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IOSR Journal of Business and Management (IOSR-JBM)
e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 24, Issue 5. Ser. III (May. 2022), PP 48-86
www.iosrjournals.org
DOI: 10.9790/487X-2405034886 www.iosrjournals.org 48 | Page
Towards Deepening Co-operative Identity III: Re-
Thinking the Co-operative Taxonomy for Business
Modelling Framework
Jared Mark Matabi1; Wilson Metto1; Esther Gicheru1; Edna Chepkirui Rono1;
Zachariah Mburu1; Victor Mbatha Wambua1
1School of Co-operatives and Community Development, The Co-operative University of Kenya, (Kenya)
Abstract:
Background: There are still complexities, paradoxes, and ambiguities in both co-operative business concepts
and practices. Co-operatives will succeed only where people design the type of business that best meets their
real needs. The question that remains then is, what the co-operative business models and classification are, and
how to identify, select, design, and implement them successfully.
Purpose and Methodology: The purpose of this study paper was to help broadly understand various co-
operative business taxonomies developed by various scholars and practitioners, their possible theoretical
grounding, their attributes, and interconnections to establish and strengthen their business model propositions,
which deepens the co-operative identity. The qualitative approach was used for this study to expand and
synthesize the formerly introduced co-operative taxonomies and in the lens of Sub-Saharan Africa and Middle
East.
Results: This study finds out that scholars' approaches to co-operative classifications can be clustered in four
clusters. Classification by scope (of purpose, sector, and target coverage), system (of ownership rights and
investment), structure (of membership, governance, and management), and strategy (of member participation
and marketing). Additionally, the study finds out that the co-operative taxonomies have been largely based on a
"linear" co-operative business modelling framework. No singular co-operative taxonomy can succeed and be
sustainable in all contexts and at all times. The success and sustainability co-operatives in various contexts are
determined by the hybridized models.
Conclusion: Hybridization of the co-operative business model is inevitable for co-operative success and
sustainability. Multistakeholder (solidarity) co-operative is the model that can sustain and deepen the co-
operative identity in the face of the present socio-economic and global complexities. The "circular" co-operative
business modelling framework can help practitioners to develop successful and sustainable co-operative
business models in different contexts and at different periodical phases of their life cycle. The originality of the
study paper is (1) the introduction of "4S" clustering of co-operative taxonomies on basis of scope, systems,
structure, and strategy; (2) reinforces the different co-operative classifications' conceptual frameworks and
directions; (3) making an analogy of co-operative business models to the human anatomy; and (4) developing a
concept of a "circular" co-operative business modelling framework to deepen the co-operative identity in
different contexts and periodical phases
Key Word: Co-operative, Business, Taxonomy
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Date of Submission: 05-05-2022 Date of Acceptance: 19-05-2022
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Definition of Terms
Terms
Definition
Co-operative
According to ICA (1995) "a co-operative is an autonomous association of persons
united voluntarily to meet their common economic, social, and cultural needs and
aspirations through a jointly-owned and democratically-controlled enterprise".
Co-operative Axiology
Is the branch of co-operative philosophy that study the co-operative principles and
values
Co-operative Business
Ontology
A set of co-operative concepts and categories in a business area or domain that shows
their properties and the relations between them to create, deliver and capture value to
members, other stakeholders, and the community.
Co-operative
Epistemology
Co-operative epistemology is a branch of co-operative philosophy that deals with the
sources of knowledge and beliefs, or cognitive states related to co-operative.
Co-operative
A process of combining two or more certain structural dimensions that are not easily
Towards Deepening Co-operative Identity III: Re-Thinking the Co-operative Taxonomy for ..
DOI: 10.9790/487X-2405034886 www.iosrjournals.org 49 | Page
Terms
Definition
Hybridization
defined in the traditional co-operatives on both community focus and business
orientation to form a co-operative business model to succeed in different contexts.
Co-operative
principles
A set of rules that give guidance on what members and the co-operative organization
are to do for each other
Co-operative
Taxonomy
The practice of naming, describing, categorizing, or classification of co-operatives. It
is a scheme of classification, especially a hierarchical classification, in which co-
operatives are organized into groups or types.
Co-operative values
The moral principles or accepted norms of a person or a group of people. Co-
operative values consist of values or norms inherent in the minds of the members
Degenerated
Co-operative
The term comes from the game-theoretical literature and refers to any type of
organizational decline from co-operative values and principles.
Entrepreneurial
co-operatives
Co-operatives that have tradable residual rights, such as New Generation Co-
operatives.
Governance
Governance describes a firm's system of decision-making, direction, and control.
Multistakeholder
co-operative
A co-operative with multiple types of members (key stakeholders) engaged with the
co-operative in different capacities. Any combination of types of stakeholders could
be members and may include such constituents as producers, consumers, suppliers,
workers, volunteers, among others. They are sometimes referred to as the solidarity
co-operatives
New Generation
Co-operative
A co-operative that considered the internal organization as an important determinant
of collective action performance. NGC organizes to improve efficiency by eliminating
or ameliorating property rights constraints.
Organizational
complexity
The condition of having many diverse and autonomous but interrelated and
interdependent components or parts linked through dense interconnections. In the
framework of a co-operative organization, complexity is associated with
interrelationships of the individuals, their effect on the organization, and the co-
operatives' interrelationships with its external environment.
Stakeholder
Those groups without whose support the organization would cease to exist; or any
group or individual who can affect or is affected by the achievement of the co-
operative organization's objective. They are typically understood in the corporate
literature to include shareholders, employees, customers, suppliers, government,
society, and more. There are single-stakeholder co-operative (SSC) and Multi-
stakeholder co-operative (MSC).
Traditional
co-operative
A co-operative that is riddled with technical, allocative, and scale inefficiencies; and
inherent problems of free-riding, horizon, portfolio, control, and influence costs.
Co-operative business
ontology
A set of co-operative concepts and categories in a business area or domain that shows
their properties and the relations between them to create, deliver and capture value to
members, other stakeholders, and the community.
I. Introduction
Since their inception in 1498 (see Fairbairn, 2012; Williams, 2007), the importance of co-operative
organizations across the world cannot be overemphasized or underestimated. Co-operatives are considered by
development agents as grand instruments of development and redress of the socio-economic failures (ILO and
ICA, 2015; Birchall, 2013; ICA, 2013; Develtere, et al, 2008,). They are immensely contributing to the
realization of the United Nations' Sustainable Development Goals (SDGs) as postulated by the International Co-
operative Alliance International Labour Organization and other related development agencies. According to the
World Co-operative Monitor's (Exploring the Co-operative Economy, 2020) reports, co-operatives are among
the largest ventures in the world with high capital bases, large market shares, and employers.
However, there have been cases where co-operatives have failed to stay put in the wake of the changing
global trends. This poises the continuous debate on the viability and sustainability of the co-operative business
models. People tend to have a very limited view of the kinds of activities co-operatives can perform. The
process of properly grounding co-operatives in the economic and management theories is ongoing. This
emanates from some studies in different contexts in which co-operatives have or are considered, according to
Levi and Davis (2008), the "enfants terribles" of economics. Scholars have established (to some extent) that
there are still complexities, paradoxes, and ambiguities in both co-operative business concepts and practices.
Co-operatives will succeed only where people design the type of business that best meets their real needs. The
question that remains then is, what the co-operative business models and classification are, and how to identify,
select, design, and implement them successfully.
Towards Deepening Co-operative Identity III: Re-Thinking the Co-operative Taxonomy for ..
DOI: 10.9790/487X-2405034886 www.iosrjournals.org 50 | Page
According to numerous scholastic discourses, co-operatives are still largely ignored within mainstream
economics and management theory; and in some cases, discredited by development agents due to the
malfunction potential in some contexts. Co-operative scholars are still trying to synthesize the co-operative
framework and/or pathway to offer comprehensive guidance for the co-operative business modelling.
Furthermore, identification, selection, designing, and implementation of co-operative business models for
success seems to be a major concern among the co-operative practitioners.
In December 2021, the International Co-operative Alliance (ICA), organized the 33rd World Co-
operative Congress in Seoul, South Korea; with a rallying call for "deepening our co-operative identity" to
secure the future. Based on the current global crisis as a framework, the congress discussions were aimed to
deepen the co-operative identity by (1) examining the co-operative values, (2) strengthening co-operative
actions, (3) committing to co-operative principles, and (4) living the co-operative achievements. Behind these
pertinent issues, is the centrality of and need for "co-operative business modelling" in various contexts across
the world. This study would not have come at a better time than this.
II. Purpose and Methodology
This study paper was undertaken on the following premise and methodology.
Purpose: Generally, the purpose of this study paper was to help broadly understand various co-operative
business taxonomy developed by various scholars and practitioners, their possible theoretical grounding, their
attributes, and interconnections to establish and strengthen their business model propositions, which deepens the
co-operative identity. Specifically, this study is to help the learner to (1) understand the existing body of
knowledge including where an excess of co-operative taxonomy and business modelling research exists (i.e.,
what is already known?) and where new co-operative business modelling research is needed (i.e., what is needed
to be known?) (2) understand a theoretical foundation for the co-operative business modelling framework study
(related to "what is already known in the co-operative business model?") (3) appreciate the presence of the co-
operative business modelling research problem - related to "what is needed to be known on co-operative
business models?" (4) understand the justification for the proposed co-operative business modelling study as one
that contributes something new to the body of knowledge (5) think through the frame of the valid research
methodologies, approach, goals, and research questions for the subsequent co-operative business modelling
studies.
Methodology/Approach: This has been qualitative research. A qualitative review has been carried out on the
co-operative taxonomies to expand and synthesize the formerly introduced taxonomies. In doing so, to
guarantee an even stronger reference to the co-operative business modelling concept, the focus has been
narrowed down to only those articles that include co-operative typologies.
On this basis, several articles by varied scholars that strongly deal with the co-operative taxonomies as such
and/or the research area; have been identified. The main scholars whose work is extensively revisited and
referenced are Nilsson and colleagues (1999, 2001, 2007); Cook and colleagues (1999, 2000, 2004, 2009);
Birchall and colleagues (2011, 2013, 2017); Iliopoulos and colleagues (2009, 2015, 2017). Bijman and
colleagues (2012, 2013, 2014, 2019). The study is further braced by the work of such other scholars as Matabi
(2018a, 2018b, 2017a, 2017b, 2017c, 2017d, 2017e); Mazzarol and colleagues (2009, 2011, 2018); and several
co-operative theories, especially the institutional theory (Emelianoff, 1948/1995; Craig, 1993), neo-classical
economic theory (Royer, 2014; LeVay, 2008), transactional theory (Williamson, 1985; Ollila, 1989; Fahlbeck,
1996), game theory (Sexton, 1986; Staatz, 1987), Property rights theory (Fulton, 1995, Jensen and Meckling,
1998, 1979), and agency theory (Hansmann, 1996). The several theories above explain the conditions under
which co-operatives can emerge and thrive and the kinds of outcomes they predict.
To provide a differentiated overview of the state of research, the researcher manually assigned the
related scholastic articles to the individual research areas. Due to different co-operative taxonomies emerging
from the review, the conceptual clustering approach has been used (Fisher and Langley, 1986). According to
scholars such as Levy and Ellis (2006), and Webster and Watson (2002); a quality and useful literature review
should be based upon a concept-centric approach and not just an author-centric chronological approach. Using
this approach, careful content analyses of the scholars' papers, and findings of their studies; have been grouped
within the cluster of concept matrices (Klopper, et al., 2007). A substantial number of related conceptual
articles, articles with case studies or basic empirical methods like descriptive statistics, interviews, surveys; and
articles with multivariate analyses (e.g., causal analyses, multiple regressions, or structural equation modelling)
have been conceptually reviewed and analysed (Levy and Ellis, 2006).
Conceptual clustering helps to generate a concept description for each generated class and can even
help to generate hierarchical category structures. Conceptual clustering is not only the inherent structure of the
data that drives cluster formation but also the description language that is available to the learner. The
conceptual clustering is related to concept analysis, decision tree, and mixture model learnings. However, a
strong grouping in the information would not have been extracted if the concept description language was
Towards Deepening Co-operative Identity III: Re-Thinking the Co-operative Taxonomy for ..
DOI: 10.9790/487X-2405034886 www.iosrjournals.org 51 | Page
incapable of describing the clusters of the co-operative taxonomies. The description language used may have
been limited to feature the envisaged taxonomy combinations.
The limitations notwithstanding, in the course of this qualitative literature review, the socio-economic
and political systems of different contexts influence how the co-operative identity is embraced by such a society.
The co-operative identity is defined in terms of the understanding of the co-operative history, theoretical schools
of thought; the upheld co-operative epistemology (i.e., truths on history, theories, schools of thoughts, trends,
definition, and laws) and axiology (i.e., values and principles, perspectives, roles, and importance). Such socio-
economic and political systems and co-operative identity concepts held, further determine how the co-operative
taxonomies are likely to organically emerge, and how co-operative businesses are ontologized (designed and
implemented or operated based on the epistemology and axiology). The co-operative business models
symbiotically also determine the deepness of co-operatives identity and contribute to the socio-economic
development in the society. This is conceptualized as in Figure 1.
Figure 1: The conceptual framework of the study.
Source: Author
The framework indicates possible studies on three general concepts: Co-operative identity and related
concepts; co-operative taxonomy, and the co-operative business ontology (based on the epistemology and
axiology) to generate successful and sustainable co-operative business models that can deepen the co-operative
identity in the contexts and periods of the society.
This study, therefore, focuses on the concept of co-operative taxonomy. From the qualitative analysis,
four clusters of co-operative taxonomies have been identified (1) classifications by the scope of purpose, sector,
and targets; (2) classifications by the system of ownership rights and investment; (3) classifications by the
structure of membership, governance, and management; and (4) classifications by the strategy of member
participation, and marketing. Adopting and borrowing 3S – structure, strategy, and system – the concept of
"McKinsey 7S" Management Model (Jharotia, 2019); and, this could culminate to what is referenced in this
study paper as "4S" Co-operative Business Modelling – of scope, system, structure, and strategy. The scope
cluster in this paper implies the co-operative's extent or range of its purpose, sectors, and targets. The system
cluster in this paper means how the co-operative is owned, and investments are allocated and claimed. The
structure cluster in this paper implies how co-operative authority relationships are. The strategy cluster in this
paper implies how the co-operative move forward while remaining adaptive.
III. The Discourse of Co-operative Business Taxonomies
The co-operatives are distinctly different from other forms of businesses. Generally, there are three
fundamental properties inherent in co-operatives as member-owned organizations: (1) Humanism (people-
centred approach) (Pirson and Turnbull, 2011), in which the organization assumes that people are intrinsically
motivated social beings, balancing their personal and group interests per general moral principles. Thus, co-
operatives embrace a balance of objectives, including financial, and tend to involve key stakeholders in their
decision-making process; (2) Joint (distributed) ownership and control, which is the hallmark of co-operatives1 -
i.e., by operating under private property schemes, co-operatives distribute ownership rights equally among their
1 This is in contrast to employee share ownership schemes, where ownership is distributed but employees do not control the company,
except in rare cases where they own majority shares
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members while holding a part of their assets in non-divisible reserves2; and (3) Democracy (self-governance),
which is the underlying engine of autonomous co-operative enterprises, with democratic decision-making by
their members as its vital component. These three properties, when operationalized, form the building blocks of
co-operative governance advantage in the context of increased complexity (ICA, 2015).
In the above respect, co-operatives are considered to take different formations (Krivokapic-Skoko, 2002). The
reviews of literature indicate that scholars have delved into the development of several co-operative
classifications. This study paper goes further to identify and cluster the classifications by various scholars,
showing juxtaposition that could build the case of a successful co-operative business modelling framework for
deepening the co-operative identity. The clusters are under (1) classifications by the scope of purpose, sector,
and targets; (2) classifications by the system of ownership rights and financing; (3) classifications by the
structure of membership, governance, and management; and (4) classifications by the strategy of member
participation, and marketing. The clusters are also reinforced by some possible co-operative theories.
The co-operative classification by the scope of sector, purpose, and targets
In most cases, especially among the practitioners, co-operatives classes are based on their scope of sector,
purpose, and geographical and demographic targets. This cluster of classification is attributable to several co-
operative theories such as theories of social history, Economic History, Economics3, Sociology, Mutual
incentives, and Supportive environment (Birchall, 2011, p.32-33). In this regard, co-operatives are named and
described by the scope of sector, purpose, and target in terms of geographical and demographic coverage.
Classification by sector: First, co-operatives have been classified based on the sector they are focussed on –
agriculture, services, social development, transport, financial, housing, manufacturing, tourism, consumptive,
etc. As such, co-operatives have been named based on the single product/sector or multiple products/sectors
such as agricultural co-operatives or simple Agricultural Credit Co-operative or multipurpose co-operatives that
take over some products and functions from production to services to marketing.
Classification by purpose: Secondly, co-operatives have also been classified based on their direct engagement
activities such as joint production co-operative, and joint nature conservation (environmental) co-operative.
Others have been classified based on their involvement in services that enhance substantial economies of scale
and scope, such as supply co-operative (providing farm inputs); credit co-operative (providing credit); insurance
co-operative (providing insurance); farm machinery co-operative (providing farm machinery services); farm
help co-operatives (providing temporary labour); plant or animal breeding co-operative (providing starting
material); irrigation/water users co-operative (providing water). Moreover, co-operatives have been classified
that have taken over the sales activities of the producer such as providing a market (e.g., auction co-operative),
collective bargaining (e.g., bargaining association), collecting farm products (including transport and storage),
marketing commodities, and branded products (bulk products; private label products), wholesaling (this implies
the co-operative is selling member products and other products, to supply a full assortment to the retail); and
retailing (i.e., directly selling to consumers). Furthermore, co-operatives have been classified based on the
processing activities either primary processing (producing intermediary products for the food industry) or
secondary processing (producing final consumer products). By delegating the processing and marketing of the
farm products to the joint co-operative, farmers can specialize in on-farm activities. (See Plunkett and
Kingswell, 2001; Bijman and Hanisch, 2012).
Classification by geographical and demographic targets: Thirdly, co-operatives have been classified by the
target "area of domicile" or geographical area of operations. They can base be classified as rural/local co-
operative (strongly embedded in rural communities that often provide social services for the members of the
community) or urban co-operative (based in urban areas). Some have been clarified to be subnational (operating
in combined jurisdictions within a country), national (operating in the whole country, especially the apex co-
operative bodies), and transnational (which operate in multiple countries in the region such as those in European
Union). Co-operatives have equally been classified by the "demographic" coverage such as women, youth,
farmers, fishermen, workers, professionals, and so on.
Discussion
The discussion of this "scope" cluster is advanced by Birchall (2011). The scholar, using a scientific way of
identifying individual genera within a class, and species within a genus, develops classification to demonstrate
the wide range of different organizational forms that the co-operative can take depending on its purpose and
2 In some cases, such as land ownership, co-operative members may have usufruct rights – they can freely use the asset and its products but
cannot sell (dispose of) the land.
3 The most common economic theoretical tool for vertical integration is the "transaction cost theory", which was relevant to traditional co-
operatives; then "neo-classical economic theory" combined with "game theory" is more instrumental and states that when the average cost
curve of the processing activities is constantly declining and the price is independent of the volume supplied, the firm (or rather its owners)
has an incentive to increase the volume as much as possible. Then finally the "property rights theoretical perspective is appropriate; the best
owners of a firm are those whose inputs to the firm's operations are the most uncertain ones (See Nilsson, 1999 p. 458-460).
Towards Deepening Co-operative Identity III: Re-Thinking the Co-operative Taxonomy for ..
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membership. Each is part of the co-operative business family, is distinctly different from the IOF and other
organizational forms, and has specific advantages both to members and the community (Birchall, 2013, p.7).
Table 1: A suggested classification of co-operative businesses
Source: Adapted from Birchall, (2013).
From these classifications, there are broadly three classes including producer-owned co-operatives, consumer-
owned co-operatives, and worker-owned co-operatives (sometimes viewed as a subset of producers' co-
operative). It is pointed out that these classes derive their advantage in the three key co-operative elements of
"ownership", "control" and "benefits".
Table 2: Advantages of the broad class of co-operatives
Source: Adapted from Birchall, (2013)
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Essentially, co-operatives operate in several sectors based on production and/or consumption. The class
of co-operatives by the scope of producer or worker or consumer purpose is to address the market failure. The
small producers, consumers, and partners seek to address at least the following market failures: (1) A monopoly
in which one supplier dominates, or an oligopoly (cartel) in which several suppliers collude; (2) A monopsony
in which one buyer dominates or a buyers’ oligopoly in which several buyers collude; (3) A situation in which
there may be many suppliers or buyers but each can lock purchasers or sellers in through supplying credit; and
(4) A lack of markets which means the goods are not supplied. The co-operatives classification by scope of
purpose and targets can be illustrated as in Figure 2 below.
Figure 2: Co-operatives classifications by the scope of purpose and target
Source: A Construct by Author
Reports by World Co-operative Monitor (Exploring the Co-operative Economy, 2020) and ILO, imply
that consumer-owned co-operatives are large enterprises with high asset bases, and have a greater presence in
the developed economies of Europe and America. The producer-owned co-operatives have larger membership
and employment numbers and have a high presence in Asia, Latin America, and Africa. The worker-owned co-
operatives are considered as part of the producer-owned co-operatives, as employees buy of enterprise and own
them collectively, to service the other producer-owned and consumer-owned co-operatives.
Recognizing their individual development, Johnston Birchall (Birchall, 2011), considers that co-
operatives are likely to undergo several growth stages, He summarises co-operatives development cycle in terms
of the periods of foundation, growth, consolidation, decline, death of the sector, demutualization, and renewal
(see Birchall, 2011, p. 39-40). Table 5 highlights this cycle in terms of main features and main challenges faced.
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Table 3: Possible lifecycle of a co-operative given the trends and perspectives
However, the mere classification of co-operative by scope, growth stages, and sometimes the deluded
advantages; has not been able to settle the case for the viability, success, and sustainability of co-operatives.
This is because, like other business forms, they operate in a complex business environment. Economists (e.g.,
Porter and Scully, 1987) have always criticized co-operatives as inefficient business forms and labelled them as
"enfants terribles" of economics (Levi and Davis, 2008) on the ground of unclear property rights and high
agency costs. The three inefficiencies that co-operatives exhibit (see Nilsson, 2001) include:
Technical inefficiency, where a co-operative has higher control costs and is more likely to have
principal-agent problems. The argument states that the co-operative is technically less efficient than its non-co-
operative counterpart if (1) there is less incentive for co-operative directors to control and shirk when the
benefits of these efforts are a public good for all members, and (2) it is not possible to concentrate ownership,
reducing the incentive to innovate.
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Allocative inefficiency, where it is argued that the co-operative member's claim to the return on long-term
investments is truncated at its horizon of patronage (i.e., the full value of the marginal product of an investment
is not realized by the decision-maker); and because of their inability to diversify to avoid risk or to concentrate
ownership among the lowest-cost risk-takers (i.e., the risk-adjusted cost of capital is higher), co-operatives are
considered "allocatively" inefficient-as they tend to underutilize capital and intangible assets.
Scale inefficiency, where it is argued that co-operatives do not have enough customers to achieve a cost-
minimizing level of output. Because the cost of control increases with the number of clients (members and
patrons in a co-operative) and because legal restrictions on the amount of business the co-operative can do with
non-members prevent expansion, the co-operative is likely to be scale inefficient (This is discussed in this
section).
This conclusion has led scholars to expand the debate on the taxonomy of co-operatives from the sector,
purpose, and objective dimensions to other dimensions, including (1) the structure of ownership, investment,
benefit allocation, and entitlements; (2) the system of membership, governance, and management; and (3) the
strategy of member participation and marketing.
The co-operative classification by system of ownership-rights, investment and benefit allocation, and
claim
According to Alchian and Demsetz (1972), Jensen and Meckling (1979), and Fama and Jensen (2009), for
example, co-operative enterprises cannot be efficient because the owners (members) have only vaguely defined
property rights in the co-operative firm. The control possessed by members is insufficient, the organization’s use
of financial resources is suboptimal, raising equity is problematic, etc.
This cluster of classification is attributable to several co-operative theories such as theories of economic history,
economics4, mutual incentives, and ownership (see Birchall, 2011, p.32-33). In this regard, co-operatives are
named and described by a system of ownership rights, investment and benefit allocation, and claim.
Ownership rights, investment, and the allocation and use of benefits are among the most elusive aspects of co-
operatives, especially in today's free-market economy – what Nilsson (1999) called an entrepreneurial
environment. It becomes even more complicated in large co-operatives, which invariably pool many assets; and
it may be unclear who has what decision-making and/or implementation and monitoring rights or control.
Uncertainty can also make it difficult to allocate and claim benefits, as ownership rights are not clearly defined
(as co-operatives are likely to have members, patrons/clients/employees, and investors, all of whom have a stake
in some or all). Figure 3 shows the uncertainty and complexity of these ownership issues that obscure the
benefits of the co-operative.
Figure 3: The path of ownership issues in co-operatives.
Source: A construct of the author
4 The most common economic theoretical tool for vertical integration is the "transaction cost theory", which was relevant to traditional co-
operatives; then "neo-classical economic theory" combined with "game theory" is more instrumental and states that when the average cost
curve of the processing activities is constantly declining and the price is independent of the volume supplied, the firm (or rather its owners)
has an incentive to increase the volume as much as possible. Then finally the "property rights theoretical perspective is appropriate; the best
owners of a firm are those whose inputs to the firm's operations are the most uncertain ones (See Nilsson, 1999 p. 458-460).
Towards Deepening Co-operative Identity III: Re-Thinking the Co-operative Taxonomy for ..
DOI: 10.9790/487X-2405034886 www.iosrjournals.org 57 | Page
Due to the ambiguities, uncertainties, and vaguely defined ownership rights in the light of the dual
function of the co-operative as reflected in the dual function of its members as patrons and investors, five
inherent problems have consistently bedevilled co-operatives (members and managers), especially producer co-
operatives. These include free-riding, short-term horizons, a misalignment of member and co-operative interests
that affect the portfolio, conflicts over shareholder control rights, and the investment costs associated with
managing a complex network of a co-operative (Cook and Iliopoulos, 2000).
Table 4: Scenarios for the rising of the inherent co-operative problems
Inherent
Problem
Scenarios for the inherent problem in the co-operative
Free rider
problem
Generally: This problem emerges in co-operatives when ownership rights are non-tradable, insecure,
unassigned, or vaguely defined. Members engage less actively in patronage than others who still gain similar benefits
from their membership.
Specifically, there are two types of free-rider problems: external and insider free-rider constraints.
The external free-rider constraint: This is a general resource problem. Co-operative ownership rights are
not well suited and enforced to ensure that current member-patrons, or current non-member-patrons, bear the full costs
of their actions and/or receive the full benefits they create. This situation occurs, particularly in open-membership co-
operatives.
The insider free-rider problem: This is a more complex type of problem. It occurs when there are issues of
common ownership. It occurs when new members receive the same patronage and residual rights as existing members
and are entitled to the same payment per patronage unit. These equally distributed rights, combined with the lack of a
market to set a price for residual rights that reflects the accrued and present equivalents of future earning potential, create
generational conflict. By diluting the return for existing members, a negative incentive is created for them to invest i n
their co-operative.
Horizon
problem
Generally, this is when the members' residual claims over the assets of the co-operatives are shorter than the
life of the asset. It is a disincentive for co-operative members to invest in long-term projects. This problem is also caused
by the benefits that flow to the patron instead of the investor.
Specifically, this problem occurs when a member’s residual claim on the net income generated by an asset is
shorter than the productive life of that asset. This problem also emanates from restrictions placed on the transferability of
residual claimant rights, and the lack of liquidity through a secondary market for the transfer of such rights.
This problem creates an environment where members are disincentivized to contribute to available co-
operative growth opportunities.
The severity of this problem intensifies when considering an investment in research and development,
advertisement, and other intangible assets. Consequently, there is pressure on the board of directors and management to:
o Increase the proportion of the co-operative’s cash flow devoted to current payments to members relative to
investment; and,
o Accelerate equity redemptions at the expense of retained earnings, which in turn causes intense problems of
raising risk capital from the members.
Portfolio
problem
Generally, this is another equity acquisition constraint for the co-operatives. Lack of transferability,
liquidity, and appreciation mechanisms for the exchange of residual claims prevents members from adjusting their co-
operative asset portfolios to match their personal-risk preferences.
This problem is also caused by the tied-equity issue, i.e., – the close correlation between investment decisions
and the patronage decision. Therefore, members hold suboptimal portfolios, and those who are forced to accept more
risk than they prefer will pressure co-operative decision-makers to rearrange the co-operative’s investment portfolio,
even if the reduced-risk portfolio means lower expected returns
Control
problem
Generally, the divergence of interests between members and the co-operative's management causes this
problem. There are multiple types of agency costs associated with the divergence of interests between the principals
(members) and the agent (professional management).
The lack of a secondary market for co-operative residual claims makes monitoring of agents a difficult task.
This task is further complicated by the fact that subgroups of member-patrons tend over time to have very heterogeneous
preferences and thus the co-operative’s objective function may become ambiguous.
Conversely, member-patrons, at least in some types of co-operatives, may be well-positioned to monitor
management. This may also be enhanced today with good technology systems developed and run by the co-operative.
Influence cost
problem
Generally, this is a problem associated with a class of costs that inevitably arise in the co-operative when
decisions affect the distribution of wealth or other benefits among members or constituent groups of the co-operative,
and, in pursuit of their selfish interests, the affected individuals or groups attempt to influence the decision to their
benefit. The strategic focus of the co-operative becomes uncertain as the co-operative seeks to balance the returns to the
enterprise and the members.
Legally, this might lead to cases of minority oppression. The influence cost problem may become a major
source of inefficiencies in agricultural co-operatives. Several critical decisions involve the distribution of wealth among
member-patrons and thus may provoke and influence efforts by members. The allocation of overhead costs, the
assessment of members’ product/services quality, and the geographical location of new investment are but a few
examples of such decisions.
Source: Adapted from Iliopoulos and Cook (2015), Cook and Burress (2009), Hansmann (2002)
The effect of these inherent problems on co-operatives is in two ways: (1) The disincentives facing
members of traditional co-operatives to contribute significant amounts of risk capital to their co-operative due to
the vaguely defined property rights of these organizations, especially where there are Free rider problem,
Horizon problem, and Portfolio problem; and (2) The costs of monitoring non-member management and the
costs of collective decision-making – where there are Control problem and Influence cost problem (Nilsson,
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1999; Cook and Iliopoulos, 2000; Iliopoulos and Hendrikse, 2009). To create incentives for members to
contribute risk capital and combat the negative consequences of diachronically increased member interest
heterogeneity, co-operatives may spend a considerable amount of time experimenting with minor changes in
bylaws and internal policies. (Iliopoulos, 2015, p.8).
To define and distribute ownership rights, the co-operative has two objectives: (1) to provide their members
with powerful incentives to contribute risk capital and (2) to ameliorate the negative externalities of frictions
due to increased preference/interest heterogeneity. Studies are done mainly in Europe (see Nilsson, 1999) and
North America and Europe (Chaddad and Cook, 2004), have led to further classifications of co-operatives on
basis of other dimensions including ownership rights, control, and investment structure. In these studies,
ownership rights and distribution in co-operatives are clearly defined and manifested as one move away from
the traditional co-operative model to the proportional investment, to the member investor, and the new-
generation ownership models.
Nilsson's Classifications
The initial studies in this spectrum were in Europe by scholars like Frank van Bekkum and Gert van Dijk
(1997), and Jerker Nilsson (1999). Five classes (from an agricultural co-operative perspective) were introduced
and characterized (1) Traditional co-operative, (2) Participation-share co-operative, (3) Co-operative with the
subsidiary, (4) Proportional tradeable share co-operatives, and (5) PLC co-operatives.
Table 5: Co-operatives classification by various attributes including ownership rights and investment
Attributes
Traditional co-operative
Participation-
share co-
operative
Co-operative
with
subsidiary
Proportional
tradeable share
co-operatives
PLC
co-
operatives
Categorization
Countervailing power co-
operative
Entrepreneurial co-operative
Core investors
None
Non-members
Members
Business in operation
Society
Society
PLC
Society
PLC
The theoretical rationale
for the co-operative
business
Neoclassical theory, Game
theory, Transaction cost
theory, Property rights
theory
Neoclassical theory, Game theory,
Transaction cost theory, Property
rights theory, Agency theory
Transaction cost
theory
Property
rights
theory,
Agency
theory
Co-operative
ideology/identity
Yes
Less, and only in the co-operative
society
No
Success factor
Economies of scale
Economies of scale and scope
Economies of scope –
streamlining
Focus
Trade conditions
Patrons focus on trade conditions;
while investors focus on Return on
Investment (ROI)
Return on Investment
Mission
Defensive
Offensive
The best strategy (based
on Michael Porter)
Cost leadership
Product differentiation
Focus
Member roles
Patron
Patron and eventually investor
Patron and investor
Investments/product units
Small investments/product
units
Large investments/product units
Type of business operation
Low value-added; Primary
processing; Domestic and
exports; Member related
Also value-added; Diversified
processing; international; non-
member-related business
Value-added; Advanced
processing; Domestic and
exports; non-member-related
business
Technology
Simple, well-known
Also advanced technology
Advanced technology
Orientation
Production orientation
Market orientation with production
restriction
Market orientation
Market type
A stable market
Turbulent markets
Market signals
Product markets
Product market; Risk capital market
Risk capital
market
Product
market
Source: Adapted from Nilsson (1999).
Chaddad and Cook's Classifications
This classification was later advanced by scholars mainly in North America and parts of Europe
(Chaddad and Cook, 2004). The scholars observed the organizational variations of co-operatives in terms of
ownership rights. In so doing, they refined the property right analysis of alternative organizations and identified
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five new types of co-operatives with innovation districts from traditional co-operatives that are usually ridden
with inherent problems.
The classified seven co-operatives in whose (1) ownership rights are restricted to member-patrons (i.e.,
traditional co-operative, proportional investment co-operative, member investor co-operative, new generation
co-operative); and (2) those ownership rights are not restricted member-patrons (co-operative with capital
seeking entities, investor share co-operative, and conversion to owner-investor firm (IOF)). In the latter case, co-
operatives can acquire capital from non-member sources. This means the co-operatives need to share profits and
eventually the control rights with the outside investors who are no patrons and who may have divergent
changing interests. As a result, there are conflicting goals of maximining the profits for investors and serving
patron members effectively. The extreme form in conversion to IOF; otherwise, the co-operative may only stop
at seeking to acquire risk capital from outside investors with capital seeking entities or investor shares (Chaddad
and Cook, 2004).
Table 6: Description of the co-operative typologies by ownership rights, control, and investment structure
Type of co-operative
Basic Description
Traditional co-
operative
Assignment of residual reruns to member-patrons. There is no separation of ownership from the function. In
terms of control rights, there are nonproportional voting rights; simply one member-one vote. The horizon of the
residual claim is as long as one is a member. There is no transferability of residual claims, and the redeemability
of these residual claims is only at the discretion of the board of directors.
Proportional
investment co-
operative
Ownership rights are restricted to members, non-transferable, nonappreciable, and redeemable. A variation of
this model is the vertical investment, in which members are expected to invest in the co-operative in proportion
to patronage. As membership heterogeneity increases, proportional investment co-operative tends to operate
more like traditional co-operatives and, after realizing that, they are likely to adopt capital management policies
to ensure proportionality of the capital that is generated internally including the separate capital pools and base
capital plans.
Member investor
co-operative
Returns to members are in proportion to shareholding in addition to patronage. Two approaches can be applied,
dividends distribution in proportion to shares and/or allowing appreciation of co-operative share value. A
variation of the basic member-investor co-operative is the member-investor co-operative with vertical
investment.
New Generation
co-operative
Ownership rights are in form of tradeable and tradeable delivery rights restricted to member patrons. Therefore,
the member patrons are required to acquire delivery rights based on the expected patronage so that their usage
and capital investment are proportionally aligned. This model may have vertical investments and co-operatives
adopting the collaborative new-generation model.
Co-operative with
capital seeking entities
Investors acquire ownership rights in a separate legal entity owned in whole or part by the co-operative.
Essentially, the outside investors' capital is not directly introduced in the co-operative, but rather in a trust-
company, strategic alliance, or subsidiaries.
Investor-share
co-operative
Investors received ownership rights in the co-operative in addition to the traditional co-operative rights held by
member-patrons. Investor shares may bundle different ownership rights in terms of returns, risk-bearing, control,
redeemability, and transferability. Therefore, the co-operative is obliged to issue more than one share type to
different "owner" groups. This is where the co-operative may have common shares and preferred shares or
nonvoting common shares or investor participation shares.
Conversion to Owner-
Investor Firm (IOF)
The more radical is the conversion to IOF, which simply may be like an exit strategy of a co-operative that may
choose not to continue as a user-owned and controlled organization.
Source: Adapted from Chaddad and Cook, 2004).
Discussion
From these perspectives by Chaddad and Cook (2004), there seems to be a trajectory of development from
Nilsson (1999). As much as the traditional co-operatives remain the same in both perspectives, the former
advances the latter's typologies as follows.
Table 7: Possible juxtaposition of Chaddad and Cook (2004), and Nilsson (1999) Typology of Co-operatives
Model
Co-operative Typology by Chaddad and Cook
(2004)
Model
Co-operative Typology by Nilsson (1999).
1.
Traditional co-operative
1.
Traditional co-operative
2.
Proportional investment co-operative
2.
Participation-share co-operative
3.
Member investor co-operative
4.
New Generation co-operative
3.
Proportional tradeable share co-operatives
4.
PLC co-operatives
6.
Investor share co-operative
5.
Co-operative with capital seeking entities
5.
Co-operative with subsidiary
7.
Conversion to Owner-Investor Firm (IOF)
Not Applicable
Source: Author
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These typologies reflect differing co-operative development theories (especially the property rights,
agency theories), trends, and perspectives; and have been influenced by the co-operative law in different
countries. Moreover, the typologies are to some extent seem to reflect the life cycle of co-operatives, as
postulated by Professor Johnston Birchall such as period of foundation, growth, consolidation, demutualization,
and possible renewal (see Birchall, 2011). The author has used these thoughts to improve on the co-operative
classifications' conceptual frameworks by the previous scholars.
Furthermore, most of these proposed co-operative typologies with ownership rights that are restricted
to member-patrons, are single-stakeholder types (SSC). To build on the thesis, therefore, this paper proposes the
addition of the multi-stakeholders (also called solidarity) co-operative (MSC) in the improvement of this
typology cluster. MSC can be between the "Member-Investor" Co-operatives and New Generation Co-operative
(NGC); since MSC has similar characteristics with member-investor co-operatives except for the presence of
more than one type of stakeholder represented in the co-operative’s membership; and that before the members in
the "Member-Investor" co-operatives considering, to transform to NGC, they can explore MSCs. MSCs are
considered to explicitly address the internalization of externalities into the mission of the enterprise (Novkovic,
2019; Novkovic and Golja, 2015; Vezina and Girard, 2014). Additionally, MSC can apply to or simply mix both
producer-owned and consumer-owned co-operatives scopes, in what Henry (2018) refers to as "con-pro-sumers"
co-operatives; while NGCs are largely producer-owned scope (see Cook and Iliopoulos, 1999).
MSCs, when well-established and managed, can maintain the member-ownership, and dissuade
investor ownership (see Nilsson, 1999), to advance co-operative identity. This is because, the ownership rights
in MSC can still be restricted to member-patrons but now the would-be "outside investors" form part of
membership with ownership rights, and the co-operative can fully own every business activity that meet the
need for different membership categories (Chaddad and Cook, 2004). MSCs could enrich this typology as it
links the scope, structure, system, and strategy for the co-operative business, whether producer or consumer-
owned co-operatives. But more importantly, it would counterbalance demutualization (Battilani and Schröter,
2011) and degeneration or decline of co-operatives, hence continuously deepening the co-operative identity in
every context and environment.
To adequately understand these classifications, therefore, the following configuration is adopted from,
improved by the introduction of MSCs, and proposed (See Figure 4).
Figure 4: Proposed Typology of co-operatives by ownership-rights, control, and investment structure (with
MSC added to typology)
Source: Adapted from Chaddad and Cook (2004), Nilsson, (1999), Birchall (2011), Birchall (2013).
IOSR Journal of Business and Management (IOSR-JBM)
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These co-operatives differ or are similar in the aspects of membership, equity, investment and risk,
transferable shares, appreciable shares, share redemption, and recipients of returns (See Table 11). From the
study of attributes, four models will be at the centre of the deep co-operative identity – i.e., Proportional
Investment Co-operative, Member-Investor Co-operative, Multi-Stakeholders (Solidarity) Co-operative (MSC),
and New Generation Co-operative (NGC). Any model below or above these four models will compromise the
co-operative identity. Moreover, MSC and NGC models by attributes, are possibly the models that can have a
high level of success and sustainability given a high definition of ownership and investment rights.
Furthermore, MSC will be better model inclusivity of actors with the specific (production and/or service) sector
value-chain.
Table 8: Comparison of the co-operatives by their ownership-rights and investment system
Co-operative
Comparison
Features
Traditional
Co-operative
Proportional
Investment
Co-operative
Member-
Investment
Co-operative
Multi-
stakeholders
Co-
operatives
New
Generation
Co-operative
Co-operative
with capital
entities
Investor-
share
co-operative
Membership
Open
membership
and
generally, no
contractual
use
requirement.
Only patrons
are members.
Open
membership
and generally,
there is
contractual use
requirement.
Only patrons
are members.
Open or
closed
membership;
non
patrons may
also
become
members.
Open or
closed to
multiple
membership
categories;
non
patrons may
also
become
members.
Closed
membership
and ownership
are linked to
product
delivery
contracts. Only
patrons are
members.
Closed
membership is
limited to the
number of jobs
in the co-
operative, only
workers are
members.
Closed
membership
is limited to
the number of
shares.
Equity
Membership
certificates or
common (par
value) stock
for patrons;
preferred
(non-voting)
stock for
non-patrons.
(i.e.,
collective
type of
equity; and
members are
the providers
of the equity
capital)
Common share
with two
different
membership
classes: patron
and investor.
(i.e.,
collective, and
individual type
of equity; and
members are
the providers
of the equity
capital)
Common
share with two
different
membership
classes: patron
and investor
(i.e.,
collective, and
individual
type of equity;
and members
and non-
members are
the providers
of the equity
capital)
Common
share with
two different
membership
classes:
patron and
investor.
(i.e.,
collective,
and
individual
type of
equity; and
members and
non-
members are
the providers
of the equity
capital)
Common share,
but membership
shares have
"market value",
members sell
their stock to
other patrons
when leaving
co-operative.
(i.e., individual
type of equity;
and members
are the
providers of the
equity capital)
Membership
certificates or
common
share. Equity
is generally
generated
through
"sweat"
equity. (i.e.,
individual type
of equity; and
members and
investors are
the providers
of the equity
capital)
Membership
certificates or
common
share. Equity
is generally
generated
common
shares and
preferred
shares or
nonvoting
common
shares or
investor
participation
shares.
Investment
and Risk
Generally
low upfront
investment;
relatively low
financial risk
to members.
Low or high
upfront
investment;
mixed
financial risk.
Low or high
upfront
investment;
mixed
financial risk.
Low or high
upfront
investment;
mixed
financial
risk.
Generally high
upfront
investment;
increased
financial risk
for members.
Low or high
upfront
investment;
mixed
financial risk.
High upfront
investment;
mixed
financial risk.
Transferable
Shares
No
No
No
No
Yes
Yes
Yes
Appreciable
Shares
No
No
Yes
Yes
Yes
Yes
Yes
Share
redemption
On leaving
the
co-operative
On leaving or
to adjust
members’
patronage and
investment
ratios
Various
Various
Not applicable
Not
Applicable
Various
Recipients of
returns
Members
based on
patronage
Members
based on
patronage
Members
based on
patronage and
investment
Members
based on
patronage
and
investment
Members based
on patronage
Members
based on
patronage
Members
based on
investment
The framework puts into greater limelight two types of co-operatives under this cluster – the New
Generation Co-operatives (NGCs) and Multi-Stakeholders or Solidarity Co-operatives (MSCs). The two
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typologies are at the centre of the scholars and practitioners work in deepening (growing, consolidating,
renewing) the co-operative identity, in the face of complexities (ICA, 2015).
New Generation Co-operatives
The New Generation Co-operative (NGC) is a type of co-operative that emerged in the USA during the
1990s (Mazzarol, 2009). NGC was founded on the proposition that; the internal organization of a co-operative is
an important determinant of collective action performance. Therefore, improving a co-operative organization's
efficiency by eliminating or ameliorating property rights constraints might be the first step in designing more
efficient, offensive, rent-seeking collective organization structures, and strategies. It is argued that resolution of
hold-ups defined the success of traditionally structured agricultural co-operatives in the USA. The emergence of
the new generation co-operative (NGC) model has offered the potential to redefine the co-operative theory and
business model.
NGC is a co-operative business structure that reduces the efficiency-robbing effects of vaguely defined
property rights would possess some of the following characteristics: (1) Transferable equity shares, (2)
Appreciable equity shares, (3) Defined membership (4) Legally binding delivery contract or a uniform grower
agreement, and (5) Minimum up-front equity investment requirement (Cook and Iliopoulos, 1999).
In this model the membership is not open; it is membership is closed and requires significantly higher
levels of investment compared to traditional co-operatives. The membership is restricted to individuals who
have bought trading rights with the co-operative. There is a strict proportional relationship exists between the
member's investment and their patronage as specified in membership and marketing contracts. These co-
operatives require their members to purchase delivery rights and thereby create a two-way obligation between
the member and the co-operative for a specific amount of patronage each year. However, delivery rights are
marketable, and prices fluctuate according to the performance of the co-operative and its earnings potential
(Hardesty and Suter, 2005). In NGC, all shares are fully tradable and can realize capital gains over time. Voting
is equally distributed but also can be based on equity control. Members make the key decisions but there can be
some limited involvement by minority external shareholders. Profits are distributed as patronage refunds but
work like conventional shares with returns based on level of investment. Member contract rights and shares are
fully tradable and individual in ownership. Such co-operatives have fully professional management teams.
The unique ownership patterns in the NGC not only contribute to an understanding of the importance
of clearly defined property rights in designing efficient organizational structures but also inform debates on
agency problems, transfer of knowledge difficulties, and market monitoring benefits – the main activity is to
process and market members' raw products. Level of product commitment - Each purchased delivery share
commits a member to a specific quantity each year. The capital requirement is typically involving a significant
start-up cost and requires regular reinvestment to upgrade equipment and expand marketing. In terms of capital
structure, it has a limited number of preferred shares sold to qualifying farmers at a price that reflects overall
capital needs. Return on equity – it trades shares to other or new members. Share value reflects the co-
operative's performance. (Plunkett and Kingswell, 2001). However, the emergence of the NGC may be a
recognition that co-operative firms are more than a new means to deal with the hold-up problem faced by
members in an increasingly complex and dynamic global economic environment.
Multistakeholder Co-operatives
Generally, the co-operative movement chose the single stakeholder category of co-operative
(producers, consumers/users, workers) to focus mainly, but not always, on one area of activity (e.g., finance,
agriculture, housing). Within this structure, the co-operative focuses on the satisfaction of member needs in
terms of price, quality, access, or other, instead of maximizing the return on investment. The democratic
structure of the co-operative – general assembly, board of directors, active member participation – must keep the
notion of member satisfaction as a mantra. (Girard, 2015). Today, co-operative movements are opting for muti
stakeholder co-operatives.
The multi-stakeholder co-operative is used to describe a co-operative with multiple types of members
(key stakeholders) engaged with the co-operative in different capacities. Any combination of types of
stakeholders could be members and may include such constituents as producers, consumers, suppliers, workers,
volunteers, among others. These co-operatives are also called solidarity co-operatives (ICA, 2015).
MSC have their roots in the Italian experience with social co-operatives (See Birchall, (2013), on
classification by scope on the genus of the consumer-owned co-operatives class) in the 1960s and 1970s. When
there was a growing expectation for civil society's participation in organizing services, coupled with the inability
of the welfare state to meet the needs of people (e.g., with handicaps or addictions, the homeless, or minors with
difficulties reintegrating into the job market), social co-operatives were developed (see Girard, 2015). The social
co-operative then introduces a different definition for the co-operative stakeholder and could have user
members, worker members, volunteer members, financing members, legal entities, and public or legal persons
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involved in the development and funding of the social co-operative. It is observed in ICA publication (2015),
that most of the more than 10,000 social co-operatives in Italy use the multi-stakeholder model.
Several countries have since followed the Italian example in promoting MSCs and enacting relevant
laws to support them. They include Portugal, France, Greece, Croatia, Canada (in the provinces of Quebec and
Manitoba), Mexico, Venezuela, Vietnam, Uruguay (Novkovic and Golja, 2015). Notably, across these countries,
MSC has illustrated considerable complexities in the equally complex environment: (1) in some countries we
could have multiple categories of members while board members may be limited to a single category; (2) in
other countries, the number of board members by member category is specified (all member categories are
present on the board, at least with one member representative); (3) in some cases Canada (in Quebec province),
the MSC legal framework determines the possible member categories without any flexibility for additional
categories, for instance, limiting membership categories to users, workers and supporting members; and (4) in
others still, MSCs function informally or, in many countries, under the general legislation that applies to all co-
operatives and does not preclude multiple member types. In such cases, MSCs should define their member
categories or voting rights for each class of members.
Furthermore, in some countries like Italy, MSCs may also be restricted to a particular functional area.
They can be involved in social, health, and education services or work reintegration of disadvantaged persons or
can be a combination of both. In some other cases, MSC can function in a great variety of activities, including
multipurpose or multi-functionality, combining, for instance, agriculture and financial services, a general store,
and health. In the Italian example, there are often contractual relationships between the co-operative and a para-
public or public agency, as well as the option of government membership in the co-operative (ICA, 2015).
Therefore, it is important to uphold the Co-operative Principle 4 on autonomy and independence of an MSC.
MSCs are advantageous and gaining traction in many countries, in the face of emerging and complex
societal claims. At the intersection of social and economic issues, a complex multi-stakeholder co-operative
form can create fruitful partnerships in civil society. Different members of societies users, workers, volunteers,
financial partners, or supporting members are jointly forming solidarity co-operatives. This is with the mission
to benefit from networking, shared knowledge, or funding.
However, the MSC that is a project of an isolated group of persons without a connection to other
resources, such as governance training, cannot be sustainable. This is compounded by the fact of the inherent
challenges, nuances, and complexities MSCs have (1) defining the power, roles, responsibilities, and respect of
the area of activity; (2) transparency and communication amid conflicting interests; (3) preparation and
leadership of board members; and (4) governance and management skills. The antidote to these challenges and
possible simmering tensions is a clear common purpose and solidarity among stakeholder groups. Furthermore,
the co-operative should have a properly integrated digital system that can support member-self services and
board and management's decision-making processes.
In conclusion, MSCs are relatively new in the co-operative legal landscape, but they are facing a bright
future in dealing with important societal challenges, including social exclusion, the capacity to merge various
resources for a superior interest, etc. There are various ways to conceive an MSC in terms of numbers of
member categories, voting rights, and other characteristics, but what they have in common is the presence of at
least two types of members. MSCs and other co-operative models must strive to retain their original
commitment to members and be economically viable and sustainable by effective governance and management
structures.
The co-operative classification by structure of membership, governance, and management
Concerning both the cluster of the scope of purpose and membership and the clusters of the system of
ownership-rights, control, and investment; this section identifies another co-operative classifications' cluster by
the structure of membership, governance, and management. This cluster of classification is attributable to
several co-operative theories such as theories of social history, sociology, political science, and voice (see
Birchall, 2011, p.32-33). In this regard, co-operatives are named and described by structure of membership,
governance, and management.
Membership structure:
From the cluster of the scope of purpose and membership, co-operatives can be classified under three structures
of membership –centralized, mixed, and federated.
Centralized co-operative: This is a co-operative in which the individual members (women, youth, farmers, etc.)
make up the membership. A centralized region may serve members in a large geographical area and have one
central office, one board of directors, and a manager (chief executive officer) who supervises the entire
operation. The co-operative business may be conducted through several branch offices.
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Control and product volume flow from producers directly to the co-operative. Patronage refunds flow
from the co-operative back to the producer. These co-operatives usually serve a local area or community. Key
functions are of these types of co-operatives are often limited to the first few steps in marketing, such as
collecting and grading. A few centralized co-operatives are larger, operate in several areas, and provide more
complex functions, such as food manufacturing. Most primary co-operatives are centralized.
Mixed Co-operative: This is a combination of the two — their members may be individual producers or
consumers as well as local co-operatives and other legal persons such as small and medium enterprises (SMEs).
They can also be referred to as a co-maker co-operative that is characterized by joint ownership between the co-
operative, the members individually, and often also external investors (see Nilsson, 2001, p.350). These are
usually large co-operative organizations structured to fit unique situations in their specific industry. The MSCs
or solidarity co-operatives by their description fit in this co-operative organizational system.
Federated Co-operative: This means a corporation of co-operatives. The members of a federated co-operative
are local co-operatives, each operated by a manager responsible to a board of directors. The local co-operative
work together with each other in a federated co-operative as a separate business entity. Each local co-operative
owns a membership share entitling it to voting rights in the affairs of that federated co-operative. The federated
co-operative has its own hired management and staff, and a board of directors elected by and representing the
local associations. The power rests with the local co-operatives that make up the federation.
Figure 5: Centralized Co-operative
Figure 7: Federated Co-operative
Figure 6: Mixed Co-operative
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Generally, federated co-operatives are often quite large and cover wide geographic areas and may
perform one or more of the following functions: acting as a sales agent, marketing products, purchasing
supplies, providing products/services in a wholesale arrangement, and/or providing other types of support
services to their members (e.g., accounting, advocacy, or consulting). In some cases, co-operatives provide more
complex manufacturing functions. Ultimately, the federated co-operative contributes to improving the
circumstances of every local centralized or mixed co-operative member through collaborative action.
A federation, then, is the epitome of the 6th principle, co-operation among co-operatives. However,
when the members of a federation become overly concerned with exercising their independence from the
federation – as opposed to being independent of outside influences that could weaken the democratic nature of
the co-operative enterprise – various tensions can result. A misunderstanding of the 4th principle, autonomy, and
independence may be the culprit. To address such tensions, co-operators need to gain a better understanding of
the true meaning of these Co-operative Principles and recommit to them (ICA, 2015).
Federations have both benefits and risks. According to Fairbairn (2012), federated co-operatives are
beneficial in terms of (1) economies of scale; (2) centralization benefits without losing advantages of distinct,
local identities for the federation members; and (3) minimized risk of failure to the federated enterprise when
one or more local members fail. The federal idea becomes a fundamental feature of the co-operative movement;
as it combines both commercial efficiency and local autonomy. This idea and the 6th Co-operative Principle
evolve and are realized as the co-operative movement grows. (See Fairbairn, 2012, p.14).
However, large federations present unique governance tensions and challenges. While there is no
magic solution or "one size fits all" approach to resolving these tensions, there are touchstones that can provide
guidance, specifically, the seven co-operative principles, a well-informed board attuned to the needs of the local
consumer, and belief in and continued commitment to the importance of the local member. Boards must
continually ask themselves if board structure, composition, expertise, and engagement are adequate to meet the
challenges faced by the federation. Furthermore, apex co-operative boards should take the lead in cooperating
with co-operators worldwide to acknowledge, discuss and navigate today's emerging issues. Co-operatives
should be established to succeed sustainably.
Governance and Management Structure
Based on the co-operative definition, a co-operative is not only an association of persons (natural or
legal) but also an enterprise. The association is where democratic decision-making takes place, while the
enterprise conducts the business activities in support of the members. Shifting from the cluster of the system of
ownership – rights, investment, and benefit allocation, co-operatives can be classified in terms of governance
and management structure. The term governance has its root from the Latin verb 'Goubernare' which derives
from the Greek 'Kybernan', meaning "to lead, to steer, to be the head of, to set rules, to be in charge of the
power". Governance is linked to vision, power dynamics, decision-making processes, and accountability
practices. Governance simply describes a co-operative's structure of decision-making, direction, and control (see
Bijman, et., al., 2014).
Co-operatives are member-owned and democratically controlled organizations. Additionally, they are
value-based businesses whose governance and management principles and practices need to reflect and
safeguard their values. The ultimate goal of co-operative governance is to effectively fulfil a co-operative's goals
in a way consistent with the co-operative's purpose and objectives, protect member interests and maintain
member control (ICA, 2015).
Co-operatives' governance is very diverse as it reflects an evolutionary path determined by a co-
operative movement dating back hundreds of years, combined with different legal environments, industry
standards in sectors in which co-operatives operate, the size and type of membership, life cycle, and maturity.
The success of a co-operative depends on the degree of participation, trust, and commitment of its members in
governance (Barraud-Didiera, et., al., 2012). In terms of co-operative governance effectiveness, small co-
operatives seem to be doing better than large (O¨ Sternberg and Nilsson, 2009); worker and producer co-
operatives better than the consumer-owned (Birchall, 2017).
The governance practice, particularly in large co-operatives, is often marked by the "state of the art" in
hierarchical corporate governance. The corporate governance models protect owners' interests (focused on
financial return) and are typically designed as a top-down control mechanism. Co-operatives are pressured to
adopt hierarchical command and control systems that ensure adherence to corporate governance "best practices".
The co-operatives should tap into tools and structures fitting democratic, member-owned, and controlled
organizations.
Scholars have recognized the essence of governance structure for the co-operative's strategic fit and
therefore endeavoured to classify co-operatives in terms of their corporate governance models. These include
the traditional model of co-operative governance, extended tradition or management model of co-operative
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governance, and corporation model of co-operative governance (Bijman, et. al., 2013; Chaddad and Iliopoulos,
2013; Bijman, et., al., 2014; Milagres, 2014).
Traditional Governance Model
The traditional model includes two mandatory organs, i.e., the general assembly (GA) and the board of
directors (BoD). In some cases, a supervisory committee (SC) is included as a vital organ. The members of the
BoD are elected by the GA to perform decision management. The board members then allocate among
themselves duties and responsibilities (for instance, the member who received the most votes, is elected as the
chairman). In general, the GA exercises "ex-post" decision control – this is based on an equal or proportional
allocation of residual control rights. On the other hand, the BoD exercises "ex-ante" decision control and
decision management, except on certain types of decisions requiring GA approval5. According to Matabi
(2018a), if there are human resource management issues, the co-operatives' competitiveness will be
compromised, hence low success.
In some countries, like the Netherlands, there is what is referred to as the extended-traditional model.
In this model, the BoD maintains the ex-ante decision control function, but decision management is carried out
by a professional manager6, i.e., the operational decisions are delegated to professional management hired by the
BoD. Furthermore, the GA can appoint members of an SC. The SC's "ex-post" decision control function focuses
on ensuring that the interests of all stakeholders are taken into consideration by the BoD (Bijman, et. al., 2013).
Figure 8 illustrates this.
Figure 8: Traditional/Extended Traditional Model of Co-operative Governance Model
Source: Adapted from Bijman, J., Hendrikse, G. and A. van Oijen, (2013); Iliopoulos, (2015).
Managerial Governance Model
In the management model, the BoD and professional management are consolidated, thus eliminating
one level of governance. The BoD is the policy organ of the co-operative, which is responsible for decision
management functions performed exclusively by professional staff who are not necessarily member-patrons.
Consequently, the management model entrusts both formal and real authority to professional management.
While formal control is still vested in the GA, it is professional managers that make all operational and strategic
decisions; which, according to Matabi 2018b), is likely to enhance the organizational performance. The
supervisory (or the BoC in larger co-operatives) exercises ex-post control over decisions made by the BoD.
However, in the management model, the SC/BoC has less authority over the BoD in contrast to the traditional
model. This is illustrated in Figure 9.
5 All around the world, co-operative governance structures consist of a General Assembly and a Board of Directors, and most co-operatives
also have some kind of Supervisory Committee (Henrij, 2005).
6 This process of replacing board management by professional management as the co-operative grows does not take place in countries where
the board has the statutory obligation to manage the co-operative.
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Figure 9: Management Model of Co-operative Corporate Governance
Source: Adapted from Bijman, J., Hendrikse, G. and A. van Oijen, (2013); Iliopoulos, (2015).
In this model, the BoD has been professionalized, and the supervisory committee supervises association and
enterprise simultaneously. Therefore, there is no longer a distinction between decision-making on and executing
of the strategies and policies of the co-operative.
Corporation Governance Model
In the corporation model, the BoD, and the SC or BoC are consolidated. Both members and non-members
(usually the experts) participate in this extended BoD, but bylaws may stipulate that two-thirds of BoD members
are also member-patrons of the co-operative. This model tends to be more visible in large co-operatives, and
increasingly investor-owned co-operatives. The BoD of the co-operative association becomes the supervisory
committee of the co-operative enterprise. The legal separation between association and enterprise has been
established, turning the co-operative association into a 100% shareholder of the co-operative enterprise.
This model provides the management with relatively the most autonomy to make appropriate, strategic, and
tactic responses to competitive pressures, without undue member influence on operational decisions, to find new
sources of equity capital, and to professionalize the supervisory bodies. Professional managers exert both formal
and real authority. In this model, most of the decisions are delegated to managers, as the BoD is merely
responsible for "ex-post" decision control. This is illustrated in Figure 10.
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Figure 10: Corporation Model of Co-operative Governance
Source: Adapted from Bijman, J., Hendrikse, G. and A. van Oijen, (2013); Iliopoulos, (2015).
However, it is equally associated with numerous governance failures and leadership non-authenticities
(see Matabi, 2017b). These are attributable to the "monocentric" governance construct, in contrast to
"polycentric" self-governance mechanisms which more effectively govern common goods.7 It is also argued that
hierarchical command and control systems fail because of "the tendency of centralized power to corrupt; the
difficulty in managing complexity; and the suppression of checks and balances." (Turnbull, 2002). Such a
governance model of single-board structures is considered inadequate in co-operative due to power
concentration; inability to facilitate access to information and deal with complexity. The co-operative structural
complexities need to be broken down into manageable units. This is to simplify the responsibilities and duties of
directors, executives, and employees. This is because, the unitary board structure could be unable to access full
information due to uncertainty, linked to human fallibility that emanates from information overload, bounded
rationality, skewed judgment with oligarchical tendencies, and/or expertise limitations.
In the study conducted in the Netherlands, co-operatives with a traditional board model seem least
diversified, whereas co-operatives with a management board model seem most diversified. Moreover, co-
operatives with a traditional model outperform all other types of models regarding financial returns. Compared
with co-operatives that have a management model, co-operatives with a corporation model only have a
marginally lower average return on total assets and a fairly higher return on equity (see Bijman, et. al., 2013, p.
213-2014).
Network Governance Model
In the above regard, ICA (2015) proposes a design of a network governance model - based on the three
inherent properties (humanism, democracy, and joint ownership and control) of co-operatives. Co-operatives
need to break down their complex structures into manageable units and split decision-making into a network of
independent control centres – i.e., polycentric or network governance such as functional sub-committees. This is
because, the complexities the co-operatives are operating in, requires access to multiple sources of information
that can come from and be dealt with best by a more diverse network of key stakeholders such as employees,
suppliers, and consumers.
The co-operative networked governance model fits perfectly for those interested more in the MSCs,
which are times considered complex due to conflicting interests of different classes of stakeholders. The model
has four elements: (1) the small independent basic units that can function alone, but also form a part of the larger
network, such as federations, industry networks, or solidarity networks; (2) the decisions are made at the level
7 Vincent and Elinor Ostrom call these 'monocentric' governance constructs, in contrast to 'polycentric' self-governance mechanisms which
more effectively govern common goods. B. Allen (2014). A role for co-operatives in governance of the commons, in Novkovic S. and T.
Webb Co-operatives in a post growth era. Zed books:242-263.
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closest to the basic unit (i.e., the subsidiarity principle); (3) the connected structure of multiple centres of control
(based on polycentricity); and (4) the participation and engagement of multiple stakeholders with control over
their area of expertise (e.g., workers councils).
Figure 11: Sample Network Model of Co-operative Governance
Source: Author
The small independent units ensure autonomous decision-making and the ability to adjust to changing
circumstances on the ground. This may be for a production or a system improvement, or just a simple
observation that the working environment is changing. Small units also enable direct democracy.
The subsidiarity principle assumes decision-making at the lowest possible level in the co-operative. In
case the basic units have the means and capacity to act on their own, the next tier in the network need not be
involved. The subsequent tiers in the organization provide complementary services to basic units, rather than a
substitute for their decisions and responsibilities.
Multiple control centres (polycentricity) or power bases (See Matabi, 2017c) in co-operatives need to
protect joint assets, secure democratic voice and enhance stewardship/humanism within all layers of the co-
operative. These centres (such as the committees) include independent mechanisms for conflict resolution;
coordination of small caucus groups; general member assembly and education meetings; representation in joint
co-operative taskforces; feedback loops through two-way links; and access to various types of expertise such as
the co-operative management and co-operative strategy expertise; technical expertise; business operations; risk;
and many more.
Multiple stakeholders are a valuable source of information given that effective decision-making in a co-
operative requires access to several expert knowledge that may not be in one set of stakeholders. The co-
operative's values, purpose, and nature are favourable to the engagement of multiple individuals as they
endeavour to benefit both members and communities. However, the participation and engagement of some
stake-holding could be developed without a membership status; through building a network on stewardship and
solidarity, and continuous membership consultations. The multi-stakeholder co-operative enable the significant
involvement of a broad range of stakeholders in the co-operative governance, as all key stakeholders (e.g.,
consumers, workers, suppliers) are co-operative's, potential members. The networked governance design is
advantageous over a single member type co-operative governance in a heterogeneous composed co-operative.
Nonetheless, the networked governance is not needful in homogeneously composed co-operatives.
In small co-operatives where trust is high and members are closely connected to other constituents,
they may not need to. However, even in small co-operatives, employees ought to have decision-making powers
on matters that impact their personal growth and the work environment; they are the frontline in co-operative's
dealing with other stakeholders and the portent of co-operative strength.
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These elements and properties are powerful forces, which can elevate co-operative member
participation to a new level and deliver a "potent combination of empowerment, autonomy, and efficiency"
Turnbull, 2002, p.22), and enhance followership for their subsequent satisfaction (Matabi, 2017d). This is
because, in co-operatives, the individual member has a role to play that goes beyond the basic economic
relationship of consumer, worker, or producer. Jointly, members own their co-operative, and through democratic
arrangements, they participate in its governance; and individually, they have a right to a voice, information, and
representation.
Discussion
The membership and governance structures equally have some interconnections (illustrated in Figure
12). The centralized co-operatives could adopt traditional (or extended tradition) and management governance
models. The mixed co-operatives could adopt largely the management and corporation governance models and
to some extent the network governance model. The federated co-operatives could adopt largely the network
governance model.
Figure 12: the possible interconnection of the membership and governance structures
Source: A construct of the author
Moreover, to achieve governance best principles and practices, co-operatives should also evolve, not
only in terms of ownership rights modelling but also in decision/control rights modelling – i.e., in terms of
governance models. This evolution should show trade-offs between the co-operative governance models and
ownership models. According to the study by Professor Constantine Iliopoulos (2015), three parameters can be
used by co-operative members to establish the governance model fit for their ownership-model adopted, among
the first four governance models of traditional, extended tradition, management and corporation. These
parameters are (1) Member-Patron's Investor mentality, (2) Co-operative Capital Needs, and (3) Organizational
Complexity. This paper has added to this "trade-offs" matrix, the network governance model, as illustrated in
Figure 13.
Figure 13: Trade-offs in choosing an ownership-rights system and governance structure (and/or features) in co-
operatives
Source: Adapted from Iliopoulos, (2015).
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The matrix infers 14 combinations of governance-ownership models both theoretically feasible and some
observed in various countries (See Table 13):
Table 9: Feasible constructs of for the co-operatives by systems of ownership-rights/Investment, and the
governance structure
S/No.
Co-operatives by a governance structure
Co-operatives by ownership-rights and investment system
1.
Traditional Governance Structure
Traditional Co-operative
2.
Extended Traditional Governance Structure
Traditional Co-operative
3.
Extended Traditional Governance Structure
Proportional Investment Co-operative
4.
Extended Traditional Governance Structure
Member Investor Co-operative
5.
Extended Traditional Governance Structure
New Generation Co-operative
6.
Extended Traditional Governance Structure
Multistakeholder Co-operative
7.
Extended Traditional Governance Structure
Co-operative With Capital-Seeking Entities
8.
Extended Traditional Governance Structure
Investor Share Co-operative
9.
Managerial/Corporate Governance Structure
Co-operative With Capital-Seeking Entities
10.
Managerial/Corporate Governance Structure
Investor Share Co-operative
11.
Network Governance Structure
New Generation Co-operative
12.
Network Governance Structure
Multistakeholder Co-operative
13.
Network Governance Structure
Co-operative With Capital-Seeking Entities
14.
Network Governance Structure
Investor Share Co-operative
From the matrix, the more the members incorporate investor preferences into their co-operative
functions, the more they will be willing to lose varying degrees of member-control over their co-operatively
owned business – from the traditional member-owned model to the investor-share model. Secondly, the more
the increasing co-operative's need for risk capital to invest in projects that will safeguard the co-operative from
external competitive pressures, the more it will need to adopt degenerate to investor-owned orientation to enable
it to offensively seek higher margins in other levels of vertical supply chains. Thirdly, as the organizational
complexity8 of co-operatives increases (and co-operative degeneration is accelerated), from traditional to the
investor share co-operatives, the co-operative (1) distributes more and more clearly defined residual claimant
rights to member-patrons; (2) adopt the separate product, capital and decision-making pools; and (3) distribute
residual income rights in more equitable ways. In such a case, which is also characterized by reducing member
control; the co-operatives may be obliged to amend the bylaws, for instance, to allow proportional voting (which
is a departure from ICA's democratic principle of "one member, one vote") (Iliopoulos and Cook, 1999).
Otherwise, if the "oppressed" members cannot exercise convincingly their voice option (see O¨ Sternberg and
Nilsson, 2009), they usually will leave the co-operative and may start a new collective entrepreneurship venture.
In such cases, therefore, there is a greater need for improved decision-making efficiency. Hence, the
co-operative moves from the traditional to the extended traditional and the managerial and corporation
governance models, and then to the network governance model. With this trajectory of adopting more and more
of the non-traditional governance features, it is hypothesized that costs of collective decision-making are
supposedly becoming lower and lower – implying that the loss of member control may not pose a serious threat
to co-operatives. Nonetheless, this achievement may come at the expense of higher management monitoring
costs – but in any case, members are always in a weak position to monitor management effectively (See
Bontems and Fulton, 2009).
In essence, several issues are observed by Iliopoulos (2015), among others are: (1) co-operative in the
strictest sense of ICA definition, is not a co-operative (2) collective decision-making rights are gradually being
determined by member investment and patronage responsibility (3) the more members start having the investor
mentality the more they accept non-member investment (4) provision of intra-co-operative incentives is
bounded not only to attract the member investments but also target subgroups of stakeholders that can be tied
contractually to the co-operative (5) efficient co-operative organizational design and trade-offs is beneficial but
remain complex.
Therefore, a humanist approach to co-operative governance and management should be adopted in
recognition that the co-operative members (i.e., the key stakeholders) are motivated by solidarity, and their
shared objective is realized through a co-operative. Whichever governance model is adopted, members' interests
should be aligned to work towards co-operative viability and adherence to co-operative values. This is because
without these key stakeholders (members) the co-operative would cease to exist, and democratic member
engagement in all facets of governance is crucially important to the health of the co-operative. The engagement
of multiple (key) stakeholders or constituents is an important aspect of the humanistic and polycentric
governance frameworks in co-operatives. The proposal is that members and other stakeholders should contribute
8 Organizational complexity refers to the condition of having many diverse and autonomous but interrelated and interdependent components
or parts linked through dense interconnections. In the framework of an organization,
complexity i s associated with interrelationships of the individuals, their effect on the organization and the organization’s interrelationships
with its external environment (Keskinen, A., Aaltonen, M., and Mitleton-Kelly, E., 2003).
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to the co-operative's governance and management processes. For instance, employees (whether they are
members or not, in MSC or SSC), occupy a special place as insiders with a clear interest in co-operative's long-
term viability, as well as in its organizational culture and implementation of co-operative values and principles.
The change in the decision-making structure is likely to result in strategic reorientation towards more
member and customer focus, diversification, and innovation. This leads to the next discussion on the "co-
operative cluster of classification by strategy on member participation and marketing".
The co-operative classification by strategy for member participation and marketing
Once the co-operatives system of ownership rights and investment, and the co-operative structure of
membership, governance, and management is identified; co-operatives ought to establish a strategy of their
member traction and market positioning. This will help them to continue being relevant in delivering the
objective and self-renewing for sustainability.
This cluster of classification is attributable to several co-operative theories such as theories of
economic history, economics9, co-operative design and evolution, and ownership (see Birchall, 2011, p.32-33).
Specifically, co-operative classifications are in terms of member participation strategies; and marketing
strategies, as follows:
Co-operatives by strategy for member participation
One above accounts, co-operative scholars have therefore the advanced classification of co-operatives
from structure to strategies. They argue that increased membership, member commitment, and trust (see O¨
Sternberg and Nilsson, 2009) are key in addressing market failures. This is because, in principle, members have
two roles in a co-operative business, as patrons and as investors. They can attach varying weight to these two
roles. The improvement of market failures is sought in the patron role, i.e., buying from the co-operative,
selling to it, working in it, borrowing from it, etc. Since a co-operative business is a form of vertical integration,
the members' patron role outweighs the investor role. Members invest in the co-operative to conduct trade with
it. Consequently, co-operatives have traditionally been organized in such a way as to enhance the patron role
and to suppress that of the investor, and in most cases investor role is not always in the members' minds. The
more the investor role is suppressed, the greater is the probability of serious monitoring problems (Nilsson,
2001). The investor role is found mainly in the co-operatives that have tradable residual rights – i.e.,
entrepreneurial co-operatives. The patron role is more important when the members regard the co-operative as
able to fix market failures, or when there is adequate trust and cohesion for the members to control the business.
If the two roles are combined (though not sharply defining dichotomies), the following four extreme
types of co-operative emerge based on member participation strategy according to Professor Jerker Nilsson
(Nilsson, 2001): Type I (Traditional co-operatives), Type II (Entrepreneurial co-operatives), Type III
(Degenerated co-operatives); and Type IV (Ex-co-operatives (non-co-operatives). See Table 10 for a description
of each of these taxonomies.
Table 10: Description of the co-operative taxonomies by the strategy of member participation
Co-operative
Taxonomy
Description
Type I
co-operatives i.e.,
Traditional
co-operatives:
These are the type of co-operatives where members perceive their patronage relations as very
rewarding, thus seeing their patron role overshadowing the investor role. Investment does not matter much since,
the co-operative business can be financed collectively without any problem, as the association is controlled
effectively from their patron position. In these co-operative business operations are fairly homogeneous, social
conditions are useful to the members who may have similar characteristics, and the members are involved in the
operations. This context shows that there are no problems in high importance of high member participation as
patrons, in consideration of ownership, and residual rights.
This taxonomy is poised to be found more when the co-operative business operations are closely related
to the members' operations. Moreover, these co-operatives are large, easily standardized, routinized, and
automated, deal only with the very first stage of the value chain, and the size of the investment is fairly small,
especially in agriculture producers. However, as the scale of operation rises, the investment per unit as well and
per member will decline together with average processing cost; hence the members are stimulated to grow and
consolidate co-operative volumes by expanding their operations and by inviting new members. The co-operative
then can transit to entrepreneurial co-operatives as illustrated in Table 11.
The advantages of the traditional co-operatives are that: (1) the need for equity within the co-operative is
reduced, so that the existence of unallocated capital and collective decisions about the allocated capital would
9 The most common economic theoretical tool for vertical integration is the "transaction cost theory", which was relevant to traditional co-
operatives; then "neo-classical economic theory" combined with "game theory" is more instrumental and states that when the average cost
curve of the processing activities is constantly declining and the price is independent of the volume supplied, the firm (or rather its owners)
has an incentive to increase the volume as much as possible. Then finally the "property rights theoretical perspective is appropriate; the best
owners of a firm are those whose inputs to the firm's operations are the most uncertain ones (See Nilsson, 1999 p. 458-460).
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Co-operative
Taxonomy
Description
create fewer problems; (2) the capital need could be reduced to the extent that allocated capital alone is sufficient
(3) the members' market failure problems belong by necessity to the first stages of the value chain, so they would
be solved. The value-added activities cannot pose any market failure problems for the members because they
simply do not operate on those markets; (4) being suppliers and workers to the co-operative, the members are in
regular contact with the first stages of the processing chain, and so are sufficiently knowledgeable to control this;
(5) the members can be expected to be more motivated to control a co-operative that operates with member-
related business operations only, i.e., member participation increases; (6) as the business operations of the co-
operative become more simple, the managers have less freedom to act, and thus less chance to behave deceitfully;
(7) the heterogeneity in the co-operative's operations is reduced, whereupon the interests of various member
categories become more closely aligned; and (8) the business activities are characterized by substantial
economies of scale. Typically, this type of co-operatives is characterized by equal treatment, large collective
equity capital, low or non-existent remuneration to the members' capital, "one-member-one-vote", ideological
propaganda, etc. Their impact is in increasing the volume of the co-operative's business operations. Economies of
scale are attained, hence benefiting the members in terms of better prices.
Type II
co-operatives i.e.,
Entrepreneurial co-
operatives
These are co-operatives where the members are highly involved both in their patron role and their
investor role. This then makes the co-operative more effective in correcting market failures and strengthening the
members' market position. Here there is mutual consideration of both member patronage and investment roles. In
these co-operatives, the residual claims are tradable as equity shares, and as a result, the members are willing to
invest large amounts to get remuneration for their capital. The typology is equated to the types of co-operatives
by the structure of ownership rights – multi-stakeholder co-operatives (MSCs), new generation co-operative
(NGCs), Co-operative with capital seeking entities, and Investor share co-operative. In these co-operatives,
operations extend far beyond the members' operations, as the need for capital increases due to increasing
investments per unit. These co-operatives are also characterized by the increasing complexity of co-operative
operations in terms of production and marketing; hence the continued need to precisely define the property rights
for co-operative efficiency. Eventually, members are expected to adopt more and more of a business' view of the
co-operative, and the social factors will be suppressed, thus the possibility of conversion to investor-owned firms
(IOF).
The advantages of the entrepreneurial co-operatives are that: (1) the members' profits from the value-added
operations come in the shape of return on investments, not of better prices for their raw produce, i.e., the product
market does not become distorted; (2) the members will be willing to invest larger amounts as the shares are
individually owned and can be traded on a market; (3) to the extent that extended capital is needed in the firm,
there are no problems about inviting external financiers; (4) when it comes to a choice between investment
alternatives there is no reason to limit oneself to the processing of the members’ raw produce; and (5) higher
profitability can be achieved by extending the operations beyond the activities that are close to the members, e.g.
national or international operations, highly processed products, aggressive marketing strategy, etc.
Type III
co-operatives i.e.,
Degenerated
co-operatives
These are co-operatives that fall from the state of traditional and entrepreneurial co-operatives. Most of the
degenerated co-operatives are from the traditional co-operatives. In essence, generated co-operatives can be a
result of the following (1) co-operatives that expanded by making large investments in types of businesses that
are removed from the members' operations or even unrelated to the members altogether; (2) co-operative using its
capital base from the traditionally unallocated equity, and members losing control of the co-operative ever more
complex and remote enterprise (3) co-operatives have increasing difficulty in monitoring the co-operatives
enterprise, and members having little incentive to monitor; (4) co-operatives' growth resulting in increasingly
heterogeneous and anonymous membership. Degenerated co-operatives are, therefore, co-operatives that are
regarded as having insufficient capacity to correct market failures due to serious problems of lack of both
member participation in patronage and investment role. The members in degenerated co-operatives fail to
appreciate their investor role, there are monitoring problems and the market functions are weak. As a result, there
is a risk of inefficiency and takeover or seizing of control by the management and/or the board. In such a case, if
no restructuring action is taken for regeneration, the resources may become depleted, and thereafter the co-
operative's existence will be in jeopardy.
Type IV:
Ex-co-operatives
(non-cooperatives)
These are the type of organizations that is investor-owned firms (IOF) rather than a co-operative, but the owners
of the enterprise may be former members of a co-operative, or the enterprise may be owned by a co-operative
firm. Here, investor orientation is of high importance than patronage. The ex-co-operatives are mainly the result
of degenerated co-operatives that have run into overwhelming difficulties and have failed to convert into
traditional or entrepreneurial co-operatives.
From the four classifications, the most challenged are the degenerated co-operatives, where members'
involvement in both patronage and investment roles is extremely low or weak. It is established that, in many
industries and many countries, there may be a considerable number of co-operatives that do not improve the
market positions of their members in a significant manner or treat members as investors.
There are several ways to renew and consolidate the degenerated co-operative businesses to traditional
and entrepreneurial co-operatives, and/or convert to IOF. This may involve introducing measures to increase the
membership's involvement in either their patron or their investor roles, or both: (1) From degenerated to
traditional co-operative – there is a need to increase the member participation as patrons by liquidating excess
assets and redirecting the co-operative's operations towards other badly functioning markets where the members
are having difficulties, or to other market-correction measures, more or less redefining the mission that the co-
operative has for its members; (2) From degenerated to entrepreneurial co-operative – transform to co-operative
structure that clearly defined property rights in the form of transferable and appreciable equity shares, to attract
members to make a large investment. The co-operative could convert to different "entrepreneurial" co-operative
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forms (see Table 16, Figure 14), and not necessarily be the same e.g., NGC, MSC, or a co-maker co-operative
that is characterized by joint ownership between the co-operative society itself, the members individually, and
often also external investors; (3) From degenerated to ex-co-operative – simply convert to no longer be co-
operative, by selling the co-operative to some investor(s), or members remain the owners of the converted firm.
To further explain these member-involvement strategy classifications, this paper blends in the Chaddad and
Cook (2004) typology propositions.
Table 11: The connection between co-operatives by the strategy of member participation and co-operatives by
the structure of ownership rights
S/No.
Co-operatives by Member
participation Strategy
(Nilsson, 2001)
Co-operatives by Structure of ownership rights (Chaddad and Cook, 2004)
1.
Type I: Traditional co-operatives
Traditional co-operative
Proportional investment co-operative,
Member investor co-operative
2.
Type II: Entrepreneurial co-
operatives
New Generation co-operative,
Co-operative with capital seeking entities
Investor-share co-operative
Multi-stakeholder (as added to the typology by the author of this paper)
3.
Type III: Degenerated co-
operatives
Not Applicable (but implied by Birchall (2013) in the co-operative
lifecycle – on "Decline" Co-operatives)
4.
Type IV: Ex-co-operatives (non-
co-operatives
Conversion to Investor Owner Firm (IOF)
Additionally, the paper incorporates Professor Johnston Birchall's propositions on the co-operative life cycle
periods of growth, consolidation, decline, and renewal (Birchall, 2013). The classifications are as illustrated in
Figure 14.
Figure 14: Co-operative classification by strategy of member participation
Source: Adapted from Nilsson, (2001); Chaddad and Cook (2004); Birchall, (2013).
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Further to the strategy for member participation, by Nilsson (2001), two extreme taxonomies are suggested by
Bekkum, (2001). These are "collectivist" co-operatives to "individualistic" co-operatives, with elements
highlighted in Table 17 below.
Table 12: Comparison of key elements of the collectivist and individualistic co-operative structure
Model/
Element
Collectivist co-operatives
Individualistic co-operatives
Ownership and Investment/Shareholding
The financial entry
conditions
Free and costless entry.
Membership is closed or subjected to ownership of
production rights.
The financial
instruments
The collective reserves are without any
individual rights, risks, obligations, or benefits.
In the case of member loans, there are very small
or no interests.
The general reserves are small/minor in terms of
member loans. There are base capital plans.
Distribution of residual
surpluses
The reserves which are proportionally
high/major are supplemented with the price of
products and services
In addition to reserves, which are of small
proportion/minor; the dividend is paid on a
production/service right basis.
Nature of the right to
residual claims
The property rights are held by the membership
as a collective, permanent, non-tradable
The property rights are held by individual members.
Such rights are permanent but the attachment to
transactions restricts the duration of individual
ownership; voting; member share "tradability" and
"appreciability".
Governance
Voting rules
One member, one vote.
Proportional to production rights.
Decision-making rights
and monitoring
The decision management and control are in the
hands of the Board of Directors.
There is a separation of residual risk-bearing (by
individual members) from decision management, with
decision control, only delegated to the Board of
Directors
Transactions
Pricing policy
There is uniform pricing for all members, with
some minimum criteria.
There is differentiated pricing in terms of volume and
quality to reflect handling costs and market returns
Supply (or service)
management
There are unrestricted deliveries or services.
Intake or off-take obligation from producer and
consumer members, respectively. No significant
entry barriers for non-members.
The delivery volumes are dependent on marketing
needs, through the obligatory purchase of production or
service rights tradable among members. Some raw
materials may be purchased, or (in case of
worker/service co-operatives) labour services acquired
from non-members as market opportunities call for
Source: Adapted from Bekkum, (2001).
Basically, from this analysis, co-operatives can be classified along the continuum of collectivism and/or
individualism. Generally, based on the membership involvement strategy, the traditional co-operatives are
collectivist-co-operatives, while the more entrepreneurial-co-operatives are individualistic-co-operatives.
Co-operatives by strategy for marketing
Building on Bekkum, (2001), transaction element to differentiate between the collectivist and
individualistic co-operatives (See Table 16), scholars also advanced on these to classify co-operatives by the
strategy for marketing. Based on Michael Porter's (1998) Competitive Advantage for Creating and Sustaining
Superior Performance, co-operatives can be classified based on marketing strategy at a time, or environment.
This is because, co-operatives are in business, and so they are in marketing; whether it is on input or output
markets. These market conditions are changing. Competition is growing, trade policies are being liberalized,
markets are being opened, the retail chains' power is increasing, as consumer markets become more and more
diverse, etc. The intensified competition means an economic squeeze in terms of prices, profits, and costs, which
makes the co-operatives have an increasing difficulty paying good prices for the members' products, services, or
labor. The co-operatives have to react to this, and there are three ways for them, like other enterprises, to have a
competitive advantage. They ought to employ, either: (1) an overall cost-leadership strategy, which is
historically been the natural strategy for traditionally organized co-operatives thus mainly applied by members
in traditional co-operatives; (2) a differentiation strategy, which seeks to offer what market need not what
members produce to avoid the most competitive markets and direct the members' production in terms of
qualities, or volumes, or both, thus mainly applied by members in entrepreneurial co-operative with external co-
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owners/investors); and, (3) focus strategy, which is like differentiated except that the product and/or service
range is narrower and focused for target market, and thus mainly applied by members in entrepreneurial co-
operative with a closed membership. The advantage or disadvantage of these strategies may equally vary with
the co-operative system by ownership-rights, holding other factors, as highlighted in Table 18.
Table 13: The construct between the co-operative by the strategy of the market and the system of ownership-
rights/investment
Main Strategy
Traditional
co-operatives
Entrepreneurial
co-operatives with external
co-owners/investors
Entrepreneurial
co-operatives with
closed membership
1. Overall cost leadership
Strategy: This is producing large
volumes or labour force (in case
of workers co-operative) at an
average cost level, lower than that
of all competitors. This requires
open membership
The overall cost leadership
strategy brings good
prospects in traditional co-
operatives because of large
volumes (economies of
scale) and limited need for
investments as well as
simple and easily
controllable operations.
Investors would be reluctant to
accept volume maximization as
a goal as the profit decreases.
The co-operative's volume
is not sufficient to gain
competitiveness
2. Differentiation Strategy: This
strategy is where the firm offers
what the market needs not what
members produce or service or
offer to avoid the most
competitive markets. Direct the
members' production or services
or labour in terms of qualities,
volumes, or both
Governance problems and
capital problems may occur
– because
Power balance from
members to management.
The differentiated strategy
poises a good prospect for
intrapreneurial co-operatives
with external co-
owners/investors because of
access to capital and involved
owners.
The co-operative has not
sufficient capital to act on
large markets - and
requires large investments
as production, processing,
and marketing (research
and promotions) call for
capital.
3. Focus Strategy: This strategy is
similar to differentiation save that
the product or services range is
narrower and focused on the
target market
Governance problems and
capital problems may occur
A focus strategy is appropriate
but only for a minor part of the
co-operative’s business
operation.
The focus strategy poise
good prospects in
Entrepreneurial
co-operatives with
closed membership due to
involved owners, as the
limited access to capital,
is acceptable due to the
small volume and
specified market.
Source: Adapted from Nilsson and Ohlsson, (2007)
Notably, different strategies and the different co-operative organizational models can be combined; and
given different socio-economic and cultural orientations, co-operatives may be successful with any combination
of the strategies if they mitigate both the capital and governance problems. The change or misalignment of such
strategies may occur if: (1) the assets used in non-core business activities may have increased in value so much
that a co-operative has capital enough for investments in core business activities; (2) a co-operative may be so
dominant at a specific market that it enjoys success, irrespective of prescribed strategy; (3) the membership
mentality or culture, may have an effect on member satisfaction with a specific co-operative structure model
(Fahlbeck, 2007); (4) personal factors may have immense importance, such as whether the directors or the
general manager are skilled and motivated (Fulton and Giannakas, 2007); (5) the success of co-operative
depends to a large extent on the members' attributes; for example, if they are not able to produce at low costs, it
does not help even if the co-operative operates at a very large scale.
There are four co-operatives classification by strategy for marketing developed using the 3-dimension
of the co-operatives' structure and strategy models. They can show how co-operatives can move or integrate
both horizontally or vertically, while employing either the overall-cost leadership strategy or differentiation
strategy or focus strategy, for success and sustainability. Horizontally, they can use the involvement of members
and owners in investment roles, from the collective structure of equity to the individualistic structure of equity.
Vertically, the co-operative can use the involvement of members low to high patronage and/or usage while
employing the differentiation or focus strategy of marketing.
These are classified as local co-operatives, niche co-operatives, entrepreneurial co-operatives, and the
"countervailing power" co-operatives (see Figure 15).
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Figure 15: Co-operative models according to strategic-structural dimensions
Source: Adapted from Bekkum, (2001); Nilsson, (2001); Nilsson and Ohlsson, (2007)
The "Local/traditional Co-operative" is the small, traditional co-operative based on the traditional co-
operative philosophy ICA and principles of with more of "collective structure" of equity, and low vertical
strategy of member patronage or actor usage; and "overall cost leadership strategy" as good prospects because
of large volume (economies of scale) and limited need for investments as well as simple and easily controllable
operations.
The "Niche Co-operative" shares a small size and narrow business focus than of the traditional co-
operatives. However, it applies the differentiated marketing strategy and vertical integration strategy because
of access to capital and involved owners, for both market and co-operative growth by targeting a particular
market niche or customers, where there are not many similar businesses. The Niche Co-operative uses a
collective structure of equity capital because of many members by open membership.
The "Countervailing Power Co-operatives" are the larger co-operatives formed potentially from
operating in a larger area with many members, or the merger of traditional/local co-operatives. They employ the
"overall cost leadership strategy" as it moves horizontally to an individualized structure of equity. This is
because of good prospects due to involved owners (whether individual or corporate members), while the limited
access to capital is acceptable due to small volume and specified market. They are more diversified than the
small traditional co-operatives but remain largely in commodity businesses and retain a high level of pooling of
capital and acquiring and consolidating large market share.
The "Entrepreneurial Co-operatives" – either with external co-owners/investors or simply the closed
members (building from Nilsson and Ohlsson, 2007) – also have transformed horizontally by individualizing the
structure of equity and by reducing the commodity content of their businesses using the focus strategy. Focus
strategy involves owners, focus on small volume and specified market accepting the limited access to capital.
They do this by gradually developing vertically into consumer brands and other forms of product differentiation.
Entrepreneurial co-operatives can be hybridized or extreme – from semi-closed to closed memberships in both
member participation on patronage and investment roles.
Discussion
In essence, from the analysis, many co-operatives may not conform to a particular extreme model.
Most co-operatives, just as they would "prefer member-heterogeneity and system-lifeworld dichotomy
(Iliopoulos and Valentinov, 2017), would prefer the balance of all the marketing strategies (Overall Cost
Leadership strategy, differentiation strategy, and focus strategy, vertical integration strategy, horizontal
integration strategy), and membership and ownership structure (collective structure of equity and individualistic
structure of equity).
In this regard, the interconnection between the member-involvement and marketing strategies that co-operatives
may be modelled can be observed as illustrated in Figure16.
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Figure 16: Interconnection of co-operatives by member-involvement and marketing strategics
Source: A construct of the author
The review, therefore, suggests that when co-operatives are making the transition towards the
entrepreneurial and business focus, they are likely to exclude particular target members, notably those that
cannot comply with the product or service quality standards that markets increasingly demand. As market
orientation requires strategic focus and more emphasis on niche and differentiation for efficiency, co-operatives
are expected to become more selective in accepting members. In the current environment, therefore, co-
operatives are in a precarious position to (1) choose between providing benefits to the whole community versus
targeting only member interests. Choosing the benefits more for member interests may lead to the exclusion of
the poorest and most disadvantaged community members, and (2) determine the formal decision for closed
versus open membership. Determining the need to build a strong co-operative business, will lead to the
exclusion of members that cannot deliver the minimum quantity and quality; and subsequently, exclude them in
the co-operative decision-making process (Bijman and Wijer, 2019).
Table 14: Finding the balance between community development and business focus
Key characteristics of co-
operative
Community
Development focus
Community Development and
business focus
Business focus
Main values
Solidarity
Solidarity and Efficiency
Efficiency
Orientation
Community
Community and market
Market
Membership
Open
Semi-closed
Closed
Inclusiveness
High
Medium
Low
Source: Adapted from Bijman and Wijer, 2019)
Simply, co-operatives become more entrepreneurial-oriented, they are less likely to be inclusive. They
need to design and formulate an inclusive business strategy (see Matabi, 2017e). "Hybridization" of the co-
operative model (for balanced focus on community development and business) is what scholars and
practitioners are striving at, for success and sustainability.
Figure 17 illustrates the interconnections and balances of various co-operative typologies by the scope,
system, structure, and strategy; to bring out the balance of co-operative values, member composition,
orientation, and inclusivity. This is toward deepening the co-operative identity.
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Figure 17: The juxtaposition of the co-operative classifications
Source: A construct of the author
The co-operatives are believed and viewed differently. Essentially, co-operative identities can be
viewed in the balance within the civil mix sector and directions of change without being on the extremes of the
public, commercial, and community sectors (Huncová, 2003 and Huncová, 2006). Co-operatives are a unique
alternative to the conventional choices of private versus public, or public versus non-profit (See Figure 2) – the
"Pestoff Welfare Triangle.
IV. Discussions
Co-operative classifications are mostly drawn from the studies on agricultural co-operative in Europe,
North America, and Oceania. However, these classifications may be applied across other producer-owned, and
consumer-owned co-operatives in different contexts.
There are different typologies based on various elements and dimensions. The co-operative typologies
can be further clustered into four: scope (of purpose, sector, and coverage), system (of ownership-rights and
investment), structure (of membership, governance, and management), and strategy (of member participation
and marketing). Scholars have largely been using a "linear" co-operative business modelling framework. The
newly unveiled framework of co-operative epistemology, axiology, and taxonomy toward the business model
ontology and circular business modelling framework is elaborated as illustrated in Figure 18 below.
Figure 18: A simplified concept of "circular" co-operative business modelling framework
Source: A construct of the author
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The Co-operative Business Model's Theoretical Analogy to a Human Anatomy
Based on these co-operative classifications, the author creates an analogy of the co-operative business
as a human being with body components for functionality, survival, production, and sustainability. The
classifications by scope can be equated to the "musculoskeletal" that gives shape to and allows the movement
(commencement) of the co-operative business model. The classification by system of ownership rights and
investment treatment can be equated to the "cells" that mobilize and convert useful resources required for the
energized co-operative business model. The classifications by the structure of membership, governance, and
management, can be equated to the "tissues" that protect and ensure harmonious connectivity of other parts of
the co-operative business model. The classification by strategy of member-participation and marketing can be
equated to "organs" that help in the survival and reproduction of the co-operative business model. These "4S"
clustering, then have elements that doubtlessly form the "body" of a co-operative business model.
The co-operative taxonomies in either vertical or horizontal framing bring out the extremes of the co-
operatives model – i.e., the traditional and entrepreneurial co-operatives. Therefore, hybridization of co-
operative types is inevitable in today's complexities– from the scope (of purpose, sector, and coverage) to
system (of ownership-rights and investment), to structure (of membership, governance, and management), and
the strategy (of member participation and marketing). Co-operatives need to ensure a balance of the co-
operative main values, membership composition, co-operatives orientation, and co-operative inclusivity.
The juxtaposed co-operative between the extreme traditional and extreme entrepreneurial before
conversion to absolute IOF seems to be the multistakeholder (solidarity) co-operative (MSC), under the system
of ownership rights and investment. From the concept descriptions and matrices built, MSCs can be said to be
"heart" – in that, in its level of structuring and functionality can deepen the co-operative identity in the face of
the present socio-economic and global complexes. However, MSC is not the end in itself, it requires additional
components beyond scope of composition to the balanced system of ownership rights and investment, the
structure of governance, and also a member and market strategy. These need to be well legislated and
appropriately modelled.
Having "identified" and discussed the possible pathway for "combinations" and "selection" of the co-
operative business models by scope, systems, structures, and strategies; a "circular" co-operative business
modelling framework can be further developed. A well-developed framework will be significant for use by the
co-operative practitioners in different contexts and at different periodical phases of the co-operative's cycle.
However, the mere identification, combination, and selection of co-operative taxonomy is just but the "body " of
co-operative business models. This may not be enough for the success and sustainability of the co-operatives
themselves, nor accordingly, deepen the co-operative identity.
To complete the circuit of the proposed "circular" co-operative business modelling framework; a
further study should be done to establish the "soul" to design and implement successful and sustainable co-
operatives. This is further referenced to the Bible teaching, in the books of Genesis 2:7 and Ezekiel 37:1-10.
This is conceptualized in Figure 18 below.
Figure 19: An elaborated concept of "circular" co-operative business modelling framework before the
elaboration of business ontology
Source: A construct of the author
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The co-operative taxonomical framework is built on the assumption that (1) the strength and survival of
the co-operatives business model is based on the combination of elements of the co-operative field in a
particular context; (2) identification and selection of the co-operatives business model is based on the
combination "body and spirit components" of different co-operative classifications; and (3) the ultimate design
and implementation of successful and sustainable co-operative business models are dependent on a different
business model's "soul" from those of other enterprises and/or organizations.
According to Plato's tripartite theory of the soul (Lorenz, 2009), the soul is divided into three parts –
the "reason/mind", the "will/spirit", and the "desire/emotion". In this paper, it is opined that to develop the soul
of the co-operative business model, there are a need to study business model ontology to establish the guidelines
for the co-operative strategic thinking (i.e., the "reason/mind"), management practices (i.e., how to "will"), and
value propositions (i.e., "desire/emotion"). In simple terms, a successful and sustainable co-operatives business
model depends (1) on epistemologies history of co-operatives development (i.e., historical relativism), theories
(i.e., Criticalism), schools of thoughts (i.e., Instrumentalism), development trends (i.e., Paradigmatic
Relativism), and co-operative definitions and principles (i.e., Paradigmatic Justificationism) and co-operative
laws (i.e., Pragmatism of epistemology); (2) for its ontology of business nature; and, (3) in recognition of the
axiology to (re) create, (re)deliver, (re)capture value, measure value, communicate value and 'destruct' value for
self-adaptation and self-renewal. For, any business model, including the co-operative business model, should
create, deliver and capture value, especially to the members/customers and community (see Osterwalder, et. al.,
2005; Osterwalder and Pigneur, 2010; Upward and Jones, 2016; Seroka-Stolka, et., al., 2017; Mazzarol, at. Al.,
2018; Lopes, et. al., 2019; Sparviero, 2019).
The "soul" development of the co-operative gives direction to the drivers of the "body" co-operative.
The level of soul development determines the knowledge, courage, temperance, and justice (Mishra, 2018) the
co-operative can be run. Once the co-operative business modelling framework is well developed, with the
"body" of classifications and the "soul", both theoretically and empirically; it is envisaged that it will aid in the
success and sustainability of co-operatives and, in the deepening of the co-operative identity in different
contexts and periodic phases.
The Co-operative Business Models Framework in Practical Management
The business models in practice are associated with attaining and expanding competitive advantage
(Johnson, et al., 2008). The business models can be understood here as structured management tools, which are
considered especially relevant for success (Magretta, 2002).
From the co-operative taxonomies and clustering study, there is a clear contribution to the areas of co-
operative business modelling – even as we conclude on the centrality of MSCs as the "heart" of co-operative
taxonomies. In this path, illustrated by Wirtz, et. al., (2016), the co-operative taxonomy analysis can largely give
us the "body" components of the business model, i.e., (1) definitions and scope (mainly by co-operative
classification by the scope of purpose, sector, and targets), (2) forms and components (mainly by co-operative
classification by the system of ownership and investment), (3) value system (mainly by co-operative
classification by the strategy of member-involvement and marketing), (4) actors and interaction (mainly by co-
operative classification by the structure of membership, governance, and management), (5) innovation (mainly
by co-operative classification by the system of ownership and investment).
Figure 20 illustrates the important areas and their interconnectivity towards a practical development
and management of the co-operative business model. Under "definitions and scope", the taxonomy of co-
operative by the scope of purpose, sector, and targets can help to fundamentally define co-operatives as they are,
be differentiated from other existing concepts and models. Under "forms and components" (see Osterwalder,
2004; Demil and Lecocq, 2010; Osterwalder, et. al., 2011), the taxonomy of co-operative by a system of
ownership rights and investment gives us various characteristics of co-operative business models given the
ownership characteristics. The forms of NGCs and MSCs are being used widely today. Under "value system",
the taxonomy of co-operative by the strategy of member-involvement and marketing, brings in the aspects of the
general structure of value creation and a useful topology of the value creation partner (the co-operative member)
(see Arend, 2013). Under "actors and interactions", the taxonomy of co-operative by the structure of
membership, governance, and management brings to the fore the configuration and interface of interactions
between actors of co-operative organizations (see Storbacka and Nenonen, 2011; Frankenberger et al., 2013).
The multiple actors co-create value for the same member/customer (Storbacka et al., 2012). Under "innovation",
the co-operative taxonomy by the system of ownership rights and investment, there are always new or game-
changing aspects (see Johnson, et al., 2008); for instance, the delivery rights and agro-processing innovations
under NGCs to respective industry or market (see Gambardella and McGahan, 2010).
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Figure 20: Important areas and their interconnections towards practical development and management of the
co-operative business model
Source: Adapted from Wirtz, et. al., (2016).
V. Conclusion
To develop the "soul" of the co-operative business model, studying the remaining important areas of
the business modelling is important –to have knowledge (by epistemology) for its nature (by ontology) to create,
deliver, and capture value (by axiology). This includes design, implementation and operation, change and
evolution, performance, and controlling of business models.
Under the area of "design", it is should be investigated how a successful and sustainable co-operative
business model can be represented (see Zott and Amit, 2007, 2008, 2010). Under areas "Implementation and
Operation", the investigation should be undertaken on the arrangement of the respective processes, given the co-
operatives are user-centric businesses and have cases of organization inertia (see Hienerth, et. al., 2011). Further
investigation should be done on how the operative success of co-operative business models can differ based on
the differentiation or diversification or integration of operations i.e., the extension or consolidation of co-
operative business activities and services (see Cebrowski and Raymond, 2005; Delaere and Ballon, 2007).
Under the area of "change and evolution", it is important the business model be promoted on how it needs to
transform or evolve (see Pauwels and Weiss, 2007; Aspara, et. al.,2013). Finally, is the area of "Performance
and controlling", in which methods for testing the feasibility, capacity, and profitability of business models are
to be developed. This is either on how contingent effects of product market strategy and business model choices
would affect co-operative performance (see Zott and Amit, 2008) or how the co-operative can promote tighter
financial control in firms that are predicated on generating improved investment returns (see Clark, 2012).
The circulation of these business model components and subcomponents initially makes sense when
thinking about how important it is nowadays for co-operatives and co-operators to understand the concepts and
definitions to apply; co-operative forms to assume; value to create, deliver and capture; innovations to pursue;
and relations and decisions to make –to be successful with their business models in the context of the changing
global trends and growing marketplace competitiveness.
Therefore, a complete circular co-operative business modelling framework needs to be developed, with
further co-operative business model ontology (the "soul") – that stimulates strategic thinking, management
practice and process, and value propositions that consider business innovative purposes and targets. Moreover,
the design should also be completed with possible feeds for adaptation during implementation and change and
evolution in the midst of changing world, industries and sectors, new information and communication
technologies (Schwettmannm, 2015). Furthermore, the design should show how the business model can perform
and be controlled concerning the quest for competitive advantage; methods for testing the feasibility,
profitability, and sustainability; and impact on and responsibility for society, environment, and multiple
stakeholders. Based on the works of various scholars (see Osterwalder, 2004; Osterwalder, et. al., n.d;
Osterwalder, 2005; Osterwalder, et. al., 2005; Osterwalder and Pigneur, 2010; Osterwalder, et. al., 2011; Demil
and Lecocq, 2010; Upward and Jones, 2016; Seroka-Stolka, et., al., 2017; Mazzarol, at. Al., 2018; Lopes, et. al.,
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2019; Sparviero, 2019), a thorough arrangement of the co-operative business model design process needs to be
relooked at; in a way that will make co-operative business models successful and sustainable, and hence
deepening the co-operative business identity as envisaged by ICA.
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