Co-operatives pros and cons - Sample Essay

Co-operatives are a distinctive form of organisation with a long history. According to Mullins (2007), a co-operative is an autonomous association to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-controlled enterprise. While shareholder owned firms may have emerged as dominant model in producing goods and services in most markets today, co-operative organisation can often be found alongside them.

This report will discuss the case study on Co-operatives organisation and how organisations structured as co-operatives may behave differently and consider those special features for the market of the twenty-first century. The problem of the case study is the formation of co-operatives organisation will affect the motivational factors among co-operatives members. The case study also suggested that co-operatives are likely than investor owned firms to suffer from the problem of the commons in economics.

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In order to solve the problem different theories of co-operatives are discussed under the case data analysis section and after that generating possible alternatives to analyse the case data. Finally the key decision criteria have been made after evaluation of appropriate alternatives of the case data analysis. 1. 2 Problem Statement Co-operatives as organisational forms are also interest theoretically in respect of the way in which the unusual structure may affect incentives and thus the behaviour of those in co-operatives.

It is sometimes suggested for example that co-operatives are likely than investor owned firms to suffer from the problem of the commons in economics: Where the assets are in the hand of everyone but not in the hand of anyone, why should any member refrain from using the assets in ways that may damage them (i. e: overgrazing in terms of the original problem). Other concerns have focused on the theoretical problem of the decision making by large numbers of members with diverse priorities and interest.

Borgen (2003) suggested that some of the perceived difficulties may result from an inappropriate assumption about the outlook and the motivation of the co-operative members. Thus the problem arise mistakenly imagining that co-operatives members are keen to investors in a firm, in which case the analysis of difficulties in terms property rights and agent principle relation would be well founded.

However, in his view co-operatives members are far more realistically understood as users, rather than investors: the fact that they have chosen to join suggest a strong interest in the output of the organisation, be that in terms of access to markets for a small wine maker in a French co-operatives or access to good value products and services in a co-operative retail outlet. So Finally, it is identified that the problem of the case study is the formation of co-operatives organisation will affect the motivational factors among co-operatives members.

The case study also suggested that co-operatives are likely than investor owned firms to suffer from the problem of the commons in economics. 1. 3 Analysing Case Data 1. 3. 1 Overview of Co-operative Organisation According to Mullins (2007), a co-operative company is one established for the purpose of allowing its owners to carry on business on a mutual basis. It is a company incorporated under the Companies Act 1993 that applies for registration under the Co-operative Companies Act 1996 in order to operate as a co-operative. Only a co-operative company may have the word ‘co-operative’ in its name.

Co-operatives represent one of the five basic forms of organisational structure. The others include sole proprietors, partnerships, incorporated associations and companies. Co-operatives have corporate status like private companies (ie. a legal existence separate from that of members) and they have limited liability (ie. if wound up, members can lose only their share capital). However, co-operatives are distinguished from other forms of public or private organisation in that they are democratic structures owned and controlled by their members.

They provide a legal framework through which a community can maintain ownership over local resources while providing a service to members and to the local community. The fundamental objective of a co-operative is to make the needs of members the driving force of the organisation. A co-operative company must principally carry out a co-operative activity as defined in its constitution. Such activity may include providing shareholders of the co-operative company with goods or services, including processing and marketing services and those things ancillary to the activity (Tutoe2u, 2009).

1. 3. 2 Limitations of the Co-operative Organisation In order to case data analysis of the given case first we need to follow up the lacking of the co-operative organisations. According to Nos (2009), the co-operative form of business organisation also suffers from various limitations. The limitations are discussed in the following way: Socialists, Co-operators and Trade Unionists have over the years by default mistaken the process of democratic governance for that of management and management for that of administration.

The problem that Roberto Michels raised of the danger of the “iron law of oligarchy” subverting the organisations of labour was never properly addressed from the side of management (Michels, 1992). Instead labour movement’s the world over have tried to use the democratic process of governance as a policing function to control its own administration and to generate the policies that administration was to pursue. As a result the experience of all three organisations is littered with bitter recriminations, betrayal, disillusionment, broken promises and missed opportunities (Davis, 1995).

According to Davis (1995), there have been many co-operatives that have flourished and grown and on such occasions we always find a strong purposeful character at the head of the co-operative with natural ability to manage and a charismatic personality capable of exercising leadership and a vision that motivates people to work together to bring the vision to reality. The problem is that these occasions are the result of a chance process not a matter of systematic development and selection of the right candidate for the job of managing the organisations of labour.

Often well intentioned persons in positions of leadership have lost their way becoming confused by the division established by “Scientific Management” between cooperatives social goals and values and the so called “neutral” economic and organisational principles encompassed by what has become known as the “discipline of management”. In fact what co-operatives need is a profession of management which is capable of drawing on numerous disciplines at the service of co-operative values and purpose.

Co-operative Management needs to be seen as a statement of the implementation of Cooperative Identity and as criteria for the systematic development and selection of candidates with whom the management of co-operative and other associations of labour may be entrusted (Davis, 1998) It is time we addressed the old challenge of Michels “iron law of oligarchy” from the inside of management as a question of defining the goals and vocation of a profession of co-operative managers whose professional association must be itself established as part of the wider community of labour.



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