At the American Association of Credit Union Leagues conferencelast November, league CEOs DianaDykstra, John Bratsakis and Greg Michlig had a long talk about a topic they care deeplyabout — league collaboration.

Before leaving the conference, the trio decided to take thefirst steps to see if their specific collaborative idea would work:To combine and standardize the back office operations of theCalifornia Credit Union League, the New Jersey Credit Union Leagueand the Maryland-District of Columbia Credit Union Association.

More importantly, the CEOs wanted to find out whetherstandardizing information technology, human resources, accountingand financing processes would produce substantial cost reductions,enabling the trades to plow more resources in to what member creditunions value most — advocacy, education, compliance and businessservices.

Dykstra, president/CEO of the California league, asked Tony Kitt, the league's senior vice president of strategicinnovation and planning, to develop a business case analysis todetermine the feasibility of combining the leagues' back officeoperations.

“Diana has been very vocal about collaboration within the leaguesystem to keep their business model viable,” Kitt said. “I believethat vision she has really resonated with John Bratsakis and GregMichlig, who also had that same vision.”

Kitt said his business case analysis determined thecollaborative project could work and expand once it is up andrunning.

“We are very excited about this collaboration, as in the longterm it can be beneficial to those leagues/associations thatwant to maintain their independence and improve cost and benefitstructures,” Dykstra said.

Based on Kitt's business analysis and many more phone conferencediscussions among the CEOs, the leagues have agreed in principle toestablish a new cooperative CUSO-like business, including theownership characteristics, governance model, bylaws, business planand the core service offerings, which would manage the threeleagues' back office operations.

“Collaboration is something I've thought about since I came intothis industry,” said Bratsakis, president CEO of theMaryland-District of Columbia league. “Collaboration is somethingwe have to do to survive in the long term.”

“I think there is a great deal of potential with thiscollaboration 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 comesfrom the word plexus, which basically means network. The word is acommon medical term to describe a complex network of blood vesselsand nerves, according to Dictionary.com.

Kitt is in the throes of working on all of the due diligencedetails of Plexcity, which will be chartered in Nevada as acooperative and employ 16 people. Most of them will be from theCalifornia league.

A search is under way for Plexcity's office space, which will belocated somewhere in southern California. The new venture's startdate is tentatively set for Oct. 1.

In Plexcity's first year of operations, Kitt projected the costswould be slightly higher because of start-up expenses, as well asthe initial costs of standardizing the processes of IT, HR,accounting and finance.

“In the second year and beyond there is significant savings, andwe believe 15% to 20% in overall savings is achievable and could begreater 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, seehow it goes, learn some lessons from what we have done and thenscale it up from there,” Kitt said. “Once we get it up and runningthe expectation is certainly to invite other leagues toparticipate.”

One of the other advantages of Plexcity is that it offers analternative to league mergers, which has been a major industrytrend the last eight years. From 2007 to 2013, 16 state leagues merged. Ten formedtwo-state leagues and six merged to create three-state leagues.These leagues were driven to merge in part because credit unionmergers have eroded league revenue streams such as membership andprogram fees.

Some leagues have remained independent because they havegenerated new revenues through for-profit business subsidiaries andother investments. Nonetheless, leagues still need to keep loweringoperational costs where they can because member and programrevenues will continue to decline with ongoing credit unionmergers.

“(Plexcity) is a different model that we feel will serve thebest interest of our members,” Michlig explained. “That doesn'tmean that other league mergers were not done in the best interestof their members. This collaboration was just the approach we feltcomfortable with and fits best with what our boards of directorsfelt comfortable with as well.”

Although the CEOs have agreed in principle to form Plexcity, thedue diligence stage is still under way. That means the new venturecould be derailed if issues arise that cannot be resolved.

“We are now working through some of the tactical details of ourdue diligence … developing the contract between each league and thecooperative, building the service level agreements andunderstanding each leagues' business environment andinfrastructure,” Kitt said. “As we complete these final steps, wedo not anticipate issues that cannot be resolved; however, there isrisk until the leagues elect to become a member of the newcooperative.”

Kitt added the most significant risk centers on how well theleagues and Plexcity execute the new business paradigm.

“If the cooperative moves too slowly in eliminating redundantprocesses or the leagues fail to adapt to the news businessenvironment, there is risk to achieving complete success,” he said.“That all said, I believe we've put together the 'Avengers' — thebest possible leadership team and staff to pull this off. I amcompletely confident in our ability to exceed our owners'expectations.”