Good Cross-Sells for a Slow Economy

Lana J. Chandler
March 10, 2010

“Recession or no recession, people need certain things,” points out Patti Yeiser Potter, president of Yeiser Training for the Financial Industry in Cordova, Tennessee. “Their cars break down, their mortgage is too expensive and they need a smaller house, their children are going to college, the air conditioner breaks, the roof leaks, they lost too much money in the stock market and are choosing a more conservative approach for what remains. There are things you need whether you want to need them or not.”

Given the slow economy, Potter offers these ideas for suggestive cross-sells:

• Closing a CD in order to pay for an unexpected repair: CD loan
• Car payment too high/making late payments on any loan: Refinance loan
• Missing payments or making payments late: Auto debit or bill pay
• Overdrawn checks: Savings account to transfer money when things are tight; online banking to keep better track of balances; use savings account instead of checking if the problem is overwhelming
• Using credit card to make a car payment: Refinance car loan
• Complaining about checking account fees: Move to free account if they aren't currently in that account
• Looking for a more secure investment: CDs; or if they have an investment or annuity option, a brokered CD
• Too many bills: HELOC to consolidate
• Too many bills/do not own a home: Debt consolidation installment loan with auto debit or recurring bill pay option
• Lost job/no money/bouncing checks: Get rid of debit card and add home banking
• Lost job, looking for ways to save money: Bank Club checking account that has multiple discount options, provided that they use the myriad of discounts offered to make up for the monthly fee
• Mortgage payment late: Refinance at lower rate if possible

This story appeared in Branch Manager's Letter at www.branchmanagersletter.com and is reprinted with permission. Contact publisher Lana J. Chandler at 304-343-0206 or Lana@BranchManagersLetter.com.

Going ‘Lean’ Can Boost Efficiency

CU360
March 5, 2010

The financial services sector has been slow to adopt “lean” practices during this recession, perhaps thinking those practices apply only to the manufacturing sector. But those attitudes are slowly changing, and more financial institutions are discovering the benefits of lean operations—lower costs, fewer errors, and greater efficiency.

For process-oriented industries such as financial services, lean practices hold potential. Financial institutions often see a 15% to 25% improvement in efficiency, according to a recent report from Knowledge@Wharton and the Boston Consulting Group (BCG).

CU360 is an online portal for benchmarking tools, market insights, industry data, and analytical information. This article was orginally published online by CU360 at cu360.cuna.org. Reprinted with permission.

Given this potential, why haven't more financial institutions adopted lean practices? Human nature often blocks progress, according to Christian Terwiesch, a professor of operations and information management at the Wharton School—the University of Pennsylvania's business school.

Most service companies tend to be in denial that lean practices apply to their industry, Terwiesch says. Typically, everyone agrees it's great for manufacturing, but they don't think it applies to their business. It's not until something happens—perhaps a competitor shows success with a lean approach—that managers concede that lean could work.

In fact, lean for manufacturing and lean for finance are not all that different, says Deepak Goyal, a BCG partner. “Finance is just a different kind of factory. It's a processing factory, and there's a lot of waste. The basic philosophy doesn't really change.”

Becoming lean involves eliminating the “seven deadly sins” of waste in a process:

1. Overproduction.
2. Waiting.
3. Poor logistics.
4. Over-processing.
5. Sub-optimal inventory control.
6. Rework.
7. Unneeded movement.

People exposed to lean thinking are trained to see and remove these wasteful practices. As superfluous steps are managed away, the process becomes more efficient. Waste begins to disappear, speed improves, and costs drop.

Another key principle of lean is to focus on what matters to the customer, and what delivers value. Almost everything else should be cut. But understanding what customers value isn't always easy, especially when functional silos isolate employees from the front line or the marketplace.

Changing Attitudes

Lean thinking is nothing new, but more financial institutions have talked about it than actually tried it. A common mistake is to cut costs without undertaking an actual lean program. "Lean isn't simply about cost cutting, it's about changing the way you work," says Christophe Duthoit, a BCG senior partner.

Some finance executives mistakenly think that lean requires standardizing every part of a process. “It doesn't—it's really involves getting smarter about what you do,” Duthoit says.

In fact, getting lean often requires creative thinking.

When paperwork moves online, for example, the steps of a financial process are often still performed in a sequential order, even when they could be done simultaneously. So forget the assembly line approach and start thinking more like a race-car pit crew, and process speed can improve dramatically.

Managing Risks

Like any major improvement effort, lean is not risk-free. As systems grow more efficient, quality control and risk management must improve along with them.

Financial institutions with lean operations must put in place strict quality controls. In particular, automatic systems must be watched closely to ensure they don't exacerbate a difficult market by, say, withdrawing credit at the wrong time.

But Goyal believes that lean most often reduces risk. "Lean is one of the very effective ways to actually mitigate operational risk, much of which arises from errors at the front line," he notes. By standardizing processes—cash reconciliations, for example—and empowering front-line people, managers can cut risk and reduce errors.

The best way to start a lean program is to map an entire end-to-end process, then look for ways to streamline it. "Focus first on some pragmatic, easily implemented, and meaningful applications of change," says Duthoit. "Once these are shown to be a success, you can build momentum. It's not a sprint, it's a marathon."

The execution of the change is complex because it's a people process, and it requires a big change in the culture and in the way executives manage activities.

Although implementing lean practices begins as an operations issue, it quickly becomes a change-management exercise that requires management to deal with employees in new, unfamiliar ways. Employees involved in a process must be asked how it might be simplified or improved. "You can't just implement change and worry about the people dimension later," notes Duthoit.

Be sure to engage employees early on. "Lean initiatives work best as a balanced top-down and bottom-up effort," Duthoit explains. The organization needs to share common goals and expectations of what the lean program will deliver. Encourage employees to share their ideas. Let them know they should drive the definition, testing, and validation of the new process.

Done right, lean isn't a one-off project—it's a pervasive approach to operations that brings lasting cultural change. It transforms the way employees view their work by encouraging them to continually think about ways to improve it.

Limits of Lean

Lean has its limits. One of the challenges of adopting a lean approach in a service business is that the customer becomes much more closely connected to what's being produced. In effect, the customer is often the object moving through a service process, and that complicates matters.

For many financial institutions, the first item on the lean agenda might be to increase value and productivity during a merger. As business units or whole enterprises face integration, it's an opportune time to look for next-generation efficiencies in operating models and work processes.

Customer Service Tip: Diffuse First, Educate Second

Dennis Snow
March 3, 2010

I recently had the opportunity to work with Family Video, the largest privately owned movie and game “rentailer” in the United States,and third largest overall, with 612 stores. In an industry struggling to deal with significant changes, such as new rental options offered by Netflix and Redbox, Family Video is the only DVD/game rental operation showing positive growth. Expanding continually, they again achieved record profits last year.

Why is Family Video doing so well as others in the industry struggle? First, they are constantly looking for ways to offer increased value to their customers. Free children's movies and innovative new release promotions draw current and new customers to the store. I believe, however, their biggest advantage is the way they've crafted the customer experience. Each element of the experience has been studied and designed to maximize customer satisfaction.

One of my favorite examples is the Family Video policy to “diffuse first, educate second.” This means that whenever a customer problem occurs, such as a disputed late fee for a DVD, employees are expected to first make the customer happy (diffuse the situation), then explain the policy (educate).

For example, sometimes new members are confused about late fees for DVDs and games. If a customer complains, employees are empowered to waive the late fee, which they immediately let the customer know. After diffusing the situation, the employee then explains the policy. Now they have a happy customer who understands the policy. (Their computer system can indicate if someone abuses the system).

The approach may appear subtle, but it is profound. Think about it; usually when customers complain about a policy or perceived injustice from an organization, the first thing that happens is an employee explains the company policy. Internally the customer gets tense, builds their argument, and waits to present their case. When the employee then says something like, “I'll do it for you this time,” the customer feels as though they've been chastised (like a child), and that they should be grateful to the company for agreeing to wave their policy. (Isn't it amazing how many companies act as thought the customer should be grateful for the privilege of spending money with the company?)

The Family Video approach turns the situation around. The tension is immediately diffused because the employee first takes care of the problem. Now when the policy is explained, customers listen because they're not crafting their argument. Again, subtle but profound.

The impressive thing about Family Video is that approaches like “diffuse first, educate second” are built into the organization's culture (I've provide just one example). These touches are not just desired of employees, they're expected. Therefore Family Video is relentless in training and reinforcing their special touches, and they're fanatical about hiring employees who embrace such a customer-centric approach.

What's the result of their efforts? As mentioned earlier—expansion as well as record profits in a “declining industry.” Not a bad return on their investment in the customer experience.

The lesson here for me is about bridging the gap between the science and the art of customer service. The science of customer service tells us that service recovery (in this example) is important for creating strong customer relationships. The art, however, digs deep into the how of what we do. The art asks, “How can we create the strongest emotional connection with what we do?” World-class service organizations don't just teach the science of service, they help employees perfect the art of customer service.

Organization's often make the mistake of looking for the Holy Grail customer service practice that will rocket them past competitors. It just doesn't' work that way. Great customer service isn't the result of one big thing; it's the result of many little things done extremely well.

Suggestion: Take a look at your organization's approach to service recovery. See how you can apply “diffuse first, educate second” to your approach.

Suggestion: Look at one of your customer service practices and brainstorm the art that can take the science of the practice to a new level.

Dennis Snow is the founder of Snow & Associates. Read his blog at www.dennissnowblog.com .

An Easy Way to Keep Clients? Use Surveys

CUNA Mutual Group
February 25, 2010

Everyone knows it less costly to retain a client relationship than acquire a new one. Though many advisors continue to expend a great deal of time and energy on new client acquisition efforts, all too often minimal effort is focused on retaining existing relationships. While many advisors do periodic client review meetings, this may not be enough. Consider incorporating a routine survey of existing clients, as well as those who have moved their business, into your 2010 retention efforts. This simple application can go a long way in understanding the catalysts that spur movement, and maintain loyalty.

Engage others from your credit union in the development and identify survey formats the credit union may already be utilizing. This could be a synergy opportunity. Develop the content based on a scale of 1 to 5, and include open-ended follow-up questions.

Once the surveys have been completed and returned, look for possible trends in feedback that might bring the effectiveness, or ineffectiveness, of your current retention efforts to light. Based on these findings, develop a retention strategy. The more effective surveys are executed (at least) annually, with little change in the questions, so results can be compared and variances identified.

Surveys should serve as more than a gauge of client satisfaction. Even “satisfied” clients can leave. What you want to gleam from this exercise is an understanding of WHY clients stay or leave.

Source: Investment News January 15, 2010, Practice Management by Melissa Neil and Brant Skogrand. Reprinted with permission from CUNA Mutual Group, which provides financial services to credit unions and their members. For more information contact Rick Uhlmann at 608-231-8940 or rick.uhlmann@cunamutual.com.   

Say ‘Goodbye’ to Nonlocal Checks

FrontLine Newsletter
February 19, 2010

Check processing is about to change. The Federal Reserve has announced that in early 2010 it will complete a final restructuring effort to consolidate its check-processing operations for paper checks into a single region for the entire U.S.

What does this mean for your credit union? Once the Fed's consolidation is completed, the category of “nonlocal check” will be no more. This category currently provides for delayed availability of funds from a deposited check to the fifth business day following the banking day of deposit.

So, your credit union must stop placing a five-business-day hold on nonlocal checks once the Fed's change becomes effective.

Let's say a credit union located in New York receives a check from a member for deposit. The check is drawn on a financial institution in Idaho (or any other state). That check will be considered a local check, and translates to a two-business-day hold.

If your credit union already has a more “generous” check-hold policy—if it typically doesn't apply nonlocal holds to checks, and instead provides immediate, same-day, or next-day availability—this change won't have a big operational effect on you.

However, check with your supervisor regarding updates to your credit union's funds-availability policies, account disclosures, and other documents.

The reason for eliminating the nonlocal check category is partially because of the large number of paper checks turned into electronic images for processing. While members and consumers may welcome this change, it creates new challenges for your credit union.

You may be asking yourself, “What about situations where a local hold won't be long enough to determine whether there's a problem with a check?” Fortunately, for those situations, Regulation CC (The Expedited Funds Availability Act) will retain provisions that permit you to place extended holds on some checks (Table I).

Table I - Holds Allowed Under Reg CC

Current Holds Allowed	Holds Allowed After Restructuring
New accounts: nine days	New accounts: nine days
Local checks: two days; additional five days for exception holds	Local checks: two days; additional five days for exception holds
Nonlocal checks: five days; additional six days for exception holds	Nonlocal check category eliminated

Nine days is the general rule for new-account holds; refer to federalreserve.gov for additional guidance. Source: Federal Reserve

You may place extended holds on checks because of:

• Large deposits that exceed $5,000. But the first $5,000 of the deposit must be available for withdrawal, subject to your credit union's availability policy.
• New accounts, defined as accounts open for less than 30 days.
• Redeposited checks, that is, checks returned because an endorsement was missing or because the check was postdated.
• Repeated overdrafts—accounts with negative balances on six or more days during the previous six months, or accounts with negative balances in the amount of $5,000 or more during the previous six months.
• Reasonable cause to doubt collectibility. This includes, but is not limited to, situations such as postdated checks, stale-dated checks, and checks the paying institution won't honor.
• Emergency conditions, including natural disasters and communications malfunctions.

For more details on allowable holds, visit federalreserve.gov; enter “Reg CC” in the search box.

The author, Chris Collver, is senior regulatory and legislative analyst for the California and Nevada Credit Union Leagues. Contact him at 800-472-1702, ext. 6053, or at chrisc@ccul.org. This story first appeared in CUNA's Credit Union Front Line Newsletter and is reprinted with permission.