Excerpted from Callahan's
Credit Union Report
way to describe a credit union is by the work that the organization
does. A credit union takes in savings and makes loans, or runs branches
or provides exceptional member service. These tasks are mostly carried
out by credit union employees. The business challenge then becomes
identifying and developing these core competencies better than any
virtually every activity that is believed to be core to what a credit
union does can be outsourced. This reality raises the question about
what should be done by a credit union's own staff and what should
be outside the firm. A bigger issue is also raised of exactly what
does it mean to be a credit union?
37% of Loans
The speed with which traditional activity is being accomplished
outside the normal credit union framework was illustrated by a manager
describing his new automated on-line loan process. In the latest
month, 24% of the credit union's loan applications were submitted
and processed on-line; only the rejections are reviewed by staff.
Another 13% were taken and completed or disapproved by an outside
did not include a soon-to-be introduced indirect lending program
where there would be additional loan decisions made outside the
walls of the credit union. Very quickly the credit union would be
acting in only the policy setting and booking functions of the lending
value chain-another party or an intelligent agent would be doing
the application, underwriting and decision making.
If the "credit"
activity is taken out of the credit union, what does it mean to
be a credit union?
Outsourcing has always been an option for firms. But today there
are radically different means to this end. The networked era undergirded
by the Internet is changing even the concept of the firm.
A recent example
in another field shows how technology changes traditional expectations.
Live artistic performance is one area which many believe can never
be replaced by technology. Sure there are recordings, but not real
live performances-that would change forever the idea of what it
means to be an "artist."
Now comes the
digital orchestra. For a recent revival of "Evita" the
Technical College in New York City replaced the orchestra with 35
loudspeakers in the chairs where live players would normally be.
These speakers are connected to a computer complete with the digital
sounds of all the instruments necessary to accompany the stage cast.
Only the singers and actors are live in this production, the orchestra
is completely digitized.
To keep time
with the conductor and the cast, the computer console operator taps
out the rhythm on a keyboard. In addition to tempi, or speed, the
digital orchestra has a virtually unlimited range of sound for each
instrument. There are between 8,000 and 9,000 samples of the violin
created and stored including separate upbow and downbow strokes.
In essence why performance is a unique experience.
orchestra has been over 15 years in creation and has completed over
2,000 performances without a crash. The orchestra is always on pitch,
on time and never takes a coffee break. For a road tour of the show
"Annie" the score requires 30 players. With Realtime Music
Solution's orchestra, a producer can tour with seven people and
23 digital instruments. Is this hybrid production a live musical
Why The Web
Makes a Difference
Faster, better, cheaper have been the reasons why firms traditionally
outsource. The reasons are not new but the Internet brings a whole
new set of options that were not feasible just several years ago.
The first aspect
of outsourcing via Web technology is speed. Make or buy, the traditional
options, are too slow in today's economy. Owning a process is not
as quick as finding a net partner with a solution.
But there is
more than speed. The Net allows integration on a scale never before
possible. The homogenization of activity through Internet protocols
is pervasive. IP standards are universal and new capabilities can
be linked and unlinked literally in minutes.
In the industrial
era the key business concept was specialization, then integration
via an assembly line or other connected "value chain."
One way this sequencing might be improved was vertical integration
in which a single firm controlled all aspects of design, purchasing,
manufacturing and sales.
era is about convergence, the elimination of vertical value chains.
The Internet permits integration without centralization or a single
controlling entity. In essence a firm can now go out and plug together
pieces from different specialties using application service providers
(ASPs). A firm can now expand in all directions, not in just one
The New Opportunity:
The Internet's modular integration creates a radically different
organizing concept beyond even outsourcing where there is still
a central point of control issuing RFPs.
unions using non-Web based solutions outsource key activities such
as mortgage lending, auto loan origination, branching, ALM reporting,
investing, data processing, training, recruiting, HR support for
payroll and benefits administration, 24-hour call center and regulatory
compliance. These are just a few of the areas where third party
firms manage existing critical credit union processes. And the list
does not include all of the arrangements for new services provided
through CUSOs such as broker dealer and insurance sales.
The new opportunity
is not only to do traditional activities more efficiently and timely
but also to rethink what is possible. Almost any area of e-commerce
becomes feasible in a networked era. Whether the activity be a product
sale or an advisory service, credit unions can make new Web solutions
part of their business model virtually overnight.
the concept of personalized customer service is reinvented with
the capability of live on-line chats with members. The technology
is in place so that the reach and range of the Internet defines
the opportunity set for the credit union.
In essence there are no boundaries, except our own imaginations,
as to what a credit union can do in serving its members. One manager
calls this challenge the ROI, or Return on Imagination.
abound, what is the scarce resource that credit unions need to manage?
I believe the new skill is "managing" activity occuring
outside the firm. Partnerships require new competencies. This is
not "deal making" or just lining up options and selecting
the best offer. Rather, this is assessing whether an organization's
strategic direction can be coordinated so as to support the credit
union's. In the accompanying article, Steve Winninger describes
right area for new efforts, experimenting with beta models from
new firms through limited rollouts, hooking and unhooking from these
alliances quickly are all new activities that come with partnering.
Not all efforts at partnering will succeed. But the risks should
be reduced and the portfolio of opportunities expanded way beyond
what a standalone firm's efforts could ever be.
will become part of the web of services credit unions will offer
is the most important strategic challenge facing boards and managers.
There is no roadmap. Rather all roads are open.
to help the credit union go in the right direction are:
- Join with
other credit unions on the journey. Share the risks and insights
with other like-minded explorers;
the e-members today. Create a group of on-line members who will
work to evaluate, test and provide assessments of different options.
Some may ask,
is this really what a credit union is? A web of processes and alliances?
My response is to listen to the performance and see if you enjoy
it any less than with a "live" orchestra.