One of an organization’s most powerful tools lies in its understanding of how and why to benchmark financial performance. However, the statistics that indicate whether a performance is good or bad, above average or lower than average, are meaningless without context. For example, a fictional $600 million credit union with a 0.00% year-over-year change in its average member relationship might appear to be performing poorly or stagnating. But in comparison to its asset-based peer group, which posted a -1.49% change in average member relationship, a steady member relationship doesn’t seem like a poor result. In fact, it shows the credit union’s performance is slightly stronger than average. Context is key.
4 Ways To Benchmark Credit Union Performance
How To Personalize Your Benchmarking Strategy
Financial institutions benchmark their performance to obtain statistical context. It’s not enough to know the numbers. Credit unions need to examine their numbers against a backdrop of peers as well as their own historical record. Yet benchmarking against peer and industry averages can be stultifying. Another point of benchmarking is to evaluate the institution against the top 10% or 25% of a related peer group. To be the best, compare the institution against those who are the best.
Benchmarking, specifically through the use of balanced scorecards, can help institutions organize and track specific goals. And because there are many areas on which a credit union can focus, balanced scorecards are useful in linking an institution’s long-term strategy to its short-term decision-making.
Here are four things credit unions should consider when building a balanced scorecard.
At the broadest level, credit unions have three fundamental stakeholders affected by the day-to-day processes of the credit union: members, employees, and the institution (though one could separate institution into its financial and operational components). Balanced scorecards are a useful tool to track and grade an institution on how well it provides value to each of these groups.
Members are the owners; they drive the financial fortune of the organization. Providing value in the form of low rates, attainable credit, and customer experience helps keep them and their business with the institution. Tracking the percentage of members who use the institution as their primary financial institution is a good indication of member value.
Employees run an organization. They do the work and expect certain things in return — money, respect, constructive co-worker relationships. Meeting these expectations boosts employee satisfaction, and high satisfaction improves employee performance. Credit unions can track employee engagement and productivity on the balanced scorecard, as hard, focused work often indicates employees see value in what they do.
Assessing the value the institution provides to itself can be more difficult. However, measuring products and operations that differentiate the institution from its direct competitors is one way to do this.
Credit unions with a firm grasp on who they are, whom they serve, and what they value are better positioned for success than institutions that do not. For example, whether an institution has a community or closed charter will affect the metrics it tracks. When benchmarking, it’s critical to consider the membership base as well as the mission statement, and tailor the balanced scorecard to the institution’s business strategy.
A SEG-based credit union provided the following scorecard to Callahan & Associates. In the first year the credit union used this scorecard, its primary goal was to achieve organic growth through SEG penetration. It wanted to add new members and deepen relationships. The credit union identified four variables related to SEG penetration and chose corresponding statistical measures to benchmark how successful it was at moving those variables from its baseline performance to two target performances. This credit union’s clear understanding of its corporate strategy as a SEG-based institution was instrumental in setting and measuring concrete goals for growth.
Strategic Plan And Outcomes
To develop a balanced scorecard, it is important for an institution to understand who its stakeholders are and what its business plan is. Just as important, it must have a firm grasp on its strategic plan to ensure every goal on the scorecard is working toward a common vision.
Credit unions should regularly track those elements of the strategic plan it believes are most important to the plan’s execution. Institutions often look at the more fundamental parts of the balance sheet — such as membership gains, total loans, total shares, and net income — to set its own goals, or outcomes. These goals are subjective. An institution should be confident that the outcomes it tracks make the most sense for its individual situation.
Credit unions should set specific, measurable goals to more easily determine their overall performance. Mainly, these goals should translate into financial results. Because the balanced scorecard publicizes institutional goals to the entire organization, the choices should be easily understandable by all employees. Both front-line and back-office staff should know exactly what it is they are working toward.
Occasionally, the balanced scorecard encourages creativity in goal setting, especially in non-traditional areas of the balance sheet. The following two examples of real credit union balanced scorecards illustrate this. The first scorecard includes two creative goals: “attract, develop, and retain the best talent” and “consistently exceeding member expectations.”
The second scorecard is composed almost entirely of non-traditional outcomes. This credit union put a creative bent on its scorecard and linked intangible ideas with tangible metrics.
Metrics And Goals
Once a credit union sets its goals, how does it determine which metrics are most useful in tracking success or failure? Shaping metrics to fit goals is one of the last steps in constructing a balanced scorecard, it is also one of the most important. This is the step where institutions decide which micro metrics will help them achieve macro goals. For example, to track organizational awareness, a credit union might look at employee volunteer hours, the number of employees who spend time in the community, or brand recognition survey scores.
In addition to choosing a metric, credit unions must also determine how to grade their performance. After establishing a baseline, a credit union must determine how much improvement it expects and how much improvement it wants — what is a great result, what is good result, what is an okay result, and what is an acceptable result? If a credit union can pinpoint these figures, then it can better plan steps to meet and exceed them.
A final note on setting goals and constructing balanced scorecards: These metrics apply to all employees. Everyone at the credit union is in some way responsible for the performance of the institution, and it’s important to maintain the same level of consistency and accountability for all employees. So share results. Bring employees together, discuss the metrics, and suggest ways everyone can and should contribute.