The Mondragon Cooperative Experience

Crisis Management The case of MONDRAGON Corporation

Naroa Elortza GorrotxategiResearcher at MIK – Mondragon Innovation and Knowledge

Lecturer at MU Enpresagintza – Faculty of Business, Mondragon University

1 The Mondragon Cooperative Experience

2 Crisis management in MONDRAGON

3 Application of the management tools and the results

Conclusions4

2




4 Conclusions

Beginnings

MONDRAGON today

MONDRAGON as a reference and a successful

experience

3

4

The Mondragon Cooperative Experience (MCE) started in 1943, in Mondragon (Basque Country)

The cooperative alternative was based on: Education and Education and TrainingTraining, CooperationCooperation, ResponsibilityResponsibility and Egalitarian Enterprise DevelopmentEnterprise Development

Beginnings

The network

5

Its key INNOVATION was THE NETWORK... two elements:

Support institutions in common, jointly created and controlled.

Firm-to-Firm Collaboration, mutual support and joint action. Take advantage of new business opportunities AND help each other out in hard times. Organised into Areas and Divisions,and coordinated by Central Services (the Corporation)

5

Social security and insuranceLagun-Aro

FinanceCaja Laboral Popular

Technology R&DIkerlan (etc.)

6

MONDRAGON today

Formed by 258 cooperative enterprises, subsidiaries and affiliated organisations

Total jobs: 83,859 (2010)

Total sales: 13,989 million euros (2010)

International sales: 3,594 million euros (2010), 63% of industrial sales

Divided into 4 Groups: Finance, Industry, Retail and Knowledge

Within the Industrial Group, 12 Divisions

Its own set 10 basic principles based on its experience and on ICA's principles

7

MONDRAGON's mission is expressed in its corporate values: cooperation,

empowerment, innovation and social responsibility

It is considered one the most successful experience if not the most

successful example of worker cooperatives

MONDRAGON's economic and social achievements: ENTERPRISE with

social commitment, broad worker ownership and control; and solidarity

among cooperatives

Supported by several external authors; benefits derive from the business

model based on networked cooperative enterprise.

MONDRAGON as a reference and successful experience

MONDRAGON as a reference and successful experience

Blemishes, challenges and problems. PLENTY (especially overseas

plants), but save the discussion for another day.

Here, our focus:

Crisis management policy and tools in MONDRAGON

How MONDRAGON's business model and its management tools

make a difference in severe economic and social crisis.

8

9

Impact of the crisis on MONDRAGON

MONDRAGON's crisis management tools

Firm-level measures

Network-level measures




4 Conclusions


100

2000

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6000

8000

10000

12000

14000

16000

18000

0

100

200

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800

900

Sales in MONDRAGONSales in the Industrial AreaConsolidated Results

Mill

ion

eu

ros

(sa

les)

Mill

ion

eu

ros

(co

nso

lida

ted

re

sults

)


110

500

1000

1500

2000

2500

3000

0

5

10

15

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45

Overall investments Resources assigned to social activities

Mill

ion

eu

ros

(ove

rall

inve

stm

en

ts)

Mill

ion

eu

ros

(so

cia

l act

iviti

es)

As a result, a significant decline in overall investment and in resources

spent on social activities, non-profits


12

Crisis management tools based on the solidarity and mutual

assistance (“Intercooperation”) among cooperatives:

MCE's 7th principle

Takes concrete shape in the 2 network elements we

described (1) joint institutions, (2) firm-to-firm

cooperation AND in specific policies and tools.

Precedents: the Energy Crisis of the 1970s-80s


13

Main objective: reduce the crisis' effects on the cooperatives

and the society

Key elements:

Members' participation in crisis decision-making processes

Cooperatives balance: economic (profitability, productivity...)

and social objectives (employment creation and protection,

human and social development)

Firm-level measures

14

Principal measures:

Cutting pay and interest payments; a General Assembly decision

Interest on internal capital accountProfit shareSalaryVacation bonuses (2-3 pay periods of 14-15)

Internal transfer

Re-training

Redundancy of temporary and subcontracted employees (non-member)

ORDER OF ORDER OF APPLICATION?APPLICATION?


15


16

Lagun-Aro, EPSV

• (Re)Employment Assistance Fund; finances activities to keep members employed during downturns.

• Relocation among cooperatives; temporary and permanent relocations

• Re-training

• Flexible calendar

• Early retirements

• Compensation (when other measures are insufficient)


17

Caja Laboral Popular

First phase... 1959-1990, financed cooperative development with local consumers/depositors' savings and cooperatives deposits

Today cooperative bank business focused on retail banking: consumers, SMEs, co-ops to small degree (Bank of Spain)

Can write off cooperatives' unpaid debt, though uncommon

Consultancy: First phase: “Business Division” inside the bank to assist start-

ups and co-ops with problems. Later, converted into Central Departments and LKS Consultancy

cooperative

18

Employment Assistance Fund and Benefits

Flexible Calendar

Relocations

Relocations and Flexible Calendar

Employment




4 Conclusions

A significant raise in resources devoted to employment protection

2005 2006 2007 2008 2009 20100

10000

20000

30000

40000

50000

60000

70000

80000

Fund Collection Benefit

Eur

os

Employment Assistance Fund & Benefits

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01/0

8

03/0

8

05/0

8

07/0

8

09/0

8

11/0

8

01/0

9

03/0

9

05/0

9

07/0

9

09/0

9

11/0

9

01/1

0

03/1

0

05/1

0

07/1

0

09/1

0

11/1

0

0

10000

20000

30000

40000

50000

60000

Flexible Calendar Hours / Month

Flexible Calendar

A significant increase in co-op workers' hours financed by the

Employment Fund, during the crisis

20

A considerable raise in worker-member relocations during the crisis

Relocations

2121

08/0

1

08/0

3

08/0

5

08/0

7–08

/08

08/1

0

08/1

2

09/0

2

09/0

4

09/0

6

09/0

9

09/1

1

10/0

1

10/0

3

10/0

5

07/1

0–08

/10

10/1

0

10/1

2

0

100

200

300

400

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600

0

5

10

15

20

25

30

35

40

Temporary RelocationsPermanent Relocations

Tem

pora

ry R

eloc

atio

ns

Per

man

ent

Rel

ocat

ions

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Comparing relocations and flexible calendar data...

Relocations and flexible calendar

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07/0

8–08

/08

07/1

0–08

/10

0

10000

20000

30000

40000

50000

60000

0

100

200

300

400

500

600

Temporary RelocationsPermanent RelocationsFlexible Calendar Hours

Tem

pora

ry R

eloc

atio

ns

Per

man

ent

Rel

ocat

ions

22

2005 2006 2007 2008 2009 20100

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

TotalBasque Autonomous CommunityNavarre

Em

ploy

ees

Employment

23

Still, a significant decline in employment in 2009; temporary workers made

redundant. Controversy/debate about temporary workers. Law: 70%,

MONDRAGON 85%, but still debate.

%0.00

%10.00

%20.00

%30.00

%40.00

%50.00

%60.00

Basque CountryThe rest of the world

Decline in MONDRAGON’s domestic employment, increase

MONDRAGON’s overseas employment.

Employment

24

*

* Basque Autonomous Community and Navarre

25

Crisis management and cooperative principles

Employment in MONDRAGON

MONDRAGON’s crisis management’s

incoherence with cooperative principles




4 Conclusions

Crisis management and cooperative principles

26

o Crisis management based on solidarity, consistent with the

MONDRAGON’s 7th cooperative principle

o Decision-making processes based on members' participation. Participatory

model might weaken short-term business efficiency, but fosters members'

sense of belonging and motivation and long-term efficiency.

o Worker-members' relocation and pooling of profits are signs of

cooperatives’ commitment to solidarity. THOUGH…

o Solidarity is far from perfect. Temporary workers,

overseas non-member workers, etc.

26

o The tools were designed to reduce the negative effects of the crisis on the

co-ops and society broadly

o Their main purpose has been to protect jobs

o During previous crisis periods, MONDRAGON managed to mantain and

even expand employment

o The cooperatives made massive efforts to protect worker-members' jobs

during those periods

o Lagun-Aro's Employment Assistance Fund has been a key tool

27

Employment in MONDRAGON

28

Crisis mangement’s incoherences with Co-op Principles

o The vast majority of worker-members' jobs have been mantained, but

most temporary workers have been made redundant (up to 15% of

employment in some cooperatives)

o Proportionally, the number of jobs destroyed in the Basque Country

(Basque Autonomous Community and Navarre) in MONDRAGON is higher

than in other countries

o The ORDER in which measures are implemented is crucial to determining

consistency with cooperative principles. Mainly regarding temporary workers

jobs.

www.mik.es

Thank you

Gracias

Eskerrik asko

Naroa Elortza [email protected]

Blog: http://ilunkaran.comTwitter / Identi.ca: @naroaelortzaLinkedIn: http://www.linkedin.com/in/naroaelortza

Documents

The Mondragon Cooperative Experience