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I heard an economist speak earlier this week. I had to follow him. (Note to self: Never follow kids, dogs, economists or lunch that includes pork).
He had a slide called, you guessed it - Economies of Scale. It is the MATH that is rooted in the industrial era. As your company grows, it’s cheaper to make your widgets. This is not new math. It is what it is.
Reminds me of the math we were doing in the early eighties. An ATM transaction costs 25 cents - a live teller transaction - $4.35 (roughly). Okay. That’s math. It’s probably true to some extent. So what? Did ATMs replace tellers? Nope. Did we insist that they do because of the “math.” Nope.
Someone out there (let’s call them Satan) has drawn this weird line in the sand. All credit unions must grow to achieve economies of scale. If you’re not (insert asset size, because I’ve heard everything from $200 million to $500 million) in the next five years you will likely merge. Really?
If you are reading this and you aren’t a member of the Filene Research Institute, you need to join. AND you need to get a copy of their white paper.
Here’s the argument against economies of scale being the silver bullet of survival:
Star credit unions in the $50M - $100M asset group generate higher yields than the national credit union average. Their net income ratio also is higher despite expenses above the national average. The are growing at a faster pace than their large-asset-size peers because:
They are highly effective lenders.
Their members use their credit union extensively.
They pay members higher rates for saving than similar-sized credit unions.
They emphasize high-payoff and service offerings.
They manage their expenses aggressively.
Their high deposit and loan balances per member cut their operating costs.
They do not rely solely on low loan rates to generate loans.
They usually generate more fee income than their peers.
They invest their capital in growth.
Rather than painting every credit union with the same brush (satan) and assuming that because the national stats show that if you are “this size” you’re merger meat (aka self-fulfilling prophecy), let’s look at the business model. We are, after all, in the service business.
It is true, as my good friend Gene Blishen says, “Growth can cover a multitude of sins.” Maybe that’s why people are merging. Managing a small credit unions in today’s environment IS hard work. It’s easier to merge - AND you may get a big check for doing so.
There, I said it.
This is speaker circuit season. Rock-tober. Time to knock down some castles.
Last week I was before an audience quoting Drucker, “It’s not necessary for a company to grow bigger. It IS necessary for a company to grow better. ”But what of “economies of scale?” asked a gentleman in the front row.
I keep hearing this more and more as the cause of whacky name changes, unnecessary mergers and the dreaded conversion to a mutual savings bank charter.
We need to get educated QUICK about what that phrase means. I started where all good bloggers do: wikipedia.
As I read that, if your goal is to be “full service” (or trying to be all things to all people) economies of scale will help. But that is but ONE business model. And, in my opinion, not a smart one for most credit unions.
At $100 million in assets you probably should NOT have 43 products and services that range from investments, to mortgages, to business lending.
At $7 billion in assets you still have the challenge with that menu of being competitive in all categories. There’s not a business school around that is going to advocate that model.
When you change your field of membership from a target to a territory you have to declare a target within that territory or you’re toast. Target audience is THE hardest thing for me to discuss with credit union boards. Somewhere along the way we replaced a common bond (employer) with lives, works, worships in eight counties and decided to just grow grow grow and it’ll work itself out. Well, that’s just stupid.
Consider this. If your credit union is pondering getting into business lending (and by that I mean loaning money TO a business model - not just putting a second mortgage on someone’s house) the “full service financial institution/trusted financial partner/community credit union” model would never qualify for a business loan.
Imagine sitting across the desk from a business lender. Telling them that you used to serve only employees of BIG EMPLOYER. Now you’ve decided to expand your business to every man, woman and child in a 100 mile radius. What is your product? Savings, CDs, Free Checking, Auto Loans, Home Equity, Courtesy Pay, VISA, PayDay Lending, Business Lending, Lifestyle loans, etc. etc.
How are you different than the 50 plus financial institution in that same market? Um……service? And what proof do you have that you will make your competition irrelevant with that differentiator?
We did a survey two years ago………..knocking down castles.
More on service tomorrow - I gotta get on a plane.
I’m bustin’ with pride. Why? Because my oldest sister (HA - sorry Daedre, truth is out there) climbed her first mountain. And she said, “Go big, or go home!” (a nod to my muse Susan E.). She and ten other hardy credit union folks reached the summit of the highest peak in Africa!
Why do people climb mountains? Some say because they are there. Others do it to test themselves, to reach goals, to gain confidence. These folks did it to raise money. They are building schools and giving kids their smiles back (to name a few).
If you would like to contribute to their effort - you may contact me@denisewymore.com and I’ll hook you up.
You don’t see it on the Today show. You’re lucky to hear about it on a local radio show but if you visit most credit unions today you will probably get a cookie.
I’m going to be speaking to the entire staff of Spokane Federal Credit Union tonight. I’m excited. I’m fired up to tell the story of how a wealthy Boston merchant (Ed Filene) traveled around the country forming financial cooperatives. BEFORE we had air conditioning, iPhones, airplanes, and TiVo.
I had lunch with an awesome credit union CEO recently who said how tough it is to run a credit union today. I reminded him that the Great Depression was tough too. Credit unions survived that!! Why? Because we were needed. People helping people isn’t just a catch phrase, it’s a way of life.
Today is the day to do something cooperative!
My great-nephew Jack is, of course, the sweetest kid in the world. He’s 3. He loves for Aunt Denise to play building blocks with him. Only, the way he likes to play is by having ME build a castle, fort, bridge, house, whatever and then as soon as it’s complete - he tears it down.
After about threerounds of this, Aunt Denise isn’t having as much fun. Jack’s just getting warmed up. This past week-end I facilitated a conversation at a strategic planning session. I didn’t realize it at the time, but I was Jack. They had built this great castle and I came in and knocked it down - wanting them to rebuild it better and bigger and prettier. Make something different (that’s what Jack wants each round).
Then it got me thinking about the culture at Apple. You KNOW they have already knocked down the iPhone castle and are building the next one to be even better and bigger and prettier. Personally, I can’t wait.
Thanks Jack for reminding us how to play. The game stops if we just build once.
Yesterday I debated Ron Shevlin. As some of you know, we do not agree on the topic of Net Promoter Score. I think it’s the greatest thing since sliced bread (which still amazes me) and he thinks it’s a load of poo. It was great fun, a little scary at times, and definitely a new skill for me. Live debate. As my dear friend Denise Gable said, “What were you thinking?”
It’s one thing to debate on a blog - where you have time to think and write and re-write and ponder. In front of 120 people, not so much.
The audience joined in at the end and one gentleman asked (and I’m paraphrasing here) if the credit union “model” is even viable today. Being called a Professional Consult-entainer (thanks for that Ron) seemed like a brush of a feather compared to this question. It really knocked me on my you-know-what.
I asked him how long he’d been a part of our movement. Seven years, was his answer and then quickly followed up with, before that I was with Wachovia Bank. He went on to say that we are basically money movers. There’s no emotion.
“Is this industry really about moving money from those who have it to those who don’t? If so, I’m out.” That’s what Matt Dean “twittered” during the debate.
I couldn’t agree more.
I didn’t sleep well last night. It was like a doctor telling you there’s no hope and you have to be prepared to say your last good-bye.
War’s over man. Wormer dropped the big one.
Over? Did you say “over”? Nothing is over until we decide it is! And it ain’t over now. ‘Cause when the going gets tough………….the tough get going.
Who’s with me?
Did you know that there is no market research out there that concluded that consumers were sick and tired of talking to real people and would rather be presented with a recorded menu of options that would ultimately lead them to being put on hold and in some cases dumped into a voicemail box where they could just leave a message and hope and pray that a live person will care enough to actually listen to it and call them back? Really. No market research anywhere that says that’s good service.
So why do most companies use an automated attendant now? Simple. Cuz they can. Or as Ken Blanchard said, “The only reason your customers are satisfied is because their expectations are so low, and because nobody else is doing any better.”
Well, my friends at Knoxville Post Office Credit Union have decided that enough is enough. They are answering the phone!!! It started as an experiment. You see, they don’t have a formal call center yet. They have their incoming calls routed to the staff (with front-line picking up many of them). This is AFTER the members listen to the usual litany of “press one for this” and “two for that…..”
They weren’t sure why members were even calling so for one week decided to turn off the recording, get the member live and log the nature of the calls.
On Monday (btw, they picked a theme song to start each day - played in the branches to get people revved up - “I just called to say I love you…..” was Monday’s song) anyway - members were blown away when they got a live person. Some thought they’d dialed the wrong number. The CEO and all VPs rotated time on the phone. Imagine a member’s surprise (and delight) when they called in with a question only to have the CEO answer them directly and immediately.
Linda Childs, CEO has decided that this is no longer an experiment but rather a great way to differentiate themselves from their competition.
By making it fun (and throwing in a little competition) they actually had employees fighting to answer phones. One employee even figured out a way to answer the phone first every time - she never put the receiver back in the cradle. Kept her finger on the phone….it’s good stuff.
The goal now is to reduce the number of calls that get transfered. They are embarking on a company-wide cross-training program to really serve the members as quickly and smoothly as possible.
Kudos to KPOCU for questioning everything, having fun and making their members day - week - month - and now relationship the best ever!
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