The Myth of Efficiency and the Allure of Scale

The Myth of Efficiency and the Allure of Scale

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Republished from chipfilson.com

Supporting most mergers and more recently, bank “purchases”, is a belief in the importance of getting bigger.

The assumption is that size creates scale, resulting in greater efficiency. But the assumption is much less compelling if one were to look at the operating expense or efficiency ratios of the set of credit unions over $1 billion. Both ratios are all over the map for the largest credit unions.

The wrong focus?

Efficiency is not unimportant, but it is only a part of the performance requirements needed in a competitive organization.

Today’s financial, economic, and competitive uncertainty rewards the ability to traverse the unexpected and the unknown. An efficiency orientation can undercut the ability to adapt and respond to ever changing events.

Where should the emphasis be?

If efficiency can hinder progress, what is the skill set needed by management to succeed? Dealing with new circumstances requires creativity and courage — that is, a team that trusts each other.

Technology–and especially artificial intelligence applications–can force a standardized solution on individual circumstances, that while efficient, may strip a process of its most critical components: human skills and empathy.

When I speak with CEOs with long running, superior track records, they often describe a people-centered, process approach to building their credit union. The priority can be member service, trust, or another form of member advocacy or empathy.

This core management process is then reinforced with metrics shared with the entire team.

Member relationships drive scale, not efficiency

The outcome these CEOs single out is “productivity” often measured by average member share and loan relationships, not efficiency. For member relationships are the underlying factor that brings “efficiency” no matter the scale or size of a credit union’s balance sheet.

Author


  • A nationally recognized leader in the credit union industry, Filson is an astute author, frequent speaker, and consultant for the credit union movement. He has more than 40 years of experience in government, financial institutions, and business. Chip co-founded Callahan and Associates. Filson has held concurrent positions at the NCUA as president of the Central Liquidity Facility and Director of the Office of Programs, which includes the NCUSIF and the examination process. He holds a magna cum laude undergraduate degree in government from Harvard University. After being awarded a Rhodes Scholarship, he earned a master’s degree in politics, philosophy, and economics from Oxford University in England. He also holds an MBA in management from Northwestern University’s Kellogg School in Chicago.

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