The Power Of Purpose Is In The Details

What does it mean to be mission-driven? What does it mean for design, intent, and charter?

This concept has piqued the interest of more and more credit unions in recent years. Even as the NCUA focuses on financial performance, safety and soundness, and risk, it, too, must pay attention to why credit unions exist in the first place.

Why has been a regular focus on CreditUnions.com as well as a key topic of conversation at every Callahan-hosted event this past year. The National Credit Union Foundation has grounded its “financial wellbeing for all” concept in why. Why lies at the core of several of Filene’s Centers of Excellence. And at CUNA’s 2022 Governmental Affairs Conference, Tony Budet, outgoing CEO at UFCU in Austin and CUNA’s serving chair, devoted half his introductory address to sharing stories about credit unions that are focused on their why.

Of course, no one uses that word — why — opting instead for labels such as mission, vision, and purpose. Ultimately, the label doesn’t matter as long as we all understand it’s about why. At Callahan, we use the label “purpose” because that’s what Harvard Business School Professor Rebecca Henderson uses in her class and in her virtual course, Sustainable Business Strategy, which we offer in collaboration with HBS Online. Professor Henderson uses “purpose” because it’s the term most commonly used in academic research into the business impact of why, and that research is incredibly compelling.

When companies pursue long-term strategy grounded in purpose, employees are more engaged and motivated, consumers respond with more enthusiasm and loyalty, and companies perform materially better in terms of total stockholder return and lower investor risk. These performance and outcome advantages are material, consistent, and sustained over years. And although the metrics might differ, Callahan research and analytics suggests those advantages extend to credit unions as well.

4 Requirements Of Purpose

Most credit unions, like most companies, have a purpose statement, a vision statement, or a mission statement. But most credit unions, and most companies, don’t perform well above average.

This gap between intention and reality extends beyond financial performance, too. Research shows nearly two-thirds of consumers want to do business with purpose-driven organizations, according to a 2018 study from Edelman, but an overwhelming majority of them are skeptical of purpose-driven marketing. And although research from MIT shows three-quarters of employees would prefer to work for a purpose-led employer, only one-quarter thinks their company is as purpose-driven as it believes itself to be.

It’s not enough to have a purpose statement or even to believe in the purpose. To deliver results, the purpose must be:

1. Specific to who is being served.
2. Clearly and consistently understood by all stakeholders.
3. Embedded in the business model.
4. Measurable and measured.

Any purpose statement that falls short of these conditions might sound great, but it won’t deliver the goods.

Specific to who is being served. The idea that you can’t be all things to all people is widely accepted and routinely ignored. No one wants to turn away business. This is particularly true for commodity sectors like the credit union industry. Research shows, however, that winners differentiate in these markets by tailoring offerings to the specific needs of specific market sectors. The most successful credit unions know who they serve and why. Being clear about this communicates your commitment to stakeholders and ensures you build your business so it honors the promise of your purpose.

Clearly and consistently understood by all stakeholders. This isn’t about marketing, member communications, or internal leadership — it’s about execution. Virtually every well-regarded business theorist or consultant addresses the importance of clear, consistent, universal communication of every strategically important idea, at least implicitly. Across his life’s work and all his key concepts, Clay Christensen is explicit that this is a key success factor for every well-run business. Sustainable, successful operations requires that everyone involved understands what needs to happen, why it needs to happen, how it needs to happen, and why getting all of this right matters. This is as true for purpose as anything else.

Embedded in the business model. A central idea of purpose is that you can do well and do good at the same time, and that focusing on doing good while also doing well can produce better performance. Operationally, this means meeting unmet needs in ways that are both positive and profitable — impactful and also self-sustaining. Some credit unions do this through local member business lending, some through auto loan programs that help employed members with poor credit purchase dull but reliable cars to get to work, some through green-lending initiatives, and some through alternative underwriting.

Measurable and measured. Credit unions measure performance through return, risk management, and regulatory compliance. They measure success through well-established metrics, such as loan and deposit rates, delinquency, and efficiency. But these aren’t always compatible with purpose. Purpose-driven credit unions often have higher than average expenses and higher than average credit losses; they don’t offer the cheapest loans, the fewest fees, or the best savings rates. These institutions define success through their impact on stakeholders. And just like the for-profit companies covered by purpose research, these purpose-led credit unions often deliver ROA that is well above average for the industry.

Is Some Better Than None?

It’s reasonable to expect a purpose statement that meets some of the criteria for impact would deliver better results than one that sounds good but satisfies none of the conditions. However, research consistently suggests real benefits are an all or nothing proposition. That’s why Callahan & Associates offers a range of professional support:

• Our program on Leading With Purpose, based on Professor Henderson’s work, illustrates the power and potential of knowing who you serve and why.
• Our Purpose Alignment Tool helps you ensure everyone understands what your credit union’s purpose is, why it matters, and how it works.
• Our strategy consulting practice, which addresses all these elements, often focuses on how to embed your purpose in your business model.
• Disruptive Strategy, based on the late Clayton Christensen’s influential work and offered in collaboration with Harvard Business School Online, is grounded in the indispensability of using the right metrics to measure performance and strategic success.

How To Lead With Purpose

Does your credit union serve its members and community in ways that set it apart from other financial choices? Rethink your role and responsibility to members, employees, communities, and the environment with Sustainable Business Strategy, a virtual learning experience Callahan & Associates offers in collaboration with Harvard Business School Online.

Learn More & Register Today