Low interest rates, stagnant loan volume, increasing demands for member services, and higher operating expense ratios are creating significant pressure on credit unions’ return on assets.
The sources of these pressures are not just internal or market driven; credit unions are also facing greater regulatory burdens than ever before. Those that respond to regulatory changes quickly and efficiently with the least cost and the least impact on members will establish a competitive advantage over slower responders.
Since these pressures are unavoidable, the question is how you will respond: With higher fees, fewer services, lay-offs, or a merger? Or more positively, with growth enabled by better services and/or greater effectiveness and efficiency at delivering existing services?
Although the latter path seems preferable to the negative options, some credit unions are reluctant to embrace proven business and process improvement methods. This reluctance may stem in large part from the flawed assumption that adopting various improvement methods will somehow harm their ability to provide best-in-class member service.
Two factors seem to be feeding that erroneous belief:
- The traditional approach to cost reduction in service organizations has been to slash the workforce; and
- Other methods for improving performance and delivery (workforce management, business process reengineering, scorecards, etc.) are also credited with reducing costs.
Therefore, “improving productivity” must be a code word for “reducing the workforce,” which credit unions interpret as meaning “fewer people to serve members.”
It’s true that improvement methods drive cost savings by enabling business to do more work in less time with fewer resources. But that doesn’t automatically equate to having to “cut heads.”
High-performing organizations work in advance and use business and process improvement to drive efficiencies to create additional capacity. That additional capacity gives credit unions the flexibility to deploy more resources to the services that truly add value to members, or expand the business to serve more members.
Moreover, any changes in staffing or redeployment that result from collaborative improvement efforts are done with the specific knowledge of how the change will benefit members—either directly through faster, better service or indirectly through lower operational costs. Member satisfaction is usually much higher with lean or re-engineered processes than with those that have not been improved.
Consider $4.2 billion asset Randolph-Brooks Federal Credit Union, Live Oaks, Texas, which serves more than 300,000 members. It has grown in recent years through new services and expansion into new branches—options that were open to them because of the operational and service delivery gains their lean improvement teams made throughout the business.
The credit union:
- Improved lending productivity 17% despite a nearly 10-fold increase in volume;
- Reduced the call transfers rate in the member service center by more than half, and reduced the call abandonment rate from 8.9% to 5% (generating $430,000 in savings);
- Raised productivity more than 20% in its branches by implementing a workforce management system that allows the credit union to more effectively match staffing levels to service volume;
- Generated an estimated $57,000 in savings each year in the information technology (IT) department by setting up separate sub processes for easy vs. complex requests; and
- Reduced the time needed to fill vacant positions by 60% (important to Randolph-Brooks Federal because it continues to grow).
The new collaborative mindset has also allowed the credit union to respond quickly and efficiently to regulatory changes. For example, when a recent member notification requirement arose from the Fair and Accurate Credit Transaction Act, its response differed from past responses, when the issue would have been handled primarily by the audit group.
This time, the credit union automatically created a cross-functional team that included representatives from the lending department, service center, branches, audit, and IT. The result was a well-coordinated response, integrated smoothly across all affected departments that quickly ensured compliance.
Randolph-Brooks Federal has been on its improvement journey for more than four years. And it is a journey. You can’t just flip a switch to become more efficient and effective. It takes time to learn the skills and change mindsets.
With vast changes in the industry already underway and more on the horizon, credit unions can’t afford to ignore or take lightly what business and process improvement methods have to offer. The time to act is now.