I had a chance to read a pretty interesting blog post by Jeffrey Pfeffer, the Stanford professor and author, about the real issues with Detroit. In his opinion the big issue is that Detroit used the "numbers" almost exclusively to manage their business. He points out that although Detroit cries about the cost of health care and retirement benefits negotiated by the unions over the years that the much more significant number is the difference in revenue enjoyed by the Japanese auto manufacturers- $6000 per unit in 2004. The reason he uses 2004 is that, that is when Detroit last reported the numbers.

He points out that Detroit has pandered to Wall Street rather than listened to their customers, and they have paid for it directly and indirectly; directly through dividends and stock re-purchases and indirectly through loss of market share because of a bluntly inferior product.

So you might ask- what has this got to do with community banks and credit unions? My answer would be: Other than expanding our charters and offering many of the same services that “big” banks do; how have we differentiated ourselves?

I have had the opportunity to work for two credit unions as an executive and several others as a consultant. I have to tell you that in many cases I have not seen an abundance of risk taking and creativity.

When I have seen credit unions especially pursue expansion strategies the “big” three in their arsenal seem pretty standard:

• Community charter
• Indirect Lending
• Business Services

Now I am not going to say I haven’t seen anything outside of this mix, but bluntly not much. As an industry the Credit Unions have seen little in the way of market share growth and especially in key demographic segments. When is the last time we saw a credit union offer a really unique product?

Community banks have largely done much better than their “bigger brothers”, but I haven’t seen tremendous leadership here either.

The Japanese automakers don’t do everything right, but it appears to me that in many ways they focused on superior products, quality, and service. Detroit relied on the “numbers”.

The Japanese model is one of relationships. In some ways you could make the case that they have embraced at least some of the foundational aspects of engagement.

In the process of engagement you move through five distinct levels:

• Satisfaction- the product meets their needs
• Loyal- they purchase the product or service with regularity
• Recommend- they promote the product or service to others
• Benchmark- there is  an association with quality or leadership
• Affiliation- there is a sense of public pride and a relationship

Peppers and Rogers, the consulting firm who defined these levels said there is one more foundational element that is key- the foundation of trust.

Most organizations I speak with and especially credit unions and community banks focus their energy in achieving the second or at best third level. We want our member/customer to be a “net promoter”. We call our customers “members”, but do we appropriately measure that relationship in terms of services and products, pride of association, or other metrics more substantive than an active checking account?

As you might suspect, achieving the higher level relationships and building a foundation of “trust” is hard work. It goes far beyond rate and service. It requires what I would describe as an “enterprise” philosophy which incorporates employee and management training, performance management, community leadership, and “real” marketing. I differentiate real marketing from traditional marketing in that it includes market research, “customer” feedback, product development, and a sophisticated external and internal branding strategy.

The Achilles heel of engagement is management. In fact, James L. Heskett, the author of the Service Profit Chain is pretty explicit-

"One bad manager can pollute multiple levels of an organization, and poor management brings down employee morale, which spills over into the engagement level of customers."

In fact they go on to say:

"….but it also requires actions. That is when managers are not managing by the values and cannot be admonished or retrained to do so (which rarely works), they have to go."

In my mind this sounds a lot like Detroit, and the financial services market. How much real change have we introduced into the leadership models of community banks and credit unions?

The Harvard Business Review puts it this way-

"Too many organizations focus on what customers think – to the exclusion of what employees think. Companies are more likely to be growing if employee’s opinions of the company are better than customers’."

If you are an executive with a financial institution how much time are you spending talking to your employees as well as your member/customer?

Peppers and Rogers studies told them that organizations with high true engagement significantly out pace their competitors in performance, productivity, and sustainability. So which of those three would we not be interested in?

I can give you three examples of where moving to adopt these kinds of integrated strategies worked with significant positive results: Hudson City Bancorp, Affinity Plus Credit Union, and Oregon Community Credit Union. By using some or all of the strategies involved in engagement all three saw significant positive movement.

You are not going to see these strategies developed and implemented in the Boardroom, or achieve them by maximizing your capital. These are new strategies with a new model, a model based on relationships.

This means that you are going to be looking at leadership strategies that depend on “soft skills” like hiring the right people, understanding what your customers want, building a link between individual employee goals and organizational goals. The new leadership is going to highly adroit and committed to managing relationships and people, not systems and numbers.

So you decide, do you want to be Tokyo or Detroit?

Mark F. Herbert is a speaker, author and consultant with over thirty years of experience helping organizations like Honeywell, Spectra Physics, Mobius, Oregon Community Credit Union and others take their organizations from Compliance to Commitment™. He is currently a principal at the consulting firm of New Paradigms LLC. He recently published his book Managing Whole, One Man’s Journey, which is available at amazon.com or his website at www.newparadigmsllc.com. He can be reached at Mark@newparadigmsllc.com