With 1.3% annual ROA, 12% membership growth over the same period, and an average member relationship that is nearly four times the average for its peer group, Northwest Federal Credit Union ($2.4B, Herndon, VA) is demonstrating that despite its 65 years of success in the D.C metro region, its golden years are the ones ahead.
Having already achieved success in many areas, NWFCU also faces ongoing challenges, including a historically higher operating expense per each of its 116,674 members, at $259, than the national average for similar-sized institutions, at $171.
The majority of this spending incongruity is linked to the limitations of its three-decade-old, in-house core system — something the credit union has decided to address with a full conversion in the fall of this year.
Below, Kristin Shultz, vice president and controller of NWFCU, shares insight into the credit union’s previous data processing approach, how it determined the time was right to make a switch, and how it plans to navigate its people and processes over the next year to make the conversion a success.
How was Northwest previously positioned, both operationally and technologically? What were your core capabilities and what were the positives and negatives of that approach?
Kristin Shultz: We have been using our current home grown legacy core system since 1976. By developing our own core system, we had the freedom to design it to meet our institution’s needs. That model served us well for many years, giving us the flexibility to program changes as we needed. Then the increasingly complicated regulatory environment began to change our needs and system requirements. Coupled with the complexity of our existing computing platform, updating our current system became nearly impossible. Maintenance became our priority, while new product and service enhancements had to wait.
We recognized that we must continually improve the experience our members have each time they interact with NWFCU, as we consider this one of our competitive advantages. This recognition compelled us to improve our technology so as to improve that experience and in the process improve our overall operational efficiency. Moving forward, it is important for us to know who our members are and what their needs are at each stage of their life. With that information, we can provide those financial products and services to support members in a low-cost, efficient way, while at the same time protecting the data and information that they entrust with us.
Were you encountering any back-office or member-facing roadblocks? If so, how did you work around it?
KS: Yes. Many of our ancillary systems did not easily integrate with our legacy core. We therefore have a distinct organizational setup to accommodate challenging processes and interfaces. We currently rely too much on paper and are anxious to see significant process improvement with our new core integration. It is often difficult for us to rely on many vendor partners for assistance, as we have unique security requirements.
What specific factors helped greenlight this conversion opportunity?
KS: When our current CEO, Gerrianne “Winky” Burks, became CEO in 2008 she targeted two main areas she wanted the institution to focus on — member experience and technology. Without exceptional technology, we cannot deliver an exceptional member experience. That new focus started our journey to find a new core system that could help us in five critical areas. We needed to get quicker and better at rolling out our strategic initiatives, we needed to ensure the regulatory and compliance requirements were better met, we needed to improve efficiencies, and we needed a system that would automate manual work arounds and processes. Last but not least, we needed to improve our member experience by integrating upwards of 23 unique ancillary systems to provide a comprehensive look at all of our member relationships.
What was your litmus test for determining which systems you should replace and which you should retain?
KS: Every system was reviewed for cost, integration, efficiency, and purpose. If there was a solution offered by Symitar, we looked at it to see if it would be a good fit for us. Ultimately, if the system allowed us to deliver a more exceptional member experience in a more efficient way without a huge cost, we used it.
Tell me about the vendor selection processes and your vendor management strategy for the actual conversion. How can credit unions ensure consistency and reliability all the way through to project completion?
KS: At the early stages of discussion about moving to a commercial core, we developed an extensive list of requirements. We needed to know exactly what our capabilities needed to be while ensuring the integrity of our member data.
We then hired consultant partners, Harper McNeil, to guide us through our vendor selection process. The executive team worked with Harper McNeil to narrow the list of potential vendors to three. Then, a core group of employees along with the executive team, participated in multiple demos, attended user conferences, and conducted due diligence phone interviews with existing clients of each vendor. Each participant rated each vendor in a variety of categories and ultimately we came to a final decision.
During our conversion process, we are using our consultants to assist with vendor management. They conduct meetings with Symitar to go over the timelines and help keep us on track. Because we have never done a conversion to a commercial core, we needed to partner with a firm that had extensive experience with conversions.
At the beginning of our conversion process the credit union identified a project team. Because this is such a monstrous task, it became clear the project manager in charge of the conversion needed to be working on this project full time. Therefore, we made internal personnel changes to ensure the conversion was top priority. Having a professional leader from the initial stages of the selection process through the final go-live day has been, and I am sure will be, very beneficial.
In addition to the project leader assignment, we created a core conversion team made up of nine individual project managers who are responsible for their respective functional units. These are high-level individuals who have shown proven dedication, loyalty, and a willingness to embrace change. These project managers will remain in place until the end of the conversion.
What stage of the conversion are you in now? What is your expected timeline for completion?
KS: We had an 18-month conversion timeline that is now almost exactly 12 months away. Our go-live date will be November 4, 2013. We are in the planning stages at this point. We reviewed our forms, letters, notices, and reports, have worked through our account opening process, and have engaged a number of our third party vendors to begin our project.
Can you give me an idea of the various costs or investments (time, resources, people, etc.) required for this project?
KS: This is a multi-million dollar project. We have three full-time folks who work solely on the core conversion, nine project managers who work part-time, and approximately 60 employees working on some aspect of the conversion right now. As we proceed further into the project, all of the employees will be working on the conversion in some capacity. Harper McNeil will also assist to help fill the resource gaps.
We also hired a process improvement specialist who has been working in the credit union industry for a number of years and has vast experience with conversions. He is especially adept at identifying cumbersome processes and is assisting us with re-engineering all processes within the credit union as we convert to our new core.
Do you have any best practices for communicating and managing employees during this process? Where are specific teams or groups especially critical and where or when can you spread ownership of the process across the entire institution?
KS: We developed a SharePoint site to manage our communication strategy throughout the process. All information related to our core conversion (vendor letters, non-disclosure agreements, calendars, training materials, etc.) is housed on this site. This provides a consistent source of information to our teams.
The project team meets weekly and then disseminates that information to their respective teams. The board of directors and the executive team receive regular written and in-person briefings regarding the status of the project. In addition, a member of the executive team serves as the executive sponsor, ensuring executive representation throughout the project.
Every functional unit will have a critical role in the conversion at one point or another, but our member servers are the most critical on conversion day, as they are the credit union for our members. Our teams are divided into: administrative, member services, eServices, IT (technical), IT (programmers), lending, operations (back-office). Each project manager is responsible for their functional unit, which does help spread ownership of the process.
We are also in the middle of the critical task of doing database cleanup. All employees, regardless of position, are assisting with this task. We have had overwhelming excitement with this project as our employees are excited about the positive changes that will occur with a new core.
What’s your communications strategy with members throughout the process?
KS: We developed a communications plan early in the process to help define how, when, and how often we will communicate with our members. Approximately six months prior to conversion, our members will start seeing announcements regarding our core conversion through all communications channels. It is important to us to allow our members sufficient time to be aware of any impacts so they are able to proceed with their daily business with as little interruption as possible.
Upon completion, where will you see immediate benefit in terms of efficiencies, costs reductions, or other balance sheet impact? What about new capabilities or services?
KS: That is a hard question to answer because it is so expansive — really everywhere. Through this conversion, we are automating many processes that previously required manual intervention. We will be able to redirect employees’ focus to new areas, which should show an immediate impact to sales, growth, and net income. In addition, with improved process efficiencies, we should see a significant reduction in personnel costs. We estimate a savings in this area of at least 10-15%.
The members will have new features, such as nicknaming accounts, enhancements to our club products, new product development, receipts, electronic imaging, and more. From the inception of this project, our focus has been on the members’ perspective. Operational efficiency improvements are great, but if the project does not produce tangible and immediate improvements to our member experience, then we will not have realized complete success. However, our post-conversion ability to deliver new products faster and with more features than we have been able to offer in the past is one of the primary benefits that we are confident our members will appreciate.
What is your perspective on data management and the arrival of big data? How can credit unions better use their internal and external data resources?
KS: For our credit union, our conversion will allow us the use all of the data that we have captured with our legacy system but were unable to easily extract into practical and usable forms. We purchased a data warehouse tool, ARCU from Symitar, to aid in this process. Having massive amounts of data is great, but if you do not have the tools required to extract value from this data, then the data serves no purpose except to take up room. We are excited to use this data to help us analyze our members wants and needs and to create competitive advantages for our credit union.
This article is from the 3Q 2012 edition of Technology@CU, available in print, online and in the Callahan Media App for subscribers. Look for this publication, along with your 3Q 2012 Credit Union Strategy & Performance (CUSP) guide, arriving on desks this month.