Creating value for stakeholders should be the strategic objective of the board and executive team, yet this goal is not always strictly about making more money. In not for profit entities, such as credit unions, the real objective is to maximize membership value in the form of better service, lower fees and loan rates or higher deposit rates. These objectives need to be balanced by targeting a return on assets (ROA) and capital level which enables growth and sustains the credit union through good times and bad.
Do you know of a bank or credit union that doesn’t have a chief lending officer (CLO)? Not likely. How about one with a CDO (Chief Deposit Officer)? This is so rare we only know of one institution with a member of a senior management team with this title.
Being “not for profit,” many credit unions have felt that profitability analytics is inappropriate. Nothing could be further from the truth. Credit unions, at a minimum, need to make an appropriate level of profitability so as not to run out of capital as they grow. Now, as competition is getting more intense, credit unions are being forced to be savvier in pricing and how they deliver the products to members, just to survive.
What is a CFO? As we all know, CFO stands for Chief Financial Officer, which means that they are responsible for the finances of an organization, but what does it really mean to be a CFO? It can be argued that most are only CAOs, Chief Accounting Officers, and not CFOs.
Many credit unions struggle with the concept of profitability analytics. As not-for-profit entities, many believe profitability should not be the objective. They also mistakenly think profitability analytics is only about maximizing profitability. Both concepts are simply wrong. For credit unions, profitability analytics is about managing profitability to appropriate levels, not maximizing it. But what is the appropriate level of profitability?