BCU ( $1.8B, Vernon Hills, IL) evolved from Baxter Credit Union and serves a number of select employee groups throughout the United States and Puerto Rico. With more than $1.8 billion in assets, it is the fourth-largest credit union in Illinois. Although it does have a few community branch locations, most of its 38 branches are located inside SEG facilities. BCU serves more than 170,000 members.
BCU for a long time has embraced the theory and practice of open-book management. The CEO, Mike Valentine, and all senior leaders promote its principles. During the CEO’s monthly meetings, he reviews the financials with all employees. At a recent all-employee meeting, we stressed financial analysis and included breakout sessions with the director of balance sheet management, Ken Dryfhout, and chief financial officer, Tom Moore. The senior management team wants employees to be partners in growing BCU in both membership and financial strength.
Here is one way to look at open-book management: In order to build engagement in a job, you have to understand why you are doing what you are doing. If you don’t know why you are doing it, you are not going to want to do it better. BCU shows employees the financial numbers so they understand what BCU is doing, not solely for the credit union but especially for the membership. A more knowledgeable team of employees, a happier team of employees, leads to a higher Net Promoter Score, which leads to a growing credit union, which leads to greater capital, which leads to, say, a new phone system the membership has said would make their financial services lives easier and better.
I began my career at BCU 14 years ago working in the call center. From there I moved to the loan department and then helped launch indirect auto lending as well as an outbound calling program at BCU. A few years later, I was manager of our service center in the Baxter Healthcare corporate office. In 2009, I began managing the Crystal Lake branch. Crystal Lake is a community of about 40,000 in Northeastern Illinois, approximately 50 miles northwest of Chicago. The branch had opened in 2004 and there was a lot of upside. The front-line team had built strong relationships with the membership, but something was missing. Through my years at BCU I had learned open-book management principles. I figured a re-emphasis of these would do well at Crystal Lake.
Open-Book Management At Crystal Lake
When I started at the Crystal Lake branch, I felt we needed to strip everything down to the core. One of the first things we did as a team was to answer the question: “Why are we doing what we are doing?” We came up with: “In order to grow, we need to increase income and/or decrease expenses.”
In our discussions we concluded that everything we needed — more revenue, lower expenses, more members, deeper participation among core products, more loans — all came down to employee actions. We also needed to do more than what was expected from our members during their transactions. So I challenged employees to: “Act as if this is your own business.”
The first time everyone had the opportunity to see the quarterly profitability report was a bit overwhelming. At first I explained the reports from a high-level perspective. Eyes glazed over. I knew it would be overwhelming, but I explained we would divide a report into four parts and take just one part at a time. This became a turning point for many of the employees.
I took what I thought was the easiest section for them to relate to. We looked at interest income and asked: “How do we make money at BCU?” Then as a group we worked through all of the ways we created income from interest — how loans make money, how risked-based lending works, how credit card accounts make interest money, and so forth. I wanted everyone to understand on the same level how the credit union made money. Then we’d look at how we incurred expenses. The group would then have a chance to answer questions like: “How and why did interest income rise in one quarter? What would make it increase or decline in another?”
Auto Loans And Credit Cards
We broke down lending into individual products, for example, auto loans. Everyone now knew how the credit union made interest on auto loans, but now we questioned: “How can we increase the number of auto loans our members have with us? Were we successful at capturing every auto loan on every transaction?”
I still remember asking the group what percentage of our membership has an auto loan with us. Guesses ranged from 10% to 80%. When I told them the correct number was somewhere in the middle it created conversation and excitement. By examining the financial statements and other data, I could explain how much interest income we left on the table for every 1% increase in our auto loan participation. Quite quickly, employees began to come up with ideas on how to move the numbers in the right direction.
In other meetings we looked at credit cards. We looked at how credit cards generated income for the branch and discovered the credit union made income not only through interest income but also through transaction income and fees. Some employees thought a member who paid off their credit card each month was not a profitable member. But by looking closely at the financial data, everyone soon learned this was not necessarily so. The discussion led to how a credit card customer might develop a deeper relationship with the credit union. Although they might not be generating much interest income with the credit card, that member was generating income through transactions and has a higher chance of taking out an auto loan, home equity loan, or mortgage.
We also looked at the expenses of credit cards: the reward points, cash back, cost of funds, costs of paper statements, and eStatements. We discussed how these cost the credit union money, and the details were a revelation to some employees. When the employees began to comprehensively understand how the credit card program worked, their eyes lit up.
Generally, we’d meet once a month before opening, so we’d have three meetings for a single quarterly report. It wasn’t until we’d studied several quarterly reports that we could see trends and really dig into what the numbers were telling us. We used projectors for the quarterly reports, so the line items were up on a screen and we could all clearly see what we were discussing. Sometimes we’d have handouts. In any case, it was absolutely critical the staff see what we were talking about and be able freely to ask questions; everyone needed to know how the financial reports worked, how the branch worked, and how his or her own efforts contributed to the bottom line.
Interest, even excitement began to build. Employees began to ask when the next profitability report would be issued because they were eager to see the new numbers and discuss changes from the previous report. In fact, we are updating our report schedule so reports come out monthly rather than quarterly, in part because our employees are now eager to see the numbers and discuss how their actions have affected them.
Our employees have incentives that reward them for their behavior. Armed with a deeper and broader understanding of how products and penetration result in income, they discuss among themselves how they can increase revenue. They have come up with competitions for who can open the most new credit card accounts and have developed techniques for — in a consultative way — discussing with a member how they might do well to switch to a BCU card or have an easier financial life by opening a first card with us. Employees have discovered many members do not know about certain BCU products or the different ways of earning rewards from a BCU credit card. Consequently, members are delighted employees are telling them about these products and features. Front-line employees have noticed members driving through with newer looking cars. If the employee didn’t see an auto loan on their account, then they suggested switching to a BCU auto loan and asked the member if they’d like to save money by talking to one of our loan representatives. We set up a system for front-line employees to make warm referrals to our loan representatives. We began counting referral attempts and how many attempts converted to closed loans.
Implementing Open-Book Management Where It Is Needed
Not long ago, BCU promoted me; I now oversee nine branches. I don’t have much time to go into as much detail with every front-line employee as I did at Crystal Lake, but I am teaching the branch managers who report to me how to teach the front-line employees in their own branches. As our senior management team wishes, open-book management is getting renewed attention where it can help a lot: at the branch level.
Open-book management is not just a good idea, it is essential for an engaged staff and a thriving branch. It’s not particularly difficult to do, and it pays rich dividends for everyone.