Posted by Christopher Stevenson
Last week I participated in CUES' Advanced Leadership Institute at Harvard Business School (presented in partnership with California/Nevada Credit Union League). Throughout the week, the class looked at case studies of 15 of the most successful and/or innovative companies in the world, including Fidelity, Edward Jones, Harrah's, Southwest Airlines, and Commerce Bank. It was an amazing week. (Allow me to take off my "CUES' employee" hat and put on my "professional development junkie" chapeau for a minute and tell you that if you love digging deep into successful businesses and their leadership and strategies, then you've got to go to ALI; don't pass it up.)
One of the ideas that struck me as we delved into the cases of Southwest and Commerce Bank was that the common perception of small credit unions, that they can't compete because they lack economies of scale, is dead wrong. They may actually be ideally positioned to create a niche for themselves and compete very successfully against the big banks and CUs.
Both Southwest Airlines and Commerce Bank came into established markets, identified their target markets, named what they would do (and, just as importantly, what they would not do), and built their cultures and hiring practices around their strategies. Neither company tried to be all things to all people; they kept their service offerings simple and both incorporated tactics to help customers outside of their target market "opt out" of using their services (e.g. Commerce Bank advertises that it has the worst rates in town). Most notably, Southwest and Commerce have stayed steadfastly true to their strategies no matter what and they carefully manage expenses to implement effectively. Services that stray from the strategy, even a little, are discarded.
Apply those same principles to credit unions. If small credit unions can resist the urge to follow their big brothers into the "all things to all people" fray, they are nimble enough to follow the model set forth by Southwest and Commerce. And the fact is, many small CUs are already doing it.
Filene Research Institute just published Thriving Midsize and Small Credit Unions, a study by Robert F. Hoel, Ph.D., which helps answer why some mid-size and small credit unions are booming while others are fading away. The study blows away the misconception that small credit unions can't succeed (it examines 339 high-performing small and mid-size CUs). Notably, the characteristics of the high-performers mirror in many ways Southwest Airlines and Commerce Bank. They're focused, aggressively marketing loans, but with a less extensive loan menu than lower performers. They don't compete on loan pricing, but on convenience, speed, and good service. They tightly manage expenses, having lower office operation and occupancy expenses and employing fewer people per million in assets and per thousand loans generated. And they generate loyalty among their members, with a greater number of transaction accounts, savings accounts, and loans per thousand members than similar sized CUs.
In addition to Filene's report, the July 16 edition of The CEO Report highlights Mountain High FCU, a $52 million credit union that is growing at 3 percent per month by focusing its attention on simple, bundled products and aggressive branching. Instead of advertising, each credit union employee spends one hour per week telling companies and individuals about the credit union's services. That's pretty cool.
So who's to say small CUs can't compete, that their only choice is to merge or fade away? Bah. They can succeed and grow by following the model set by the star credit unions featured in Hoel's study. It's not easy, but it's possible.
Note: Robert Hoel's study is available for free to Filene Research Institute members. If you or your organization is not currently a member, I'd strongly encourage you to join. It's one of the best credit union resources out there.
