This document has been made available in electronic format by the International Co-operative Alliance ICA ---------------------------------------------------------- July, 1996 (Source: Review of International Co-operation, Vol.89, No.2/1996, p.75-81) ---------------- Competing with Concept: A Note on Co-operators, Corporate Strategy and Computer Fads by Yohanan Stryjan* *********************************************** The co-operative movement emerged from an economic and social order that was quite different from today's. As the map of suitable economic habitats is shifting, these traditional mainstays of the co-operative movement face serious problems. Consumer co-operatives and farmer co-operatives have their base in branches whose relative weight in the economy shrinks. The third pillar of the co-operative structure, financial co-operatives, has had it's strength in what now is that sector's weakest section: personal financial services. Its basic tenet and comparative advantage, that of "banking on trust" (compare Bonus and Schmidt, 1990) is being eroded by the anonymization of the financial market. The description above is not meant as a prophecy of doom. Many, perhaps most, of the organizations in question will stay with us throughout our lifetimes. The problems they face provide us with worthy topics of research. The point is, however, that - regardless of how important present fields of activity may be - the co-operative movement is threatened by marginalization as the fields it concentrates on become overshadowed by the growth of new sectors. Research aimed to locate or resolve problems in the performanke of specific co-operative enterprises or branches is, of course, important for the directly involved. Nonetheless, it fails to address the issue of the entire movement's marginalization. Marginalization affects even economically successful co-operatives, and can take place in some or all of the following dimensions: a. Economic relevance: relative weight of co-operative enterprises' activity in the economy at large; b. Demographic relevance: The percentage of the population for which the services provided are relevant (e. g. the demographic decline of farming population in developed countries); c. Member relevance: The proportion of time and attention that the average member devotes to the problems that the co-operative's core services are keyed to resolve (e. g. the weight of grocery shopping in changing leisure-time patterns). While co-operative's traditional habitats are decaying, new and dynamic fields are opening up. The selfsame dimensions on which patterns of marginalization were mapped, can also be applied to assess potential and desirable directions of expansion. The salient question is what could facilitate the movement's expansion out of its traditional economic bases into such new fields of activity, a process that would imply the establishment of new services, and gaining the affiliations of new members. The question that the co-operative movement is facing cannot be resolved on the ideological plane. Nor can it be reducmd to a marketing problem, superficial resemblances (of which later) notwithstanding. New members seldom join a co-operative merely because this would seem the ideologically right thing to those who already are members. Reiterating Basics ------------------ Co-operative is about people. It comes about through giving organizational expression to peoples' needs, activities and ideas. The co-operative principles provide some procedural rules of thumb as to how such organizing can be accomplished. They do not, and cannot provide a clue as to what is to be organized. The object of co-operatives must change over time as the situation and preferences of its subjects - the co-operators themselves - change over time. People are an enormous - but also a notoriously ficklm resource. Regardless of how well functioning a co-operative organization is, it cannot maintmin a perfect fit with its members' demands at all times. Some organizations do manage to stay in phase with their members most of the time. Some manage less. All fail periodically, though. Established co-operative organizations are often tempted to doctor the fit between the organization and its members by way of 'streamlining' their corpus of members, so as to weed out members whose demands deviate from what the organization finds expedient to offer (Stryjan, 1994). Other co-operative organizations simply decouple members from the organization's activity (Stryjan and Mann, 1988). Both tactics may improve short-range manageability. They do not, however, eliminate the risk that the organization suddenly will find itself in a decaying market. Often they actually exacerbate it. Individual members, on which the co-operative ultimately rests, may respond to discrepancies between their needs and the organization's supply of services either by trying to steer the organization to a new course (a task that becomes increasingly cumbersome as organizations mature) or by turning somewhere else for answers (compare Stryjan, 1989; Hirschman, 1970; 1982). Two distinct 'outside' options exist: turning to alternative suppliers (market- or state-, as the case may be), or forming new co-operatives that better match the expectations of those unsatisfied. In the short range, both are an anathema to the co-operative organization affected. Co-operatives actually tend to invest more zeal in combating 'competing' (in fact, complementary) co-operatives, than in countering conventional competition1. The two options' long-range implications are diametrically different, though. The first leads to a contraction of the co-operative sphere. The second may lead to its expansion and revitalization, in which members' dissatisfaction can be harnessed to propel development. To substantiate this claim, I must broaden the scope of analysis. Thus far, the discussion revolved around two classes of actors2; existing co-operatives and their members. To deal with the topic of expansion, our perspective has to be expanded to incorporate a portion of the organization's environment as well. A third conceptual category - that of potential members - has to be introduced. In a way akin to conventional market research, it is theoretically possible to delimit groups which could have benefited from co-operative organization, and could be thought to join co-operatives (old or new) operating in new fields of activity. Broadly, this amounts to identifying a need, shared by a group of people, that could be suitably answered by co-operative organization. At least two such potential fields of activity can be identified in Western societies: the field of health and personal social services, and the integration of the socially excluded. However, potential members exist only in an analytical sense, their defining property being the default to join (or remain in) an existing co-operative. Some of these may be keeping out due to lack of information. A major portion, however, would not partake of the services offered since it does not find them suitable. The analogy between co-operative strategy and marketing ends at this point, for the simple reason that the `product' that is to attract the unconvinced cannot be designed a priori: designing a new co-operative to match the needs of a new type of members is, by definition, the task of these self same members. Designing a co-operative by a third party to the needs of those not (yet) in it, is a self-contradictory proposition3. Encouraging the formation of new co-operatives, in which a new type of members may formulate its own needs and ways to meet them thus becomes an obvious way of expansion into new fields, or fields that established co-operatives have for some reason failed to cover (Stryjan, 1993). It increases diversity within the movement, helping to make it attractive to a more varied group of members. It also enhances innovation and helps decentralize the risk-taking that launching a new type of operation involves. Paths of Expansion ------------------- Corporate expansion is normally discussed in terms of growth of the focal enterprise, or in the holdings of an owner group. It is self-evident whose benefit it advances. The expansion of co-operatives does not quite fit these categories. The co-operative sphere is not defined by ownership groups, but by its member organizations' adherence to a specific modus operandi. Consequently, its expansion cannot be considered in terms of the growth of specific enterprises, but by the diffusion of the mode in question. These two strategic outcomes are interrelated in a complex way. An interesting conceptual parallel, that helps clarify this relation can be found in rather unexpected quarters, namely in the computer industry4: Apple Computers managed to establish itself in the PC market partly owing to its superior design concept, but largely due to the initial reluctance of IBM and other mainframe producers to wholeheartedly enter it. Apple's honestly-earned success has led it to place excessive confidence in its own design and production facilities. Until recently5 the company consistently declined to license its operating system to other firms, and successfully blocked the emergence of 'Mac-compatibles'. IBM, that entered the market later, with o comparatively weaker and less user-friendly p~oduct, followed an opposite strategy, encouraging (partly by default) the proliferation of IBM-compatible clones. The establishment of MS-DOS as a dominant standard in the PC world was accomplished by the mass entry of IBM compatibles, rather than by the market advances of IBM itself. The multitude and diversity of new users created a hotbed for development of new software applications and peripheral equipment, further increasing the attractiveness of IBM standards. Apple, through its purist approach, thus helped to shape a world made to IBM standards. Contemporary co-operative's predicament is not unlike Apple's. The 'product' it offers may be better than the institutional competitors'. Nonetheless, it proves hard to sell in a world keyed to this competitors' different operating system. Like Apple, co-operatives may have helped to bring this predicament upon itself, by insufficient tolerance towards unauthorized clones and 'compatible' imitations, viz new co-operatives. The fostering of proliferation, be it of compatible computers or of like-minded organizations ought, in fact, to be seen as a matter of enlightened self-interest. Extension vs Proliferation -------------------------- As the example above shows, expansion has a long-range and a short range component. The strategic choice made by Apple was to focus primarily on the short range: expansion by extension of itself, raising the company's share in a given market. IBM opted for a long-range view, promoting an expansion of the whole PC market, through expansion by proliferation while advancing the company's legitimacy within it (proselytizing for the DOS standard). Small organizations can seldom afford to consider long range implications of the strategies they adopt. Big and dominant organizations, though, may ignore them only at their peril. Small organizations that grow big may easily miss the point in their growth at which they should better change perspective. The two patterns of expansion: by extension and by proliferation are both evident in the history of the co-operative movement. Jobring (1988) observes two movement types: the distributive, that expands by way of founding new co-operatives, and the collective, expanding through extension of branches steered by the centre. It may be useful to consider the two as ideal types, that coexist simultaneously, in different blends, within any co-operative movement. Swedish consumer and farmer co-operatives have initially expanded by way of proliferation of independent associations. The shift to consolidation and extension occurred gradually6, producing increasingly centralized structures. Amalgamation, towards fewer and bigger organizations, came to be viewed as superior to proliferation. From the '60s and onwards, Swedish co-operatives became an extreme example of a purist extension approach, focusing on structural consolidation and the growth of existing organizations. Policies of consolidation have helped the Swedish co-operative organizations to reach national prominence. Carried beyond a certain point they did however stifle the movement's expansion and innovation potential. Shifts from proliferation to extension strategies can be related to processes in the organization and its environment, namely the maturing of organizations and the maturing of industries. Seeing it as an expression of deterministic forces at work is, however, too simplistic. (a) Maturing of organizations: in co-operative organizations, the balance tends to shift, with increasing age, from proliferation towards consolidation and extension. However, the age-factor cannot account for the evident differences in emphasis between national co-operative traditions: Southern-European movements, regardless of age, tend to remain relatively tolerant towards autonomous co-operative initiatives, as compared to Nordic co-operative movements. Significantly, these co-operative movements seem to have succeeded much better in preserving, and even enhancing their legitimacy than did their counterparts. The correlation between maturity and consolidation/extension is even less consistent in conventional industry, as the IBM example above shows. (b) The maturing of industries: intuitively, proliferative strategies seem more suitable to emerging markets and young industries. Zero-sum strategies become increasingly relevant as expansion slows down, and the boundaries of the relevant market seem set. The degree of an industry's maturity is, however, pretty much a matter of cognitive definition and cultural perception. To the extent a co-operative organization derives its definition of identity from its branch, or from a standard staple product/service (e.g. milk, or the selling of groceries), the niche it occupies may indeed appear static, or even shrinking. It would indeed seem that a strict branch specialisation of co-op organizations, and a rigid division of work between organizations inhibit diversification tendencies (Stryjan, 1991; Stryjan and Wijkstrom, 1995). However, other, more open definitions are conceivable. Basing a discussion of co-operative strategy on the relative position of a given co-op organization in a specific industry is a conceptual fallacy. The industry of co-operative is co-operative. The discussion of co-operative expansion and development thus requires a basic conceptual reframing (Cf Hedberg, 1974). Co-operatives should be considered as a sphere of activity, consisting of a multitude of organizations, both present and potential, rather than as a members' club for established organizations. Naturally, each single organization is primarily concerned about its own survival. Yet, the survival and growth of any specific co-operative organization hinges in the long run on the growth of the entire sphere. Seen in this perspective, supporting the formation of new co-operatives is a matter of enlightened self-interest for established co-operatives. At the same time, the future of co-op is not contingent on the fate of any single organization. Indeed, the organizations yet to be born may be more important than the ones already there. The co-operatives that really matter are the ones yet to be formed. Footnotes --------- 1. An attitude that is most evident in consumer- and banking co-operation. 2. Sociologically speaking, the term 'agent' (Giddens, 1982) would have been more appropriate. In this discussion I employ the term 'actor' to avoid confusion with the 'principal-agent' line of theorizing, that may be more familiar to business-interested readers. 3. This rule does not apply to highly institutionalized forms of co-operation (e. g. housing co-operation) in which the basic blueprint is standardized. 4. The example may appear far-fetched. The computer industry and the co-operative movement do, however, share a number of interesting traits: both combine evident returns to scale with small-size advantages, and are innovation-dependent. Finally, questions of contesting standards within the computer industry closely parallel the legitimity issues the co-operative movement struggles with. 5. Independent production of peripherals was gradually introduced in the 1990s. A decision to encourage the production of Apple compatibles was reached first in 1995. 6. In the case of consumer co-operation, the first sign of this shift was the shelving of KF's vision of an all-cooperative union, around 1900 (Holmberg, 1993). The shift became definitive in the post WW2 period. References ----------- Bonus, Holger and Georg Schmidt (1990): 'The Co-operative Banking Group in the Federal Republic of Germany. Aspects of Institutional Chance'. Journal of Institutional and Theoretical Economics. 146, pp.180-207. Hedberg, Bo (1974): 'Reframing as a way to cope with organizational stagnation; a case study. IIM, Wissenschaftszentrum, Berlin. Hirschman, Albert O. (1970): Exit, Voice and Loyalty. Cambridge, Mass., Harvard University Press. Hirschman, Albert O. (1982): Shifting Involvements. Oxford, Martin Robertson. Holmberg, Per (1992): 'Kooperationens bidrag till den svenska modellens upplosning'. In Stryjan, Y; Wikstrom, B.; Jobring, O. (eds): Kooperationens Granser. Kooperativ Arsbok 1992. Stockholm, Kooperativa Studier. pp 11-15. Jobring, O. 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Stryjan, Yohanan; Mann, Curt-Olof (1988): 'Members and Markets: The Case of Swedish Consumer Co-operation'. International Yearbook of Co-operative Enterprise. Oxford, The Plunkett Foundation. pp 121-131. ------------------ * Yohanan Stryjan is associate professor (docent) in sociology at Uppsala University, and currently project director at the School of Business, University of Stockholm, and ACE/Phare Fellow at CAU in Prague. The original version of this paper was presented to the Co-operative Research Forum, Manchester, 17-18 September 1995.