Co-oppundit 2012

RESOURCE OPTIMISATION

Resource optimisation is the chief task of management within a co-ops & mutuals, in reality the functions of a senior executives in co-ops & mutuals are closer to those of a general leading a citizen-army than to those of an executive in an investor-controlled business. Just as a general must achieve campaign objectives with the resources available, managers of co-ops & mutuals must set about accomplishing the organization’s purpose within the same constraints. Managers of co-ops & mutuals must have the ability to rally their troops, build consensus for a widely shared common purpose, and create a common culture that supports its achievement.

The mantra for managers in co-ops & mutuals must be: ‘doing more with less’, and as resources are always finite, this means:

• Getting value from the people involved by means of more creative ways of working – in other words, working smarter.

• Co-ops & mutuals can be the cradle for innovation, provided that they attract and retain creative people who actively seek new ways of using their talents to maximise member benefits.

• The productivity of labour ought to be equal to or ahead of industry norms, this must be achieved by skilfully developing the workforce and expanding their capacity, whilst sharing the gains fairly.

• The productive use of all tangible assets is required, this means utilising to the maximum the space in all buildings, maintaining acceptable levels of stock turnover, the using finance more productively and at least achieving a market level of return on all capital employed.

• When it comes to attracting finance, the absence of speculation within co-ops & mutuals should make it more attractive to risk-averse investors.

The role of profit

In co-ops & mutuals the purpose of the enterprise is not to generate profits, but instead to provide benefits secured a better deal for their members. The use of the term ‘profit’ in co-ops & mutuals is, in reality, a misnomer because any so-called ‘profit’ results from trading with the members, and it is not possible to make a profit from mutual trading – you cannot make a profit from yourself. Sometimes the word 'profit' is used when what is actually meant is 'margin' - the difference between the costs and the price obtained.

The question of what constitutes a profit is futher confused by the taxation authorities, who choose to classify surpluses arising from some mutual trading as ‘profit’ – quite simply because they wish to levy tax upon it.

Any surplus in co-ops & mutuals is what remains after covering all operating costs, providing cover for any risks involved in conducting the enterprise, and generating the investment capital required to achieve the purpose of the enterprise. Any surplus may be distributed to members – not in relation to investment, but in accordance with the member’s participation in generating the surplus. Surpluses may also be used in part to support the communities within which the co-op or mutual operates, and more particularly to support the community of interest which is basis of membership the specific co-op or mutual.
For example: In a consumer co-operative this would be according to purchases, and in a worker co-operative according to the value of their labour input. This method replaces the distribution of profits in an investor-controlled company according to the number of shares held.

Competition

Co-ops & mutuals need to compete with all other forms of enterprise for the resources needed to conduct their enterprise – land, labour (including those with management skills), finance, and all other requisite assets and services. This leaves little alternative but to pay the market rate for these resources. In the short term, especially in the formation stage, co-ops & mutuals may sometimes secure resources at less than the market rate (as when members provide voluntary labour or are willing to accept less than the market rate for the use of their savings). Occasionally co-ops & mutuals may benefit from grants or gifts, but such assistance cannot be the basis for sustaining the enterprise in the longer term. The truth is that co-ops & mutuals, of any form or type, cannot escape the fact that they must optimise the use of all of the resources that they employ within their enterprise.

Co-operatives and mutuals - to be valued for what they deliver
last updated: February 2012 © Edgar Parnell 2012