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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Episode 337 On Fractional and Temporary Executives and Musing on the Intricacies of Mergers-- O2 to the Rescue
If I say a temp worker, probably you think of a fill in receptionist and that’s true as far as it goes. But talk with O2 Consulting Group and it’s a plunge into a whole new world - especially impacting smaller credit unions, ones under perhaps $500 million in assets. Where exactly does that CU find the talent to, say, implement an AI program? Just maybe a fractional e CTO - shared by two or more CUs - or a temporary exec is exactly the cure.
Enter Bonnie Ortiz, CEO of O2 and longtime COO at the Partnership Credit Union, She’s worked inside at credit unions - she knows the terrain - but now she also has assembled a team of seasoned credit union talents who are available for fractional and temporary roles at credit unions, to help solve anything from tech issues to compliance matters.
It’s a fact: credit union operations have become increasingly complex. The day of the shoebox credit union is long gone. Real talent is needed but that talent may be too costly for a smaller CU. The O2 solution is a potential lifesaver.
Also on the show is David Martinez, CIO at $500 million Arlington Federal Credit Union, a credit union that has used O2 talent many times. Martinez is a happy customer.
He’s also a past guest on this show. There a link in the show notes and the topic is about how mid sized CUs can survive, indeed thrive.
Keep listening to this episode and Ortiz offers keen insights into the nuts and bolts of a credit union merger. She’s looking at the issue with a COO’s eyes: how exactly will this merger work? The concerns she raises are keen. . Any CU considering a merger - and who isn’t? - needs to give this a close attention.
Listen up.
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Welcome to the CU2.0 podcast.
SPEAKER_03:Hi, and welcome to the CU2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillo, the real-time loan syndication network for credit unions, and by your host, longtime credit union and financial technology journalist, Robert McGarvey. And now, the CU 2.0 podcast with Robert McGarvey.
SPEAKER_01:If I say temp worker, probably you think of a fill-in receptionist, and that's true as far as it goes. I'm going to talk with O2 Consulting Group and as a plunge into a whole new world. a world that's especially known to smaller credit unions, ones under perhaps$500 million in assets. Where exactly does that CEO find the talent to implement an AI program? This may be a fractional CTO shared by two or more credit unions, or a temporary executive is exactly the cure. Enter Bonnie Ortiz, CEO of O2 and longtime COO at the Partnership Credit Union. She's worked inside a credit union. She knows the terrain. But now she also has assembled a team of seasoned credit union talents who are available for fractional and temporary roles to help credit unions solve anything from tech issues to compliance matters. It's a fact credit union operations have become increasingly complex. The day of the shoebox credit union is long gone. Long, long, long gone. Real talent is needed, but that talent may be too costly for a smaller credit union. The O2 solution is a potential lifesaver. Also on the show is David Martinez, CIO at$500 million Arlington Federal Credit Union, a credit union that has used O2 talent many times. Martinez is a happy customer. He sings the praises. He's also a past guest on this show. There's a link in the show notes, and the topic is about how midsize credit unions can survive and de-thrive. Credit unions like Arlington Federal. Keep listening to this episode and Ortiz offers keen insights into the nuts and bolts of a credit union merger. She's looking at the issue with the COO's eyes. How exactly will this merger work? I've done many shows about mergers. I've never heard anybody with this perspective. It's crucial, it's valuable, it's important. The concerns she raises are keen. Any credit union considering a merger, and who isn't today, needs to give this a close attention. Listen up. So we're going to talk about O2. We're going to talk about fractional executives, which appeals to me a great deal since many credit unions with assets under, say, pick a number, 500 million. I don't know. It's really have gaps in the talent that they have. And there's a$250 million credit union actually need a full-time CTO. Probably not. So they need one from time to time. Oh, you betcha. So how can you patch these gaps?
SPEAKER_00:Yeah, Robert, I guess where I would start there is O2 has noticed for a long time that these size credit unions are really are missing out. And when you talk about a CTO, in particular as a fractional executive, so important when you're building on these big complex projects like converting a core or converting from one card processing organization to the next or deciding on ATMs versus ITMs. They need that CTO so critically to help them lay the foundation, strategize on where they should go, how they should go, what they should purchase, give them some opportunity to see options, and then leave them with a blueprint. you know, a roadmap and then they're done until they're necessary the next time. And as far as I'm concerned, that's exactly the way we approach it. As the O2 CEO, my responsibility is to ensure that the clients get the value for what they need most. And we try to meet them where that need is most painful and to bring to them the best talent that we can, whether it's a CTO, a COO, you name it. to ensure that they're getting a return on their investment.
SPEAKER_01:David, what's your perspective on this?
SPEAKER_04:Yeah, I absolutely agree with everything that Bonnie said. And one of the things that we've really appreciated about O2 is their ability to really package at the end of whatever finite initiative they're in for and hand it off. There's been a lot of value in that. And then it's honestly been addictive, which is why we've been using them for years and years. in various capacities. In addition to coming in for those finite initiatives, we've had the CTO position through them on a recurring basis year after year, because for me, even at 500 million, I've got a few hats that I wear and having that extra individual in here and not only bringing his decades of credit union experience, but the best practices from the other clients that he's working at, the partnerships and connections that they have with other vendors, and familiarity with systems has just really allowed us to move faster than I'd be able to do on my own.
SPEAKER_01:And my sense of you was that your title was a placeholder and that you did multiple tasks. The title seemed to pigeonhole you in one place, but that wasn't really descriptive of what you were doing. And you basically just confirmed that.
SPEAKER_04:Yeah. Yeah, as CIO, I'm responsible for what you'd be familiar with a traditional CIO being responsible for as far as the technology stack. I also have our core processor under me and the team that's associated with that, all the peripheral systems, and then our risk management department. So everything compliance, vendor management falls under me as well.
SPEAKER_01:Interesting. Now, the first time I heard about fractional executives and credit unions was a guy whose name I'm blanking on, who was CEO of I believe two different credit unions in the state of Illinois. Smoked. And everybody seemed perfectly happy with this because neither credit union was big enough to pay what he wanted. Put them together. He was happy. They were happy. Did he really need to have 50 hours a week at each one? No. Another case I heard was a guy was making a pretty good living as a collections agent were four different Southern California credit unions, neither of which could really afford to pay what he wanted, but he was happy and he was apparently doing very good work.
SPEAKER_00:And we've done that also, Robert. We have a very experienced woman on our staff as a senior project manager who has a tremendous amount of collections experience that goes back years and years, having supported numerous clients. And she currently provides that. collection support to two different clients. And they're just happy because their delinquency rate is not high enough to demand a full-time person. Their size doesn't demand a full-time person. And yet they still want to keep that under control. They don't want to have their expectations not met or the board's expectations not met.
SPEAKER_01:And I remember one CEO of one of these small credit unions said that before using this person, they had basically said to a loan officer, I want you to make this collection call. And the loan officer said, hey, Mike, I make loans, man. I don't collect
SPEAKER_00:loans. Yeah, not a good
SPEAKER_01:man. I don't want to make this call. And I think she made him make the call and then realized this was a bad idea for all concerned.
SPEAKER_00:You know, Robert, there's another area that I thought would be interesting for us to explore to see how David feels about this as well. But often we find that credit unions coming to us because they found themselves in a situation where a key person in an executive or senior management role has left maybe they've decided abruptly to retire or you know maybe there's been an illness or for some other reason they're left with a key position that they need to fill and want to fill but they obviously don't want to fill it too quickly because they want the right fit they want the right person with the right skills the right competencies the right cultural mix. And they want to be able to take their time in doing that so that that long-term person is able is the right one and so being able to reach out to an organization like O2 and get individuals to be able to come on for shorter periods of time or for the length of time that you feel that you're going to need them and then to stay through that transition helping you actually kind of network to find that person helping with the interviewing process and then you know helping with the transition to get that person on board and then vacating that role and turning it over to you know the longtime W-2 person. And I see that more and more, especially in situations where succession planning has not been a focus of the smaller or mid-sized credit unions.
SPEAKER_01:Hey, one reason for merger of small credit unions is the CEO abruptly retires or dies and they can't find anybody else who wants the job. So it's very sad that that The board has looked and no one else wants the job, particularly at the salary that former CEO was getting. So let's merge it out. David, what do you think about that?
SPEAKER_04:Well, that approach actually worked out very well for me because I don't know if you're aware of this, Robert, but O2 preceded me at Arlington Credit Union. Bonnie and John came in in exactly that situation. Arlington had lost their CIO and wanted to take time to evaluate the position redefine it and then go for a search. And Bonnie and her team came in, they plugged in, they more than kept the wheels on the bus. Candidly, when I came on board, there were some pretty major IT projects that were underway that were actually completed just before COVID hit and allowed Arlington to be incredibly nimble when we had to all make the quick jump to the fully remote environment. So I'm very grateful for what was handed off to me at that time, but also the opportunity it gave our CEO to evaluate the market and fortunately, ultimately pull me in.
SPEAKER_01:Bonnie, how long were you in that position? How long was O2 in that position at Arlington?
SPEAKER_00:For Arlington, oh, several years to begin with, because Robert, what we first started with was an opportunity that was really largely a project management opportunity. They were looking at their current in-house capabilities and their managed services provider and looking to switch. And so they were looking for somebody who could project manage the entire initiative, work with both vendors, you know, try to work with the internal team. And of course, as David said, when that first started, he wasn't really in that position. And so John Zaglin, who is O2's CTO, took over in that capacity. And then I ran the overall project. And that lasted more than a year. Following that, and just at the back end of that, I believe, kind of simultaneously, we started a project to look at their infrastructure, replace you know, the computers at the desktop and really evaluate the difference between using a virtual desktop and, you know, and a regular standard desktop. And that was prior to COVID. And I still remember Karen Rosales telling us after that whole project was done that when COVID hit and they were so ready to be able to take everybody home with, you safety and security behind them, knowing that that project was finished. So we did that project as well. David was on board then by that time. And we were able to split up responsibilities and move forward to get that finished. And then lastly, we managed the telephony project when they switched over to their new telephone system. That was managed by us as well. John stayed on board for that. and acted as David's primary sort of manager, if you will, in that situation and worked side by side of all of the individuals in the main headquarters building and the branches to be sure that before we walked off that job that they were all operating and that the members were being served. So we were in that dual capacity for probably two and a half years, maybe a little bit longer than that. And then The project management efforts were turned over to someone internally. And John stayed on in his capacity as fractional support for David on the IT side. And he is still there.
SPEAKER_01:Wow. Now, have you done any fill-in CEO gigs? And I asked that. I know a guy who specialized in that. He did fill-in medical device companies.
UNKNOWN:Wow.
SPEAKER_01:And usually the incumbent CEO had been fired rather abruptly. And this guy didn't want the job permanently, but he was happy to take the job for six months to a year. And he did that from a number of companies.
SPEAKER_00:We have not currently been asked to step in in place of a CEO, whether that CEO was being moved aside because NCUA felt that there needed to be other management or that CEO was either asked to leave or left on their own. But what we have done is to support credit unions that are going through some difficult times with NCUA, also in some merger situations where the CEO of the end The incoming credit union decides halfway through the conversion or the acquisition that they don't really want to be there. And so I have stepped in and helped to assume that responsibility while managing the merger or managing the initiatives, especially on the IT side, where things can get pretty dicey with NCUA if you're not really toeing the line and have been that support arm to the CEO. I do have several credit unions right now that are small that utilize me to report out to their board. So in one case, I act as the acting IT VP for MoneyOne Federal Credit Union. And in that capacity, my responsibility is to ensure that I report to the board on a quarterly basis. that anytime there are initiatives for remediation, especially those remediations that could cause heartburn, that I am the one that is reporting to the board, obviously supporting the CEO, but not necessarily taking her place.
SPEAKER_01:Tell me about, quote, managing the merger. I've done many shows on mergers, mainly from the perspective of the people who put the deals together. And they're just waiting to cash the check, essentially. And nothing wrong with that. But they don't get involved in cleaning up the dishes after dinner.
SPEAKER_00:Yeah, I clean up all the dishes, Robert.
SPEAKER_01:Right. Tell me what's involved in that. This is a new
SPEAKER_00:tactic. Well, I have had a great deal of experience in mergers previously. probably because I lived through one at the credit union or three, I should say, David, at the credit union where I was the chief operating officer for just a little bit more than 10 years. And so I have done everything from helping the CEO to strategize on the documents that have to be examined and sent to NCUA to request that a merger be reviewed and approved or disapproved. I have been included in all of the due diligence activities where I either lead that create a playbook from which they can then distribute to the various business owners who are going to be looking at departments and documents and so forth for the incoming credit union. And then moving on from there to once the merger has been approved to actually setting up all of the project plans. And we use something I call a playbook. So I set up a playbook for the master merger as well as all of the other ancillary projects that are going on around it, like the technology conversion, the people portion of it, the card activity, et cetera. So I did several of those with the credit union that I belonged to before I formed O2. And then after coming out of, you know, that umbrella, I have helped with several mergers with other clients. One of them is, you know, Paho WHO, who brought in Georgetown University Federal Credit Union several years ago. And we managed that from the time at which they had completed their due diligence all the way until they finished up the sort of cultural intersections that need to happen and all of the post-mortem activities that are associated with making sure that everything is balanced correctly and all the various departments are working the way that you would want them to as one team and not looking at themselves as two separate teams running two separate systems.
SPEAKER_01:What's the hardest part of a merger that people don't think about until they're in it?
SPEAKER_00:I think the devil is always in the details, Robert. And a lot of times organizations come at a merger at the very high level strategic place and they don't dig deep enough into the tactical side. to really know what the risks are that they could be facing and then build mitigation strategies around them. So I think the hardest part of it is getting people to really look at the details, make sure that they have a plan for everything and that they have identified the risks, especially when due diligence activities are only as good as the amount of effort that you put into them. And often you are rushed, you know, through that activity. And so you're ultimately going to find things, you know, so as you get into the merger, the implementation portion of that, you're going to find things that, you know, you wouldn't have expected and you have got to be ready to pivot. and to make sure that you're not missing your deadlines, you know, to bring up those areas, especially your general ledger, your, you know, your accounting side, making sure that your loan portfolio is in place, et cetera. I would probably say that the second most difficult part of it is data mapping because you're working with vendors and not always is the core part for the incoming credit union the same as the core for the acquiring credit union. And that whole data mapping exercise and the navigation and collaboration that has to go on between those two organizations, those two core organizations, is phenomenal. You absolutely need to have somebody who can get in there, understand what is going on, and get them to work together. Because deconversions and then conversions into the other system can be fraught with problems if that data is not mapped effectively.
SPEAKER_01:Right. Basically, it's like doing a core conversion when you're not planning to do a core conversion. Yes. It's... Huh. David, do you see any potential problems with fractional executives?
SPEAKER_04:Any potential problems? Not that I have specifically run into other than wanting more of their time. But no, it is a trusted partner that you have there that is able to fill in. What's beautiful about it is just the elasticity that it affords us. We often feel that we've got more opportunity than bandwidth, and it's one of the best tools that we have to solve
SPEAKER_01:that. I assume the answer to this is absolutely yes, but I'll ask it anyway. Is it cost-effective?
SPEAKER_04:It has been. Absolutely. And we look at it with that eye, obviously, about whether you're looking at it from what would it cost to have someone in full time if we don't have full time work? Or if you look at it from the opposite side of what is the cost of delaying some of these initiatives that we're able to do with this individual in this spot? And oftentimes, whether it's reputation or delaying a lot of times, savings or income that are going to more than offset what that body is costing us to complete it. It has absolutely been a value positive initiative for us.
SPEAKER_01:And Bonnie, how do you price these things? I know it's case by case, but philosophically, how do you approach pricing?
SPEAKER_00:It depends on the... extent of the contract so obviously you're going to scope you know the work what is it that you want done do you want support for in the managerial area or just in the technical straight up you know strategic or tactical area so scoping it first and making sure that you understand what the needs of the client are and then looking at the level of effort for how much time uh Does it take to actually get those things done? So David and I, for example, when we sat down to initially scope out the work that was required, it's at a little bit more of a strategic or general level. And then John gets involved with David in once the decisions have been made to continue into the next year. And they put together a much more detailed statement of work that ensures that the level of effort that has been concentrated and the block of hours that have been purchased are sufficient. And that if they're not, that you have an amendment in place that can allow that to go forward if approved. Or in the opposite direction, I think that we are very flexible in saying that if you don't use all the hours, then we can either carry them over to the next year or we can return you a credit. So that's sort of philosophically the way I approach it. But obviously, it always comes down to down to an hourly rate. And that hourly rate, you know, multiplied by the hours that, you know, you want somebody. Do you want them eight hours a day? Do you want them six hours a day? Do you want somebody that comes two full days in a row? Or do you want to split those, that equivalent of two days across a period of time? But always, if it is a long-term contract, so if someone says to me, I need this person and I need them for six months or a year. If I can accommodate that and they are willing to sign that contract upfront, then I will typically provide a discount to that rate because I'm guaranteed that that person is gonna be in place. And it also guarantees the client that they're gonna get that same person. And to that, I would also add something that, you know, to what David was just saying a little while ago, I think the cost effectiveness of this is also in that you can often bid a blended rate. Meaning there are times when David needs the absolute top-notch expertise of somebody with a CTO's skills and competencies. And other times he needs somebody who is maybe a mid-level person. And so when you can offer, you know, a rate that is blended, now that client can draw on that organization's expertise and get what they need when they need them and continue to trade off in that. Right. Most small organizations, especially those that are in the 100 million to let's call it 500 million range, they can't afford to bring on a CTO, a CIO, a senior person, and all of these other mid-level people. So having an organization that can give you exactly what you need at the time you need it to trade off at these various levels allows you to get a better rate. You get a better rate, you get a better product, and you get the right person for that task.
SPEAKER_01:Are there assignments you would turn down? You'd say this is really beyond our competency.
SPEAKER_00:Oh, absolutely. I would never take on. Well, first of all, have I ever turned one down? No, I have been lucky and blessed enough that I have not had to turn one down. However, if there were something that came across my desk that I didn't know how to do or I didn't have a person that knew how to do it or I couldn't gain that expertise quick enough to support that client's needs, then I would absolutely turn it down. The reputation of the organization is too important. And the client's needs are too important. I wouldn't want to fail in that. So yes, I probably would turn it down. I think the other reason that I might turn a project down, Robert, is if the client really just has such a bare bones budget that they cannot afford the level of expertise that we have, even at the basic level, then at some point, you know, it's about profitability to the organization. So I have to be reasonable, you know, about that. So my philosophy is when I come to the table with a client and I always view them as partners, I will ask, You know, what were you thinking from a budget perspective? So that I know your floor. You know, I know, you know, hopefully the ceiling at which you're going to go to. And we can meet somewhere in the middle. Because I think that's important. You know, even when you're hiring a W-2 person, it's nice to know what their expectation is for a salary. Because if they're talking$150,000 a year and you've got 50 to spend, then the time that you're wasting on interviewing that person is just that, time wasted.
SPEAKER_01:Now, there are thousands and thousands of credit unions in the small credit union target market. It's funny, we talk about credit unions and we spend so much time, I spend so much time talking about ones that are a billion dollars and bigger. That's just a tiny slice of credit union land. Of the many thousands, how many do you think are using fractional executives? I mean, I think the answer should be probably 100%. But how many are using
SPEAKER_00:it? Well, that's a very good question that I don't have an exact answer for. But I would tell you that I think that it is probably a lower percentage than what you might think. because I think it's something that is just coming now into vogue. I think as smaller credit unions and even mid-sized credit unions are struggling to not just survive but thrive and that Don't want to merge or don't feel that they need to merge. It is becoming more important that they look for ways to be able to do innovative things, those very critical initiatives done, and As a result, they're looking for ways to do it with the best talent they can find, but at the lowest cost that they can get. And so I think it's getting more prevalent. I think these kinds of podcasts and educating the credit union community that this is a way to go and also beginning to get the word out that it works. So I loved having David join us today because... Until you can hear from a credit union that is doing it and has done it and has experienced, has had a good experience and has experienced value, then that word isn't going to spread. And small and mid-sized credit unions are also a little risk averse because they don't want to jump off of a bridge. As you said, Robert, David, what have you experienced or maybe what are the negative aspects of bringing on a fractional executive and, you know, not having experienced any, that word of mouth is the best marketing that you could get.
SPEAKER_01:Yeah. Well, you know, you say this is a relatively new form of working. And as I was thinking about the conversation we're going to have, I remember that many years ago, probably 30 years ago, a long time ago, I was stumbled upon a national firm that provided basically part-time CPAs for small businesses. Now, this was just that one function, CPA. And the small business had a bookkeeper for sure, but said bookkeeper did not have the skills of a CPA. So what if you needed a CPA one day a month, this search? Fine, we'll send one down. And that is a highly specialized skill, I'll agree. But Companies were happy opening up their books to this person, which is interesting. So it is accepted for certain skills that part-time is plenty good enough. Fractional is plenty good enough.
SPEAKER_00:One thing I would add to that, Robert, is having been in the credit union industry for some time now, the culture of credit unions is unique, right? It's wackadoodle. It's wackadoodle.
SPEAKER_01:As I tell small fintech startups, one thing you have to understand is a credit union is a cult. It's a cult. It's a four-letter word. And as they come back and they've met with a few credit unions, they say, you're right, it's a cult. I don't say that as a malignant thing, but you have to understand how they talk, how they think. A person could come into... Arlington credit union and be so abrasive and credit union style. David would ask, David's a very polite, mild-mannered guy. He'd ask him to leave after an hour.
SPEAKER_00:Yeah. And, and, you know, where I was going with that was that they want their own. And so when I, created O2 Consulting Group, I was very careful to ensure that I brought the best talent who across the credit union knew their stuff, you know, because that's what you need. I think some credit unions may be fearful of bringing in part-time help or fractional help, as we're discussing today, because many of the people that they might get coming in from just other for-profit organizations are not necessarily aware of the way credit unions operate and the culture that surrounds them. So I think that's another important factor is that finding that kind of culture service available in credit union service organizations or other consulting firms that focus completely on the credit union industry is important, especially at the smaller size.
SPEAKER_04:I totally agree with that. The culture mesh that we find partnering with O2 is tremendous. And Robert, I'd also offer this perspective. We were talking about how many credit unions are currently taking advantage of fractional executives. And that number may be lower than one might think. But our industry has always thrived through resource sharing. And there's so many examples of CUSOs out there that I would venture to say the majority of credit unions are participating in some form.
SPEAKER_01:And this is just another form of
SPEAKER_04:that.
SPEAKER_01:Core systems, from core systems to digital banking, they're using CUSOs. Exactly. as their vendors, in part because a lot of the other vendors don't want to deal with them. But they're getting good service from those CUSOs. Now, CUSOs are a secret sauce of credit unions. It took me a long time to figure out how important they are. So that's a good point you're making, though, that that is shared all along. Got to remember that, Bonnie. You can use that.
SPEAKER_00:Yes, I intend to.
SPEAKER_01:Before we go, think hard. about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we're trying to figure out here in these podcasts is what's next for credit unions. What can they do to really, really, really make a difference in the financial scene? Can't all be mega banks, can it? it's my hope it won't all be medical banks it'll always be a place for credit unions that's what we're discussing here so figure out how you can help get in touch with me this is rj mcgarvey at gmail.com robert mcgarvey again that's rj mcgarvey at gmail.com get in touch we'll figure out a way that you can help we need your support we want your support we thank you for your support the cu 2.0 podcast