The virtuous circle of mutuality
A Yorkshire Building Society case study

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Page 8: Creating a virtuous circle

The Yorkshire Building Society has identified attractive products, high quality service and security as the keys to future success.

Attractive products mean higher rates of interest for savers and lower rates for borrowers. Quality service means a fast, accurate and friendly response to the needs of customers. Security means financial strength represented in a healthy reserve ratio.

By creating and enhancing these three factors it is possible for the Yorkshire to thrive as a mutual. The Society needs to ensure that cost ratios for running the business are lower than those of competitors, so that it has more money than they have to spend on products and service. Clearly this involves lowering costs in relation to size because competitors will also be seeking to achieve this advantage.

The key to improving cost position faster than competitors is to grow faster. If assets grow faster than costs, then the cost position improves. Growing the business faster than the costs is a far more palatable way of improving cost effectiveness, than having to reduce costs because the business isn't growing.

Of course, the route to growth is to provide attractive products, high quality service and security, with the benefit of low costs. By creating these relationships it is possible to create a virtuous circle of progress. Higher growth means that costs decrease in relation to size. Lower costs create the ability to offer improving benefits to members in terms of products and service, with a high level of security maintained. Improved membership benefits should mean more members are attracted, creating higher growth. Round the circle goes again.

Yorkshire Building Society | The virtuous circle of mutuality