A Model for Cooperative Challenges

Evaluating strategy based on eight features of cooperative identity

Mastering strategy is absolutely key for a manager. “One of the most important of a manager’s tasks consists in establishing the organization’s strategy—or in at least overseeing the process by which others and [the manager] develop strategy.”* Therefore, two main questions are on the minds of managers and board members: “Why do members become members and continue shopping at the co-op?” and “How can being a cooperative help us to attract and better serve our members?”

As far as we know, few studies on strategy have attempted to start from the standpoint of cooperative identity and propose approaches and analytical tools adapted to the cooperative reality. For cooperative managers, the available tools never truly reflect the reality of a collective undertaking focused on optimizing a user-oriented relationship. A model for such a cooperative framework is presented below.
 

Definitions



The model for cooperative challenges sums up and brings together eight unique features of the cooperative identity. It also connects four concepts: cooperative challenge, strategic result, strategic action, and environment.
• A cooperative challenge reveals in strategic terms a feature of the cooperative identity by describing the relationship between that particular feature and the way the management and development of a cooperative are conducted in a competitive setting.
• A strategic practice is an action undertaken by the cooperative with the aim of putting cooperative identity into practice.
•  Elements of the environment are contextual variables that distinctly influence the selection of strategic actions, but remain beyond the cooperative’s immediate control.
• A strategic result is the result that a series of strategic actions should produce on two cooperative levels: for members and for the cooperative.

Cooperative challenges

For each cooperative challenge we present a summary based on interrelated values and principles, followed by good practices that allow for concretely meeting cooperative challenges. The strategic practices presented below (in bold type) have been indexed in at least two cooperatives.

1. The challenge of co-op governance. By way of the equality principle, of the constitution of a fully empowered general assembly, of the periodic election of administrators, the democratic powers and duties of the cooperative are firmly established on the members. These features define the good governance structure of the cooperative.

Good managerial practices for this challenge are practices of information dissemination by way of internal bulletins, Internet sites, or information meetings. To these dissemination practices are added practices of transparency, whereby management displays an open attitude towards cooperative members. Practices of representativeness are also noted, which ensure that all categories of members are represented by an administrator on the board of directors. Lastly, consultation activities encompassing all members, such as internal surveys, information meetings, and the like bear witness to practices of broader participation in certain cooperatives.

As for strategic results, these various practices lead to the cooperative gaining a clearer vision of its organization and to developing an enhanced ability to make more enlightened decisions. To members, these practices enhance the sense of belonging, and they become more inclined to involve themselves in the cooperative.

2. The challenge of inter-cooperation. The principle of cooperation among cooperatives bears witness to the dynamic nature of cooperative groupings (mainly into federations or confederations), maintaining a process whereby member cooperatives retain ownership of the federations.

Within this challenge, researchers identified federative practices, such as sharing not only labor, expertise, and office space, but also risk, joint purchasing, and promotion. A sub-category surfaced during the study, the practice of non-federative alliances including the development of partnerships with cooperatives from other areas of activity and with noncooperative businesses.

In terms of strategic results, all these practices contribute very decisively to the development of superior managerial and developmental abilities. For members, the practices of the inter-cooperation challenge result in a better offer of higher quality products and services.

3. The challenge of capitalization and investment. Through the cooperative principles of limited return on invested capital, of unassignable reserves, and of the requirement to be a user-member in order to assume a position on the board of directors, the processes of investment and capitalization offer a challenge, especially as regards sourcing.

Well-known practices are listed for this challenge, such as the practices of surplus return and share levels. Generally speaking, the more often a cooperative does not habitually return the entire amount of its capitalization surplus, and the more important its various means of financing, the greater the cooperative’s strategic results in terms of this particular challenge. Another practice identified is that of information popularization, whereby cooperative managers develop tools that more clearly explain the workings of finance to members whose grasp of the subject reputedly falls short. Concerning treatment of surplus, practices of cooperative financial diagnostics are noted, whereby cooperatives set their own financial ratio targets. Lastly, investment practices regarding annual return and various member shares complete the capitalization activities of the cooperative.

When cooperatives develop sound practices for the investment and capitalization challenge, they obtain strategic results that impact managerial autonomy, such as the ability to make decisions with consideration given to members. This further enhances their ability to ensure their own development, providing them with the required means to do so. It has further been observed that this instills members with a greater sense of ownership of and responsibility to the cooperative.

4. The challenge of cooperative values. The basic premise of the cooperative is to bring together people who share a common need. This done, the individuals formed into a cooperative want to build a project according to specific values, the cooperative values. This starting point requires the cooperative to develop in a way that will avoid creating discrepancies and apply cooperative values in all its dealings with interested parties.

The practices identified for this challenge extend from marketing practices that reflect cooperative values (in purchasing policies, for example, where suppliers sharing similar values are selected) to establishing a code of ethics for all parties involved with the cooperative, to practices of announcing its values to involved parties and to the public at large. Moreover, some cooperatives exercise practices of participation that extend beyond its membership and educational practices aiming to propagate cooperative values.

5. The challenge of the value of use. The entire cooperative management process is geared to maximizing the relation of member use or member advantages. This feature of the cooperative identity also serves as a guide to development focused on the needs of the members of a specific area.
To begin with, training practices for staff members, as well as practices of offer differentiation for various member types, are identified. Some cooperatives have developed practices of establishing cooperative added value (in terms of pricing, quality, community involvement, democracy, etc.), and lastly, practices of establishing a profit margin ceiling are noted. These practices allow the cooperatives to improve their short-, mid- and long-term reading of the environment and needs of members. By thus placing the use relation at the heart of cooperative development, the administrators and managers acquire the reflexes and data needed to better gauge their environment. Members, for their part, see the cooperative better able to answer their changing needs.

6. The challenge of community development. The prime objective of a cooperative is to offer its members better services and products. Yet, along with striving to attain this objective individually and collectively, contributing to better development of the community is inherent to the nature of the cooperative. Through its membership, the cooperative belongs to the community and traditionally returns a “social dividend” to the community.

This particular challenge gives rise to relatively advanced and widely adopted practices within the cooperatives studied. Practices of community donations are observed, as well as practices of partnership with local organizations in need of logistical support or intervention. Also, practices of policy development regarding involvement and support are created within cooperatives in order to better direct possible cooperative action. Finally, practices of establishing funds destined for community development (social funds, environmental funds, etc.) are noted.

For the cooperative, these practices yield strategic results beyond business projects for members, results that embody its very “raison d’etre” as a vehicle for development. The cooperative thus becomes important to its members on a business level and to the community on a developmental level. For members, over and above the direct use relation, the contribution of cooperatives improves their quality of life in general (support at home, improved neighbourhood services, urban design and green space, etc.).

The next two cooperative challenges are special, in the sense that one is found at the very core of the model, while the other encompasses the model in its entirety.

7. The challenge of cooperative education. Surrounded by traditional businesses whose management tools and level of success are measured in terms of return on investment, cooperatives must substantiate their success in regard to their values and principles. As all management tools reflect the philosophy from which they originate, cooperative managers and administrators must acquire the tools for analysis, decision-making, and implementation that mirror the cooperative identity in a broader sense than traditionally defined as cooperative education. In this particular context, the challenge exceeds the traditional scope of cooperative educational principles, becoming a prism through which are developed managerial practices.

Educational practices, mainly targeting members and administrators but also employees (especially in consumers’ and producers’ cooperatives) and the general public, are the most frequently observed practices in the cooperatives taking part in the study. Publicity and display practices highlighting cooperative distinctiveness are also observed, as well as information dissemination and public relations practices specifically focused on the cooperative identity.

These practices lead cooperatives to two different results. First, the cooperative can distinguish itself in the way of approaching its business through the different cooperative challenges. It can also distinguish itself in the way the cooperative communicates with its members and the community. This leads to a clear recognition of the cooperative distinctiveness by the members.

Because managers and board members have the cooperative project in mind in everyday decisions, the cooperatives have a distinctiveness that other business don’t have and that competitors won’t be able to copy. This is the root of any cooperative competitive advantage.

8. The challenge of products and services. Cooperatives are formed to address needs by the offer of products and services within the framework of cooperative development.

Therefore, cooperative products and services must reach beyond the traditional price-to-quality equation. Although this equation remains an unavoidable element of its service delivery, the cooperative must also tender cooperative added value: each of the model’s challenges must tender tangible added value in the products and services of its cooperative offer. Strategically, the cooperative must offer products and services of competitive quality, at competitive rates, along with unique elements of cooperative added value.

This last challenge is thus the culmination of the cooperative’s efforts; its entire legitimacy and survival as a business is condensed into the offer of a distinctive product. As such, the first seven challenges must strongly impact the cooperative product/service offer; the challenge of products and services determines whether the first seven cooperative challenges are in fact met.
 

Conclusion



Many cooperative actors stated that on the one hand, the model outlined here helped them link daily decisions to the cooperative identity, and on the other hand it helped to match strategic results to sound managerial practices. The study also suggests that the cooperative identity is a powerful strategic advantage. The researchers, however, want to pursue their work so as to more convincingly establish the cause-and-effect relation between good practices and strategic results. The implementation and assessment of cooperative strategies must also become the object of in-depth study.

*** Michael Lafleur is a professor and director of IRECUS, the Institute of Research and Education for Cooperatives at the Univeresity of Sherbrooke ([email protected]).

See other articles from this issue: #116 January - February - 2005