Will Cooperatives survive today’s business environment?

A cooperative structure is jointly owned and run by its members for the benefit of its members. The most common rationale for the cooperative structure was the power brought about by the aggregation of purchasing and creating economies of scale unachievable for a single entity.

This often, but not always, led to common signage where the individual businesses remained in independent ownership but shared a common brand. Intense competition and the growth of branded networks are putting pressure on cooperatives to restructure in order to compete more effectively. Both company owned and franchised networks are essentially a benevolent dictatorship that allow management decision-making unfettered by a committee-based structure and with the best interests of the group, rather than an individual, paramount.

 Conflicts of interest can seriously impede cooperative network growth

Many cooperative board decisions are compromised by the conflict between the personal interests of board members independent businesses, and obligations to the welfare of the greater group. Often, operational compliance issues with individual members cannot, or are not, being addressed and members do not report financial performance. This can lead to management decisions being made without the information or enforcement capability necessary to develop appropriate strategies and tactics. We often see this manifested in inconsistent business appearance and stock range that compromises group buying power, marketing strategies and the perception by consumers of the brand.

As numbers of cooperative members grows, decision-making becomes paralysed; ultimately, this may lead to stagnation or the formation of splinter groups. Forward thinking cooperative boards are exploring corporatisation, and/or the development of a franchise structure to formalise and direct business conduct at the customer end of the brand to grow the network and remain competitive.

Rod Young

Rod Young is Executive Director at DC Strategy.

DC Strategy is the region’s leading specialist consulting and legal firm. Our specialist teams in Strategy, Franchising, International and Legal have developed the networks and brands of many of the region’s most successful businesses. Contact Rod Young at rod.young@dcstrategy.com