Mid-sized credit unions have challenges unique to their asset size, according to a new report from the Filene Research Institute that examines management practices that drive growth.
The report notes that mid-sized credit unions, which it defines as being between $50-million and $300-million in assets, may not be small enough to know each member personally, nor large enough to reap economies of scale.
Jon Udell, a University of Wisconsin-based researcher, said his goal in authoring "Management Practices and Growth at Mid-Sized Credit Unions" was to determine which management practices are associated with growth in mid-sized credit unions. Udell conducted a survey of CEO's among mid-sized credit unions and compared responses to credit union growth patterns during a recent eight-year period. Udell found that a combination of management practices, rather than one or two, appears to drive growth.
Specific Growth Strategy
According to Filene, Udell found that high growth credit unions more often use a formal strategic planning process, and have a definite growth strategy.
"They focus on particular efforts that give them a competitive advantage, such as high- quality service," Udell concluded. "They are more likely to use market segmentation, and more likely to measure member satisfaction formally via regular membership surveys. They view high-quality service and a top-notch management team and staff as key elements of success. In their planning process, they are more likely to forecast loan demand and interest rates, and evaluate their strengths and weaknesses as well as opportunities and threats. They are more likely to say that their boards of directors are active, make a major contribution to the credit union's success, and are supportive of management. While higher growth credit unions increase both membership and assets per member compared to lower growth credit unions, they achieve especially high growth in membership."
Udell said that he also found that the personal backgrounds of the CEOs at higher growth credit unions are more likely to include graduate education, are more likely to come from operations or finance, and more frequently have some management experience outside of credit unions. In addition, these CEOs can articulate a clear philosophy of management.
"The results have important implications for credit union CEOs, boards, and those who aspire to become CEOs," says Bob Hoel, Filene Executive Director. "Some CEOs need to consider incorporating additional elements into their management practices, such as a defined philosophy of management that emphasizes leadership, employee development, teamwork, service to members, and member ownership." Other elements include using a formal strategic planning process and formulating a defined strategy for membership and asset growth. CEOs should consider viewing superior service, better rates and fees, as well as member affinity and trust as key competitive advantages. And CEOs should consider practicing market segmentation, and regularly surveying members to assess their satisfaction with the credit union.
Advice For Directors
Hoel added that for boards of directors, "the study recommends a focus on vision and direction, support of management in carrying out the vision, insistence on high performance, and a belief in the board's role in making a major contribution to the credit union's success."
In recruiting a CEO or evaluating an existing CEO, the board should take special note of effective management practices identified in this research.
In recruiting management personnel, they should also weigh favorably graduate education, and experience in financial management and operations. Significant management experience outside of credit unions can be a plus, the study found.
For those who aspire to be a CEO, the findings indicate that they should obtain graduate education, develop experience in financial management and operations, and develop a defined philosophy of management that includes leadership, employee development, teamwork, member service, and a full appreciation that the members own the credit union.
