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Where to Look if You’re Looking to Ratchet Up Your Margins

Talking about efficiency sometimes lacks the allure of, say, browsing futuristic technology or scheming to win hordes of new members. By contrast, efficiency conjures terms like waste reduction and cost cutting. Ouch.

But there’s reason to be effusive about efficiency, especially now. Efficiency is more important than it’s ever been, as credit unions face continued economic uncertainty, new regulatory challenges, increased competition and a rapidly-changing financial services industry. As credit union leaders try to cope with shifting consumer demands and an intensifying need to ratchet up their margins, it becomes harder and harder to keep the dots connected. Stay ahead of technology? Integrate the moving parts? Hold on to a unifying vision? The challenge is huge.

There is a payoff. Glatt Consulting, LLC, in Wilmington, N.C., uses its Glatt Consulting Credit Union Industry HealthScore to track the industry’s wellbeing. Measurements include earnings, capital, growth, member relationships, liquidity, asset quality and efficiency. In the first quarter of 2011, the HealthScore was up – in fact, it was 9 percent higher than the score for Q4 of 2010.

“The score is a snapshot; it’s not predictive,” says Glatt Consulting cofounder Thomas Glatt, Jr. “But the higher score for Q1 does indicate that some credit unions are seeing progress.” And though every component of the HealthScore is important, efficiency is especially significant. “In our analysis, the credit unions that are very successful on all of our measures tend to score much higher in their operational efficiencies,” Glatt says. “They know their business model and structure very well and are relentless about improving operations within that model.”

In other words, efficiency can equal excellence. Following is a roadmap for credit union leaders who want to get there – to the point where doing a great job of running a credit union means running a great credit union.

PRODUCTS AND SERVICES THAT SELL THEMSELVES

The first order of efficient operations is to give the people what they want. If this sounds simple, it should be. But also, if it sounds simple, you’re probably not the person responsible for delivering it.

Consumer desires are relatively straightforward. For example, people want mobile banking. They want to receive alerts via text; they want to deposit checks on their iPhones. If they could make payments by waving their smartphones in the air and tapping their heels together three times, they’d sign up today.

Your members want to find you online and apply for membership and loans simply and successfully. While you’re at it, they’d like access to loans and credit in an uncertain credit environment. They want glitch-free transactions and, if it’s not too much trouble, proactive member service when something goes wrong.

The key is providing these products and services flawlessly. Though relatively few members openly express their interest in cutting-edge fraud protection, fraud services are a great example of the alignment of efficiency, marketing and service. “Fraud protection is not optional,” says Connie Trudgeon, Vice President of Operations for CO-OP Financial Services. “Fraudsters are getting more sophisticated and the problem is everywhere. It’s not a question of if you’re going to get hit; it’s when.” Credit unions need to protect themselves against fraud loss, since they’re generally the ones covering loss when it happens. But they also need to protect their members against the trauma they experience when an account is hacked.

“We do this with a neural network that tracks transactions in real time,” says Trudgeon. “Fraud happens so fast now that you have only minutes to respond.” Just as critical, though, is how the CO-OP team interfaces with members whose accounts have been targeted. “It’s a very uncomfortable situation for a cardholder,” says Trudgeon, “but there’s a way to present this information so it’s clear that you’re sincere and you’re helping. It can turn the experience around, so when they walk away, they have a positive impression.”

Revolutionary? Not exactly. But providing a wanted service effectively and humanely can be no less intricate and orchestrated than ballet. It is also efficient. By looking at basic products and services and ensuring that they work to their utmost potential, you improve operations at every level.

INTEGRATE EVERYTHING

By now, most credit unions recognize that technology rules. Want to wow your members? Cut down on staff time? Access large galaxies of data? You know what you need.

But technology has an inherent flaw: It costs money to develop and implement – you must spend money to save money. And it changes rapidly, so you are never “caught up.” As a result, many credit unions have pieces of technology that work beautifully, but a relative dearth of integration between systems.

So, for example, you might have a killer online auto loan application that doesn’t flow data into your sales system. You might have access to data about where your debit cardholders are shopping, but never quite translate that into a targeted incentive program. Making sure that your individual systems integrate as fully as possible should be part of your efficiency efforts.

Another aspect of integration is continuity. Undoubtedly, there are individuals and departments within your organization who have developed great processes. Have you captured these in your policies, documentation and training procedures? If not, your organization is wasting time replicating the learning process at full length – and risking the loss of organizational knowledge.

LEVERAGING YOUR NETWORKS

If your credit union is to run at full throttle, you can’t afford to do everything yourself. Quite literally, the skills, tools, intelligence and resources needed to compete in 2011 are beyond the capacity of a single credit union.

Then again, why would you attempt to go it alone? Among the best efficiencies available to credit unions is the power of collaboration. The members of a new CUSO based in Ontario, Calif., CU Roots, are taking aim at back-office operations, starting with the unwieldy issue of compliance.

“We began by doing a survey to find out what our members’ greatest pain points were,” says CU Roots President and CEO Lucy Ito. “Compliance was where credit unions were feeling the greatest pain and pressure.” It’s also an area in which cooperation makes good sense. For some CU Roots members, this is their only access to a full-time compliance officer. For others, the CU Roots program augments their existing compliance team. Either way, they share costs – and support.

Where individual credit unions sometimes operate in a (stress-inducing) vacuum, CU Roots members benefit from each other’s experiences.

“If one credit union has developed a policy, why reinvent the wheel?” Ito asks. And if that formula works for compliance, CU Roots hopes to apply the same cooperative principles to areas such as employee benefits, collections and loan and portfolio analysis.

“Credit unions have always been collaborative,” says Ito. “Why not use that capability to become more competitive?”

WORK WITH YOUR VENDORS

No story on operational efficiency would be complete without advice about working with your vendors.

But your vendors should be providing more than a fair price. They should be providing real value and partnership. If your core processing vendor can’t help you understand the pros and cons of cloud computing – whether or not they currently offer it as an option — you might need a new vendor. With so many developments in every area of running a credit union, you can’t afford to work with anyone who won’t act as your eyes and ears.

What makes a good vendor?

  • Innovation. The financial services industry is changing at a breakneck pace. Your options should be changing just as quickly.
  • Consultation. You know better than anyone what you need. Are your vendors asking?
  • Insight. Most vendors spend a fair amount of time talking with people who do exactly what you do. They should be able to fill you in on what’s happening in the business and offer insights on where to go next.
  • Partnership. As your relationship with a vendor grows, so should the benefit of working with that organization. This means more of all of the above, along with cost savings wherever appropriate.

As the incentive to use tools like outsourcing to keep operations flexible increases, these partnerships come into sharper focus. In the case of Amplify Credit Union in Fort Worth, Texas, extending call center services translated into increased sales without the commitment of adding full-time employees.

“For several years I was the only person on staff doing our outbound calling,” says Amplify Relationship Development Specialist Cindy Twilla. “There came a point where I needed assistance to reach more of our members. We were already utilizing CO-OP Member Center’s inbound call program for lending services.” Adding outbound calling seemed – well, efficient.

Last year Amplify ran a two-week, pre-screened auto loan campaign targeting 580 members. The results:

  • 750 calls placed.
  • 183 members reached.
  • 22 new loans generated.
  • $362,000 in auto loan recaptures.

Since then, Amplify has run additional programs with similar results. “(This) is a lucrative program that generates loans and doesn’t cost us any overhead,” says Twilla, “and I can’t emphasize enough what an awesome job the CO-OP Member Center agents do.”

As your credit union considers outsourcing – and various other ways of relying on outside products and services – to meet your members’ needs, vendors must play on your team. Going forward, your operations are likely to extend beyond the boundaries of your branches: Your standards should go with them.

LEAD ON

Improving your credit union’s efficiency quotient is not a one-time effort. Though the need for major initiatives may emerge here and there, the real job of running efficiently is a constant campaign.

Leadership is the glue that holds an organization together through massive, ongoing change. If your mission is not clear and current, it needs focus right now. Making millions of individual decisions won’t add up to coherent progress without a clear sense of what you’re trying to achieve.

“There’s a famous story about Southwest Airlines,” says Glatt. “Years ago, a company was trying to convince them to serve chicken sandwiches on their airplanes. When their presentation was done, the folks at Southwest asked, ‘How is a chicken sandwich going to help us keep ticket prices low for our customers?’ There was no answer, of course, because a sandwich can’t do that. Southwest had a clear idea of their mission, and it helped them to stay effective.”

Change is also stressful, and to that end it’s essential to pay attention to communication within your organization. It’s not enough to effect change; you must help your staff understand why changes are being made – and how they will result in a healthier company.

Your staff is likely to be your best resource. They are the ones most likely to uncover faulty computer functions, routine member complaints, work redundancies or failed marketing messages. Create the environment and the processes necessary to encourage and reward ideas and initiative.

Efficiency may sometimes serve as a euphemism for cost cutting, but ideally it’s an expression of excellence. When your operation runs at its peak – with the best products and services; streamlined, integrated operations; the muscle of collaboration and partnership; and an aura of excellence and progress – it’s really anything but cheap. It’s unstoppable.