Kill the Credit Union Org Chart

This “Kill The Credit Union Org Chart” post remains a popular destination despite the fact that it is more than 4 years old. Perhaps the post’s continued popularity is an indication of embedded credit union frustration with hierarchical org charts that conflict with the way work is actually done.

In 1985, Harvard professor Michael Porter authored a landmark book entitled “Competitive Advantage.” The book’s subtitle was “creating and sustaining superior performance.” The first two chapters hit hard, introducing a unique categorization of business and a new way to look at the structures of work organizations. At the time, American business was being trumped by the Japanese, and other industrial powers. American industry seemed bloated, inefficient, and unfocused. In authoring the book, Porter perhaps was looking to shake American business up a bit, reminding them that the purpose of business is not to simply be in business, but to efficiently drive to greater levels of performance and return to stakeholders.

A key element of the book is the value chain, introduced in chapter 2. The basic premise behind the value chain is that an organization must be aligned, with various departments, functions, and activities working to maximize whatever value the institution desires to deliver to customers – all for the sake of better profitability and returns. In some ways, credit unions today are acting much like the industry described in Porter’s book. In certain cases, inefficiency and misalignment have resulted in bloated organizations unable to maintain the competitive advantages inherent in the credit union charter. The only way out, in our opinion, is to embark on an effective realignment effort along the lines defined by Porter’s value chain.

What Is Resource Alignment?

So what does it mean to truly align your resources? In keeping with Porter’s value chain structure, it means that you have:

  • Purposefully classified the functions and/or activities of the credit union as either primary or support;
  • Understand how each primary activity builds on a prior primary activity;
  • Understand how support activities directly support primary activities.

While it seems elementary in structure, pulling off such an alignment is a difficult proposition – and not because the concept is difficult. Pulling it off is challenging mainly because we are very married to common departmental definitions and industry-standard org charts. It can be done, however, so let’s explore the themes of alignment in the context of a value chain and interrelated workflow.

Aligning Your Credit Union

The very first step in the alignment process is to take stock of the various activities performed by the credit union on a daily basis. It may help to make use of existing functional areas, such as lending, or branch operations, as a starting point. Keep in mind that this is more a macro-exercise than a detailing of job tasks. You don’t need to catalog how often the printer needs to be loaded with paper, for example, but the task of preparing paperwork for a loan document is an activity worth noting.

The next step is to begin grouping activities defined in this analysis according to where they fall in the “flow” of product/service delivery and support. This is when we begin using some of the language introduced to us by Porter. Porter devised what he called a “generic value chain” of related activities (generic indicating that the model can be used to describe most activity alignment). Porter splits the value chain activities in the model into two main categories; primary activities and support activities. We will start with primary activities. Primary activities are to be considered the main functions of a business, and according to the model there are five primary activities, which are:

  1. Inbound logistics
  2. Operations
  3. Outbound Logistics
  4. Marketing and Sales
  5. Service

Now, these terms probably sound a bit strange because we don’t really “do” inbound logistics in the credit union community. And how about that “outbound logistics” item? What is that? Fortunately Porter’s is a generic model meant to be adapted. If we change the words around a bit, we can translate these functions into our language. For example, if we assume our primary business is making loans, here is what these terms could mean to us:

  • Inbound logistics becomes something more along the lines of asset and liability management, securing funding sources, and so forth. This could also include acquisition of deposits and/or new accounts.
  • Operations becomes something like underwriting and risk management.
  • Outbound logistics becomes funding and disbursement, document prep, perhaps even delivery systems.
  • Marketing and Sales doesn’t really change in name, but the classification of activities becomes a little more broad than we are used to. We will cover that in greater detail in a bit.
  • And finally, service can mean teller transactions, loan servicing, payment processing, etc.

Note that we don’t follow conventional org chart definitions here. There is no loan department, no branch operations, etc. It isn’t that these departments or functions go away, but that there is a greater classification of groups of activities that are supportive of one another. But really, at this point we only have half the picture. The other classification of activities, remember, is support activities.

Sample Credit Union Value Chain
Sample Credit Union Value Chain

As we explore support activities it helps to form a picture of the value chain diagram. Imagine a square on which “Inbound Logistics” is written. Imagine a second square to the right on which operations is written. Imagine a third square to the right of that on which Outbound Logistics is written. Hopefully you are getting a mental picture of these individual primary activity blocks going from left-to right. The business of delivering and supporting the products you offer is represented here, with input (such as deposits) moving through the process ultimately ending up with servicing member needs.

When it comes to support activities, which include firm infrastructure, human resource management, technology development, and compliance, it helps to imagine a long rectangle – so imagine a long rectangle, stretching across all of the squares we just defined, on which firm infrastructure is written. Imagine above that, another long rectangle on which human resources management is written. Keep going until you have rectangles for each support function.

Now why do you think, unlike the description of primary activities where we started off describing what the activities were, we began the description of support activities by having you picture these squares and rectangles? Because it helps to visualize the fact that support activities traverse (i.e. relate to) ALL of the primary activities. This is important because it suggests a change in the key questions each support function must consider as it plans its support-based activities.

HR, for example, changes its focus from asking “how do I develop the people” to “how do I develop the people to best support our marketing and sales efforts.” It changes the stated direction for IT from “buy, implement, and manage technology to support our business,” to “buy, implement, and manage technology to support our underwriting efforts.” There is a huge difference in focus here.

A second consideration for these support activities is one of outsourcing. IT, for example, does not add direct value to the member relationship. Let’s face it. It is rare that we support our own core system creation and associated software. We buy it, for the most part, off the shelf with perhaps a little customization. Are we better off outsourcing some of the IT function, considering it is a support activity, than managing an ever-larger IT staff? I’m not advocating this for everyone, but the debate as an outcome of classifying IT, truly, as a support activity, is an interesting one. Does IT give you a competitive advantage? Perhaps, but the same IT can often be bought by someone else, which evaporates the advantage.

So where are we at this point in this post? First, we defined the requirement of understanding what macro activities you perform as a credit union. Then, we defined the need to classify those activities in the categories of the value chain model (with a few changes to verbiage to account for our industry vocabulary). We then showed an opening for debate about whether certain non-primary activities could, or should, be outsourced.

The next, and final step, is to engineer the people associated with each piece of the chain to “think” like a chain. That is not to say to have your people see themselves as a cog in a wheel, but to see how what they do builds on the “value” being delivered to the next link in the chain, and ultimately to the value received by the member.

Here is an out-of-industry example to make what we are talking about a bit more clear. Southwest airlines is well-known as a low-cost airline. It is considered “no frills” by industry standards. No meals (unless you are on a peanuts diet in which case you might consider the standard bag of nuts filling), no airport clubs, no first class, no assigned seating, and so on. Anything that does not add value to the airline’s desire to be low-cost is stripped out. All of the planes are the same, which keeps servicing costs lower and offers streamlining of training programs. Expensive hub airports are often bypassed in favor of second-tier airports to lessen gate fees. The list goes on. What they have defined is a value of low fares, and their organization is aligned around reducing the costs of flying their planes.

What Southwest has that many of us fail to have is a keen understanding of the value they propose to consumers, and an organization aligned around making that value grow each and every day. From the ramp workers, baggage handlers, tow truck operators to the flight attendants and pilots to the executives at headquarters, everyone is known to be on the lookout for efficiencies that will help keep costs low.

Our challenge as credit unions is in defining that which we desire to be for our members, and then making sure each person knows how they fit in the chain of activities that support that desire.

A key question often brought up in the discussion of the value chain and aligning organizations is “are your activities adding value, or losing value.” If the answer is the former, great – you are in a position of strength and can work to make that added value even greater. If it is the latter, you have to ask why. Are you doing things the wrong way? Are the people not fitting in? Is the process flawed? If you honestly do not know if your activities are adding value or losing value, then you should consider an analysis and alignment exercise such as the one we just described. You may be surprised at what you find out about how your credit union is functioning.

Note: If you had a hard time visualizing the layer of support activities in relation to primary activities, download the Value Chain Diagram PDF.


  1. Most CUs I am familiar with are very siloed, hierarchical
    organizations that use a ‘command and control’ model. Information
    is shared internally on a strictly ‘need to know’ basis. Do you
    know of any CU that has successfully implemented the model you are

Leave a Reply

%d bloggers like this: