Creating a Culture of Data Awareness

All credit unions have a culture, that is, a way of implementing their business plans. Many managers would use the word “service” to describe this environment. Others talk about a sales culture or a trust- or team-based effort.

 
 

All credit unions have a culture, that is, a way of implementing their business plans. Many managers would use the word “service” to describe this environment. Others talk about a sales culture or a trust- or team-based effort.

Sometimes the culture is transferred from the sponsor’s organization, as it is for some airline and military credit unions. At others, managers are making an effort to “transform” their staff through extensive training to a new model, such as a “learning” organization.

Whatever the description of the dominant behavior desired from employees, one common ingredient is present, namely, the measurement of results.

In credit unions, however, these measurements often reflect the outcome at the end of the game, rather than how results are achieved. Moreover, many managers are satisfied if these results (ROA, growth, capital ratios) are average, rather than at the top of the class. This comfort with average outcomes can mean that credit unions may not be using resources effectively to create true member value.

What is needed is a new awareness of the importance of proper measurements at all levels in an organization. A culture of data awareness can be the starting point for lifting a credit union out of the “average performance is OK” mindset.

A Requirement of the Times

In many ways, a competitive economy is constantly forcing organizations to become better or to slowly die as competitors take away customers. So why is data awareness more crucial now, especially in light of the dramatic growth in savings and satisfactory performance reported at the consolidated industry level?

The answer is 0% interest. Credit unions until very recently could rely on the net interest margin to cover all or at least a part of operating expenses. Not only has this margin been heading down over the prior decade, now an absolute floor for the cost of funds exists. As yields continue to fall on both loans and investments, credit unions are up against an irrevocable barrier in decreasing funding costs in line with falling revenues. Future success will require more efficient solutions as margins are squeezed further. Operating expenditures will have to be more productive.

Steps for a New Awareness

A process for creating a new culture of data-driven decisions can start with the following:

  1. Becoming aware of the performance variation for credit unions in your operating class. The variation is often very wide. For example, the scatter diagram below displays the last five years’ capital and asset growth for the 72 credit unions over $1 billion in assets. The difference in annual growth between the lowest to highest performance is over 400%! Two credit unions created capital at a rate in excess of 25% per year while the lowest had an annual compound growth of just 6%. On almost every aspect of credit union outcomes the variation in performance is similarly widely distributed.
  2. Figuring out which measurements to pay attention to so that the outcome is the greatest success. Which should be tracked? Which used to mark improvement?
  3. Naming benchmarks of productive capacity, that is, “throughput” measurements. These are of the likes of: Members served per hour by a teller, telephone volume per member service rep in the Call Center, mortgages processed by an underwriter, and so on.
  4. Being sensitive to the numbers and what they portend. Performance variation suggests that although many credit unions may be operating safely, their longer-term soundness for creating a competitive advantage for members is uncertain. To break out of this performance rut, credit unions must innovate by leaping forward, not just settling for marginal improvements.

Very few credit unions use capacity measures, let alone test whether their distribution systems are operating at satisfactory levels. Where is excess capacity for more projects? Where is there a shortage to which resources can be shifted for increasing production? This kind of analysis is essential to identifying the opportunities for innovation. More efficient processes are the primary way credit unions create greater member value.

Two Examples of Capacity Changes

One firm that specializes in assisting credit unions with branch performance data focuses on transactions per hour per teller. This firm collects statistics monthly and provides scheduling plans that show the credit union how to align teller resources with member need. The firm publishes all participants’ results monthly. For credit unions using this service, the range of transactions per teller per hour runs from a low of 19 to over 40 per hour, or a 100 percent variation in throughput.

With these reports based on a large sample of users, credit unions have the information to set a baseline for change and to target an outcome for best in class.

A second example is the report provided by a third party firm that manages credit card portfolios for credit unions. In one case, for the three years before an outsourcing arrangement, a credit union’s credit card loans grew an average of 3%. The first year with new management, the growth of loan outstandings was 22.5%.

Sources for a Performance Data-Driven Culture

The process looks scientific because of its focus on measurements, but data awareness is really an art. The art comes in choosing which numbers are relevant. What can the credit union “drive” in order to change the outcomes on the scoreboard?

First, look at the quarterly Call Report information. Within the balance sheet, income statement totals and the accompanying schedules are clues about almost every area of production. Some of the measures are generic, and some are specific, including the amount of loans generated and selected activity measures. The first goal is to look outside the organization for a reality check to see what is feasible as demonstrated by other “peer” organizations. If possible, customize these peer groups beyond standard asset grouping to get the best picture of relative performance.

Second, identify the areas for benchmarking — what are the most essential activities performed in the credit union and how is “throughput” for these measured.  In some cases the data may not be readily available, so a user group of likeminded managers may need to be created.

Key measurements may be internally based or externally focused. For example in deploying a new service such as account-to-account transfers, e-statements or enhanced home banking, what are feasible penetration rates for member use?

Finally, the greatest change may occur not from internal process improvements, but from cooperative solutions. Extra capacity and new efficiencies may require greater scale or resources than a single credit union can muster. Innovations in back office processing, setting up indirect lending networks and even Call Center fulfillment require cooperative approaches to reach new levels of cost efficient delivery.

The Key to a Successful Culture

Changing the way an organization thinks about itself begins with measurements. With a culture of data awareness, a platform for discussion is created, statistics can be used to track execution, and comparisons can become much better attuned to external realities of competition and opportunity. Using the right data is not the end point, but rather the foundation for every effective performance culture.

 

 

 

Aug. 18, 2003


Comments

 
 
 
  • Very thought provoking.
    Anonymous
     
     
     
  • A timely message for our credit union
    Anonymous
     
     
     
  • Thanks, I want my management team to see this.
    Anonymous
     
     
     
  • Good article on the importance of measurement and awareness of results to ensure success.
    Anonymous
     
     
     
  • I am a Research Analyst for our CU, providing stats and analysis for branch operations on the branch and individual level. This article is so telling of the realities of effectively running a much better than average successful CU.
    Anonymous
     
     
     
  • The article reads like an advertisement for consulting services. Typical of consultants,it doesn't give you enough examples of measurement. So you can'tt really say this is news you can use.
    Anonymous
     
     
     
  • Right on the money! Not only raises the issues, but puts forth solutions and implementation thoughts, i.e. resources outside of the C.U. itself.
    Anonymous