., 100 Four Falls Corporate Center, Suite 604, 1001 Conshohocken State Road, Conshohocken, Pennsylvania 19428-2970. This value innovation report is based on the surveys and sessions conducted by Decision Strategies International, Inc., and Filene Research Institute. The value innovation methodology was developed by W. Chan Kim and Rene Mauborgne. More information and research can be found in their book, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, published by Harvard Business School Press.

Decision Strategies International, Inc. One West First Avenue Suite 300 Conshohocken, PA 19428 610.717.1000 www.thinkdsi.com

Filene Research Institute 5910 Mineral Point Road P.O. Box 2998 Madison, WI 53701-2998 608.231.8550 www.filene.org

Copyright 2006 by Decision Strategies International, Inc. (DSI) and Filene Research Institute. Published by Filene Research Institute ISBN 1-932795-06-5 All rights reserved. Printed in U.S.A.

Filene Research Institute

The Filene Research Institute, is a 501(c)(3), non-profit organization dedicated to scientific and thoughtful analysis about issues affecting the future of consumer finance and credit unions. We support research efforts that will ultimately enhance the well-being of consumers and assist credit unions in adapting to rapidly changing economic, legal, and social environments. Deeply imbedded in the credit union tradition is an ongoing search for better ways to understand and serve credit union members and the general public. Credit unions, like other democratic institutions, make great progress when they welcome and carefully consider high-quality research, new perspectives, and innovative, sometimes controversial, proposals. Open inquiry, the free flow of ideas, and debate are essential parts of the true democratic process. In this spirit, the Filene Research Institute grants researchers considerable latitude in their studies of high-priority consumer finance issues and encourages them to communicate their findings and recommendations. The Filene Research Institute is governed by an administrative board comprised of the credit union industrys top leaders. Research topics and priorities are set by a select group of credit union CEOs called the Research Council. Additional research input is furnished by the Filene Research Fellows, a blue ribbon panel of academic and industry experts. The name of the institute honors Edward A. Filene, the father of the U.S. credit union movement. Filene was an innovative leader who relied on insightful research and analysis when encouraging credit union development. Since its founding in 1989, the Filene Research Institute has worked with over one hundred academic institutions and published over 150 research studies. Please visit our web site at www.filene.org to peruse our research library and learn more about the Filene Research Institutes past, present and future.

Progress is the constant replacing of the best there is with something still better!

Edward A. Filene

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Acknowledgements

We would like to give special thanks to the following individuals who were instrumental in the publication of this document: Franck Schuurmans, Ph.D., Samantha Howland and Franklin Shen from Decision Strategies International, Inc. (DSI). An extra note of recognition is extended to Jocelyn Wills, an important contributor in the writing and editing of this document. We also thank the following organizations and individuals without whom the execution of this exciting research project would not have been possible: Fiserv, Inc., for its generous financial support of the Filene Research Institutes research on credit union growth issues; The Credit Union Executives Society (CUES), under the able leadership of Fred Johnson, for introducing the author of this study to the credit union world; Members of the Filene Research Council and i3 group, for agreeing to be interviewed for this research project; and The 75 credit union executives who spent two days with us in the Philadelphia area. This book is dedicated to Mike Osborne of First Tech Credit Union, who joined us in Philadelphia for the Value Innovation workshop, and passed away shortly thereafter.

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Table of Contents

Executive Summar y and Commentar y . . . . . . . . . . . . . . 1 About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 STEP 1: STEP 2: STEP 3: STEP 4: STEP 5: The Blue Ocean Pioneer-Migrator-Settler (PMS) Map . . . . . . . . . . . . . . . . . . . . . . . . . 15 Visualizing Current Strategy: The As Is Strategy Canvas . . . . . . . . . . 23 Understanding the Customers Experience . . . . . . . . . . . . . . . . . . . . . . . 31 Learning from Noncustomers . . . . . . . . . 39 The Blue Ocean: Six Paths Toward Future Value . . . . . . . . . . . . . . . . . . . . Exploring Across Industries . . . . . . . Exploring Across Strategic Groups . . Exploring Across the Chain of Buyers Exploring Across Complementar y Offerings . . . . . . . . Exploring Across Functional and Emotional Appeals . . . . . . . . . . . . . Exploring Across Time and Trends . . . 49 51 53 55 57 59 62

Conclusion:

Conceiving New Market Space . . . . . . . . 65

Appendix A: Inter view Protocol . . . . . . . . . . . . . . . . 73 Appendix B: Workshop Attendees . . . . . . . . . . . . . . . 75

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Executive Summar y and Commentar y

by George A . Hofheimer, Chief Research Officer

Stagnant credit union growth and undifferentiated strategies magnify the need for credit unions to innovate. However, we cannot simply point to the trends occurring in the credit union industry and say, Go innovate. The Filene Research Institutes role as a think-anddo tank is to provide you with the tools and venues to understand innovation and growth. For example, the i3 initiative is an exciting field-research project that tasks the movements next generation leaders with designing tomorrows credit union innovation pipeline. i3 operates under an open innovation model whereby we heartily encourage credit unions, credit union organizations, and credit union vendors to take i3 ideas as their own and implement in the marketplace. Since 2004, the i3 initiative has introduced close to 30 specific credit union innovations, ranging from process improvement to new market/ product development. i3 is just one tool available for credit union innovation. This research project similarly aims to provide you with the inspiration and the tools to go innovate in a deliberate and creative manner. Several months ago, a number of credit union leaders, academics, and industry watchers alerted us to the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Rene Mauborgne.1 The innovation processes reviewed in the book (commonly termed value innovation) are appealing concepts that could be successfully applied to credit unions. The authors introduce a framework whereby organizations can explore the creation of uncontested market space by pushing for a quantum leap in consumer value concomitant with decreasing industry cost structures. Does this sound too good to be true? Kim and Mauborgne contend that this deceptively simple idea boils down to four questions organizations rarely examine: What elements should we eliminate that our industry takes for granted? What elements should we reduce well below the industry standard? What elements should we raise well above the industry standard? What elements should we create that the industry has never offered?
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W. Chan Kim and Rene Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Boston: Harvard Business School Press, 2005).

Aided by the expertise of Roch Parayre, Ph.D., senior fellow at the Wharton School and close academic colleague of Kim and Mauborgne, this report puts credit unions under the value innovation lens of analysis. To ensure that we created a realistic and useful framework, the research team conducted in-depth interviews with industry leaders in fall 2005, and hosted a two-day workshop with 75 credit union senior executives from around the United States in January 2006. The resulting insights of this research are set forth on the pages that follow. Specifically, this report will: Introduce the value innovation framework and its applicability to credit unions; Furnish examples of value innovation at work in the financial services marketplace; and Provide a set of tools that can be used to revitalize credit unions strategy development.

WHAT IS VALUE INNOVATION?

Value innovation offers a unique framework for organizations to develop new uncontested market opportunities, or, in the words of Kim and Mauborgne, a blue ocean strategy. Like most competitive industries, the retail financial services marketplace can be portrayed as a red ocean, or competitive landscape that is bloodied by fiercely competitive rivals vying for the same share of the consumers financial services needs. In this red ocean, competitors exhibit undifferentiated strategies in a crowded marketplace, which drives down profits, creates commodification and turns the waters bloody. Value innovation generates blue ocean strategies through the simultaneous pursuit of lower cost and differentiation. Credit unions, like other players in the retail finance sector, recognize that sustainable growth is critical to the long-term survival of individual organizations. Growth strategies come in many shapes and sizes, both organic and through acquisition. Yet other than focusing on the fundamentals of service, operating efficiencies, top-line growth, channel management, and market research, innovation at credit unions is too often the ugly stepchild of growth strategy considered the privilege of large corporations such as 3M and Googlewhich have the resources to create tomorrows killer application. Another group is the small, highly entrepreneurial start-up with a strong appetite for

risk and the backing of venture capitalists. Ordinary smaller players should mind the store, stick to their knitting, and be fast followers at best, not risking the firm with large bets. We certainly agree that large and risky bets are to be avoided, but we believe that innovation seen through this prism limits smaller organizations such as credit unions. In essence, innovation is about reframing a problem or an issue; it is about reorganizing the same information in a different way. Innovation is not about vast resources or technological breakthroughs. As John Scully of PepsiCo and Apple once famously observed, If you think like your competitor you are not thinking at all. This report is an inspiration to an industry that is not burdened by the demands of stock market returns to think big through thinking differently. Credit unions, more than any other segment of the financial services industry, have the opportunity to innovate, in part because their customers are their owners. Credit unions should be able to co-opt members and engage them in improving their experience, hence strengthening the credit union value proposition. Others have done it, why not us? Reframing the old and the familiar, seeing and creating opportunities where others do not, positioning the organization to think in different termsthese and more are the purposes of innovation. By this definition, innovation is neither expensive nor technology-driven, per se. Within this framework, innovation will be one of those but of course! occasions. Let us make sure that credit unions get there first, for the benefit of credit union members and the future viability of credit unions. To begin this innovation journey, we take flight across the Atlantic Ocean to examine a British company that applies these principals.

About the Author

Roch Parayre, Ph.D., is the managing director of executive development for Decision Strategies International (DSI). Dr. Parayre teaches executive education courses in decision making, scenario planning, creativity, and strategy at CEDEP in France, for the Institute for Management Studies, at Southern Methodist Universitys Cox School of Business, and at the University of Pennsylvanias Wharton School. He is a senior fellow in the William and Phyllis Mack Center for Technological Innovation at the Wharton School. As a DSI scenarioplanning expert, Dr. Parayre guides client corporations through the scenario planning process. In addition to many credit unions, his client list includes 3Com, American Airlines, American Re-Insurance, BASF, Cargill, Chubb, Citgo, Coca-Cola, The Conservation Fund, Disney, Knight Ridder, Lucent Technologies, Marathon Oil, MCI, Merrill Lynch, Microsoft, New York Life, PNC Bank, Progress Software, and Texas Instruments, among others. Dr. Parayre has published papers in the Journal of Economic Behavior and Organization, the Journal of Banking and Finance, and Managerial and Decision Economics. Most recently, he coauthored a chapter on technology assessment in Wharton on Managing Emerging Technologies. He earned a Ph.D. in business strategy from the University of British Columbia. parayre@thinkdsi.com

Introduction

A CRACK IN THE FOUNDATION

On March 7, 2005, few people noticed the tremor making a small crack in the foundation of the financial services world. Originating in England, and quickly spreading across the Atlantic, the little earthquake known as Zopa (Zone of Possible Agreement) broke away from traditional banking competitors and moved into a new market space, where the philosophies and practices of eBay and credit unions could meet. Perceiving that banks have for a very long time failed to understand the rising tide of mobile professional workers with lumpy incomes, Zopa founders decided to exploit the large gap between the rate at which people borrow money and the rate at which they can save. By offering itself up as a cheap personal loan provider capable of creating a secure, user-friendly, eBay-style loan exchange for people seeking to transact business with like-minded others, the Zopa team developed a strategy to eliminate the financial institution as middleman and to reduce the costs of personal borrowing and lending. They additionally worked to raise the profile of person-to-person banking and the credit unions concept of democratic cooperation, complete with a member-specific community, where participants could control the destiny of the financial institution to which they belonged. To profit from these ideas, Zopas strategists also moved to create a lending platform, where credit-worthy people earning money in new ways (for example, through the peak-and-valley incomes that flow from self-employment, consulting, and microbusiness ownership) could borrow from like-minded individualsalbeit ones who happen to have money in reserve.2 Tapping into the 30-something mentality that also resonates across generational divides, the Zopa team hopes to capitalize on the new professional workers perception that banks have become greedy and unethical, as well as old-fashioned, and their increasing desire to move out of corporate life and receive better rates of return on both their human and financial capital, as well as on this segments expanding Internet and do-it-yourself skills. To meet the escalating demands of technologically savvy investors and borrowers seeking socially responsible and modern venues for their financial transactions, Zopa executives pioneered a Web-based business to manage the collection of monthly repayments for member participants. The firm earns money through borrower exchange fees (usually 1% of the opening

BBC News, If the World Was Run Like eBay (October 3, 2005).

offer), repayment protection insurance on loans, and commissions from insurance providers. Company representatives are also proud of the fact that Zopa does not charge lenders a bean. To reduce lender risk, Zopa has an offer-matching system that divides lenders offers into small amounts, which are then distributed among at least fifty potential borrowers who have posted requests and meet credit reporting standards. Moreover, Zopas Web site stipulates that no loan seeker can borrow from the same person twice. By listening to a segment of the borrowing and investing community, the Zopa team was able to retool the standards of the tradition-bound financial industry to create value for the company and its customers. Zopa has eliminated and reduced those features of financial transaction that its niche consumers claim to despise (namely the bank, along with its costly and impersonal structures), and raised the level of simplicity, transparency, security, and confidentiality banking customers crave. Zopas Web site listsin language anyone can understandthe rules of the game, including the firms mission, practices, the names and biographical profiles of its principals and partners, and what news services have to say about its products and services. By inviting members and visitors to read and to participate in the Zopa blog, and to join a community of like-minded spirits, the firms founders have also made lending and borrowing funno small feat in an industry known for inducing anxiety.3 By the end of its first year, Zopas focus on mobile professional workers, as well as on global trends in technology and culture, garnered the attention of consumers and reporters as well as business strategists and competitors. Now boasting more than 100,000 registered members in the United Kingdom, the firm has expanded across sea and land. It recently opened an office in San Francisco, and entered the North American market to compete with other innovators focused on Webbased, person-to-person lending (such as Prosper.com), as well as more traditional purveyors of financial services. With more searchers flocking to its site each day, Zopa has also joined a small but expanding number of firms challenging long-standing assumptions and business models in financial services, including those centered on a reluctance to change the rules of a mature industry.4

See http://www.zopa.com/ZopaWeb/ for a more detailed description of Zopa and its clientele. See also Peer-to-Peer Lending: Back to the Future, Filene Research Institute, 2006. 4 Bob Tedeschi, Its Like Lending to a Friend, Except Youll Get Interest, E-Commerce Report, New York Times (February 13, 2006).
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With a few exceptions, the financial services sector does not encourage innovative thinking, a tendency on which Zopa and other creative person-to-person financial service providers hope to capitalize by shifting the industrys paradigm. Understanding the past as a socially constructed process, Zopas founders recognized the cultural, economic, political, and technological realities and trends, allowing them to envision a new kind of future. These insights then inspired them to challenge a prevailing wisdom based upon what many technologically savvy consumers perceive as increasingly inappropriate and irrelevant assumptions and practices grounded in maintaining the status quo. As practitioners of value innovation (that is, people who simultaneously push for a quantum leap in buyer value and a sharp drop in the industrys cost structure), Zopas founders argue that they moved into this offering precisely because we live in an age when opting out is the new opting inwhen everyday entrepreneurs [demand that they] be encouraged and praised, not dismissed when creditworthy people frequently have unpredictable income streamswhen 95 isnt the be-all and end-all, but banks still think it is. Thus, with other industry experts and practitioners suffering from complacency and myopia, Zopa easily moved into uncharted waters and launched their business to an unsuspecting world. In the process, they created a new market space for themselves as well as for those anxious to cash in on the future that Zopa and other person-toperson banking upstarts hope to engineer. Similarly, ING Direct capitalized on the same sorts of insights. By creating an online business where customers do their banking remotely, ING Direct reduced overhead and eliminated the high operational costs associated with physical locations. Passing those savings on to customers, ING Direct not only simplified its infrastructure and product offering, it also raised interest rates for consumer deposits and created new value for its burgeoning customer base.

THE BLUE OCEAN STRATEGY CONCEPT

Along with ING Directs successful model, Zopas recent launch has coincided with, and now exemplifies, another seismic wave in the business worldthe 2005 publication of W. Chan Kims and Rene Mauborgnes runaway best-seller, Blue Ocean Strategy. Professors at INSEAD (Frances prestigious business school) studied 150 successful strategic moveswhich they called value innovationamong 30 industries over a 100-year period. With Blue Ocean Strategy confirming what their previous consulting work had shown, Kim and Mauborgne argue that neither companies nor industries remain permanently excellent. Instead, value flows not from technological innovation but rather from the value innovation that unlocks new demand by radically increasing the appeal of a good or service. According to Kim and Mauborgne, value innovation surfaces among the few successful entrepreneurs, firms, and industries that depart from the traditional strategic business models that have guided business planners since the nineteenth century. Perceiving strategy as exploration, value innovators leapfrog the competition by focusing on the simultaneous pursuit of superior value creation and cost reduction (both for themselves and their customers, as well as for society at large). The business visionaries Kim and Mauborgne have thus avoided the battles that turn industries and the marketplace into what they describe as bloody red oceans of competition. Focusing instead on increases in buyer value, price accessibility, and the creation of new aggregate demand, blue ocean strategists unlock new possibilities as well as render their competition irrelevant (at least for a time). Recognizing the difficulties inherent in finding and creating blue oceans, strategists argue that business planners can succeed only if they ask the right questions, particularly the following four: What elements should we eliminate that our industry takes for granted? What elements should we reduce well below the industry standard? What elements should we raise well above the industry standard? What elements should we create that the industry has never offered? 5
5

Kim and Mauborgne, Blue Ocean Strategy. For concise elaborations of Blue Ocean Strategy, see Rudy Mezzetta, Sailing Away from the Competition, Investment Executive (September 2005), and Roch Parayre, Blue Ocean Strategy: Getting a Competitive Edge through Value Innovation, DSI Quarterly 2:3 (Fall 2005), http://www.thinkdsi.com.

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As they weeded through the myriad examples of long-term business successes, failures, and combinations of the two, Kim and Mauborgne discovered that while most firms have fought for competitive advantage, battled over a shrinking market share, and struggled to differentiate themselves from competitors who share their basic competitive profile, only a few visionaries have understood that the creation of profitable futures resides elsewhere, beyond prevailing business strategies and industry practices. Driven by the strategic moves of competitors, industries pursue a relentless march toward commoditization. Under hypercompetition, imitation becomes increasingly fast and furious, and players aim to stem the tide of commoditization, or at least delay its arrival. Ultimately, however, this leads to that red ocean of bloody competition, where business planners not only follow the same battlefield principles and obsessively benchmark their competitors, but also do little more than divide the existing (and diminishing) market share into smaller and smaller pieces. True innovation involves eliminating some aspects of a companys offerings in order to create others, in order to free the resources required to pursue higher-value added components to your business model. Moreover, Kim and Mauborgne argue, the blue ocean strategy provides the critical framework and tools to effect such a shift. Looking not at the supply side of the equation but rather at demand, the authors have created a number of analytical tools to visualize the big picture.

This image graphically represents the blue ocean strategy concept. At the heart of the concept is the search for an area of value innovation, whereby companies simultaneously drop their cost structure and increase value to consumers. While this concept may sound counterintuitive, this report introduces the process by which credit unions can systematically pursue this line of thinking.

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Figure 1: Tools for Your Blue Ocean Strategy Tool

Pioneer-Migrator-Settler (PMS) Map As Is Strategy Canvas Buyer Utility Map Six Paths Framework

Description
Diagnostic tool to describe an organizations portfolio of offerings. Visual cue describing the strategic landscape of business today. Tool that describes how consumers experience an organizations specific offerings. Structure that provides planners a variety of paths to value innovation. Structure that encourages planners to reduce the cost structure of the industry and increase buyer value by asking four questions about their business. Visual cue describing the strategic landscape of business tomorrow.

Four Actions Framework

To Be Strategy Canvas

Ultimately, planners need to think outside their current mental frameworks, just as Zopas founders searched beyond self-imposed industry realities and perceived existing demands. Can we learn from the Zopa experience and the blue ocean strategies Zopa employed, blending features from the contemporary eBay craze with the traditions of the cooperative movement to move beyond traditional market boundaries? Can credit unions profit by employing this suggested frameworks and tools? After all, utilities and telecommunications firms have moved from safe-haven environments and their original fields of membership to the dynamic world of global telecommunication. The concepts behind value innovation thus offer an additional way for credit unions to explore market opportunities for sustainable growth.

THE RESEARCH PROCESS

Because strategic planning is a process, not an event, we set upon a journey to answer the following questions: What will we discover if we put credit unions under the value innovation lens of analysis? What is the current competitive nature of financial services players? How do credit union strategies compare to those of large banks, nontraditional players, and other key competitors in the financial services industry?

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 What are the uncontested market spaces credit unions can pursue? What strategies can credit unions implement to pursue these uncontested market spaces? Are there examples of credit unions pursuing blue ocean strategies? The Filene Research Institute held a two-day Blue Ocean Strategy: Value Innovation workshop in Philadelphia in early January 2006. Additionally, we interviewed a dozen credit union leaders to seek additional insight into our research questions. Ultimately, we hoped to create the context for a better understanding of value innovation principles and practices, so that credit unions could better create and nurture cultures of innovation. Through the following sections, we illustrate each step of the value innovation process, along with industry cases and workshop examples to enhance ongoing planning at credit unions. Step 1 involves mapping the current business portfolio of your organization (using the PMS Map). Step 2 involves visualizing the current strategy through the creation of an As Is Strategy Canvas. Step 3 moves into understanding the customers experience through the Buyer Experience Cycle tool. Step 4 pushes beyond the boundaries of the industry and definitions of the business by learning from noncustomers. Step 5 involves employing the Six Paths Framework to explore possible blue oceans across a variety of unique pathways that will eventually lead to a futureor To BeStrategy Canvas.

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Figure 2: Blue Ocean Strategy Process

Kim and Mauborgne 2005

Ultimately, we hope these steps will help to create new blue ocean strategies on which credit unions can build. Although red oceans will always exist in any competitive landscape, the blue ocean strategy offers an additional tool to help credit unions adapt to changing conditions. That process of adaptation begins with mapping the current state of play in ones business environment on the PMS Map.

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STEP 1: The Blue Ocean PioneerMigrator-Settler (PMS) Map

WHAT IS THE TOOL?

The first value innovation tool is the PMS Map. This map helps credit unions analyze the innovativeness of their current portfolio of products/services and assess where profitable opportunities exist. To understand how to utilize this map you must first understand what pioneers, migrators, and settlers are: 1. Pioneers operate in true blue oceans, where they offer highly divergent products and/or services with mass-market appeal. 2. Migrators are in limbo between red and blue oceans; they offer more-for-less products and services but do not change the shape of the industry nor change the rules of the competitive game. 3. Settlers are mired in a red ocean, where they offer me-too products and services that conform to the industry and generate little in the way of long-term growth potential. A sample PMS Map may look like the below after analyzing a portfolio of products and services: Figure 3: Pioneer-Migrator-Settler Map

Kim and Mauborgne 2005

*Size of circle reects the level of revenue generated by products or services.

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Placing current products and services on the PMS Map can quickly, clearly, and forcefully drive home the current state of play in ones business environment. The visual image also reveals that PMS mapping can help to challenge assumptions about current business portfolios, because it identifies and articulates the industry landscape. Since the sizes of the circles on the PMS Map reflect the relative level of revenue generated by a product or service, such an exercise ultimately forces decision makers to examine the overall strategic health of the business and, more importantly, to identify future areas for potential growth. Long-term strategists should seek to push more of their business upward, from settlers and migrators to pioneers.

RESEARCH FINDINGS
When we asked workshop participants to identify credit union products/ services in each of the three categories, one senior executive declared, I cant think of a credit union anywhere that has things outside of the settler category! Although an extreme response, the statement was revealing and pointed to common cognitive biases influencing most credit unions abilities to develop sustainable growth strategies. Suggesting that participants think of the PMS Map as both a diagnostic and a strategic positioning and educational tool, we divided workshop participants into eight groups (of between eight and nine people each) to test the extreme response. We soon found that the initial declaration did not stray very far from credit union strategy development realities. To illustrate the point, when asked to list the existing products and services offered by their businesses and to position those offerings into settlers, migrators, and pioneers, all the groups identified most credit unions tendency to focus on transaction products (checks, credit, and debit); auto, home, and unsecured loans; money market, and CD deposits; wealth management centered on retirement and annuities; and basic online services. Thus, most participants had to admit that their own business, as well as the industry as a whole, resides within the settlers red ocean. With several small strokes, the process identified the general need for further strategic discussion and further planning, and the suitability of the value innovation model for credit union development.

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Figure 4: Workshop PMS Map

When pressed to come up with migrators within the industry, workshop participants realized that they could name many credit unions that had tweaked their offerings in ways that give customers more value for less money. Participants quickly identified many migrator examples among a host of credit unions, including changes focused on affordable payday lending, debit cards, flexible accounts, e-banking add-ons, health savings accounts, packaging for different cultural/ethnic groups, indirect lending, shared branches, and some of Filene Research Institutes new i3 initiatives.

MIGRATING AWAY FROM ME-TOO

North Carolina Credit Union Leagues (NCCUL) Seeing Double campaign can lay claim to migrator status. At first blush, Seeing Double appears to qualify as a value innovator. To solve the widely perceived industry problem that Americans simply do not seem to save money anymore, NCCULs marketing department created an imaginary employee in a fictional Deposits Department who accidentally doubled member deposits, either through incompetence or apathy. As part of a larger promotional campaign, the imaginary employee doubled deductions, direct deposits, down-payments, and check orders in order to give members who participated in the hoax a three-way chance to win up to $500. With this variation on other innovative savings incentive experiments that combine banking with lotteries, NCCUL hoped to make banking fun and entice members into saving more. But did the credit union really value innovate? When forced to examine the scheme in greater detail, one must conclude that the promotional campaign merely offered a one-time chance to receive a little bit more of what credit unions already offer; and, moreover, it merely followed in the

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path of pioneer value innovators such as the Latin and South American banks (respectively) Banco Bilbao Vizcaya (BBVA) and Banco Rio, which offer lottery-linked deposit accounts (LLDAs) that combine savings with a lottery. At BBVA and Banco Rio, each depositor typically receives one lottery chance per month for a certain amount of dollars deposited into a savings account. The depositor pays for this chance to win by forgoing interest. Thus, these banks have eliminated interest for lottery playing depositors, and raised customer expectations about receiving a substantial return if they win the lottery, including daily prizes such as cars or $22,000 in cash, and monthly prizes of more than $200,000. Although the odds of winning either remain astronomically low (approximately .000032%), depositors have flocked to such governmental and privately run financial institutions around the globefrom Mexico, Venezuela, and Columbia to the United Kingdom, Kenya, and Japan. Banco Rio alone reports an average of about 3,000,000 chances (tickets) per month, suggesting that deposits exceed $600,000,000. Despite a long and rich history in lottery-linked products, no such initiative has taken place in the United States. With more research, there resides, perhaps, an opportunity for value innovation, particularly when one considers the American propensity to gamble on dreams of lottery largesse.

Figure 5: Workshop Listing of Potential Pioneers, Migrators and Settlers

UPost

Potential Pioneers

Closed/Tight Field of Memberships Peer-to-Peer Lending Home Loan Payment Relief (HLPR) Mortgages Free Financial Education Gift Cards E-mail Alerts Health Savings Accounts Payday Loans / Check-Cashing Portable Mortgages MatrimoneyTM Lifestyle Lending Rounded Transactions (Bank of Americas Keep the Change) Shared Branching All Traditional Products (almost all loan and deposit products) Online Services Business Services

Potential Migrators

Potential Settlers

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Although workshop participants proposed several examples of pioneer-type initiatives, few examples held up under scrutiny. The UPost initiative remains one of the few exceptions, although it has quickly began moving into the status of migrator as more and more credit unions adopt and apply the service. Originally developed by Pennsylvania State Employee Credit Unions (PSECU) eCU Technologies, UPost allows members to enter deposits online via home banking before providing the credit union with an actual check. UPost emerged to foster credit union loyalty, particularly among members living at a distance from actual branches. UPost provides credit union members with in-house and service-bureau home banking solutions, e-statements, on-line lending services, kiosk machines, and report generator consulting services. It allowed PSECU to eliminate the waiting time members had to endure before they could access funds, and it also wiped out overdraft risks by making funds available immediately. It reduced maintenance in terms of the staffing levels required to check on member deposits. It raised the profile of home banking. And it also created an automatic member qualification system, including file maintenance programs to run and track member accounts, qualifying members based on their credit history. Moreover, UPost appears to have increased member loyalty. Ultimately, credit union strategists will want to push more businesses toward becoming pioneers, all the while recognizing that settlers frequently continue to generate the cash flow to fund ongoing strategy development. As Kim and Mauborgne argue, balancing between profitable expansion and cash flow may help decision makers to overcome the limitations of strategic planning. In the end, the PMS Map helps to shift the focus from number-crunching exercises that lead to little more than incrementally higher returns to building a bigger picture of possibilities for future expansion. Mapping in this way not only identifies current strategies among credit unions (including cost structures, differentiation, and focus), it can also assist credit union managers to visualize opportunities for migrators and pioneers, all the while linking those opportunities to required capabilities and resources. Additionally, the exercise can dramatically illustrate the day-to-day experiences of credit union managers that currently elude board members and staff. As credit union executives already know, retail banking has become an extremely bloody proposition, particularly when one considers the seemingly inevitable entry of Wal-Mart and other mega-entrants into the financial services

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industry. Creating ever more turbulent red ocean waters, these trends signal the pressing need for credit union innovation. Following the PMS mapping exercise, the next step involves seeking a point of differentiationthat obvious candidate product or service for value innovation. A well-established settler often makes a good candidate. Once workshop participants had identified all the key offerings, mapping and labeling each one as a circle on a blank PMS Map (with circle size indicating the relative size of the products/services), we asked our credit union executives to review their assumptions and to identify the processes by which they developed each offerings strategy. Planning experience reveals that typical processes often start with cognitive biases that ultimately lead to the following four results: Muddled strategies and me-too approaches Internal rather than consumer focus Divergence between top-down strategy and bottom-up budgeting Bulky documents read by no one Significantly, all that work often leads to naught. Indeed, line managers, rank-and-file staff members, and members tend to resist unfocused directives to change direction. Conversely, blue ocean strategists achieve a high degree of successful buy-in to their business plans because they adhere to three qualities necessary for a strong and profitable strategy: Focus Divergence Compelling tag line With these ideas and caveats in mind, we asked our credit union workshop participants to select an obvious candidate product or service for value innovation. Armed with PMS Maps and the rules for the focus-divergencecompelling-tag-line litmus test, our credit union executives regrouped to discuss how their current portfolios should evolve over time to create growth for their businesses and the industry. Effective planning requires qualitative teamwork (validated by quantitative data where possible and necessary) and visual exploration of the world created by

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such tools as PMS Maps. It also relies on discussions about possibilities for value innovation; follow-up field research on customers, users, nonusers, lost customers, alternatives, and the like; further litmus test discussions on futures; refinements on creating a true blue ocean strategy of value innovation; and ongoing communication to effect smooth implementation. We had a beginning, and once each group of participants had identified candidates for innovation, we were able to move on to the next step in the process: visualizing current strategy by drawing the world we already knew, and using the As Is Strategy Canvas to create the value curves on which credit unions currently conduct their business.

TRY IT OUT YOURSELF

Developing the PMS Map: Principles
List the existing products and services offered by your credit union, and position them into the three following categories: Pioneers: highly divergent offerings with mass-market appeal Migrators: offerings that fall between pioneers and settlers, offering value improvements but not changing the rules of the competitive game Settlers: me-too types of products/services Figure 6: Pioneer-Migrator-Settler Products and Services

Kim and Mauborgne 2005

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DRAWING YOUR PMS MAP

1. Choose a representative sample of products and services that reflect the current strategic portfolio of your business unit (choose between five and 10 offerings to post on your PMS Map). 2. Using the standard template provided, represent each of the selected products and services offered as a colored circle on the PMS template. 3. The size of the circle should reflect the relative level of revenues generated by the product or service Figure 7: Pioneer-Migrator-Settler Map

Kim and Mauborgne 2005

On the basis of your PMS Map, please review the assumptions underlying the businesss strategy. Discuss how the current portfolio should evolve over time in order to create growth for the credit union. Choose your discussion by selecting an obvious product or service for innovation (a well established settler usually makes a good candidate).

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STEP 2: Visualizing Current Strategy: The As Is Strategy Canvas

WHAT IS THE TOOL?

Having reviewed your portfolio with the PMS Map, the next step is to draw up your As Is Strategy Canvas. The As Is Strategy Canvas focuses attention on the current state of play at the businessoffering level, and helps attain a common perception of reality. The canvas captures the four key elements of strategy: the key factors of competition; the levels of offering buyers receive; the industry-cost drivers; and the companys and its competitors comparative strategic profiles. It illustrates how a given business competes, whom it competes with, and where its strategy diverges (if at all) from its competitions. Lastly, it allows for discussion of whether the current strategy meets the three criteria that define a good strategy: focus, divergence, and a compelling tag line that speaks to the market. Figure 8: As Is Strategy Canvas

There are two components to a value curve: Key elements consumers consider when choosing a financial institution Offering level of each element

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1. The first step consists of identifying/selecting the relevant key elements. Most probably appear in your value proposition. Key elements can be related to the product, service, and delivery content of the offering. They are not a list of internal-offering features; however, price is always a key element. The maximum number of key elements should be 10. 2. The second step consists of scoring the offering levels of each key element on a 1-5 scale, 1 being a low level and 5 being an excellent level.

RESEARCH FINDINGS
We asked our workshop participants to choose one business line within their organization and one customer type or segment to focus on. They then had to consider the following questions: Is my business a pioneer? If not, what components make my business a migrator or a settler? The As Is Strategy Canvas not only illustrates how one business competes, it also depicts where each players strategy diverges from others in the field. Moreover, it allows for a more nuanced dialogue about the businesss cultural lens and dominant course, and whether current strategies meet or optimize those all-important tests for value innovation: focus, divergence, and a compelling tag line. But where do those As Is value curves come from? They derive from answers to critical questions about the current state of the business, as well as its current customers and competitors. Past research6 determined that the following factors influence consumer choice in financial services:

Building Trust and Long-Term Relationships with Generation X, Generation Y, and Baby Boomers (Filene Research Institute, 2006); and Consumer Relationships with Financial Institutions (Filene Research Institute, 1993).

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Figure 9: Factors Which Influence Consumer Choice in Financial Services Competitive Loan Rates Trust in FI Reputation of FI Having a Past History with FI Trust in Loan Officer Family/Friend Recommendation Quality of Service Distance from Residence Convenient Hours Convenient Location Service Charges/Fees Safety of Institution Clarity of Statements Accuracy of Statements Friendly, Courteous Staff Low Rates on Loans Loan Approval Time Knowledge of Loan Officer Recommendation from Friend or Family

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In line with existing research, workshop participants identified eight critical or key elements that matter to consumers of financial services: convenience, low rates, trustworthiness, reliability, security, image, speed, and fun. (Of course, price always emerges as a key element on any strategy canvas, and has meaning only when it appears as the most important consideration on which consumers make trade-offs). With key factors identified by the customer, our participants then answered questions centered on each elements level of offering, including, What does the customer currently want or expect from the industry? and What do industry players currently compete on and for in this market? Making a list of key factors of competitionas customers would talk about themour participants filled out the following template:

Figure 10: Listing the Key Factors of Competition Level of Offering (0 to 5) You
Price (Rate)

Competition/ Best Alternative

Convenience

Trustworthiness

Reliability

Security

Image

Speed

Fun

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First, they assessed their own relative level of offering in the You column, with three representing the industry average and five the highest-level offering. Repeating the assessment in the column Competition/Best Alternative for one or more competitors available to current customers. Placing price (always) as the first element, our participants then ranked the remainder of their key elements, ordering them from the lowest to the highest value. For each element, participants also ranked the level of offering for competitors such as Bank of America and local community banks. The result is the following retail financial servicesspecific Strategy Canvas, complete with three different value curves. Figure 11: As Is Value Curve, Retail Financial Services

Together with the PMS Map, the As Is Strategy Canvas confirms that simple pictures can often reveal much more than any statistical table or lengthy report that produce quantitative evidence about an industry, its customers, and its competition. Drawing value curves forces decision makers and planners to ask, among other things, questions about levels of industry convergence, divergence, and maturity, where current competitors place most emphasis on whether or not their own business strategies diverge from other industry players, and, most importantly, where spaces for immediate divergence already exist. Ultimately, this powerful visual tool prompts strategists to ask, What should we

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change in the way that we do things? Again, credit union executives can use the strategy canvas and its As Is curve exercises for a host of planning activities, including diagnostics, education (among executives, board members, and staff), and as a means of identifying a host of concerns. It would appear that credit unions have many opportunities for changeat present they do nothing more than parallel the value curves of megabanks and community banks. This sentiment was recently reinforced by Harvard Business School strategy guru Michael Porter, during his 2005 address to the Bank Administration Institute: Most banks dont have a clear strategy. The banking industry is basically riddled with me-too competition. That works fine when tides are rising, but not forever. Banks have been protected a lot by inertia and stickiness on the customer side. But the pressure will grow as the era of consolidation and restructuring abates. Were entering a period of strategic positioning. Increasingly, banks will have to be able to deliver something distinctive to their customers. Very few banks have the courage to have a distinctive value proposition from their competitors. You must have clarity of purpose. At this point in our research, we established that credit unions firmly reside in a red ocean. To imagine a different set of strategies and an alternative future, credit unions need to go beyond recognition of the problem and delve into one of the most important factors in value innovation: the consumer experience. Exploring blue ocean strategies requires that credit unions deconstruct the consumer experience from a variety of angles and perspectives.

TRY IT OUT YOURSELF

1. Choose one business line within your organization. 2. Choose one customer type or segment on which to focus. 3. Try to answer such questions as: What does the customer want/expect today from the industry? What do current players in the industry compete with today? Make a list of the key factors of competition as members might describe them. 4. In the You column, assess your relative level of offering (a level of three represents the industrys average).

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5. In the Competition/ Best Alternative column, repeat the assessment for one of your competitors available to your customer. 6. Calculate the difference: Difference=You minus Competition/Best Alternative. 7. In the Rank Order column, order the key factors of competition from the lowest to the highest value of D (remember that price is always #1 and comes first on the left side of the value curve). 8. Map the key elements for you and the Competition/Best Alternative on the strategy canvas in Figure 13. Figure 12: Listing the Key Factors of You and Your Competitor Level of Offering (0 to 5) You
Price (Rate)

Competition/ Best Alternative

Difference (Y-C)

Rank Order
1

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Figure 13: As Is Strategy Canvas

Consider the following general leading questions to help you interpret the key messages and questions your As Is Strategy Canvas is raising: 1. What is the level of convergence or divergence with the overall industry? 2. How mature is the industry? 3. Where does the current competition put most of its emphasis? 4. How divergent is your offering from the competition? 5. Where do you see space for immediate divergence?

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STEP 3: Understanding The Customers Experience

WHAT IS THE TOOL?

A customers experience can usually be broken down into a cycle of distinct stages, running more or less sequentially from need to disposal. You may find it necessary to rename some of these stages to fit the specifications of credit unions. Each stage encompasses a wide variety of specific experiences that may translate for the customer into a sense of satisfaction, dissatisfaction, frustration, or even pain. Some of these experiences may leave the customer indifferent, while others may stimulate unconscious (and unserved) needs or desires. The buyer experience cycle will uncover which assumptions increase costs without significantly raising customer utility. By seeing the detractions from value and removing these roadblocks to buyer utility, and by reducing costs not associated with utility creation, initial opportunities to value innovate begin to emerge. Figure 14: The Buyer Experience Cycle

Kim and Mauborgne 2005

Maximizing member satisfaction, loyalty, and value requires an indepth understanding of how consumers experience products and services. Many technology-driven firms have discovered, much to their shareholders consternation, that customers do not necessarily

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beat a path to the better mousetraps door, no matter how elegant its construction. Customers care about a whole lot more than the mousetrap itselfthey want ease of purchase, hassle-free delivery and maintenance, and relatively painless buy-in, use, and disposal options. Defining and optimizing the buyers experiences with product and service offerings can help to identify and prioritize opportunities to develop not just better mousetraps, but deeper and more satisfying relationships with customers. Many customers soon-to-be ex-suppliers of products and services create their own problems by failing to pose critical questions about buyer utility. Blue Ocean Strategy reminds us that while robust business models depend upon the proper blending of buyer utility, price, cost, and adoption of products and services (without the former none of the latter elements matter at all), if we cannot come up with compelling reasons why the critical mass of people should buy our product or services we have only two choices: either to park the idea, or to rethink it until we can say, Yes, without a doubt, there is exceptional buyer utility in this product or service idea.7

RESEARCH FINDINGS
Most consumers go through a six-stage experience when buying a product or service: Initial purchase Delivery Use Supplemental purchases Maintenance Disposal Within each of these stages, consumers also experience a variety of benefits or frustrations. For example, the elements of optimal price, convenience, reliability, fun, etc., are identified as utility levers.

Kim and Mauborgne, Blue Ocean Strategy, 118.

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We asked our workshop participants to consider their members experience in light of the following diagram: Figure 15: The Buyer Experience Cycle
Purchase Delivery Use Supplement Maintenance Disposal

Customer Productivity

Simplicity

Convenience

Risk

Fun & Image

With PMS Maps and strategy canvases in hand, our workshop participants began to disassemble their members experiences. Rethinking the series of discrete stages (running more or less sequentially from need and want to ultimate disposal), credit union executives quickly saw that each stage in the buyers cycle actually encompasses the possibility for a wide range of experiences, not all of them weighted equally. By placing themselves in their members shoes, our workshop participants began to identify those experiences. In addition, they gained a better appreciation of the experiences that could induce dissatisfaction, frustration, and even pain. More important, they began to grasp better ways in which to stimulate unconscious (and underserved) needs and desires among consumers shopping for financial services. Together, these realizations helped to prompt discussions about how to unlock value for both members and credit unions. For example, most consumers care about how long it takes to find the product or service they need, yet few companies

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think about this when planning future strategies. Moreover, while some consumers care little about the attractiveness of the financial institutions they visit, they may well resent an inaccessible one, particularly if it costs a great deal of both time and money to access it. Additionally, some consumers enjoy unpacking and installing new products and receiving training to use them, but most do not. And costs involved with supplements, maintenance, and disposal matter to most consumers, as well. Working on a Buyer Experience Cycle exercise can thus serve at least two objectives: it can provide initial insight into the unquestioned (but reversible) assumptions industry participants share that may detract from the value of a service or product, and it can uncover the overconfidence, tunnel vision, and rationalizations that increase costs without significantly raising customer utility. By perceiving value detractors, removing roadblocks to buyer utility, and reducing costs not associated with utility creation and enhancement, opportunities to value innovate begin to emerge. To illustrate the usefulness of testing for exceptional buyer utility, our credit union workshop participants examined the specific avenues through which consumers obtain automobile loans. Placing our workshop attendees into three groups, we asked each group to identify the Buyer Experience Cycles for the entire automobile-purchasing process. Displaying their findings on the following Buyer Utility Maps, our mapmakers gave specific names to the stages of their buyers experience cycle on the horizontal axis. They also named the utility levers on the vertical axis to fit current perceptions about the reality of member-credit union interactions. Finally, they identified perceived blocks to customer utility, placing pain points (signified by *) inside those boxes where the industry seems to add costs without significantly increasing customer satisfaction.

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Figure 16: Buyer Utility Maps Buyers Experience Levers Group 1

Price

Research

Apply

Offer/ Accept

CrossSelling

Fulfillment

Utility Levers

Convenience Usability Choice Speed Risk

* * * * *

Buyers Experience Levers Group 2

Simplicity

Decide

Select Vehicle

Finance

Close

Repay

* * *

* * * * * *

Utility Levers

Convenience Time Experience Confidence

Buyers Experience Levers Group 3

Simplicity

Buy

Deliver

Use

Supplements Maintenance Disposal

* *

* * *

Utility Levers

Convenience Price Risk Fun

* Indicates pain points in process.

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Although each of our three Buyer Utility Maps differs, some common elements emerged from the process. All credit union participants perceived convenience as a utility lever. Indeed, not only does finding a convenient loan on which to finance an automobile purchase matter to buyers, but, all other things being equal, they will also consistently seek a lending source that makes life easier, no matter what the cost. At the same time, however, the visual exercise forced our executives to admit that credit unions create pain points all along the Convenience row, suggesting that someone could unlock exceptional utility for consumers if they offered handier products and services. Simplicity and price emerged as significant on two of the three maps as well, suggesting further opportunities for improvement. Significantly, only one map identified fun as a utility lever; however, when asked to think about blocks and pain points, our workshop participants registered them all along the Fun row. Zopa and other on-line financial services providers have tapped into all of these pain points, and their experience reveals that credit unions might do well to think about convenience, simplicity, and fun as pain point opportunities for value innovation. Along with PMS Maps and strategy canvases, Buyer Utility Maps can unearth new opportunities for credit unions, not only in terms of new offerings but also in order to eliminate some of those pain points that stand between the member and exceptional value. Credit union executives have much work to do if they hope to capture some of the open space that promises to generate sustainable growth for themselves and their membership. In addition, they have much to learn from all of those noncustomers with whom they might build a more robust future. In fact, understanding what noncustomers want and need plays a pivotal role in unleashing exceptional value while simultaneously driving down costs. Although credit unions currently serve nearly 87 million members, long-term viability centers on reaching those other 200 million and counting noncustomers. We turn to them next.

TRY IT OUT YOURSELF

1. First, identify a typical credit union Buyer Experience Cycle, such as a mortgage or an auto loan. 2. Next, identify the blocks to utility. Ask What spaces does our industry currently occupy? Where is the industry blocking customer

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utility across the 36 spaces? Place astericks in the spaces that you perceive as roadblocks. 3. Identify the cost components that do not add utility. Ask On what spaces does our industry focus its costs? Where is the industry adding costs while not significantly adding to customer utility across the 36 spaces? 4. Map your findings on the Buyer Utility Map. Note: these negatives today are positives for strategy tomorrow. Figure 17: Buyer Utility Map
The Six Stages of the Buyer Experience Cycle
Purchase Delivery Use Supplements Maintenance Disposal

Customer Productivity

Simplicity

The Six Utility Levers

Convenience

Risk

Fun & Image

EcoFriendliness

Kim and Mauborgne 2005

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38

STEP 4: Learning from Noncustomers

WHAT IS THE TOOL?

To develop a new value curve (one that is different from the As Is curve discussed earlier), it is important to look beyond the conventional boundaries of the industry. Insights come from a better understanding of the customers experience, but also from explicitly challenging the conventional wisdom of what the industry has trained customers to expect. We have observed that breakthrough ideas are likely to come through learning from noncustomers. In most industries, businesses tend to limit their strategic vision to the conventional boundaries defined by competitive strategy. Noncustomers uncover new elements of value that can be introduced into a businesss new value curve. This is an analysis that encourages systematic thinking outside of industry norms. It questions, one by one, the conventional assumptions and rules of the game of the current red ocean strategy of retail financial services. We examine three tiers of noncustomerssoon-to-be noncustomers, refusers, and the unexploredand gain insight into why they do not consume a given product or service.

RESEARCH FINDINGS
According to the Annie E. Casey Foundation (AECF), some 22,000 payday loan stores extended approximately $40 billion worth of highinterest credit to Americans during 2004. Although opportunistic, and even predatory, payday lenders and many other alternative financial-service (AFS) providers (such as check-cashing stores, pawnbrokers, rent-to-own outlets, and most sub-prime mortgage houses) meet a consumer demand, particularly among the 20 to 30 million low-income and low-asset Americans currently underserved by traditional financial institutions. Low-income, low-asset families seem to make choices that betray their own interests; however, as Filene Research Institutes director of field projects, Lois I. Kitsch, has argued, the alternative financial industry serves a useful yet costly function. Moreover, whether right or wrong, Americas poor opt for the alternative financial industry because it stands as one of the few outlets currently available to them. Filenes REAL Solutions (to build Relevance, Effectiveness, Assets, and Loyalty among the underserved) further reveals that if credit unions provided a better, low-cost/high-value alternative to this underserved and exploited

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segment of the American population, member-strategists might discover a tributary leading to another blue ocean.8

Case Study: ASI Federal Credit Union

ASI Federal Credit Union of Louisiana is a case in point. By following the path toward the underserved, ASI reached beyond current demand to create value for members and for the institution itself, further suggesting that credit union executives still have much to learn from current members as well as from those nonmembers just beyond their immediate reach. Originally the Avondale Shipyard Credit Union, ASI has long faced the challenge of serving the working poor (currently 65% of the institutions membership). Most of ASIs working-poor members also struggle with insufficient education, limited employment opportunities, and shaky credit ratings, resulting in the lack of a safety net when things go from bad to worse. ASIs low-income, low-asset members have always wanted to make regular payments on their loans but they have often gone through periods when they simply could not do so (a situation made all the more precarious after Hurricane Katrina). But hurricanes and other disasters merely confirmed what Audrey Cerise, ASIs president and CEO, has always knownpoor people have great integrity and will work with those who pledge to work with them. Reporting on the credit unions portfolio in the wake of Hurricane Katrina, Cerise claimed that, despite mounting troubles, ASIs poorer members had marched into the credit union insisting that they would pay off their loans even if they no longer had the items they had purchased. Cerise knows that credit unions can serve the poor successfully and profitably despite the challenges. ASI is a case in point: by observing the ways in which other institutionssuch as Habitat for Humanitycreated products and services with safety nets built into them, and by looking for creative ways to do what credit unions do bestloan money without charging usurious interest ratesASI found creative and profitable ways to service the underserved.9 At ASI, value innovation flows from dealing with the realities that shape the lives of the credit unions membership. Believing that poor working people need a safety net, ASIs loan officers developed a system to evaluate requests not only with respect to the ability to pay but also with respect to the assumption that members will go through periods when they simply cannot make payments. Developing a loan offering that also contains a saving component, ASIs members can make extra, rainy day payments in advance. Advance payments help to lower the risk of nonpayment when members run into Katrina-like dilemmas, but ASI also promotes a comprehensive financial education that bolsters members desires to save. Borrowing ideas from their affiliations with Habitat for Humanity, Girls Hope Boys Hope, and Rebuilding Together (formerly the Christmas in April project), and building on their deep knowledge of the region ASI serves, Cerise and her staff created flexible products, raised the profile of financial education services, and reduced or eliminated everything else. When asked if she deems ASIs lean, large, and profitable operation exceptional, Cerise consistently responds, No. We simply do what credit unions are supposed to do. With all due respect to Cerise, we disagree. Given the underserved millions in the United States and elsewhere, we believe Cerise has long been a guiding light for innovative institutions.

REAL Solutions: Solving the Financial Service Needs of Americas Working Families (Filene Research Institute, 2006). 9 Interview with Audrey D. Cerise, March 2006. See also http://www.asifcu.org
8

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Of course, low-income, low-asset members of society have plentiful company among consumers in other segments of the population; indeed, consumers tend to make trade-offs among their available choices (that is, until a better alternative surfaces). Managers too often focus on industry perceptions and competition rather than on the more valuable, and hence more profitable, exploratory ocean of both customers and noncustomers (those multitudes who continue to consume beyond our purview because they do not perceive us a better alternative to the product or service they currently use). On the face of it, this seems obvious, but as we saw in Step 3, surprisingly few people involved in business development keep the buyers experience in mind when formulating strategy. Victims of tunnel vision and overconfidence, most business planners cling to conventional beliefs, inadvertently handicap the design of compelling value, and assume that their products or services will (continue to) sell themselves. Failing to imagine new ideas, they also tend to dismiss the regular cries of current customers, soon-to-be noncustomers, and the never-were and neverintend-to-be customers, all of whom consistently vote with their feet, finding outlets for their needs and desires in places that give them, for better or worse, what they want.10 This sort of cognitive dissonance between sellers and buyers points to one of the other guiding principles of value innovation: the need to know what noncustomers want, including all those racial and ethnic minorities, younger generations, and poorer populations whom credit unions and banks consistently underserve. Value innovation only takes place when entrepreneurs, firms, and industries reach beyond existing demand into the three tiers of noncustomers: The soon-to-be noncustomers, just waiting for a reason or chance to go somewhere else; The refusers, who long ago made a conscious choice to avoid certain markets; and The unexplored, those noncustomers who have typically delved into distant markets to find what they want. Of course, looking at noncustomers defies common practice; indeed, company planners who consider customers at all usually focus on
10

For a comprehensive guide to current thinking on Leon Festingers inuential theory of cognitive dissonance (introduced in 1954), see Eddie Harmon-Jones and Judson Mills, eds., Cognitive Dissonance: Progress on a Pivotal Theory in Social Psychology (American Psychological Association, 1999).

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the existing ones. Fixing their gaze there, they thus promote further segmentation to meet the needs of increasingly diverse audiences within known market space. Thus, most businesses get stuck in red oceans, where they divide up smaller and smaller pieces of the market until someone else jumps on the opportunities they missed. Savvy blue ocean strategists take a longer view, plunging into the deep unknown: the harder-to-discover but more deeply rewarding world of noncustomers.11 To develop a new, divergent value curve, we asked our credit union workshop participants to search beyond the conventional boundaries of the industry. Recognizing from past exercises that insights not only emerge from a better understanding of customer experience but also from explicitly challenging the conventional wisdom of what the industry has trained customers to expect, our executives soon observed that breakthrough ideas often flow from what planners can learn from noncustomers and the underserved. Thus, with respect to that first tier of noncustomers, our workshop participants had to ask themselves why some people insist upon sitting on the edge of credit unions, only joining one if they can find no better alternative. This proved a difficult exercise, and most participants conceded that they needed further reflection to come up with blue ocean ideas. We were not surprised to learn this. To reach (and retain) noncustomers, we must first focus not on the differences between those ready to jump ship but rather on what our soon-to-be noncustomers have in common. What do they want that credit unions do not currently offer? Perhaps some niche group members want what Zopa providesboth the feel of a credit union as well as a greater understanding of members needs and desires as working professionals with lumpy incomes, Internet know-how, and virtual sociabilities. As Zopa reveals, we should be looking beyond just the financial services to see what customers want, including what matters to them as human beings and consumers of goods and services outside the financial services industry. Take, for example, the instance of first-tier noncustomersthe soonto-be noncustomerssharing common concerns about both the inconveniences and the difficulties of financing automobile loans through credit unions. UPost could solve the former problem but might not necessarily be able to help with the latter one. Solving the common

11

Kim and Mauborgne, Blue Ocean Strategy, 101-115.

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problems that automobile loan seekers face might convince those soonto-be noncustomers that they have a better future on the credit union side of the financial services industry fence. Figure 18: Common Reasons First-Tier Noncustomers, Soon-To-Be Nonusers, Dont Use Credit Unions Didnt turn account into relationship (fast money in CD, single loan, etc.) Poor experience Better rate/product elsewhere Angry about loan decision Death Lack of product depth Convenience of branch/ATM Moved Consolidation of accounts Not convenient Turned down for a loan Single service member Dormant account/phased out Bad experience/wrong product Restriction on services Lack of products/service Poor rates Fired from company (sponsor) Refusers, the next noncustomer tier, usually avoid a product or service because they find its performance unacceptable or its price beyond their means. Again, we need to ask why these second-tier noncustomers refuse to join credit unions or to seek a fuller range of the services and products we offer them. Looking across commonalities, we may find, for example, that current refusers deem credit unions no more acceptable than banks or other financial institutions in terms of social responsibilityand even less acceptable in terms of service and convenience. By examining noncustomer needs and desires, we might learn that people with moral qualms about doing business with megaplayers such as the Bank of America (or the ever-encroaching

43

Wal-Mart) transact business with those institutions anyway because they see no better alternative in credit unions. Indeed, large-scale entities offer convenient and cheap services that differentiate them from the pack. What would happen if credit unions tapped into a segment of those refusing noncustomers who actually crave something different from the current financial service offerings? Figure 19: Common Reasons Second-Tier Noncustomers,Refusers, Dont Use Credit Unions Credit union is not sophisticated Staff not knowledgeable Customer not knowledgeable Not comprehensive Not convenient Poor rates Friendlier staff elsewhere Referred by friend/family elsewhere Not eligible for membership Staff not available Unappealing/lack of marketing materials Fear of rejection Inadequate features/functionality Staff apathy/not proactive Negative connotations (the word union) Lack of member/staff incentives SEGs diluted affinity for single sponsors Brand awareness

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Case Study: Great Britain Co-operative Bank

Great Britains Co-operative Bank, following the voice of refusers, soon opened an ocean of opportunity, not only for its current members but also for a larger public clamoring for ethical change. Following deregulation in the 1980s, with the consequent privatization of mutuals and cooperatives, the Co-operative Bank had choices to make. Its executives realized that they could not hope to compete with either the big four high street banks or with the small regional banks serving a loyal local customer base. Listening to the increasingly angry buzz over banking scandals, however, they knew they could reach back into the traditions of the cooperative movement on which credit unions had long built their reputations for fair dealing. Although they struggled to overcome the old-fashioned stigma that credit unions had incurred, the Co-operative Bank moved beyond its competition by raising the profile of the ethical posture that had made early cooperatives such a success. Incorporating Tomorrows Company and corporate social responsibility (CSR) models into its Inclusive Partnership Approach initiative, the bank focused on those movementshuman rights, pro-environment, anti-tobacco, and anti-armamentsthat both members and nonmembers had begun to support in earnest. The Co-operative Bank not only raised the profile of the Rochdale Principlesquality and excellence, participation, freedom of association, education and training, cooperation, quality of life, retention of funds and integritybut also, during 1992, it created both an ethical policy and a high-profile department to support the policy. Executives reached out to members and nonmembers alike, seeking both advice on and approval for its ethical policy statement. Once members had approved the policy, along with the causes they wanted to support, the Co-operative then eliminated from its portfolio any service, institution, or individual with views antithetical to the credit unions focus on social justice. Human rights activists and others who had formerly refused to bank at the Co-operative flocked in droves; and, moreover, the bank lost nothing by refusing to do business with individuals and firms not sharing the credit unions vision. In addition, the Co-operative managed to surmount the difficulties inherent in launching a major advertising campaign to promote its interests and the interests of its members. Initially met with skepticism outside the Co-operative, members well understood and endorsed the platform that had suggested the need for a major marketing campaign. By keeping their lines of communication opennot only with their members but also with the wider publicthe Co-operative has continued to thrive on its core values of cooperation and good corporate citizenship. As a result, its members have found acceptable ways to work within capitalism, and the Co-operative has profited in ways that resonate with the traditions of the credit union and with the goals of its expanding membership.

Focusing on the commonalities among refusers rather than the differences between them, credit unions might unlock oceans of untapped demand. This strategy applies equally well to the third tier of noncustomers, the unexplored, who have never even considered credit union membership. Neither targeted nor even considered potential customers by anyone in the industry, these noncustomers needsand the business opportunities associated with themseem to belong to other markets. But they too provide opportunities for catchment evidenced by the success Toledo Area Community Credit Union (TACCU) and other lifestyle lenders have recently enjoyed.

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Figure 20: Common Reasons Third-Tier Noncustomers, Unexplored, Dont Use Credit Unions

Dont know what a credit union is Doubt ability to join the CU Bad word of mouth Perception of lack of competence Perception of lack of services/offerings Term credit union connotes closed membership

Case Study: Toledo Area Community Credit Union (TACCU)

Credit unions (and other financial institutions, for that matter) have always assumed that people who seek cosmetic surgery will only do so through their health care providers. With promises of confidentiality, dentists and doctors have long appeared the only appropriate payment plan providers for such surgery, whether through insurance or unsecured financing. Nevertheless, TACCU and others found that their members desired more affordable alternatives. As the stigma of cosmetic surgery declined and health care costs spiraled during the 1990s, consumers increasingly began to approach cosmetic surgery as a retail decision rather than a health care issue. As a result, more than 8.3 million cosmetic procedures took place in the United States during 2003. TACCU soon discovered a blue ocean of opportunity in serving baby boomers seeking cosmetic dentistry as well as liposuction, eyelid surgery, nose reshaping, hair transplants, and breast reduction or augmentation. Tapping into the cosmetic surgery trend, TACCU and other financial institutions not only increased member loyalty but also unleashed the demand for more lifestyle lending. This new offering not only promises to create new membership among people seeking financial solutions to their lifestyle borrowing needs, it also promises to raise the profile of credit unions while helping to reduce peoples anxieties about paying for cosmetic surgery and other lifestyle changes. In addition, the program helps to eliminate the stigma of seeking to effect such changes.

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In most industries, businesses tend to limit strategic visions to the conventional boundaries defined by current strategy. Learning from noncustomers can help to free credit union executives from the grip of the red ocean. The next tool in the value innovation tool kit promotes six unique paths that organizations can take to reach their very own blue oceans, by discovering ways to reach the untapped needs and desires of noncustomers.

TRY IT OUT YOURSELF

Consider your credit union and the three types of noncustomers Soon-to-be noncustomers Refusers Unexplored Why dont they use your institution? Did you discover any common elements among these groups?

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STEP 5: The Blue Ocean: Six Paths Toward Future Value

WHAT IS THE TOOL?

Typically, experts and practitioners alike define their industry, positioning, and source of competitive advantage along the six following dimensions: Boundaries of the industry and definition of the business (for example, who are the key competitors, suppliers, buyers, substitutes, and complements) Current market segmentation and definition of strategic groups Definition of the industry target-buyer groups Current positioning of the products and services, and definition of the scope of activities Current definition of the products and services primary source of appeal Environmental factors affecting the business over time Blue ocean strategists must know where to turn, looking everywhere they have not looked before, including those parenthetical places that help to amplify and explain strategic planning. The Six Paths Framework, paths: Boundaries of the industry, beyond current definitions of the business (and into key competitors, suppliers, buyers, substitutes, and complements); Current market segmentation, beyond definitions of strategic groups (and into ways in which price and performance decisions determine whether or not buyers will trade up or down from one group to another); The chain of buyers, beyond currently held industry assumptions about appropriate target buyer groups (and into who actually uses the product or service, whether the purchaser or someone else); Complementary offerings, outside current assumptions about the scope of the industrys activities (and into the total solution buyers seek when they choose a product or service); Functional and emotional appeal, beyond current definitions of what constitutes the primary attractiveness of products and services (and into shifting or blending those products and services to find out what causes customers anxiety); and
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 Time and trends, backward to cultural, social, demographic, macroeconomic, political, technological, and environmental changes (and into the forces that will change customer values and experiences). Figure 21: Six Paths Framework

Kim and Mauborgne 2005

We can call good strategy any number of things, but if the strategy canvas serves as the hardware of value innovation, it runs on the Six Paths Framework software. Together, these tools promise to assist credit union executives in their quest to draw better To Beor futurevalue curves. What elements should we eliminate that our industry takes for granted? What elements should we reduce well below the industry standard? What elements should we raise well above the industry standard? What elements should we create that the industry has never offered?

RESEARCH FINDINGS
In the section that follows, we explore six unique paths that credit unions can explore to break out of todays red oceans. We present the logic of each path and then discuss examples of credit unions engaging in such activities on the basis of our research and workshop findings.

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Exploring Across Industries

Credit unions compete not only with other credit unions but also with other financial services providers, who offer alternative products and services with different functions and forms but essentially serve the same purpose. Most business planners start with a definition of their own business offering, then stop. But a good strategist will move beyond to explore the obvious trade-offs customers make when choosing their industry or other alternative ways to fulfill the same need. We asked our workshop participants to consider neighboring industries from which credit unions could learn, to sketch value curves for these alternatives, and to identify what other needs these alternatives serve among their key customers. They explored how best to create a credit union focused on concernsfor example, fertility treatment, adoption services, LASIK eye surgery, and cosmetic dental workthat
Figure 22: Exploring Across Industries
The Logic: A company does not only compete within its industry, but also with companies in industries that produce alternative products or services. In making decisions, buyers often implicitly weigh alternatives and make trade-offs. Going into town for dinner, a movie, the circus; drive, take the train, get a taxi? The thought process is intuitive for customers. 1. Taking your business offering definition as a departure, examine the obvious tradeoffs customers make when choosing your industry or alternative ways to fulfill the same need. 2. Sketch the value curves for these alternatives and identify what other needs they may serve for their key customers. 3. Identify products or services among these alternatives that may potentially be substitutes for your offering in the future. 4. What are the fundamental needs fulfilled by your product and service? 5. What alternative approaches or substitute concepts may serve the same needs? 6. Sketch the value curve for the alternatives you identified. 7. A product or service can be seen as an assembly of processes and activities. Why is yours designed the way that it is? Are there alternative ways to reorganize or redesign parts of the assembly and create value for noncustomers? 8. How does your product and service interact with other businesses in the general ecosystem? Can value be created at the interfaces? Tips: As a guide you may explore industry hierarchies used in search engines such as Yahoo!, and venture up and down your industry layers. Consumers trade-off between a credit union and peer-to-peer payment systems, borrowing money from friends/family, payday lending outlets, credit card companies, not banking at all, cash in their mattress, point of sale financing, etc.

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reflect certain life stages. Positioning the credit union as an integrated retailer of financial services, our workshop participants suggested a variety of possibilitiesfrom purchasing a car dealership to blending mortgages with home improvement concierge services to using the FTD model to network credit unions to deliver cash to members homes or workplaces. Whether our executives will build on any of the particular ideas they identified matters less than that the exercise forced them to visualize what they would need to eliminate, reduce, raise, and create for a strategic move into alternative market spaces. We also suggest that planners explore additional questions. For instance, among alternatives, what products or services could be substituted for your own? What fundamental needs do such products and services fulfill? What alternative approaches or substitute concepts may serve the same needs? If you can visualize your product or service as an assembly, a process, or a set of activities, why did you design it the way that you did? Can you think of ways to redesign or reorganize elements of your product or service to create value for both customers and noncustomers? And how do your products/services interact with other businesses in general? Can you add value at interfaces? In the Filene Research Institutes i3 Moneyworks example, credit union executives addressed the possibility of exploring across the boundaries of the industry to profit from earlier strategic moves by established direct sellers Avon and Tupperware, as well as the more recent value innovator, Pampered Chef. Capitalizing upon buyer networks and multilevel marketing, home-party business founders managed to find advocates to help them pursue radically superior value and radically reduced cost structures that benefited both the business as well as advocates and nonadvocate consumers alike. Building on that model, several credit unions have tapped into the possibility of partnering with churches and schools to create value for credit union member advocates, as well as for the religious and educational institutions that they represent. Generating the potential for a grass roots movement, Moneyworks promises to create employment for independent contractors in much the same way that Tupperware created opportunities for housewives to earn extra money while promoting products that made their own lives easier. Additionally, the plan has the potential to reach potential members who are anxious to access the kinds of financial services credit unions can provide. Credit unions would benefit as well. By building upon the basic Moneyworks concept, credit unions might significantly raise their membership numbers, create flexible, customizable solutions

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for member-specific concerns, and obtain valuable new businesstracking and evaluation information. Additionally, the concept holds the promise to create new delivery channels and to enhance brand recognition while simultaneously providing new opportunities to serve the underserved and to reduce overhead costs.
Figure 23: Exploring Across Strategic Groups
The Logic: The term strategic group refers to a cluster of companies within an industry that is pursuing a similar strategy. Strategic groups can generally be ranked in a hierarchical order built on two dimensions: price and performance. Most companies focus on improving their position within their strategic group. The key to value innovation is understanding which factors determine buyers decisions to trade up or down from one group to another. 1. Identify the various strategic groups within your industry that offer similar products and services. What would their value curve look like from the point of view of their core customers? How would it compare with your own value curve from the point of view of your core customers? What trade-offs are your and their core customers making when they choose across strategic groups? What can you learn from each strategic group and borrow for your To Be value curve? 2. Examine the other strategic groups inherent cost structures (including in your analysis their suppliers and distributors). What would the implications be if you were to further integrate or separate your activities from those of your suppliers and partners? Could you reduce your cost structure and create superior value, thereby attracting a mass of core customers away from the other strategic groups? Tips: Sketch and compare the value curves of companies operating within your industry but competing in a different strategic group (for example, low-end versus high-end providers). What are the implicit trade-offs buyers make? Examine the Value Chain for your business and search for possibilities to reduce or eliminate cost drivers. Examine the Value Chain and cost drivers for companies in the other strategic groups. Strategic groups in financial services range from high net-worth services to transaction product providers. Within each of these groups there is a tremendous amount of variety and value/cost trade-offs.

Credit unions also compete with strategic groups inside the industry those companies offering similar products and services and employing similar development strategies, but at different prices and performance levels. We can usually rank strategic groups hierarchicallybased on those pricing and performance strategies. Again, customers and noncustomers make trade-off decisions. For example, in deciding on where to hold a wedding reception, couples make decisions about trading up or down: trading cost for elegance here, and glitz for frugality there. By sketching and comparing value curves of companies operating within the financial services industry but competing in a different strategic group (for example, low-end versus high-end providers), one can see the sorts of implicit trade-offs buyers make. The

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visualization should also lead to additional questions focused on how best to reduce or eliminate cost drivers within that Value Chain. By identifying the various strategic groups offering similar products and services within a particular industry, we can see what their Value Chains might look like from the customers perspective. Additionally, by examining other strategic groups cost structures (including those associated with suppliers and distributors), we can also learn a number of other important things. What would happen, for example, if you integrated or further separated your activities from those of your suppliers and partners? Could you reduce your cost structure and create superior value, thereby attracting a mass of core customers away from other strategic groups? Together, our workshop participants concluded that such explorations could lead to partnerships with a variety of firms, pushing credit unions into the realm of financial superstores. Among those entertained as potential partners, our executive participants perceived the best futures in firms offering services in tax planning, trusts, titles, investment, real estate, insurance, appraisal, automobile brokerage, and child care. But one need not stop there. FORUM Credit Union of Indianapolis, Indiana, provides us with another example of the ways in which a credit union can blossom into a leading middle-market organization, complete with not-forprofit and for-profit subsidiaries. Organized by employees of Indiana Bell Telephone Company, FORUMs members began to demand greater online services. By 2000, their demands led to the spin-off of a wholly owned subsidiary called FORUM Solutionsa service that develops and supports tailor-made software solutions as well as consulting services for credit unions seeking technological solutions to improve their cost structures. Looking at software solutions firms that serve both banks and credit unions, FORUM executives realized that they could provide a lower-cost offering by focusing exclusively on credit union loans. Deep knowledge of the industry gave FORUM Solutions immediate credibility among other credit unions; it also allowed the software development subsidiary to employ its own credit union parent as a feedback loop and laboratory to develop a suite of software products and services focused on one dimension of the business. A lean organization centered on a cost-conscious niche market, FORUM Solutions allowed the credit union to move upstream into vending; and, moreover, it provided a platform for FORUM to emerge among the first credit unions to offer online share drafts, ATM
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access, and Windows-based home banking products. With FORUM Solutions expanding year after year, the credit union then extended its philosophy and its reach into a for-profit subsidiary, Financial Information Management, Inc. (FIMI), which now provides financial management and brokerage, auto purchase, mortgage lending, and tax preparation services. By eliminating the notion that credit unions need to do everything in-house, FORUM credit union managed to raise the quality of its financial service offerings and to create value for members and other credit unions alike. The credit union simultaneously reduced costs, member inconvenience, and the likelihood that its customers would seek solutions from other financial services providers as well.
Figure 24: Exploring Across The Chain Of Buyers
The Logic: In most industries, competition converges around a common definition of who the target customer is, when in reality there is a chain of customers who are directly or indirectly involved. The purchasers who pay for the product or service might actually differ from the actual user, and in some cases there are important influencers as well. While these three groups may overlap, they often differ. When they do overlap, they frequently hold different definitions of value. 1. Sketch the chain of buyers in your industry. Who are the different actors who might play a role or influence the customers buying decision? What level of power do they each have in a customers decision to purchase your offering or an alternative? 2. Redraw your value curve, but this time from the perspective of each of these different actors in the buying decision. What can you learn from these value curves? 3. Which actor in the chain of buyers is your industry currently serving? What are the opportunities to create a new market space or enhance the existing market to focus on other actors in the chain of buyers? 4. Can you identify new potential players in the buying decision? What would your value curve look like from their perspective? Tips: Map the chain of buyers for your key customers and identify the role, attributes, underlying needs, and inherent definition of value for each type of buyer. Explore whether some new actors can potentially become influential in the buying decision. What would their needs be? When considering different chains of buyers, the indirect lending channel are a prime financial services example. Other examples to consider include the influence of a parent helping their child purchase their first automobile or house. Some credit unions are innovating around this concept by providing indirect financing channels through surgeons who conduct elective (or uninsurable) procedures.

Returning to our earlier example of cosmetic surgery and lifestyle lending as a means of creating blue oceans, credit unions have the opportunity to reach beyond their target customers and into opportunities to become finance machines for doctors, automobile dealers, and any number of other individuals and firms currently providing financial assistance to end-users. In most industries, competitors zoom in on commonly held assumptions about who

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constitutes the target customer. In reality, competition actually takes place along a chain of direct and indirect customersthe purchasers who pay for the product or service, the people who actually use the product or service, and those who influence purchasers and users. Sometimes customers contain elements of all three: for example, a purchaser might influence the end-user, the end-user might influence decisions made by the purchasers, or the purchaser might also be the end-user. In the case of cosmetic surgery, while doctors/influencers play an extremely important role in shaping the end-users decision, they need not provide the financing for their services. Indeed, purchasers, users, and those who influence them share a number of commonalities; however, when they diverge from one another, they frequently hold very different views on value. By mapping the chain of buyers for key customers, and identifying each type of buyers role, attributes, underlying needs, and inherent definitions of value, credit unions can unleash new opportunities. And, as Filene Reasearch Institutes Mark Meyer argues in his investigative report on lifestyle lending, Credit unions have advantages that other lenders lacka direct relationship with members, being located within the community they serve, and their not-for-profit status. The latter gives credit unions the opportunity to offer competitive prices and terms for loans. Moreover, credit unions have the opportunity to remove several obstacles from the doctors office: doctors want to practice medicine, not finance, and would therefore welcome a credit union as a thirdparty partner; while both patients and doctors seek a quick and easy financial solution to the problems they want to solve. What if credit unions targeted a different group from the one(s) they currently serve? Answering this question requires a deeper knowledge about the chain of buyers. We asked our workshop participants to think about the different actors involved in customer buying decisions, including each ones relative level of power over decisions to purchase credit union or alternative offerings. Redrawing value curves from the perspective of different actors in the buying decision chain forced our participants to confront the many customers served by the financial services industry, and to examine the untapped opportunities that might create new market space, enhance the existing market, or help to identify additional players involved in the decision-making process. In many ways, ASI Federal Credit Union in Louisiana also followed the chain of buyers when it made a commitment to focus on the underserved. Thinking about life stages and buyer decisions can help credit unions to focus on the needs and desires of the memberships they serve.
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Figure 25: Exploring Across Complementary Offerings

The Logic: Few products or services are used in a vacuum; in most cases, other products or services affect their value. But in most industries, rivals converge within the conventional bounds of their industrys product or service offering. The key to value innovation is to define the total solution buyers seek when they chose a product or service. A simple way to do so is to think about what happens before, during, and after your product or service is used. 1. What are the processes or circumstances that may trigger the need or desire for your product or service? Reexamine your Buyer Experience Cycle and identify how you could redesign your scope of offering so as to eliminate critical pain points or satisfy unserved customers wishes. 2. Who are the key internal or external actors who would be part of the redesigned scope of offering? What would it take to co-opt them into your new offering? 3. What would be the required assets and resources? With whom should you consider establishing partnerships and strategic alliances to ensure that the new scope of offering creates superior value, attracts a mass of new customers, and is highly cost efficient. Tips: Identify the pain points from the customers perspective as they were expressed in the Buyer Experience Cycle exploration. Examine each of the different stages, their mutual interfaces, and their interaction with other members of the larger business ecosystem. When a consumer obtains a loan from a credit union, the purpose of the loan is to purchase tangible items such as a house, automobile, RV, etc., or they can be intangible items such as a college education, etc. Regardless of the purpose, the member needs many complementary offerings to go along with the loan. The concept here would involve going horizontal with the members needs.

Few consumers use products or services in a vacuum; indeed, in most cases, their value is enhanced or detracted from by other products and services. But, as we now know, most competitors converge on products and services that remain within the conventional boundaries of the industrys traditional offerings. Value innovation moves beyond these boundaries when strategists seek to provide the total solution that buyers seek from the products and services they consume. For instance, by thinking about what happens to couples before, during, and after they purchase products and services with which to build a life together, opportunities exist to create blue ocean market space, in much the same way that Barnes and Noble revolutionized the book-buying business by blending the pleasure of drinking coffee and reading books into a megastore where customers can purchase Starbucks coffee and test drive Barnes and Nobles book-related offerings. Identifying pain points, as expressed from the customers perspective in the Buyer Experience Cycle exercise, can lead to important insights. We asked our workshop participants to reexamine the pain points they had identified. This time, though, we suggested that they also think about the processes or circumstances that might trigger needs or desires for

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their products and services, and how they might redesign the scope of their offerings to eliminate critical pain points or to satisfy unserved customers wishes. We then moved into the realm of external actors, and asked our participants to imagine with whom they might form strategic alliances or partnerships; what assets and resources they would need; what it would take to convince different actors to buy into the new offering; and how all of these elements would both create superior value as well as keep costs down. Integration of services and life-stage loans emerged as the framework on which all suggestions hung. Using indirect opportunities as a platform, participants explored complementary offerings that prompted partnership ideas centered on big purchases, including university education, nursing homes, vacations, and, of course, weddings. In addition, they suggested concepts focused on for life optionsfor instance, an integrated portable mortgage with onetime application but lifetime servicing for the homeowner in ways that connect credit union members through a national CUSO mutual fund. Our participants also envisioned a Financial Advice for Life partnership with education providers. Other examples include building on Filene Research Institutes Lifetime Auto Loan and Flex.One Account programs. Filenes research has already revealed that consumers sift between rate, speed, access, and convenience when seeking automobile loans. While credit unions can offer highly competitive rates for their nearly 90 million members, the industry continued to hold only 18.7% of the auto lending market in June 2005, and this trend continues. Building on the offering of an open-end credit agreement for multiple automobile loan advances, credit unions have the opportunity to rethink strategies for offering members additional services that also address different life stages. Imagine credit unions better reflecting member desires for financial education, convenience, flexibility, and bargaining power while simultaneously strengthening the institutions abilities to crosssell services, to differentiate their offerings in the market, and to enhance the credit unions reputation as a trusted advisor. Filenes Flex.One Account, designed to pool all of the members savings, loans, mortgages, checking, and credit cards into one convenient and cost-saving account offers similar opportunities to rethink current strategies. Although Flex.One potentially taps into the needs of multiple segmentsfrom the financial hobbyist member who likes to manage her own finances to the convenience-driven member who

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understands the financial benefits of the service but wants less active involvement in managing his daily financescredit unions can build upon this basic idea to offer greater simplicity and convenience as well as better rates on loans and savings. By coming up with ways to pool accounts into sticky products, credit unions have the opportunity to lower their cost structures, acquire more intimate knowledge of their members, increase their yields, gain competitive advantage over banks, and maintain long-lasting relationships with community members while also expanding membership. What other incentives might credit unions build into their offerings so that members more quickly build equity, pay down mortgages and other debts, and link their futures to the institutions guiding philosophies?
Figure 26: Exploring Across Functional And Emotional Appeals
The Logic: Competition in an industry tends to converge not only around an accepted notion of the scope of its products and services but also one of the two bases of possible appeal. Some industries compete principally on price and function, based largely on calculation of utility; their appeal is rational. Other industries compete on feelings; their appeal is emotional. New market space can be created by shifting a product and service from one appeal to the other or by blending the sources of appeal. 1. What are the processes or circumstances that may trigger the need or desire for your product or service? Reexamine your Buyer Experience Cycle and identify how you could redesign your scope of offering so as to eliminate critical pain points or satisfy unserved customers wishes. 2. Who are the key internal or external actors who would be part of the redesigned scope of offering? What would it take to co-opt them into your new offering? 3. What would be the required assets and resources? With whom should you consider establishing partnerships and strategic alliances to ensure that the new scope of offering creates superior value, attracts a mass of new customers, and is highly cost efficient. Tips: Examine the findings during the Visual Exploration Process and seek to uncover the main basis of appeal in your industry. Considering your customers and noncustomers, explore whether shifting or complementing the main basis of appeal would capture new customers. Sketch the new value curve with the inverted or hybrid source of appeal. Financial services tend to be a functional perspective: speed, convenience, trust, accuracy, etc. are the main messages to consumers. Is there an opportunity to make the credit union more emotionally appealing and thereby shifting the dominant logic in financial services?

Competitors not only tend to pivot on accepted notions about the scope of product and service offerings, but also between two axes of possible appeal, choosing between rather than shifting or blending functional and emotional elements. Some industries or firms compete solely on price and function. Basing their decisions largely upon utility calculations, these industries and firms tend to sell products and services on rational appeal. Conversely, other industries and firms

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compete on emotional appeal, marketing their products and services on the feelings they engender in customers. Very rarely do competitors embark on cross-fertilization between function and emotion. But one can create new market space by shifting products and services from one appeal to the other or by blending sources of appeal. We asked our participants to arrange lists in two columnsone for those issues reflecting functional concerns, the other for emotional ones. Waving imaginary magic wands to shift (or complement) these main sources of appeal, they then drew new value curves. When credit union executives shifted or complemented functional and emotional offerings in different ways, they came up with some interesting ideas. Most of the participants focused on changing credit unions into dream machines that linked members long-term plans with possibilities for financing their hopes and dreams. Others suggested that in some instances credit unions could profit more by streamlining operations to create plain vanilla offerings that downplayed the emotional appeal of credit union membership and played up to members desires for fewer frills. We have found several industry experiences that illustrate such thinking, including our earlier example of Great Britains Co-operative Bank. Deeply committed to the values and principles of cooperatives, determined to employ those values as part of its long-term strategy, and responding to a small but significant survey response that cited ethics as an important reason members had joined the Co-operative Bank, the banks executives developed an ethical governance policy. They then approached and gained enthusiastic endorsements from partner charities and NGOs such as Amnesty International, the League Against Cruel Sports, and Christian Aid, all of which helped them to write a legally acceptable document. They then passed the document on to each and every one of their 30,000 members, from whom they sought a line-by-line endorsement vote on their 12 platforms. The appeal to membership feelings about human and animal rights, environmental stewardship, and armaments control worked like a charm and helped the Co-operative to surmount the hurdles and attacks they would face from critics when they launched their large-scale advertising campaign. While there were those who questioned the purity and ethics of advertising, the Co-operative had already won untold allies among activists and members, all of whom supported the idea of responsible sourcing and distribution of funds to like-minded people. Moreover, it pioneered character-driven advertising among other private and

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public entities seeking to blend capitalism with core values and good corporate citizenship. The Navy Federal Credit Union (NFCU) has similarly appealed to the Navy family from its inception, never straying from the single-sponsor concept on which credit unions have long prospered. No matter its profit margins, the NFCU serves members from cradle to grave wherever they find themselves stationed around the world. This service to Navy men and women throughout the stages of their lives has reinforced strong emotional attachments between Navy personnel and the credit union. At the same time, affiliations with government contracting, research, and development has allowed the NFCU to implement the latest cost-saving technologies that make access to its services less complicated for members who move from sea to sea and across the globe. Navy personnel augment these two mutually reinforcing benefits. Members run the credit union, spouses and children work for it, and all participants actively govern the NFCU. In these ways, the credit union has managed both to tap into the emotional appeal of single-sponsor membership as well as to meet the functional needs of its constituency, providing basic, low-cost services to its far-flung membership. As a result, the NFCUs original, single-sponsor blue ocean strategy has persisted despite changing trends, fads, and fashions. Whitefish Credit Union (WCU), Montana, provides an additional example. Recognizing that its membership values basic, low-cost solutions and that community involvement reduces the need for advertising, WCU executives have produced $740 million in assets on a plain vanilla plan. WCU has no checking accounts or credit cards, and offers only four basic services: share accounts, free check-cashing services, debit cards, and bill pay. Focusing on these core competencies, WCUs membership has expanded from its original focus on railroad and lumberyard workers into a community-wide membership of 49,000. With a community charter to serve Whitefish and communities within a 50-mile radius of one of Montanas most famous ski-resort towns, WCU members have found that operating as a traditional credit union has allowed them to remain competitive. Moreover, the WCU focus allows executives to meet their members requests for additional community services. For example, when members asked for better money management education for their children, the credit union recruited 29 volunteers with diverse backgrounds to serve on the board, and its president, Charles Abell, WCUs CEO, now freed up from some of his responsibilities, embarked on a campaign to speak at local high schools about the role credit unions play in helping students to

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manage their money. Other members have helped to launch additional programs consistent with membership desires, including information on Montana vacations, bicycle adventures, and watchable wildlife.
Figure 27: Exploring Across Time And Trends
The Logic: All industries are subject to external trends that affect their business over time. Think of the rise of the Internet or the global movement toward protecting the environment. Looking at these trends from the right perspective can unlock innovation that creates new market space. But key insights into new market spaces rarely come from projecting the trend itself. Instead they arise from business insights into how the trend will change value to the customer. 1. List three to five trends that affect your industry most directly and are likely to affect the future of your business. Most dramatic changes in your sector can be traced back to profound social, demographic, macroeconomic, political, technological, and environmental changes. 2. List the implications of these trends on your industry, and explore which ones you could possibly capitalize on. 3. What would your new value curve look like? 4. Similarly, what are the critical trends affecting industries that produce alternative products or services (refer to the Exploring across Industries path)? What can you learn from these anticipated changes? How would these changes affect your new To Be value curve? Tips: Exploring across Time and Trends is a difficult path to explore. Consider using industry scenarios as a tool. What are some undeniable trends occurring in the world today? An aging population, the influx of new immigrants, shifting from a manufacturing to a service economy, a bifurcation of small and large credit unions, shrinking net interest margins, etc. Take the most relevant trends to their most logical conclusionwhat would a credit union need to do to leverage these trends

As the cases in this report have revealed, external trends affect all industries and businesses over time. But looking at such trends as the rise of the Internet, mounting concerns about ethical behavior in business, and the global movement toward protecting the environment from a new perspective can unlock value and new market space. Key insights into new market spaces rarely occur when executives merely project trends forward, however; instead, they arise from business insights into how trends will increase value to customers and lower the cost of doing business. Looking across time and trends is difficultit takes courage and a lot of work. As the above examples suggest, an organizations greatest strengths reside in its leaders abilities to think clearly about the past, to anticipate the future, and to use tools to explore new ideas. To assist with this final step in the value innovation process,

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we encourage you to think about the history that guided credit union success, and to find three to five trends that currently influence and will continue to affect your customers lives and your business. We can trace most dramatic changes to social, demographic, macroeconomic, political, technological, and environmental transformations. By listing the implications of past and current trends, consider those you could capitalize on to encourage value innovation. What would your new value curve look like? Similarly, what critical trends will influence the industries that produce alternative products and services? What can you learn from these anticipated changes? And how would those changes affect you and your To Be value curves? Answers to these questions should influence all of your future strategy sessions, no matter which tools you employ. Indeed, thinking beyond the boundaries of conventional wisdom has the power to unlock a better future for the consumers on whom you depend.

TRY IT OUT YOURSELF

Figure 28: Where do sources of value innovation lie in your credit union? Path
Across Industries Across Strategic Groups Across Chain of Buyers Across Complementary Offerings Across Functional and/or Emotional Appeal Across Time and Trends

Noncustomer Space

New Element of Value

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Figure 29: In order to explore this new path, what elements of your value offering will you:
Eliminate Reduce

Raise

Create

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CONCLUSION: Conceiving New Market Space

OUR JOURNEY
This research study attempts to put credit unions under the value innovation lens. We have introduced the concept of value innovation and furnished examples of how to apply this process to your institution. The next step is to put all the pieces together into a cohesive To Be Strategy Canvas. The figure below reminds us of the steps weve taken thus far. Figure 30: Blue Ocean Strategy Process

Kim and Mauborgne 2005

PMS Map:
This map catalogues the innovativeness of your organizations current product portfolio. We discovered that most credit unions reside in the settler area of the map, with very few examples of products/services in the migrator or pioneer category.

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As Is Strategy Canvas:
This chart lays out the strategic landscape of you and your competitors by evaluating the relative level of value you offer consumers. The resulting value curve provides a clear visual cue about the level of differentiation in your industry. We discovered that credit unions and banks have nearly identical value curves from the consumers point of view.

Buyer Utility Map:

This exercise explores the pain points consumers exhibit when purchasing a product/service from your organization, and provides clues to areas of your business that are ripe for value innovation. We discovered several consumer pain points in a variety of consumer interactions with credit unions. These pain points should encourage you to ask which components of your offerings you can eliminate, reduce, raise, or create to develop future blue ocean strategies.

Learning from Noncustomers:

In addition to looking at current customer experience cycles, we examined three different types of noncustomers: soon-to-be noncustomers, refusers, and unexplored. This exercise pushes organizations to look beyond the conventional boundaries of their business. We discovered a variety of common elements within each credit unions noncustomer group, which again may furnish opportunities for value innovation in your credit union.

The Six Paths Framework:

This framework encourages organizations to value innovate by examining six unique paths to a blue ocean strategy. We discovered a variety of examples within the credit union industry across each of these six paths.

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To Be Value Curve:
After going through the steps above, credit unions now have the raw materials to imagine a comprehensive blue ocean strategy by redrawing the As Is value curve introduced earlier on in this document. Figure 31: As Is Value Curve, Retail Financial Services

On this new strategy canvas credit unions will eliminate, reduce and raise existing value elements and create new value elements, which should create a compelling and divergent blue ocean strategy. The To Be value curve is an exercise in creativity, collaboration, and hard work. The figure that follows is an example of how a recast value, or To Be curve would look:

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Figure 32: To Be Value Curve, Retail Financial Services

In this example, the credit union, having gone through the value innovation process, discovers a blue ocean of opportunity as the finance machine for local car dealers. In this fictional example, the credit union decides to recast its business as the on-site consumer finance arm of every local car dealer in its field of membership. The credit union gives up the red ocean of having to win consumer loans and transaction services in the retail marketplace. Instead, the credit union will develop a narrow expertise in serving the point-ofsale financing needs for automobile purchasers, and will likely move on to other big-ticket, point-of-sale finance opportunities in the future (for example, manufactured home sales, home improvement, cosmetic surgery, etc.) with local vendors. Walking through this To Be value curve, you will notice that the fictional credit union makes a variety of difficult trade-offs:

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 The credit union raises the attractiveness of pricing to the consumer by focusing exclusively on one niche of the retail finance market. The credit union reduces the consumers perception of convenience by eliminating its costly branch structure, and instead co-locates at every car dealer in its field of membership. The credit union challenges the conventional wisdom that credit unions need to convey trustworthiness, reliability, and security in all interactions. Instead, by working in the background of bigticket financial transactions, the credit union no longer needs to convey this costly set of values to consumers at multiple touch points, only with its new car dealer customers. The credit union reduces the need to deliver image messages to consumers through direct mail, TV, radio, etc. This onus is now on the auto dealer to get consumers into their shops to make the purchase while the credit union patiently waits to finance the deal. By reducing the often costly structures of running a typical retail financial institution, the credit union is now able to focus exclusively on one type of transaction, so it will be able to raise the speed of the transaction from the consumers point of view. The automobile is embedded in the psyche of most Americans. Buying an automobile is an exciting experience that should be celebrated. In this example, the credit union will raise the fun factor of buying an automobile by developing ways to celebrate the consumers purchase (for example, sending the consumer a pair of sunglasses if purchasing a sports car, or a gift certificate for a free night of babysitting if purchasing a minivan). Finally, the credit union creates a unique point-of-sale financing machine for consumers that, until this point, has been inhabited by a confusing mix of indirect and captive finance options.

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Kim and Mauborgne claim that the ultimate test of such blue ocean strategies is to be able to give positive answers to the following questions: Is this strategy focused? Is this strategy divergent from the competition? Does this strategy have a compelling tag line? The above example is simply one way that credit unions can conceive a blue ocean strategy. During the course of our research, we did not discover the ultimate blue ocean strategy for credit unions to pursue. In fact, the concept of the ultimate blue ocean strategy is counter to the whole concept of value innovation. Instead, there are many creative paths toward your particular credit unions blue ocean.

CONCLUDING THOUGHTS
True value innovation flows from the simultaneous push for a quantum leap in buyer value and sharp drop in cost structures. The ideas these strategies present can enhance your ability to navigate both blue and red oceans in the future. More important, the concepts behind value innovation need not lead to a complete revolution in your offerings. More modest applications of value innovation can lead to more incremental yet significant improvements in business performance. The basic idea is to enhance value, to reduce costs, and to avoid head-on and often futile competition, when feasible. Even blue ocean strategists have to swim in red oceans. In a world where information flows rapidly and imitators come at one quickly, even the bluest of strategies will ultimately get imitated and start to bloody the waters, driving the need for the next round of value innovation. Yet, as some of our previous examples suggest, reaching blue waters can lead to long-lived advantages for those with a unique proposition for its members. Long-term work on strategy can also help to create an organizational structure optimally positioned for the future, no matter what that future brings. Ultimately, the courage it takes to pursue a blue ocean strategy may emerge as the highest entry barrier to finding new market space. Organizational inertia, risk aversion, fear of cannibalization, and other forms of inflexibility often delay imitation just long enough to create significant distance from rivals. In a world where the need for strategic reinvention has now become commonplace, those firms that employ

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a structured and disciplined approach to innovation will have greater success in finding a blue ocean. And as executives gain experience in using the process, they increase the probability of locating other uncontested market spaces as well. This skill can become a longlasting and sustainable organizational competency. We encourage you to continue to look beyond the boundaries of current thinking and explore the blue oceans in your marketplace.

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APPENDIX A: Inter view Protocol

Question Set What is the market that you serve? Who are your members? 1. Who are the members of your institution? What is their profile and makeup? 2. Why are they your members? What caused them to become members? 3. What products and services do they buy? 4. How do you measure their loyalty? 5. What dont they buy from you? Why? 6. When do you lose members? Where do they go? What can they get elsewhere that they cant get from you? Who are your nonmembers? Who is in your field of membership that you have never tapped into, and why? 7. Who are your most profitable members? Who are the others? How do you compete in the broader context of the financial services industry? 1. Who do you compete with on the broadest terms, both inside and outside of your industry? 2. What are the factors the credit union industry specifically compete with? (The factors of competition are the key elements of your product, service, or delivery.) 3. What does the customer want/expect today from a financial institution? 4. What are the key factors of competition as the customer would describe them. Think in terms of product, service, and delivery elements. 5. Lets take each of these individually and discuss the relative level (value) of your offering compared with the other providers, on a scale of 15, with 5 being the highest value provider and 1 being the lowest.

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What do you provide to them? 1. Can you list any components of your products or services that help differentiate your product/service? Are there offerings you provide that turn your members into fans? 2. What are the products/services that are requirements in the industry to compete? These are essentially commodities. Are there products or services that are improving the value you provide to your members? Do they offer marginally better value than your competition?

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APPENDIX B: Workshop Attendees

First Name Joe Linda Randy T.L. Jill Peggy Musette Debra David Linda Scott Vincent Fred Jim Ray William Frank John Doug Denise Melissa Laida Tim Elizabeth Pamela John James Mary Ann Andrew Brett Larry David Mike Bob Donna Keith Renee Kyle

Last Name Antellocy Armyn Baldwin Barnes Bechard Bosma Bracher Bridwell Brock Brown Burditt Cerasuolo Coffroth Craig Cromer, Jr. DeMare Dougherty Dwyer Fecher Gabel Garcell Garcia Haegelin Hayes Heald Hirabayashi Holt Hughes Butts Jaeger Johnson Kelly Larson LEcuyer Lestina LoStocco Malbrue Manning Markland

Title President VP Bus. Dev./Bus Serv President/CEO President/CEO SVP Planning/Strag Serv President/CEO VP-Marketing VP-Operations President/CEO EVP VP R & D President/CEO VP Internal Audit Services VP Marketing President/CEO President/CEO CEO President/CEO CEO VP-Strategic Direction Marketing & HR Manager EVP President/CEO Chief Rel Officer/SVP VP-Branch Develop. CEO/President President VP Information Systems President/CEO Home Financing Advisor President/CEO VP Branch Serv. President/CEO CEO VP Member Dev. & Political Affairs CIO Vice President President/CEO

Credit Union/ Organization AFTECH Bethpage FCU Tucson Old Pueblo CU First American CU Arizona State Savings & CU Patriot FCU Government Employees CU Eastman Credit Union Community Educators CU Service 1st FCU US Central Century Heritage FCU PSECU 1st Advantage FCU Envision CU Bay Gulf Credit Union Main Line Health EFCU New England FCU Wright-Patt CU Spokane Teachers CU Service 1st FCU Florida Central CU San Antonio City EFCU Affinity Plus FCU WCTA Federal CU Community First CU of FL MidAmerican CU Commonwealth One FCU Credit Union of New Jersey Service 1st FCU Apple FCU Affinity Plus FCU Bellwether Community CU Heritage Credit Union Affinity Federal CU Affinity Plus FCU Peoples Trust FCU Affinity Plus FCU

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Sarah Heather Mike Mike Vincent Steven Lisa Thomas Rhonda Jeff John Robb Gerri Susan Phil Greg David Mark Kim Al Tom Rich Jill Doug Joni Cindy Caroline Larry Laura Ralph Sean

Mason McLachlin Murphy Osborne Paolini Post Renner Ruback Rumbaugh Russell Schooler Scott Sexsion Siegel Smith Smith Snodgrass Spenny Sponem Strawn Swierzy Syme Tomalin True Walker Walker Willard Wilson Wood Yeatts Yokley

VP Relationship Mgr. VP Marketing EVP/COO EVP/CFO CEO CEO CEO VP, Card Services Planning Consultant CIO/VP Strategic Dev. President CEO President/CEO SVP Mktg./Branch Oper VP Lending Strategies President SVP Strategy & Bus. Development Executive VP President/CEO General Manager President/CEO Sr. Vice President SVP SVP Lending & Technology Senior VP EVP VP Marketing Strategic Plan President/CEO Director Human Resources SVP Planning VP Corporate Affairs

Affinity Plus FCU The CUMIS Group Motorola ECU First Tech CU Riverfront FCU Vermont State ECU Mazuma Credit Union CUSO PA State Employees CU PA Credit Union Association Iowa Corporate CU/The Members Group USERS Incorporated Deer Valley CU JAX Federal CU Sunmark Federal CU Affinity Plus FCU Pennsylvania State ECU Affinity Federal CU CEFCU Great Wisconsin CU Matanuska Valley FCU SB1 Federal CU America First CU CUNA & Affiliates FORUM CU Missoula FCU Tampa Bay Federal CU American First CU Coastal Federal CU Spokane Teachers CU Navy Federal CU CommunityAmerica CU

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P.0. Box 2998 Madison, WI 53701-2998 Phone (608) 231-8550 www.lene.org

1752-125 (11/06)

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