Throughout the book we work through an ongoing story of an actual Enterprise-Wide Change situation. There will be a page(s) at the end of each Chapter detailing the Ideal Chapter EWC Activity Sequence compared to reality. The Activities are applied in a practical way to see the messy reality vs. the Ideal of this book.

The case is a medium-sized, USA east coast credit union. We will call it East Coast Federal Credit Union, ECFCU for short, as it is an ongoing, actual case. It will serve to illuminate a more comprehensive example of Enterprise-Wide Change and to tie the entire book together in a practical way. While ECFCU itself is disguised, the pertinent facts in this story are accurate. It is a multi-year story of a real multi-year transformation of an enterprise from near bankruptcy to a viable future.

A credit union was chosen as a universal case because credit unions are a worldwide movement. They are nominally in the not-for-profit sector and publicly regulated. Yet because they must be profitable with reserve capital, it is easy for the private sector to relate to this story.

However, credit unions are also in highly competitive marketplaces, competing against all types of for-profit financial services firms, including local, community and multinational banks, non-banks and insurance companies (and even possibly Wal-Mart).

ECFCU has multi- state, retail service branches providing a full range of consumer financial services, including checking, savings, ATM, credit cards, certificates of deposits, and loans of all types such as home mortgages, seconds, car & boat loans, etc.

They are organized in a typical functional structure with a CEO, COO, and VPs of Operations, Finance, HR, Loan Origination and Marketing (an open position).

ECFCU started many years ago to support a major corporate sponsor. They grew steadily under the leadership of a long-term CEO and a very uniform and stable board of directors.

However, in the mid 1990s, they got in deep trouble and in danger of going bankrupt.

• Their sponsor moved out of the geographic region they were in and merged with another organization
  
• They had an Information Systems outsourcing contract with IT International (fictitious name) that was too expensive and had prolonged downtime
  
• They outsourced their car loan originations and servicing to CarLoan, Inc (fictitious name) with disastrous results, including high delinquencies and charge-offs.
  
• Expenses were out of control and no real plans and budgets were in place.
  
• Their Supervisory (i.e. Audit) Committee was only minimally functioning and the board was passive and submissive to an autocratic CEO
  
• Market share was minimal and many customers were paycheck cashers only
  
• By the late 1990s, ECFCU was losing money with no EWC Game Plan for recovering.
  
  
  

By early in the 21st Century, the CEO was given early retirement, while under a serious investigation. The Federal regulatory examiners (National Credit Union Administration-NCUA) were deeply involved, had issued a “Cease and Desist” order, and were prepared and willing to take over ECFCU if necessary. The brand new VP of Operations was selected and thrown in as the next CEO.

Activity #1. The CEO quickly evaluated the situation and, in June, called the authors for help. Initial scouting revealed serious problems. After intense author-CEO discussions, they met with the Board Chairman. The Chairmen agreed, with reluctance, to undertake an Enterprise-Wide Change process that the NCUA agreed with and supported. At that point Smart Start began.

Activity #2. A one-day Plan-to-Implement offsite for senior management was conducted in July. A Critical Issues List was developed regarding what was facing them. Their regulatory Rating Code was a 3 (on a 1-4 scale, 4 being a take-over by the NCUA). A #3 had resulted in a PCA (Prompt Corrective Action), an official letter, as they were failing and did not have a Game Plan to reverse the situation. The only reason the NCUA had not given them a #4 was their budding confidence in the new senior management team and the initial small progress that was being made. Senior management recognized the reality of the situation and was determined to persevere and succeed.

Activity #3. Systems Thinking was introduced during the Plan-to-Implement Offsite above, as was the ABCs of Enterprise-Wide Change Model. It was agreed they were in a survival mode, yet they were in serious conflict with their board over their future direction. What was needed was a new Clarity of Purpose and direction that both groups supported.

In effect, a de-facto Program Management Office was set up with the CEO (due to the firm’s survival situation) and one of the authors as a systems consultant leading it. The CEO needed to devote almost full time to the needed Transformation. The COO would run the day-day Phase I of this Enterprise-Wide Change process that was viewed as Survival. Another consultant and the VP of HR were designated as the Change Consultant Cadre to assist the PMO.

At that time, it was decided NOT to involve the rest of the employees. This would only aggravate the situation. Nor was it time to introduce the employees to Systems Thinking. The KEY issue was board and senior management agreement to restructure and transform the credit union into an entity that had a chance to survive.

Activity #4. It was decided a two-day retreat offsite with management and the board was required. The goals were:

To both build the relationships and define the Clarity of Purpose and

Define and decide the direction to move towards profitability and a sustainable future

The Game Plan had to be jointly developed. People support what they help create. This approach of jointly developing their future was presented, reviewed, and agreed to by the board with the NCUAs’ help at a special board meeting in August.

Activity #1. While Phase I, Survival, and day-day problem solving was going on, the board-management retreat was scheduled. It was to be in a different city so the necessary conflict and focus could be confronted, resolved and a direction established. It was not held until October, reflecting the lack of urgency on the board’s part as they still wanted the Strategic Plan to be a 2-hour meeting, not a focused and facilitated two-day retreat.

Management’s goal was a Phase II Transformation and the next steps were to gain agreement and kick off an Enterprise-Wide Change process. It would first, get them out of their survival mode and then, give them a chance for future success as a viable entity.

Activity #2. In preparation for the retreat, we met with management in September, shared more on the Organization as a System Concept. As a result, the Business Excellence Architecture Enterprise Assessment (Short Form) was conducted with senior management. We developed an Internal Current State Assessment in advance of the retreat. Further, the CFO with the help of the others developed a complete economic set of historical and current documents we called Reality Documents, to ensure the survival issue was clear to the board.

Activity #3. The retreat was held in October. We facilitated an agenda including the EWC ABCs Systems Model, the Critical Issues, and roles of the Players of Change, At the same time, we wove in and honored the history and growth of the credit union, which was extremely important to the board.

A future environmental Scan (Missing Element #1) was also conducted at the retreat. Then, a surprising consensus emerged on the Future Vision. It was decided long-term success must focus on only their one home state (despite three branches in other states). This turned out, in retrospect, to be the trump card in the entire process with the board.

Despite the conflict and disagreements, it ended with an initial Vision and Game Plan, a consensus action plan and an overt acknowledgement, including 5 Points of agreement on that ominous reality. The board recognized that their unprofitably and lack of clear Positioning (Missing Element #2) would not change for the next 9 months—until July of Year Two.

As a result, the board decided to reconsider their Positioning next July only IF the main Consensus Action Plan of 10 key decisions were implemented. If accomplished, these ten key decisions held out the distinct possibility to actually transform the credit union into a new entity.

The board reluctantly agreed to a set of measurable Financial Goals (Missing Element #4) as imposed by the NCUA—in July of year two they must be profitable and have a positive trending. This was necessary to keep the NCUA supportive of the credit union’s effort, even though how to do it was unknown. This List also included a management action to work with the employees to develop a set of Core Values (Missing Element #3).

They agreed to meet and finalize all this in a December board meeting.

Activity #1. In this ECFCU case, assessment is an ongoing process. The Short-Form Business Excellence Architecture Assessment was conducted as part of reaching Clarity of Purpose in Chapter Five. Keeping this Organization as a System framework in senior management’s minds was crucial in deliberations with the board.

However, it was unrealistic to expect the board members (most retired executives) to fully understand the framework and realign their thinking. Their analytic bias was a real problem. They were not holistic thinkers as was senior management. Thus, Failure #1—a piecemeal approach to EWC was a constant struggle. The change, however, did slowly move in the right direction.

Regarding the potential for Failures #2 and #3, the CEO was mostly focused on economic alignment by necessity, as was the CFO. However, the COO, VP Ops, and VP HR were focused on both Economic Alignment and Cultural Attunement, a refreshing perspective.

The board’s main concern was for a group of customers in the other states, not the economics of the situation. This was an unusual reversal of the expected Failures #2 and #3. Management had to constantly show the board that the customers in the other states would have the option to be better taken care of by a larger financial institution—one with more resources and better rates and convenience than ECFCU could do, given their current financial challenges.

The employees in those states would be better off too, a key variable for both management and the board. They would probably get higher salaries and benefits if their branches were sold to a larger financial institution.

Activity #2. Thus, constant business excellence assessments and reviews of the status of the Enterprise-Wide Change process, along with stay-in by the board was crucial.

Activity #3. The CFO constantly developed and updated simple, one page economic documents. They used them to constantly remind the board of the enormity of the situation. He also kept data in front of management and the board regarding the customers being poorly served in the branches in the other states where ECFCU's market share was miniscule. These documents were extremely valuable in every Board EWC meeting as well as in all the management and PMO sessions.

Activity #1. After the board/management retreat in October, we met with management in November. Management confirmed their commitment and resolve Take Charge of Change, their Rallying Cry. Detailed strategies and action plans were developed, and individual accountability assigned. It was now clear on how to successfully complete the Consensus List/Action Plan (their term) of 10 key decisions (A Major Change List) to transform the Credit Union. Innovative Project Teams were formed to focus on each one. Preparation for the December Board EWC Meeting also ensued.

Activity #2. We assisted management in conducting a one-day large group session with key employees, including developing a draft set of Core Values. Senior management finalized these afterwards. The board subsequently approved the Core Values at the December board meeting. There was with no opposition (an unexpected consensus).

Activity #3. In discussions with the Board Chair, the CEO received a clear picture of backsliding by the board members. Entropy by the board was setting in as expected. Thus, senior management and the Program Management Office held another one-day retreat in early December to prepare for the board meeting. Management clarified their thinking and the purposes, strategy and agenda for the upcoming board meeting, keeping the high road in mind at all times.

Activity #4. The December board meeting had six agenda items and purposes that were actually accomplished.

The first objective was to revisit their dire financial situation. This included a list of numerous specific poor board rubber-stamp approvals of prior CEO decisions in the past 7 years (NCUA had already noted these). These decisions were what led to their perilous situation. It was a very difficult facilitation process, to say the least.

The second and third agenda items that followed presented them with a stark set of options and decisions (Choice Points), as there were seven possible actions available. However, six of them would lead to a death spiral within two years. The board chose the only option available—focusing on the future marketplace near their headquarters.

These two tough agenda items above did succeed in setting the stage for approvals of the other four agenda items that followed:

1. The next year’s annual plans, priorities and budgets to carry out the EWC goals
   
2. The criteria to be used in deciding the fate of the branches in the other states—where some board members lived—including one new branch the board had spent millions to build four years before (now worth only 40% of that)
   
3. The process for deciding the future fate of the three branches by the following June.
   
4. A new credit union name that reflected both their heritage and the new state in which they were going to focus and position themselves for long-term success.
   

Note: A name change was in the 10 Consensus Decisions List. However, the board never felt it would happen despite the absolute necessity to reposition the credit union, now lacking its previous sponsor. The COO came up with a new name, America the Beautiful Credit Union (fictitious name). It was so brilliant that the patriotic board members immediately embraced it.

Ongoing Activities. At this point in the Enterprise-Wide Change Process, the new year brought continued losses due to the IT International data system contract and CarLoan, Inc contracts as well as high operating costs. Project teams worked diligently on all these issues. Predictions for the latter half of the year included expectations of losses in most months.

Even as this book is being written, these two outsourcing contracts create a continued financial burden:

• Renegotiation of the IT International agreement is ongoing and a new contract is expected in the first half of next year.
  
• The CarLoan losses are scheduled to be amortized by the end of 2004. There is a fraud investigation and a long-term insurance claim on it to be negotiated, all positive developments.
  

However, some drastic economic change was still called for by June 30th.

Activity #1. The Program Management Office (CEO and Systems Consultant) continued regular contact and coaching by telephone and in person. By February it was clear a one-agenda one-day meeting of the senior management and project team was needed on the Branch Sale Project. It was scheduled for early March. At that meeting, the status of the project was reviewed, adjusted and preparation for the late March board session developed.

Activity#2. The board/management session was held. Once again the board was updated on the EWC plan and the continued reality of the situation. The earlier options were reviewed again as were the criteria and progress for decision-making on the sale or fate of the branches. A commitment to a June timetable for THE BIG DECISION was agreed to.

Ongoing Activities.

By now, there was project team progress to report to the board regarding the new name. These included beginning to expand their main marketplace presence, a move to a critically needed new headquarters building (with a branch) in the center of their focused marketplace, the hiring of a new Director of Marketing to help establishing the new brand identity, and the growing confidence of the regulators. All of the 10 Consensus Actions were completed or actively pursued. A revised To Do List was submitted and approved.

The June board session was scheduled so that the expected Branch Project decision-making could occur on schedule. The explicit, yet quiet, goal of management was that the branches could be sold to a larger credit union for $X million dollars by that time.

That sale of money-losing branches and the infusion of $X capital would put them on a solid Phase III EWC. They would be a new company, with a new name and financial strength, essentially starting anew in their main chosen marketplace and state.

Activity #3. The CEO took the lead in sending out an RFP to a few well-placed Credit Unions and found two who were quite interested in the branches. Discussions ensued.

Activity #4. By the time of the appointed June board meeting, a deal had been struck by the CEO to sell the branches for almost the ideal $X millions that was their goal. The board approved it as they really had no choice. It was a win for the customer (member), a win for the affected employees, and a win for the new credit union. Now they could actually work to acquire a presence in their chosen marketplaces.

Finally, it was a significant win for ECFCU as it immediately got rid of money-losing branches, streamlined costs and provided them the capital to amortize the newly built branch’s excess construction costs over its value. It also gave them the capital needed to begin planning for new branches and aggressive marketplace advertising and awareness of their new brand name. They achieved a Code #2 in the NCUA ratings as a normal and successful credit union. Their capital ratio soared into the proper range and they have the capital to withstand the IT International and CarLoan Inc financial problems.

Recap of the survival and transformation so far:

Phase I, Survival had been achieved over the past 18 months by the changes senior management was able to accomplish in its Enterprise-Wide Change process.

Phase II, The transformation to a new credit union was assured with the sale of the branches and the capital infusion.

Phase III, Future profitable grow was now a possibility on the immediate horizon

Activity #1. It was now time for ECFCU to rebuild their next Phase Game Plan for Enterprise-Wide Change. Senior management met in September on a two-day offsite with the consultants and conducted their Annual EWC Review (and Update). In this retreat they updated their environmental scan, re-confirmed their EWC Vision, and revised their Positioning statement to focus on their desired responsiveness as a competitive advantage in their main marketplace. They now have an opportunity to be the most convenient and responsive credit union in their local marketplace.

They built a balanced set of Key Success Measures, including traditional financials, yet adding goals for customer and employee satisfaction. They also conducted a Current State Assessment, using the Business Excellence Architecture, in order to get a more detailed look internally at their strengths and weaknesses.

They developed a revised set of five Core Change Strategies and Key Initiatives (and another Major Change List) to guide their future profitable growth:

• Technology modernization
  
• Aggressive marketing
  
• Financial soundness
  
• Facilities upgrading, relocation and growth
  
• Employee relations
  

Activity #2. Their newest vision is to enter a Phase IV, Long Term Marketplace Competitiveness, within three years. In October they gained board approval and support for Phases Three and Four.

Activity #3. Next, they must also rebuild and grow their employee talent base to serve their customers, the next daunting change challenge they face (core strategy #5 above). Finally, they are focusing on employees and cultural attunement as a key strategy.

Activity #4. They now know they have just begun the first of many waves of change. The branches’ sale has become public and a set of Parallel Involvement Processes was successfully conducted. Affected customers were also communicated with and responded to on a personal basis as much as possible.

Activity #5. In addition, they conducted a Capacity and Commitment Assessment that revealed the following strengths and weaknesses regarding EWC.

More work is still needed as indicated above. Perseverance through Phases III and IV of the Enterprise-Wide Change process are a must.