7 minutes
When credit unions think about organizational performance, they can have a tendency to focus on performance reviews, job descriptions and merit-based compensation structures. Credit unions that excel in these important areas can still struggle to meet the challenges of continuously improving organizational performance.
The reality is that organizational performance improvement is hard … really hard, and it can only be achieved by looking at an organization’s individual situation. However, common pillars can be applied to understand the challenges of achieving any sort of real improvement. These common pillars are flat organizational structuring, benchmarking, and measurement. A deeper look into these areas can produce a systematic approach to ongoing performance improvement.
1. Flat Organizational Structuring
Obtaining and maintaining a flat organizational structure is part skill, part leadership and part art. Siloed thinking and fiefdom-building is commonplace in America. The “what’s in it for me?” line of thinking is widespread and often accepted as an unavoidable issue within organizations.
While there is no one standard that can be applied, a general rule of thumb is to start with no or as few as possible levels of reporting between staff level employees and management. As a guideline, eight to 10 staff employees report to management and three to four managers report to upper management. This guideline applies to such support departments as accounting, information technology and human resources where knowledge-based workers are typical. The guideline will tend to increase as the core work function transitions from a knowledge basis to a task basis, such as in the call center and retail branch, where managers typically have many more than 10 direct reports.
A streamlined organizational structure allows for more time spent on mission and producing results. A flat structure also drastically reduces the communication drag that comes with an overabundance of managers and supervisors. Each added layer of supervising or management in an organization or department generally adds two hours of weekly meetings for all involved.
There is also a direct relationship between level of coordination needed to make decisions and the speed with which decisions can be made. While a debate could be had between flat vs. hierarchical structures–and there are certainly advantages and disadvantages of each–credit unions that can remain nimble and react quickly to changing member needs will win.
2. Benchmarking
Disciplined growth can be achieved when an institution sets deeper performance benchmarks than just return on assets, earnings per share, and “making budget.” While benchmarking departmental and organizational goals should be performed by looking internally, they should also be compared externally.
For example, say a goal is set to increase debit interchange by 4 percent for the year, and 6 percent was obtained. Our first reaction might be to run down the hall, leaping for joy. While this is certainly good news for non-interest income, we might feel a bit differently when we learn the industry average is running at 8 percent growth. The following tips can help credit unions create metrics, set appropriate goals and design an effective overall performance management strategy.
Start with the mission. Goals and measures should be simple to understand and be based on a mission statement that is backed up by metrics. Starting with the mission allows goal setters to clearly understand the right behaviors and outcomes to measure and is an important part of eliminating siloed thinking. Matching goals up with individual mission statements puts context behind the metric and is certainly an art form.
For example, a common performance metric found in IT is the number of help desk tickets closed. It would seem that more help desk tickets being closed would be an indicator of a hard-working help desk agent and a good thing, but does this metric lead back to the mission of providing excellent member and team member support? It could be argued that fewer calls to the help desk mean there are fewer problems that need to be fixed. When measurements start with a mission statement and are backed up with metrics, the desired results are much easier to attain.
Keep it simple. Every department should be working with three to five (not 25) easy-to-track metrics that contribute to the desired outcome. Too much detail can cause confusion, create more work than it’s worth to calculate, and introduce gamification into the system. For example, tracking the average time members wait in line at the drive-up is next to impossible and non-productive, but tracking the number of member logins through mobile is likely a canned report.
Keep metrics operational. Call report data is very useful for identifying metrics and making peer comparisons at the highest level; however, benchmarks based at this level do not allow for adequate review of business unit performance. Obtaining operational metrics that can easily roll up into ROA, non-interest income and efficiency are key to driving performance through the ranks.
In addition to the 300 benchmarks that Cornerstone Advisors tracks, we recommend our clients look to their loan origination, online banking, card processor and call center solution providers for additional peer data. This internal and external view is critical. A credit union’s mortgage origination productivity numbers could be improving 10 percent quarter to quarter, but still be 50 percent below peer median performance.
The latest Cornerstone Performance Report: Benchmarks and Best Practices for Credit Unions shows that direct consumer loans closed per direct FTE per month in 2012 was 45 for high performers and 29 for the median. In 2014 the high performers increased productivity to 63 while the median showed an increase in efficiency to 48. This is just one example of how a credit union can work hard to increase productivity, show positive movements in its metrics over time … and still be at the median.
When setting metrics, taking a balanced approach is important to even out the system. A mixture of productivity, revenue, quality and risk benchmarks provides a good balance. For instance, a contact center agent can take 100 calls a day but not be effective, so scoring abandoned rate/hold times can be equally or more important than just scoring agent calls. The contact center is an easy-to-understand example, and the same methodology applies across all business lines.
3. Measurement
Performance improvement is measuring the output of a particular business process or procedure and then modifying the process or procedure to increase its output, efficiency, or effectiveness. The final pillar of organizational performance improvement is this measurement. While benchmarking lies
at the heart of measurement and accountability, measurement forms the crucial foundation for any credit union initiative that involves process improvement, strategic planning, the implementation of best practices, efficient staffing and budgeting, and performance improvement.
Goals should be tweaked over time as the CUs business model evolves and the benchmarking culture matures. The following best practice tips can help create a systematic approach, set appropriate measurement structure, and design an effective overall performance management strategy.
Balance the scorecard. Setting goals is art with a little science behind it. While it is important to know what peers are doing to establish targets, it is more important to align targets to the credit union’s strategic plan and mission. A balanced scorecard approach allows a credit union to start with the mission and take not only efficiency/profit into account, but also customer service/convenience, risk and fees/pricing. Performance improvement comes from a balance of all these inputs, and benchmarks should be established around each of them.
Update the goals as an ongoing process. Once a scorecard is built and goals set, it is time to monitor performance and use this information to manage the credit union. It is most important that senior leadership understands the targets and agrees with the methodology that managers use to establish them.
Scorecard and benchmark targets should be adjusted over time as the CU’s business model evolves and the culture matures. Measurements should always be shown both against a goal and historical comparison. Obtaining an understanding of trends before they become problems is powerful.
The complex topic of organizational performance is being tackled head on by many best-practice organizations today. Flat organizational structuring, benchmarking and measurement are the hallmark pillars of a high-performing institution, and credit unions taking this pillared approach to the overall structure of their organizational performance program are setting the stage for success.
Ryan Rackley is a director with Cornerstone Advisors, a CUES Supplier member and strategic provider based in Scottsdale, Ariz.
