Credit unions are dealing with a very complicated competitive landscape these days. From legislative and regulatory pressures, to changing consumer dynamics to fending off hoards of traditional and non-traditional competitors, it's not easy being the good guy. With all we have to deal with I must say that this is not the time to make thing unnecessarily complicated.
What am I referring to? None other than the ever-expanding variety of organizational charts credit unions are creating to try to deal with the complexity. The number of titles beginning with “C” is becoming a bit hard to keep up with. CCO, COO, CMO, CFO, CIO, CXO, CAO…we've almost run out of letters in the alphabet. I have come to believe in my credit union career that, no matter how big the credit union gets, there is only one “C” that really matters…the CEO.
To explain why I believe this, it is important to revisit the credit union business model. The basic credit union business model is to obtain capital, usually in the form of member deposits, and make money to pay for that capital by loaning it out to members.
While other services have been introduced to increase revenue opportunities, the basic flow…deposits in–loans out—revenue in—interest out…is what the largest share of our business is devoted to. Even taking into consideration the complications that modern credit union offerings create, the basic credit union business model still looks like the following:
Basic Credit Union Business Model
| Supply (Supply and Distribution) | Demand (Marketing, Sales & Service) |
| Purpose: To ensure an uninterrupted supply of material, resources and equipment to deliver competitively priced and appropriately configured products and services to the target markets while meeting PLL and operating expense goals. | Purpose: To cost effectively market, sell and service competitively-priced and appropriately configured products and services to the target markets to meet revenue and market share goals. |
| Functions: Finance, compliance, risk management, lending, collections, IT, facilities, HR. | Functions: Marketing, business development, training, retail sales, call center, Internet. |
| Areas of Impact: Provision for loan Loss, operating expense, non-operating income and asset turnover. | Areas of Impact: Net interest income, fees, operating income and asset turnover. |
If you accept this basic format, the CEO has two areas of focus. One is the supply of goods and material (funds for loans, delivery systems for services, etc) at competitive prices. The second area is the marketing, sales and servicing of its goods and services to create the largest stream of revenue possible. While each area has a large number of processes, tasks and outcomes it is responsible for, the CEO has just six areas she or he needs to monitor to assess the effectiveness of their operation.
On the Supply side, the provision for loan loss, operating expense, non-operating income and asset turnover are the financial measures that can be affected by the management of finance, risk management, compliance, IT, lending, collections, facilities and HR.
On the Demand side, asset turnover and revenue— in the form of interest income, fees and operating income – are the main financial measures that can be affected by the management of marketing, retail sales, business development, call center, Internet and training.
So on one side of the house you are managing your assets to minimize risk and expenses to keep the cost of funds as low as possible, while the other side of the house is trying to develop markets, sell products and service existing products as efficiently and at a large a volume as possible to maximize net revenue. A simple equation on the face of it, but the desire to serve a diverse range of financial needs has created a complicated operational calculus for most modern credit unions.
Still, I propose that no matter how many branches are created on the organizational chart, nothing replaces the importance of a CEO focused on creating a balance between supply and demand and the holding the appropriate areas accountable for measurable results that have real impact on the financial health of the organization. A simple approach for some very complicated times.
I hope I have caught your interest. I'd love to start a good conversation on this subject. Please comment and I will be sure to respond.
Jim Craig is vice president of marketing at the $537 million 1st Advantage Federal Credit Union in Yorktown, Va.
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