The Secret Of High-Performing Credit Unions?

Imagine that there are two groups of credit unions. We’ll call one group the HPs (for high-performers), and the other group we’ll call…the other group.

Over the past two years, average membership growth for the HPs has been three times higher than that of the other group. Further, the HPs’ two-year loan and net-worth growth have been nearly twice as high, and their growth in market share has been 20% higher than the market share growth of the other group.

Which group would you want your credit union to be in?

Duh.

The more important question, of course, is what did the HPs do differently?

Based on research on 54 credit unions that participated in a research study Aite Group recently conducted, I can tell you that: 1) We did find two groups, and 2) There is (at least) one very important difference between the two groups worth noting.

That difference? How the HPs manage IT.

I know you’d like to believe that it was their use of social media, or their focus on Gen Y or whatever other technology or product you champion, but I really don’t think that’s it. Because the HPs probably wouldn’t have made that investment in social media, or in other technologies, if it weren’t for how they manage IT.

When I talk about how they manage IT, I’m referring specifically to three dimensions: 1) IT risk tolerance; 2) executive support for IT; and 3) IT/business coordination.

Credit unions that show a tolerance for IT risk, have strong executive support, and enjoy excellent coordination between IT and the business outperform other credit unions — regardless of which technologies they invest in.

I’ve seen a lot of discussion online among credit union people about how to get their management team fired up about — or even remotely interested in — social media. Some of the recommendations from people revolve around “showing them the ROI.”

The paradox of the situation is that while there may very well be an ROI — or at least some tangible business benefit — the problem is that many management teams aren’t inclined to make the investment because they’re not tolerant of risk and/or don’t have a fundamental belief in the value of technology as a business enabler or competitive differentiator.

In other words, it doesn’t matter what the ROI is.

So, before you start advocating for Twitter, blogs, Facebook, etc., at your CU, ask yourself if your CU has a history of being comfortable with IT risk, executive support for IT, and coordination between IT and other departments. If not, you’ve got some work to do.

Imagine that there are two groups of credit unions (CUs). Over the past two years,
one group’s membership growth has been three times higher than that of the CUs
in the other group. Further, the first group’s two-year loan and net-worth growth
have been nearly twice as high as those of the second group, and the first group’s
growth in market share has been 20% higher than the market share growth of the
second group. Which group would you want your credit union to be in?Imagine that there are two groups of credit unions (CUs). Over the past two years, one group’s membership growth has been three times higher than that of the CUs in the other group. Further, the first group’s two-year loan and net-worth growth have been nearly twice as high as those of the second group, and the first group’s growth in market share has been 20% higher than the market share growth of the second group. Which group would you want your credit union to be in?

11 thoughts on “The Secret Of High-Performing Credit Unions?

  1. Ron – I think you’ll also find that the “other group” is likely to reflect things such as a lower loan-to-share ratio, etc. In other words, it’s not just IT risk…they’re flat out in risk avoidance mode vs. risk management.

  2. Ron,

    These basic, blocking and tackling issues are core to credit union AND bank/thrift success. One of our credit union clients is guilty of the lack of 3 (IT/Business unit coordination), and found themselves paying for IT components they did not use and performing manual processes that could be done electronically.

    Great post to center credit union managers’ attention.

    -Jeff

  3. I’m not surprised at this finding. When you boil it down, all business success stems from a technological advantage of one form or another, whether it’s the printing press, industrial revolution, telephone, television, computers, personal computers, world wide web, smartphones etc.

  4. Ron, glad you waded into I.T. this morning, a topic near and dear to me. In my technology planning and CIO experience, the best executive support comes in several pieces:

    * CU Strategy: A solid credit union strategic plan that defines what is it trying to accomplish, and disciplined execution
    * Technology Strategy: Support for the CIO/I.T. leader as they develop and execute a strategic technology plan that supports the CU strategy (among other things plan should discuss I.T. strategies that support CU strategies, guiding principles about how I.T. will be managed, technology trends impacting CU, and provides a roadmap for investment for each business/support unit)
    * I.T. Governance: An engaged management team that wants to contribute to good I.T. governance by forcing initiatives to tie to strategies in that CU strategic plan and the key metrics the CU wants to improve over the planning period; the management team must be strong enough to say “no” to initiatives that are a poor fit, too

    “Flavor of the Month” and “All You Can Eat Buffet” models where every project makes it into the hopper are I.T. department and I.T. satisfaction killers, so executive buy-in and discipline in the above are key if I.T. is going to be able to execute and enable the kinds of high performance described above.

    As for business/IT coordination, that process works best when I.T. is recognized (and funded) as an enabler vs. a utility. Maintaining some flavor of business analysis role allows I.T. to proactively collaborate with the business, understand needs, and recommend appropriate solutions instead of reacting to the next project that lands in the pipeline.

    I agree with Mike’s risk avoidance comment. I.T. and I.T. risk groups need to hold up their end of the deal too by not just answering “no” to every request that has security implications but by telling the business how they can get to “yes”, managing risk vs. avoiding it.

  5. Mike: Agree 100%. The two really go hand-in-hand.

    Jeff: You’re spot on. I didn’t mention it in the post, but I did a study last year that looked at how those three dimensions of IT management correlated with the performance of 750 community banks. Performance, however, in the community bank study, was respondent-reported growth in customers, product adoption, and retention. For the CU study, I used NCUA data.

    Morriss: I’m not trying to “surprise” anyone. I’m trying to get people to see that there’s cause and effect. The “cause” here is IT management practices, the “effect” is investment in technology. But so many people — and you know some of them — run around yelling for CUs to implement the effect w/o understanding the cause.

    Quintin: I’m honored that you’d comment here. My Gonzo Banker coffee mug is one of my two prized possessions in life (the other being my collection of Grateful Dead concerts on my iPod).

    Your points are all spot on, but in my experience there’s another, and often intangible, element to the executive support dimensions: Some execs just “get it” and some don’t. I think it has a lot to do with their functional background and experience.

    My experience also tells me that there’s no silver bullet for getting commitment or improving coordination. The firms that I’ve seen make improvements have a hard time explaining exactly what they did,, other than “work hard”.

    I think it’s a lot like a political campaign. You need the combination of key national support (analogy: some key sr. execs) AND a good grass-roots organization (mid level IT and business folks) working to make changes.

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  8. Ron,

    Thanks for this thought-provoking post. Many CUs struggle with the IT risk issue. Too often they see it as risk aversion instead of risk management. They avoid any IT risk under the banner of security instead of seeing it as simply risk management.

    –Mark

  9. Thanks for your comment, Mark. What I’m hoping to get people to see is that when they try to push or advocate for certain technology related initiatives, they need a better self-awareness of a few factors w/in their organization, the aversion/acceptance of IT risk being one of those dimensions.

  10. I’ve said it before and I’ll say it again: Social media is sexy, but it doesn’t bring home the bacon. Menial operational details bring home the bacon and executing on those items is key.

  11. RW: Yep. And I accepted the reality, long ago, that this will never be a sexy blog. But bacon….that’s good. Will have to do a post on bacon.

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