You Know You're Good-But How Do You Get To Be Great?
How do you turn a good credit union into a "great" credit union? A Naperville, Ill.-based consulting firm says it has some answers. Inspired by Jim Collins' book Good to Great, which identified 11 companies whose stock market performance went from good to great and then was sustained for 15 years, the principals behind the Institute for Strategic Learning say they have identified 14 credit unions that have similarly upgraded from "good."
Using Callahan & Associates' data from 1991-2001, and only for 1,711 credit unions of $50 million or more in assets, ISL's criteria for good-to-great was at least three years of "good" performance (net income less than 1.25 times the credit union average in each of the "good" performance years), immediately followed by a period of five years or more of "great" performance (net income 1.25 or more times the credit union average in each of the "great" performance years.)
It's important to note that credit unions that started out "great" and stayed there during this time are not on the ISL list. The company estimates there are between 15 and 20 credit unions on the great-and-staying-great list. But it also means ISL identifies less than 35 CUs out of about 1,711 at which Tony the Tiger would be happy.
"We were looking for an identifiable transition that was sustained," explained ISL Principal Richard Kamm. "We wanted to identify what they did that others didn't."
Kamm acknowledged that measuring performance in any nonprofit entity can be subjective, as the goal isn't to maximize easy-to-measure profits. Seeking a single performance indicator that could substitute for shareholder return, the Institute for Strategic Learning settled upon net income. It was the "logical choice since it captures both growth (which implies increased member service usage) and profitability," the company suggested. To arrive at its findings, "the cumulative net income performance was calculated by figuring the total net income the average performing credit union would have generated during the period. We then compared that to the actual net income produced by each credit union."
"Our logic is a credit union with a good return and good growth must be satisfying its members," said Kamm.
But couldn't a credit union that jacked up fees boost its net income number, even though those members might not be feeling too satisfied about it? "We went back to each of the credit unions to find out what they did. We wanted to know, did they do it on the backs of their members, or did the members prosper as well?" confirmed Kamm. "What we found is that it appears they did not do it on the backs of their members with fees. What appears pretty clear is that the members had available to them more products and services. We think net income is the clue as to whether members are satisfied. We looked at all sorts of aspects: fees, dividends, loan rates."
Kamm said ISL plans to use the data to help the 30 to 35 credit unions it has as clients (it does strategic planning, among other things). "But quite honestly we also did it because we found it quite fascinating," clarified Kamm, who said he and his fellow principals found the 14 credit unions they identified as good-to-great to be quite willing to share information.
So what characteristics do these credit unions that were willing to share, share?
"Preliminarily, it appears that at these credit unions the board and management were on the same page," he offered. "I think they were all able to identify one key area of business opportunity and focus. Their characteristics were different, and their economic conditions were different and their member strategies were different. Their leadership wasn't charismatic; rather, it was focused over time."
Kamm said that mergers with other credit unions were not a driver in going from good-to-great in any of the CUs his firm has identified.
When asked what he found most interesting about his company's findings, Kamm pointed to three things: the aforementioned absence of burdensome fees, that any credit union apparently could do the same thing, and that for one CU, getting bigger isn't a big goal.
"When we looked at this we found other credit unions in the same areas that could have done the same thing, but they didn't," he explained. "One of the credit unions has decided not to grow (through an expanded FOM). They almost treat their members like they're part of a private club. They have a manufacturing company sponsor and are doing great. Where they have grown is in the number of new members per family."
Making ISL's list of good-to-great credit unions were Elga CU, Evangelical Christian CU, First Technology CU, Nassau Educators, NWA FCU, PCM Employees CU, Rockland FCU, San Francisco FCU, St. Cloud FCU, Technology CU (California), USC Credit Union (California), and Ventura Credit Union. If you're keeping track at home and noticed that is only 12, two CUs asked not to be identified.
ISL plans to release its findings July 1. For more info, visit www.creditunionplanning.com. Collins' book, by the way, can be had for $19.25 from Amazon.com.