Competing with Concept: A note on Co-operators, Corporate strategy...(1996)

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. (1988): Kooperativ Rorelse (Co-operative
Movement).BAS, Goteborg. 

Pestoff, Victor A. (1994): 'Beyond exit and voice in socil
services - Citizens as co-producers'. In 6 and Vidal (eds.):
Delivering Wulfare. CIES, Barcelona. 

Stryjan, Yohanan (1989): Impossible Organizations.
Self-management and Organizational Reproduction. New York,
Westport CT, London; Greenwood Press.

Stryjan, Yohanan (1993): Co-operatives in a Changing World.
Membership and Adaptation in Swedish Farmer Co-operative.
Report 65. Department of Economics, Swedish University of
Agricultural Sciences, Uppsala.

Stryjan, Yohanan (1994): 'Understanding Co-operatives: the
Reproduction Perspective'. Annals of Public and Co-operative
Economics. Vol 65(1), pp 59-79.

Stryjan, Yohanan; Froman, Eva (1991): Jamtspira: en studie i
innovation. Report 43, Department of Economics, Swedish
University of Agricultural Sciences, Uppsala.

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.