Redefine “Efficiency”

Redefine "Efficiency"

Many fall into the trap of chasing efficiency too hard and to the overall detriment of the organization. This is often enabled by the board. Efficiency does not mean running at the edge of collapse. Board members can be asking questions to encourage the productive health of the team rather than chasing a ratio as low as it will go. It’s time to redefine “efficiency.”

By Kevin Smith

Resources, human and money, are limited, never endless. I’m making sure you know that I know that before we get into this topic.

What I Often See

I’ve worked with organizations that have staffing strategy that run the razors edge of collapse, almost as a strategy. They would brag about how “efficient” they were and how low the efficiency ratio was. This looks really great to the board, right? I’m guilty of that thinking sometimes. But when I talk to boards, I remind them that this is not a ratio that you can chase to zero. Sometimes your level of perceived “efficiency” is keeping the organization from doing what you’d like it to do.

I’ll tell you what’s actually happening in some of these places that are bragging about how lean they run. Work is piling up on people in a way that will become unsustainable. This is generally from the middle of the organization down. It’s bad enough that people will burn out and potentially leave, but there are even greater harms that come with this. I’ve been in meeting rooms where there was open discussion about strategies to deal with “breaking points” for workloads. The open conversation was, “We know that this is too much for you, but leadership will not approve any new hires. We’ve asked. The only way to change this is for something to go horribly wrong.” Those in the middle often end up as the scapegoats when something inevitably does collapse.

What I’m describing is a very toxic environment. Certainly not all scenarios are this extreme, but consider where you might be on the spectrum from overstaffed to critically understaffed. Do you really know where you stand? Do you know if you’re getting the right inputs to have a good sense of this?

Yes, keeping costs down helps the bottom line. But focusing too hard on expense control may prevent you from having the capacity to add income, or services

Questions for the Board to Ask*

  • What are we not able to get to that would be great?
  • What’s on your wish list?
  • What are the current fires to put out?

*These questions require a high level of trust between the board and the CEO. When you ask these, your CEO can’t be afraid that these are next month’s “to-do list” or list of admonishments as missed goals.

Yes, It’s Tough Out There Now

Some of you are thinking – “I can’t even hire enough people to get to a bare minimum right now. Why are you talking to me about ‘buffer’?” Some of our clients are in this boat, and I understand the frustration. But looking at this issue from your scarcity perspective can be equally valuable. The hiring issues will change and end, and probably pretty soon. What can happen though, is organizations can get so used to the crisis mode of running leaner than ideal that you lose sight of what it means to have adequate resources. When you run from fire to fire for long enough, when that starts to taper off it feels like space. In reality you’ve just gone from really terrible to pretty bad, and that feels like progress. It’s easy to lose your perspective about what “ideal” looks like after extreme scarcity.

If – for two years you’ve been running at 75% with open positions and people out sick, at a chaos level,
Then –  when things ease up and you get to 90%, it feels like cushion because you are no longer in “frantic” mode.
But – this is not the same as being staffed adequately, where people have the time and energy to be innovative, and to get at new and bigger things.

Questions for Me to Ask of Boards

  • How much emphasis do you put on the efficiency ratio?
  • Is lower always better to the boar and leadership?
  • How does the CEO talk about efficiency and staffing? Is it predictable?
  • Is there enough trust between the board and the CEO, and between the CEO and the staff to have honest conversations about where things stand and where they should be?
  • If you answered “yes” to the question above, how do you know? What’s your evidence?

This is Important!

This is an important topic for boards to have a good handle on (even if you’re understaffed right now). The critical risk is that efforts to run so lean usually mean that the credit union is not getting to projects that that a new, innovative and that cause growth.

I’m asking you to make sure your approaches are not in a rut, or on autopilot. Ask new and different questions (always at the strategic level). One of those is about efficiency. Does the discussion about this always go the same way? It is time to shake things up a bit?

For those of you wondering out there, yes, there are credit unions that are bloated and that need trimming and to understand how to “right-size.” It’s a complicated world with lots of paths. But this is a topic for another day.

2 replies
  1. Mark says:

    A very timely article. We [credit unions] have always prided ourselves on efficiencies, but sometimes it seems we worship the efficiency ratio and the consequence is burn out. Kevin, great article – thanks for sharing.

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