What is Cooperative Clout?
The Cooperative Riddle
Unlike profit-based enterprises that emphasize maximizing rate of return, credit unions have a dual mandate -- balancing the desire to create value for members, which mandates a low rate of return, with the need for financial sustainability, which mandates a high rate of return.
This dual mandate makes it difficult to measure what success looks like, with the default being a more is better approach when it comes to return on assets (profit taken from members) and net worth (profit retained). Fortunately, there is a way to quantify if value is being created in a financially sustainable manner.
Member Value Added
Member Value Added views credit union performance through the eyes of the member, evaluating seven aspects of performance to quantify how effectively entrusted resources are deployed (operating expense and member net worth) and how member-friendly loans and shares are priced.
NCUA 5300 data is used to build an expense peer group, placing each credit union on equal footing in terms of resources at their disposal. In areas where the credit union exceeds peer, member value is created; a member value opportunity exists where performance lags peer.
Operating Muscle views credit union performance through the eyes of an analyst, evaluating six aspects of performance to determine its financial sustainability.
The shortcoming of traditional "return/value" measures is they fail to address this aspect of performance. It's possible to score well in return to members, but because productivity, asset quality, and capital adequacy are ignored, the financial sustainability of the credit union might be in question. By adding Operating Muscle to the analysis, a check and balance system is now in place.
The Cooperative Riddle Solved
The riddle of defining what success looks like in the cooperative model is solved! Member Value Added and Operating Muscle are plotted on a four-quadrant matrix to visualize what Cooperative Clout looks like. Top Quadrant performers, having above average Member Value Added and Operating Muscle, have the most Cooperative Clout.
The Cooperative Clout Matrix provides the following benefits:
Cooperative Clout has helped our board and leadership team agree upon a common vision of success; our True North to work toward.