How Blue is Your Ocean? - Michigan Credit Union League

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 DIRECTOR,
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 DIRECTOR,
DECISION STRATEGIES INTERNATIONAL

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the prior written permission of Decision Strategies International, Inc., and Filene Research Institute. Requests for
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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 Renée
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.
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Copyright © 2006 by Decision Strategies International, Inc. (DSI) and Filene Research Institute.
Published by Filene Research Institute
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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 industry’s 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 Institute’s past,
present and future.
Progress is the constant replacing of the best there is with something
still better!
— Edward A. Filene
i

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
Institute’s 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 i 3 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.
iii

Table of
Contents
Executive Summar y and Commentar y . . . . . . . . . . . . . . 1
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
STEP 1:
STEP 2:
STEP 3:
The Blue Ocean Pioneer-Migrator-Settler
(PMS) Map . . . . . . . . . . . . . . . . . . . . . . . . . 15
Visualizing Current Strategy:
The “As Is” Strategy Canvas . . . . . . . . . . 23
Understanding the Customers’
Experience . . . . . . . . . . . . . . . . . . . . . . . 31
STEP 4: Learning from Noncustomers . . . . . . . . . 39
STEP 5:
The Blue Ocean: Six Paths Toward
Future Value . . . . . . . . . . . . . . . . . . . . 49
Exploring Across Industries . . . . . . . 5 1
Exploring Across Strategic Groups . . 53
Exploring Across the Chain of Buyers 55
Exploring Across
Complementar y Offerings . . . . . . . . 57
Exploring Across Functional and
Emotional Appeals . . . . . . . . . . . . . 59
Exploring Across Time and Trends . . . 62
Conclusion: Conceiving New Market Space . . . . . . . . 65
Appendix A: Inter view Protocol . . . . . . . . . . . . . . . . 73
Appendix B: Workshop Attendees . . . . . . . . . . . . . . . 75
v

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 Institute’s role as a “think-anddo
tank” is to provide you with the tools and venues to understand
innovation and growth. For example, the i 3 initiative is an exciting
field-research project that tasks the movement’s next generation
leaders with designing tomorrow’s credit union innovation pipeline.
i 3 operates under an open innovation model whereby we heartily
encourage credit unions, credit union organizations, and credit union
vendors to take i 3 ideas as their own and implement in the marketplace.
Since 2004, the i 3 initiative has introduced close to 30 specific credit
union innovations, ranging from process improvement to new market/
product development. i 3 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 Renée 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?
1
W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy: How to Create
Uncontested Market Space and Make the Competition Irrelevant (Boston: Harvard
Business School Press, 2005).
1

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 consumer’s
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 Google—which have
the resources to create tomorrow’s killer application. Another group
is the small, highly entrepreneurial start-up with a strong appetite for
2

isk 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
terms—these 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.
3

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 University’s Cox School
of Business, and at the University of Pennsylvania’s 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
5

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 union’s 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, Zopa’s 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 individuals—albeit 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 segment’s 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
2
BBC News, “If the World Was Run Like eBay” (October 3, 2005).
7

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, Zopa’s 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. Zopa’s Web site lists—in
language anyone can understand—the rules of the game, including the
firm’s 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 firm’s founders have also made lending and borrowing
fun—no small feat in an industry known for inducing anxiety. 3
By the end of its first year, Zopa’s 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
3
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, “It’s Like Lending to a Friend, Except You’ll Get Interest,”
E-Commerce Report, New York Times (February 13, 2006).
8

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 industry’s paradigm. Understanding the past as a socially
constructed process, Zopa’s 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 industry’s cost structure), Zopa’s founders argue that
they moved into this offering precisely because “we live in an age
when opting out is the new opting in…when everyday entrepreneurs
[demand that they] be encouraged and praised, not dismissed…
when creditworthy people frequently have unpredictable income
streams…when 9–5 isn’t 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.
9

THE BLUE OCEAN STRATEGY CONCEPT
Along with ING Direct’s successful model, Zopa’s recent launch has
coincided with, and now exemplifies, another seismic wave in the
business world—the 2005 publication of W. Chan Kim’s and Renée
Mauborgne’s runaway best-seller, Blue Ocean Strategy. Professors at
INSEAD (France’s prestigious business school) studied 150 successful
strategic moves—which they called “value innovation”—among 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.
10

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 company’s
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.
11

Figure 1: Tools for Your Blue Ocean Strategy
Tool
Pioneer-Migrator-Settler (PMS) Map
“As Is” Strategy Canvas
Buyer Utility Map
Six Paths Framework
Four Actions Framework
“To Be” Strategy Canvas
Description
Diagnostic tool to describe an
organization’s portfolio of offerings.
Visual cue describing the strategic
landscape of business today.
Tool that describes how consumers
experience an organization’s 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.
Ultimately, planners need to think outside their current mental
frameworks, just as Zopa’s 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?
12

• 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 future—or “To Be”—Strategy Canvas.
13

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 one’s business environment on the PMS Map.
14

STEP 1:
The Blue
Ocean Pioneer-
Migrator-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 reflects the level of revenue generated by products or services.
15

Placing current products and services on the PMS Map can quickly,
clearly, and forcefully drive home the current state of play in one’s
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 can’t 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.
16

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 Institute’s new i 3 initiatives.
MIGRATING AWAY FROM “ME-TOO”
North Carolina Credit Union League’s (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, NCCUL’s 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
17

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 globe—from 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
Potential Pioneers
Potential Migrators
Potential Settlers
UPost
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
Matrimoney TM
Lifestyle Lending
Rounded Transactions
(Bank of America’s “Keep the Change”)
Shared Branching
All Traditional Products
(almost all loan and deposit products)
Online Services
Business Services
18

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 Union’s (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
19

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 differentiation—that 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 offering’s 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
20

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
21

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 business’s 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).
22

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 company’s 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 competition’s.
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
23

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 player’s strategy diverges from
others in the field. Moreover, it allows for a more nuanced dialogue
about the business’s 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 research 6
determined that the following factors influence consumer choice in
financial services:
6
“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).
24

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
25

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 element’s 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 competition—as customers would talk
about them—our participants filled out the following template:
Figure 10: Listing the Key Factors of Competition
Level of Offering (0 to 5)
You
Competition/
Best Alternative
Price (Rate)
Convenience
Trustworthiness
Reliability
Security
Image
Speed
Fun
26

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
27

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 change—at 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 don’t 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. We’re 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 industry’s average).
28

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
Competition/
Best Alternative
Difference
(Y-C)
Rank
Order
Price (Rate) 1
29

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?
30

STEP 3:
Understanding
The Customers’
Experience
WHAT IS THE TOOL?
A customer’s 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
31

eat a path to the better mousetrap’s door, no matter how elegant
its construction. Customers care about a whole lot more than the
mousetrap itself—they want ease of purchase, hassle-free delivery and
maintenance, and relatively painless buy-in, use, and disposal options.
Defining and optimizing the buyer’s 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.”
7
Kim and Mauborgne, Blue Ocean Strategy, 118.
32

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
33

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.
34

Figure 16: Buyer Utility Maps
Buyers Experience Levers
Group 1
Research
Apply
Offer/
Accept
Cross-
Selling
Fulfillment
Price
Utility Levers
Convenience
*
Usability
* *
Choice
*
Speed
Risk
*
Group 2
Decide
Buyers Experience Levers
Select
Vehicle
Simplicity
* * *
Finance Close Repay
Utility Levers
Convenience
* * *
Time
*
Experience
* *
Confidence
* *
Buyers Experience Levers
Group 3
Buy Deliver Use Supplements Maintenance Disposal
Simplicity
* *
Utility Levers
Convenience
* *
Price
Risk
*
Fun
* * * * * *
* Indicates pain points in process.
35

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
36

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
Eco-
Friendliness
© Kim and Mauborgne 2005
37

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 business’s
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 noncustomers—“soon-to-be” noncustomers,
“refusers,” and the “unexplored”—and 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 Institute’s director of field projects, Lois I. Kitsch,
has argued, “the alternative financial industry serves a useful yet
costly function.” Moreover, whether right or wrong, America’s poor
opt for the alternative financial industry because it stands as one of
the few outlets currently available to them. Filene’s “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
39

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 institution’s membership). Most of
ASI’s 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. ASI’s 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, ASI’s
president and CEO, has always known—poor people have great integrity and will work with those who pledge to work with them.
Reporting on the credit union’s portfolio in the wake of Hurricane Katrina, Cerise claimed that, despite mounting troubles, ASI’s 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 institutions—such as Habitat for Humanity—created products and services with safety nets
built into them, and by looking for creative ways to do what credit unions do best—loan money without charging usurious interest
rates—ASI 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 union’s membership. Believing that poor
working people need a safety net, ASI’s 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, ASI’s 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 ASI’s 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.
8
REAL Solutions: Solving the Financial Service Needs of America’s Working
Families (Filene Research Institute, 2006).
9
Interview with Audrey D. Cerise, March 2006. See also http://www.asifcu.org
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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 Festinger’s influential
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).
41

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 provides—both 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 noncustomers—the “soonto-be”
noncustomers—sharing 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.
42

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, Don’t Use Credit Unions
Didn’t 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 responsibility—and 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”,
Don’t 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 Britain’s 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 “Tomorrow’s Company” and corporate
social responsibility (CSR) models into its “Inclusive Partnership Approach” initiative, the bank focused on those movements—human
rights, pro-environment, anti-tobacco, and anti-armaments—that both members and nonmembers had begun to support in earnest.
The Co-operative Bank not only raised the profile of the Rochdale Principles—“quality and excellence, participation, freedom of
association, education and training, cooperation, quality of life, retention of funds and integrity”—but 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 union’s 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 union’s 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 open—not only with their members but also with the wider public—the 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’ needs—and
the business opportunities associated with them—seem 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”, Don’t Use Credit Unions
Don’t 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 people’s 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 don’t 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 industry’s 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
49

• 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 Be”—or
future—value 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 today’s “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 concerns—for example, fertility treatment,
adoption services, LASIK eye surgery, and cosmetic dental work—that
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.
Figure 22: Exploring Across Industries
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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eflect certain life stages. Positioning the credit union as an integrated
retailer of financial services, our workshop participants suggested a
variety of possibilities—from 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 Institute’s i 3 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 hierarchically—based
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
53

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 customer’s 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, FORUM’s members began to demand
greater online services. By 2000, their demands led to the spin-off of
a wholly owned subsidiary called “ FORUM Solutions”—a 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 customer’s 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
55

constitutes the target customer. In reality, competition actually takes
place along a chain of direct and indirect customers—the 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-user’s 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
buyer’s role, attributes, underlying needs, and inherent definitions of
value, credit unions can unleash new opportunities. And, as Filene
Reasearch Institute’s Mark Meyer argues in his investigative report
on lifestyle lending, “Credit unions have advantages that other lenders
lack—a 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 doctor’s 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 one’s 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 industry’s 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
industry’s 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 Noble’s 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”
options—for 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 Institute’s Lifetime Auto Loan and
Flex.One Account programs.
Filene’s 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 institution’s abilities to crosssell
services, to differentiate their offerings in the market, and to
enhance the credit union’s reputation as a trusted advisor.
Filene’s 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 segments—from 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 finances—credit 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 institution’s 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 columns—one 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 Britain’s 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 bank’s 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 NFCU’s 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,
WCU’s 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 Montana’s 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, WCU’s 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 conclusion…what 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 difficult—it takes courage
and a lot of work. As the above examples suggest, an organization’s
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
Noncustomer Space
New Element
of Value
Across Industries
Across Strategic Groups
Across Chain of Buyers
Across Complementary
Offerings
Across Functional and/or
Emotional Appeal
Across Time and Trends
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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 we’ve taken
thus far.
Figure 30: Blue Ocean Strategy Process
© Kim and Mauborgne 2005
PMS Map:
• This map catalogues the “innovativeness” of your organization’s
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 consumer’s 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 union’s 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 consumer’s 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 consumer’s 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 union’s “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 don’t they buy from you? Why?
6. When do you lose members? Where do they go? What can they get
elsewhere that they can’t 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. Let’s take each of these individually and discuss the relative level
(value) of your offering compared with the other providers, on a
scale of 1–5, 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 Last Name Title
Credit Union/
Organization
Joe Antellocy President AFTECH
Linda Armyn VP Bus. Dev./Bus Serv Bethpage FCU
Randy Baldwin President/CEO Tucson Old Pueblo CU
T.L. Barnes President/CEO First American CU
Jill Bechard SVP Planning/Strag Serv
Arizona State Savings
& CU
Peggy Bosma President/CEO Patriot FCU
Musette Bracher VP-Marketing
Government Employees
CU
Debra Bridwell VP-Operations Eastman Credit Union
David Brock President/CEO Community Educators CU
Linda Brown EVP Service 1st FCU
Scott Burditt VP R & D US Central
Vincent Cerasuolo President/CEO Century Heritage FCU
Fred Coffroth VP Internal Audit Services PSECU
Jim Craig VP Marketing 1st Advantage FCU
Ray Cromer, Jr. President/CEO Envision CU
William DeMare President/CEO Bay Gulf Credit Union
Frank Dougherty CEO Main Line Health EFCU
John Dwyer President/CEO New England FCU
Doug Fecher CEO Wright-Patt CU
Denise Gabel VP-Strategic Direction Spokane Teachers CU
Melissa Garcell Marketing & HR Manager Service 1st FCU
Laida Garcia EVP Florida Central CU
Tim Haegelin President/CEO San Antonio City EFCU
Elizabeth Hayes Chief Rel Officer/SVP Affinity Plus FCU
Pamela Heald VP-Branch Develop. WCTA Federal CU
John Hirabayashi CEO/President
Community First CU of
FL
James Holt President MidAmerican CU
Mary Ann Hughes Butts VP Information Systems Commonwealth One FCU
Andrew Jaeger President/CEO
Credit Union of New
Jersey
Brett Johnson Home Financing Advisor Service 1st FCU
Larry Kelly President/CEO Apple FCU
David Larson VP Branch Serv. Affinity Plus FCU
Mike L’Ecuyer President/CEO
Bellwether Community
CU
Bob Lestina CEO Heritage Credit Union
Donna
LoStocco
VP Member Dev. &
Political Affairs
Affinity Federal CU
Keith Malbrue CIO Affinity Plus FCU
Renee Manning Vice President Peoples Trust FCU
Kyle Markland President/CEO Affinity Plus FCU
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Sarah Mason VP Relationship Mgr. Affinity Plus FCU
Heather McLachlin VP Marketing The CUMIS Group
Mike Murphy EVP/COO Motorola ECU
Mike Osborne EVP/CFO First Tech CU
Vincent Paolini CEO Riverfront FCU
Steven Post CEO Vermont State ECU
Lisa Renner CEO
Mazuma Credit Union
CUSO
Thomas Ruback VP, Card Services PA State Employees CU
Rhonda Rumbaugh Planning Consultant
Jeff Russell CIO/VP Strategic Dev.
PA Credit Union
Association
Iowa Corporate CU/The
Members Group
John Schooler President USERS Incorporated
Robb Scott CEO Deer Valley CU
Gerri Sexsion President/CEO JAX Federal CU
Susan Siegel SVP Mktg./Branch Oper Sunmark Federal CU
Phil Smith VP Lending Strategies Affinity Plus FCU
Greg Smith President Pennsylvania State ECU
David
Snodgrass
SVP Strategy & Bus.
Development
Mark Spenny Executive VP CEFCU
Affinity Federal CU
Kim Sponem President/CEO Great Wisconsin CU
Al Strawn General Manager Matanuska Valley FCU
Tom Swierzy President/CEO SB1 Federal CU
Rich Syme Sr. Vice President America First CU
Jill Tomalin SVP CUNA & Affiliates
Doug True SVP Lending & Technology FORUM CU
Joni Walker Senior VP Missoula FCU
Cindy Walker EVP Tampa Bay Federal CU
Caroline
Willard
VP Marketing Strategic
Plan
American First CU
Larry Wilson President/CEO Coastal Federal CU
Laura Wood Director Human Resources Spokane Teachers CU
Ralph Yeatts SVP Planning Navy Federal CU
Sean Yokley VP Corporate Affairs CommunityAmerica CU
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Phone (608) 231-8550
www.fi lene.org
1752-125 (11/06) ISBN 1-932795-06-5