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Cooperative: A Business Model

9 Dec 2016

By Ahsan Ali Thakur, Vice-Chairperson of ICA-Asia & Pacific Region

 

It’s a business model that is recognized all over the world. And it values have been implemented it everywhere.

 

It is basically a business model that allows individual to control the organization in a democratic manner. In simple words as stated by Ivano Barberini, former Director General of International Co-operative Alliance (ICA), in his book “How the Bumble Bee Flies” explains that it is like a group of children playing together, they have their own way of doing things and therefore have their own form of community. They nominate their own leader and thus are running things according to the individual's wishes (in a democratic manner of fashion).

We are not corporation, nor NGO’s, we are Co-operators and we want democracy in our business.

We are sustainable and develop communities with their interest in mind.

Definition of Co-operative Business Model

Defining something or respective entity allows to narrows down the information we require to a subsequent level and thus making it easier to work it out it frequency and range. Similarly it is much better to define the Cooperative business model through the definition provide by the International Co-operative Alliance (ICA). The definition is stated as mentioned below:-

“A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”

 

With this statement it is much clearer to focus our attention in a particular dimension.

Difference between the Co-operative and Usual Business Models

Sometimes it’s hard to differentiate between the usual business model (Investor-Owned Corporations and Nonprofit Organizations) and the Co-operative Model. In order to have a glimpse of how Co-operative are different, following is the information to have a clear idea.

(Please note that the information provided here is obtained from US Overseas Cooperative Development Council, 2007. Furthermore, the information is focused on the Co-operative business model and Investor-Owned Corporations.)

Co-operative

Usual Business Model

It is owned by members

It is owned by the Investor

Democratically controlled; one-member, one vote basis; equal voice regardless of their equity share.

Members are involved in the day-to-day business operations and receive services for their input.

Controlled by shareholders according to their investment share. Business decisions and policy are made by a board of directors and corporate officers.

Promote and assist community development.

May engage in selected community philanthropic activities.

Maximize customer service and satisfaction.

Maximize shareholder returns.

The board is directly accountable to members through nomination and election procedures.

Board election and nomination procedures afford little oversight opportunity to shareholders.

Shareholders are not likely to be able to

remove board members

Any surplus revenues (profits) earned by the co-op are reinvested in the business and/or returned to members based on how much business they conducted with the co-op that year. Many co-ops are obligated to return a portion of their “surplus revenues” to members each year. Members share losses and earnings.

Profits returned to shareholders based on ownership share. Corporations are generally not obligated to pay out dividends. Timing and amount of dividend payout are determined by the board of directors.

 

Cooperative itself is prospering in its own manner with pros and cons parallel to the current businesses needs and requirements of the economic crises that has engulfed the world. In a line, it is a model that involves a community to sustain itself.

 

“People makes Community, Community make the Co-operative and Co-operative makes a city.”

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