More Than The Bottom Line

It's an ideal time to address the concept of research and development budgeting in a cooperative model.


If the grassroots-driven Bank Transfer Day has taught us nothing else, it’s that the credit union cooperative model has a distinct competitive advantage over for-profit financial institutions. Consumers feel like financial services have become an “us versus them” zero sum game. For credit unions, though, “us” is “them.”

For credit unions to truly become a for-profit-alternative for financial services, they need to think in alternative ways across the entire business model. This includes thinking differently about how they approach their supply chain.

For example, when a credit union asks for details on a supplier’s R&D funding, they might expect a breakdown by year and total funding with an explanation that includes how the supplier calculates those figures. But even if an answer framed in this way satisfies the credit union, it does not satisfy the question of what it means to be a credit union.

The key consideration is not what the R&D budget is in comparison to other budgets. What makes the difference for credit unions is the “what” and the “why” behind the budget.

The credit union industry is not in search of unknown answers. Credit union suppliers are crafters of designs and solutions that are already defined. They execute to give cost-effective access. They develop solutions to level the playing field, not to invent the playing field. Their development is disruptive in that it gives access to tools and solutions where access was blocked by barriers such as price or lack of interest. 

If a credit union invests in projects that have a demonstrated ROI solely because they have a return, then it would eliminate every unprofitable project even if the project is needed by the credit union’s members. Likewise, suppliers that spend only on projects that have an ROI simply because they have a return will end up giving credit union clients tools that do not fit the game they need to play.

This nuance is everything. Suppliers that understand cooperatives use a model that allows quality execution at a lower price with a different payback – a network solution with collaborative risk-taking, collaborative capital creation, and collaborative returns based on usage. This is the staple of why suppliers tackle projects such as participation lending, credit card servicing, and new models for low-cost compliance. 

The real challenge in the credit union industry is not in investing for technical development. It is in investing to change a mindset that embraces new models. In the case of R&D, the issue is larger than a bottom-line dollar investment. For credit unions to understand what is really at stake and why total dollars invested in pure tech spending is not a good indicator of a user's value or potential return, the industry needs to reframe the issue.

Consider this: If your partner received $250 million in credit union funds/revenues in the next five years, how would they invest that to benefit the people sending the money?

Vendors can answer that question specifically: A percentage goes into hardware, a percentage goes into backup contingencies, a percentage goes into system-wide training or education, a percentage goes into system capabilities, and so on.

In this method, very little goes into financial return or administrative support. This method requires an understanding of the cooperative model in which participants create an asset they own that has increasing value and future capability.

This is opposed to a firm that wants to maximize current financial return and identify the exit strategy to sell out.

In this discussion, the concept of investment is applied to traditional ideas of technology research and development, yet it is easily expandable to include business innovation, system capability, market reach, and more. There are numerous functions in which credit unions must join with one another, CUSOs, or other vendors. And when asked to describe the credit union’s investments to a Board, credit union leaders can portray the importance of a different investment and business model than the traditional one.


Nov. 15, 2011



No comments have been posted yet. Be the first one.