Economic hits and likely regulatory changes have made developingback-office collaboration essential if credit unions are tosurvive, according to a new report from the Filene ResearchInstitute.
In the executive summary to “A Road Map to Credit Union Back-OfficeCollaboration,” George Hofheimer, chief research officer forFilene, put the situation starkly, using a business metaphorcommonly called the “burning platform.”
In the burning platform metaphor, an organization is confrontedwith a type of emergency that will force a dramatic change inaction akin to taking to lifeboats if a North Sea oil drillingplatform catches fire.
“When the dust settles, what will the brave new world of bankinglook like?” Hofheimer asked. “Will there be a burning platform thatspurs credit unions to consider a dramatic shift in the way theyoperate? Does collaboration play a role? Are you willing to waitfor the burning platform?”
Author Michael Taylor, CEO of a business consultancy calledSchellingPoint that specializes in business collaboration, foundmany credit unions still struggling with building a case forstarting to collaborate.
“We found a pretty wide divergence of opinions in our research,”Taylor explained. “Some executives we spoke with saw the need andwere very keen to get started, but then others who understood theconcept theoretically, but were still thinking 'why would I want todo that.'”
Taylor reported that the researchers had concluded much of theirwork on the project around the same time that the economy began todecline. If they were to do it now, he acknowledged, they wouldlikely find more credit union leaders more open to planning andlaunching collaborative efforts.
The report defined “large-scale collaboration” as a shared service,back-office utility owned, operated, and governed by multiplecredit unions. Researchers interviewed 154 executives fromdifferent parts of the credit union industry for theirresearch.
“I think that at the time we conducted the interviews the big stickof economic change and circumstances had not yet become clear,”Taylor said, “certainly not as clear as they have becomenow.”
For example, when conducting the research, 74% of the executivesinterviewed said, “overcapitalization in the credit union systemdoes not encourage efficiencies,” and Taylor wondered whatpercentage would say the same thing now.
A bigger concern for smaller credit unions was the amount of timeit would take to set up a collaborative organization when manyalready feel overwhelmed.
“There were people from small credit unions who said the idea ofcollaboration was great if they could get away from working withmembers for a few moments,” Taylor said. “And this is crucialbecause collaboration is even more key for smaller and mid-sizecredit unions.”
Both Taylor and Hofheimer acknowledged that credit unions alreadyhave institutions that foster collaboration in the form of CUSOs.Some of them, particularly those involved in payments processing,card processing or ATM networking, are quiet large. But Hofheimerpointed out that that CUSOs are still used by only a minority ofcredit unions, and even the largest ones only touch on a small partof credit union operations.
In order for CUSOs to be the agent of real collaboration and costsavings for credit unions, more credit unions would have to usethem and use them for more tasks, Hofheimer estimated.
Taylor agreed, and added that the industry faced an obstacle whenapproaching collaboration: credit unions need to collaborate moreon back-office tasks but were unlikely to do so unless other creditunions did it first-particularly similarly situated creditunions.
“It wasn't just that we found a chicken and egg thing working,”Taylor said, “where credit unions needed to see other credit unionsdoing it before they would. It was more like they needed to seemore credit unions like them getting involved with collaboration tohelp them decide to do it.”
Taylor also acknowledged that credit union leagues or tradeassociations, on the surface, would appear to have a role inhelping foster and build credit union collaboration, but reportedthat the executives interviewed doubted the leagues and tradeassociations could have much of a role.
“While there is divergence with a slightly positive bias for havingleagues encourage collaboration, there is a correspondingdivergence with a slightly negative bias for the trade associationsdoing so,” wrote Taylor in the report.
“The main concern here is that the trade associations would be likecentral planning, and there is a fear of industry mandates,” Tayloradded. “While many feel there should be tools for collaborationfrom the Credit Union National Association (CUNA), there is muchdissent and an inference that they could expect more hindrance thanhelp from the trade association.”
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