By Jon Jefferys, President and CEO of Callahan & Associates
I love hearing credit union origin stories. These stories usually involve a small group of people and a shoebox. Yes, almost always a shoebox.
Those early pioneers had a common cause that brought them together for which the formation of a credit union was the solution. In those early days, the reason behind the creation of the credit union was the origination of the organization’s purpose. As we fast forward to 2022, purpose has become a buzz word. The word has the risk of being the new pet rock of business jargon. That said, purpose, when used in the proper context, is a key ingredient and truly the lynchpin of credit unions’ sustainable growth.
One of the challenges with purpose being used as a buzz word is that it can quickly become a catch all for all that ails the organization, and therefore appear unauthentic. Research shows that purpose improves your long-term relevancy and ensures your sustainable growth, but only if it is authentic to, and aligned with, the stakeholders you serve. Without authenticity, a hollow purpose will do more harm than good.
Purpose is one of those phrases that has different meaning to different people. For some, purpose is the same as mission. But not to me. I believe your mission is what you do, while your purpose is why you do it. The why is foundational and fundamentally imperative. Purpose lies at the intersection of two essential questions: Who are we, and what need do we fulfill in society? Purpose goes well beyond financial performance. Purpose defines why society should want your credit union to succeed and, when done right, purpose makes you indispensable to your members. Pursuing your purpose is a powerful change from “business as usual” and involves taking risks and painting outside the lines. Finally, for your organization’s purpose to elevate your business and be truly impactful to your stakeholders, it must be personal to you.
How does purpose tie to sustainable growth?
Harvard Business School Professor Michael Porter famously said, “Culture eats strategy for breakfast.” Like most things in organizational performance, employee engagement is one of the keys to success. Employees are the leverage point for whether organizations and leaders can implement and execute strategy. It’s no different with purpose: embedding your purpose and using it as a driver for growth, can only happen with highly engaged employees.
Research from a 2021 MIT Sloan study showed that 72% of employees feel it is important to work for an organization that has a purpose they believe in. Yet, only 25% of those respondents believed their organization is as purpose-driven as the leaders think it to be. The difference here is commonly called the purpose gap. As leaders, it is imperative to identify these gaps and remediate them for the organization to remain relevant.
Harvard Business Review’s 2019 article “Why Are We Here” showcases the performance impact of purpose, and its significance. For companies that have clearly defined and communicated their purpose more than 90% deliver profits and revenue at or above their peers, and these findings are across industries. In these purpose-driven companies, employee engagement is up as well, with 63% of employees report being motivated and 65% report being passionate about their work. Both these are over double the results from non-purpose-driven organizations (31% and 32% respectively).
Having a clearly articulated and inspiring purpose which is fully embedded in your culture is what drives performance because it motivates and empowers employees to do their best work. When employees are aligned with your organization’s purpose and are empowered to live it, they show up differently. They show up passionately, and passion is contagious. This passion creates an environment ripe for innovation; and when your innovative minds are centered around how to better serve the unique needs of your members and communities, that is where the magic of purpose comes alive.
When an organization has a clear focus on purpose and engages its employees in the purpose, member engagement increases. According to research from Gallup, teams that optimize employee or member engagement perform 70% better than those who don’t. Said differently, they boost financial performance by 70%. However, those organizations that optimize both employee and member engagement, perform exponentially better by 240%! 2.4X is a compelling business case for embedding purpose in your organization and starting it with your employees. It clearly drives the business forward.
When your credit union has profitable, sustainable growth, you can reinvest more of your earnings back into your stakeholders. This could mean success sharing rewards for employees, year-end bonus dividends for members, and more philanthropic activities within your local community. As credit unions reward their three stakeholders, it reinforces the purpose and propels the organization forward.
To help credit unions put purpose into action, our team at Callahan & Associates developed a framework which highlights a virtuous cycle that starts and ends with purpose—Callahan’s Sustainable Growth Framework.
In addition to driving employee and member engagement, the focus on purpose helps drive differentiation. Certainly, credit unions need to have fair rates, reasonable fees, and appealing products, but most do not need to be market leaders in these areas. Where credit unions do need to be leaders is on delivering emotional connections. Behavioral science shows that upwards of 70% of consumer decisions are made based on emotion, yet many credit unions choose to compete on rational tactics like rates and fees. Leveraging purpose can help shift the narrative and build an emotional connection. Stakeholders with a strong emotional connection become advocates, internally and externally, for your cooperative.
Once employees fully believe your purpose, they need a new way to measure success. How we track our success, the metrics we use, will set the stage for our short- and long-term outcomes. As regulated financial cooperatives, we have an obligation to keep our eye on metrics our boards and regulators watch: ROA, Net Worth, Delinquency, and Concentration Risk to name a few. But when implementing a purpose-driven strategy, non-traditional, impact-based metrics must be included on your scorecard, or you risk not seeing true progress. We have all heard the sayings such as “we measure what we treasure” or “what gets measured, gets done” and this is especially true with purpose. Tracking success in new ways takes two forms: one is new framing, and the other are new attributes. For framing, instead of tracking dollar of first mortgage loans, perhaps report how many families your credit union helped own their home; and report on financial resilience of your members by the percent of members who have $400 in savings. For new attributes, consider reporting how much money your credit union saves members by refinancing loans at lower rates; or how many members were given access to financial services who were historically excluded and therefore shut out from building wealth. Tracking your actions and innovative activities reinforces what is important at your organization and reporting the impact on improving members’ quality of life brings your purpose to life.
Mindset for Implementation
Leaders who choose a purpose-driven path are committing to a long view. Leading with purpose requires organizations to transform, and transformational journeys take time. In addition to time, transformation takes strong alignment and consistent communication. For CEOs to successfully execute a purpose transformation, it requires concerted and extensive board communication, as well as hyper focus on internal culture and stakeholder communication. To close the purpose gap, you must have the minds and hearts of all stakeholders, but none more important than your middle management team. Research shows that middle management is key to successfully embed purpose; and executives must commit the time to develop strong feedback loops with leaders in the middle of the organization. Successfully embedding purpose is not a top-down endeavor, and it requires listening to stakeholders around authenticity. If stakeholders’ real-life experiences do not reflect your purpose, employees and members will see your purpose as a fancy tag line that is unauthentic. If this happens, no one wins.
You may be familiar with a saying in non-profits, “No Margin, No Mission.” Purpose-driven organizations flip that to “No Mission, No Margin.” Credit union leaders are often fortunate that they do not have to choose between their head and their heart, they can flex both equally in our cooperative model. The credit unions that are intentional about crafting strategy that positions themselves at the intersection of head and heart, are the ones which will remain relevant long-term. Harvard Business School Professor Rebecca Henderson calls this “Doing Well by Doing Good” and she sees it as a business imperative.
While purpose is the driver of sustainable growth, it starts with how your purpose motivates and inspires your employees, and therefore how it changes your culture. Leaders need to be aware that this purpose journey may require you to rethink your organizational structure and redesign your org charts. Ensuring you are recruiting and retaining the right talent to propel your purpose forward is essential, and this includes making tough decisions about letting employees go who are not aligned with the new direction of the organization.
Purpose is a journey. It takes commitment and persistence. It is easy to get teams excited and gain their buy-in on day one. After all, most people want to leave behind a legacy and make the world a better place. This passion is good, but it needs to be tempered in some realism. Organizational change takes time and requires patience. Progress will be measured in years not quarters. Setting realistic progress milestones is critical so employees don’t become discouraged when outcomes aren’t immediately recognized.
Credit unions are looking for growth opportunities; and members and communities need the services your credit union provides today more than ever before. While some consumers are experiencing improved personal balance sheets, many are struggling and could use a helping hand. The credit union motto of “Not for Profit, Not for Charity, But for Service” remains highly relevant. It’s a deeply rooted commitment to service, and when infused with your purpose will ensure you’re meeting the critical needs of your current and future members. Providing consumers equal access to fair financial services is just as vital today as in the year credit unions were established . We believe a clear purpose can inspire your employees to do great work, engage your members in ways not dreamt possible and can improve the lives of future members in your communities, giving fuel to your virtuous purpose cycle, and ensuring your credit union’s long-term success.