A Need for 'Speed' (and Direction)

Business velocity is a critical business metric that differs from most business metrics in that it is comprehensive. The three major components of your credit union—leadership, people, and systems—have to be working in harmony for you to have a high velocity enterprise that takes you rapidly toward your goals. Boosting this metric is artwork and requires skilled leadership, as we’ll discuss.

Embracing the concept and reality of velocity can have a profound effect upon your CU’s return on assets, efficiency ratio, member satisfaction, and employee engagement. I have spoken with several CU CEOs who are utilizing business velocity to grow rapidly and profitably, delight members, and become the employer of choice in their communities. As a CU executive, you need to be aware of your CU’s velocity because it determines whether you hit your objectives and how long it takes to do so.

The primary, bloodthirsty enemy of a CU’s velocity is hidden profitability. It is your job to find hidden profitability in leadership, people and systems and convert it to realized earnings.

Velocity = Direction + Speed

Velocity is built on two elements: direction and speed.

The direction of your CU depends on the clarity of your long- and short-term objectives. Long-term objectives can include purpose, identity, strategy, brand promise, targeted member groups, growth, and long-term goals. Short-term direction may include such objectives as annual market share or profitability gains, split between interest and non-interest income, and monthly loan and deposit goals. Your shorter-term direction should support your long-term objectives, values, and principles.

The more you are able to clarify these ideas and identify the results necessary to achieve them, the better direction your institution will have. You wouldn’t want to be aiming for Indianapolis and end up in Miami, but that can happen if a CU’s direction isn’t clear and focused.

Your CU also needs speed to reach its destination as rapidly as possible. Why would you want to delay if you are really passionate about your direction? Without speed, direction becomes a wish. When speed is added, goals can be very achievable.

If you have good direction but still need to improve your velocity, you know you need to find some way or ways to increase your CU’s speed. From my experience in large banks I know speed is almost impossible to achieve, and CUs have a decided advantage here.

Of course if you’re a fast organization but don’t have much direction, your velocity still won’t be optimal. You can get to Miami quickly, but not really know if that’s where you should be. So you need both components, direction and speed, to create the velocity that will take your CU toward your goals.

Within your company these two elements are accessed through leadership, people, and systems.

Like a high performance car, all these components must work together with precision to produce velocity. Each component needs its own care and maintenance, but a truly skillful CEO/leadership team focuses on making all of them propel the car forward to its destination.

When I took over a division of a large bank, I knew the direction I wanted to follow but didn’t have the people or systems necessary to get there. I brought in some new systems and did away with many low value activities, but we still didn’t have the talent we needed to make the systems execute our strategy. It wasn’t until all three elements came together that we really started making progress.

Weak Components

At any given time, a credit union can be stronger or weaker on any of these three elements.

For example, strong direction, good people, but sub-optimal systems can yield discouragement among a workforce as employees become frustrated by not having the tools needed to accomplish their jobs.

This was the case in a large bank client of mine. The IT division had the entire company handcuffed. Good people could not embark on management’s direction because IT did not have the processes in place to quickly deploy needed technology innovations.

On the other hand, strong leadership and excellent systems without the right people in place can bring about significant underachievement.

I experienced this when I brought a sophisticated data-mining system into a large bank. The bank’s internal team lacked the creativity and technical expertise to fully utilize the system, so we ended up using expertise from the system’s vendor to get a large return on investment from the technology.

Finally, strong people can be in place with exceptional systems, but without clear direction, they might move fast but not arrive at any particular destination. This can lead to a sense of purposelessness as employees see little meaning in their work.

I saw this in a bank whose primary directive from the chairman was, “Get more!” In that environment, employees did their best for a while, but had no particular goals or direction to aim for.

Hidden Profitability in Leadership

Finally, we come to the enemy of velocity: hidden profitability. This means there is untapped profitability within your CU that is hindering your velocity, and it occurs even within the strongest, healthiest businesses.

Three examples of hidden profitability within the leadership component of business velocity are the need to change direction, the need for improved communication and the need to overcome personal biases.

The long-term direction of your CU might be very clear, but we all know that short-term changes in direction are necessary to account for new regulations, fluctuating rate environments, and balance sheet issues.

Examples of short-term course corrections are myriad, but some dramatic ones I have experienced are around acquisitions. As you know, those are “all hands on deck” situations where even the most important objectives sometimes have to be put on hold.

Failing to make, communicate, or adapt to these course corrections can have significant consequences for your CU and greatly reduce its velocity.

Communication can be another aspect of hidden profitability. If employees are not moving in the same direction as management, communication of your direction needs to be delivered more clearly and reinforced more frequently. Consider how you communicate your direction throughout your organization and get feedback on its effectiveness.

A financial services CEO I know has in-person “town council” meetings at all of his locations.

On the other hand, I have worked with CU CEOs who were poor communicators, and it was reflected in their institution’s poor velocity.

Personally, I remember my team’s blank stares after telling them about a new idea that seemed perfectly clear and logical to me. After working to discern what they didn’t understand, I tried a few different approaches that eventually led to a profitable discussion.

Leadership biases are sometimes a source of hidden profitability, so we need to have people around us who will challenge our thinking. We need to be open to input from all directions, and that’s why it is helpful to have a diverse team of people giving you their opinions.

Many times have I seen CEOs’ retail delivery backgrounds be biased toward branch systems instead of lending. We all have our personal biases, but regardless of your background, it is important to maintain a wide field of view, and that comes from surrounding yourself with excellent and diverse people.

Hidden Profitability in People

There are five ways hidden profitability can exist in the people component of your organization.

This first has to do with talent. Having the right people in the right jobs doing the right things is an ongoing process. Your talent needs are always changing as your CU and members evolve, from your executive team to your front-line employees to your back-office support staff.

Keeping up with the talent requirements of each job is an onerous task but critical. I once took over a division in a bank and radically changed the direction. I coached the staff and gave them time to adjust, but one dear lady just couldn’t meet the grade. We reassigned her to a different area more suited to her talents.

Buy-in is a second area of potential hidden profitability with people. Once I installed a major system at a financial institution. Some employees bought in and others didn’t. The resistance of those who didn’t embrace the new system was a source of hidden profitability.

One woman who was initially resistant became one of the system’s best users over time. She told me the change was due to the fact that she saw it wasn’t going away, so she decided to buy in and become good at it.

The same occurs with management buy-in. At the same financial institution, one of the retail heads objected to the reporting my team provided because it showed her in last place among her peers. The CEO said, “We’re going to keep using the system and doing the reporting.” Suddenly she bought in and her performance changed.

People development is another area where hidden profitability can occur. When we make people development part of our CU’s DNA, we’re upgrading our talent pool, keeping people trained at high levels, helping them do what they do best, and maintaining high levels of motivation. That keeps innovation flowing—and in fact, innovation is the next item needed to increase your velocity.

Peter Drucker said innovation is one of the two most important functions of a business, along with marketing. It is the lifeblood of your CU and, in my experience, the bulk of it comes from employees.

For example, in one of my banking roles my team developed an automated series of questions designed to help the new accounts person make sure each member opened the account that was best for them. On another occasion they created quarterly opportunity assessment webinars for leaders to help clarify where to best allocate resources.

Finally lack of unity can be a nasty source of hidden profitability. If a team or company has dissension, people become discouraged and are less inclined to innovate and serve clients well, since they are more focused on their gripes against their team members. One “bad apple” can certainly spoil the whole bunch by distracting an entire team or company.

Hidden Profitability in Systems

Some of the most debilitating sources of hidden profitability on the systems side are technology, members, and alignment.

Buying new technology and not using it to its fullest capability is a source of hidden profitability. Deferring the purchase of new technology can be another source of hidden profitability, if your existing technology is not enabling your CU to deliver the type of experience members want.

This is tricky because you want to buy just the right amount of technology at just the right time, and make sure it does exactly what you want and gets used fully to get the intended return on investment.

An example of this is a fiasco one bank client experienced with a data warehouse project. The executive committee said, “Our front-line people need a more complete view of our members.” IT said “Fine, let’s build a data warehouse.”

That was five years ago and they’re just now rolling out the first phase. This was hidden profitability at its worst moment as the CIO and executive team left the project in the hands of technology people with no executive sponsorship, timelines or updates.

Members can be a source of hidden profitability on the systems side since CUs use systems to interact with them.

If your systems aren’t helping you understand your members’ behaviors, needs, and profitability, your CU can end up under-serving great members and over-serving unprofitable ones. In either case you end up with hidden profitability.

One financial services client of mine was in this position. The team knew their very top members, who were either large commercial borrowers or high dollar trust clients. However, they were completely unaware of another layer of incredibly profitable members right below the highest tier. As a result, they spent the majority of their marketing dollars on the mass market, while leaving this group of high profit members completely at risk.

Alignment is our last example of hidden profitability on the systems side. It can refer to how well each area of your CU is supporting your direction, such as sales, marketing, operations, IT, or finance. It can also mean how well your incentives to your key players align with your overall direction.

Finally, alignment can describe a critical process, such as one that is supposed to be good for the member, but which in reality causes them anguish. The agonizing online bill-pay experience some banks provide is an example of this.

Defeating Hidden Profitability

By now you can see how hidden profitability is an enemy of your CU’s velocity. We have seen how it can attack your leadership, people, and systems.

No organization is perfect, so don’t panic if you’ve recognized hidden profitability within your CU; you’ll always have it somewhere. Your job is to determine where the greatest amount of hidden profitability exists, and what you need to do about it.

Sometimes recovering hidden profitability can require significant investments, but often not.

For example, a financial services client of mine had hundreds of branches and hundreds of thousands of members. The client’s hidden profitability came from its systems. The members weren’t coming into the branches.

I helped my client install a system that enabled employees to reach out to members in a systematic, targeted manner that created goodwill among employees and members, while generating an additional 30,000 new accounts per year. The actions my client took were not expensive, but they did require significant workflow changes that neither occurred overnight nor made everyone happy.

Maintaining and increasing the velocity of your CU is a critical activity. The greater your velocity, the more successful you will be and the more you will enjoy your professional and personal life.

Greater velocity does not necessarily mean more pressure, stress, and heartburn. In fact, the more focus you bring to your direction, and the more you bring your people and systems into alignment with that direction, the more you will find yourself achieving results faster while working the same amount or less.

Part of the velocity equation is fighting against hidden profitability. Don’t worry or fret about it. Just know it exists and put systems in place for sniffing it out and recapturing those earnings.

Scott McClymonds is a veteran leader in the financial services industry and expert at integrating analytics, leadership, and culture to dramatically accelerate growth and profitability. His company, CEO Velocity, works with successful financial services CEOs who are committed to their members and communities. Read his blog; call him at 479.263.0774; and find him at linkedin.com/in/scottmcclymonds.