MADISON, Wis. -
Noting that it is the need to access economies of scale is often the motivation for credit union mergers, a new study from the Filene Research Institute has examined strategic options other than merger through which economies might also be achieved. The new study builds upon earlier research by Bob Hoel and Bill Kelly that examined the characteristics of "thriving" credit unions and suggested a franchising system through which certain operations could be standardized. "Small credit unions could collaborate on routine back-office activities to gain economies of scale and focus their energies on activities involving member contact," said Filene.
"Smaller credit unions are overwhelmingly the target of consolidation, due to demands from consumers and regulators for a greater range of financial products and services," said Steven C. Michael of the University of Illinois at Urbana-Champaign, author of the "Preliminary Study on Credit Union Franchising." "Franchising or 'strategic outsourcing' may be a way for smaller credit unions to alleviate staff resources expended on routine, time-consuming functions."
The study is based in part on indepth interviews with the CEOs of five smaller credit union and uses the term "outsourcing" rather than franchising.
George Hofheimer, Filene's chief research officer, said a time-utilization study was done to identify activities that might be candidates for a back-office franchising system. Among those activities: compliance and internal audit, consumer lending/marketing and human resources, accounting/information technology/security and facilities management and planning.
Filene noted that "Professor Michael concluded that despite the identification of these activities, a credit union franchising system may be premature until a unified credit union information technology system is developed. For a franchising system to work, credit unions first need to consolidate their IT systems onto a common platform."
For info on the study: www.filene.org.
