Recently a group of credit union managers and consultants discussed the concept of productivity and its measurement in credit unions. What did the term mean? How could it be managed? What are strategies for implementing productivity gains?
The recent slowdown in credit union trends is fairly clear. ROA is declining, margins are compressing, expenses are taking a larger share of revenue and both loan and share growth are more difficult to achieve than in the 2001-2003 years.
One indicator that not all credit unions are meeting the market’s challenge is the fact that 4,693 reported loosing members in 2003. These credit unions managed 23 percent of the industry’s assets. Their members are voting with their feet; the credit unions are not providing sufficient value to retain their business.
Some might reply that those loosing members are primarily smaller credit unions. But one participant countered that because more than 12,000 credit union have disappeared over the past 15 years, all the small credit unions are gone. “What is small today is us.”
Even if the decline is predominately in smaller organizations, that does not mean the need for member value is any less valid. These “smaller” credit unions may just be the canaries in the coalmine for the whole industry.
What Moves You to Action?
At this symposium a process was developed to think about and identify opportunities for productivity improvements. The core concept is that productivity is about managing throughput. Finding and measuring activity such as members served per hour by tellers, loans processed per day, ATM volume, calls handled by operator per session and so forth is crucial for managing change.
The following model (see chart below) was proposed as a way to identify potential opportunities that exist for improvements. The model first asks what are the critical indicators of throughput in the credit union. The second step is a common sense test, what are physical signs of queuing such as loans waiting to be processed, members in line, calls on hold etc. Do the queues suggest there is a production constraint (not enough processing capability) or that there are under utilized resources such as tellers waiting for members to arrive?
Finally what measures of activity would motivate you to act? For example if one credit union served 27 members per teller hour and your credit union averaged 17, would that difference cause you to want to make a change? Productivity is about the numbers that would make a management team want to change something—to reduce or increase capacity.
Great Landing, Wrong Airport
Success in improving a credit union’s productivity requires the commitment of the leadership team. Productivity as a management priority is urgent not as end itself, but as the basis for creating superior member value.
At the meeting one credit union shared their approach to communicating the superior economic results for their members. Their average member balance was $27,000. Each month the credit union calculated the financial benefit that a household received via the credit union versus a market average of competitor products. The credit union’s goal was to deliver at least $300 higher value each month.
To present this advantage the credit union was building a calculator that would provide each member their historical economic gain from using the credit union since the time they joined.
The cooperative model promises a better customer benefit because we do not have to pay an owner’s dividend. Productivity is the best way for credit unions to deliver on that promise.
Often credit unions will describe their advantage as superior service or greater trust. These goals are certainly positive, but are they sufficient to make a difference in a consumer’s choice of financial alternatives? Without a productivity focus, credit unions could be making the novice pilot’s mistake of a great landing, but wrong airport.
The full text of this article originally appeared in the May 2004 “The Callahan Report.” For more information on this monthly report, click here.