5 analysis areas shed light on critical business questions.
It is well understood that, when formulating a strategic plan, members of the executive team set a future vision for the organization, enumerate the strategic and financial goals that they wish to achieve, and specify the strategies and initiatives needed to achieve those goals. To help illuminate strategic issues, certain basic, cost-effective data analytics should be performed as part of the plan development.
The key is to incorporate simple but powerful analytics that provide meaningful and actionable information on the major components of a credit union’s operations. Importantly, these analytics do not require sophisticated algorithms nor place excessive burdens on IT resources. Further, this data can be augmented with industry benchmarks and market demographics that can be readily obtained from third-party providers.
The following small-data analytics will help shed light on crucial business questions and develop effective strategies.
1. Financial Performance Analytics. Many credit union executives use peer group financial data to compare performance against peers, set high-level financial targets, and establish contribution targets for individual business strategies and investments. However, the comparison must go beyond high-level performance measures such as return on assets or net interest margin. To be most effective, comparisons must also include performance drivers, such as deposit mix and growth, the composition of earning assets, operational efficiency metrics, and other key performance indicators. A separate comparison should also be made to a group of high performing companies. Case studies of selected high-performing credit unions can be developed to fully understand their business strategies, market focus, and operating environments.
2. Member Analytics. The member franchise is a credit union’s most valuable asset, and most credit unions have a considerable amount of information on their current member base, including product usage, balance levels, delivery channel activity, attrition and risk profiles. The challenge is to organize this data into metrics that can help identify member acquisition, cross-selling and retention opportunities, and then to leverage the metrics to drive individual marketing approaches, sales activities and member relationship management decisions. Industry benchmarks are available on a number of these member metrics and can be used to establish realistic performance improvement objectives and targets.
3. Market Analytics. A credit union’s strategy and performance are heavily influenced by the size, scope, composition and vitality of the markets it serves. Therefore, it is important to develop profiles of the geographic markets in which the credit union competes to drive business strategies and identify growth opportunities and priorities. Ideally, the profile would include information on economic and demographic characteristics, projected growth, concentration of members that fall within targeted segments, financial product usage behavior, and the type and intensity of competition within the market. The credit union’s member base and competitive position can be compared to the profiles of each market, and growth opportunities can be calculated by segment and product. This analysis highlights the markets, products
and segments where the credit union may be underpenetrated and can help to inform business strategies and establish priorities for member acquisition, cross-sell and retention programs. Similarly, market analytics should be performed for the trade areas of each of the credit union’s branch offices. This analysis may be used to inform sales goals and staffing decisions.
4. Operational Analytics. Improving both productivity and efficiency is essential for increasing financial performance. Fortunately, most credit unions have a considerable amount of existing data that can be collected, organized and analyzed to identify efficiency opportunities and track performance. This can be accomplished by calculating a limited number of metrics for each major support and member-facing function and conducting a variance analysis to industry benchmarks. The goal of the analysis is to identify where the credit union appears to have a significant unfavorable variance to industry norms and to help inform and prioritize opportunities for improvement in both productivity and efficiency.
5. Channel and Sales Analytics. It is not only possible but necessary to analyze the performance of each branch office in the context of the characteristics and opportunity within its trade area. Performance data for each branch can be gathered that measures sales and service activity, financial performance, operating expenses, staffing levels and composition, and a other measures of branch activity. The combination of branch performance and market analytics enables management to make informed decisions about the allocation of marketing spending, staffing levels, and where to close, open, or reconfigure offices. A separate analysis may be conducted to calculate the percentage of credit union members who are active mobile and Internet users. These usage rates can be compared to industry norms and the analysis used to create effective marketing strategies and programs.
These simple analytics are relatively easy to build, and can help to inform strategies that drive sales and marketing efforts, inform productivity and efficiency improvements, and improve member and employee experiences.
Claude A. Hanley Jr., CPA, is partner in Capital Performance Group LLC, Washington, D.C.