By Chuck Fagan
A recent report from the Filene Research Institute’s Center for Organizational Entrepreneurship, Structures for Innovation, describes how credit unions can find success through organizational ambidexterity. According to the report, “Credit union leaders face the same constant tension as other businesses: How do we exploit our current business while also exploring optionsfor the future? […] this imperative is called organizational ambidexterity, and it’s hard to pull off.”
True ambidexterity in life and business is rare. Only 1% of the world population is ambidextrous, meaning they are equally capable with using both the left and right hands to throw a baseball or football, dribble a basketball, serve a tennis ball, deal cards, write, bowl or do many other things that most of us can only do with our dominant hand. Ambidexterity in a business situation is really about being nimble enough to adapt to multiple challenges and distractions at the same time, and do all those things equally well.
The Filene report first establishes why organizational ambidexterity is necessary for credit unions in today’s marketplace. In short, credit unions must be ready to adapt at the drop of a hat to the actions of competitors, as well as fintech disrupters and innovators. To ensure long-term survival and growth, credit unions must understand how to manage and lead change, and how to innovate, all on multiple fronts and at the same time.
Ambidexterity is hard to do.
'Multi-Way Independence'
The concept of ambidexterity in business can and perhaps should be expanded to include “multi-way independence.” That is a quality and skill world-class drummers possess no matter whether they play for jazz, rock, swing, blues or country music bands. Every limb is doing something different, but in rhythm and time with each other and what the band members are doing. It takes both arms and legs working independently and in synchronicity to make it work.
The old saying among musicians is that a good drummer can make a bad band sound better, but a bad drummer can make a good band sound terrible.
The good news for credit unions is that they can get a good drummer. They do not have to go it alone when they are making their special brand of music for members. Credit Union Service Organizations (CUSOs) can play a valuable role when it comes to achieving organizational ambidexterity. CUSOs can be the capable “arms and legs” you need to stay in time and rhythm. There are three main reasons why credit unions should leverage a partnership with a CUSO to find the perfect balance of organizational ambidexterity and multi-way independence:
- CUSOs provide avenues for innovation and creativity that would not typically occur within the confines of a credit union
- They can provide a revenue stream for credit unions that would not be available within the confines of a credit union
- CUSOs can reduce service costs incurred within the traditional credit union
Some CUSOs may do all three.
Leveraging Collaboration
CUSOs provide credit unions with a method to spur innovation, increase efficiencies through specialization and gain economies of scale. CUSOs leverage the power of collaboration that already exists within the industry to offer several benefits such as:
- Economies of Scale: Economies of scale are achieved when a company produces goods and services on a larger scale while simultaneously lowering average input costs. CUSOs achieve economies of scale by producing goods or services for several credit unions rather than having a single credit union attempt to replicate the same benefit. By utilizing the power of collaboration, CUSOs can specialize in a given product or service that enables them to provide higher-value products and services at a much lower cost.
- Competitive Advantage: CUSOs offer credit unions the ability to remain competitive by improving efficiencies and producing a wider array of products and services that would be unobtainable without CUSO collaboration. They enable credit unions to acquire scale and market power along with other resources such as capital and staff that far exceed their individual sizes.
- For Credit Unions by Credit Unions: Owners of CUSOs are, themselves, credit unions, so it is in their best interest to do what is best for credit unions. Rather than focusing solely on profit, CUSOs also focus on the overall well-being of credit unions and their members. Credit unions, not shareholders, are in control of the CUSO’s product development roadmap, and the CUSO delivers on the roadmap by leveraging expertise of credit union executives. Using ideas from the best and brightest in the industry ensures best practices are shared, resulting in the best products and services available.
CUSOs formalize roles, distribute risk, allocate capital and explore opportunities while allowing individual credit unions to exploit mature lines of business. A CUSO cooperative allows its Member-Owner credit unions to share risks and benefits when exploring new products and services.
Incremental Benefits
CUSOs deliver incremental benefits to their owners through scale in buying power, partnerships with industry leaders and innovators, and direct access to the services credit unions need to compete with banks and other financial services providers. Access to industry leading partners gives a CUSO’s owners the opportunity for early adoption of new payments technology.
The collaboration of multiple owners spurs more innovative products and services because there are many different viewpoints from the most innovative minds in the industry. Unlike most other vendors in the credit union space, CUSOs are required, by law to have multiple owners.
Credit unions are cooperative by their very nature. With a CUSO and its owners, there is a mutual understanding of what is truly important. Credit union owners should expect their CUSO partner to help lift their performance across nearly all business disciplines and operations, including when it comes to the difficult task of achieving organizational ambidexterity.
CUSOs are the multi-independent and ambidextrous drummers that can help your credit union make beautiful music.
Chuck Fagan, III was appointed PSCU’s CEO in April 2015. He has nearly three decades of experience in the credit union industry and was instrumental in helping pioneer PSCU's role in bringing emerging payments technologies to credit unions. On behalf of all credit unions, PSCU sponsors Filene’s Center for Organizational Entrepreneurship identifying cooperative strategies for sustained competitive advantage and business model innovation.