Lockheed Develops In-House Process To Measure SEGs

Most credit unions that serve SEGs agree it's imperative to know the value those SEG's employees are bringing to the credit union. Where the uncertainty begins is in knowing how to do that.

One credit union that has developed in-house a means of measuring its SEGs is the $1.5-billion Lockheed FCU, Burbank, Calif. Its sophisticated scorecard allows Lockheed to monitor its best-performing SEGs, and to take action where improvement is needed. It even measures the potential from potential sponsor companies prior to adding them; Micheal Twomey, VP-branch sales and business development with LFCU, said the credit union will not add a company if the numbers just don't add up.

For Lockheed Federal, the evaluation process begins by measuring the SEG according to four criteria. In addition, it breaks down potential members into four groups. The top group is the "stars," defined as having the highest average deposits. Second is called the "dreams" group- the people who are looking to move up to the "stars" group some day. Third are "maintainers," who don't offer a CU much opportunity but give it high support. The last group is a combination of low opportunity and low support. "I call the fourth group the dogs," he stated.

Before Lockheed brings a prospective SEG on board, it has a representative of the group fill out a questionnaire. Twomey said Lockheed has determined four leading indicators that show a SEG's potential for success:

* First-proximity. How close is this company to your branch? The further away the company is, the lower score it gets.

* Second-concentration. How many employees are in one spot? The more concentrated the company is, the higher the score.

* Third-demographics. Twomey said Lockheed looks at three factors-average age of employees, their average income and the industry a company is in-then takes a step back and examines segmentation. "These three form a triangle," he said. "Your best SEGs are a function of support and opportunity."

* Fourth-distribution. How the company distributes information about a CU to its employees.

"If these factors do not add up we don't go forward, because it is not worth it," said Twomey

There is a balancing act between quality and quantity, he acknowledged. If a company has low quality and low quantity, then the deal does not go forward.

Lockheed's scorecard further rates a prospective SEG on the company's rate of turnover, existence of direct deposit, the number of credit unions it already uses, sponsor and more.

Under each category, a company can score from 0 to 4 points. The scores are weighted, with some categories rated as more important than others.

For example, the scores in the industry, number of employees, average income and direct deposit categories are counted the most.

"Sponsor support is critical," Twomey stressed. "Get a written memorandum of understanding at the beginning so the credit union is assured that it can walk around to talk to employees, put up flyers in the break room and do other things to make contact."

After a CU brings a new SEG into the fold, the next step is measuring results. For new SEGs, Twomey recommends measuring monthly for the first six months, quarterly thereafter for two years.

"Examine a SEG's profitability and performance," he said. "Lockheed tracks new members and new SEGs on an annual basis. In 2002, it exceeded its targets for both deposits and loans."

During Twomey's four years at LFCU, it has added 200 new SEGs, including 21st Century Insurance, Allianz Insurance, J.D. Power & Associates, and Princess Cruises.