Adapting to change

Educating members helps smooth transitions

Jim Wadsworth, program leader
Education and Member Relations
USDA Rural Business-Cooperative Service

“…the economic and social environment in which cooperatives
operate is changing. As co-ops transform themselves to try and
adapt to this new environment, the need for cooperative education
becomes more and more critical. Co-op members need to understand
the forces leading to the changes in their economic environment,
while managers and boards need to think about the appropriate
strategies their enterprise requires to survive and prosper in this
new environment. And people in cooperatives need to be even more
aware of how their organization fits into the world around them.”

From: “A Systems Approach to the Challenges Facing Cooperative
Education and Cooperatives”
By Murray Fulton, Center for the Study of Cooperatives, University
of Saskatchewan

his passage by Murray Fulton describes the critical necessity of educating members about the position of their cooperative in a rapidly changing business environment. This is especially important for cooperatives undergoing structural transformations. Fulton’s words also address the need to ensure that members understand the economic forces impacting their cooperative, and how well they are positioned to respond to change. It advises managers and directors to be proactive in creating strategies for their cooperative’s survival and prosperity.

Indeed, members must have a solid understanding Indeed, members must have a solid understanding of their cooperative’s position in the marketplace and potential operational or structural changes that might be necessary to further extend or protect that position. Not only must directors and management understand the cooperative’s current position, but they must be involved in developing strategic actions to protect and enhance that position. They then must communicate the rationale for these actions to members.

Some questions arise: How much do members currently understand about their co-op’s position? What information and how much information should be provided? How should it be delivered?

For cooperatives to remain strong, members must take their ownership responsibilities seriously. They must listen and ask tough questions of their leaders, offer their own ideas, be loyal to and financially invest in their cooperative. Taking ownership includes having access to knowledge of how the cooperative is performing in its environment and its future direction. Ownership extends to knowing the circumstances that will determine a cooperative’s future in a fastchanging and dynamic agricultural environment. Wellinformed, active and engaged members are more apt to accept new initiatives.

Of course, not all planned strategic actions can be immediately communicated. In some cases, providing details of goals and strategy too early to the entire membership may be detrimental to a cooperative’s well-being. Due to competition and other outside pressure, cooperative leaders may need to be discreet about what to say in the early development stages. Significant advance work on a strategic action must be completed before information can be shared with the membership to indicate the cooperative’s plans and how they will be achieved.

With that understood, it is still important that members not be blindsided by a significant strategic action taken by the board and management. At appropriate times, members should be informed of their cooperative’s current position and planned future direction.

Detailed information on strategic efforts becomes especially important when cooperatives are making a structural change that the membership must eventually approve. For lesser plans, strong communication is still necessary because member distrust of the cooperative can arise if they learn of significant changes from outside sources.

If members are not appropriately informed in a timely manner, a backlash may develop and the board may find insufficient support among members for a needed structural change, such as closing a location or adding a new plant. Potential mergers, joint ventures and other major changes may fail even after considerable work by management and the board. While there may be many reasons such efforts fail, the major reason is often a lack of understanding by members of why the action was needed.

Industry position
Members need to understand where their cooperative is positioned in its industry before they can support goals and strategic efforts to improve that position. Cooperative leaders must adequately explain the need for changes to operations and/or structure.

Figure 1 shows a life cycle for a cooperative business. The phases suggest that cooperatives develop strategies based on where they are in their business life cycle. Where they fall on the “S-shaped” curve depends on the present conditions in the marketplace and in their operations.

For instance, most traditional agricultural markets are considered mature markets. These mature markets are characterized by: slow to stagnant growth, strong competition for market share, declining farm numbers, growing size of surviving farms, service to repeat customers, greater emphasis on controlling costs and providing extra services, periodic excess capacity, lower margins and profits, diverse customer (member) interests, etc. Many agricultural entities, including cooperatives, find that they are in this maturity phase of the business life cycle, requiring that they make strategic efforts to protect, defend and develop new opportunities.

Other cooperatives may be in emerging agricultural markets. For instance, new value-added (and new generation) cooperatives are apt to be in the introduction and early growth stages of their business life cycle. Consequently, these organizations should be working on strategic efforts designed to penetrate and grow.

Figure 1 also implies that cooperatives operating in mature markets often employ efforts to extend their existence along the maturity phase of their industry life cycle. This suggests that those cooperatives have been fairly conservative in their approach to internal and/or structural change over the years and implies that it is even more important for them to educate members as to where their organizations fit in their industry and where they may need to make significant strategic efforts to survive. This task is often difficult because members have become comfortable with the status quo.

Educating members on where their cooperatives fit in their environment and its business-life cycle leads to a more informed assessment of why the board has developed various goals and why it may be considering or pursuing a given change or strategy.

Figure 1 may help directors and managers simplify the explanation of their cooperative’s industry position and associated strategic direction to members. Detailed aspects of operations, structure and the marketing environment must be explained so members understand the cooperative is indeed where they say it is on its industry life-cycle curve.

The figure may oversimplify the complexity of the cooperative’s position because there are often many factors involved), but it still provides a reference point for directors to work from. Member understanding of their cooperative’s industry position can help clarify and build support for the goals and strategic efforts planned for by the board. Failure to make changes to improve a cooperative’s position may eventually push it into the decline (and potential divest) portion of the life cycle not a positive outcome!

Strategic directions
Figure 2 is a model showing that environmental factors, such as industry trends and conditions and organizational conditions, impact a co-op’s ability to achieve goals. Cooperatives need to assess goal accomplishment and develop a strategic direction to improve their position. Indeed, industry conditions dictate that organizations look to plan, adjust and position themselves using alternative strategic directions for continued and improved goal accomplishment. Certain strategic directions will be more effective than others. They will also vary in the way they are constructed and implemented by different cooperatives given respective circumstances.

Figure 2 shows the major strategic direction of adjusting and making internal changes to operations and, perhaps, making internal structural changes (expansion or contraction of assets) in order to improve revenue streams, efficiency, scale economies, control of expenses, and organizational structure using leadership, niche and efficiency-related strategies. These changes fall under the efforts to extend life-cycle phase in figure 1.

This direction is not new to cooperative leaders. Cooperatives have traditionally and consistently looked to grow by improving operations for greater member benefit and efficiency. This direction has been employed in various ways by many cooperatives for extending their life cycle in mature market environments.

However, simply improving operations on a recurring basis is not always enough. Industry conditions and the cooperative’s performance toward achieving goals often push cooperatives to make more significant external changes as an extension of their original structures. In fact, some cooperative leaders have been saying that looking to external structural strategies acquisitions, mergers, joint ventures, alliances, etc. is critical if cooperatives are to stay competitive in a consolidating agriculture industry.

Figure 2 shows two external structural change strategies that extend beyond the normally employed strategic direction of internal adjustment and improvement. Cooperatives have two basic directions to consider: (1) build working relationships develop joint ventures, strategic alliances, or other business relationships with other cooperatives or companies (to help put the cooperative into the growth and new opportunities phase of figure 1), and (2) unification—mergers, consolidation or acquisition (which can also put a cooperative in the growth and new opportunities phase).

Joint ventures, agreements, alliances and working relationships are common among farmer cooperatives. They are strategies for gaining or restoring growth while limiting the investment given the cooperation of the enterprises involved. Though not as severe of an organizational change as unification, these strategies warrant careful study by cooperative leaders.

Unification (i.e., merger, consolidation, acquisition) is a strategy that many cooperatives look to for accomplishing growth goals and improving competitive position, and in some cases for survival. Because unification drastically changes the organization altering cooperative culture, internal and external structure, governance, asset base, services and membership boundaries cooperative leaders have to be diligent in studying and making decisions of this significance.

Structural change strategies must be contemplated by cooperative leaders interested in protecting competitive position or improving cooperative value by seeking greater market share, vertical or horizontal integration, diversification of services and other growth opportunities.

Figure 2 provides a strategic planning overview for cooperatives. It shows relationships between goals, environment and potential strategic directions. Cooperatives work to close the gap between their mission and vision by execution of strategy. Execution involves not only work by board and management to develop appropriate strategic effort, but communication aspects as well.

Communication issues
It is extremely important to communicate to members about their cooperative’s current position in its industry and how its position is affected by the cooperative’s mission, vision, values, goals, and propensity to continue benefitting members. Additional communication is needed on strategic effort the likely changes the cooperative is planning or contemplating to improve its position.

For internal changes, members need to be told what is being planned and how it will affect them and the cooperative. Directors and managers need to explain whether the change will expand or scale back services in a certain area to help the cooperative achieve better financial performance or industry position.

For a unification, members need to understand precisely why the change is being considered. Inaccurate information can create controversy and negative perceptions. Members must be made aware of why the unification is important and how it will affect the cooperative. This may lead to further actions, such as vertical or horizontal integration, the advance of scale economies, expanded capacity and potential synergies and efficiencies, etc. These must all be clearly described.

The same holds true for potential joint ventures, strategic alliances, working relationships and marketing agreements. Members need to receive accurate information and be told precisely what the strategic action will mean to them and their cooperative.

Members must understand why it is in the best interest of the cooperative (the goals the change will accomplish). They need enough information to objectively assess the change. Feedback and comments from members should be welcomed. Communication must be two-way: the board and management need to listen as much as they talk. Visual aids such as figures 1 and 2—can be used to present the general view of a cooperative’s situation and plans for the future. For more specific details, members should be provided with additional information about the precise circumstances confronting the cooperative and critical aspects of the strategic efforts being considered or implemented.

Failures point to
need for stronger effort

The cooperative transformations that Fulton describes are occurring in the cooperative business world today and these circumstances beg the question: How well are cooperatives communicating these transformations to members? While many have surely done a good job, evidence of failed cooperative strategic efforts (e.g., unifications, joint ventures) suggests that good communication with members isn’t pervasive in the cooperative arena.

Communicating cooperative industry position and concrete reasons for strategic action may not always yield the results the board intended. Members may resist significant change for other reasons. However, it remains critical that the board and management be forthright and informative to members about where their cooperative fits in its industry and what types of strategic efforts may be needed for better positioning in the short and long term. As Fulton prescribes, “…members need to understand the forces leading to the changes in their economic environment....”

Members must also understand what their cooperative needs to do to counter such forces to thrive and survive. As owners, members must be educated and knowledgeable about such matters. It is their responsibility to work toward that end as well as the responsibility of directors and managers to provide members with critical information to level the learning curve. Meeting these responsibilities head-on is an imperative for the future of cooperatives.

May/June Table of Contents