This past weekend I decided to clean off my patio furniture, pour myself a nice glass of Chardonnay and re-read a classic: How the Mighty Fall: and Why Some Companies Never Give In, by Jim Collins, author of Good to Great.It’s a quick read and if you’re familiar with Good to Great (or Built to Last) it will have an even bigger impact on your way of thinking.
Basically, Collins admits to highlighting some Good to Great and Built to Last Companies that failed or got darn close. So, in true fanatical research fashion he found the commonalities for a great company’s decline. Companies like HP, Rubbermaid, Motorola, Circuit City and Merck that all had tremendous growth, stellar reputations, leaders in their category. Most of these are now gone. Several companies they studied that failed had been around for at least 75 years, some more than 100 years.
Every institution, no matter how great, is vulnerable to decline. I have thought for some time now that credit unions are RIPE for disruption, the Uber kind of disruption that can make us irrelevant overnight. But it doesn’t have to be that way. Luckily, Collins identified the five step-wise stages of decline:
Stage 1: Hubris Born of Success – Credit unions have been around for over 100 years; what could possibly go wrong? If your credit union has been experiencing tremendous growth do you know why? Or are you counting on your ROL ratio to keep you going – Return on Luck.
Stage 2: Undisciplined Pursuit of More – The mega mergers of credit unions is probably one of the worst things to happen to our industry, and although many believe that if you’re not $1B in assets you cannot survive, this is the second stage of decline, according to Collins’ research. Collins says if you are doing any of the following you are undisciplined and putting your future at risk:
- Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors
- ADDICTION TO SCALE! So many mergers cite this as a main reason for the move. There has to be more than the relentless pursuit of economies of scale.
- To use the organization primarily to increase your own personal success – more wealth, more fame, more power – at the expense of its LONG-TERM success
Let’s face it, some mergers appear to be literally “selling” off the credit union for a big payout to a few employees. We all know someone who has benefited financially from a merger, and yet it’s the member’s money that is going in that pocket, right? What would Edward Filene say?
Stage 3: Denial of Risk and Peril – Just keep doing what we’ve always been doing, and the business will keep coming. Marketplace lending, fintechs, cybersecurity threats….are we paying attention?
Stage 4: Grasping for Salvation – This is where a company in a downward spiral will try to save themselves in a number of ways: diversification, big changes to senior management and sometimes forced mergers
Stage 5: Capitulation to Irrelevance or Death – No greater example than Blockbuster in my opinion. In 2000, Netflix approached Blockbuster to buy Netflix’s DVD mailing service for $50 million. They declined, because they say it as a “very small niche business” and they were admittedly addicted to late fees. Now Netflix has 50 million subscribers, and Blockbuster? Gone.
The good news in the book is that some companies have gotten all the way to stage 4 and still managed to get out of the death spiral, but it’s hard work.
One of the hardest things we do in our industry is collaborate through the CUSO model. And we know one of the things that keeps us from successful collaborations is ego (hubris). Which may push us to Stage 2, the pursuit of more. But it doesn’t have to be that way.
Guy Messick, the CUSO Guru said it best in his articleRecognize the Potential of the Cooperative Model
The credit union difference is the cooperative model. If we do not exploit that difference, we risk being marginalized in the marketplace. In today’s world, financial institutions need scale to survive. When the for-profit world thinks of scale, they think of mergers. Yet mergers are time-consuming and disruptive. In the case of credit unions, too many mergers also mean less political clout and eventual loss of a separate regulator.
The cooperative model enables credit unions to work together to obtain scale without the need to sacrifice the identity and unique market position of each of the participating credit unions. Scale through a collaborative model is more efficient and less disruptive to employees and members than scale through mergers.
Mark your calendar for April 20-23, 2020 for the NACUSO Network Conference at Disney’s Yacht & Beach Club Resort in Lake Buena Vista, Florida to learn more about collaboration opportunities. We also plan to go #Underground!