Designing Membership StrudurG for ACS Large Agricultural ... · suggestions and strategies for...

United StatesDepartment ofAgriculture

ACSResearch ReportNumber 75

DesigningStrudurG

Membershipfor

Large AgriculturalCooperatives

Abstract

Deslgnlng Membership StructuresFor Large Agricultural Cooperatives

Gillian ButlerUniversity Center for CooperativesUniversity of WisconsinMadison, Wisconsin 53703

Produced through a Cooperative Research Agreement with:Agricultural Ccoperative ServiceP.O. Box 6576U.S. Department of AgricultureWashington, D. C. 20090-6576

This study develops strategies that large agricultural cooperatives can use toimprove their membership structures. Design principles from organizational theoryare adapted to apply to the membership structures of cooperatives. Eight casestudies of agricultural cooperatives illustrate the membership structures of diversetypes of agricultural cooperatives. The study concludes that case cooperatives whohave implemented strategies consistent with organizational design principlesprovide effective mechanisms for member control.

Key Words: Cooperatives, member control, organization design, membershipstructures.

ACS Research Report Number 75

August 1988

Preface

This research seeks to develop strategies that growing agriculturalcooperatives can use to improve their membership structures.

Tools employed to achieve this objective are organizational design principlesand case studies. Organizational design principles, once adapted for application tomembership structures, provide useful frames of reference for thinking aboutcooperative structures. Case studies supply information about the experiences ofsome growing agricultural cooperatives. Combined, these tools suggest strategiesthat cooperative boards and managers may find helpful when considering how toprovide opportunities for members to express their opinions and participate incooperative governance.

Information about the eight agricultural cooperatives used as cases in thisresearch was gathered in two ways. First, cooperative board chairmen andmanagerial personnel were interviewed using a structured series of questions.Second, cooperative documents provided additional information about each of thecooperatives.

Each of the case cooperatives has experienced growth and change in the pasttwo decades. These cooperatives vary widely in characteristics of their operationsand their membership. Both supply and marketing cooperatives are represented.Some cooperatives serve a small geographical area while others serve a verylarge area. Some deal in few products or services, while some deal in many.Hopefully, board members and managers of many kinds of agriculturalcooperatives will be able to find something among these varied cases thatspeaks to their own unique experience.

HIGHLIGHTS AND CONCLUSIONS .............................. iv

INTRODUCTION ............................................. 1

CHALLENGES TO MEMBER CONTROL ......................... 1Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Increasingly Diverse Farmer Clientele .......................... 2Increasingly Unstable Agricultural Environment .................. 2Increasing Complexity of Agricultural Cooperatives ............... 3

INCREASING MEMBER CONTROL ............................. 3The Organization as an Information Processing Tool ............. 3Dimensions of Organizational Structure ........................ 5Dimensions of Membership Structure .......................... 5Designing Organizational Structures for

Uncertain Environments .................................... 6Structural Strategies for Diverse Environments .................. 7Structural Strategies for Complex Environments ................. 7Structural Strategies for Unstable Environments ................. 8Structural Strategies for Designing Membership

Structure: Principles from Organization Theory ................. 8Structural Strategies for Improving Information Flows ............. 8

CASE STUDIES: THE MEMBERSHIP STRUCTURES OF EIGHTAGRICULTURAL COOPERATIVES .............................. 11

Data Collection ............................................ 11Method of Analysis of Case Cooperatives ...................... 11Organizational Charts and Measures of Dimensions

of Membership Structure ................................... 12Cooperative A--A Diversified Local FarmSupply Cooperative ......................................... 12Cooperative B--A Rapidly Growing Supply and

Marketing Cooperative ..................................... 15Cooperative C--A Geographically Dispersed

Livestock Marketing Cooperative ............................. 18Cooperative D--A Multimerger Grain

Marketing Cooperative ..................................... 21Cooperative E--A Highly Diversified Supply

and Marketing Cooperative ................................. 24Cooperative F--A Vertically IntegratedCitrus Cooperative ........................................ 27

Cooperative G--A Service Cooperative with a Large,Dispersed Membership ..................................... 30

Cooperative H--A Large Marketing Cooperative ManufacturingProcessed Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ii

SUMMARIZATION OF CASE MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . 40

STRATEGIES FOR DESIGNING EFFECTIVE MEMBERSHIPSTRUCTURES, WITH EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Designing and Redesigning the Membership Structure . . . . . . . . . . . . 41Who Is the Membership? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Choosing a Base of Representation and Horizontally

Dividing a Diverse Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42What Is the Cooperative’s Environment? . . . . . . . . . . . . . . . . . . . . . . . 43Strategies for Complex Cooperatives: Specialization

and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Strategies for Complex Cooperatives: Adding Vertical Levels . . . . . . 44Strategies for Complex Cooperatives: Decentralization . . . . . . . . . . . . 44Strategy for Handling Unstable Environments:Vertical Information Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Strategy for Handling Dynamic Environments:Lateral Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Encouraging Horizontal Information Flows with HorizontalStructures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Improving Vertical Information Flows in theMembership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Parting Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

. . .111

Highlights and Conclusions

As agricultural cooperatives have grown over the years, they have developedincreasingly complex organizational structures. To adapt to increasingly diverse,complex, and unstable conditions in the agricultural economy, they have addedvertical levels of authority, divided their work among numerous departments,employed specialists, decentralized decisionmaking, and standardized reports andprocedures.

Membership structures have evolved more slowly. The most commonstructural changes are specializing the board’s work into functional committeesand adopting an executive committee with the ability to act more quickly andfrequently than the full board. In some cases,\vertical levels of representation havebeen added: elected delegates or executive committees have been added toattend to some decisionmaking tasks. Other cooperatives have divided theirmembership into units for the purposes of voting, thus improving therepresentation of a diverse membership.

Among the eight cooperatives examined in this report, when the membershipstructure has remained simple while the cooperative has grown, there has beenmember discontent or an expressed need by management for an increased inflowof information from the membership. In some relatively large cooperatives,however, well-developed membership structures provide multiple mechanisms formember control.

Yet, no single membership structure is appropriate for all agriculturalcooperatives. Cooperative memberships vary in numbers, dispersion, size of farmoperations, types of farm operations, and other features. Operations of anagricultural cooperative may involve the sale of a single product or service, oroperations may be diverse. The environment of the cooperative may be stable,enabling many activities to be standardized by rules and procedures, or it may beunstable, requiring new decisions impossible to foresee. Similarly, thecooperative’s operations may be simple and easily understood, or complex,requiring specialized personnel. These factors need to be taken into account whendesigning structures to improve member control of cooperatives.

Combining recommendations from organizational design theory with theexperiences of eight agricultural cooperatives, the study concludes withsuggestions and strategies for designing effective membership structures. Theyinclude the following:

1. Effective design of membership structures depends on reliable informationabout who the members are. This may be gathered as part of the procedure forjoining the cooperative, through a computerized system or through membersurveys.

2. Membership structures should grow and change in response to growthand change in the cooperative enterprise and in its external environment.Membership structures should be periodically evaluated and restructured to reflectchanging conditions.

3. The membership should be divided for voting into units that reflectmeaningful differences in the needs of members. Although geographic districts aremost commonly used for voting purposes, this division may not provide for themost meaningful representation of member interests.

4. When the cooperative’s operations are technologically complex or highlydiverse, specialized committees may maximize the effectiveness of membercontributions to cooperative governance.

5. When the cooperative’s operations are complex, adding additional levelsof representation (such as a delegate body) to the member structure increases thenumber of opportunities for members to participate in cooperative governance.

6. Decentralizing oversight of some ongoing operations of the cooperative tomember committees and delegate systems can free the board to focus on crucialstrategic and policy decisions.

7. Member input in rapidly changing environments can be improved throughthe use of specialized ad hoc committees, survey panels, and hearings.

8. Flows of member input can be effectively channeled to decision pointswithin the cooperative by the use of formal member structures that provide forinteraction between member leaders and midlevel managers.

Designing Membership StructuresFor Large Agricultural Cooperatives

Gillian ButlerResearch SpecialistUniversity Center for CooperativesUniversity of Wisconsin-Extension

INTRODUCTION

Over the past few decades, many agricultural cooperativeshave grown rapidly. Facing increasingly concentratedagricultural markets, agricultural cooperatives expandedtheir operations to meet the needs of their producermembers efficiently and competitively.

Cooperatives have grown by many different methods-through merger, acquisition, diversification, and verticalintegration. This growth has not only increased the size ofagricultural cooperatives, but has changed the nature oftheir operations. Many agricultural cooperatives havechanged from small organizations providing simpleservices for a handful of local members into complexenterprises with multiple lines of business and thousandsof members scattered over wide areas. Instead ofoperating in stable and predictable traditional markets,cooperatives compete in dynamic, highly competitivemarkets where the ability to respond and adapt quickly iscritical to business success.

These changes make it increasingly difficult foragricultural cooperatives to ensure democratic membercontrol of the cooperative business. It is more difficult toprovide for meaningful member participation in largecooperatives than in small ones. As cooperative businessesbecome more complex, professional managers andspecialists make many decisions once made by the boardof directors. As cooperatives diversify their product lines,members may disagree about a cooperative’s priorities.And as agricultural cooperatives enter rapidly changingmarkets, the ability of a democratic organization to actquickly comes into question. Because of these changes,improved membership structures are needed to ensure thatcooperatives remain responsive to their members.

CHALLENGES TO MEMBER CONTROL

Size

Size is the factor most often blamed for dwindlingmember control of farmer cooperatives. In a small localcooperative, people are likely to know each other. A highlevel of interaction and communication exists amongcooperative members and management. As the cooperativegrows, it becomes bureaucratic. People lose the sense of“belonging” to the cooperative and become alienated.Participation in the cooperative decreases, and membercontrol may dwindle.

However, recent research on cooperative member controlhas failed to support the belief that cooperative size aloneundermines member control. One cooperative researcher’carefully reviewed five studies that examined therelationship between member control and the size ofagricultural cooperatives. She concluded that these studies“do not support the hypothesis that increased size meansless member control of cooperatives.” Careful design ofmembership structures may help to overcome the negativeconsequences of size for member control.

Although size alone does not preclude effective membercontrol of agricultural cooperatives, factors oftenassociated with size may have crucial effects on theeffectiveness of a cooperative’s membership structures.

‘Van Ravensway, Eileen. “Formal and Substantive Democracy inCooperatives.” Co-ops Working Paper 5. Michigan State University.1982

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Increasingly Diverse Farmer Clientele

As agricultural cooperatives have changed over the lasttwo decades, so have their farmer members. Manychanges in the farm population are continuations of trendsthat began in the 1930’s, such as specialization in farmingand the emergence of a “dual structure” in agriculture. Anew trend affecting the farm population is the increasingnumber of part-time farmers.

Farmers continue to specialize. For example, somewestern cattle operations have specialized into feederproduction and feedlot operations. As a result, there isoften no single “farmer position” on issues affectingagriculture in general. There are often conflictingeconomic interests even among producers of a singlecommodity. This diversity of farmer interests makes itharder for agricultural cooperatives to determine what isbest for their members as a group.

The varying demands for goods and services of memberfarmers with different farm enterprises have often causedcooperatives to diversify their product lines in attempts tobetter serve their diverse membership. Diversification ofproduct lines has sometimes produced conflicts amongmembers over such things as priorities for investingcooperative capital and how to allocate overhead costsamong members.

The trend toward fewer and larger farms has continued inrecent years, fueled by low product prices, high interestrates, and a strong dollar that has limited export markets.Faced with these conditions, farmers have either increasedproduction to increase gross income or turned to off-farmemployment to supplement farm income. As medium-sized farmers follow one or the other of these strategies,two subgroups with very different needs emerging fromthe farm population are the part-time farmers and thelarge-scale commercial farmers. The increase in numbersof part-time farmers has been particularly dramatic inrecent years. In 1974, there were about five full-timefarmers for every three part-timers. By 1978, the ratiowas almost 1 to 1.

The interests of large farmers and small or part-timefarmers may diverge. For instance, quantity discountsoffered to large farmers to retain their business may strikesmall farmers as unfair and inconsistent with cooperativeprinciples. On the other hand, part-time farmers may needthe cooperative to be open on weekend or evening hours,which full-time farmers may consider an unnecessaryexpense.

Increasingly Unstable Agricultural Environment

The agricultural environment keeps changing at anincreasingly rapid rate. Causes of instability in theagricultural sector include: the declining role of the farmlevel in the food system, the internationalization ofagricultural markets, and the destabilization of the Federalagricultural policymaking process.

Today the farm sector is only a small part of the totalfood system. Studies have shown that at least 80 percentof the food system’s contributions to the gross nationalproduct (GNP) is from nonfarm sectors. As inputproduction, output processing, and marketing activitieshave moved off the farm, producers have increasinglybeen at the mercy of events in both input and outputmarkets. The effects of the oil crisis on agricultureillustrated the destabilization that results from being but amodest part of an interdependent food production system.

Likewise, the internationalization of agricultural marketshas had dramatic effects on U.S. agriculture. The U.S.farmer is increasingly dependent on international marketsto maintain domestic price levels in an era of surplusproduction. The price effects of poor world wheatharvests in the early seventies and of declining exportsdue to a strong dollar in the eighties illustrate thedestabilizing effects of international markets on the U.S.agriculture.

In the 1960’s and the 1970’s, new participants entered thenational agricultural policymaking process. Labor,consumer, and welfare groups transformed agriculturalpolicy into food policy. As a result, policy outcomes havebecome extremely uncertain. Moreover, agriculturalpolicy, once legislated every 5 years, is now beingrewritten yearly.

.A rapidly changing and unpredictable environmentpresents a challenge to democratic governance of anysort. It takes time to inform people, time to organizemeetings, and time to reach agreement. A cooperative ina rapidly changing environment may not be able to reactquickly and effectively to a rapidly changing environmentif member control mechanisms are slow and clumsy. Onthe other hand, if management is given sole authority tomake timely decisions, the cooperative may drift indirections neither intended nor approved by themembership.

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Increasing Complexityof Agricultural Cooperatives

Just as the agricultural environment has become moreturbulent in recent decades, it has also become morecomplex. One factor contributing to the complexity facingagricultural cooperatives is vertical integration.

Vertical integration is the extension of a business todifferent stages of production or distribution. Verticalintegration may be backward into manufacturing orownership of primary resources (such as oil wells orphosphate mines) or forward into processing,transportation, or retailing. Some of the larger agriculturalcooperatives have employed this growth strategy andextended operation vertically. The vertically integratedcooperative often faces highly competitive marketsdominated by very large firms. High levels ofmanagement expertise are required for success in thesemarkets. Additionally, vertical integration enters theenterprise into multiple markets. Essentially, managementmust be able to control two or more types of businesseswithin one firm.

As cooperatives enter new areas such as processing,product development, and manufacturing, the ability ofmember representatives to make informed judgmentsabout cooperative business decisions becomes strained. Itis difficult for a part-time board of farmer-members tomonitor and provide oversight to complex businessdecisions requiring careful consideration of large amountsof information. Few farmers, busy managing their ownfarm operations, have the time.

As the cooperative business grows more complex, thecooperative is likely to hire specialists. Decisions affectingmembers may be delegated by the general manager tothese specialists in the organization. The board, dealingonly with the general manager, may not have input intomany potentially significant and long-term decisions.Indeed, they might not even be aware that decisions withlong-term consequences are being made.

INCREASING MEMBER CONTROL

Cooperative activists have long been aware of theproblems of maintaining an active and involvedmembership as the cooperative business becomes largeand complex. Many cooperatives have adopted memberrelations and communications programs in an effort toincrease member participation. These programs areimportant and necessary to ensure member involvement.

A second way to increase member control of growingcooperatives is to redesign membership structures.

Cooperatives are uniquely different from investor-ownedfirms because of their democratic membership structures.These structures enable cooperatives to respond to theneeds of their customer (members) more effectively thantraditional firms. The dissatisfied customer of an investor-owned firm can only “vote with his feet” to expressdiscontent, that is, take his business elsewhere. Acooperative, member/customer in contrast, has additionalmeans to express opinions, such as voting for directorsand attending cooperative meetings. While “voting withthe feet” expresses dissatisfaction with a business, itprovides very little information about the nature ofcustomers’ complaints or the alternative products orservices customers desire. A cooperative’s membershipstructure, however, enables cooperativemember/customers to provide much richer information toguide the cooperative in responding to member needs.

The Organization as an InformationProcessing Tool

Some organization theorists find it useful to think of anorganization as a tool for processing information. Thismodel provides a guide to designing cooperatives in away that takes advantage of the opportunities for‘ ‘voice, ’ ’ for rich information inputs, inherent in themembership feature of cooperative organization.

Information about desired outcomes, or preferences, andcause/effect relationships is necessary to make effectiveorganizational decisions. A group can act together as anorganization only if they know what they want and how itcan be achieved. If either of these is unknown, theorganization is faced with uncertainty.

In a cooperative, the membership structure is a source ofinformation about member goals and preferences.Cooperative management is hired by the members toprovide the technical information necessary to reachmember goals. The cooperative’s organizational structureis a vehicle for bringing these two kinds of informationtogether so the organization can make effective decisions.

By changing cooperative organizational structure, we can,in effect, redesign the cooperative so that it is a moreefficient tool for bringing together the informationnecessary for good decisionmaking.

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Dlmensions of Organizational Structure

Traditionally, organizational structure is depicted with anorganizational chart, such as in figure 1. The verticallevels represent the hierarchy of decisionmaking authoritywithin the organization. The horizontal divisions in thechart show how work is divided into various departmentsand the different types of jobs.

Organizational theorists use a chart to identify variousdimensions of organizations. These dimensions permitdescription of the traits of specific organizations andcomparison of organizations. The following describesdimensions of organizations that come from orgarizationalcharts :

1. Organization size. Two common ways to measure sizeare number of employees and sales volume.

2. Number of vertical levels. These represent the chainof command. For example, the organization representedin figure 1 has three vertical levels.

3. Number of horizontal divisions. These are the majorsubunits that the work is divided among. They aremeasured by counting the number of departments thatreport to the general manager. The organization in figure1 has four horizontal divisions.

4. Basis of horizontal division. The major subunits mayrepresent markets, clients, products, or functions(marketing, finance, etc.). The basis of horizontal divisionin figure 1 is mostly by product line.

5. Specialization. When work is specialized, eachemployee attends to only a narrow range of tasks.Specialization can be measured by counting the number ofdifferent job titles in an organization. The level ofspecialization in figure 1 is 11.

6. Supervisor/staff ratio. This is the total number ofsupervisors divided by the total number of nonsupervisorypersonnel in an organization. The ratio indicates theadministrative intensity of the organization.

In addition, several others are not revealed by anorganization chart, but can be determined by examiningrecords or interviewing personnel. Among these are:

7. Standardization. The level of standardization is highwhen many reports, meetings, or procedures recur in asimilar way across departments.

8. Centralization of decisionmaking. Decisionmaking ishighly centralized when a few people at the top have mostof the authority. Conversely, decisionmaking isdecentralized when the authority is delegated to personnelat lower levels of the organization.

Dimensions of Membership Structure

A traditional organization chart is a useful tool todescribe part of a cooperative; however, it does notinclude members as part of the organization. Cooperativeshave operations and membership structures.

The operations structure of a cooperative does the actualday-to-day work. It is composed of the management andemployees, and is often represented by a traditionalorganization chart.

Membership structure, usually discussed only in terms ofvoting rules and terms of office, can be viewed freshlyfrom the perspective of organizational theorists. Anorganization chart, similar to one for operations, can bedeveloped (figure 2). It features vertical levels, horizontaldivisions, and specialized roles.

Specific traits can be identified so cooperatives can becompared. Among them are:

1. Membership size.

2. Vertical levels. Membership, as well as operations,structure may have several levels in the chain ofcommand. For example, figure 2 shows two verticallevels-members elect delegates who in turn elect theboard of directors.

3. Horizontal divisions. Figure 2 shows four horizontaldivision (member districts).

4. Representation. The basis may be geographical (figure2), or by type of crop, size of farm, and so on.

5. Specialization. The level of specialization isdetermined by the number of different formal rolesmembers have in governance (seven in figure 2).

6. Representative/member ratio. This is the total numberof members divided by the total number of electedrepresentatives.

7. Standardization. Just as the operations bureaucracy ofthe cooperative may adopt routine rules and procedures to

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Figure 1

Structure of a Hypothetical Organization

GeneralManager

Admin.DivisionManager

-T-Bookkeepers

LLocalStationspc.Y

Employees Employees Employees

Feedr-lDivisionManager

Crop Prod.

r - l

DivisionManager

I 1

Livestock Prod. Spc.

1

Local Crop Prod. Spc.

Local LocalFeed Feedspc. spc.

DairyServiceSalesman

LocalFeedspc.

A_

LocalCrop. Prod.spc.

Employees Employees Employees Employees Employees

Figure 2

Organization Chart Depicting a Hypothetical Membership Structure

Board of Directors

NominationsCommittee

Delegate Body

District 1 District 2 District 3 District 4

Membership

simplify its work, so do member representatives.

8. Centralization of decisionmaking. The level ofspecialization is determined by the number ofrepresentatives making decisions. The fewer the numberthe more centralized it is.

Designing Organizational Structuresfor Uncertain Environments

businesses. Instead, the best design for a business dependsupon how much information it needs. Organizationaltheorists have identified various conditions that increaseuncertainty for an organization. These conditions areimportant to consider when designing an organization.Three conditions they have identified-diversity,complexity, and instability-pose member controlproblems for agricultural cooperatives.

Extensive research on organizational design hasthat there is no “one best way” to structure all

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concludedA cooperative with a diverse membership needs moreinformation about member preference than cooperativeswhere members are more alike. A cooperative with a

rapidly changing, unstable environment needs a structurethat can process information quickly. And a cooperativein a complex environment needs sophisticated informationto cope with technical demands.

A business operating in an uncertain environment will bemore successful if it changes its structure to either reducethe amount of information it needs or to increase itsability to process information. Such changes can be madeby altering various dimensions of an organization’sstructure.

Organizational theorists have identified structuralstrategies that improve organizational performance whenthe environment is diverse, complex, or unstable.Although these strategies were devised to apply tooperations structures, the principles underlying thesestrategies can also guide the design of membershipstructures.

Structural Strategiesfor Diverse Environments

An organization facing a diverse environment canminimize the amount of information needed by any singlegroup in the organization by identifying like segments ofits environment and establishing separate structural unitsto deal with each. Similar segments of the organization’senvironment become the basis for dividing theorganization into horizontal sections. The more diversethe organization’s environment, the more separatedivisions it should establish, increasing the number ofhorizontal divisions in the organization’s structure.

The horizontal division strategy can be used by acooperative with a diverse membership. By identifyinglike segments of the membership and establishingstructural units for each, the range of viewpoints andinterests a single representative needs to represent isreduced. Many bases of representation may be appropriatefor the membership structure of an agriculturalcooperative: geography, size/class of farm operation, typeof commodity produced, to name a few. Since thepurpose of membership structures is to provideinformation about member preferences, a base ofrepresentation that reflects the different opinions ofmembers on relevant issues is desirable. Cooperativeswith diverse members may need more horizontalmembership divisions than those with a more uniformmembership.

Structural Strategiesfor Complex Environments

Another source of uncertainty for an organization iscomplexity. Complexity is the extent to which theorganization requires sophisticated technical knowledge tooperate efficiently. A cooperative’s environment becomesincreasingly complex as it takes on lines of businesswhich its member patrons do not have the skills tomanage themselves. Complexity increases as the array ofproducts and services the cooperative supplies becomesfurther removed from the farming operations of itsmembers. Complexity increases as the marketing optionsfacing the cooperative increase and its efforts must beever more targeted.

According to organization theory, an organization withincreased information needs due to complexity can usethree different strategies to manage its information needs.The first increases the capacity of the organization toprocess information by increasing the number of verticallevels in its hierarchy, adding new roles to handle theinformation collection and decisionmaking tasks. Thisstrategy often increases the supervisor/staff ratio of theorganization. The second strategy open to an organizationin a complex environment is specialization. Theorganization can create jobs that require an individual tocope with only a limited span of problems, and it can hiretechnical experts with training to solve these specificproblems.

Decentralizing decisionmaking is a third strategy forcoping with complexity. Since one human brain canprocess only a limited amount of information,decisiomnaking in complex environments should bedivided among participants in the organization.Decisionmaking authority should be decentralized tospecialists who possess the technical information necessaryto a particular decision.

Member structures can use these same strategies to reducethe uncertainty caused by environmental complexity.Adding levels of representation to the membershipstructure includes more individuals to collect informationfrom the membership and share the decisionmaking tasks.An example is a delegate system.

Specialization can also improve membership structures.As complexity increases the sheer volume of informationrelevant to cooperative decisionmaking becomesoverwhelming. It is unrealistic to expect members to beinformed on all phases of cooperative decisionmaking.

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The efficiency of member control can be enhancedthrough specialized committees dealing with singlecommodities or single aspects of operations.

Similarly, decentralizing decisionmaking authority togroups of member representatives (for instance,committees or delegates) to make specific types ofdecisions can increase the number of decisions memberscan act on.

Structural Strategiesfor Unstable Environments

When the organization’s environment is unstable, it isimpossible to predict future situations. A cooperative’senvironment may be unstable due to irregular pricemovements, rapid member turnover, unpredictabledemand in international markets, or changing governmentregulations.

In a stable environment, an organization can standardizemany of its activities to achieve coordination andpredictability. In an unstable environment, it is notpossible to standardize because new situations constantlyoccur that do not conform to rules. The organization mustremain flexible so it can adapt quickly to newcircumstances. Thus, organization theory tells us that inan unstable environment, it is inappropriate for anorganization to routinize its responses throughstandardization.

A shifting, unpredictable environment calls instead fororganizational strategies to increase the capacity toprocess information quickly. Two such strategies areinvestment in sophisticated vertical information systemsand creation of lateral relationships. Vertical informationsystems collect information at the point of origin anddirect it to appropriate places in the organization. Lateralrelations decentralize decisions without creating permanentnew structural units. Examples of lateral relations aredirect interaction, liaison roles, and task forces.

Similarly, membership structures in stable environmentscan be spelled out by precise rules. Regular formalmeetings are adequate to conduct business and stay intouch with member views.

In unstable environments such a strategy is ineffective.Instead, steps to increase the amount of information fromthe membership are appropriate. Vertical informationsystems and lateral relations can be used in memberstructures as well as operations structures. Examples of

vertical information systems are a consumer panel andregular member surveys. Lateral relations devices formember structures include hearings, task forces, and adhoc committees.

Structural Strategiesfor Designing Membership Structure:Principles From Organization Theory

Table 1 summarizes the previous discussion about howprinciples from organization theory may be applied todesign membership structures that can be more effectivewhen a cooperative faces an environment which ischaracterized by uncertainty because of diversity,complexity, and instability.

Structural Strategiesfor improving information Flows

The preceding applications of organizational designprinciples suggest how cooperatives operating in uncertainenvironments can improve their membership structure.They do not, however, show how membership andoperations structures can be designed to interacteffectively. A few principles from organizationalcommunications theory are useful in this regard.

Organizational communications experts point out that aprimary function of organizational structure is to restrictinformation flows. Although an organization must processinformation to coordinate group actions, if it is delugedwith information it will become overloaded. Information“overload” is a state in which excessive communication

Table l-Design strategies for adapting themembership structure to environmentaluncertainty

Source of Uncertainty Strategy

Diversity Horizontal divisionAppropriate base ofrepresentation

Complexity

Decentralization

Vertical levelsSpecialization

Instability Vertical informationsystemsLateral relations

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Figure 3

A Depiction of Cooperative Structure as Two Parallel Structures

Directors Horizontal

General

Manager

Membership Structure Operations Structure

inputs cannot be processed and utilized, leading tobreakdown. Ideally, structure prevents overload byrestricting information flows and directing informationonly to those locations where it is most needed.

An organization’s structure guides information flowswithin the organization, because structure influences whoreports to whom and who works with whom on a day-to-day basis. Therefore, it is possible to improve theefficiency of information flows by changing organizationalstructure.

Organizational information flows can be described interms of an organization chart. The directian ofinformation flows may be “horizontal” (amongparticipants at the same level of the organization), or‘ ‘vertical” (between organizational participants at differentlevels of the organization). Vertical information flows

may be either downward (descending through verticallevels), or upward (ascending through vertical levels).Figure 3 depicts the parallel organization structures of acooperative (operations structure and membershipstructure). We see that horizontal information flowsinclude flows among members, between members andoperating personnel, or between directors and the generalmanager. Downward flows include flows from the generalmanager to operating personnel and flows from the boardof directors to the general membership. Upward flowsinclude flows from operating personnel to the generalmanager and from the general membership upward to theboard of directors.

Theorists have made several observations aboutorganizational information flows in business organizations:

1. Horizontal communications are more frequent thanvertical flows.

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2. Vertical flows are subject to distortion and omission.

3. Downward communication flows are more frequentthan upward flows.

4. There is a scarcity of upward negative feedback.

Horizontal information flows are more frequent thanvertical flows because people are more prone to speakfreely and openly to their peers than with superiors. Atfirst glance, this observation may seem more pertinent toauthority relations among employees of the cooperativethan to relations between members of a cooperative.However, research indicates that cooperative memberscommunicate more effectively and more often withneighbors and fieldmen than with their directors.Similarly, directors report that they base their judgmentsabout cooperative affairs largely on data supplied bymanagement.

Horizontal flows, though frequent, are more ofteninformal than formal. Thus, the content and quality of theflow is not controlled. Information content may not berelevant to organizational objectives. Thus, the use ofthese channels may be improved by designing them intothe structure of the organization and clearly defining thescope of relevant communication. Additionally, horizontalcommunications may lead to a closed circuit, with peopleneglecting to communicate to those in other levels of theorganizational hierarchy. Thus horizontal channels need tobe supplemented with structures for vertical communication.

Vertical flows are prone to distortion and omissionbecause messages are apt to be interpreted differently byeach individual in a communications chain. Differentindividuals will stress different aspects of a message andomit parts of a message they believe to be unimportant.This is the common phenomenon illustrated by the gameof “telephone.” The more vertical levels informationcrosses in an organization, the more likely that theinformation will be distorted.

Information more often flows downward than upwardthrough organizational levels. Participants at the top ofthe organization usually have more control overinformation and information resources than those at thebottom of the organization. For instance, they have moreaccess to global information that affects everyone andthey have support staff to write memos for them.Cooperative researchers have verified that members ofsome agricultural cooperatives have either infrequent orno communication with cooperative directors.

The scarcity of upward negative feedback in organizationsis due to a desire to please superiors and negativeincentives for reporting poor performance. Although theseconditions are likely to apply in the operations structureof a cooperative they are not relevant to the membershipstructure. In fact, the relationship between directors andmembers is likely to cause a scarcity of negativeinformation flowing down through the membershipstructure because directors are held responsible forcooperative performance and members may vote directorsout of office.

Several structural strategies can be used to improve theefficiency of information flows in a cooperative. Onestrategy is to design a “flat” structure, with fewhierarchical levels. Where there are few vertical levels inan organization, there are few status barriers to inhibitcommunication. Further, messages do not get distortedbecause they are not passed through multiple individualsin their path through the organization. Unfortunately, thisstrategy is not appropriate in many large organizations.Some of the advantages of a “flat” structure can,however, be gained by providing opportunities for topechelon officials to come into direct contact withmembers. The annual meeting of cooperatives providesone such opportunity. Neighborhood visits by cooperativedirectors and district meetings of directors with localmembers are other examples of this strategy.Alternatively, mechanisms such as an ombudsman,suggestions box, or similar devices allow individualmembers to bypass vertical levels.

A second strategy is to formalize information flows. Toformalize something is simply to make it official. Forinstance, farmer members may often give field personneltheir opinions about cooperative products and services.This sort of communication can be formalized byincluding it in the job description of field personnel as arecognized part of the job and encouraging them toactively gather and report this sort of information. Formalhorizontal information flows can provide an importantcheck on the power of top leaders. A strictly verticalinformation system limits information threatening to topofficials from reaching those at the bottom of theorganizational hierarchy. Horizontal flows betweenoperational personnel and members may compensate forthe reluctance of directors to report poor cooperative’sperformance.

Probably the most widely used strategy to improve theefficiency of organizational information flows isstandardization. Information flows are standardized when

10

they occur at regular intervals in a predetermined manner.A common example of a standardized information flow isa monthly report. Standardization affects informationflows in several ways. First, a standard report is one wayto formalize information collection, thus making it alegitimate activity. Second, standardization can reducedistortion and omission of information by requiringuniform language and prescribing which information is tobe collected. Third, standardization can preventinformation overload by focussing information collectionon priority items. Finally, standardization can assureregular upward flows of information. Even flows ofnegative information can be improved by standardization.For instance, standardized complaint procedures legitimizecomplaints and make it easier to identify areas ofweakness in cooperative products and services.

CASE STUDIES:THE MEMBERSHIP STRUCTURESOF EIGHT AGRICULTURAL COOPERATIVES

The previous discussion examined how dimensions oforganizational structure and principles from organizationtheory can be applied to the design of membershipstructures of agricultural cooperatives. Next, eightagricultural cooperatives are used as examples to exploreand illustrate the use of these concepts and principles.These case studies allow us to determine whether or notthese organizational design principles have been put intopractice by agricultural cooperatives; and, if so, whetherthese strategies have been successful in terms ofimproving member control of cooperative decisionmaking.

The eight case cooperatives were chosen to represent awide assortment of sizes, commodity types, environmentalconditions, and historical growth patterns. A wide varietywas chosen to take into account the varying circumstancesfaced by agricultural cooperatives. Because structuralproblems become acute only when cooperatives becomelarge, cooperatives were chosen from those with businessvolumes greater than $10 million. Only centralized orlocal cooperatives were chosen as cases.

The case cooperatives were not chosen in a random wayand conclusions drawn from them cannot be applied to theentire population of agricultural cooperatives. However,since a wide array of circumstances are examined, it islikely that many cooperatives will recognize situationsrelevant to their own circumstances among the casematerials.

Data Collection

Case study data were collected from two sources: frominterviews with cooperative management personnel andmember representatives; and from cooperative documents(bylaws, annual reports, organizational charts, etc.).

At the headquarters of each case cooperative, interviewslasting from 30 minutes to 1 hour were held with thegeneral manager and key management personnel reportingdirectly to the general manager. In a few cases, managersin the third tier of the organization chart were interviewedto clarify decisionmaking responsibilities. A total of 42cooperative personnel were interviewed.

The chairman or president of the board of directors wasinterviewed in all but one cooperative, where the vice-president was interviewed (the president was on vacation).In each cooperative where there were formal memberstructures other than the board, member representativeswere interviewed-delegates, advisory committeemembers, and Young Couple group officers. A total of 14member rcpr~.szntatives were interviewed.

Method of Analysisof Case Cooperatives

Analysis of the case cooperatives is guided by theconcepts drawn from organizational design andcommunications theory. The analysis illustrates theapplication of these concepts and demonstrates how theyare used as tools for structural design of cooperatives.

The analysis of each case proceeds in the following way:

Step 1. The historical growth of the cooperative is brieflyreviewed.

Step 2. The environmental conditions within which thecooperative operates are identified.

Step 3. Current operations and membership structures aredescribed.

Step 4. Cooperative decisionmaking patterns, standardizedinformation flows, and interactions between cooperativeparticipants are described.

11

Organizational Chartsand Measures of Dimensionsof Membership Structure

Organization charts of the operations structures of theeight case cooperatives were drawn according to methodsdescribed in Van de Ven and Ferry.* The following ruleswere followed in drawing the charts of membershipstructures.

1. Elected positions are represented by solid outlines.

2. Rectangles represent positions that have independentdecisionmaking authority.

3. Bodies with no independent authority are not countedas separate vertical levels (i.e., committees of boardmembers reporting to the board).

4. Appointed positions are represented by broken lines,and are squared or circled depending on whether theyhave independent authority.

5. Member positions appointed by management andreporting to management only are not included in themembership structure.

6. The number of individuals in a membership group isshown only if the group is composed of separateindividuals as opposed to being a subgroup of anotherbody.

The dimensions of the membership structure measuredfrom the membership charts are: membership size(number of members); number of vertical levels (numberof levels of membership groups with independentauthority); number of horizontal divisions (number ofmembership groups for the purpose of voting for theboard of directors); basis of representation (the base onwhich the general membership is divided into groups tovote for the board of directors); therepresentative/member ratio (number of members dividedby the number of elected representatives); and the degreeof specialization (number of official member role titles).

To determine the degree of centralization ofdecisionmaking in the cooperative, the chairman of theboard, general manager, and top line managers (managers

*Van DeVen, Andrew H., and Diane Ferry. Measuring and AssessingOrganizations. New York: Wiley and Sons, 1980, pp. 418427.

reporting to the general manager) were asked to identifywho had decisionmaking authority over 12 commoncooperative decisions. Decisions were chosen that werelikely to be important to members.

Patterns of information flow were explored by askingeach interviewee to describe all standardized reportingrelationships and interactions with other cooperativeparticipants. “Standardized” was defined as documentedin writing, regularly, scheduled, or customary. In additionto identifying opportunities for member voice, theexamination of standardized information flows andinteractions gives a feel for the general level ofstandardization in the organization.

Cooperative AA Diversified LocalFarm Supply Cooperative

Growth Cooperative A is a diversified farm supplycooperative offering a wide range of services to bothproducer and nonproducer members. This cooperativeserves a trade territory that includes both an urban centerand dairy and cash grain farms.

Two mergers with neighboring farm supply cooperativesallowed the cooperative to expand horizontally,broadening its member base and expanding existingoperations to achieve economies of scale. Presently, theorganization offers a complete line of products andservices in the agronomy, petroleum-automotive, and feedareas, and operates three sites in two adjacent counties.Table A-l summarizes Cooperative A’s growth.

Table A-l-Size of Cooperative A in number ofemployees, gross sales volume, and number ofmembers, 1960-80

Measure of size

Year Employees Member’Gross sales

volume

- - Number - - Millions

1960 NIA 970 N/A1965 19 990 0.21970 24 6,551 1.71975 32 8,027 3.41980 46 9,994 8.9

llncludes both producer and nonproducer members.

12

Figure A-l

Operations Structure of Cooperative A, March 1983

,

l-Admin.r-lDivisionManager

-T-Bookkeepers

Localr-Stationspc.

l-Employees

IPetroleumDivisionManager

LocalStationspc.

Employees Employees

wr o p Prod. Spc.1

Local LocalFeed Feedspc. spc.

I

DairyServiceSalesman

LocalFeedspc.

LocalCrop. Prod.

rLspc.

-T- -T-Employees Employees

l-Employees Employees Employees

Source-Cooperative documents and interviews with cooperative personnel, March 1983.

Diversity, Complexity, and Instability CooperativeA’s membership is moderately diverse. Member farms areof two types, dairy and cash grain. Farm size variesmoderately. Members are concentrated in a local area.The cooperative serves both producer members and urbanconsumers and offers a large variety of goods and serv-ices to serve these two distinct market segments.

Management personnel felt the cooperative’s operationswere moderately complex because of a high rate oftechnological change in agricultural input lines. Managersnamed the unpredictability of the current agriculturaleconomy as the primary source of instability for theiroperations.

Operations Structure Cooperative A’s operationsstructure is horizontally divided into four divisions byproduct-line. Three vertical levels are present.

This structure is new to Cooperative A, adopted 2 yearsago when a new general manager began. Initially, 12employees from 3 sites were reporting directly to him.The result was informatior overload, and the managerwas left with no time to handle crucial problems. Thenew manager reorganized the cooperative’s operatingstructures to adapt them to the needs of a growing,diverse business in an increasingly complex environment.His design strategy was to create horizontal divisions todeal with similar segments of the environment and toincrease the number of supervisory personnel.Decisionmaking was decentralized to newly createddivision managers. Figure A-l depicts cooperative A’soperations structure.

Membership Structure Cooperative A’s membershipstructure is based on eight geographical districts (figureA-2). Seven of these are producer districts and one is anonproducer district. One director from each district iselected at large by the membership. The director from thenonproducer district does not have voting rights. Directorsserve 3-year staggered terms, and may only serve forthree consecutive terms.

The board of directors divides its work among sevenspecialized committees, an elected executive committee,and six committees appointed by the board president.

Cooperative A’s membership structure has been slowlyevolving in recent years. The cooperative’s districts wereredrawn in the course of merger proceedings, addingdistricts to represent members from the mergingcooperatives and reducing the urban territory from two

Figure A-2

Membership Structure of Cooperative A,March 1983

Members (4824)

Source-Cooperative documents and Interviews with cooperative participants.March 1982 and 1983.

Table A-2-Dimensions of the membershipstructure of Cooperative A

Vertical Levels: 1

Horizontal Divisions: 8 Districts

Basis of Representation: Geography & MembershipClass

Representative/MemberRatio: 1:838

Specialization: 8 Roles

districts to one. Two years ago the cooperative’s bylawswere changed to distinguish between Class A producermembers and Class B nonproducer members. At the sametime, the nonvoting nonproducer directorship wasinstituted.

The number of terms a director may serve was limitedrecently because some members felt they did not haveadequate control over cooperative decisionmaking.Members from the territory of the most recently mergedcooperative were upset when some services werediscontinued at the former cooperative’s site. Thesemembers brought a resolution to the floor of the annualmeeting limiting the terms of directors.

14

In summary, Cooperative A has adjusted its membershipstructure to growing numbers of members mainly bymodifying the geographic base of representation. Novertical levels have been added, and horizontal divisionhas been limited, yielding a very low representative tomember ratio. The board has specialized into committees,allowing it to more efficiently monitor the cooperative’sdiverse and complex operations.

Decisionmaking, Information, and interaction Theboard of Cooperative A retains final authority over alldecisions involving capital structure, new enterprises,allocation of patronage refunds, and purchases of capitalequipment over $2,000. Although specialized committeesare used to review issues and recommend decisions,decisionmaking is centralized at the board level. Allcommittee recommendations must be approved by the fullboard. The executive committee of elected officials isauthorized to act in specified personnel matters, butotherwise brings decisions to the full board.

The board receives a monthly financial statement, a reportdetailing all lost accounts, and a report on thecooperative’s current grain position. The financecommittee receives a quarterly report on accountsreceivable.

Members receive an annual financial report at the annualmeeting. All members also receive a bimonthly newsletterthat contains a message from the general manager andeach of the division managers.

There are no structural mechanisms for flows ofinformation between directors and members.

The general manager meets with the board at theirmonthly meetings. He/she also attends monthly executivecommittee meetings. The petroleum division managermeets with the finance committee quarterly. Otherdivision managers meet with the board or boardcommittees when an issue is addressed that requires theirinput.

Division managers interact with members at frequentproduct meetings (educational) and at the annual FarmExpo held as part of daylong annual meeting activities.

A year ago, directors made a series of farm calls in theirdistricts to find out if members are satisfied withcooperative activities. This year, ‘farm forum‘ meetings,chaired by the district director, were held in each districtfor the same purpose.

Summary As Cooperative A has grown, it has dividedits operations structure horizontally by product andadopted three vertical levels. This is an appropriatestrategy to accommodate its complex and diversifiedoperations.

It has responded to the diversity of its membership byredistricting and creating separate classes of membershipfrom producers and nonproducers. No vertical levels havebeen added to the membership structure; thus, therepresentative/member ratio remains quite low (1:838).Discontent expressed by some members with limitedopportunity to play an active role in cooperativedecisionmaking suggests that adding other elected memberpositions may be a useful design strategy.

The directors of Cooperative A have attempted to providean additional avenue of information flow from themembers to their director through farm calls and farmforums. A permanent structural mechanism for thispurpose may be appropriate.

Cooperative BA Rapldly Growlng Supplyand Marketing Cooperatlve

Cooperatives B’s growth in members, employees, andsales dollars has been largely internal. Cooperative Bbought a second facility and built a third. The cooperativehas grown steadily by expanding both its bean and grainhandling operations and its sales of farm supplies.

Diversity, Complexity, and instability Eighty-fivepercent of the cooperative’s members reside within 15miles of cooperative facilities. Farm size varies

Table B-l-Size of Cooperative B In number ofemployees, gross sales volume, and number ofvoting members, 1960-80

Measure of size

Year EmployeesProducermembers

Gross salesvolume

-- Number - Millions

1960 N/A 807 2.31965 28 1,418 4.01970 30 1,781 4.71975 42 2,313 22.31980 53 2,519 30.1

15

Fiaure 8-l

Operations Structure of Cooperative B, September 1982

GeneralManager

Traffic and Bean Reporter Grain Merchandiser

Agronomist

I IPlantSuperintendent

SUPPlYManager

I

Comptroller

I

I IPlantSupervisor

I

IEmployees

Employees Receptionist Accounting Manager

PlantSupervisor

Employees Data Proc.

Employees I Mgr.

I IManager- Grain Maintenance EmployeesBeans Supervisor Supervisor

IEmployees Employees Employees

Source-Interviews with Cooperative Personnel, September 1982

___-.

moderately, but most producer members raise mostly cashcrop grain and beans. In summary, the membership isrelatively homogeneous. The cooperative offers amoderate variety of goods and services.

Cooperative B’s operations are only moderately complex.Complexity is seen as increasing, however, as farmermember operations continue to grow in size andsophistication. Management perceives the cooperative’senvironment as fairly stable.

Operations Structure The operations structure ofCooperative B has changed slowly with the growth of thebusiness. Vertical levels were added to coordinate theoperations at new facilities. Specialists were hired, anagronomist and a grain merchandiser.

Figure B-l shows that Cooperative B’s operationsstructure is horizontally divided along functional lines.Vertically levels have been added to the handlingoperations. Interviews with management personnel revealthat the general manager has retained mostdecisionmaking authority.

Membership Structure The membership structure ofCooperative B is simple, consisting of a board of ninedirectors elected at large from the membership (figureB-2). The ratio of representatives to members is low as aresult (1:280). Director terms are 3 years, and terms arestaggered. The membership is not divided into geographicunits, nor along any other dimension, for the purpose ofelecting representatives.

A specialized committee structure is used by the board.The chairman of the board reports that the executivecommittee, elected by the board, is used as a ‘soundingboard’ rather than an independent decisionmaking unit.

Table B-2-Dimensions of the membershipstructure of Cooperative B

Vertical Levels: 1

Horizontal Divisions: 0 (Entire Membership Only)

Basis of Representation: None



Figure B-Z

Membership Structure of Cooperative B,September 1982

Board cu HcC

4Directors (9)

I ’

Members (2,519)

Source-Cooperative documents and interviews with cooperative personnel,September 1982.

On the other hand, the accounts receivable committee isempowered to take action independent of the board.

Decisionmaking, Information Flows, andInteractions The board of Cooperative B makes many ofthe organization’s strategic and administrative decisions.Generally, purchases over about $5,000 are submitted forapproval. Quality premium decisions must be approved bythe board. Market strategy is decided by management.

The board receives the monthly financial report when itmeets each month. The membership receives a financialstatement in the annual report at the annual meeting. Inaddition, members receive a monthly newslettercontaining messages and information from the generalmanager and top-line managers.

An employee may file a formal complaint form with adirector on the employee relations committee. Thisprovides a mechanism for the upward flow of negativeinformation through the operations structure to the board.There is no similar standard procedure for membercomplaints.

About 8 years ago, the general manager instituted amember advisory board in order to stay in touch with the

17

membership. He chooses eight progressive, open-mindedmembers and asks each of those to choose three additionalmembers. The advisory board meets four times a year todiscuss suggested improvements, policy issues, etc. Thegeneral manager feels the advisory board is an importantsource of information about member preferences, butstresses that the group is solely advisory, with noindependent decisionmaking authority. All top-linemanagers and board members regularly attend advisoryboard meetings. Board members do not preside at thesemeetings.

Product meetings and two grain marketing meetings (alleducational) are held for all interested members duringthe winter months, providing an opportunity for membersto interact with management staff.

Attendance at the annual meeting is encouraged bydistributing patronage refunds there. About 20-25 percentof members attend.

Summary Cooperative B is a moderately diversifiedsupply and marketing cooperative serving a fairlyhomogeneous group of producer members concentrated ina local area. Operating in a relatively simple and stableenvironment, it has evolved an operations structure with alow degree of specialization and centralizeddecisionmaking.

The board of directors has assigned tasks to specializedcommittees, but for the most part retains final authorityfor decisions. There are no structural channels formember input to the board or for information flows fromthe board to membership.

maintaining a high-quality product. The cooperative nowoperates 10 facilities located in 3 States. Table C-lillustrates Cooperative C’s steady growth in sales volumeand number of employees.

Diversity, Complexity and instability Cooperative C’smembers are scattered over four States. Some are single-commodity operations, while others are of a ‘mixed-farming’ type. Member operations range from a fewanimals to over a thousand. In summary, Cooperative Chas more diverse membership than most of the casecooperatives. In contrast, the diversity of Cooperative C’soperations is low: only one product is sold.

Management personnel at Cooperative C feel that itsenvironment is moderately complex and unstable.Concentration among buyers produces a stiffly competitiveenvironment. Continual quality control must bemaintained, requiring close coordination with theoperations of member producers. A high level ofintegration in the marketing chain and fast flows ofinformation by radio and teletype also contribute tocomplexity. Instability stems from rapid price fluctuations.

Operations Structure Cooperative C’s operationsstructure (figure C-l) has undergone several changes inrecent years. Previously, there were two directors ofproduction: these were merged into one to bettercoordinate operations. Currently, Cooperative C has a flatstructure with little horizontal division of the executivemanagement. Horizontal division is based on function.Vertical levels are few. The level of specialization is low.

The general manager’s use of a member advisory boardindicates a felt need for more member input tocooperative decisionmaking. Given a stable environment,formal membership structures are an alternative forfulfilling these informational needs.

Cooperatlve CA Geographically DispersedLivestock Marketing Cooperatlve

Growth Livestock producers in six counties formed alivestock marketing cooperative, and then merged with asimilar cooperative in an adjoining state. Later, thecooperative moved out of several product lines tospecialize in marketing only one type of animal. Sincethen, the growth of Cooperative C has been internal, builton increasing sales volume and close attention to

Table C-l-Size of cooperative C In number ofemployees, gross sales volume, and number ofmembers, 1960-80

Measure of size

Year EmployeesProducersmembers

Gross salesvolune

-- Number - - Millions

1960 31 4,280 2.91965 31 6,450 6.61970 50 8,480 8.11975 64 2,051’ 12.81980 75 2,442 21.2

‘Reflects a change in membership requirements.

18

Figure C-i

Operations Structure of Cooperative C, October 1982

Sales Manager, East

I Sales Manager, West

I- Assistant

Assistant Manager

I _

OfficeMgr.

I

IEmployees

I Director ofProduction

1 I

Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod.Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr.

T-l-l-TT-T-TTTTEmployees Employees Employees Employees Employees Employees Employees Employees Employees Employees

Source-Cooperative documents and interviews with cooperative personnel, October 1982.

_

Figure C-2

Membership Structure of Cooperative C, February 1983

Board ofDirectors (7)

Delegate Body (approx. 55)and Alternates (14)

DistrictingCommittee (7)

Districts (7)

Members (2442)

Source-Cooperative documents and interviews with cooperative participants, October 1992 and February 1983.

Membership Structure Cooperative C has asophisticated membership structure (figure C-2) with adelegate system, resolutions and districting committeeselected by the membership, and a board of sevendirectors serving staggered 3-year terms. Directors areelected from geographic districts.

This present structure is recent. Previously themembership elected a delegate for every 15 members anda separate advisory committee. Now, 1 delegaterepresents 45 members and the delegates serve as anadvisory board as well. This was done to reduce ammalmeeting expenditures. In addition the districtingcommittee, which used to meet each year, now meetsonly once in 3 years. This change was made becausefrequent redistricting deprived some members of votingfor a director for many years.

Delegates are elected from their district to serve a l-yearterm. Two alternates per district are also elected.Likewise, each district elects a representative to serve onthe resolutions committee for 1 year. These structuresprovide a high representative/member ratio (1:32). Theboard has an executive committee, but no otherspecialized committees.

Decisionmaking, information Flows, andinteraction The board of directors makes all finaldecisions on capital structure, member policy, newenterprises, patronage allocation, purchases over $1,500,and quality premium programs. The board’s executivecommittee does not have independent authority to makedecisions. It meets only to examine vouchers and payroll.

Decisionmaking is decentralized to the delegate body

20

through the resolutions process. The delegates vote toapprove or disapprove resolutions compiled by theresolutions committee.

Board members receive weekly procurement and truckingreports and a weekly summary letter from the generalmanager. They receive a financial statement at theirmonthly meetings. Policy changes made by the board ofdirectors are disseminated to employees through a formalletter from the general manager.

Delegates and members receive a financial report,production report, general manager’s report and director’sreport when they meet. In addition, all members receive amonthly newsletter from the management.

Members have been encouraged to use a WATS lines,recently installed, to communicate any comments theymight have to management. This provides a mechanism tobypass vertical levels.

Members meet in their districts once a year. Thesemeetings are chaired by the director from the district andattended by management personnel. Attendance is good(about 25 percent of members), encouraged by awardsceremonies for members. All members are also welcomeat the annual meeting.

Delegates meet three times a year, once at the annualmeeting, once jointly, and once grouped by eastern andwestern districts. The board president presides at thesemeetings. General manager, assistant manager, productionmanagers, and board members attend.

summ8r’y Although Cooperative C’s executives indicateda complex and dynamic environment, the operationsstructure of the organization has few vertical levels and

Table C-2-Dimensions of the membershipstructure of Cooperative C

Vertical Levels: 2

Horizontal Divisions: 7

Basis of Representation: Geography



minimal specialization. The lack of horizontal division is,however, what would be expected from the low diversityof operations.

Cooperative C’s membership is widely scattered over fourstates, so it is divided into geographic districts. Althoughthere is no independent decisionmaking at the districtlevel, districts are key components of cooperativegovernance, serving as the base of representation and thekey focus for member interaction with management andwith their director. A delegate structure is used toincrease flows of information from members to bothboard and management. An independently electedresolutions committee provides an additional avenue formember input into cooperative decisionmaking.

A well-developed membership structure and numerousstandard&d interactions between members, management,and board of directors provides Cooperative C’s far-flungmembership with multiple points of access to cooperativedecisionmaking.

Cooperatlve DA Multimerger Grain Marketlng Cooperatlve

Growth Cooperative D was born from the merger of twolocal grain marketing and supply cooperatives. Since then,the cooperative has grown rapidly through multiplemergers. Today it markets grain and supplies, feed,fertilizer, and petroleum products to its members from 10local sites.

Table D-l-Size of cooperative D in number ofemployees, gross sales volume, and number ofmembers, 1960-60

Measure of size


Gross salesvolume

--- Number - Millions

1960’ 9 327 1.01965’ 6 367 3.01970 12 440 3.91975 38 979 34.01980 87 1,989 97.1

‘Data from the larger of the original two cooperativeswhich merged to form Cooperative D.

21

Figure D-l

Operations Structure of Cooperative D, February 1983

I Director ofOperations I

1E l e c t r i c i a n

I

Director ofAdministration

Receptionist- Feed Marketing Mgr.

Feed Salesman

Region IManager

Region I Sales Mgr.

Manager-Local Site

IManager-Local Site

Employees Employees Employees

Region IIManager

ControllerI

II I d

I Region II Sales Mgr. I I

FCle!ks I Cleis I I

Manager-Local Site

IManager-Local Site

IManager-Local Site

IManager-Local Site

1Manager-Local Site

Employees Employees Emplbyees Employees Employees Employees

Source-Cooperative documents and interviews with cooperative personnel, February 1983.

..-. -

Diversity, Complexity, and instability Themembership of Cooperative D resides in the countiesadjacent to its headquarters. Members are similar in termsof farm size and type of operation. Diversity ofoperations is moderate in comparison with other casecooperatives.

The top-line managers of Cooperative D rate itsoperations as highly complex in comparison to the othercase cooperatives. This complexity is ascribed to the largevolume of operations and the low margin for error. Theenvironment is, however, moderately stable.

Operations Structure The operations structure ofCooperative D has changed often in the last 10 years as aresult of mergers. As operations grew more complex,specialists were hired. As new cooperatives merged intoCooperative D, the span of control of its general managerincreased steadily. Then two more managers were addedto the structure-a director of administration and adirector of operations-and a third vertical level appearedas regional managers were added as well.

Cooperative D’s operations structure today, as shown infigure D- 1, has only two horizontal sections, based onfunction. The organization has adapted to complexity byadding levels and through specialization.

Membership Structure As the cooperative has grown,its membership structure has changed also. When theoriginal two cooperatives merged, their boards werecombined. As more cooperatives were merged, themembership was organized into geographic districts(figure D-2). For several years, branch meetings wereheld at local sites. These meetings were, unfortunately, soill attended that they were discontinued by joint agreementof the board and the general manager.

Currently, members are divided into four districts fornomination purposes only. A board of 11 directors,elected at large, serve staggered terms of 3 years.Nominees are selected from each district with a directorseat open, but at-large voting does not assure that adirector from each district will be chosen. There is somepressure to change to a district-based voting procedureand representative structure. There is no local-levelmembership structure.

The board has specialized little. An equipment committeeappointed by the president considers major purchases andrecommends action to the full board. There is anexecutive committee, but it seldom meets.

Figure D-Z

Membership Structure of Cooperative D,February 1983

Board ofDirectors (11)

Districts (4)

IMembers (1989)

Source-Cooperative documents and interviews with cooperative participants,February 1983.

Table D-2-Dimensions of the membershipstructure of Cooperative D

Vertical Levels: 1

Horizontal Divisions: None (Entire membershiponly)

Basis of Representation: None (At large)



Decisionmaking, Information Flows, andinteractions The board makes final decisions aboutcapital structure, membership policies, new enterprises,patronage refunds, major purchases of capital equipment,and volume discount policy. The general manager andgrain merchandiser jointly make marketing strategydecisions. The board is informed of marketing decisionsand may place constraints on the cooperative’s marketposition.

The board has not specialized decisionmaking functions,nor has it delegated authority to committees.

Monthly financial reports are made at board meetings. Inaddition, the director of operations and the grainmerchandiser make monthly reports to the board.

23

Members receive a monthly newsletter containing marketand policy information from the management. In additionto the financial report at the annual meeting, members aresupplied with a financial report in midwinter.

No structural mechanism guides input of information frommembers to the board. Branch meetings, as mentionedbefore, were attempted with little success. The boardmeets formally with members only once a year, at theannual meeting. AMU~ meeting attendance is encouragedby distribution of dividend checks and a Family Feastwith day-long activities for members and their families.

Member discontent over several policy and pricing issues,and expressed feelings over ‘losing control over theircooperative‘ because of mergers, prompted the generalmanager to personally invite groups of members to 30meetings last winter. The purpose of these meetings wasto gamer member input and establish personal contactwith the cooperative’s patrons. Board members did notattend these meetings. The general manager expressedsatisfaction with these meetings and plans to continuethem.

A midwinter meeting, chaired by management, providesan additional opportunity for members to meet and getup-to-d& information on cooperative operations.Informational product meetings for membership are heldirregularly. In addition, educational meetings for womenhave been held for the last 3 years. These events are wellattended and popular.

Summary Rapid growth through merger has ledCooperative D through many structural changes in the last10 years. Operating in a complex, moderately stableenvironment, it has chosen a functionally based structurethat delegates decisiomnaking vertically through fourlevels of management.

The uniform and geographically concentrated membershipof the cooperative is represented by a board of 11members elected at large. Some members feel estrangedfrom control of cooperative operations and have expresseda preference for a district-based representative structure.

Cooperative EA Highiy DiversifiedSupply and Marketing Cooperative

Growth Originally organized to supply feed, CooperativeE has a history of steady internal expansion throughdiversification. Today, the enterprise supplies feed,fertilizer, hardware, building materials, petroleumproducts, and automotive vehicles to 1,009 farmermembers and numerous urban patrons. It also marketseggs for about 25 of its farmer members.

Table E-l depicts the steady growth of Cooperative E inthe last 20 years. It reveals slow growth in the number offarmer members and a nearly constant number ofemployees. Rapid sales growth is attributable to the largeroperations of farmer members and increasing sales tourban patrons.

Diversity, Complexity, and hstability The diversityof Cooperatives E’s operations is obvious, stemming fromthe wide diversity of products it supplies. Its membershipis relatively diverse as well. Although a large majority ofmembers live within a 15mile radius of the cooperative,farm operations include poultry, swine, and dairy. Farmsize varies substantially as well. A strong component ofurban business adds to this diversity of member interests.

Managers rated the complexity of Cooperative E’soperations as low. Most noted a trend toward increasingcomplexity because producer-members require additionalservices and information. Increasing complexity was alsoattributed to higher costs and lower margins which allowfor less slack in the operation.

Table E-l-Size of cooperative E in number ofemployees, gross sales volume, and number ofmembers, 1960-60

Measure of size


Gross salesvolume

Additional avenues of member input are desirable, butbranch meetings, attempted several years ago, werepoorly attended. Currently, member meetings with thegeneral manager fill the input void, but additionalpermanent membership structures could assure continuingmember input by raising the representative/member ratio.

19601965197019751980

- - Number - - Millions

130 970 6.0130 990 6.3140 1,000 a.5145 1,000 18.8140 1,009 32.8

24

Figure E-l

Operations Structure of Cooperative E, September 1982

Employees

I IDept. Head Dept. HeadLumber Feed

IDept. HeadEggs

IDept. HeadAuto Sales

IDept. HeadOil

IDeot. Head

secretary

‘l-

I I HaidwareJ

I Employees

Parts Supr.

I

TruckDrivers

Employees

OfficeSupervisorrEmployees

Source-Cooperative documents and interviews with cooperative personnel, September 1982.

Service

Drivers

Mechanics

N Repairmen Clerks I

Computer!;Programmerendants

Employees Employees

Figure E-2

A dynamic environment was indicated, with mostmanagers citing the general state of the economy as thecause. (Cooperative E is located in an area particularlyhard-hit by current economic woes.)

Operations Structure Cooperative E has responded toits diverse product line by horizontal division of itsoperations structure on a product basis (figure E-l).Separate feed and fertilizer departments have been addedin the last 3 years. Along with this change,decisionmaking was decentralized, giving departmentheads more responsibility for hiring, wage-setting, andpricing. The general manager felt these structural changeslessened coordination problems and strengthenedrelationships with producer members in each of theproduct area.

Membership structure Although the membership ofCooperative E is diverse, its membership structure hasremained extremely simple (figure E-2). It consists solelyof a board of six directors elected at large from themembership. There is no specialized committee structure.Neither is there an executive committee. Table E-2,reporting the dimensions of the membership structure,confirms the lack of structural adaptation and a lowrepresentative/member ratio ( 1: 166).

Decisionmaking, Informational Flows, andInteraction The board retains decision power for allchanges in capital structure, new enterprises, andpatronage disbursements. There is no delegation of thedecisionmaking powers of the board. Most capitalequipment purchases (except for ‘major facilities‘) may beimplemented by management without board approval.

The board of directors receives a monthly financialstatement. Grain reports are supplied at request. There is

Table E-2-Dimensions of the membershipstructure of Cooperative E

Vertical Levels: 1

Horizontal Divisions: None

Basis of Representation: None

Representative/MemberRatio:

Specialization:

1:167

1 Role

Membership Structure of Cooperative E,September 1982

Members (1009) I

Source-Cooperative documents and interviews with cooperative participants,September 1982.

no regular publication for members. Members receive anannual report only if they attend the annual meeting orrequest one.

The general manager and assistant manager attend themonthly meeting of the board of directors. Departmentheads may attend to address specific issues, but onlyinfrequently.

Interactions between department heads and members areinformal. The egg department manager reports dailyinformal contact with member egg producers. Feed andfertilizer heads make regular farm calls to maintaincontact with members. These departments also holdseveral informational product meetings for members eachyear.

The annual meeting provides the only formal opportunityfor members to meet with board and management and toask questions of them.

Summary Cooperative E has responded to its diverse,simple, dynamic environment by horizontally dividing itsoperations structure on product lines, and decentralizingdecisionmaking to department heads.

The membership structure, in contrast, has not evolved.The small board, unspecialized into committee functions,maintains control over a minimum of organizationaldecisions. There are few channels for diverse memberinterests to be communicated to appropriate decisionpoints within the organization. There is little structuralopportunity for the rich input of member voice indicatedas desirable in a dynamic economic environment.

26

15 miles of cooperative facilities, nearly half of themembers reside out of State.

Cooperative FA Vertically IntegratedCitrus Cooperatlve

Growth Formed in 1909 to handle citrus products,Cooperative F has become a highly integrated grove-to-market citrus operation. The cooperative began as apacking operation, with members doing their own grovework. Over the years the cooperative expanded byoffering grove services to its members. Eventually, thecooperative moved into marketing its own fruit. Today,Cooperative F performs complete enterprise managementfor its members. All grove care functions, from seedlingsupply and planting to picking the fruit, are performed bycooperative employees.

Cooperative F’s growth in the last 20 years has beeninternal. Total acreage and production per tree haveincreased substantially, contributing to increasing salesvolume. Membership has increased, but slowly. This slowgrowth in members has been a deliberate choice of theboard of directors (who approve all new memberships).The number of year-round employees has remained fairlyconstant over recent years.

In summary, the growth of Cooperative F has beenlargely internal. Growth has occurred through integrationof all phases of the citrus operations of its members andthrough improved productivity.

Diversity, Complexity, and hstability Members arehomogeneous as to commodity type (all citrus growers).Most are small grove owners whose groves have been intheir families for generations. Turnover of membership isvery low. Although most of the groves served are within

Table F-l-Size of cooperative F in number ofemployees, gross sales volume, and number ofmembers, 1960-60

Measure of size

Year EmployeesProducer Gross salesmembers volume

--- Number ---

1960 NIA 1711965 NIA 2221970 NIA 2401975 approx. 160 2481980 approx. 160 249

Milliofl.9

2.64.35.39.6

16.0

Cooperative F markets only to the fresh fruit market andmainly to retailers close to the consumer. Marketdiversity is low. Product diversity is relatively low aswell. Although a number of citrus varieties are sold in avariety of packs, production, packing and marketingmethods are similar for all citrus products marketed.

Operations are only moderately complex. Managersperceive complexity to be increasing, however, due to thegrowing impact of imports.

Although the vagaries of weather will always lend adegree of unpredictability, in some ways the citrusbusiness has become more stable through the years. Theprocessed market for citrus products, developed in the1940’s, now comprises the largest share of citrus usage.The diversity of uses for the processed product and itslonger shelf life lend stability to citrus markets. Directsales of fresh fruit to retailers, the current sales practice,is a much steadier market than the speculative auction andconsignment sales of the past.

Operations Structure Bit by bit, changes have beenmade in the operations structure of Cooperative F. Thetrend has been toward increasing structural elaboration,adding both vertical levels and horizontal divisions (figureF-l). In recent years, several new managerial positionshave been added to the organization to meet thecoordination requirements of a highly integrated operationin a stable environment.

Membership Structure The membership structure ofCooperative F is simple (figure F-2). A board of 11directors is elected at large for l-year terms, with nolimit to the number of terms a director may serve. Thereis no nominating committee; all members are ‘on theballot‘ for each election. Proxy votes are allowed,however, with all proxies voted by the incumbent board.Since nearly half of the members reside out of State, thisprocedure gives the incumbent board a definite advantage.Consequently a director, once elected, generally servesuntil he chooses to retire. The inequity of the system hasbeen noted by younger members. The current boardpresident reports that a nonboard nominating committee isthe next likely structural addition to the membershipsystem.

The board is divided into five specialized committeesappointed by the president. An executive committee of

27

Figure F-l

E Operations Structure of Cooperative F, November 1982

GeneralManager

Receptionist Secretary

Fert. Plant Operator

I I I IEast

Spray &Fert. West North

Foreman Foreman Foreman Foreman

I I I

t-

I I IAss?.

Mechanics Mechanics Crew

Crew Crew Crew Crew CrewGrove Grove Grove

Crew

Sales Mgr.

1 Ass7 Sales Mgr.

Clerks

IPacking House OfficeForeman

. ‘t

Manager

Watchmen

Maintenance Clerks

IAss?. PackingHouseForeman

I

FruitReceiving

ICrew

I I I IPacking Packing Packing Container GraderSupervisor Supervisor Supervisor Foreman Supervisor

Packers Packers Packers Formers Graders

Inspector Inspector Inspector

Source-Cooperative documents and interviews with cooperative personnel, November 1982

Figure F-2

Membership Structure of Cooperative F, November 1982

ExecutiveCommittee

-1/I 1

i

\MembershipCommi t tee J

\\

//’\‘--

Board of Directors (11)

y-1\

\Pooling

i Commit teeI

\\ :

/\-A

/I A

f’ /

/I ‘\

1 1Production Operations \

\ ICommittee Committee

\1 \

\ /’ \/

//- ‘\

\FinanceI ICommit tee /

\

Members (294)

Source-Cooperative documents and interviews with cooperative participants, November 1982

three, elected by the board, was added several years agobecause decisiomnaking was necessary more frequentlythan monthly. The executive committee has authority toact, but must report its decisions to the full board within7 days.

Decisionmaking, information Flows, andinteractions The board of directors for Cooperative Fretains final decisiomnaking responsibility for manystrategic and administrative decisions. It is particularlyinvolved in all membership decisions. All new membersare screened by the membership committee and must beapproved by the full board. Purchases of capitalequipment over $2,000 must be approved by the board. Inaddition, the board sets all charges for cooperativeservices such as picking, hauling, and packing.

The board depends heavily on its committee structure fordecisionmaking. Although committee decisions must beformally approved by the board, most are approvedunchanged.

Information flows from decisionmakers in the operationsstructure to the board and the general membership arestandardized. The board gets a monthly financial reportfrom the secretary-treasurer. The sales manager,secretary-treasurer, director of operations, and generalmanager make monthly oral reports to the board. Thesereports are regularly mailed to all members. In addition, asporadic bulletin from the general manager is mailed toall members, as is an informative annual report.

Committee members receive additional regular reports

29

from management. Managers of Cooperative F regularlyreceive copies of the minutes of both board andcommittee meetings.

The monthly board meetings of Cooperative F are open toall members. The board meets privately for 30 minutesbefore the meeting is opened to the general membership.About 30 members attend these meetings regularly.Members are permitted to ask questions of both boardmembers and management.

Management meets regularly with board committees,making recommendations about service charges,purchases, pooling, and other committee decision;. Thegeneral manager attends all committee meetings.

Summary Cooperative F, a highly integrated production-to-market operation, acts in an environment which iscomplex but stable and uniform. The membership ofCooperative F is small and uniform, but dispersed. Themembership structure is simple, with few vertical levelsand no horizontal divisions. The board has specialized itswork into committees and takes an active role in manyimportant strategic and administrative decisions.Decisionmaking responsibility is decentralized through theboard’s committee structure, although the full boardretains final authorization. Management personnel workclosely with these committees, supplying technicalinformation and recommendations to the decisiomnakingprocess. Members are kept well informed throughfrequent mailings and open board meetings. Localmembers have frequent opportunity to input informationto the decision process through the open meeting format.The small membership size and the flat membershipstructure encourage information flows from the membersto the board of directors. The current electoral proceduresof the organization do, however, constrain theopportunities for members to acquire an authoritative rolein cooperative decisionmaking.

Table F-2-Dimensions of the membershipstructure of Cooperative F

Vertical Levels: 2

Horizontal Divisions: 0 (Entire Membership Only)

Basis Representation: None


Cooperatlve GA Servlce Cooperativewlth a Large, Dlspersed Membershlp

Growth Cooperative G arose from the merger of fiveartificial insemination cooperatives in the mid-1960’s.Since that time, its growth has been largely internalthrough expansion of geographic markets and horizontaldiversification. Market expansion continues to the present.

Today, Cooperative G operates four sites in the NorthCentral States. It provides artificial insemination (A.I.)service for members in five States and direct sales ofsemen in many areas, both domestic and international.

Falling numbers of members, indicated in table G - 1,reflect two conditions. First, subsequent to the mergerforming the cooperative, many nonactive members werecarried on the books. Second, the trend toward fewer andlarger farms has decreased the number of patrons in thecooperative’s service territory.

Diversity, Complexity, and lnslabilily Cooperative’sG membership is rather diverse. Members are dispersedamong five States; beef and dairy operations are included;and the size of member operations varies substantially.

The diversity of Cooperative G’s operations is moderate.Although product diversity is relatively low, A.I.services, direct-to-farmer sales, and distributor salesrepresent unique market segments. Further, CooperativeG sells semen in both domestic and international markets.

Table G-l-Size of cooperative G in number ofemployees, gross sales volume, and number ofmembers, 1960-80

Measure of size


Gross salesvolume

---- Number --- Millions

1960’ 192 27,746 1.91965’ 176 26,785 2.01970 365 35,298 4.61975 304 28,724 6.61980 294 22,946 13.2

‘Figures represent the largest of the premergercooperatives only.Specialization: 7 Roles

30

I I I II

I1

r I I

Marketing Director

1 Director , I. . . . 1 Genetic 1

‘splinting Mgr.Dist!FL Proc. spcs, ,gi!y Service DivyLchnlIFg. MfI

Breeding Prog. Mgr.-Beef Dairy PW. SPc.

I

Figure G-l

Operations Structure of Cooperative G, October 1982

Director, Public Relations

I Info. SIX.

Feg, Sa,es MgyMating A!Prakal Sacs.

IDistrict Sales Reps.

Sal& Mgrs.(2)

ILabSuprs. (2)

IEmployees

Marketing Spcs.Farm & _Stud H-l Sales Mgrs.

Suprs. (2)

I DistrictEmployees Sales

Mgrs. (10)

=-I-

I TrainingMgr.-Field I

IField Training

spcs.

Employees

ISales and Service Techs.

Source-Cooperative documents and interviews with cooperative personnel, October 1982.

Membership Structure of Cooperative G, October 1982

ExecutiveCommittee

Board of Directors(11)

II/- I/ ‘1 //- -1

/’ Breed

\ / ‘\ \

i I Breed\ Sub-Comm. 1 I I \

Sub-Comm. 1 \ Sub-Comm. I\ j\\ \ /- - ,’ \-I

\I

\--1’

RedistrictingCommittee (11) -

Delegate Body (154)and Alternates (154)

Regions (11)

Districts (60) -

Members (22,946)

Source-Cooperative documents and interviews with cooperative participants, October 1982.

32

Executive managers of Cooperative G rated operationscomplex. Complexity stems from the highly technicalnature of breeding programs. Governmental regulation isanother source of increasing complexity, especially in theinternational trade.

The environment is relatively stable, however. Sincemembers view breeding programs as an important long-term investment, sales are fairly predictable even in atight economy. International sales are much lesspredictable than domestic markets, and have decreased thestability of the organization’s environment in recent years.

Operations Structure Cooperative G’s operationsstructure is horizontally divided into five sections basedon both function and market. It is separated into fourvertical levels (figure G-l).

Much of the horizontal division has occurred since the1967 merger. In the early 1970’s the marketing divisionwas split into member and distributor divisions. In themid-70’s a genetics expert was hired, and the formeroperations division was horizontally divided into aproduction division and a genetics division. Manyspecialists have been added to Cooperative G’s staff inrecent years.

Membership Structure Cooperative G has a well-developed member structure with a delegate system,elected redistricting committee, and a breed advisorycommittee specialized by breed (figure G-2).

Cooperative G’s membership is divided into 11geographical regions with approximately equal numbers ofmembers. These regions are subdivided into districts forthe purpose of electing delegates. Each district elects onedelegate per each 150 active members in the district to

Table G-2-Dimensions of the membershipstructure of Cooperative G

Vertical Levels: 3

Horizontal Divisions: 60 Districts


Representative/MemberRatio: I:130


serve a l-year term. One alternate is elected for eachdelegate.

Delegates caucus by region at the annual meeting tonominate one director for office. Directors are elected atlarge by the delegate body, but this is largely aconfirmation of selection by the regional delegates. Onceeach 3 years, a redistricting committee member is electedby the delegates of each region.

The 11 directors serve l-year terms, with no limit to thenumber of terms a director may serve. An executivecommittee of officers elected by the board is empoweredto take independent action, but, in fact, rarely meets.There are no other board committees.

There have been few changes in this structure since theformation of Cooperative G. The most significant changeis the addition of a breed advisory committee of 30members appointed by the board to serve 4-year terms.The advisory committee is divided into specializedsubcommittees by breed. This committee is advisory toboth board and management.

In short, Cooperative G has a membership structurevertically separated into three levels. Horizontal divisionis extensive: the membership is divided into 60 districts tovote for delegates. Although the board has not developedspecialized committees, specialized breed advisorycommittees provide member input in a technologicallycomplex environment.

Decisionmaking, Information Flows, andinteraction The board of directors retains final approvalof all capital structure, membership strategy, and newenterprise, and allocations decisions. Any change in thecharge for technician services is made by the board,based on alternatives presented by management. All otherpricing decisions are delegated to management, though theboard’s official pricing policy guides these decisions. Allcapital purchases over $200 must be approved by theboard of directors.

Although the operations of Cooperative G aretechnologically complex, the board of directors maintainssignificant control over decisionmaking through the powerof final authorization and through highly standardizedoversight procedures. Division heads report to the boardannually through a formal planning and budgetingexercise. Yearly goals are presented and objectives aretargeted by date. The board approves budgets presentedby division heads.

33

Decisionmaking authority is decentralized from the boardto the delegate body through the resolutions process.Resolutions are presented to district members andforwarded to the delegate body for a vote. The processallows binding decisions to be made at the delegate level.

The board of directors receives monthly financial reportsand quarterly budget comparisons. Directors also receivemuch of the standard operating information generated bythe computer system. At each monthly meeting thegeneral manager makes a progress report and summarizesthe monthly reports of each division head. Directorsreceive mailings about any significant developmentsbetween board meetings.

Delegates receive quarterly mailings that include financialand sales summaries, and results of genetic evaluationsfrom outside sources (e.g., USDA). The annual report ismailed to all delegates and alternates.

Members receive an annual financial report at theirdistrict meetings. They also receive a monthly newsletterthat includes educational materials, product information,cooperative news, and some financial information.

The breed advisory committee receives frequent mailingsfrom the genetics division and is irregularly polled ontechnical issues.

A management team and the regional director areavailable at each district meeting. At these, question cardsare circulated, and an answer period is provided at theend of each meeting. This provides a direct two-waycommunications channel between members and theirdistrict director and management. A similar process isused at delegate meetings.

The general manager and finance director meet monthlywith the board of directors. Other division heads meetwith the board once a year for 2-day planning andbudgeting meetings, and also infrequently to supplyinformation on a specific issue.

Delegates meet twice a year, once at the annual meetingand once at informational meetings held at two or threesites. Alternates are encouraged to attend. Breed advisorycommittee members also attend, broadening participationin the informational meetings. These meetings are chairedby the president of the board. Directors from theappropriate regions are present. At these meetingsdirectors caucus with delegates from their region. Thisprovides an opportunity for two-way communicationbetween directors and delegates.

The breed advisory committee meets with the generalmanager, genetics staff, and board of directors the daybefore the annual meeting. The committee as a whole orseparate subcommittees meet irregularly as necessary toprovide feedback on proposed programs.

An annual meeting is held in each district chaired by thedistrict director. A management team attends eachmeeting, allowing for an interchange between members.About 25 percent of members attend their districtmeeting.

Summary In response to a technologically complex andmoderately diverse environment, Cooperative G hasevolved an operations structure that is divided intovertical levels and horizontal divisions. Many specializedpersonnel are employed. The stability of its environmenthas allowed it to standardize many of its procedures.Through a standardized planning and budgetingprocedure, the board retains a high degree of control overcooperative operations.

The cooperative has a well-developed membershipstructure based on geographical divisions. Decisionmakingis decentralized to a delegate body through the resolutionsprocess. An advisory committee, specialized by breed,provides member input for both management and board.

Members and their delegates are regularly informed ofcooperative activities and operations through regularnewsletters. Both members and delegates are providedopportunities to interact with their regional directors atone meeting annually.

Although Cooperative G has a highly bureaucraticstructure, a well-developed member structure, withstandardized decision processes, information flows, andinteractions provides many mechanisms for membercontrol.

Cooperative HA Large Marketing CooperativeManufacturing Processed Products

Cooperative H began as a cheese plant to provide anoutlet for member milk supplies. It grew steadily byacquiring other small dairy operations. In addition toacquisitions, the continually increasing productivity ofmember producers fueled internal growth of thecooperative. The cooperative now operates plants at sevenlocations.

34

Table H-l-Size of cooperative H in number ofemployees, gross sales volume, and number ofmembers, 1960-60

Measure of we

Year EmployeesProducer Gross salesmembers volume

19601965197019751980

---- Number --- Millions

525 2,526 26.0462 3,213 36.5466 2,670 55.8535 2,482 108.3537 2,232 215.0

The growth strategy of Cooperative H since its beginninghas been diversification. Diversification has providedmultiple markets for member milk and stabilized farmincome from a perishable and seasonal product throughmanufacture of storable products. Today Cooperative Hproduces bottled milk, cheese, butter, milk powder, andice cream mix. It has produced under its own brandedlabel since the 1950’s.

Table H-l summarizes the growth of Cooperative H innumbers of employees and gross sales volume. Thereduction in number of members over the years reflectsthe trend toward fewer and larger dairy farms.

Diversity, Complexity, and instability The membersof Cooperative H are only moderately diverse. Memberfarm operations are all one type (dairy) and the size rangeof operations is moderate.

The diversity of operations, on the other hand, is high,stemming from the diversity of its product line and itsinvolvement in both fluid and manufactured markets fordairy products.

Cooperative H’s environment is rated complex by itsmanagement personnel. Government regulations requireincreasingly higher quality standards, requiringsophisticated technologies and testing procedures.

The cooperative operates in a moderately stableenvironment. Federal milk marketing orders andgovernment purchases of surplus milk products addstability to dairy markets. The marketing flexibilityprovided by the organization’s diverse product line alsocontributes to its stability.

Operations Structure Cooperative H has a highlydifferentiated organizational structure, with five verticallevels and six horizontal divisions based on function. Onlyminor structural changes have been made in recent years.

Management indicated a high level of standardizationwithin the organization. Jobs are graded into 25 levelsand 15 of these have formal job descriptions. Theorganizational chart indicates a high level of jobspecialization, with 50 job titles (figure H-l). Among thepersonnel are a large number of technical experts andprofessionals.

Altogether, Cooperative H’s operations structure is a textbook example of structural response to a complex,diverse, but relatively stable task environment; i.e., ahighly differentiated structure with high levels ofstandardization and specialization.

Membership Structure Cooperative H has asophisticated membership structure, which has basicallybeen in place since the 1950’s. The membership isdivided into 11 districts based on number of members.Districts are subdivided into units for the purpose ofelecting delegates (figure H-2). One delegate is elected foreach 20 members in a unit, and one alternate for eachtwo delegates.

At district meetings, one candidate for director isnominated per district. Directors are elected at large bydelegates casting one vote per member they represent.Directors serve l-year terms, with no limit to the numberof terms an individual may serve.

Each district elects a member of the resolutionscommittee, who also serves as a member of the districtingcommittee. Resolutions prepared by the committee arevoted upon by the delegate body. Districting changes aresubject to approval by the board of directors.

About 10 years ago a young couples’ group wasorganized. Three years ago it was split into three regionalgroups because distance necessitated too much travel timefor busy young dairy farmers and hampered the group.Two young couples per district are elected asrepresentatives to serve staggered 3-year terms. Theyoung couple representatives sponsor educational andsocial events for members, and have limited independentdecisionmaking authority within cooperative governance.

The board of directors has specialized subcommitteescomposed of both directors and staff members. Staff

35

Figure H-l

Operations Structure of Cooperative H, September 1982

_.

Figure H-2

Membership Structure of Cooperative H, September 1982

ExecutiveCommittee

/ \I Billing

Committee I\ /

Board of Directors(11) c‘Lnl \

‘\

\Committee 1

\ /- - /

Resolutions/

7

Delegate Body (220)and Alternates (-110)

-I- I Regions (3)

Districts (11)

Units (44)

Members (2232)

Source-Cooperative documents and interviews with cooperative participants. September, 1982.

members on board committees do have a vote, but allcommittee recommendations must be approved by the

In short, Cooperative H has a highly developed

board. The board elects an executive committee which ismembership structure that assures generous member inputinto cooperative decisionmaking. It has added vertical

empowered to take independent action but must report its levels, divided the membership into horizontal units, andaction to the full board. specialized member roles to increase the capacity of the

37

membership structure to channel and process informationfrom members.

Decisionmaking, lniormation Flows, andinteraction The board of directors of Cooperative H hasfinal authority over capital structure, membership policy,and new enterprise decisions. They make these decisionson the basis of alternatives presented by executivemanagement. Marketing strategies are devised andexecuted by management. Similarly the board makespatronage allocation decisions and must approve pricingschedules and policies, including quality premiumpolicies. The board approves all capital purchases over$l,O. Board committees specialized by function areused, but these have no independent authority. Allcommittee recommendations are brought to the full boardfor approval.

Cooperative H uses standardized reporting procedures toassure adequate flows of information between its membersand operations personnel. These include reports of allfieldman visits and standardized quality reports from plantlaboratories. Information from field reports includes‘starts and quits‘ (members gained and lost), andcomparative pay prices. This information is supplied tothe board monthly. Quality reports from the laboratoriesflow to the member service director and thence tofieldmen and on to individual members. This provides amechanism to coordinate farm-level production with theneeds of processing plants and to assure a high-qualityend product. These two reporting procedures illustrate theuse of standardized information flows to coordinate theneeds of producer members and their cooperative. Bothstandard reporting procedures involve flows ofinformation vertically through the operations structure andhorizontally from the operations structure to the memberstructure, as shown in figure H-3.

Table H-2-Dimensions of the membershipstructure of Cooperative H

Vertical Levels: 3

Horizontal Divisions: 44


Representative/MemberRatio: 1:8.5


The board receives monthly operating statementsdisaggregated by department, a monthly balance sheet,and monthly production reports Board committees receiveadditional information from executive managers on aregular basis.

All members receive two monthly publications. Onecontains information about dairy policy and memberactivities. The second mailing contains information aboutindividual members and employees. In addition, membersreceive a quarterly balance sheet from cooperativemanagement. All member representatives (delegates andresolution committee) receive additional mailings frommanagement on an irregular basis concerning dairy policyissues and actions. Delegates also get additional financialand operating information from management when theymeet.

There is a standardized procedure through whichindividual members may take a complaint before the fullboard. The member complaint is first screened by theboard’s billing committee. Although this procedure wasinstituted 2 years ago, no member has yet used it.

There is no formal mechanism by which the board ordelegate body reports to the membership.

The general manager, his assistant, and the financedirector meet monthly with the board of directors. Topline managers (including the general manager) meetregularly with board committees as full voting members.Individual members receive a visit from their fieldman atleast twice a year.

The general membership has two opportunities to meeteach year-at the annual district meeting (chaired by thedistrict director) and at fall dinner meetings, wheremembers receive quality and service awards. Nearly 40percent of members attend these meetings.

Delegates and alternates meet twice a year-at the annualmeeting and at summer meetings held in three regionalareas. The general manager, his assistant, and thedirectors of finance and member services regularly attendall district and delegate meetings.

The resolutions committee meets three times each year.They meet before district meetings to review standingresolutions, after district meetings to discuss input frommembers, and prior to the annual meeting to finalizeresolutions for delegate approval.

38

Figure H-3

Coordinative Information Flows Between Members and Cooperative H

General

Quality Reportsi

+----_B--------J

Young couple representatives meet monthly (by region),and once a year they meet informally with the board.Young couple informational meetings are held early eachwinter for all young couples. Further, young couplessponsor several social activities each year for allcooperative members.

This past year, the resolutions committee passed acommunications resolution requiring each director to meetonce each year with the delegates, resolution committeemembers, and young couple representatives in his district.Although some directors have been doing this already, theact of standardizing this meeting provides anotherpermanent structural mechanism to assure the verticalflow of information in the membership structure.

Summary Cooperative H is a dairy cooperativeproducing diverse products in a complex but relativelystable environment. The membership is dispersed overhalf a State, but is reasonably uniform. The organizationhas developed a highly differentiated operations structureand a high level of standardization. Decisionmaking isdecentralized horizontally and vertically in the operationsstructure.

Cooperative H’s membership structure is well developed.Elected delegates, alternates, resolutions committeemembers, and young couple representatives provide ahigh representative-to-member ratio and multiple channelsfor the input of member preferences into cooperativedecisionmaking. Member decisionmaking is decentralizedvertically through the standardized resolutions process.

The members receive frequent information from theircooperative’s management in the form of quarterlybalance sheets and two monthly publications.

Interaction is frequent between the top management andgroups of member representatives. Both technical andpreference information are thus present at manyorganizational decision points.

Information tends to flow from management directly tomembers rather than through the member structure. Flowsof member information to management occur through boththe operations structure and the membership structure. Anewly instituted district meeting between directors anddistrict representatives provides a direct channel for theflow of information vertically through the membershipstructure.

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SUMMARIZATION OF CASE MATERIALS

As the agricultural cooperatives studied in this report havegrown through diversification, merger, acquisition andinternal growth, they have refined their operationsstructures. To adapt to increasingly diverse, complex, andunstable conditions in the agricultural economy, they haveadded vertical levels to their structures, divided theirwork among horizontal units, employed specialization,decentralized decisionmaking, and standardized reportsand procedures to increase the amount of information theorganization can process.

Membership structures have evolved more slowly. Themost common adaptations to growth and to increasinglyuncertain environments have been to specialize theboard’s work with functional committees and to adopt anexecutive committee with the ability to act more quicklyand frequently than the full board. In some cases,additional vertical levels have been added: electeddelegates or executive committees have been added toattend to some decisionmaking tasks. Other cooperativeshave divided their membership into horizontal units forthe purposes of voting, thus improving the representationof a diverse membership.

In cases where the membership structure has remainedsimple while the cooperative has grown, there has beenmember discontent or an expressed need by managementfor an increased inflow of information from themembership. In some relatively large cooperatives,however, well-developed membership structures providemultiple mechanisms for member control.

Thus, size does not seem to be the factor whichdetermines the degree to that members control theircooperative. Even large cooperatives may maintainmeaningful levels of member input into cooperativegovernance if membership structures are developed,assuring multiple channels through which members canexpress their needs and opinions.

There is, however, no single structural design appropriateto all agricultural cooperatives. Cooperative membershipsvary in numbers, dispersion, size and types of farmoperations, and other features. The operations of anagricultural cooperative may involve the sale of a singleproduct or service, or operations may be diverse. Theenvironment of the cooperative may be stable, allowingmany activities to be standardized by rules andprocedures, or it may be unstable, requiring ever newdecisions impossible to foresee. Similarly, the

cooperative’s operations may be simple and easilyunderstood, or complex, requiring specialized personnel.These factors need to be taken into account whendesigning structures to improve member control ofcooperatives.

Case cooperatives included examples of organizations withdiverse operations and members, technologically complexoperations, and unstable environments. Each of the casecooperatives adapted its operations structures in waysprescribed by organizational theory to adapt to itsparticular environment. Although organizational designstrategies have been much less frequently and consistentlyapplied to membership structures, the trend seems to betoward use of these design principles; i.e., adding verticallevels and horizontal divisions, specializing, standardizing,and decentralizing decisionmaking. In cases whereorganizational design principles have been applied, theyprove both appropriate and effective.

An examination of information flows in the casecooperatives reveals several common patterns ofinformation flow. Within the operations structures of allthe case cooperatives, upward vertical flows ofinformation have been standardized, either through the useof standard reports or by computer information systems.There are no similar standardized information collectionprocedures in the membership structures. Thus, upwardflows of information from members to delegates ordirectors are limited.

Downward vertical flows of information from directors ordelegates are, likewise, rare. Instead, information flowsfrom top-level management to members predominate.

Horizontal flows of information from the top levels ofmanagement to the board of directors are abundant. Inmost cases, directors receive much of the standardizedinformation about operations compiled within thecooperative.

Figure 4 below summarizes the formal information flowscommonly found in the case cooperatives. This simplediagram illustrates a need for formal mechanisms ofcommunication within the membership structures ofagricultural cooperatives.

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Figure 4

Formal Information Flows in the Eight Case Cooperatives

Board General Manager

STRATEGIES FOR DESIGNINGEFFECTIVE MEMBERSHIP CONTROL STRUCTURES,WITH EXAMPLES

The following strategies are applications of organizationaldesign principles to the membership structures ofagricultural cooperatives. Several important assumptionsunderlie this approach to improving member control ofcooperatives.

1. Size does not preclude effective member control of acooperative.

2. Member control increases with the number ofchannels available to members for expressing their needsand opinions within the cooperative governance system.

3. Rationally designed membership structures canimprove the efficiency of member control by channelingflows of information to decisionmaking centers in theorganization.

4. No single membership structure is appropriate to allagricultural cooperatives. The appropriate structure for a

cooperative depends upon the sources of uncertainty itfaces (complexity, diversity, and instability).

Designing and Redesigningthe Membershlp Structure

Most agricultural cooperatives adopt a membershipstructure at the time they initially organize for business.However, as cooperative businesses grow and change,often the membership structure lags the development ofthe operations structure.

Structure is not forever. It must grow and change inresponse to growth and change in the cooperativeenterprise and in its external environment.

Careful consideration of the design of membershipstructures is especially crucial when unification proceduresare under consideration. Will the unification change thediversity of members? Will the number of members of thecombined cooperatives render the current membershipstructures of the unifying cooperatives inadequate?

Other major changes within the cooperative enterprise

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may also make existing membership structures obsolete.As a cooperative diversifies into new product or servicelines it may gain members or patrons who differ from itsprevious membership. New enterprises may be morecomplex than the cooperative’s traditional operations,requiring more sophistication on the part of itsmembership structures.

Likewise, environmental changes may necessitate changesin cooperative membership structures. For instance,urbanization may drastically change a cooperative’sclientele. Existing membership structures may be unableto respond quickly to rapidly changing conditions in avolatile economy. Regulatory requirements may challengethe decisiomnaking capabilities of a small, unspecializedmembership structure.

The membership structure of an agricultural cooperativeshould be periodically reevaluated to see if it isperforming adequately. One method of assuring a regularreview of membership structures is to include it in a long-range planning process. Many member relations problemscould be avoided by planning for adequate membershipstructures rather than redesigning structures only inreaction to member dissent.

Another method for periodically reviewing membershipstructures is to expand the role of an existing districtingcommittee to consider broader issues of membershipstructure.

Who Is the Membership?

Effective design of membership structures depends uponan accurate view of the conditions within which thecooperative operates. Therefore, design begins with anassessment of the diversity, complexity, and stability ofthe cooperative’s environment.

To design effective membership structures, it is criticalthat cooperatives have accurate information about whotheir members are. The case studies indicate thatagricultural cooperatives often do not have accurateinformation about who their members are.

Membership information is crucial to design ofmembership structures because an effective representativesystem needs to represent the relevant differences betweenmembers, the differences that are likely to give themdifferent needs for cooperative goods and services. Forinstance, part-time farmers, who work at nonfarm jobsduring weekdays, may need their supply cooperative to be

open for business on weekends, while this may beunimportant to full-time farmers. A cooperative canremain responsive to the needs of its members only if it isaware of what those needs are. Those needs will only beexpressed through the organization’s voting structuresonly if those structures have a base of representation thatreflects the differing needs of its members.

One method for developing an information base aboutmember characteristics is to gather more information aspart of the procedure for joining the cooperative. A short,simple form can be used to gather data about thecharacteristics of the new members-the size of memberoperations, which farm enterprises she/he operates,whether a full-time or part-time farmer, age, location,etc.

Given the current computer capabilities of agriculturalcooperatives, this member information can be permanentlyentered in the system. This procedure would enable thecooperative to analyze changes in services and policies onthe patronage of different portions of the membership.

A member survey is another method of gatheringmembership information. Involving members inimplementing the survey can deliver bonuses above andbeyond the information collected: increasing memberknowledge of the cooperative, creating an opportunity formeaningful participation, and increasing contact amongmembers.3

Choosing a Base of Representationand Horizontally Dividing a DiverseMembership

Membership information provides a factual basis forchoosing a basis for representation. If the cooperative’smembership is uniform and all the members live in alocal area, it may be unnecessary to divide members intovoting units. However, if the membership is diverse, theefficiency with which membership structures reflectmember views may be improved by horizontally dividingthe members for the purposes of voting and choosing anappropriate base of representation.

Most agricultural cooperatives use geographic location asthe base for representative structures. Geographic locationis sometimes a good approximation of diversity in

3For detailed instructions on how to conduct a self-survey, see‘Surveying Community Attitudes: A Technical and Procedural Manualfor Communities.‘ Manual 108. University of Missouri-Columbia, 1977.

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membership, for similar members may cluster in localareas. Geographic location is also a handy and economicalbasis for dividing membership. Travel costs may beminimized by localized member meetings; more membersmay attend if they do not have to travel far from home;and members may be more comfortable speaking outamong only their friends and neighbors.

On the other hand, geographic representation may notapproximate the relevant differences among members.Elected representatives may fail to reflect the needs ofimportant minority membership segments. Theconvenience of local meetings may not even stimulatemember participation if important issues never see thelight of day because dissenting views have no voice incooperative governance.

One example of a representative structure based on themember’s size of farm is a specialty marketingcooperative that set up its board so all sizes of memberoperations would be represented. Out of a board of nineproducers, two board members are growers with l-5acres, two are growers with 5-25 acres, two representgrowers with over 25 acres, and three are members-at-large.

Alternative bases of representation bear considerationwhen designing membership structures. Cooperatives withmultiple levels of representation may, of course, usediffering bases for differing representative structures. Forinstance, delegates could be elected by geographic districtwhile resolutions committee members are elected by farmtype, farm size, age, or other relevant membercharacteristic. The widespread use of computer technologyamong agricultural cooperatives makes multiple bases ofrepresentation more feasible and economic than it was inthe past. Computer capability makes it possible tocombine the convenience of localized member meetingswith the benefits of other bases of representation.

Another recent technological development has greatpossibilities for breaking the hold of geographic locationas a base for representative structures. Electroniccommunications technologies such as teleconferencinggreatly reduce the cost of meetings by allowing interactionbetween participants at separate locations. As two-wayelectronic communications and visual techniques aredeveloped and refined, geographic proximity can cease tobe the overriding consideration in dividing themembership. Electronic teleconferencing is being used byseveral large cooperatives, and they have reportedmember satisfaction with this technique.

What Is the Cooperative’s Envlronment?

Two other important contingencies for the design ofcooperative membership structures are the degree ofcomplexity and instability of the cooperative’senvironment. These two variables affect the number ofdecisions member representatives must make and theamount of flexibility there must be in the decisionmakingsystem so the cooperative can respond to its businessenvironment in a timely fashion.

Neither of these concepts is, unfortunately, amenable toprecise measurement. Several indicators may, however,serve as a rough gauge of these variables.

One indicator of complexity is the number of trainedprofessionals hired by the cooperative to carry out itsoperations. Other items to take into account indetermining the complexity of the cooperative’s operationsare: 1) the number of markets the cooperative sells in; 2)the number of cooperative operating facilities; and 3) thetechnological sophistication of the cooperative’soperations.

Similarly, to determine whether the cooperative’senvironment is stable or unstable, one might consider: 1)the extent to which price varies in both the input andoutput markets the cooperative faces; 2) the regularity ofthe cooperative’s sales levels over the last few years; 3)the rate of change in standard economic indicators likeinflation, unemployment, and interest rates; and 4) theextent to which the cooperative is vulnerable to changesin government policies and programs.

Strategies for Complex Cooperatives:Speclallzatlon and Training

One strategy for increasing member control of complexcooperative operations is specialization. Specializationincreases the expertise of members in dealing with themultitude of decisions a cooperative business must make.It may be unrealistic to expect a volunteer representative,constrained by the demands of running his/her own farmenterprise, to be knowledgeable about all aspects of acomplex cooperative’s operations. Nevertheless, a memberrepresentative can become reasonably expert in one aspectof the cooperative’s business, be it employee benefits,transportation systems, or product marketing. Thus,specialization can maximize the effectiveness of anindividual representative’s contribution to cooperativegovernance.

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The case studies illustrate the most common application ofspecialization in agriculture cooperative structures: the useof specialized committee structures by cooperative boardsof directors.

Another method of specializing member input tocooperative governance is the use of member advisorycommittees or task forces to address a specific issue. Theefficacy of such a practice is illustrated by the example ofa rural electric cooperative that was experiencing memberdissent over increased service rates. A rate reviewcommittee of members representing different types ofusers was selected from volunteers and supplied withspecialized information pertinent to the decision. The ratereview committee proved to be capable of understandingthe complexities of the decision and concluded that therate hike was indeed necessary. Their decision wassubsequently approved by a large margin in a referendumof the members. If members are capable of understandingcomplex rate decisions, they are capable of handlingmany of the complex decisions of modem agriculturalcooperatives as well.

Another strategy for maintaining member control ofcomplex cooperatives, similar to specialization, is trainingfor specific tasks and duties. As traditional businessesgrow complex, they hire increasing numbers of trainedprofessionals to perform specialized tasks. Trainingincreases the ability of specialists to process specific kindsof information efficiently. Similarly, as cooperative’soperations become complex, the efficiency andeffectiveness of member representatives can be improvedthrough training for specific tasks. Given the financiallosses that may accrue from poor decision, training formember representatives is an important investment inhuman resources with potentially large pay-offs.Opportunities for training may also motivate memberparticipation.

Strategies for Complex Cooperatives:Adding Vertical Levels

Adding vertical levels to the membership structure of acooperative improves the efficiency of decisionmaking intwo ways. For one thing, it limits the number ofdecisions any one individual or group must make. Thesecond effect of adding vertical levels is to increase thenumber of individuals with decisionmaking roles,increasing the organization’s capacity to processinformation. Adding vertical levels also increases therepresentative/member ratio, multiplying the number ofopportunities for members to express their preferences inthe decisionmaking process.

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Delegate systems are one way to add an additionalvertical level to the cooperative membership structure.Decisions that are otherwise a privilege of the generalmembership, such as selecting directors and approvingresolutions, can be delegated to these electedrepresentatives.

Other examples of added vertical levels in membershipstructures are elected resolutions committees; local,division, or district boards; and an executive committeethat has the authority to act independently on specificissues.

Strategies for Complex Cooperatives:Decentralization

Decentralization of decisionmaking is the assignment ofrights and responsibilities for making specificorganizational decisions to individuals not at the top ofthe organization.

As seen in the case studies, agricultural cooperatives havebeen slow to decentralize decisionmaking within themembership structure. Nevertheless, decentralization is avaluable tool for increasing the number of decisionsmember representatives can make by sharing thedecisiomnaking tasks among a larger pool of members. Acomplex cooperative that relies solely on a small board ofdirectors to make all policy decisions runs two risks:either the board will delegate to management manydecisions of high consequence to members because it doesnot have time to consider them all; or the board maymake hasty and ill-informed decisions because it does nothave time to carefully consider all the decisions it takeson.

A common example of decentralization in agriculturalcooperatives is federation. Much of the previous debateon cooperative structure has been limited to the pros andcons of centralized versus federated (i.e., decentralized)cooperatives, where independent local cooperatives retainmost authority over local operations. This model is,perhaps, too simplistic and has limited consideration ofother applications of decentralization. Organizationaltheorists warn that centralization and decentralizationshould be treated not as absolutes, but rather as two endsof a continuum.

Indeed, the use of delegate systems and division boardsillustrates a degree of decentralization somewhere betweenthe extremes of centralization and decentralization.Another example of limited delegation of authority is

allocating a budget to a young couple’s group and, withinthe bounds of a board-approved mission statement,allowing that group to make its own decisions about howto use those resources. Additionally, the board ofdirectors of a cooperative can decentralize particulardecisions to board committees, constrained by guidelinesset by the board. Decentralizing routine monitoring ofoperations to committees allows the board to focus onimportant strategic and policy issues.

Decentralization of decisionmaking to subgroups ofmember representatives need not result in confusion overthe boundaries of authority of different groups of memberrepresentatives, just as it does not normally lead toquestions of authority within operations structures.Confusion can be avoided by the use of formal writtenjob descriptions that include clear statements of theauthority associated with the position and the limits ofthat authority. It is essential, when using decentralizationas a strategy for handling complexity, to make a cleardistinction between member groups who are purelyadvisory and those that have decisionmaking authority.

Strategy for Handling Unstable Environments:Vertical Information Systems

Unstable (that is, rapidly changing and unpredictable)environments present a major challenge for membercontrol. For an organization to compete effectively in anunstable environment, it must be able to make decisionsand take action quickly. In such an environment, highlystandardized procedures for member decisionmaking mayplace the cooperative at a competitive disadvantage.

In an unstable environment, design strategies focus on thecooperative’s information system.

In an unstable environment, there may not be the time toinvoke widespread member input through the regularlyscheduled series of membership meetings. What is neededis a more frequent flow of information about memberpreferences, an approximation of the sophisticatedcomputerized information system utilized in the operationsstructure.

One way to gain a more constant influx of informationabout member preferences is by using a survey panel-agroup of representative members frequently surveyed toascertain needs and opinions on specific questions.Incentives are given to cooperative panel members toencourage their participation. Some cooperatives havereported excellent response to this technique. If the

cooperative’s members reside within a localized area, atelephone survey of a panel of members can beimplemented quickly and at little cost.

Some cooperatives use delegates or an advisory committeeas a sounding board to gauge member opinions quickly.Of course, the validity of the opinions of such groups isenhanced if they have been elected by the membership ona basis that truly represents the diversity of memberopinions on relevant issues. Further, the use ofconference calls can reduce both the time and the expenseof gathering member input when decisions must be madequickly.

Strategy for Handling Dynamic Environments:Lateral Relations

In an unstable environment, decisions will arise thatcannot be foreseen or planned for. Thus, appropriatemembership structures cannot be provided beforehand thatwill provide the relevant mix of skills, information, orauthority to make the decision quickly.

One method of handling such situations is to use lateralrelations. Lateral relations facilitate decisionmakingwithout creating new structures. Three examples of lateralrelations are hearings, liaison roles, and ad hoccommittees or task forces.

Hearings, a common feature of the U.S. governmentalprocess, have only occasionally been used by agriculturalcooperatives. A hearing can supplement regularlyscheduled member meetings as a forum to gather memberinput on a specific issue or decision. Hearings can beused by agricultural cooperatives in unstable environmentsas a flexible method of member participation that providesefficient input focused on specific decisions. In addition,hearings bring members concerned with a specificdecision into direct communication with decisionmakers,saving time by isolating conflict that might otherwiseunnecessarily involve the entire membership.

Liaison roles can be used to link two or moremembership groups that find they must make decisionsthat cut across their separate jurisdictions, but still do notaffect the entire membership. A member in each of thesegroups may be appointed as liaison, and the liaisons canserve to coordinate communications and decisions betweenthe separate groups. Liaison roles allow decisions cuttingacross subgroup boundaries to remain decentralized,saving the time of referring the decision upward to theboard of directors.

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A final example of lateral relations is the use of amember task force or ad hoc committee. As in the case ofhearings, the ad hoc committee allows specific skills andinformation to be focused on a specific decision. Forinstance, consider a cooperative that needs a new creditpolicy because receivables have become a financial drainon the cooperative’s resources. An ad hoc committeecould be formed to decide what kind of policy would bemost effective both financially and in terms of memberneeds, allowing both concerns to be addressed quickly.

Encouraging Horizontal Information Flowswith Horizontal Structures

A central problem of designing effective membershipstructures is to assure that member input is directed topoints in the operations structures where decisions ofconsequence to members are made. The case studiesillustrate that such decisions are made at several points inthe operations structure, thus requiring an adequate mixof information from both the operations and membershipstructures at points below the apex of organization’sstructure.

Organizational communications theory indicates that: 1)information is likely to be distorted as it flows throughvertical levels of an organization and 2) horizontal flowsare most frequent in organizations. Some examples ofhorizontal flows are the frequent formal flows ofinformation between directors and the general managerand frequent informal flows of information betweenmembers and personnel at the base of cooperativeorganizations. Therefore, one method of assuring directedflows of relevant information between membershipstructures and operational structures is by designingmatched membership and operations structures.

One illustration of this principle in action in someagricultural cooperatives is the formal interaction of boardcommittees with managers in the top line of theoperations hierarchy. For instance, the controller orfinance manager may meet regularly with the financecommittee of the board, assuring that the membershipbody responsible for financial decisions has relevanttechnical information from the operations structure. Thestandardization of this interaction may vary in degreefrom regular attendance of a top-line ,manager, tononvoting participation of the manager on the committee,to full voting status as a member of the committee.Another application is the use of branch or retail storeadvisory committees who meet regularly with themanagers of the local operations. A third use of a

horizontal structure is the use of a specialized memberadvisory committee that meets with a staff memberresponsible for a particular aspect of the cooperative’soperations.

A full-blown example of the use of horizontalmembership and operations structures is provided by alarge agricultural cooperative in Great Britain. Asillustrated in figure 5, this cooperative has both a maingroup board and division boards that are composed ofequal numbers of member representatives andmanagement personnel. In addition, regional committeesmeet four times a year with management from their localbranches. These division boards have a degree ofindependence in developing budgets and are primarilyresponsible for formulating market strategies in their owncommodity areas. The main group board is responsiblefor formulating and implementing policy. All major policychanges have to be approved by the managementcommittee, made up entirely of members. Thus, thisstructural design illustrates not only matched membershipand operations structures, but vertical levels, horizontaldivisions, specialization, and decentralization applied tothe membership structure of a large, diverse, and complexagricultural cooperative.

Improving Vertical Information Flowsin the Membership Structure

The case studies show that most information flows fromthe apex of the operations structure to all levels of themembership structure. Information flows among levels inthe membership structure are limited to informal flows orinfrequent formal meetings of the membership. Bothstandard procedures and permanent structuralarrangements can improve the flow of information within‘the membership structure.

The use of standardized complaint procedures can be usedto ensure an undistorted flow of information from thegeneral membership to the board of directors. Flows ofnegative information upward through an operationshierarchy tend to be limited because of disincentives forrevealing poor performance. A standardized complaintprocedure giving a member access to the board as a lastresort can ensure that serious problems at the base of thecooperative do not go unnoticed.

Another procedure for assuring member access to theboard, or any other member representative body, is anopen-meeting policy. Such a policy expands the frequencywith which members may interact with member

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Figure 5

Membership Structure of a Large Agricultural Supply Cooperative

Regiona

~~1 Farmer Members

‘.1 Executive Members

f .: ;., .:.: ,:!.’ . . :,.. .‘:.’ ::y ‘... : .:. ., .:..)..

.’ ..‘..,.,., . . . “... ” ‘.., . .

Main :+@$p Board. .. . . .

L’.. ‘.. ”:. :,. .“‘..‘,,: ‘.:“. .I .::,. ‘:. . :, ‘. :;.

Committees

I I I I I I I I I I

Figure 6

Structure of a Large Grain Marketing Cooperative

BoardofDirectors

Commercial Operations Agricultural Policy & Member Relations,

Secretary

Assistant Secretary

Extension ResearchDivision Division

InformationDivision

representatives and prevents distortion of informationflows between members and representatives.

The use of a regular member survey or survey panel isonce again applicable in this context.

The cooperative’s member newsletter is a device thatcould be more frequently used for communication amongmembers. Individual directors or board committees cantake turns at writing a column for the member newsletter.A regular member question-and-answer section in thenewsletter, which includes a postage-paid return questioncard in its issues, has been successfully used by one largedairy cooperative. Such questions can be answered byeither management or directors.

A structural approach to improving information flowsfrom directors to members is used by a large Canadiangrain cooperative. As shown in figure 6, the manager ofthe agricultural policy and member relations divisionreports directly to the board of directors rather than to the

general manager. Such an arrangement substantiallychanges the flow of information vertically from the boardof directors to members and has significant consequencesfor the balance of power between board and management.

Parting Note

The above strategies provide a few examples of ways inwhich design strategies from organizational theory can beapplied to the membership structures of agriculturalcooperatives. These examples, these applications ofprinciples, are by no means exhaustive.

The structural needs of agricultural cooperatives varygreatly with the size of the business, the environmentalsituation of the organization and, doubtlessly, with amultitude of more subtle factors such as attitudes, values,culture, and style. There is no one structure suitable to allagricultural cooperatives.

Some of the design examples will find ready acceptance,

and others may evoke disapproval and disagreementamong those who read them. The intent of this report isnot to recommend any of these methods, but to provide athought-provoking variety of applications of organizationaltheory.

It is hoped that these guidelines and examples willstimulate innovative approaches to designing membershipstructures. The proliferation of many structuralalternatives would greatly broaden the number of modelsto draw from in designing effective structures to improvemembership structures.

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U.S. Department of AgricultureAgricultural Cooperative Service

Post Office Box 96576Washington, D.C. 20090-6576

A

Agricultural Cooperative Service (ACS) provides research,management, and educational assistance to cooperatives tostrengthen the economic position of farmers and other rural resi-dents. It works directly with cooperative leaders and Federal andState agencies to improve organization, leadership, and opera-tion of cooperatives and to give guidance to further development.

The agency (1) helps farmers and other rural residents developcooperatives to obtain supplies and services at lower cost andto get better prices for products they sell; (2) advises rural resi-dents on developing existing resources through cooperative ac-tion to enhance rural living; (3) helps cooperatives improveservices and operating efficiency; (4) informs members, direc-tors, employees, and the public on how cooperatives work andbenefit their members and their communities; and (5) en-courages international cooperative programs.

ACS publishes research and educational materials and issuesFarmer Cooperatives magazine. All programs and activities areconducted on a nondiscriminatory basis, without regard to race,creed, color, sex, age, handicap, or national origin.

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