Leagues Collaborate on Back Office Operations
At the American Association of Credit Union Leagues conference last November, league CEOs Diana Dykstra, John Bratsakis and Greg Michlig had a long talk about a topic they care deeply about — league collaboration.
Before leaving the conference, the trio decided to take the first steps to see if their specific collaborative idea would work: To combine and standardize the back office operations of the California Credit Union League, the New Jersey Credit Union League and the Maryland-District of Columbia Credit Union Association.
More importantly, the CEOs wanted to find out whether standardizing information technology, human resources, accounting and financing processes would produce substantial cost reductions, enabling the trades to plow more resources in to what member credit unions value most — advocacy, education, compliance and business services.
Dykstra, president/CEO of the California league, asked Tony Kitt, the league’s senior vice president of strategic innovation and planning, to develop a business case analysis to determine the feasibility of combining the leagues’ back office operations.
“Diana has been very vocal about collaboration within the league system to keep their business model viable,” Kitt said. “I believe that vision she has really resonated with John Bratsakis and Greg Michlig, who also had that same vision.”
Kitt said his business case analysis determined the collaborative project could work and expand once it is up and running.
“We are very excited about this collaboration, as in the long term it can be beneficial to those leagues/associations that want to maintain their independence and improve cost and benefit structures,” Dykstra said.
Based on Kitt’s business analysis and many more phone conference discussions among the CEOs, the leagues have agreed in principle to establish a new cooperative CUSO-like business, including the ownership characteristics, governance model, bylaws, business plan and the core service offerings, which would manage the three leagues’ back office operations.
“Collaboration is something I’ve thought about since I came into this industry,” said Bratsakis, president CEO of the Maryland-District of Columbia league. “Collaboration is something we have to do to survive in the long term.”
“I think there is a great deal of potential with this collaboration that we are very excited about,” said Michlig, president/CEO of the New Jersey league.
The name of this new entity will be Plexcity. The name comes from the word plexus, which basically means network. The word is a common medical term to describe a complex network of blood vessels and nerves, according to Dictionary.com.
Kitt is in the throes of working on all of the due diligence details of Plexcity, which will be chartered in Nevada as a cooperative and employ 16 people. Most of them will be from the California league.
A search is under way for Plexcity’s office space, which will be located somewhere in southern California. The new venture’s start date is tentatively set for Oct. 1.
In Plexcity’s first year of operations, Kitt projected the costs would be slightly higher because of start-up expenses, as well as the initial costs of standardizing the processes of IT, HR, accounting and finance.
“In the second year and beyond there is significant savings, and we believe 15% to 20% in overall savings is achievable and could be greater when other leagues join the cooperative,” Kitt said.
Keeping the partnership to three leagues was deliberate.
“I think the objective is to keep the collaboration small, see how it goes, learn some lessons from what we have done and then scale it up from there,” Kitt said. “Once we get it up and running the expectation is certainly to invite other leagues to participate.”
One of the other advantages of Plexcity is that it offers an alternative to league mergers, which has been a major industry trend the last eight years. From 2007 to 2013, 16 state leagues merged. Ten formed two-state leagues and six merged to create three-state leagues. These leagues were driven to merge in part because credit union mergers have eroded league revenue streams such as membership and program fees.
Some leagues have remained independent because they have generated new revenues through for-profit business subsidiaries and other investments. Nonetheless, leagues still need to keep lowering operational costs where they can because member and program revenues will continue to decline with ongoing credit union mergers.
“(Plexcity) is a different model that we feel will serve the best interest of our members,” Michlig explained. “That doesn’t mean that other league mergers were not done in the best interest of their members. This collaboration was just the approach we felt comfortable with and fits best with what our boards of directors felt comfortable with as well.”
Although the CEOs have agreed in principle to form Plexcity, the due diligence stage is still under way. That means the new venture could be derailed if issues arise that cannot be resolved.
“We are now working through some of the tactical details of our due diligence … developing the contract between each league and the cooperative, building the service level agreements and understanding each leagues’ business environment and infrastructure,” Kitt said. “As we complete these final steps, we do not anticipate issues that cannot be resolved; however, there is risk until the leagues elect to become a member of the new cooperative.”
Kitt added the most significant risk centers on how well the leagues and Plexcity execute the new business paradigm.
“If the cooperative moves too slowly in eliminating redundant processes or the leagues fail to adapt to the news business environment, there is risk to achieving complete success,” he said. “That all said, I believe we’ve put together the ‘Avengers’ — the best possible leadership team and staff to pull this off. I am completely confident in our ability to exceed our owners’ expectations.”