Strategy is more important than structure for agricultural cooperatives

A cooperative is a user-owned and controlled business. Well known Dutch cooperatives are FrieslandCampina, FloraHolland and Rabobank. Benefits from the cooperative are derived from using the cooperative and profits are distributed among members on the basis of use. Dairy cooperatives, for example, distribute their profit to member-farmers as a price premium for every kg of milk delivered by the member-farmer to the cooperative.

Cooperatives are very common in agriculture, but the commitment of member-farmers to their cooperatives is decreasing. Member-farmers doubt whether they still benefit (enough) from patronizing the cooperative. To cope with these challenges many cooperatives have been restructured, in the past decades. Organizational structure, however, is a sensitive issue in many cooperatives: who owns the cooperative and benefits? Who has a say and about what?

While many cooperatives have debated cooperative principles, other firms have focussed on how to respond to market changes, particularly on how to satisfy customers better than competitors and how much to invest in brands? In other words they have built strategic attributes such as their market and brand orientation. The responsiveness of cooperatives towards market changes is sometimes questioned.

In a recent study (first authored by Theo Benos) the influence of organizational and strategic attributes on cooperative’s performance was explored. Organizational attributes refer to the way the cooperative is organized, which reflects its culture. For example, whether there is democratic control or proportional decision control; whether only members own the cooperative or non-member funding is used. Strategic attributes refer to business culture, reflected in specific activities, such as market orientation and brand orientation. One hundred fourteen Greek cooperatives were used to test our hypotheses.

Results show that strategic attributes (market orientation and brand orientation) are more important for cooperatives’ performance than organizational attributes. Organizational attributes influence strategic attributes (i.e. market orientation) and thus performance, but only to a very limited extent.

Our study implicates that cooperatives should focus more on strategic than cooperative attributes. Cooperative restructuring (control, ownership and cost/ benefit allocation) only increases cooperative performance when it facilitates the cooperative’s market orientation. In other words, learning how to understand and seduce the customer is more likely to pay off than changing the way a cooperative is structured. Restructuring may be necessary at times, but do it only when it helps to focus even more on the end consumer. Cooperative restructuring alone, however, is not enough. Building the cooperatives market orientation and branding capabilities is crucial for the cooperatives prosperity.

The full-paper can be read at Wiley: Benos, T., Kalogeras, N., Verhees, F. J.H.M., Sergaki, P. and Pennings, J. M.E. (2016), Cooperatives’ Organizational Restructuring, Strategic Attributes, and Performance: The Case of Agribusiness

Frans Verhees

About Frans Verhees

Frans Verhees is assistant professor at the Marketing and Consumer Behaviour Group. He studies small firms' marketing management in the agricultural sector.

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