United States

Department of

Agriculture

ACS

Research Report

Number 75

Designing

StrudurG

Membership

for

Large Agricultural

Cooperatives
Abstract

Deslgnlng Membership Structures

For Large Agricultural Cooperatives

Gillian Butler

University Center for Cooperatives

University of Wisconsin

Madison, Wisconsin 53703

Produced through a Cooperative Research Agreement with:

Agricultural Ccoperative Service

P.O. Box 6576

U.S. Department of Agriculture

Washington, D. C. 20090-6576

This study develops strategies that large agricultural cooperatives can use to

improve their membership structures. Design principles from organizational theory

are adapted to apply to the membership structures of cooperatives. Eight case

studies of agricultural cooperatives illustrate the membership structures of diverse

types of agricultural cooperatives. The study concludes that case cooperatives who

have implemented strategies consistent with organizational design principles

provide effective mechanisms for member control.

Key Words: Cooperatives, member control, organization design, membership

structures.

ACS Research Report Number 75

August 1988
Preface

This research seeks to develop strategies that growing agricultural

cooperatives can use to improve their membership structures.

Tools employed to achieve this objective are organizational design principles

and case studies. Organizational design principles, once adapted for application to

membership structures, provide useful frames of reference for thinking about

cooperative structures. Case studies supply information about the experiences of

some growing agricultural cooperatives. Combined, these tools suggest strategies

that cooperative boards and managers may find helpful when considering how to

provide opportunities for members to express their opinions and participate in

cooperative governance.

Information about the eight agricultural cooperatives used as cases in this

research was gathered in two ways. First, cooperative board chairmen and

managerial personnel were interviewed using a structured series of questions.

Second, cooperative documents provided additional information about each of the

cooperatives.

Each of the case cooperatives has experienced growth and change in the past

two decades. These cooperatives vary widely in characteristics of their operations

and their membership. Both supply and marketing cooperatives are represented.

Some cooperatives serve a small geographical area while others serve a very

large area. Some deal in few products or services, while some deal in many.

Hopefully, board members and managers of many kinds of agricultural

cooperatives will be able to find something among these varied cases that

speaks to their own unique experience.
HIGHLIGHTS AND CONCLUSIONS .............................. iv

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

CHALLENGES TO MEMBER CONTROL ......................... 1

Size ..................................................... 1

Increasingly Diverse Farmer Clientele .......................... 2

Increasingly Unstable Agricultural Environment .................. 2

Increasing Complexity of Agricultural Cooperatives ............... 3

INCREASING MEMBER CONTROL ............................. 3

The Organization as an Information Processing Tool ............. 3

Dimensions of Organizational Structure ........................ 5

Dimensions of Membership Structure .......................... 5

Designing Organizational Structures for

Uncertain Environments .................................... 6

Structural Strategies for Diverse Environments .................. 7

Structural Strategies for Complex Environments ................. 7

Structural Strategies for Unstable Environments ................. 8

Structural Strategies for Designing Membership

Structure: Principles from Organization Theory ................. 8

Structural Strategies for Improving Information Flows ............. 8

CASE STUDIES: THE MEMBERSHIP STRUCTURES OF EIGHT

AGRICULTURAL COOPERATIVES .............................. 11

Data Collection ............................................ 11

Method of Analysis of Case Cooperatives ...................... 11

Organizational Charts and Measures of Dimensions

of Membership Structure ................................... 12

Cooperative A--A Diversified Local Farm

Supply Cooperative ......................................... 12

Cooperative B--A Rapidly Growing Supply and

Marketing Cooperative ..................................... 15

Cooperative C--A Geographically Dispersed

Livestock Marketing Cooperative ............................. 18

Cooperative D--A Multimerger Grain

Marketing Cooperative ..................................... 21

Cooperative E--A Highly Diversified Supply

and Marketing Cooperative ................................. 24

Cooperative F--A Vertically Integrated

Citrus Cooperative ........................................ 27

Cooperative G--A Service Cooperative with a Large,

Dispersed Membership ..................................... 30

Cooperative H--A Large Marketing Cooperative Manufacturing

Processed Products ....................................... 34

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

STRATEGIES FOR DESIGNING EFFECTIVE MEMBERSHIP

STRUCTURES, WITH EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Designing and Redesigning the Membership Structure . . . . . . . . . . . . 41

Who Is the Membership? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Choosing a Base of Representation and Horizontally

Dividing a Diverse Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

What Is the Cooperative’s Environment? . . . . . . . . . . . . . . . . . . . . . . . 43

Strategies for Complex Cooperatives: Specialization

and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Strategies for Complex Cooperatives: Adding Vertical Levels . . . . . . 44

Strategies for Complex Cooperatives: Decentralization . . . . . . . . . . . . 44

Strategy for Handling Unstable Environments:

Vertical Information Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Strategy for Handling Dynamic Environments:

Lateral Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Encouraging Horizontal Information Flows with Horizontal

Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Improving Vertical Information Flows in the

Membership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

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

. . . 111
Highlights and Conclusions

As agricultural cooperatives have grown over the years, they have developed

increasingly complex organizational structures. To adapt to increasingly diverse,

complex, and unstable conditions in the agricultural economy, they have added

vertical levels of authority, divided their work among numerous departments,

employed specialists, decentralized decisionmaking, and standardized reports and

procedures.

Membership structures have evolved more slowly. The most common

structural changes are specializing the board’s work into functional committees

and adopting an executive committee with the ability to act more quickly and

frequently than the full board. In some cases,\vertical levels of representation have

been added: elected delegates or executive committees have been added to

attend to some decisionmaking tasks. Other cooperatives have divided their

membership into units for the purposes of voting, thus improving the

representation of a diverse membership.

Among the eight cooperatives examined in this report, when the membership

structure has remained simple while the cooperative has grown, there has been

member discontent or an expressed need by management for an increased inflow

of information from the membership. In some relatively large cooperatives,

however, well-developed membership structures provide multiple mechanisms for

member control.

Yet, no single membership structure is appropriate for all agricultural

cooperatives. Cooperative memberships vary in numbers, dispersion, size of farm

operations, types of farm operations, and other features. Operations of an

agricultural cooperative may involve the sale of a single product or service, or

operations may be diverse. The environment of the cooperative may be stable,

enabling many activities to be standardized by rules and procedures, or it may be

unstable, requiring new decisions impossible to foresee. Similarly, the

cooperative’s operations may be simple and easily understood, or complex,

requiring specialized personnel. These factors need to be taken into account when

designing structures to improve member control of cooperatives.
Combining recommendations from organizational design theory with the

experiences of eight agricultural cooperatives, the study concludes with

suggestions and strategies for designing effective membership structures. They

include the following:

1. Effective design of membership structures depends on reliable information

about who the members are. This may be gathered as part of the procedure for

joining the cooperative, through a computerized system or through member

surveys.

2. Membership structures should grow and change in response to growth

and change in the cooperative enterprise and in its external environment.

Membership structures should be periodically evaluated and restructured to reflect

changing conditions.

3. The membership should be divided for voting into units that reflect

meaningful differences in the needs of members. Although geographic districts are

most commonly used for voting purposes, this division may not provide for the

most meaningful representation of member interests.

4. When the cooperative’s operations are technologically complex or highly

diverse, specialized committees may maximize the effectiveness of member

contributions to cooperative governance.

5. When the cooperative’s operations are complex, adding additional levels

of representation (such as a delegate body) to the member structure increases the

number of opportunities for members to participate in cooperative governance.

6. Decentralizing oversight of some ongoing operations of the cooperative to

member committees and delegate systems can free the board to focus on crucial

strategic and policy decisions.

7. Member input in rapidly changing environments can be improved through

the use of specialized ad hoc committees, survey panels, and hearings.

8. Flows of member input can be effectively channeled to decision points

within the cooperative by the use of formal member structures that provide for

interaction between member leaders and midlevel managers.
Designing Membership Structures

For Large Agricultural Cooperatives

Gillian Butler

Research Specialist

University Center for Cooperatives

University of Wisconsin-Extension

INTRODUCTION

Over the past few decades, many agricultural cooperatives

have grown rapidly. Facing increasingly concentrated

agricultural markets, agricultural cooperatives expanded

their operations to meet the needs of their producer

members efficiently and competitively.

Cooperatives have grown by many different methodsthrough merger, acquisition, diversification, and vertical

integration. This growth has not only increased the size of

agricultural cooperatives, but has changed the nature of

their operations. Many agricultural cooperatives have

changed from small organizations providing simple

services for a handful of local members into complex

enterprises with multiple lines of business and thousands

of members scattered over wide areas. Instead of

operating in stable and predictable traditional markets,

cooperatives compete in dynamic, highly competitive

markets where the ability to respond and adapt quickly is

critical to business success.

These changes make it increasingly difficult for

agricultural cooperatives to ensure democratic member

control of the cooperative business. It is more difficult to

provide for meaningful member participation in large

cooperatives than in small ones. As cooperative businesses

become more complex, professional managers and

specialists make many decisions once made by the board

of directors. As cooperatives diversify their product lines,

members may disagree about a cooperative’s priorities.

And as agricultural cooperatives enter rapidly changing

markets, the ability of a democratic organization to act

quickly comes into question. Because of these changes,

improved membership structures are needed to ensure that

cooperatives remain responsive to their members.

CHALLENGES TO MEMBER CONTROL

Size

Size is the factor most often blamed for dwindling

member control of farmer cooperatives. In a small local

cooperative, people are likely to know each other. A high

level of interaction and communication exists among

cooperative members and management. As the cooperative

grows, it becomes bureaucratic. People lose the sense of

“belonging” to the cooperative and become alienated.

Participation in the cooperative decreases, and member

control may dwindle.

However, recent research on cooperative member control

has failed to support the belief that cooperative size alone

undermines member control. One cooperative researcher’

carefully reviewed five studies that examined the

relationship between member control and the size of

agricultural cooperatives. She concluded that these studies

“do not support the hypothesis that increased size means

less member control of cooperatives.” Careful design of

membership structures may help to overcome the negative

consequences of size for member control.

Although size alone does not preclude effective member

control of agricultural cooperatives, factors often

associated with size may have crucial effects on the

effectiveness of a cooperative’s membership structures.

‘Van Ravensway, Eileen. “Formal and Substantive Democracy in

Cooperatives.” Co-ops Working Paper 5. Michigan State University.

1982

1
Increasingly Diverse Farmer Clientele

As agricultural cooperatives have changed over the last

two decades, so have their farmer members. Many

changes in the farm population are continuations of trends

that began in the 1930’s, such as specialization in farming

and the emergence of a “dual structure” in agriculture. A

new trend affecting the farm population is the increasing

number of part-time farmers.

Farmers continue to specialize. For example, some

western cattle operations have specialized into feeder

production and feedlot operations. As a result, there is

often no single “farmer position” on issues affecting

agriculture in general. There are often conflicting

economic interests even among producers of a single

commodity. This diversity of farmer interests makes it

harder for agricultural cooperatives to determine what is

best for their members as a group.

The varying demands for goods and services of member

farmers with different farm enterprises have often caused

cooperatives to diversify their product lines in attempts to

better serve their diverse membership. Diversification of

product lines has sometimes produced conflicts among

members over such things as priorities for investing

cooperative capital and how to allocate overhead costs

among members.

The trend toward fewer and larger farms has continued in

recent years, fueled by low product prices, high interest

rates, and a strong dollar that has limited export markets.

Faced with these conditions, farmers have either increased

production to increase gross income or turned to off-farm

employment to supplement farm income. As mediumsized farmers follow one or the other of these strategies,

two subgroups with very different needs emerging from

the farm population are the part-time farmers and the

large-scale commercial farmers. The increase in numbers

of part-time farmers has been particularly dramatic in

recent years. In 1974, there were about five full-time

farmers for every three part-timers. By 1978, the ratio

was almost 1 to 1.

The interests of large farmers and small or part-time

farmers may diverge. For instance, quantity discounts

offered to large farmers to retain their business may strike

small farmers as unfair and inconsistent with cooperative

principles. On the other hand, part-time farmers may need

the cooperative to be open on weekend or evening hours,

which full-time farmers may consider an unnecessary

expense.

Increasingly Unstable Agricultural Environment

The agricultural environment keeps changing at an

increasingly rapid rate. Causes of instability in the

agricultural sector include: the declining role of the farm

level in the food system, the internationalization of

agricultural markets, and the destabilization of the Federal

agricultural policymaking process.

Today the farm sector is only a small part of the total

food system. Studies have shown that at least 80 percent

of the food system’s contributions to the gross national

product (GNP) is from nonfarm sectors. As input

production, output processing, and marketing activities

have moved off the farm, producers have increasingly

been at the mercy of events in both input and output

markets. The effects of the oil crisis on agriculture

illustrated the destabilization that results from being but a

modest part of an interdependent food production system.

Likewise, the internationalization of agricultural markets

has had dramatic effects on U.S. agriculture. The U.S.

farmer is increasingly dependent on international markets

to maintain domestic price levels in an era of surplus

production. The price effects of poor world wheat

harvests in the early seventies and of declining exports

due to a strong dollar in the eighties illustrate the

destabilizing effects of international markets on the U.S.

agriculture.

In the 1960’s and the 1970’s, new participants entered the

national agricultural policymaking process. Labor,

consumer, and welfare groups transformed agricultural

policy into food policy. As a result, policy outcomes have

become extremely uncertain. Moreover, agricultural

policy, once legislated every 5 years, is now being

rewritten yearly.

.A rapidly changing and unpredictable environment

presents a challenge to democratic governance of any

sort. It takes time to inform people, time to organize

meetings, and time to reach agreement. A cooperative in

a rapidly changing environment may not be able to react

quickly and effectively to a rapidly changing environment

if member control mechanisms are slow and clumsy. On

the other hand, if management is given sole authority to

make timely decisions, the cooperative may drift in

directions neither intended nor approved by the

membership.

2
Increasing Complexity

of Agricultural Cooperatives

Just as the agricultural environment has become more

turbulent in recent decades, it has also become more

complex. One factor contributing to the complexity facing

agricultural cooperatives is vertical integration.

Vertical integration is the extension of a business to

different stages of production or distribution. Vertical

integration may be backward into manufacturing or

ownership of primary resources (such as oil wells or

phosphate mines) or forward into processing,

transportation, or retailing. Some of the larger agricultural

cooperatives have employed this growth strategy and

extended operation vertically. The vertically integrated

cooperative often faces highly competitive markets

dominated by very large firms. High levels of

management expertise are required for success in these

markets. Additionally, vertical integration enters the

enterprise into multiple markets. Essentially, management

must be able to control two or more types of businesses

within one firm.

As cooperatives enter new areas such as processing,

product development, and manufacturing, the ability of

member representatives to make informed judgments

about cooperative business decisions becomes strained. It

is difficult for a part-time board of farmer-members to

monitor and provide oversight to complex business

decisions requiring careful consideration of large amounts

of information. Few farmers, busy managing their own

farm operations, have the time.

As the cooperative business grows more complex, the

cooperative is likely to hire specialists. Decisions affecting

members may be delegated by the general manager to

these specialists in the organization. The board, dealing

only with the general manager, may not have input into

many potentially significant and long-term decisions.

Indeed, they might not even be aware that decisions with

long-term consequences are being made.

INCREASING MEMBER CONTROL

Cooperative activists have long been aware of the

problems of maintaining an active and involved

membership as the cooperative business becomes large

and complex. Many cooperatives have adopted member

relations and communications programs in an effort to

increase member participation. These programs are

important and necessary to ensure member involvement.

A second way to increase member control of growing

cooperatives is to redesign membership structures.

Cooperatives are uniquely different from investor-owned

firms because of their democratic membership structures.

These structures enable cooperatives to respond to the

needs of their customer (members) more effectively than

traditional firms. The dissatisfied customer of an investorowned firm can only “vote with his feet” to express

discontent, that is, take his business elsewhere. A

cooperative, member/customer in contrast, has additional

means to express opinions, such as voting for directors

and attending cooperative meetings. While “voting with

the feet” expresses dissatisfaction with a business, it

provides very little information about the nature of

customers’ complaints or the alternative products or

services customers desire. A cooperative’s membership

structure, however, enables cooperative

member/customers to provide much richer information to

guide the cooperative in responding to member needs.

The Organization as an Information

Processing Tool

Some organization theorists find it useful to think of an

organization as a tool for processing information. This

model provides a guide to designing cooperatives in a

way that takes advantage of the opportunities for

‘ ‘voice, ’ ’ for rich information inputs, inherent in the

membership feature of cooperative organization.

Information about desired outcomes, or preferences, and

cause/effect relationships is necessary to make effective

organizational decisions. A group can act together as an

organization only if they know what they want and how it

can be achieved. If either of these is unknown, the

organization is faced with uncertainty.

In a cooperative, the membership structure is a source of

information about member goals and preferences.

Cooperative management is hired by the members to

provide the technical information necessary to reach

member goals. The cooperative’s organizational structure

is a vehicle for bringing these two kinds of information

together so the organization can make effective decisions.

By changing cooperative organizational structure, we can,

in effect, redesign the cooperative so that it is a more

efficient tool for bringing together the information

necessary for good decisionmaking.

3
Dlmensions of Organizational Structure

Traditionally, organizational structure is depicted with an

organizational chart, such as in figure 1. The vertical

levels represent the hierarchy of decisionmaking authority

within the organization. The horizontal divisions in the

chart show how work is divided into various departments

and the different types of jobs.

Organizational theorists use a chart to identify various

dimensions of organizations. These dimensions permit

description of the traits of specific organizations and

comparison of organizations. The following describes

dimensions of organizations that come from orgarizational

charts :

1. Organization size. Two common ways to measure size

are number of employees and sales volume.

2. Number of vertical levels. These represent the chain

of command. For example, the organization represented

in figure 1 has three vertical levels.

3. Number of horizontal divisions. These are the major

subunits that the work is divided among. They are

measured by counting the number of departments that

report to the general manager. The organization in figure

1 has four horizontal divisions.

4. Basis of horizontal division. The major subunits may

represent markets, clients, products, or functions

(marketing, finance, etc.). The basis of horizontal division

in figure 1 is mostly by product line.

5. Specialization. When work is specialized, each

employee attends to only a narrow range of tasks.

Specialization can be measured by counting the number of

different job titles in an organization. The level of

specialization in figure 1 is 11.

6. Supervisor/staff ratio. This is the total number of

supervisors divided by the total number of nonsupervisory

personnel in an organization. The ratio indicates the

administrative intensity of the organization.

In addition, several others are not revealed by an

organization chart, but can be determined by examining

records or interviewing personnel. Among these are:

7. Standardization. The level of standardization is high

when many reports, meetings, or procedures recur in a

similar way across departments.

8. Centralization of decisionmaking. Decisionmaking is

highly centralized when a few people at the top have most

of the authority. Conversely, decisionmaking is

decentralized when the authority is delegated to personnel

at lower levels of the organization.

Dimensions of Membership Structure

A traditional organization chart is a useful tool to

describe part of a cooperative; however, it does not

include members as part of the organization. Cooperatives

have operations and membership structures.

The operations structure of a cooperative does the actual

day-to-day work. It is composed of the management and

employees, and is often represented by a traditional

organization chart.

Membership structure, usually discussed only in terms of

voting rules and terms of office, can be viewed freshly

from the perspective of organizational theorists. An

organization chart, similar to one for operations, can be

developed (figure 2). It features vertical levels, horizontal

divisions, and specialized roles.

Specific traits can be identified so cooperatives can be

compared. Among them are:

1. Membership size.

2. Vertical levels. Membership, as well as operations,

structure may have several levels in the chain of

command. For example, figure 2 shows two vertical

levels-members elect delegates who in turn elect the

board of directors.

3. Horizontal divisions. Figure 2 shows four horizontal

division (member districts).

4. Representation. The basis may be geographical (figure

2), or by type of crop, size of farm, and so on.

5. Specialization. The level of specialization is

determined by the number of different formal roles

members have in governance (seven in figure 2).

6. Representative/member ratio. This is the total number

of members divided by the total number of elected

representatives.

7. Standardization. Just as the operations bureaucracy of

the cooperative may adopt routine rules and procedures to

4
Figure 1

Structure of a Hypothetical Organization

General

Manager

Admin.

Division

Manager

-TBookkeepers

Station

Local

L

spc.

Employees Employees

Y

Employees

Feed r-l Division

Manager

Crop Prod.

r-l

Division

Manager

I 1

Livestock Prod. Spc.

1

Local Crop Prod. Spc.

Local Local

Feed Feed

spc. spc.

Dairy

Service

Salesman

Local

Feed

spc.

A_

Local

Crop. Prod.

spc.

Employees Employees Employees Employees Employees
Figure 2

Organization Chart Depicting a Hypothetical Membership Structure

Board of Directors

Nominations

Committee Delegate Body

District 1 District 2 District 3 District 4

Membership

simplify its work, so do member representatives.

8. Centralization of decisionmaking. The level of

specialization is determined by the number of

representatives making decisions. The fewer the number

the more centralized it is.

Designing Organizational Structures

for Uncertain Environments

businesses. Instead, the best design for a business depends

upon how much information it needs. Organizational

theorists have identified various conditions that increase

uncertainty for an organization. These conditions are

important to consider when designing an organization.

Three conditions they have identified-diversity,

complexity, and instability-pose member control

problems for agricultural cooperatives.

Extensive research on organizational design has

that there is no “one best way” to structure all

6

concluded

A cooperative with a diverse membership needs more

information about member preference than cooperatives

where members are more alike. A cooperative with a
rapidly changing, unstable environment needs a structure

that can process information quickly. And a cooperative

in a complex environment needs sophisticated information

to cope with technical demands.

A business operating in an uncertain environment will be

more successful if it changes its structure to either reduce

the amount of information it needs or to increase its

ability to process information. Such changes can be made

by altering various dimensions of an organization’s

structure.

Organizational theorists have identified structural

strategies that improve organizational performance when

the environment is diverse, complex, or unstable.

Although these strategies were devised to apply to

operations structures, the principles underlying these

strategies can also guide the design of membership

structures.

Structural Strategies

for Diverse Environments

An organization facing a diverse environment can

minimize the amount of information needed by any single

group in the organization by identifying like segments of

its environment and establishing separate structural units

to deal with each. Similar segments of the organization’s

environment become the basis for dividing the

organization into horizontal sections. The more diverse

the organization’s environment, the more separate

divisions it should establish, increasing the number of

horizontal divisions in the organization’s structure.

The horizontal division strategy can be used by a

cooperative with a diverse membership. By identifying

like segments of the membership and establishing

structural units for each, the range of viewpoints and

interests a single representative needs to represent is

reduced. Many bases of representation may be appropriate

for the membership structure of an agricultural

cooperative: geography, size/class of farm operation, type

of commodity produced, to name a few. Since the

purpose of membership structures is to provide

information about member preferences, a base of

representation that reflects the different opinions of

members on relevant issues is desirable. Cooperatives

with diverse members may need more horizontal

membership divisions than those with a more uniform

membership.

Structural Strategies

for Complex Environments

Another source of uncertainty for an organization is

complexity. Complexity is the extent to which the

organization requires sophisticated technical knowledge to

operate efficiently. A cooperative’s environment becomes

increasingly complex as it takes on lines of business

which its member patrons do not have the skills to

manage themselves. Complexity increases as the array of

products and services the cooperative supplies becomes

further removed from the farming operations of its

members. Complexity increases as the marketing options

facing the cooperative increase and its efforts must be

ever more targeted.

According to organization theory, an organization with

increased information needs due to complexity can use

three different strategies to manage its information needs.

The first increases the capacity of the organization to

process information by increasing the number of vertical

levels in its hierarchy, adding new roles to handle the

information collection and decisionmaking tasks. This

strategy often increases the supervisor/staff ratio of the

organization. The second strategy open to an organization

in a complex environment is specialization. The

organization can create jobs that require an individual to

cope with only a limited span of problems, and it can hire

technical experts with training to solve these specific

problems.

Decentralizing decisionmaking is a third strategy for

coping with complexity. Since one human brain can

process only a limited amount of information,

decisiomnaking in complex environments should be

divided among participants in the organization.

Decisionmaking authority should be decentralized to

specialists who possess the technical information necessary

to a particular decision.

Member structures can use these same strategies to reduce

the uncertainty caused by environmental complexity.

Adding levels of representation to the membership

structure includes more individuals to collect information

from 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 information

relevant to cooperative decisionmaking becomes

overwhelming. It is unrealistic to expect members to be

informed on all phases of cooperative decisionmaking.

7
The efficiency of member control can be enhanced

through specialized committees dealing with single

commodities or single aspects of operations.

Similarly, decentralizing decisionmaking authority to

groups of member representatives (for instance,

committees or delegates) to make specific types of

decisions can increase the number of decisions members

can act on.

Structural Strategies

for Unstable Environments

When the organization’s environment is unstable, it is

impossible to predict future situations. A cooperative’s

environment may be unstable due to irregular price

movements, rapid member turnover, unpredictable

demand in international markets, or changing government

regulations.

In a stable environment, an organization can standardize

many of its activities to achieve coordination and

predictability. In an unstable environment, it is not

possible to standardize because new situations constantly

occur that do not conform to rules. The organization must

remain flexible so it can adapt quickly to new

circumstances. Thus, organization theory tells us that in

an unstable environment, it is inappropriate for an

organization to routinize its responses through

standardization.

A shifting, unpredictable environment calls instead for

organizational strategies to increase the capacity to

process information quickly. Two such strategies are

investment in sophisticated vertical information systems

and creation of lateral relationships. Vertical information

systems collect information at the point of origin and

direct it to appropriate places in the organization. Lateral

relations decentralize decisions without creating permanent

new structural units. Examples of lateral relations are

direct interaction, liaison roles, and task forces.

Similarly, membership structures in stable environments

can be spelled out by precise rules. Regular formal

meetings are adequate to conduct business and stay in

touch with member views.

In unstable environments such a strategy is ineffective.

Instead, steps to increase the amount of information from

the membership are appropriate. Vertical information

systems and lateral relations can be used in member

structures as well as operations structures. Examples of

vertical information systems are a consumer panel and

regular member surveys. Lateral relations devices for

member structures include hearings, task forces, and ad

hoc committees.

Structural Strategies

for Designing Membership Structure:

Principles From Organization Theory

Table 1 summarizes the previous discussion about how

principles from organization theory may be applied to

design membership structures that can be more effective

when a cooperative faces an environment which is

characterized by uncertainty because of diversity,

complexity, and instability.

Structural Strategies

for improving information Flows

The preceding applications of organizational design

principles suggest how cooperatives operating in uncertain

environments can improve their membership structure.

They do not, however, show how membership and

operations structures can be designed to interact

effectively. A few principles from organizational

communications theory are useful in this regard.

Organizational communications experts point out that a

primary function of organizational structure is to restrict

information flows. Although an organization must process

information to coordinate group actions, if it is deluged

with information it will become overloaded. Information

“overload” is a state in which excessive communication

Table l-Design strategies for adapting the

membership structure to environmental

uncertainty

Source of Uncertainty Strategy

Diversity Horizontal division

Appropriate base of

representation

Complexity

Decentralization

Vertical levels

Specialization

Instability Vertical information

systems

Lateral relations

8
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 to

breakdown. Ideally, structure prevents overload by

restricting information flows and directing information

only to those locations where it is most needed.

An organization’s structure guides information flows

within the organization, because structure influences who

reports to whom and who works with whom on a day-today basis. Therefore, it is possible to improve the

efficiency of information flows by changing organizational

structure.

Organizational information flows can be described in

terms of an organization chart. The directian of

information flows may be “horizontal” (among

participants at the same level of the organization), or

‘ ‘vertical” (between organizational participants at different

levels of the organization). Vertical information flows

may be either downward (descending through vertical

levels), or upward (ascending through vertical levels).

Figure 3 depicts the parallel organization structures of a

cooperative (operations structure and membership

structure). We see that horizontal information flows

include flows among members, between members and

operating personnel, or between directors and the general

manager. Downward flows include flows from the general

manager to operating personnel and flows from the board

of directors to the general membership. Upward flows

include flows from operating personnel to the general

manager and from the general membership upward to the

board of directors.

Theorists have made several observations about

organizational information flows in business organizations:

1. Horizontal communications are more frequent than

vertical flows.

9
2. Vertical flows are subject to distortion and omission.

3. Downward communication flows are more frequent

than upward flows.

4. There is a scarcity of upward negative feedback.

Horizontal information flows are more frequent than

vertical flows because people are more prone to speak

freely and openly to their peers than with superiors. At

first glance, this observation may seem more pertinent to

authority relations among employees of the cooperative

than to relations between members of a cooperative.

However, research indicates that cooperative members

communicate more effectively and more often with

neighbors and fieldmen than with their directors.

Similarly, directors report that they base their judgments

about cooperative affairs largely on data supplied by

management.

Horizontal flows, though frequent, are more often

informal than formal. Thus, the content and quality of the

flow is not controlled. Information content may not be

relevant to organizational objectives. Thus, the use of

these channels may be improved by designing them into

the structure of the organization and clearly defining the

scope of relevant communication. Additionally, horizontal

communications may lead to a closed circuit, with people

neglecting to communicate to those in other levels of the

organizational hierarchy. Thus horizontal channels need to

be supplemented with structures for vertical communication.

Vertical flows are prone to distortion and omission

because messages are apt to be interpreted differently by

each individual in a communications chain. Different

individuals will stress different aspects of a message and

omit parts of a message they believe to be unimportant.

This is the common phenomenon illustrated by the game

of “telephone.” The more vertical levels information

crosses in an organization, the more likely that the

information will be distorted.

Information more often flows downward than upward

through organizational levels. Participants at the top of

the organization usually have more control over

information and information resources than those at the

bottom of the organization. For instance, they have more

access to global information that affects everyone and

they have support staff to write memos for them.

Cooperative researchers have verified that members of

some agricultural cooperatives have either infrequent or

no communication with cooperative directors.

The scarcity of upward negative feedback in organizations

is due to a desire to please superiors and negative

incentives for reporting poor performance. Although these

conditions are likely to apply in the operations structure

of a cooperative they are not relevant to the membership

structure. In fact, the relationship between directors and

members is likely to cause a scarcity of negative

information flowing down through the membership

structure because directors are held responsible for

cooperative performance and members may vote directors

out of office.

Several structural strategies can be used to improve the

efficiency of information flows in a cooperative. One

strategy is to design a “flat” structure, with few

hierarchical levels. Where there are few vertical levels in

an organization, there are few status barriers to inhibit

communication. Further, messages do not get distorted

because they are not passed through multiple individuals

in their path through the organization. Unfortunately, this

strategy is not appropriate in many large organizations.

Some of the advantages of a “flat” structure can,

however, be gained by providing opportunities for top

echelon officials to come into direct contact with

members. The annual meeting of cooperatives provides

one such opportunity. Neighborhood visits by cooperative

directors and district meetings of directors with local

members are other examples of this strategy.

Alternatively, mechanisms such as an ombudsman,

suggestions box, or similar devices allow individual

members to bypass vertical levels.

A second strategy is to formalize information flows. To

formalize something is simply to make it official. For

instance, farmer members may often give field personnel

their opinions about cooperative products and services.

This sort of communication can be formalized by

including it in the job description of field personnel as a

recognized part of the job and encouraging them to

actively gather and report this sort of information. Formal

horizontal information flows can provide an important

check on the power of top leaders. A strictly vertical

information system limits information threatening to top

officials from reaching those at the bottom of the

organizational hierarchy. Horizontal flows between

operational personnel and members may compensate for

the reluctance of directors to report poor cooperative’s

performance.

Probably the most widely used strategy to improve the

efficiency of organizational information flows is

standardization. Information flows are standardized when

10
they occur at regular intervals in a predetermined manner.

A common example of a standardized information flow is

a monthly report. Standardization affects information

flows in several ways. First, a standard report is one way

to formalize information collection, thus making it a

legitimate activity. Second, standardization can reduce

distortion and omission of information by requiring

uniform language and prescribing which information is to

be collected. Third, standardization can prevent

information overload by focussing information collection

on priority items. Finally, standardization can assure

regular upward flows of information. Even flows of

negative information can be improved by standardization.

For instance, standardized complaint procedures legitimize

complaints and make it easier to identify areas of

weakness in cooperative products and services.

CASE STUDIES:

THE MEMBERSHIP STRUCTURES

OF EIGHT AGRICULTURAL COOPERATIVES

The previous discussion examined how dimensions of

organizational structure and principles from organization

theory can be applied to the design of membership

structures of agricultural cooperatives. Next, eight

agricultural cooperatives are used as examples to explore

and illustrate the use of these concepts and principles.

These case studies allow us to determine whether or not

these organizational design principles have been put into

practice by agricultural cooperatives; and, if so, whether

these strategies have been successful in terms of

improving member control of cooperative decisionmaking.

The eight case cooperatives were chosen to represent a

wide assortment of sizes, commodity types, environmental

conditions, and historical growth patterns. A wide variety

was chosen to take into account the varying circumstances

faced by agricultural cooperatives. Because structural

problems become acute only when cooperatives become

large, cooperatives were chosen from those with business

volumes greater than $10 million. Only centralized or

local cooperatives were chosen as cases.

The case cooperatives were not chosen in a random way

and conclusions drawn from them cannot be applied to the

entire population of agricultural cooperatives. However,

since a wide array of circumstances are examined, it is

likely that many cooperatives will recognize situations

relevant to their own circumstances among the case

materials.

Data Collection

Case study data were collected from two sources: from

interviews with cooperative management personnel and

member representatives; and from cooperative documents

(bylaws, annual reports, organizational charts, etc.).

At the headquarters of each case cooperative, interviews

lasting from 30 minutes to 1 hour were held with the

general manager and key management personnel reporting

directly to the general manager. In a few cases, managers

in the third tier of the organization chart were interviewed

to clarify decisionmaking responsibilities. A total of 42

cooperative personnel were interviewed.

The chairman or president of the board of directors was

interviewed in all but one cooperative, where the vicepresident was interviewed (the president was on vacation).

In each cooperative where there were formal member

structures other than the board, member representatives

were interviewed-delegates, advisory committee

members, and Young Couple group officers. A total of 14

member rcpr~.szntatives were interviewed.

Method of Analysis

of Case Cooperatives

Analysis of the case cooperatives is guided by the

concepts drawn from organizational design and

communications theory. The analysis illustrates the

application of these concepts and demonstrates how they

are 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 briefly

reviewed.

Step 2. The environmental conditions within which the

cooperative operates are identified.

Step 3. Current operations and membership structures are

described.

Step 4. Cooperative decisionmaking patterns, standardized

information flows, and interactions between cooperative

participants are described.

1 1
Organizational Charts

and Measures of Dimensions

of Membership Structure

Organization charts of the operations structures of the

eight case cooperatives were drawn according to methods

described in Van de Ven and Ferry.* The following rules

were followed in drawing the charts of membership

structures.

1. Elected positions are represented by solid outlines.

2. Rectangles represent positions that have independent

decisionmaking authority.

3. Bodies with no independent authority are not counted

as separate vertical levels (i.e., committees of board

members reporting to the board).

4. Appointed positions are represented by broken lines,

and are squared or circled depending on whether they

have independent authority.

5. Member positions appointed by management and

reporting to management only are not included in the

membership structure.

6. The number of individuals in a membership group is

shown only if the group is composed of separate

individuals as opposed to being a subgroup of another

body.

The dimensions of the membership structure measured

from the membership charts are: membership size

(number of members); number of vertical levels (number

of levels of membership groups with independent

authority); number of horizontal divisions (number of

membership groups for the purpose of voting for the

board of directors); basis of representation (the base on

which the general membership is divided into groups to

vote for the board of directors); the

representative/member ratio (number of members divided

by the number of elected representatives); and the degree

of specialization (number of official member role titles).

To determine the degree of centralization of

decisionmaking in the cooperative, the chairman of the

board, general manager, and top line managers (managers

*Van DeVen, Andrew H., and Diane Ferry. Measuring and Assessing

Organizations. New York: Wiley and Sons, 1980, pp. 418427.

reporting to the general manager) were asked to identify

who had decisionmaking authority over 12 common

cooperative decisions. Decisions were chosen that were

likely to be important to members.

Patterns of information flow were explored by asking

each interviewee to describe all standardized reporting

relationships and interactions with other cooperative

participants. “Standardized” was defined as documented

in writing, regularly, scheduled, or customary. In addition

to identifying opportunities for member voice, the

examination of standardized information flows and

interactions gives a feel for the general level of

standardization in the organization.

Cooperative A

A Diversified Local

Farm Supply Cooperative

Growth Cooperative A is a diversified farm supply

cooperative offering a wide range of services to both

producer and nonproducer members. This cooperative

serves a trade territory that includes both an urban center

and dairy and cash grain farms.

Two mergers with neighboring farm supply cooperatives

allowed the cooperative to expand horizontally,

broadening its member base and expanding existing

operations to achieve economies of scale. Presently, the

organization offers a complete line of products and

services in the agronomy, petroleum-automotive, and feed

areas, 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 of

employees, gross sales volume, and number of

members, 1960-80

Measure of size

Year Employees Member’

Gross sales

volume

- - Number - - Millions

1960 NIA 970 N/A

1965 19 990 0.2

1970 24 6,551 1.7

1975 32 8,027 3.4

1980 46 9,994 8.9

llncludes both producer and nonproducer members.

12
Figure A-l

Operations Structure of Cooperative A, March 1983

,

lAdmin. r-l Division

Manager

-TBookkeepers

Local r-Station

spc.

lEmployees

I

Petroleum

Division

Manager

Local

Station

spc.

Employees Employees

wr1 o p Prod. Spc.

Local Local

Feed Feed

spc. spc.

I

Dairy

Service

Salesman

Local

Feed

spc.

Local

Crop. Prod.

rL

spc.

-T- -TEmployees Employees

lEmployees Employees Employees

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

A’s membership is moderately diverse. Member farms are

of two types, dairy and cash grain. Farm size varies

moderately. Members are concentrated in a local area.

The cooperative serves both producer members and urban

consumers and offers a large variety of goods and services to serve these two distinct market segments.

Management personnel felt the cooperative’s operations

were moderately complex because of a high rate of

technological change in agricultural input lines. Managers

named the unpredictability of the current agricultural

economy as the primary source of instability for their

operations.

Operations Structure Cooperative A’s operations

structure is horizontally divided into four divisions by

product-line. Three vertical levels are present.

This structure is new to Cooperative A, adopted 2 years

ago when a new general manager began. Initially, 12

employees from 3 sites were reporting directly to him.

The result was informatior overload, and the manager

was left with no time to handle crucial problems. The

new manager reorganized the cooperative’s operating

structures to adapt them to the needs of a growing,

diverse business in an increasingly complex environment.

His design strategy was to create horizontal divisions to

deal with similar segments of the environment and to

increase the number of supervisory personnel.

Decisionmaking was decentralized to newly created

division managers. Figure A-l depicts cooperative A’s

operations structure.

Membership Structure Cooperative A’s membership

structure is based on eight geographical districts (figure

A-2). Seven of these are producer districts and one is a

nonproducer district. One director from each district is

elected at large by the membership. The director from the

nonproducer district does not have voting rights. Directors

serve 3-year staggered terms, and may only serve for

three consecutive terms.

The board of directors divides its work among seven

specialized committees, an elected executive committee,

and six committees appointed by the board president.

Cooperative A’s membership structure has been slowly

evolving in recent years. The cooperative’s districts were

redrawn in the course of merger proceedings, adding

districts to represent members from the merging

cooperatives 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 membership

structure of Cooperative A

Vertical Levels: 1

Horizontal Divisions: 8 Districts

Basis of Representation: Geography & Membership

Class

Representative/Member

Ratio: 1:838

Specialization: 8 Roles

districts to one. Two years ago the cooperative’s bylaws

were changed to distinguish between Class A producer

members and Class B nonproducer members. At the same

time, the nonvoting nonproducer directorship was

instituted.

The number of terms a director may serve was limited

recently because some members felt they did not have

adequate control over cooperative decisionmaking.

Members from the territory of the most recently merged

cooperative were upset when some services were

discontinued at the former cooperative’s site. These

members brought a resolution to the floor of the annual

meeting limiting the terms of directors.

14
In summary, Cooperative A has adjusted its membership

structure to growing numbers of members mainly by

modifying the geographic base of representation. No

vertical levels have been added, and horizontal division

has been limited, yielding a very low representative to

member ratio. The board has specialized into committees,

allowing it to more efficiently monitor the cooperative’s

diverse and complex operations.

Decisionmaking, Information, and interaction The

board of Cooperative A retains final authority over all

decisions involving capital structure, new enterprises,

allocation of patronage refunds, and purchases of capital

equipment over $2,000. Although specialized committees

are used to review issues and recommend decisions,

decisionmaking is centralized at the board level. All

committee recommendations must be approved by the full

board. The executive committee of elected officials is

authorized to act in specified personnel matters, but

otherwise brings decisions to the full board.

The board receives a monthly financial statement, a report

detailing all lost accounts, and a report on the

cooperative’s current grain position. The finance

committee receives a quarterly report on accounts

receivable.

Members receive an annual financial report at the annual

meeting. All members also receive a bimonthly newsletter

that contains a message from the general manager and

each of the division managers.

There are no structural mechanisms for flows of

information between directors and members.

The general manager meets with the board at their

monthly meetings. He/she also attends monthly executive

committee meetings. The petroleum division manager

meets with the finance committee quarterly. Other

division managers meet with the board or board

committees when an issue is addressed that requires their

input.

Division managers interact with members at frequent

product meetings (educational) and at the annual Farm

Expo held as part of daylong annual meeting activities.

A year ago, directors made a series of farm calls in their

districts to find out if members are satisfied with

cooperative activities. This year, ‘farm forum‘ meetings,

chaired by the district director, were held in each district

for the same purpose.

Summary As Cooperative A has grown, it has divided

its operations structure horizontally by product and

adopted three vertical levels. This is an appropriate

strategy to accommodate its complex and diversified

operations.

It has responded to the diversity of its membership by

redistricting and creating separate classes of membership

from producers and nonproducers. No vertical levels have

been added to the membership structure; thus, the

representative/member ratio remains quite low (1:838).

Discontent expressed by some members with limited

opportunity to play an active role in cooperative

decisionmaking suggests that adding other elected member

positions may be a useful design strategy.

The directors of Cooperative A have attempted to provide

an additional avenue of information flow from the

members to their director through farm calls and farm

forums. A permanent structural mechanism for this

purpose may be appropriate.

Cooperative B

A Rapldly Growlng Supply

and Marketing Cooperatlve

Cooperatives B’s growth in members, employees, and

sales dollars has been largely internal. Cooperative B

bought a second facility and built a third. The cooperative

has grown steadily by expanding both its bean and grain

handling operations and its sales of farm supplies.

Diversity, Complexity, and instability Eighty-five

percent of the cooperative’s members reside within 15

miles of cooperative facilities. Farm size varies

Table B-l-Size of Cooperative B In number of

employees, gross sales volume, and number of

voting members, 1960-80

Measure of size

Year Employees

Producer

members

Gross sales

volume

-- Number - Millions

1960 N/A 807 2.3

1965 28 1,418 4.0

1970 30 1,781 4.7

1975 42 2,313 22.3

1980 53 2,519 30.1

15
Fiaure 8-l

Operations Structure of Cooperative B, September 1982

General

Manager

Traffic and Bean Reporter Grain Merchandiser

Agronomist

I I

Plant

Superintendent

SUPPlY

Manager

I

Comptroller

I

I I

Plant

Supervisor I

I

Employees

Employees Receptionist Accounting Manager

Plant

Supervisor

Employees Data Proc.

Employees I Mgr.

I I

Manager- Grain Maintenance Employees

Beans Supervisor Supervisor

I

Employees Employees Employees

Source-Interviews with Cooperative Personnel, September 1982

_-. _ _
moderately, but most producer members raise mostly cash

crop grain and beans. In summary, the membership is

relatively homogeneous. The cooperative offers a

moderate variety of goods and services.

Cooperative B’s operations are only moderately complex.

Complexity is seen as increasing, however, as farmer

member operations continue to grow in size and

sophistication. Management perceives the cooperative’s

environment as fairly stable.

Operations Structure The operations structure of

Cooperative B has changed slowly with the growth of the

business. Vertical levels were added to coordinate the

operations at new facilities. Specialists were hired, an

agronomist and a grain merchandiser.

Figure B-l shows that Cooperative B’s operations

structure is horizontally divided along functional lines.

Vertically levels have been added to the handling

operations. Interviews with management personnel reveal

that the general manager has retained most

decisionmaking authority.

Membership Structure The membership structure of

Cooperative B is simple, consisting of a board of nine

directors elected at large from the membership (figure

B-2). The ratio of representatives to members is low as a

result (1:280). Director terms are 3 years, and terms are

staggered. The membership is not divided into geographic

units, nor along any other dimension, for the purpose of

electing representatives.

A specialized committee structure is used by the board.

The chairman of the board reports that the executive

committee, elected by the board, is used as a ‘sounding

board’ rather than an independent decisionmaking unit.

Table B-2-Dimensions of the membership

structure of Cooperative B

Vertical Levels: 1

Horizontal Divisions: 0 (Entire Membership Only)

Basis of Representation: None

Representative/Member

Ratio: 1:280

Specialization: 8 Roles

Figure B-Z

Membership Structure of Cooperative B,

September 1982

Board c

u HcC

4 Directors (9)

I ’

Members (2,519)

Source-Cooperative documents and interviews with cooperative personnel,

September 1982.

On the other hand, the accounts receivable committee is

empowered to take action independent of the board.

Decisionmaking, Information Flows, and

Interactions The board of Cooperative B makes many of

the organization’s strategic and administrative decisions.

Generally, purchases over about $5,000 are submitted for

approval. Quality premium decisions must be approved by

the board. Market strategy is decided by management.

The board receives the monthly financial report when it

meets each month. The membership receives a financial

statement in the annual report at the annual meeting. In

addition, members receive a monthly newsletter

containing messages and information from the general

manager and top-line managers.

An employee may file a formal complaint form with a

director on the employee relations committee. This

provides a mechanism for the upward flow of negative

information through the operations structure to the board.

There is no similar standard procedure for member

complaints.

About 8 years ago, the general manager instituted a

member advisory board in order to stay in touch with the

17
membership. He chooses eight progressive, open-minded

members and asks each of those to choose three additional

members. The advisory board meets four times a year to

discuss suggested improvements, policy issues, etc. The

general manager feels the advisory board is an important

source of information about member preferences, but

stresses that the group is solely advisory, with no

independent decisionmaking authority. All top-line

managers and board members regularly attend advisory

board meetings. Board members do not preside at these

meetings.

Product meetings and two grain marketing meetings (all

educational) are held for all interested members during

the winter months, providing an opportunity for members

to interact with management staff.

Attendance at the annual meeting is encouraged by

distributing patronage refunds there. About 20-25 percent

of members attend.

Summary Cooperative B is a moderately diversified

supply and marketing cooperative serving a fairly

homogeneous group of producer members concentrated in

a local area. Operating in a relatively simple and stable

environment, it has evolved an operations structure with a

low degree of specialization and centralized

decisionmaking.

The board of directors has assigned tasks to specialized

committees, but for the most part retains final authority

for decisions. There are no structural channels for

member input to the board or for information flows from

the board to membership.

maintaining a high-quality product. The cooperative now

operates 10 facilities located in 3 States. Table C-l

illustrates Cooperative C’s steady growth in sales volume

and number of employees.

Diversity, Complexity and instability Cooperative C’s

members are scattered over four States. Some are singlecommodity operations, while others are of a ‘mixedfarming’ type. Member operations range from a few

animals to over a thousand. In summary, Cooperative C

has more diverse membership than most of the case

cooperatives. In contrast, the diversity of Cooperative C’s

operations is low: only one product is sold.

Management personnel at Cooperative C feel that its

environment is moderately complex and unstable.

Concentration among buyers produces a stiffly competitive

environment. Continual quality control must be

maintained, requiring close coordination with the

operations of member producers. A high level of

integration in the marketing chain and fast flows of

information by radio and teletype also contribute to

complexity. Instability stems from rapid price fluctuations.

Operations Structure Cooperative C’s operations

structure (figure C-l) has undergone several changes in

recent years. Previously, there were two directors of

production: these were merged into one to better

coordinate operations. Currently, Cooperative C has a flat

structure with little horizontal division of the executive

management. 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 board

indicates a felt need for more member input to

cooperative decisionmaking. Given a stable environment,

formal membership structures are an alternative for

fulfilling these informational needs.

Cooperatlve C

A Geographically Dispersed

Livestock Marketing Cooperatlve

Growth Livestock producers in six counties formed a

livestock marketing cooperative, and then merged with a

similar cooperative in an adjoining state. Later, the

cooperative moved out of several product lines to

specialize in marketing only one type of animal. Since

then, the growth of Cooperative C has been internal, built

on increasing sales volume and close attention to

Table C-l-Size of cooperative C In number of

employees, gross sales volume, and number of

members, 1960-80

Measure of size

Year Employees

Producers

members

Gross sales

volune

-- Number - - Millions

1960 31 4,280 2.9

1965 31 6,450 6.6

1970 50 8,480 8.1

1975 64 2,051’ 12.8

1980 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 _

Office

Mgr.

I

I

Employees

I

Director of

Production

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-TTTT

Employees 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 of

Directors (7)

Delegate Body (approx. 55)

and Alternates (14)

Districting

Committee (7)

Districts (7)

Members (2442)

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

Membership Structure Cooperative C has a

sophisticated membership structure (figure C-2) with a

delegate system, resolutions and districting committees

elected by the membership, and a board of seven

directors serving staggered 3-year terms. Directors are

elected from geographic districts.

This present structure is recent. Previously the

membership elected a delegate for every 15 members and

a separate advisory committee. Now, 1 delegate

represents 45 members and the delegates serve as an

advisory board as well. This was done to reduce ammal

meeting expenditures. In addition the districting

committee, which used to meet each year, now meets

only once in 3 years. This change was made because

frequent redistricting deprived some members of voting

for a director for many years.

Delegates are elected from their district to serve a l-year

term. Two alternates per district are also elected.

Likewise, each district elects a representative to serve on

the resolutions committee for 1 year. These structures

provide a high representative/member ratio (1:32). The

board has an executive committee, but no other

specialized committees.

Decisionmaking, information Flows, and

interaction The board of directors makes all final

decisions on capital structure, member policy, new

enterprises, patronage allocation, purchases over $1,500,

and quality premium programs. The board’s executive

committee does not have independent authority to make

decisions. It meets only to examine vouchers and payroll.

Decisionmaking is decentralized to the delegate body

20
through the resolutions process. The delegates vote to

approve or disapprove resolutions compiled by the

resolutions committee.

Board members receive weekly procurement and trucking

reports and a weekly summary letter from the general

manager. They receive a financial statement at their

monthly meetings. Policy changes made by the board of

directors are disseminated to employees through a formal

letter from the general manager.

Delegates and members receive a financial report,

production report, general manager’s report and director’s

report when they meet. In addition, all members receive a

monthly newsletter from the management.

Members have been encouraged to use a WATS lines,

recently installed, to communicate any comments they

might have to management. This provides a mechanism to

bypass vertical levels.

Members meet in their districts once a year. These

meetings are chaired by the director from the district and

attended by management personnel. Attendance is good

(about 25 percent of members), encouraged by awards

ceremonies for members. All members are also welcome

at the annual meeting.

Delegates meet three times a year, once at the annual

meeting, once jointly, and once grouped by eastern and

western districts. The board president presides at these

meetings. General manager, assistant manager, production

managers, and board members attend.

summ8r’y Although Cooperative C’s executives indicated

a complex and dynamic environment, the operations

structure of the organization has few vertical levels and

Table C-2-Dimensions of the membership

structure of Cooperative C

Vertical Levels: 2

Horizontal Divisions: 7

Basis of Representation: Geography

Representative/Member

Ratio: 1:32

Specialization: 6 Roles

minimal specialization. The lack of horizontal division is,

however, what would be expected from the low diversity

of operations.

Cooperative C’s membership is widely scattered over four

states, so it is divided into geographic districts. Although

there is no independent decisionmaking at the district

level, districts are key components of cooperative

governance, serving as the base of representation and the

key focus for member interaction with management and

with their director. A delegate structure is used to

increase flows of information from members to both

board and management. An independently elected

resolutions committee provides an additional avenue for

member input into cooperative decisionmaking.

A well-developed membership structure and numerous

standard&d interactions between members, management,

and board of directors provides Cooperative C’s far-flung

membership with multiple points of access to cooperative

decisionmaking.

Cooperatlve D

A Multimerger Grain Marketlng Cooperatlve

Growth Cooperative D was born from the merger of two

local grain marketing and supply cooperatives. Since then,

the cooperative has grown rapidly through multiple

mergers. Today it markets grain and supplies, feed,

fertilizer, and petroleum products to its members from 10

local sites.

Table D-l-Size of cooperative D in number of

employees, gross sales volume, and number of

members, 1960-60

Measure of size

Year Employees

Producer

members

Gross sales

volume

--- Number - Millions

1960’ 9 327 1.0

1965’ 6 367 3.0

1970 12 440 3.9

1975 38 979 34.0

1980 87 1,989 97.1

‘Data from the larger of the original two cooperatives

which merged to form Cooperative D.

21
Figure D-l

Operations Structure of Cooperative D, February 1983

I

Director of

Operations I

1Electrician

I

Director of

Administration

Receptionist

- Feed Marketing Mgr.

Feed Salesman

Region I

Manager

Region I Sales Mgr.

ManagerLocal Site

I

ManagerLocal Site

Employees Employees Employees

Region II

Manager Controller

I

I

I I d

I

F

Region II Sales Mgr. I I

Cle!ks I Cleis II

ManagerLocal Site

I

ManagerLocal Site

I

ManagerLocal Site

I

ManagerLocal Site

1

ManagerLocal Site

Employees Employees Emplbyees Employees Employees Employees

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

.

.-. -
Diversity, Complexity, and instability The

membership of Cooperative D resides in the counties

adjacent to its headquarters. Members are similar in terms

of farm size and type of operation. Diversity of

operations is moderate in comparison with other case

cooperatives.

The top-line managers of Cooperative D rate its

operations as highly complex in comparison to the other

case cooperatives. This complexity is ascribed to the large

volume of operations and the low margin for error. The

environment is, however, moderately stable.

Operations Structure The operations structure of

Cooperative D has changed often in the last 10 years as a

result of mergers. As operations grew more complex,

specialists were hired. As new cooperatives merged into

Cooperative D, the span of control of its general manager

increased steadily. Then two more managers were added

to the structure-a director of administration and a

director of operations-and a third vertical level appeared

as regional managers were added as well.

Cooperative D’s operations structure today, as shown in

figure D- 1, has only two horizontal sections, based on

function. The organization has adapted to complexity by

adding levels and through specialization.

Membership Structure As the cooperative has grown,

its membership structure has changed also. When the

original two cooperatives merged, their boards were

combined. As more cooperatives were merged, the

membership was organized into geographic districts

(figure D-2). For several years, branch meetings were

held at local sites. These meetings were, unfortunately, so

ill attended that they were discontinued by joint agreement

of the board and the general manager.

Currently, members are divided into four districts for

nomination purposes only. A board of 11 directors,

elected at large, serve staggered terms of 3 years.

Nominees are selected from each district with a director

seat open, but at-large voting does not assure that a

director from each district will be chosen. There is some

pressure to change to a district-based voting procedure

and representative structure. There is no local-level

membership structure.

The board has specialized little. An equipment committee

appointed by the president considers major purchases and

recommends action to the full board. There is an

executive committee, but it seldom meets.

Figure D-Z

Membership Structure of Cooperative D,

February 1983

Board of

Directors (11)

Districts (4)

I

Members (1989)

Source-Cooperative documents and interviews with cooperative participants,

February 1983.

Table D-2-Dimensions of the membership

structure of Cooperative D

Vertical Levels: 1

Horizontal Divisions: None (Entire membership

only)

Basis of Representation: None (At large)

Representative/Member

Ratio: 1:180

Specialization: 3 Roles

Decisionmaking, Information Flows, and

interactions The board makes final decisions about

capital structure, membership policies, new enterprises,

patronage refunds, major purchases of capital equipment,

and volume discount policy. The general manager and

grain merchandiser jointly make marketing strategy

decisions. The board is informed of marketing decisions

and may place constraints on the cooperative’s market

position.

The board has not specialized decisionmaking functions,

nor has it delegated authority to committees.

Monthly financial reports are made at board meetings. In

addition, the director of operations and the grain

merchandiser make monthly reports to the board.

23
Members receive a monthly newsletter containing market

and policy information from the management. In addition

to the financial report at the annual meeting, members are

supplied with a financial report in midwinter.

No structural mechanism guides input of information from

members to the board. Branch meetings, as mentioned

before, were attempted with little success. The board

meets formally with members only once a year, at the

annual meeting. AMU~ meeting attendance is encouraged

by distribution of dividend checks and a Family Feast

with day-long activities for members and their families.

Member discontent over several policy and pricing issues,

and expressed feelings over ‘losing control over their

cooperative‘ because of mergers, prompted the general

manager to personally invite groups of members to 30

meetings last winter. The purpose of these meetings was

to gamer member input and establish personal contact

with the cooperative’s patrons. Board members did not

attend these meetings. The general manager expressed

satisfaction with these meetings and plans to continue

them.

A midwinter meeting, chaired by management, provides

an additional opportunity for members to meet and get

up-to-d& information on cooperative operations.

Informational product meetings for membership are held

irregularly. In addition, educational meetings for women

have been held for the last 3 years. These events are well

attended and popular.

Summary Rapid growth through merger has led

Cooperative D through many structural changes in the last

10 years. Operating in a complex, moderately stable

environment, it has chosen a functionally based structure

that delegates decisiomnaking vertically through four

levels of management.

The uniform and geographically concentrated membership

of the cooperative is represented by a board of 11

members elected at large. Some members feel estranged

from control of cooperative operations and have expressed

a preference for a district-based representative structure.

Cooperative E

A Highiy Diversified

Supply and Marketing Cooperative

Growth Originally organized to supply feed, Cooperative

E has a history of steady internal expansion through

diversification. Today, the enterprise supplies feed,

fertilizer, hardware, building materials, petroleum

products, and automotive vehicles to 1,009 farmer

members and numerous urban patrons. It also markets

eggs for about 25 of its farmer members.

Table E-l depicts the steady growth of Cooperative E in

the last 20 years. It reveals slow growth in the number of

farmer members and a nearly constant number of

employees. Rapid sales growth is attributable to the larger

operations of farmer members and increasing sales to

urban patrons.

Diversity, Complexity, and hstability The diversity

of Cooperatives E’s operations is obvious, stemming from

the wide diversity of products it supplies. Its membership

is relatively diverse as well. Although a large majority of

members live within a 15mile radius of the cooperative,

farm operations include poultry, swine, and dairy. Farm

size varies substantially as well. A strong component of

urban business adds to this diversity of member interests.

Managers rated the complexity of Cooperative E’s

operations as low. Most noted a trend toward increasing

complexity because producer-members require additional

services and information. Increasing complexity was also

attributed to higher costs and lower margins which allow

for less slack in the operation.

Table E-l-Size of cooperative E in number of

employees, gross sales volume, and number of

members, 1960-60

Measure of size

Year Employees

Producer

members

Gross sales

volume

Additional avenues of member input are desirable, but

branch meetings, attempted several years ago, were

poorly attended. Currently, member meetings with the

general manager fill the input void, but additional

permanent membership structures could assure continuing

member input by raising the representative/member ratio.

1960

1965

1970

1975

1980

- - Number - - Millions

130 970 6.0

130 990 6.3

140 1,000 a.5

145 1,000 18.8

140 1,009 32.8

24
Figure E-l

Operations Structure of Cooperative E, September 1982

Employees

I I

Dept. Head Dept. Head

Lumber Feed

I

Dept. Head

Eggs

I

Dept. Head

Auto Sales

I

Dept. Head

Oil

I

Deot. Head

secretary

‘lI I Haidware

J

I Employees

I

Parts Supr.

Truck

Drivers

Employees

Office

Supervisor r

Employees

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

Service

Drivers

Mechanics

N Repairmen Clerks I

Computer !; endants Programmer

Employees Employees
Figure E-2

A dynamic environment was indicated, with most

managers citing the general state of the economy as the

cause. (Cooperative E is located in an area particularly

hard-hit by current economic woes.)

Operations Structure Cooperative E has responded to

its diverse product line by horizontal division of its

operations structure on a product basis (figure E-l).

Separate feed and fertilizer departments have been added

in the last 3 years. Along with this change,

decisionmaking was decentralized, giving department

heads more responsibility for hiring, wage-setting, and

pricing. The general manager felt these structural changes

lessened coordination problems and strengthened

relationships with producer members in each of the

product area.

Membership structure Although the membership of

Cooperative E is diverse, its membership structure has

remained extremely simple (figure E-2). It consists solely

of a board of six directors elected at large from the

membership. 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 low

representative/member ratio ( 1: 166).

Decisionmaking, Informational Flows, and

Interaction The board retains decision power for all

changes in capital structure, new enterprises, and

patronage disbursements. There is no delegation of the

decisionmaking powers of the board. Most capital

equipment purchases (except for ‘major facilities‘) may be

implemented by management without board approval.

The board of directors receives a monthly financial

statement. Grain reports are supplied at request. There is

Table E-2-Dimensions of the membership

structure of Cooperative E

Vertical Levels: 1

Horizontal Divisions: None

Basis of Representation: None

Representative/Member

Ratio:

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 an

annual report only if they attend the annual meeting or

request one.

The general manager and assistant manager attend the

monthly meeting of the board of directors. Department

heads may attend to address specific issues, but only

infrequently.

Interactions between department heads and members are

informal. The egg department manager reports daily

informal contact with member egg producers. Feed and

fertilizer heads make regular farm calls to maintain

contact with members. These departments also hold

several informational product meetings for members each

year.

The annual meeting provides the only formal opportunity

for members to meet with board and management and to

ask questions of them.

Summary Cooperative E has responded to its diverse,

simple, dynamic environment by horizontally dividing its

operations structure on product lines, and decentralizing

decisionmaking to department heads.

The membership structure, in contrast, has not evolved.

The small board, unspecialized into committee functions,

maintains control over a minimum of organizational

decisions. There are few channels for diverse member

interests to be communicated to appropriate decision

points within the organization. There is little structural

opportunity for the rich input of member voice indicated

as desirable in a dynamic economic environment.

26
15 miles of cooperative facilities, nearly half of the

members reside out of State.

Cooperative F

A Vertically Integrated

Citrus Cooperatlve

Growth Formed in 1909 to handle citrus products,

Cooperative F has become a highly integrated grove-tomarket citrus operation. The cooperative began as a

packing operation, with members doing their own grove

work. Over the years the cooperative expanded by

offering grove services to its members. Eventually, the

cooperative moved into marketing its own fruit. Today,

Cooperative F performs complete enterprise management

for its members. All grove care functions, from seedling

supply and planting to picking the fruit, are performed by

cooperative employees.

Cooperative F’s growth in the last 20 years has been

internal. Total acreage and production per tree have

increased substantially, contributing to increasing sales

volume. Membership has increased, but slowly. This slow

growth in members has been a deliberate choice of the

board of directors (who approve all new memberships).

The number of year-round employees has remained fairly

constant over recent years.

In summary, the growth of Cooperative F has been

largely internal. Growth has occurred through integration

of all phases of the citrus operations of its members and

through improved productivity.

Diversity, Complexity, and hstability Members are

homogeneous as to commodity type (all citrus growers).

Most are small grove owners whose groves have been in

their families for generations. Turnover of membership is

very low. Although most of the groves served are within

Table F-l-Size of cooperative F in number of

employees, gross sales volume, and number of

members, 1960-60

Measure of size

Year Employees

Producer Gross sales

members volume

--- Number ---

1960 NIA 171

1965 NIA 222

1970 NIA 240

1975 approx. 160 248

1980 approx. 160 249

Milliofl.9

2.6

4.3

5.3

9.6

16.0

Cooperative F markets only to the fresh fruit market and

mainly to retailers close to the consumer. Market

diversity is low. Product diversity is relatively low as

well. Although a number of citrus varieties are sold in a

variety of packs, production, packing and marketing

methods are similar for all citrus products marketed.

Operations are only moderately complex. Managers

perceive complexity to be increasing, however, due to the

growing impact of imports.

Although the vagaries of weather will always lend a

degree of unpredictability, in some ways the citrus

business has become more stable through the years. The

processed market for citrus products, developed in the

1940’s, now comprises the largest share of citrus usage.

The diversity of uses for the processed product and its

longer shelf life lend stability to citrus markets. Direct

sales of fresh fruit to retailers, the current sales practice,

is a much steadier market than the speculative auction and

consignment sales of the past.

Operations Structure Bit by bit, changes have been

made in the operations structure of Cooperative F. The

trend has been toward increasing structural elaboration,

adding both vertical levels and horizontal divisions (figure

F-l). In recent years, several new managerial positions

have been added to the organization to meet the

coordination requirements of a highly integrated operation

in a stable environment.

Membership Structure The membership structure of

Cooperative F is simple (figure F-2). A board of 11

directors is elected at large for l-year terms, with no

limit to the number of terms a director may serve. There

is no nominating committee; all members are ‘on the

ballot‘ 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, this

procedure gives the incumbent board a definite advantage.

Consequently a director, once elected, generally serves

until he chooses to retire. The inequity of the system has

been noted by younger members. The current board

president reports that a nonboard nominating committee is

the next likely structural addition to the membership

system.

The board is divided into five specialized committees

appointed by the president. An executive committee of

27
Figure F-l

E Operations Structure of Cooperative F, November 1982

General

Manager

Receptionist Secretary

Fert. Plant Operator

I I I I

East Spray &

Fert. West North

Foreman Foreman Foreman Foreman

I I I

tI

I I

Ass?.

Mechanics Mechanics Crew

Crew Crew Crew Crew Crew

Grove Grove Grove

Crew

Sales Mgr.

1 Ass7 Sales Mgr.

Clerks

I

Packing House Office

Foreman

. ‘t

Manager

Watchmen

Maintenance Clerks

I

Ass?. Packing

House

Foreman

I

Fruit

Receiving

I

Crew

I I I I

Packing Packing Packing Container Grader

Supervisor 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

Executive

Committee

-1

/I 1

i

\

Membership

Committee J

\

\

\ //’ ‘--

Board of Directors (11)

y-1

\

\

Pooling

i Committee

I

\

\

:

/

\-A

/I A

f

’ /

/I ‘\

1 1

Production Operations \

\ I

Committee Committee

\

1 \

\ /’ \

/

/

/- ‘\

\

Finance I

I

Committee /

\

Members (294)

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

three, elected by the board, was added several years ago

because decisiomnaking was necessary more frequently

than monthly. The executive committee has authority to

act, but must report its decisions to the full board within

7 days.

Decisionmaking, information Flows, and

interactions The board of directors for Cooperative F

retains final decisiomnaking responsibility for many

strategic and administrative decisions. It is particularly

involved in all membership decisions. All new members

are screened by the membership committee and must be

approved by the full board. Purchases of capital

equipment over $2,000 must be approved by the board. In

addition, the board sets all charges for cooperative

services such as picking, hauling, and packing.

The board depends heavily on its committee structure for

decisionmaking. Although committee decisions must be

formally approved by the board, most are approved

unchanged.

Information flows from decisionmakers in the operations

structure to the board and the general membership are

standardized. The board gets a monthly financial report

from the secretary-treasurer. The sales manager,

secretary-treasurer, director of operations, and general

manager make monthly oral reports to the board. These

reports are regularly mailed to all members. In addition, a

sporadic bulletin from the general manager is mailed to

all members, as is an informative annual report.

Committee members receive additional regular reports

29
from management. Managers of Cooperative F regularly

receive copies of the minutes of both board and

committee meetings.

The monthly board meetings of Cooperative F are open to

all members. The board meets privately for 30 minutes

before the meeting is opened to the general membership.

About 30 members attend these meetings regularly.

Members are permitted to ask questions of both board

members and management.

Management meets regularly with board committees,

making recommendations about service charges,

purchases, pooling, and other committee decision;. The

general manager attends all committee meetings.

Summary Cooperative F, a highly integrated productionto-market operation, acts in an environment which is

complex but stable and uniform. The membership of

Cooperative F is small and uniform, but dispersed. The

membership structure is simple, with few vertical levels

and no horizontal divisions. The board has specialized its

work into committees and takes an active role in many

important strategic and administrative decisions.

Decisionmaking responsibility is decentralized through the

board’s committee structure, although the full board

retains final authorization. Management personnel work

closely with these committees, supplying technical

information and recommendations to the decisiomnaking

process. Members are kept well informed through

frequent mailings and open board meetings. Local

members have frequent opportunity to input information

to the decision process through the open meeting format.

The small membership size and the flat membership

structure encourage information flows from the members

to the board of directors. The current electoral procedures

of the organization do, however, constrain the

opportunities for members to acquire an authoritative role

in cooperative decisionmaking.

Table F-2-Dimensions of the membership

structure of Cooperative F

Vertical Levels: 2

Horizontal Divisions: 0 (Entire Membership Only)

Basis Representation: None

Representative/Member

Ratio: 1:27

Cooperatlve G

A Servlce Cooperative

wlth a Large, Dlspersed Membershlp

Growth Cooperative G arose from the merger of five

artificial insemination cooperatives in the mid-1960’s.

Since that time, its growth has been largely internal

through expansion of geographic markets and horizontal

diversification. Market expansion continues to the present.

Today, Cooperative G operates four sites in the North

Central States. It provides artificial insemination (A.I.)

service for members in five States and direct sales of

semen in many areas, both domestic and international.

Falling numbers of members, indicated in table G - 1,

reflect two conditions. First, subsequent to the merger

forming the cooperative, many nonactive members were

carried on the books. Second, the trend toward fewer and

larger farms has decreased the number of patrons in the

cooperative’s service territory.

Diversity, Complexity, and lnslabilily Cooperative’s

G membership is rather diverse. Members are dispersed

among 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 sales

represent unique market segments. Further, Cooperative

G sells semen in both domestic and international markets.

Table G-l-Size of cooperative G in number of

employees, gross sales volume, and number of

members, 1960-80

Measure of size

Year Employees

Producer

members

Gross sales

volume

---- Number --- Millions

1960’ 192 27,746 1.9

1965’ 176 26,785 2.0

1970 365 35,298 4.6

1975 304 28,724 6.6

1980 294 22,946 13.2

‘Figures represent the largest of the premerger

Specialization: 7 Roles cooperatives only.

30
I I I II I

1

r I I

Marketing Director

1 Director, I. . . .

1 Genetic 1

‘splinting Dist!FL Proc. Mgr. 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, Mating Sa,es MgyA!Prakal Sacs.

I

District Sales Reps.

Sal& Mgrs.

(2)

I

Lab

Suprs. (2)

I

Employees

Marketing Spcs.

Farm & _

Stud H-l Sales Mgrs.

Suprs. (2)

I District

Employees Sales

Mgrs. (10)

=-II

Training

Mgr.-Field I

I

Field Training

spcs.

Employees

I

Sales and Service Techs.

Source-Cooperative documents and interviews with cooperative personnel, October 1982.
Membership Structure of Cooperative G, October 1982

Executive

Committee

Board of Directors

(11)

I

I /- I

/ ‘1 /

/- -1 /

’ Breed

\ /

‘\ \

i

I Breed

\ Sub-Comm. 1 I

I

\

Sub-Comm. 1 \ Sub-Comm. I\ j

\

\

\

- - ,’ \

-I/

\

I

\

--1’

Redistricting

Committee (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 operations

complex. Complexity stems from the highly technical

nature of breeding programs. Governmental regulation is

another source of increasing complexity, especially in the

international trade.

The environment is relatively stable, however. Since

members view breeding programs as an important longterm investment, sales are fairly predictable even in a

tight economy. International sales are much less

predictable than domestic markets, and have decreased the

stability of the organization’s environment in recent years.

Operations Structure Cooperative G’s operations

structure is horizontally divided into five sections based

on both function and market. It is separated into four

vertical levels (figure G-l).

Much of the horizontal division has occurred since the

1967 merger. In the early 1970’s the marketing division

was split into member and distributor divisions. In the

mid-70’s a genetics expert was hired, and the former

operations division was horizontally divided into a

production division and a genetics division. Many

specialists have been added to Cooperative G’s staff in

recent years.

Membership Structure Cooperative G has a welldeveloped member structure with a delegate system,

elected redistricting committee, and a breed advisory

committee specialized by breed (figure G-2).

Cooperative G’s membership is divided into 11

geographical regions with approximately equal numbers of

members. These regions are subdivided into districts for

the purpose of electing delegates. Each district elects one

delegate per each 150 active members in the district to

Table G-2-Dimensions of the membership

structure of Cooperative G

Vertical Levels: 3

Horizontal Divisions: 60 Districts

Basis of Representation: Geography

Representative/Member

Ratio: I:130

Specialization: 10 Roles

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

delegate.

Delegates caucus by region at the annual meeting to

nominate one director for office. Directors are elected at

large by the delegate body, but this is largely a

confirmation of selection by the regional delegates. Once

each 3 years, a redistricting committee member is elected

by the delegates of each region.

The 11 directors serve l-year terms, with no limit to the

number of terms a director may serve. An executive

committee of officers elected by the board is empowered

to take independent action, but, in fact, rarely meets.

There are no other board committees.

There have been few changes in this structure since the

formation of Cooperative G. The most significant change

is the addition of a breed advisory committee of 30

members appointed by the board to serve 4-year terms.

The advisory committee is divided into specialized

subcommittees by breed. This committee is advisory to

both board and management.

In short, Cooperative G has a membership structure

vertically separated into three levels. Horizontal division

is extensive: the membership is divided into 60 districts to

vote for delegates. Although the board has not developed

specialized committees, specialized breed advisory

committees provide member input in a technologically

complex environment.

Decisionmaking, Information Flows, and

interaction The board of directors retains final approval

of all capital structure, membership strategy, and new

enterprise, and allocations decisions. Any change in the

charge for technician services is made by the board,

based on alternatives presented by management. All other

pricing decisions are delegated to management, though the

board’s official pricing policy guides these decisions. All

capital purchases over $200 must be approved by the

board of directors.

Although the operations of Cooperative G are

technologically complex, the board of directors maintains

significant control over decisionmaking through the power

of final authorization and through highly standardized

oversight procedures. Division heads report to the board

annually through a formal planning and budgeting

exercise. Yearly goals are presented and objectives are

targeted by date. The board approves budgets presented

by division heads.

33
Decisionmaking authority is decentralized from the board

to the delegate body through the resolutions process.

Resolutions are presented to district members and

forwarded to the delegate body for a vote. The process

allows binding decisions to be made at the delegate level.

The board of directors receives monthly financial reports

and quarterly budget comparisons. Directors also receive

much of the standard operating information generated by

the computer system. At each monthly meeting the

general manager makes a progress report and summarizes

the monthly reports of each division head. Directors

receive mailings about any significant developments

between board meetings.

Delegates receive quarterly mailings that include financial

and sales summaries, and results of genetic evaluations

from outside sources (e.g., USDA). The annual report is

mailed to all delegates and alternates.

Members receive an annual financial report at their

district meetings. They also receive a monthly newsletter

that includes educational materials, product information,

cooperative news, and some financial information.

The breed advisory committee receives frequent mailings

from the genetics division and is irregularly polled on

technical issues.

A management team and the regional director are

available at each district meeting. At these, question cards

are circulated, and an answer period is provided at the

end of each meeting. This provides a direct two-way

communications channel between members and their

district director and management. A similar process is

used at delegate meetings.

The general manager and finance director meet monthly

with the board of directors. Other division heads meet

with the board once a year for 2-day planning and

budgeting meetings, and also infrequently to supply

information on a specific issue.

Delegates meet twice a year, once at the annual meeting

and once at informational meetings held at two or three

sites. Alternates are encouraged to attend. Breed advisory

committee members also attend, broadening participation

in the informational meetings. These meetings are chaired

by the president of the board. Directors from the

appropriate regions are present. At these meetings

directors caucus with delegates from their region. This

provides an opportunity for two-way communication

between directors and delegates.

The breed advisory committee meets with the general

manager, genetics staff, and board of directors the day

before the annual meeting. The committee as a whole or

separate subcommittees meet irregularly as necessary to

provide feedback on proposed programs.

An annual meeting is held in each district chaired by the

district director. A management team attends each

meeting, allowing for an interchange between members.

About 25 percent of members attend their district

meeting.

Summary In response to a technologically complex and

moderately diverse environment, Cooperative G has

evolved an operations structure that is divided into

vertical levels and horizontal divisions. Many specialized

personnel are employed. The stability of its environment

has allowed it to standardize many of its procedures.

Through a standardized planning and budgeting

procedure, the board retains a high degree of control over

cooperative operations.

The cooperative has a well-developed membership

structure based on geographical divisions. Decisionmaking

is decentralized to a delegate body through the resolutions

process. An advisory committee, specialized by breed,

provides member input for both management and board.

Members and their delegates are regularly informed of

cooperative activities and operations through regular

newsletters. Both members and delegates are provided

opportunities to interact with their regional directors at

one meeting annually.

Although Cooperative G has a highly bureaucratic

structure, a well-developed member structure, with

standardized decision processes, information flows, and

interactions provides many mechanisms for member

control.

Cooperative H

A Large Marketing Cooperative

Manufacturing Processed Products

Cooperative H began as a cheese plant to provide an

outlet for member milk supplies. It grew steadily by

acquiring other small dairy operations. In addition to

acquisitions, the continually increasing productivity of

member producers fueled internal growth of the

cooperative. The cooperative now operates plants at seven

locations.

34
Table H-l-Size of cooperative H in number of

employees, gross sales volume, and number of

members, 1960-60

Measure of we

Year Employees

Producer Gross sales

members volume

1960

1965

1970

1975

1980

---- Number --- Millions

525 2,526 26.0

462 3,213 36.5

466 2,670 55.8

535 2,482 108.3

537 2,232 215.0

The growth strategy of Cooperative H since its beginning

has been diversification. Diversification has provided

multiple markets for member milk and stabilized farm

income from a perishable and seasonal product through

manufacture of storable products. Today Cooperative H

produces bottled milk, cheese, butter, milk powder, and

ice cream mix. It has produced under its own branded

label since the 1950’s.

Table H-l summarizes the growth of Cooperative H in

numbers of employees and gross sales volume. The

reduction in number of members over the years reflects

the trend toward fewer and larger dairy farms.

Diversity, Complexity, and instability The members

of Cooperative H are only moderately diverse. Member

farm operations are all one type (dairy) and the size range

of operations is moderate.

The diversity of operations, on the other hand, is high,

stemming from the diversity of its product line and its

involvement in both fluid and manufactured markets for

dairy products.

Cooperative H’s environment is rated complex by its

management personnel. Government regulations require

increasingly higher quality standards, requiring

sophisticated technologies and testing procedures.

The cooperative operates in a moderately stable

environment. Federal milk marketing orders and

government purchases of surplus milk products add

stability to dairy markets. The marketing flexibility

provided by the organization’s diverse product line also

contributes to its stability.

Operations Structure Cooperative H has a highly

differentiated organizational structure, with five vertical

levels and six horizontal divisions based on function. Only

minor structural changes have been made in recent years.

Management indicated a high level of standardization

within the organization. Jobs are graded into 25 levels

and 15 of these have formal job descriptions. The

organizational chart indicates a high level of job

specialization, with 50 job titles (figure H-l). Among the

personnel are a large number of technical experts and

professionals.

Altogether, Cooperative H’s operations structure is a text

book example of structural response to a complex,

diverse, but relatively stable task environment; i.e., a

highly differentiated structure with high levels of

standardization and specialization.

Membership Structure Cooperative H has a

sophisticated membership structure, which has basically

been in place since the 1950’s. The membership is

divided into 11 districts based on number of members.

Districts are subdivided into units for the purpose of

electing delegates (figure H-2). One delegate is elected for

each 20 members in a unit, and one alternate for each

two delegates.

At district meetings, one candidate for director is

nominated per district. Directors are elected at large by

delegates casting one vote per member they represent.

Directors serve l-year terms, with no limit to the number

of terms an individual may serve.

Each district elects a member of the resolutions

committee, who also serves as a member of the districting

committee. Resolutions prepared by the committee are

voted upon by the delegate body. Districting changes are

subject to approval by the board of directors.

About 10 years ago a young couples’ group was

organized. Three years ago it was split into three regional

groups because distance necessitated too much travel time

for busy young dairy farmers and hampered the group.

Two young couples per district are elected as

representatives to serve staggered 3-year terms. The

young couple representatives sponsor educational and

social events for members, and have limited independent

decisionmaking authority within cooperative governance.

The board of directors has specialized subcommittees

composed 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

Executive

Committee

/ \

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 all

committee recommendations must be approved by the

In short, Cooperative H has a highly developed

board. The board elects an executive committee which is

membership structure that assures generous member input

into cooperative decisionmaking. It has added vertical

empowered to take independent action but must report its levels, divided the membership into horizontal units, and

action to the full board. specialized member roles to increase the capacity of the

37
membership structure to channel and process information

from members.

Decisionmaking, lniormation Flows, and

interaction The board of directors of Cooperative H has

final authority over capital structure, membership policy,

and new enterprise decisions. They make these decisions

on the basis of alternatives presented by executive

management. Marketing strategies are devised and

executed by management. Similarly the board makes

patronage allocation decisions and must approve pricing

schedules and policies, including quality premium

policies. The board approves all capital purchases over

$l,O. Board committees specialized by function are

used, but these have no independent authority. All

committee recommendations are brought to the full board

for approval.

Cooperative H uses standardized reporting procedures to

assure adequate flows of information between its members

and operations personnel. These include reports of all

fieldman visits and standardized quality reports from plant

laboratories. Information from field reports includes

‘starts and quits‘ (members gained and lost), and

comparative pay prices. This information is supplied to

the board monthly. Quality reports from the laboratories

flow to the member service director and thence to

fieldmen and on to individual members. This provides a

mechanism to coordinate farm-level production with the

needs of processing plants and to assure a high-quality

end product. These two reporting procedures illustrate the

use of standardized information flows to coordinate the

needs of producer members and their cooperative. Both

standard reporting procedures involve flows of

information vertically through the operations structure and

horizontally from the operations structure to the member

structure, as shown in figure H-3.

Table H-2-Dimensions of the membership

structure of Cooperative H

Vertical Levels: 3

Horizontal Divisions: 44

Basis of Representation: Geography

Representative/Member

Ratio: 1:8.5

Specialization: 11 Roles

The board receives monthly operating statements

disaggregated by department, a monthly balance sheet,

and monthly production reports Board committees receive

additional information from executive managers on a

regular basis.

All members receive two monthly publications. One

contains information about dairy policy and member

activities. The second mailing contains information about

individual members and employees. In addition, members

receive a quarterly balance sheet from cooperative

management. All member representatives (delegates and

resolution committee) receive additional mailings from

management on an irregular basis concerning dairy policy

issues and actions. Delegates also get additional financial

and operating information from management when they

meet.

There is a standardized procedure through which

individual members may take a complaint before the full

board. The member complaint is first screened by the

board’s billing committee. Although this procedure was

instituted 2 years ago, no member has yet used it.

There is no formal mechanism by which the board or

delegate body reports to the membership.

The general manager, his assistant, and the finance

director meet monthly with the board of directors. Top

line managers (including the general manager) meet

regularly with board committees as full voting members.

Individual members receive a visit from their fieldman at

least twice a year.

The general membership has two opportunities to meet

each year-at the annual district meeting (chaired by the

district director) and at fall dinner meetings, where

members receive quality and service awards. Nearly 40

percent of members attend these meetings.

Delegates and alternates meet twice a year-at the annual

meeting and at summer meetings held in three regional

areas. The general manager, his assistant, and the

directors of finance and member services regularly attend

all district and delegate meetings.

The resolutions committee meets three times each year.

They meet before district meetings to review standing

resolutions, after district meetings to discuss input from

members, and prior to the annual meeting to finalize

resolutions for delegate approval.

38
Figure H-3

Coordinative Information Flows Between Members and Cooperative H

General

Quality Reports

i

+----_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 each

winter for all young couples. Further, young couples

sponsor several social activities each year for all

cooperative members.

This past year, the resolutions committee passed a

communications resolution requiring each director to meet

once each year with the delegates, resolution committee

members, and young couple representatives in his district.

Although some directors have been doing this already, the

act of standardizing this meeting provides another

permanent structural mechanism to assure the vertical

flow of information in the membership structure.

Summary Cooperative H is a dairy cooperative

producing diverse products in a complex but relatively

stable environment. The membership is dispersed over

half a State, but is reasonably uniform. The organization

has developed a highly differentiated operations structure

and a high level of standardization. Decisionmaking is

decentralized horizontally and vertically in the operations

structure.

Cooperative H’s membership structure is well developed.

Elected delegates, alternates, resolutions committee

members, and young couple representatives provide a

high representative-to-member ratio and multiple channels

for the input of member preferences into cooperative

decisionmaking. Member decisionmaking is decentralized

vertically through the standardized resolutions process.

The members receive frequent information from their

cooperative’s management in the form of quarterly

balance sheets and two monthly publications.

Interaction is frequent between the top management and

groups of member representatives. Both technical and

preference information are thus present at many

organizational decision points.

Information tends to flow from management directly to

members rather than through the member structure. Flows

of member information to management occur through both

the operations structure and the membership structure. A

newly instituted district meeting between directors and

district representatives provides a direct channel for the

flow of information vertically through the membership

structure.

39
SUMMARIZATION OF CASE MATERIALS

As the agricultural cooperatives studied in this report have

grown through diversification, merger, acquisition and

internal growth, they have refined their operations

structures. To adapt to increasingly diverse, complex, and

unstable conditions in the agricultural economy, they have

added vertical levels to their structures, divided their

work among horizontal units, employed specialization,

decentralized decisionmaking, and standardized reports

and procedures to increase the amount of information the

organization can process.

Membership structures have evolved more slowly. The

most common adaptations to growth and to increasingly

uncertain environments have been to specialize the

board’s work with functional committees and to adopt an

executive committee with the ability to act more quickly

and frequently than the full board. In some cases,

additional vertical levels have been added: elected

delegates or executive committees have been added to

attend to some decisionmaking tasks. Other cooperatives

have divided their membership into horizontal units for

the purposes of voting, thus improving the representation

of a diverse membership.

In cases where the membership structure has remained

simple while the cooperative has grown, there has been

member discontent or an expressed need by management

for an increased inflow of information from the

membership. In some relatively large cooperatives,

however, well-developed membership structures provide

multiple mechanisms for member control.

Thus, size does not seem to be the factor which

determines the degree to that members control their

cooperative. Even large cooperatives may maintain

meaningful levels of member input into cooperative

governance if membership structures are developed,

assuring multiple channels through which members can

express their needs and opinions.

There is, however, no single structural design appropriate

to all agricultural cooperatives. Cooperative memberships

vary in numbers, dispersion, size and types of farm

operations, and other features. The operations of an

agricultural cooperative may involve the sale of a single

product or service, or operations may be diverse. The

environment of the cooperative may be stable, allowing

many activities to be standardized by rules and

procedures, or it may be unstable, requiring ever new

decisions impossible to foresee. Similarly, the

cooperative’s operations may be simple and easily

understood, or complex, requiring specialized personnel.

These factors need to be taken into account when

designing structures to improve member control of

cooperatives.

Case cooperatives included examples of organizations with

diverse operations and members, technologically complex

operations, and unstable environments. Each of the case

cooperatives adapted its operations structures in ways

prescribed by organizational theory to adapt to its

particular environment. Although organizational design

strategies have been much less frequently and consistently

applied to membership structures, the trend seems to be

toward use of these design principles; i.e., adding vertical

levels and horizontal divisions, specializing, standardizing,

and decentralizing decisionmaking. In cases where

organizational design principles have been applied, they

prove both appropriate and effective.

An examination of information flows in the case

cooperatives reveals several common patterns of

information flow. Within the operations structures of all

the case cooperatives, upward vertical flows of

information have been standardized, either through the use

of standard reports or by computer information systems.

There are no similar standardized information collection

procedures in the membership structures. Thus, upward

flows of information from members to delegates or

directors are limited.

Downward vertical flows of information from directors or

delegates are, likewise, rare. Instead, information flows

from top-level management to members predominate.

Horizontal flows of information from the top levels of

management to the board of directors are abundant. In

most cases, directors receive much of the standardized

information about operations compiled within the

cooperative.

Figure 4 below summarizes the formal information flows

commonly found in the case cooperatives. This simple

diagram illustrates a need for formal mechanisms of

communication within the membership structures of

agricultural cooperatives.

40
Figure 4

Formal Information Flows in the Eight Case Cooperatives

Board General Manager

STRATEGIES FOR DESIGNING

EFFECTIVE MEMBERSHIP CONTROL STRUCTURES,

WITH EXAMPLES

The following strategies are applications of organizational

design principles to the membership structures of

agricultural cooperatives. Several important assumptions

underlie this approach to improving member control of

cooperatives.

1. Size does not preclude effective member control of a

cooperative.

2. Member control increases with the number of

channels available to members for expressing their needs

and opinions within the cooperative governance system.

3. Rationally designed membership structures can

improve the efficiency of member control by channeling

flows of information to decisionmaking centers in the

organization.

4. No single membership structure is appropriate to all

agricultural cooperatives. The appropriate structure for a

cooperative depends upon the sources of uncertainty it

faces (complexity, diversity, and instability).

Designing and Redesigning

the Membershlp Structure

Most agricultural cooperatives adopt a membership

structure at the time they initially organize for business.

However, as cooperative businesses grow and change,

often the membership structure lags the development of

the operations structure.

Structure is not forever. It must grow and change in

response to growth and change in the cooperative

enterprise and in its external environment.

Careful consideration of the design of membership

structures is especially crucial when unification procedures

are under consideration. Will the unification change the

diversity of members? Will the number of members of the

combined cooperatives render the current membership

structures of the unifying cooperatives inadequate?

Other major changes within the cooperative enterprise

41
may also make existing membership structures obsolete.

As a cooperative diversifies into new product or service

lines it may gain members or patrons who differ from its

previous membership. New enterprises may be more

complex than the cooperative’s traditional operations,

requiring more sophistication on the part of its

membership structures.

Likewise, environmental changes may necessitate changes

in cooperative membership structures. For instance,

urbanization may drastically change a cooperative’s

clientele. Existing membership structures may be unable

to respond quickly to rapidly changing conditions in a

volatile economy. Regulatory requirements may challenge

the decisiomnaking capabilities of a small, unspecialized

membership structure.

The membership structure of an agricultural cooperative

should be periodically reevaluated to see if it is

performing adequately. One method of assuring a regular

review of membership structures is to include it in a longrange planning process. Many member relations problems

could be avoided by planning for adequate membership

structures rather than redesigning structures only in

reaction to member dissent.

Another method for periodically reviewing membership

structures is to expand the role of an existing districting

committee to consider broader issues of membership

structure.

Who Is the Membership?

Effective design of membership structures depends upon

an accurate view of the conditions within which the

cooperative operates. Therefore, design begins with an

assessment of the diversity, complexity, and stability of

the cooperative’s environment.

To design effective membership structures, it is critical

that cooperatives have accurate information about who

their members are. The case studies indicate that

agricultural cooperatives often do not have accurate

information about who their members are.

Membership information is crucial to design of

membership structures because an effective representative

system needs to represent the relevant differences between

members, the differences that are likely to give them

different needs for cooperative goods and services. For

instance, part-time farmers, who work at nonfarm jobs

during weekdays, may need their supply cooperative to be

open for business on weekends, while this may be

unimportant to full-time farmers. A cooperative can

remain responsive to the needs of its members only if it is

aware of what those needs are. Those needs will only be

expressed through the organization’s voting structures

only if those structures have a base of representation that

reflects the differing needs of its members.

One method for developing an information base about

member characteristics is to gather more information as

part of the procedure for joining the cooperative. A short,

simple form can be used to gather data about the

characteristics of the new members-the size of member

operations, which farm enterprises she/he operates,

whether a full-time or part-time farmer, age, location,

etc.

Given the current computer capabilities of agricultural

cooperatives, this member information can be permanently

entered in the system. This procedure would enable the

cooperative to analyze changes in services and policies on

the patronage of different portions of the membership.

A member survey is another method of gathering

membership information. Involving members in

implementing the survey can deliver bonuses above and

beyond the information collected: increasing member

knowledge of the cooperative, creating an opportunity for

meaningful participation, and increasing contact among

members.3

Choosing a Base of Representation

and Horizontally Dividing a Diverse

Membership

Membership information provides a factual basis for

choosing a basis for representation. If the cooperative’s

membership is uniform and all the members live in a

local area, it may be unnecessary to divide members into

voting units. However, if the membership is diverse, the

efficiency with which membership structures reflect

member views may be improved by horizontally dividing

the members for the purposes of voting and choosing an

appropriate base of representation.

Most agricultural cooperatives use geographic location as

the base for representative structures. Geographic location

is 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 Manual

for Communities.‘ Manual 108. University of Missouri-Columbia, 1977.

42
membership, for similar members may cluster in local

areas. Geographic location is also a handy and economical

basis for dividing membership. Travel costs may be

minimized by localized member meetings; more members

may attend if they do not have to travel far from home;

and members may be more comfortable speaking out

among only their friends and neighbors.

On the other hand, geographic representation may not

approximate the relevant differences among members.

Elected representatives may fail to reflect the needs of

important minority membership segments. The

convenience of local meetings may not even stimulate

member participation if important issues never see the

light of day because dissenting views have no voice in

cooperative governance.

One example of a representative structure based on the

member’s size of farm is a specialty marketing

cooperative that set up its board so all sizes of member

operations would be represented. Out of a board of nine

producers, two board members are growers with l-5

acres, two are growers with 5-25 acres, two represent

growers with over 25 acres, and three are members-atlarge.

Alternative bases of representation bear consideration

when designing membership structures. Cooperatives with

multiple levels of representation may, of course, use

differing bases for differing representative structures. For

instance, delegates could be elected by geographic district

while resolutions committee members are elected by farm

type, farm size, age, or other relevant member

characteristic. The widespread use of computer technology

among agricultural cooperatives makes multiple bases of

representation more feasible and economic than it was in

the past. Computer capability makes it possible to

combine the convenience of localized member meetings

with the benefits of other bases of representation.

Another recent technological development has great

possibilities for breaking the hold of geographic location

as a base for representative structures. Electronic

communications technologies such as teleconferencing

greatly reduce the cost of meetings by allowing interaction

between participants at separate locations. As two-way

electronic communications and visual techniques are

developed and refined, geographic proximity can cease to

be the overriding consideration in dividing the

membership. Electronic teleconferencing is being used by

several large cooperatives, and they have reported

member satisfaction with this technique.

What Is the Cooperative’s Envlronment?

Two other important contingencies for the design of

cooperative membership structures are the degree of

complexity and instability of the cooperative’s

environment. These two variables affect the number of

decisions member representatives must make and the

amount of flexibility there must be in the decisionmaking

system so the cooperative can respond to its business

environment in a timely fashion.

Neither of these concepts is, unfortunately, amenable to

precise measurement. Several indicators may, however,

serve as a rough gauge of these variables.

One indicator of complexity is the number of trained

professionals hired by the cooperative to carry out its

operations. Other items to take into account in

determining the complexity of the cooperative’s operations

are: 1) the number of markets the cooperative sells in; 2)

the number of cooperative operating facilities; and 3) the

technological sophistication of the cooperative’s

operations.

Similarly, to determine whether the cooperative’s

environment is stable or unstable, one might consider: 1)

the extent to which price varies in both the input and

output markets the cooperative faces; 2) the regularity of

the cooperative’s sales levels over the last few years; 3)

the rate of change in standard economic indicators like

inflation, unemployment, and interest rates; and 4) the

extent to which the cooperative is vulnerable to changes

in government policies and programs.

Strategies for Complex Cooperatives:

Speclallzatlon and Training

One strategy for increasing member control of complex

cooperative operations is specialization. Specialization

increases the expertise of members in dealing with the

multitude 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 farm

enterprise, to be knowledgeable about all aspects of a

complex cooperative’s operations. Nevertheless, a member

representative can become reasonably expert in one aspect

of the cooperative’s business, be it employee benefits,

transportation systems, or product marketing. Thus,

specialization can maximize the effectiveness of an

individual representative’s contribution to cooperative

governance.

43
The case studies illustrate the most common application of

specialization in agriculture cooperative structures: the use

of specialized committee structures by cooperative boards

of directors.

Another method of specializing member input to

cooperative governance is the use of member advisory

committees or task forces to address a specific issue. The

efficacy of such a practice is illustrated by the example of

a rural electric cooperative that was experiencing member

dissent over increased service rates. A rate review

committee of members representing different types of

users was selected from volunteers and supplied with

specialized information pertinent to the decision. The rate

review committee proved to be capable of understanding

the complexities of the decision and concluded that the

rate hike was indeed necessary. Their decision was

subsequently approved by a large margin in a referendum

of the members. If members are capable of understanding

complex rate decisions, they are capable of handling

many of the complex decisions of modem agricultural

cooperatives as well.

Another strategy for maintaining member control of

complex cooperatives, similar to specialization, is training

for specific tasks and duties. As traditional businesses

grow complex, they hire increasing numbers of trained

professionals to perform specialized tasks. Training

increases the ability of specialists to process specific kinds

of information efficiently. Similarly, as cooperative’s

operations become complex, the efficiency and

effectiveness of member representatives can be improved

through training for specific tasks. Given the financial

losses that may accrue from poor decision, training for

member representatives is an important investment in

human resources with potentially large pay-offs.

Opportunities for training may also motivate member

participation.

Strategies for Complex Cooperatives:

Adding Vertical Levels

Adding vertical levels to the membership structure of a

cooperative improves the efficiency of decisionmaking in

two ways. For one thing, it limits the number of

decisions any one individual or group must make. The

second effect of adding vertical levels is to increase the

number of individuals with decisionmaking roles,

increasing the organization’s capacity to process

information. Adding vertical levels also increases the

representative/member ratio, multiplying the number of

opportunities for members to express their preferences in

the decisionmaking process.

44

Delegate systems are one way to add an additional

vertical level to the cooperative membership structure.

Decisions that are otherwise a privilege of the general

membership, such as selecting directors and approving

resolutions, can be delegated to these elected

representatives.

Other examples of added vertical levels in membership

structures are elected resolutions committees; local,

division, or district boards; and an executive committee

that has the authority to act independently on specific

issues.

Strategies for Complex Cooperatives:

Decentralization

Decentralization of decisionmaking is the assignment of

rights and responsibilities for making specific

organizational decisions to individuals not at the top of

the organization.

As seen in the case studies, agricultural cooperatives have

been slow to decentralize decisionmaking within the

membership structure. Nevertheless, decentralization is a

valuable tool for increasing the number of decisions

member representatives can make by sharing the

decisiomnaking tasks among a larger pool of members. A

complex cooperative that relies solely on a small board of

directors to make all policy decisions runs two risks:

either the board will delegate to management many

decisions of high consequence to members because it does

not have time to consider them all; or the board may

make hasty and ill-informed decisions because it does not

have time to carefully consider all the decisions it takes

on.

A common example of decentralization in agricultural

cooperatives is federation. Much of the previous debate

on cooperative structure has been limited to the pros and

cons of centralized versus federated (i.e., decentralized)

cooperatives, where independent local cooperatives retain

most authority over local operations. This model is,

perhaps, too simplistic and has limited consideration of

other applications of decentralization. Organizational

theorists warn that centralization and decentralization

should be treated not as absolutes, but rather as two ends

of a continuum.

Indeed, the use of delegate systems and division boards

illustrates a degree of decentralization somewhere between

the extremes of centralization and decentralization.

Another example of limited delegation of authority is
allocating a budget to a young couple’s group and, within

the bounds of a board-approved mission statement,

allowing that group to make its own decisions about how

to use those resources. Additionally, the board of

directors of a cooperative can decentralize particular

decisions to board committees, constrained by guidelines

set by the board. Decentralizing routine monitoring of

operations to committees allows the board to focus on

important strategic and policy issues.

Decentralization of decisionmaking to subgroups of

member representatives need not result in confusion over

the boundaries of authority of different groups of member

representatives, just as it does not normally lead to

questions of authority within operations structures.

Confusion can be avoided by the use of formal written

job descriptions that include clear statements of the

authority associated with the position and the limits of

that authority. It is essential, when using decentralization

as a strategy for handling complexity, to make a clear

distinction between member groups who are purely

advisory 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 member

control. For an organization to compete effectively in an

unstable environment, it must be able to make decisions

and take action quickly. In such an environment, highly

standardized procedures for member decisionmaking may

place the cooperative at a competitive disadvantage.

In an unstable environment, design strategies focus on the

cooperative’s information system.

In an unstable environment, there may not be the time to

invoke widespread member input through the regularly

scheduled series of membership meetings. What is needed

is a more frequent flow of information about member

preferences, an approximation of the sophisticated

computerized information system utilized in the operations

structure.

One way to gain a more constant influx of information

about member preferences is by using a survey panel-a

group of representative members frequently surveyed to

ascertain needs and opinions on specific questions.

Incentives are given to cooperative panel members to

encourage their participation. Some cooperatives have

reported excellent response to this technique. If the

cooperative’s members reside within a localized area, a

telephone survey of a panel of members can be

implemented quickly and at little cost.

Some cooperatives use delegates or an advisory committee

as a sounding board to gauge member opinions quickly.

Of course, the validity of the opinions of such groups is

enhanced if they have been elected by the membership on

a basis that truly represents the diversity of member

opinions on relevant issues. Further, the use of

conference calls can reduce both the time and the expense

of gathering member input when decisions must be made

quickly.

Strategy for Handling Dynamic Environments:

Lateral Relations

In an unstable environment, decisions will arise that

cannot be foreseen or planned for. Thus, appropriate

membership structures cannot be provided beforehand that

will provide the relevant mix of skills, information, or

authority to make the decision quickly.

One method of handling such situations is to use lateral

relations. Lateral relations facilitate decisionmaking

without creating new structures. Three examples of lateral

relations are hearings, liaison roles, and ad hoc

committees or task forces.

Hearings, a common feature of the U.S. governmental

process, have only occasionally been used by agricultural

cooperatives. A hearing can supplement regularly

scheduled member meetings as a forum to gather member

input on a specific issue or decision. Hearings can be

used by agricultural cooperatives in unstable environments

as a flexible method of member participation that provides

efficient input focused on specific decisions. In addition,

hearings bring members concerned with a specific

decision into direct communication with decisionmakers,

saving time by isolating conflict that might otherwise

unnecessarily involve the entire membership.

Liaison roles can be used to link two or more

membership groups that find they must make decisions

that cut across their separate jurisdictions, but still do not

affect the entire membership. A member in each of these

groups may be appointed as liaison, and the liaisons can

serve to coordinate communications and decisions between

the separate groups. Liaison roles allow decisions cutting

across subgroup boundaries to remain decentralized,

saving the time of referring the decision upward to the

board of directors.

45
A final example of lateral relations is the use of a

member task force or ad hoc committee. As in the case of

hearings, the ad hoc committee allows specific skills and

information to be focused on a specific decision. For

instance, consider a cooperative that needs a new credit

policy because receivables have become a financial drain

on the cooperative’s resources. An ad hoc committee

could be formed to decide what kind of policy would be

most effective both financially and in terms of member

needs, allowing both concerns to be addressed quickly.

Encouraging Horizontal Information Flows

with Horizontal Structures

A central problem of designing effective membership

structures is to assure that member input is directed to

points in the operations structures where decisions of

consequence to members are made. The case studies

illustrate that such decisions are made at several points in

the operations structure, thus requiring an adequate mix

of information from both the operations and membership

structures at points below the apex of organization’s

structure.

Organizational communications theory indicates that: 1)

information is likely to be distorted as it flows through

vertical levels of an organization and 2) horizontal flows

are most frequent in organizations. Some examples of

horizontal flows are the frequent formal flows of

information between directors and the general manager

and frequent informal flows of information between

members and personnel at the base of cooperative

organizations. Therefore, one method of assuring directed

flows of relevant information between membership

structures and operational structures is by designing

matched membership and operations structures.

One illustration of this principle in action in some

agricultural cooperatives is the formal interaction of board

committees with managers in the top line of the

operations hierarchy. For instance, the controller or

finance manager may meet regularly with the finance

committee of the board, assuring that the membership

body responsible for financial decisions has relevant

technical information from the operations structure. The

standardization of this interaction may vary in degree

from regular attendance of a top-line ,manager, to

nonvoting 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 store

advisory committees who meet regularly with the

managers of the local operations. A third use of a

horizontal structure is the use of a specialized member

advisory committee that meets with a staff member

responsible for a particular aspect of the cooperative’s

operations.

A full-blown example of the use of horizontal

membership and operations structures is provided by a

large agricultural cooperative in Great Britain. As

illustrated in figure 5, this cooperative has both a main

group board and division boards that are composed of

equal numbers of member representatives and

management personnel. In addition, regional committees

meet four times a year with management from their local

branches. These division boards have a degree of

independence in developing budgets and are primarily

responsible for formulating market strategies in their own

commodity areas. The main group board is responsible

for formulating and implementing policy. All major policy

changes have to be approved by the management

committee, made up entirely of members. Thus, this

structural design illustrates not only matched membership

and operations structures, but vertical levels, horizontal

divisions, specialization, and decentralization applied to

the membership structure of a large, diverse, and complex

agricultural cooperative.

Improving Vertical Information Flows

in the Membership Structure

The case studies show that most information flows from

the apex of the operations structure to all levels of the

membership structure. Information flows among levels in

the membership structure are limited to informal flows or

infrequent formal meetings of the membership. Both

standard procedures and permanent structural

arrangements can improve the flow of information within

‘the membership structure.

The use of standardized complaint procedures can be used

to ensure an undistorted flow of information from the

general membership to the board of directors. Flows of

negative information upward through an operations

hierarchy tend to be limited because of disincentives for

revealing poor performance. A standardized complaint

procedure giving a member access to the board as a last

resort can ensure that serious problems at the base of the

cooperative do not go unnoticed.

Another procedure for assuring member access to the

board, or any other member representative body, is an

open-meeting policy. Such a policy expands the frequency

with which members may interact with member

46
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

Board

of

Directors

Commercial Operations Agricultural Policy & Member Relations

,

Secretary

Assistant Secretary

Extension Research

Division Division

Information

Division

representatives and prevents distortion of information

flows between members and representatives.

The use of a regular member survey or survey panel is

once again applicable in this context.

The cooperative’s member newsletter is a device that

could be more frequently used for communication among

members. Individual directors or board committees can

take turns at writing a column for the member newsletter.

A regular member question-and-answer section in the

newsletter, which includes a postage-paid return question

card in its issues, has been successfully used by one large

dairy cooperative. Such questions can be answered by

either management or directors.

A structural approach to improving information flows

from directors to members is used by a large Canadian

grain cooperative. As shown in figure 6, the manager of

the agricultural policy and member relations division

reports directly to the board of directors rather than to the

general manager. Such an arrangement substantially

changes the flow of information vertically from the board

of directors to members and has significant consequences

for the balance of power between board and management.

Parting Note

The above strategies provide a few examples of ways in

which design strategies from organizational theory can be

applied to the membership structures of agricultural

cooperatives. These examples, these applications of

principles, are by no means exhaustive.

The structural needs of agricultural cooperatives vary

greatly with the size of the business, the environmental

situation of the organization and, doubtlessly, with a

multitude of more subtle factors such as attitudes, values,

culture, and style. There is no one structure suitable to all

agricultural cooperatives.

Some of the design examples will find ready acceptance,
and others may evoke disapproval and disagreement

among those who read them. The intent of this report is

not to recommend any of these methods, but to provide a

thought-provoking variety of applications of organizational

theory.

It is hoped that these guidelines and examples will

stimulate innovative approaches to designing membership

structures. The proliferation of many structural

alternatives would greatly broaden the number of models

to draw from in designing effective structures to improve

membership structures.

49
U.S. Department of Agriculture

Agricultural Cooperative Service

Post Office Box 96576

Washington, D.C. 20090-6576

A

Agricultural Cooperative Service (ACS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural residents. It works directly with cooperative leaders and Federal and

State agencies to improve organization, leadership, and operation of cooperatives and to give guidance to further development.

The agency (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and

to get better prices for products they sell; (2) advises rural residents on developing existing resources through cooperative action to enhance rural living; (3) helps cooperatives improve

services and operating efficiency; (4) informs members, directors, employees, and the public on how cooperatives work and

benefit their members and their communities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues

Farmer Cooperatives magazine. All programs and activities are

conducted on a nondiscriminatory basis, without regard to race,

creed, color, sex, age, handicap, or national origin.

,