NAFCU Services Blog

The classic 1970s novel ‘Zen and The Art of Motorcycle Maintenance’ spends a couple of hundred pages exploring the question of how you define quality, among many other things, including motorcycle maintenance.  I don’t remember anything at all it said about spark plugs, but the discussion of what the term ‘quality’ means really stuck with me.

In a meeting last week someone made the observation that they thought their organization was ‘world-class’ when it came to operational excellence.  I’m not sure that I would agree, having experienced first-hand their service as a client. That reminded me of the book -- how do you define operational excellence in the context of a credit union, without just falling back on the ambiguity of ‘I know it when I see it’?

There are many, many classic business models that offer guidelines for defining operational excellence, but all start with the same organizational goals –

• Strategic alignment
• Effectiveness
• Efficiency
• Service Quality
• Scalability

And in accomplishing those goals, we all have the same basic pieces to work with --

• Organization and People
• Processes
• Technology and Data
• Vendors and Partnerships

So how do you meld all this together to meet the highest standards of operational excellence? And how do you develop metrics to measure it to make sure you’re hitting the mark?

I learned a bit about Six Sigma in my time in the paper industry a few years ago, so even though business intelligence and predictive analytics have gone much further since then let me use Six Sigma to illustrate some essential concepts. We could spend days on this topic, but Six Sigma is a process management discipline pioneered by Motorola in the 1980s.  Originally developed in a manufacturing context, Six Sigma aims to improve quality by reducing defects (errors) and reducing the level of variability in business results attributable to business processes.

What was set Six Sigma apart was its focus on quantitative measures, and the name even came from the goal -- 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million), a numeric measure of quality and operational excellence.  Most important, Six Sigma focuses on process or service capability and places a strong emphasis on continuous quality improvement. So while the initial data set represents a snapshot in time, the process is intended to be iterative to enable a continuous focus on improvement.

There are five steps to the Six Sigma process (with apologies to any Six Sigma Champions or Master Black Belts out there, this is a gross oversimplification).  The acronym is DMAIC – Define, Measure, Analyze, Improve and Control – and the model can be applied to any organization, credit unions included.

Define

• Identify the problem
• Gather data on the voice of the customer (member!)
• Delineate project goals

Measure

• Identify Critical to Quality (CTQ) Variables
• Map the Process
• Develop and Validate Measurement Systems

Analyze

• Benchmark and Baseline Processes
• Calculate Yield and Sigma
• Target Opportunities and Establish Improvement Goals

Improve

• Isolate the “Vital Few” from the “Trivial Many” Sources of Variation
• Test for Improvement in Centering
• Use of Brainstorming and Action Workouts

Control

• Set up Control Mechanisms
• Monitor Process Variation
• Maintain “In Control” Processes
• Use of Control Charts and Procedures

If this feels like a ton of effort, it is – there is a reason why there is an entire cottage industry devoted to consulting on Six Sigma engagements. But ultimately the effort yields benefits – just the process of looking in rigorous analytic detail at a segment of your operation will provide insight into your credit union.

So jumping ahead to current thinking, Six Sigma has evolved into the science of business intelligence and predictive analytics. We had a speaker at the NAFCU CEOs and Senior Executives Conference two years ago on the topic of mining the data at your credit union to improve business results – Tom Davenport, author of ‘Competing on Analytics’ (sponsored by SAS Institute, our Preferred Partner for business intelligence). His message was much the same but updated and extended to reflect the new opportunities that technology offers us today – how gathering, storing, analyzing and providing better access to data leads to more efficient business decisions.

Related Preferred Partner Resources:

SAS Institute is one of the largest software companies in the world, an acknowledged leader in the field of predictive analytics and business intelligence, and as noted above is our Preferred Partner for this solution set.  SAS has a comprehensive suite of business intelligence applications that provide extensive analytical insight into the operations of your credit union, for functions as diverse as collections, risk, marketing and membership.

SAS has provided a series of free webcasts for anyone interested in understanding more about predictive analytics for credit unions to manage risk, reduce costs, and grow membership. Find them at www.nafcu.org/SAS.

Post written by David Frankil, President, NAFCU Services Corporation