Embed Size (px)
Citation preview
WHAT MAKES CO-OPS SUCCESSFUL?
by R.M. Baseman
Associate Researcher, Prout Research Institute of Venezuela
There are a number of original articles, reports and conference proceedings available on the Internet that discuss and give opinions on what makes a cooperative successful. This report has looked at 175 proposed success factors from a number of different separate sources. By sifting through the various suggestions, answers and points of view, some clear conclusions develop. But before doing that, let us first ask the question:
What Does Success Mean for a Co-Op?
How is success for a co-op different than success for any traditional business? The answer lies in the difference between a co-op and a standard business.
Traditional businesses (Investor Owned Firms or “IOF”s) and co-ops differ in many respects. It is far beyond the scope of this study to go into these differences in any great detail as they are involved and complex. But from the point of view of success the following points are important:
1) A business is governed only by laws and the oversight of the board and investors; in addition to these, a co-op is also governed by commonly recognized “principles of cooperation.”
2) The relationship between a co-op and its member-owners-customers is much closer than the relationship between a traditional business and its investor owners. For example, investors in a traditional business may not really be aware of, or care about the long-term environmental impact of its business practices, as long as it avoids negative publicity and provides a good return on investment. However Co-op member/owners live in the ecosystem and community where the co-op functions, and hence are very concerned about the effects on their families!
3) Co-ops are run democratically by member owners, while traditional businesses are run by managers with limited oversight from a board and shareholders.
4) In traditional businesses, managers decide how profits are recognized and used “to increase shareholder value.” Co-ops operate on a non-profit basis
where members decide how surplus funds are distributed and reinvested in growth, other cooperatives, community service projects, etc.
5) Because the goal of a traditional business is to make continual profits and return value to the investor-owners, the only way to measure success is by longevity and corporate growth.
But success for a co-op lies in successfully meeting the needs of the member-owners (both their material and quality of life needs) and promoting commonly understood cooperative values such as this list agreed upon by the International Cooperative Alliance (ICA)
1 - voluntary and open membership,
2 - democratic member control,
3 - member economic participation,
4 - autonomy and independence,
5 - education, training and information,
6 - cooperation among cooperatives,
7 - concern for community.
How does Co-Op Success Contrast with Traditional Business Success?
Over time, some successful traditional businesses grow into gigantic multinational organizations primarily serving their huge amassed capital funds. Managers who seek to remain independent constantly grow “market capitalization,” defined as number of shares outstanding multiplied by stock price. Without any other principle to guide their actions, these corporate automatons persist forever, -- blindly serving the cold mathematical needs of growth.
By making decisions based only on increasing market share, corporations tend to become “runaways,” ignoring the social and political consequences of their actions. This problem is impossible with cooperatives, regardless of size, because of the principles of cooperation and because of direct democratic member control.
Co-ops are designed to be beneficial (or at least harmless) to humanity and the planet, while traditional capitalist businesses are designed to be indifferent to their effect on society and nature.
Another way to observe the difference between a co-op and a capitalist business
is after the fact: A medium or large-size company ceases to exist if it becomes unable to earn a profit or is bought out by a bigger company -- it is no longer economically viable. But co-ops disappear for many different reasons: they may have failed to accomplish their objective, they may have been organized for a temporary specific purpose which is now accomplished, or due to changes in time, place and person, the co-op’s objectives may have become irrelevant and the members decide to dissolve.
Method Used in This Survey
A passive Internet survey was conducted to find worldwide consensus on the question. Search engines were first used to find web pages and documents containing phrases like “successful cooperative”. Then the web pages and documents were carefully reviewed, and items which were copies, or secondary sources (i.e. referring to another primary source) were removed -- in this process more than 50% of the material was eliminated. Then from the remaining original items, elements of advice called “success factors” were extracted, such as:
“It is important to avoid creating too high expectations”
“cultivates the support of both the members and the community at large”
“clear-cut national cooperative strategy”
“availability of technical training and technology”
In some cases, inverse success factors – reasons co-ops failed were used, for example:
” (neg.)Inadequate communications among the members, board, manager, and the
community.”
After reviewing the 175 success factors, they were grouped into 13 categories, and everything was recorded in a Microsoft Access database, including
1. The category of the answer
2. The answer itself (maximum 255 characters, summary if necessary)
3. The source URL of the document or web page
4. Information about the type of co-op being referred to (consumer, producer, single-project, financial, etc.)
Having done this, the database of success factors can be queried and sorted and conclusions can be drawn from the overall body of knowledge. The database file is contained in the accompanying CD and is called “success2.mdb”; in addition a version of the data is embedded in this word document.
How Co-Ops Become Successful – The Worldwide Consensus.
The source articles reflected experience from all continents and more than 10 countries, including articles from the International Labor Organization, the International Cooperative Alliance and the UN. Primary geographic sources for articles were the USA, followed by Eastern Europe, Western Europe, Australia, India and South America.
The 175 success factors found on the Internet are categorized as follows:
7 applied to co-ops in general (the so-called “Madison Principles”)
102 were from sources on producer co-ops; most of these were agricultural in nature.
47 were from consumer or financial co-op sources (including credit unions).
19 were from an ILO publication on “crisis project" co-ops – recounting success factors in cases where a community had an immediate need, which was solved by forming a temporary project-focused co-op. These were classified as consumer co-ops.
What Makes All Co-Ops Successful:
Answer times percentage
Category occurred of total
1. supportive environment 28 16
2. sound advance planning 27 15.42
3. real economic benefits for members 21 12
4. skilled management 20 11.42
5. belief in co-op concepts 12 6.85
6. grassroots development & leadership 12 6.85
7. financially self-sustaining 11 6.28
8. innovation & adaptation 11 6.28
9. effective structure & operations 10 5.71
10. networking with other co-ops 8 4.57
11. communications 5 2.85
12. common member interests 4 2.28
13. education 4 2.28
What Makes Consumer Co-Ops Successful:
Answer times percentage
Category occurred of total
1. supportive environment 13 27.65
2. belief in co-op concepts 6 12.76
3. innovation & adaptation 5 10.63
4. real economic benefits for members 5 10.63
5. financially self-sustaining 4 8.51
6. skilled management 4 8.51
7. grassroots development & leadership 3 6.38
8. networking with other co-ops 3 6.38
9. sound advance planning 2
4.25
10. communications 1 2.12
11. common member interests 1 2.12
What Makes Producer Co-Ops Successful:
Answer times percentage
Category occurred of total
1. sound advance planning 21 12
2. skilled management 14 8
3. supportive environment 12 6.85
4. real economic benefits for members 11 6.28
5. effective structure & operations 9 5.14
6. grassroots development & leadership 8 4.57
7. innovation & adaptation 6 3.42
8. networking with other co-ops 5 2.85
9. financially self-sustaining 4 2.28
10. communications 4 2.28
11. education 3 1.71
12. belief in co-op concepts 3 1.71
13. common member interests 2 1.14
General Observations
There are clear differences between consumer and producer co-ops. While the top two factors for producer co-ops are management and planning related, the top two factors for consumer co-ops refer to a belief in the co-op concept and a supportive environment.
There is tremendous diversity among co-ops. For example, the AMUL co-op in India is the huge nation’s largest producer and marketer of milk products, with millions of producer members. The survey also includes material from small food buying co-ops in the USA and the Brukman factory in Argentina. Attitudes and approaches are very different between them, and one cannot expect the same success factors to apply in every case.
All the basic factors for success in any business also apply to co-ops, as would be expected. There has to be a real demand for the product, planning has to be thorough and realistic, and the enterprise has to make money.
Co-ops have additional success factors imposed upon them. These factors relate to keeping the actions of the co-op aligned with the ever-changing interests of the member/owners.
Some success factors, like careful planning and communications, are referred to over and over again. But there are some interesting and unique observations found in selected sources. For example, one article found at the University of Wisconsin Center for Cooperatives http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf described the tactic of a co-op buying or starting a wholly owned subsidiary organized as a privately owned enterprise. This eliminates the problem where a sideshow needed for short-term business reasons but not central to the co-ops’ mission can create a problem with the collective membership.
Copies of all the original documents found on the Internet and used in this study are included in the CD accompanying this report.
Results
From the details of the articles, reports and newsletters, a general pattern emerges. Co-ops, much more than corporations, closely reflect the lives and thoughts of the member/owners. The common interests of the members are the interests of the co-op, and if the two move apart, the co-op dies.
Consensus among people is a fragile thing, and because so much personal emotion gets wound up in a co-op, co-ops fail if they cannot quickly follow the collective interest as circumstances change, or if they stray from their original purpose and members become disaffected. An excellent article that talks about this can be found at http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf, written by members of the University of Wisconsin Center for Cooperatives. This article discusses the uneven efforts to build consumer cooperatives in rural areas of the USA where agricultural producer cooperatives are popular and well established.
People like co-ops —they “believe in” them. Co-ops provide a sense of satisfaction, belonging and accomplishment to both workers and consumers that is rarely experienced when working for or buying from a traditional business. Plus co-ops have a good story to tell. When price, quality of goods and distance from home are about the same, the majority of people would choose to support a co-op with its positive principles and return of economic benefit to the community, versus giving money to a business that enriches outsiders who return little to the community.
This creates both an advantage and a danger for consumer co-ops. Members who need to buy a tube of toothpaste will happily pay somewhat more for it at the cooperative than at a Wal-Mart down the street. However, there is a limit to this: if the co-op becomes too expensive, or if the co-op cannot provide most of the products the members need, they will eventually quit “believing in” the co-op, shrug their shoulders, and give their money to Wal-Mart.
Likewise producer co-ops have an advantage over private companies, but it is fragile. Raising small amounts of capital is easier for co-ops, because all workers are personally involved, and become both investors and enthusiastic salespeople. But the minute there is bad blood due to a decision that members don’t like, they tend to lose faith in the organization and consider leaving. Producer co-ops are relatively easy to start, but also easier to fall apart.
Almost every success factor involves aligning co-op actions with members' needs. This is why communication and training are so important, because they help to develop the capacity of the management and members to listen well and respond appropriately to the genuine concerns of the workers and the community. The spirit of all the answers to our original question relate to this close alignment of the cooperative with the interests of the member owners.
Supportive Environments
The most often cited overall reason for success across all types of co-op was a “supportive environment.” It was the first success factor for consumer co-ops, including credit unions and the third most popular success factor for producer co-ops. So let us try to determine what is meant in more detail.
This success factor is a catch-all for deriving assistance from other entities, primarily the government at various levels, but also local communities, trade unions and financial institutions. It is not as important for producer co-ops as it is for consumer co-ops, because in the world of producer co-ops this issue of external support is eclipsed by the far more important factor of advance planning.
Issues of taxation, regulation, and national economic strategy are repeatedly mentioned in the source articles. It is clear that government policies and practices really help and hurt co-op development. The ability of local financial institutions to make loans to co-ops is important and is affected by government rules and regulations as well.
After government support, co-ops need support from the population in general. Where the co-op approach is similar to local traditions – for instance management by consensus at a local level, tribal traditions of sharing, or the USA farm tradition of working together in neighborhood teams and sharing equipment – co-ops are more likely to be accepted and successful. Even if the community is not interested in joining the co-op, they must be tolerant and accepting for it to survive. Once again this reflects the close embodiment in the co-op of the ideas of the member-owners; this relationship will fall apart if everyone around the local member-owners works against the co-op concepts.
In regard to credit unions, the availability of payroll deductions and credit union presence at or near the workplace are repeatedly mentioned. So for credit unions, support from traditional employers is important. State deposit insurance is also vital.
“Belief in co-op concepts” is a similar success factor, which I have separated from “a supportive environment.” This is for two reasons: 1) “Belief in co-op concepts” is personal, and refers to people having an actual hands-on familiarity with, and liking for co-ops; 2) “Belief in co-op concepts” is less important to
producers than “a supportive environment,” which is critical.
Sound Advance Planning
This is the second most important overall success factor, and the primary success factor for producer co-ops.
Planning covers many aspects, but the key point about it is that it takes place before the enterprise begins operation, and then plans are continually updated and revised to parallel changes in time, place and person. For any business, planning is the art of seeing into the future, and it is the most difficult and the most powerful of all business activities.
The specific kinds of planning that are critical for co-op development are a little different from traditional IOF planning.
Market planning – projections of growth, size, sustainability and competition in the market must be addressed as in any traditional business plan. Plus the plan should prove that the specific market need can be effectively addressed by a cooperative effort. For consumer co-ops, a clear statement of exactly how the co-op will make buying cheaper and easier for the customer-owners over the long term is needed.
Feasibility study and cost analysis – a co-op has special tax, legal and financial considerations that must be woven into this sort of analysis. Where networks of other co-ops can participate as partners, costs are likely to be more favorable than where possibly unfriendly IOFs must be depended upon. Unrealistic cost assumptions are cited repeatedly as a big factor in co-op failures.
Organizational planning – because each member-owner population is different, plans for the co-op must include a strategy to foster continuing cooperative behavior, and a strategy to keep the co-op in step with the thinking of the member-owners. This includes a plan to keep the hired management closely aligned with co-op board as well.
Withdrawal strategy – co-ops are not like IOFs with a blind intent to exist forever. The plan for the co-op should recognize the likelihood that the co-op will cease operations under some circumstances. How to recognize these exit circumstances, and how to close down in a positive way should be part of the plan.
Risk Analysis - like any traditional IOF, risks should be given special attention and ranked as to impact and likelihood. Co-ops are exposed to some regulatory and financial risks that traditional businesses do not have to worry about. Plus in every business situation, a co-op will have some advantages and some disadvantages when in competition with traditional IOFs.
Capital – the way in which capital will be raised is critical for a co-op. For producer co-ops where the member-owner investment is substantial, a series of presentations of increasing detail and seriousness should be designed for potential investors.
Monitoring operations – In the planning stage, an effort needs to be made to define Key Process Indicators that can be used to tell how the co-op is doing. These KPIs may be revised later after operations stabilize, but since the first months of any new operation build the foundation for future success, it is a big advantage to have some sort of benchmark when first starting out.
Mission Statement - A clear and simple definition of the goals of the co-op is highly important. Unlike a traditional IOF, the co-op’s goals must match some of the personal goals of the member-owners. Potential members will decide to join if there is a simple and understandable expression of what the co-op is about.
Belief in Co-op Concepts
For the success (and survival) of all consumer co-ops a familiarity with, and belief in the co-op approach among the local community is really important. If the local population does not have a good feeling about co-ops, based on past experience, membership drives will fail.
To detect changes and sense the feelings of the membership, Co-op workers must understand how their enterprise operates day to day. Managers must have a good feel for what will make the co-op succeed or fail, and must be able to recognize problems quickly and nip them in the bud. In areas where co-ops are common, and have been successful in the past, it is much easier to recruit well-qualified workers and experienced managers from the local population.
Real Economic Benefits for Members
In many producer co-ops and in worker takeovers, the member-owners were
already running small businesses. In that situation, they can easily see if cooperation actually lowers their costs, opens access to new markets and makes their individual operations easier and more profitable.
On the other hand, it is not always so easy to tell if a consumer co-op is actually saving you money. I know from personal experience with my large family that consumer food co-ops only provide a real advantage if they can provide most of the goods that you need to buy on a regular basis. Otherwise you are forced to go to traditional stores for the rest, and the time and trouble of doing this plus the cost of owning shares, effort of working at the co-op, and hassle of keeping informed and voting on co-op policy quickly erode any real savings from belonging to the co-op.
The difficulty of a consumer cooperative providing an easily apparent overall economic benefit leads to the phenomenon of successful consumer co-ops springing up in situations where a market or consumer segment is under-served by traditional businesses. Attempts to start up new consumer cooperatives in markets which are already saturated with competing traditional IOFs will be unsuccessful.
Credit Unions succeed at this factor, since they have always provided much easier access to loans at cheap rates of interest than traditional banking institutions. This is partially because of the surety of payroll deductions and the credit-union tie to the workplace.
As was said in the article about Maleny, Australia: “Successful co-ops are always born out of need.”
………………………………
Bibliography
American Historical Association - The American Historical Review, “Review of Cooperative Commonwealth: Co-ops in Rural Minnesota”, June 2001, Scholarly web site discusses a publication about rural producer co-ops in the USA.
Amul Cooperative, “Chairman's Speech: 31st Annual General Body Meeting”, June 2005, http://www.amul.com/kurien-annual05.html, This huge Indian agricultural producer cooperative web site has a lot of reference articles.
Committee for the Promotion and Advancement of Cooperatives, “Successful Cooperative Development Models in East and Central Europe”, October 1999, http://www.copacgva.org/berlin.pdf. COPAC is a Swiss organization which held this conference in Germany with presentations from Albania, Lithuania, Romania, Poland, Moldova, Uzbekistan, Germany, Ukraine and Denmark. More than ten original papers are included here describing all sorts of co-ops with much valuable information.
Dangl, Benjamin - Z Magazine Online, “Worker-Controlled Brukman”, August 30, 2005, http://www.zmag.org/content/showarticle.cfm?ItemID=8611, This article on the progressive Zmag site is an interview with Celia Martinez from the famous Brukman worker's cooperative in Argentina
Gravenour, Kristian - The Montreal Mirror, “Accounting in Utopia”, August 2005, http://www.montrealmirror.com/2005/081105/news1.html, A short article about Douglas Jack, a co-op organizer who stresses the need to reward co-op labor with some sort of equity.
Holland, Rob - University of Tennessee Center for Profitable Agriculture, “Thoughts for Farmers Considering Membership/Investment in a Processing Cooperative”, 2004, http://cpa.utk.edu/pdffiles/cpa96.pdf, USA site supporting agricultural cooperatives.
International Cooperative Association -Seminario del PRICA/ACI Americas, “Denominadores comunes de las coop argentinas, paraguayas y uruguayas en su evaluación de la estrategia delas coop ante las TLC”, September2005, http://www.ica.coop/calendar/ga2005/silverof2.pdf, publication from an ICA conference held in Ausuncion Paraguay on issues facing South American co-ops.
International Labour Office – “Standing on their own: Cooperative Reform in Tanzania”, June 2006, http://www.ilo.org/public/english/bureau/inf/features/06/coop_tanzania.htm, ILO article discussing experiences with the co-op movement in Tanzania.
International Labour Office Programme on Crisis Response and Reconstruction, “Cooperatives Restoring Livelihoods and Communities”, May 2003, http://www.ilo.org/public/english/employment/recon/crisis/download/coops.pdf, ILO article discussing experiences with co-ops set up for emergency situations in times of crisis, mostly in Africa.
Kennedy, Jermolowicz, Lambert, Reilly and Rotan - US Department of Agriculture, “Keys to Successful Cooperative Housing in Rural Areas”, April 1995,
http://www.rurdev.usda.gov/rbs/pub/sr44.pdf, USA government publication discussing successful housing cooperatives.
Lipinski, Bill - First Pioneer Farm Credit Co-op - Financial Partner magazine, “What Is the Future of Cooperatives?”, Spring 2003, http://www.firstpioneer.com/about/L3/pres_future_coops.htm, USA publication concerned with agricultural co-op governance.
Madden, Rod - United Farmers Co-operative Company Limited, “Fundamentals of a Successful Co-Operative”, September 2003, no longer on-line, article discusses sucdcessful producer co-ops in Australia.
Manitoba Agriculture, Food and Rural Initiatives - Cooperative Development Services, “Introduction to Cooperatives”, August 2006, http://www.gov.mb.ca/agriculture/ri/coop/ria02s03.html, Canadian site discusses all types of cooperatives and has much useful and detailed information.
National Cooperative Business Association, “Lessons for Success”, undated, http://www.ncba.coop/abcoop_ab_success.cfm, US site of the NCBA which promotes all sorts of co-ops.
Patrie, William, Rural Development Director - North Dakota Association of Rural Electric and Telephone Cooperatives, “Creating 'Co-op Fever': A Rural Developer's Guide to Forming Cooperatives”, July 1998, http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm, USA site focussing on agricultural producer co-ops.
Prout Community Settlement Cooperative, “Maleny Cooperatives: Examples of Small-scale Cooperative Enterprises”, January 2002, http://www.proutworld.org/features/maleny.htm, Australian site discussing the different cooperative - mostly consumer oriented - set up in the town of Maleny.
Ratchford, Noller and Mahfood - University of Missouri Extension, “Introduction to Consumer Food Cooperatives”, October 1993, http://extension.missouri.edu/, USA site with information on consumer co-ops.
West, Travis - Ohio Cooperative Development Center, “How To Start a Cooperative”, undated, http://ocdc.osu.edu/pdf/startcoop.pdf, US site with general information on starting all sorts of co-ops.
Zeuli, Freshwater, Markley and Barkley - University of Wisconsin Center for Cooperatives, “The Potential for Non-Agricultural Cooperatives in Rural Communities”, 2003, http://www.uwcc.wisc.edu/info/uwcc_pubs/zeuli_01_03.pdf, USA paper discussing formation and organization of co-ops of non-agricultural types in rural areas - has many interesting ideas.
R.M. Baseman of New York City is a computer scientist specializing in security and the introduction of new technologies. He lives with his wife Diana, an educator, near New York City where they have raised and home schooled 10 children. He has published articles on a number of topics, and has started and participated in several consumer cooperatives over the last 35 years. He can be reached at: nynarayan@.... His website, dedicated to freedom, spirituality and education is at http://members.verizon.net/~vze3f2cj
Success Factors for Co-ops
Description summary reference or url categor
y
effective structure & operations key areas to address
are the organizational
structure
http://www.gov.mb.ca/agriculture/ri/coop/
ria02s03.html
all
financially self-sustaining madison principles -
products and services
must generate
sufficient revenue
http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm all
grassroots development &
leadership
madison principles -
enthusiastic group of
local, trustworthy
leaders
http://www.rurdev.usda.gov/rbs/pub/sr54/sr54.htm all
Member control
