It doesn't take a very long dotted line to make a strong argument that the more successful a company, the greater the importance that it analyze its strategy and try to understand what is being done right. Unfortunately, modern risk management practices in our industry tend only to analyze what is going wrong.

The key to sustainable growth is understanding exactly what your strategic competitive advantage is. This can be achieved within the framework of a Blue Ocean Strategy, defined as the simultaneous delivery of both differentiation and cost leadership to the consumer, or possibly an alternative strategy through discovering a niche in the marketplace such as serving the underserved. It's also possible for a company to simply be fortunate and lucky enough to have developed strong partnerships through the years with a select employer group or industry groups.

Ultimately, however, your organization must understand what drives its economic engine if it is to remain successful.

Statistically this can be accomplished by calculating the Coefficient of Determination, or R-Squared. Now, don't fall asleep or give up on me yet … this is not going to be a mathematical dissertation. R-Squared simply is the measurement of how certain independent variables affect a dependent variable.

In short, it is identifying the factors that contribute to your performance, and then figuring out the significance of those factors. For example, I recently read an article on how certain markets and regions of the country were friendlier to credit unions than others. Essentially, some markets have great market share while others can't match up.

Of the 50 major metropolitan markets in the United States, West Coast cities perform much better than those on the East Coast, with the best market being Seattle and the worst Cleveland. My backyard – Miami – received an Honorable Mention for finishing third … from the bottom!

The article reported 31.5% of Seattle residents have a credit union as their primary "bank," whereas Cleveland came in at 6.8%, with Miami not far behind at 8.6%.

Applying the Coefficient of Determination, why is there such discrepancy from one market to the next? Just as that question should drive your curiosity, so should your credit union's performance.

There's a popular saying in our industry that we charge less in fees and interest rates on loans and give back more in the form of higher dividends on savings. While this may, or may not, be the case for your credit union, is it truly what drives your economic engine?

If your answer is yes, and assuming we have an efficient market, then credit unions should have close to a 100% market share.

Others might argue our business is driven by the number of branches we offer … or "our member experience" … or that we uniquely focus on a specific subset of the population.

Some institutions will honestly admit they are just trying to maintain market parity and steadily grow the wallet share of current membership. Another common finding is institutions that say their poor performance is a result of the economy. But, when things turn positive, many of those same institutions will point to their latest product or project as the source of success rather than attribute some level of performance to the economy.

So, what's the best route to sustainable growth?

In its Retail Banking 2020 white paper, PWC said institutions that can simplify products, services and systems while gaining a complex understanding of their members (customers) will be the most successful. I'll go a step further and submit the Filene Research Institute's finding that nearly 25% of a credit union's performance is due to management.

Of course, that may be self-serving. In truth, it may be some combination of the above. But how do we really know?

It is imperative to grasp and fully understand this. If not, inevitably mean reversion will restore performance equilibrium from a total return perspective, erasing the outperformance institutions may have enjoyed over the short term.

As our industry continues evolving at a rapid pace, so must our understanding of how we are performing. Strategic myopia is the enemy to any organization's sustainable growth. As Peter Drucker said, "Efficiency is doing things right; effectiveness is doing the right things."

Gaining economies of scale and leveraging technology for automation is crucial for our business; however, that really only helps us become more efficient. To be an ongoing concern we must also be effective.

Regarding the importance of getting down to the molecular level, culture can support and even create myopic views. We must always be aware of this.

The strategic growth of your institution is dependent upon the team's ability to gain intimate knowledge and understanding regarding what is or isn't driving performance.

Avoid myopia and the path of least resistance. Discover and deliver sustainable growth!

Dr. David L. Tuyo II is senior EVP, CFO and COO at Power Financial CU. He can be reached at 954-538-4400 or [email protected].