Today’s Credit Union Truth or Dare – The Perils of Perfect Inaction

Why many Credit Unions continue to struggle with improving bottom line performance – and how senior leadership may be at the core…

There has been a flurry of articles recently published on the topic of the economy turning around, perhaps now faltering – and how financial institutions continue to struggle to make bottom line profitability improvements.  In this time of uncertainty effective management leadership is vital, and delivering the guidance and direction needed for success has never been more important. The problem for many is that the culture that made the Credit Union successful in the past may be the single largest inhibitor to its success in today’s business environment.

Conflicting Messages
Many Credit Unions have been successful taking the long standing position of conservatism – often to a fault. By avoiding waters uncharted in the past, senior management has the comfort of dodging at least a number of potential snags and obstacles they know must exist (or wouldn’t everyone be going there?) This risk avoidance culture can be justified by today’s environment of everyone trying to do more – with less.  In this scenario everyone is very (very) busy – but simply doing the same things they always have. Working hard has perks – including being easily identified and acknowledged by senior managers as the top priority. The message being received is that the status quo is good – and safe.

Yet the business environment today is not the same – or safe.  Increasing competition, higher compliance costs and tepid loan growth continues to have a dramatic effect on the bottom line – and today’s managers clearly identify that they must do something different to compete.  The challenge; with limited resources being busy with doing the same old tasks it is virtually impossible to evaluate new initiatives. Even though managers may challenge staff to do more and to bring creative ideas to better the business, they unknowingly communicate a “bunker mentality” by rewarding the status quo and a willingness to wait it out for better times.

Survival
For many, improving bottom line performance is not only top priority; it can mean the difference between survival and the failure of the institution. It is incumbent upon the leadership to provide direction, clarity and to provide a culture and environment where creativity and innovation are not only acceptable – they are expected. Real organizational and culture change come from the top – and without continued engagement and re-enforcement from senior management real, sustainable change is virtually impossible.

Bottom Line Improvement
One of the best indicators of bottom line health is reflected in the Credit Unions efficiency ratio – how well revenue stacks up against expenses.  The problem – while expenses have been trimmed, they have not been reduced at the same rate that income producing revenue has fallen. While the known and readily available cost reduction steps have been taken (including managing non- performing assets and general expense reduction) additional and creative steps must be embraced as the next step in getting to significant bottom line improvement. Communicating the need for change – and clarity around expectations from senior managers can have a major impact on the organization getting there. As uncomfortable as it may be managers must move from the tried and true, be willing to venture into new arenas and to actively drive the development of a culture supporting this new direction.

Creative Cost Reduction
Cost reduction today goes beyond typical FTE reduction, curtailing IT and branch office reduction. It involves a management philosophy of embracing those willing to being creative, to challenge what has always been – and rewarding (not punishing) those that bring new ideas – and even occasionally fail at endeavors that can have momentous benefits to the organization.

Growth is Key
In addition to cost reduction Credit Unions must also grow revenue to truly impact efficiency ratios and profitability. But growing revenue can be a tough task – and often requires out the box thinking and creative development – tough concepts for many conservative Credit Union leaders and their boards. Developing new products and services, investing in training, technology and other infrastructure required to deliver focused, integrated marketing messages is not for the faint of heart.  And in the same breath – perfect inaction is a guaranteed plan for failure – and for today’s top leaders is simply not an option.

A Few Ideas
The following are a just a few ideas for consideration:

Cost Reduction

• Look to what has always been done the same – and change it. One example: challenge long term service providers to identify ways to do things differently – and to reduce costs in the process. Real partnerships involve give and take – and real partners will offer ways to do more with less.
• Eliminate waste; it’s annoying – and embarrassing. Allowing your organization to continue to spend money on the unnecessary, or simply paying too much for what is needed is largely a management issue – and up to you to change.
• Substitute “busy” with a focus on priority, high potential value projects through outsourcing and internal resource management. Have your people doing what they should be – and farm out or eliminate the rest.
• Leverage technology to reduce costs and deliver services; they cost a lot less than they used to!

Growth

• Ask your current customers what they want, what you can do better – and deliver it.  Your biggest opportunity for growth is your existing members – and the most cost efficient to secure.
• Leverage one of your best and effective front line resources; your tellers and front line managers. Empower them, train them and reward them for doing what they do best (and members value the most); member service. Member service includes communicating the availability of additional services and products – and your appreciation of their business.

Leadership

• Reward innovation and risk taking – including regular engagement and support in concept development.
• Celebrate successes – regularly and wildly. Nothing drives success like success.
• Provide instructions, expectations and follow through that cannot be misunderstood. Delivering clear, consistent and decisive messages can have a tremendous impact across the entire organization – and generate tremendous results.  Real culture change starts at the top – and your success depends on it.

By considering and embracing doing business in a new and different way senior Credit Union executives have a tremendous opportunity to develop programs, people and a culture that that will allow their organization to attain and exceed their long term strategic goals.

Tim Bergman is founder and principle at The Bergman Group, a consulting firm specializing in helping Credit Unions with branch equipment specification/purchase and service/maintenance contract support.  Tim has provided trusted expertise to the financial services community for over 20 years that help clients manage costs, reduce waste and to efficiently deliver focused, value added customer services. www.thebergmangroupinc.com