Credit Union Creative Destruction
by: Michael Downs, Vice President of Marketing, Momentum
In his 1942 book, Capitalism, Socialism and Democracy, Harvard economist Joseph Schumpeter introduced the term “creative destruction”. He proposed that there is a state of ongoing change in capitalism whereby old established companies are periodically destroyed and replaced by companies with newer and more innovative technologies. We have seen this play out time and time again in today’s world of evolving technologies, for example with the advent of personal computing, the Internet, broadband, and mobile phones.
Although it has been seventy years since Schumpeter published his book, this phenomenon is currently taking place in the financial industry. In recent years, we have seen several credit unions ‘destroyed’ by more innovative and growth-minded financial institutions that were able to continually improve and execute upon their branch strategies. For example, companies such as Ally Bank have leveraged the Internet to deliver banking services in innovative and lower cost ways. As a result of factors such as mobile technologies, increased competition, and changing consumer behaviors, credit unions are re-evaluating their number of branches, size, location, and use.
In light of the above, many credit unions are recognizing that they can leverage the concept of ‘creative destruction’ by taking a proactive approach to making innovative changes in their existing branch network. Dated branches are being ‘destroyed’ and brought back to life with renovations that include updated layouts, branding, merchandising, and state-of-the-art technology. In addition, credit unions are utilizing network optimization tools to measure branch performance, and make decisions to consolidate where necessary, or expand to capture new market opportunities. These same types of demographic analyses are also being used to drive the look, feel, and functionality of updated branch designs.
Many credit unions are recognizing that they can leverage the concept of ‘creative destruction’ by taking the lead on making innovative changes in their existing branch network. Outdated branches are being ‘destroyed’ and brought back to life with renovations that include updated layouts, branding, merchandising, and state-of-the-art technology.
Looking ahead, we can see how executive management teams are focused on the future role of their branch networks and how they may be used to create competitive advantages. There are typically five options for consideration:
- Network optimization: Method of assessing the relative performance of each branch to determine if consolidating the branch footprint makes sense
- Relocation: Market demographics change, economies change, and sometimes it is more profitable to relocate a branch to a better location
- Hub and spoke: An approach where a number of smaller branches surround one larger main operations branch.
- Supermarket branches: Small footprint, in-store branches located in supermarkets
- Branch prototype: The development of small footprint prototype that can reduce deployment costs.
If not already doing so, senior management at credit unions should begin formulating both short-term and longer-term strategies to survive this perfect storm. With ever-changing consumer expectations and behavior, added compliance costs resulting from new laws, and the continued attack on fee income from the regulators, credit unions have to continually evolve or meet the inevitable fate of Schumpeter’s creative destruction.
Michael Downs is the Vice President of Marketing at Momentum, a national design-build firm. Mr. Downs and the Momentum team work with Credit Unions to facilitate strategic planning, evaluate facilities growth needs, and implement systems for ongoing measurement and benchmarking. Mr. Downs holds both a Bachelors and Masters of Business Administration, completed the ABA School of Bank Marketing at Southern Methodist University, and has more than twelve years of experience working with clients on strategic planning and marketing. Learn more at www.momentumbuilds.com or connect at www.twitter.com/plandesignbuild
