Membership Struc+ral Design:

A Pilot Test On DHI Cooperatives

Thomas W. Gray, Ph.D.

Cooperative Services Division

Rural Development Administration

U.S. Department of Agriculture

Washington, DC 20090-6576

Gillian Butler, Ph.D. (abd)

University Center for Cooperatives

University of Wisconsin- Extension

Madison, WI 53703

Cooperatives are organized to be democratic. However, large membership size

can create problems for democratic process and governance. Attending meetings and casting votes may not be enough to preserve democratic characteristics. This report develops a set of propositions-a theory-for structuring membership to improve democratic opportunities and responsiveness. Aspects of

these propositions are tested against data from dairy herd improvement cooperatives in Wisconsin and are supported. These propositions suggest potential

structural design options, given specific stressors in the membership environment, and the management and operations environment.

Keywords: Cooperatives, Membership Structure, Democratic Organization,

Governance, Dairy Herd Improvement.

CS Research Report 131

November 1994

Price Per Copy: $3.50 Domestic, $4.00 Foreign
Preface

While various events have led to highly complex cooperative operations,

development of membership structures has lagged. The purpose of this

research is to distill a series of propositions-a theory-for improving structural

opportunities for democratic process within large cooperatives. These propositions are developed and then tested against data from dairy herd improvement

cooperatives (DHI) in Wisconsin.

The report’s intended audience is social and economic researchers and

those involved directly in the design of large cooperative membership structures. Therefore, the report is fairly technical in style and intended to serve as a

resource for this relatively specialized group.

Readers should note the report presents new, perhaps awkward terminology for the first-time user. The authors’ intent is to contribute to a systematic and

more rigorous understanding of membership. To develop new strategies for

member governance in changed environments, the concepts and language of

analyses must also develop. We have provided a “Glossary” to facilitate this

process.

This research is part of a series of reports on organizational design of cooperative membership by Thomas Gray, Rural Development AdministrationCooperative Services, and Gillian Butler, University of Wisconsin.
Contents

HIGHLIGHTS .................................................................................................... iv

INTRODUCTION AND PREVIOUS STUDIES ................................................. .1

THE CONCEPT OF ORGANIZATION .............................................................. 2

Bureaucratic/Democratic Organization and Design Options ..................... .3

Structural Design Options and Use .................................................... 3

A CONTINGENCY APPROACH TO MEMBERSHIP STRUCTURE ................ .8

Original Cooperative Structuring ................................................................ 8

The Member Environment: Quantitative Complexity and Diversity ...........

Management and Operations Environment: Technical Complexity ....... ..lO

Member and Management Environments: Unstable Environments ...... ..lO

The Internal Environment: Size ................................................................ 10

The Cooperative Environment: Environmental Capacity ........................ .ll

Proposition List ........................................................................................ .12

SOME EMPIRICAL SUGGESTIONS: A PILOT-TEST ON DAIRY HERD

IMPROVEMENT COOPERATIVES IN WISCONSIN ...................................... 13

Measures of Organizational Contingencies, and Membership Structures . ..13

Measures of Organizational Contingencies ..................................... 13

Measuring Member Structure Characteristics ......................................... 14

Correlation Analysis ................................................................................. 16

Proposition List-Whole Sample ..................................................... 17

The Influence of Environmental Capacity ........................................ 17

CONCLUSIONS ............................................................................................... 18

GLOSSARY ..................................................................................................... 20

. . . 111
Highlights

Based on the development of cooperatives from simple to complex organizations, this research develops a series of propositions that can help guide the

design of membership structures.

Membership structure is conceived as organization-like, producing a service

(member control) for members. In large cooperatives, member control is effectively thought of as involving three aspects-representation, policymaking, and

oversight. The goal of structural design should be creation of organizational

arrangements that help facilitate the realization of representation, policymaking,

and oversight.

Design cannot be done in a vacuum, but rather must take into account its

own environments-the members themselves and management and operations. Using the language and concepts of organizational design, and following

the development of cooperatives from simple to complex organizations, the following propositions are derived. Definitions and explanations of terms are found

in the text.

Proposition List:

I) The greater the complexity of the farmer environment, the greater the delegation of authority to a board.

2) The greater the complexity of the farmer/board environment, the greater

the delegation of authority to management and operations.

3) The greater the delegation of authority to management, the greater the

loss of direct control by members.

4) The greater the diversity in membership (large numbers of dissimilar

characteristics), the greater the need for horizontal divisions into departments.

5) The larger the membership quantitatively (large numbers with similar

characteristic), the greater the need for horizontal divisions into departments.

6) The greater the number of horizontal departments, the greater the possibilities for representation.

7) The greater the complexity of management and operations, the greater

the relative delegation of authority to management, the greater the subsequent

loss of direct control by members.

8) The greater the delegation of authority to management and operations,

the greater the use of specialization of the board.

9) The greater the specialization of the board, the greater the oversight and

policymaking possibilities.

10) The greater the stability in a member structure environment, the greater

the use of standardization options, the greater the certainty of member-control

possibilities.

11) The greater the instability in a member structure environment, the

greater the use of ad hoc communications options, the greater the membercontrol possibilities.

12) The greater the number of horizontal departments created, the greater

the need for coordinating vertical departments.

13) The greater the number of horizontal and vertical departmentations, the

greater the possibilities for representation.

iv
Highlights

14) The greater the complexity of the membership structure, the greater the

need for specialization of department hierarchies.

15) The greater the specialization of department hierarchies, the greater the

possibilities for member representation.

16) Internal structural complexity (both quantitative and qualitative)‘imposes limits on horizontal and vertical differentiations, departmentations, and specializations.

17) The poorer the environmental capacity of a cooperative, the less the

delegation of authority to management and operations.

18) The poorer the environmental capacity of a cooperative, the greater the

horizontal and vertical differentiations in the structure.

19) The poorer the environmental capacity of a cooperative, the less the

delegations of authority to management, the less operation-driven specialization in the board.

These propositions should be considered a group-as a theory-for understanding the design of membership structure. We tested aspects of this set of

propositions against data from Wisconsin (DHI) cooperatives. Propositions 2,5,

8, 10, 12, 17, 18, and 19 are supported. Few of the other propositions were

tested directly, due to limitations of the data, i.e., small size of cooperatives. We

recommend researchers use these propositions in future empirical studies, and

that organizational designers examine these propositions and their implications,

in their work on membership. Departmentations and specializations are strut

tural innovations that can help accommodate complexity and diversity in the

membership, and management and operations environments. Such accommodations can then enrich the setting for representation, oversight, and policy

making.

V
Membership Structural Design:

A Pilot Test On DHI Cooperative&

Thomas W. Gray, Ph.D.

Rural Sociologist

Rural Development Administration

Cooperative Services

U.S. Department of Agriculture

INTRODUCTION AND PREVIOUS STUDIES

Most modern cooperatives try to follow a set of

principles and practices first laid down systematically during the British consumer cooperative and

German credit union movements of the 1840s and

186Os, i.e., the Rochdale, Raiffeissen, and SchulzeDelitzsch principles. Various reformulations have

occurred, although all have common themes.

Briscoe, et a1.(1982:40) suggest five different

aspects:

1. Open and voluntary membership confined to

all persons using the cooperative, with no

discrimination on the basis of race, sex, politics, religion, or family background.

2. Ownership of the cooperative by memberusers only.

3. Control of the cooperative vested with members. Organization of the cooperative should

encourage member participation in decisionmaking and balloting on a one- member,

one-vote basis.

4. Benefits received by members in proportion

to their use of the cooperative.

5. Return on investment set at a limited rate of

interest.

Dunn (1988:85) suggests a more succinct version:

1. The User-Owner Principle: People who own

and finance the cooperative are those who

use the cooperative.

2. The User-Control Principle: People who

control the cooperative are those who use

the cooperative.

3. The User-Benefits Principle: The cooperaGillian Butler, Ph.D. (abd)

University Center for Cooperatives

University of Wisconsin - Extension

Madison

tive’s sole purpose is to provide and distribute benefits to its users on the basis of their

use.

Some see member control via democratic

process as the core principle and central to various

definitions of cooperatives (Schomisch and

Mirowsky [Butler] 1985:4).

A cooperative is a business voluntarily

owned and controlled by its member

patrons, and operated by them on a nonprofit or cost basis (Schaars 1980:7).

Cooperative societies are democratic

organizations. Their affairs should be administered by persons elected or appointed in a

manner agreed by the members and accountable to them. Members of primary societies

should enjoy equal rights of voting (one

member, one vote) and participation in decisions affecting their societies (International

Cooperative Alliance 1967:36).

Historically, the focus of research on member control has predominantly been at the social-psychological level, with such questions as how to get

members to meetings, involved in holding office

and voting. Singer (1983) characterizes this body of

work as the “member relations paradigm.” It is a

subset of the larger participation research area and

is represented by various authors including

Anderson and Sanderson 1943; Beal et al. 1951; John

1953; Folkman 1955; Brown and Bealer 1957; Copp

1964; Torgerson et al. 1972; Rogers 1971; Heffernan

1967; Warner 1966; Warner and Rogers 1971; and

others. Most of these papers focus specifically on

participation, with an implicit assumption that

1
member control can be realized with member

involvement.

Boynton and Elitzak (1983) address member

control more directly, defining control as “the ability of an individual or group to affect an organization’s objectives and the strategies used in the pursuit of those objectives.” They suggest control may

be “active” and involve such behaviors as voting,

serving on committees, and holding office. Or, it

may be more “passive, ” and involve such considerations as “the amount of control members could

potentially exercise if dissatisfied with the cooperative.” Their focus remains at the social-psychological level, asking members how much control they

perceive they should have, and how much they

believe they actually have.

Size of cooperatives has increased dramatically

during the past 40 years (Kraenzle et al., 1993).

Most agricultural cooperatives began as relatively

small, local, single-product organizations. As such,

they were highly accessible to their members and

easily understood by them. However, many of

these cooperatives have since grown into large

multi-product businesses that use sophisticated

technologies and serve large geographic territories.

In the small cooperative, those that can accommodate their total membership in town-meeting

type decisionmaking, member control [influence

and equality] does not present compromising problems. Membership tends to be homogeneous across

several characteristics. Elected representatives tend

to be representative, i.e., embodying many of the

wants, needs, and opinions typical of the general

membership. As cooperatives grow into thousands

of members, new requirements are placed on the

shape that democratic decisionmaking must take in

pursuit of member control. All members can seldom be assembled at one place and at one time. If

they could be assembled, getting member input

organized, articulated, and discussed would

become extremely awkward and difficult (Swanson

1985; Gray 1988; Butler 1988).

This empirical context has driven cooperative

size into analyses of participation. Studies emerged

to isolate the effect of size of cooperative on participation/control (Warner and Hilander 1964:39;

Lasley 1982; Elitzak and Boynton 1983; and Als

1984). Lasley (1982) introduced formal organizational concepts into the member relations research,

relating participation to various organizational

measures-formalization, centralization-of cooperative operations. Butler (1986) and Gray (1990) followed by beginning conceptual work on membership structure as organization.

In this report, we seek to deepen understanding

of member control in cooperatives with large memberships. We seek to further answer questions

about the organization of large membership structures, and how to orient them toward accentuating

member control.

The authors imported “organizational theory”

concepts into the member control literature, suggesting their continuity with concepts of democratic organization, exploring their application to

membership structure, deriving a set of internally

consistent organizational propositions, and testing

these propositions against data from dairy herd

improvement (DHI) cooperatives. This report

focuses on the agricultural cooperative.

THE CONCEPT OF ORGANIZATION

The study of organization has not yielded one

common “theory of organization.” Rather, several

different perspectives have emerged-sometimes

categorized as organizational development, theory,

and/or design (Hage and Finsterbusch 1987). We

follow Mintzberg (1979), and Van De Ven and Ferry

(1980), for rudimentary definitions of an organization, and combine these with the concept of organizational contingency, first introduced by Burns and

Stalker (1961), and Lawrence and Lorsch (1967).

This terminology will be explained as the report

unfolds.

Organizations develop out of two dynamicsspecialization and coordination-both central and

interrelated within an organization (Mintzberg

1979). People come or are brought together to pursue certain goals and objectives. Behaviors and

activities are specified, sometimes narrowly, sometimes broadly. Several people may do the same jobs

in different locations; a few people, or a lot of people, may do narrowly defined jobs independently

or together. A specialization occurs.

2
Coordination occurs with specialization.

Specialization allows some tasks to be completed

more efficiently. Coordination brings tasks together

in an overall pursuit of organizational goals. The

interplay of these two tendencies defines organizational structure. “The structure of an organization

can be defined simply as the sum total of the ways

in which it specializes its labor into distinct tasks

and achieves coordination among them (Mintzberg

1979:3).”

“Contingency theory argues that different organizational structures are required for different

organizational contexts (Hage and Finsterbusch

1987:87).” Specializations and coordinations must

be accommodated in different arrangements

according to pressures from an organization’s environment. These arrangements-or organizational

design options-mediate the tension between specialization/coordination and environmental stressors. Stressors create uncertainty while design

options rationalize and manage the stress so that

goals and objectives can be approximated (table 1).

Table l- Structural design strategies

Structural

Sources of Uncertainty Design Options

Quantitative Complexity Departmentalization

and/or Diversity (Horizontal Differentiation)

Delegation of Authority

(Vertical Differentiation)

Technical Complexity Job Specialization

(Delegation of Authority)

Stability/Instability Standardization

of Information Flows

Ad hoc and Formal

Communication Alternatives

Environmental Capacity Heightens or Lessens Use of

(Performance Gap) Design Options

Note: Adapted from Butler 1988:8; Gray 1989:2.

Bureaucratic/Democratic Organization

and Design Options

Bureaucracy and democracy are frequently

viewed as opposing ways of organizing. And there

are distinctive differences. Personnel selection procedures and criteria differ. In a bureaucracy, an individual is hired for a position on the basis of ability

to do a certain job. In a democracy, an individual is

elected to fill an office, theoretically because

he/she can represent constituent interests.

Dismissal procedures vary. In a bureaucracy, a few

prespecified officials have authority to dismiss an

employee. In a democracy, a body of representatives or qualified electors make dismissal decisions

(impeachment or recall) through prespecified voting rules.

Both, however, are rational-legal~mechanisms

based on formally defined rules and procedures.

Authority in both is embedded in the position

rather than in a person. Both also have specialization and coordination dynamics that are centrally

important. Structural forms of each take shape as

mediations that account for, and are able to

process, stresses from their respective environments.

Structural Design Options

Design options are the structural choices that

can be made to realize specialization and coordination. Democratic and bureaucratic organizations

solve this dynamic in similar ways.

1. Horizontal divisions (horizontal differentiations)

Organizations have various demands placed on

them. To help sort out and homogenize demands,

an organization can split into departments. These

departments are specialized in handling a narrower range of problems than those faced by the entire

organization. At the most basic level, this departmentation may be defined along a direction and

goal identification function and an operations and

methods function. These are organizational departments with separate tasks and located in separate

places within the structure. Various logics can be

used. The split between members/directors and

3
Figure l- Management & Operations Structure Example

I I

Traffic & Bean Reporter Grain Merchandiser

Agronomist

I I I

Plant SUPPlY

Superintendent Manager Comptroller

I

Employees Receptionist Accounting Manager

I I

Plant Plant Plant

Supervisor Supervisor Supervisor

I

1

I Data Proc. Mgr.

Employees Employees

[!j;;i- 1 ~p;;;rsor / ~~$L~~e~

Employees

I

Employees

Employees Employees Employees

(Butler 1988:16)

management/employees is by function. Further

splits could be made by product, market, geography, or client group (figures 1,2,3, and 4).

Figure 1 depicts operations of a cooperative in

which departments have been created predominantly by function, i.e., plant production, supply,

and comptrolling. It also shows departmentation

by product, with one production area specialized

for beans and grain. Figure 2 depicts departmentation by function-operations, sales, and secretarytreasurer, and grove production, maintenance, and

harvesting-but also within grove production, by

location-North, South, East, and West. Figure 3

shows horizontal departmentation by homogeneous function, i.e., production managers and their

employees. This is volume departmentation-similar functions being conducted by different people

to account for volume difficulties.

Similarly, a democracy may divide tasks into

departments. Figure 4 depicts a membership structure with departments by function-young couples, resolutions/districting committees, and delegate body-and by geographic district and region.

There are three regions and 11 districts. Each

department is separated from the others and has

separate duties and delegations of authorities

(although departments can be created without delegated authorities). The structural task of departments is specialization.

When several departments are created, the

organization is strung out horizontally (horizontal

differentiation).

2. Vertical levels (vertical differentiation)

Horizontal departments must be coordinated

so that their end results contribute to overall objectives of the organization. The organization will fail

without coordination.

4
Figure 2- Management & Operations Structure Example

Ft ece p:Fet ary

-l Director of

Operations

Dispatcher Fert. Plant Operator Sales Mgr. Clerks Data Procs. F

Mechanics

-4 -

Maintenance

I I I I I

South East

Spray &

Fen. West North

Foreman Foreman Foreman Foreman Foreman

Asst. :

. .

. .

Ass?. I

I

A

I I I

Packing Packing Packing

Supervsr. Supervsr. Supervsr.

Crew Crew Crew Crew Crew Packers

Grove

Inspector

Grove Grove

Inspector Inspector

(Butler 1988:28)

Packers Packers Formers Graders

5
Figure 3- Management & Operations Structure Example

Sales Manager, East Assistant Manager

Sales Manager, West

Assistant

/I Employees

I I I I _ I I I I I I

Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod.

Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr.

I I I . I I I - I - I I I

Employees Employees Employees Employees Employees Employees Employees Employees Employees Employees

(Butler 1988:19)

Overhead departments must be created to

bring about cohesion and organizational purpose.

For example, figure 1 shows the “plant superintendent” integrating activities for the three “plant

supervisor” locations. One of the “plant supervisors” brings activities together from the “beans,

grain, and maintenance” areas. The’general manager coordinates the entire organization. In figure 4

the “young couples committee” coordinates the

various “young couples groups.” The board of

directors coordinates efforts of the resolutions/district committee, the delegates, and various committees shown. Each level has authority over levels

under it.

In a bureaucracy, employees may report to

supervisors, who report to department heads. They

report to a general manager. A democracy may

have local districts, regional boards, delegates, and

a board of directors. (Although sources of authority

are respectively reversed. In a bureaucracy, the

source of authority may lie within the general manager’s position, who may in turn delegate downward. But, in a democracy, the source of authority

lies with the members, who may in turn delegate

upward.)

6

These departments add height to organizational charts and are termed vertical differentiations.

3. Job or Task Specialization

“Individuals are generalists when their jobs

involve a large number of broadly defined tasks,

problems, or issues, but they are specialists when a

small number of rather narrow tasks and problems

occupy most of their working time (Van de Ven

1980:210).” Job specializations generally are developed within departments, focusing on departmental duties within the confines of delegated departmental authorities. They are assigned to particular

positions filled by individuals. (Authority to make

final decisions may or may not be delegated to

individual positions.) A bureaucracy may have

production managers, clerks, and mechanics. A

democracy may have board officers, advisory committee members, resolution committee members,

and a president of the young leaders group.

4. Delegation of Authority

In both bureaucracies and democracies, some

decisions are delegated to specific organizational

departments and/or positions. For instance, a
Figure 4- Member Structure

Board of Directors (11)

Resolutions/Districts Delegate Body (220) and

Alternates (-110)

\

- Regions (3) I I I

Districts (11) I

I I

I

Units (44) I

I

(Butler 1988:27)

Members (2232)

bureaucracy may delegate to the finance department decisions about which applicants shall be

granted credit. A democracy may delegate responsibility for oversight of these credit decisions to its

finance committee. Decisionmaking is highly centralized whenever a few people at the top of the

organization have the authority to make most decisions. Conversely, decisionmaking is decentralized

when the authority to make decisions is widely dispersed among members. The structural task of delegations can be both coordination and/or specialization.

In a cooperative, where member control and

influence over decisionmaking is central to definitions of the organization, delegation to the board of

directors and to hired management are both centralizations. Authority is removed (or delegated) to

fewer members. When delegated to management, it

is entirely removed from direct member decisionmaking. It is centralized out of the realm of direct

member decisionmaking and into a member environment, i.e., management and operations.

5. Standardizations or Ad Hoc Communications

“Standardization is the extent to which organizational activities are routinized. Standard procedures include official arrangements which are

either formal (documented in writing), regular, or

customary (repeated behavior occurring at prescribed time intervals) (Butler 1988:36). “Examples

7
are strict rules, formal meetings at prescribed

times, and standard operating procedures. Both a

bureaucracy and a democracy use formally defined

procedures. Bureaucracies have credit policies, cash

discount policies, sick leave policies, etc.

Democracies have established procedures for nominating candidates, making resolutions, notifying

members of meetings, etc. The higher the number

of formally defined procedures, the higher the level

of standardization in the organization.

Examples of ad hoc structural options include

temporary committees to handle specific one-time

problems, or survey instruments to assess members’ views on specific issues. Formal communication alternatives could include permanent committees and positions that bypass other sub-structures

with the organization. The structural task of these

options is coordination.

Complex organization and democratic organization share many similarities and are suited to

similar conceptual treatment. Fundamental is that

both kinds of organization must resolve the specialization/coordination dynamic and do so using

the described structural options. What specific

options are exercised and the shape the structure

takes depends upon environmental conditions. The

following section will again present the structural

options, but from an environmental context.

CONTINGENCY APPROACH

TO MEMBERSHIP STRUCTURE

From a contingency theory approach, structural

design choices must consider accommodations that

mesh environmental contingencies with specialization/coordination to account for member control.

Five environmental contingencies will be

addressed in this report-quantitative complexity,

diversity, qualitative complexity, stability, and

environmental capacity.

Complexity/Diversity refers to the manageability

of problems facing an organization (Van de Ven

and Ferry 1980). Can problems be handled directly

or do they need to be subdivided? Are the

demands so great in number that they overburden

an organization so nothing can be done? Are they

so complicated, that technical training is required

to resolve them?

The first set of problems is termed “quantitative complexity.” The second set is “technical complexity.” Diversity is similar to quantitative complexity. A number of demands are placed on an

organization, although from several different

sources.

Stability/Instability refers to the speed with

which change in an organization’s environment

occurs. When a cooperative works in a stable environment, the time and nature of demands basically

are known, or at least roughly predictable in character and occurrence. In an unstable environment,

events occur rapidly and tend to be unpredictable.

Environmental Capacity refers to the richness or

poorness of the field in which the organization

works. In a rich field, the organizational goals can

be easily met, but in a poor field, goals are difficult

to meet. Some business contexts are simply “richer” than others and thus present more opportunity

for “success.”

Original Cooperative Structuring

Empirically, when farmers pool their marketing

and purchasing needs in forming cooperatives,

they typically encounter quantitative complexity

problems. Not all farmers’ needs will overlap.

Some will be contradictory and others unique to

individual farmers. Farmers have to establish procedures to serve collective versus individual interests. Coordination has to occur through a legitimately held process.

“Authority is the power to decide what is to be

done, by whom, and to what standard (Kenny et

al., 1986:49).” Members delegate authority to a

board of directors via an election process. An organizational form takes shape and diversity among

the several members-from an organizational

viewpoint-is resolved. The board, as a body,

assumes authority and responsibility for managing

the cooperative, bringing coordination to the several different member interests.

Members may further delegate to a hired man8
agement. Historically, agricultural cooperatives

have been small organizations, providing few, easily understood services for local farmers in local

markets. The operations component of the organization may only involve weekly, monthly, or even

seasonal management.

Under these circumstances, a member of the

board of directors might serve as both director and

hired manager. However, many cooperatives have

since grown into large and complicated organizations; environments are no longer simple; products

and services are many and varied. Management

likely requires specialized knowledge and full-time

attention to operations. Hiring a full-time professionally trained manager, with delegated authorities may be necessary to bring coordination and

interpretation to a technically complex environment that is difficult to manage.

Delegations from members to management also

may be due to a quantitatively complex environment. Aside from responsibilities on the board, the

farmers-director also have individual farm businesses to operate. They generally cannot be available to perform the range of tasks associated with

daily operations of the cooperative. Further, directors hold authority as a board. To require committee decisionmaking for countless operational

details would severely hamper organizational

effectiveness. Delegation to management quantitatively simplifies the farmer’s environment.

These delegations put in place, from the standpoint of initial organizing and structuring, a membership structure with two environments, the members themselves, and management and operations.

These original structurings suggest:

1) The greater the complexity of the farmer

environment, the greater the delegation of

authority to a board.

2) The greater the complexity of the

farmer/board environment, the greater the

delegation of authority to management and

operations.

3) The greater the delegation of authority to

management, the greater the loss of direct

control by members.

In one sense, delegations represent loss of control. Members give their authority to make decisions to someone else. Generally, operational decisions are delegated to management. Policymaking

and oversight provisions are retained for member

representatives. Member control becomes differentiated within the structure depending upon

whether the goal is representation, policymaking,

and/or oversight. Representation is most cogent in

response to the member environment and policymaking and oversight to the management environment.

The Member Environment:

Quantitative Complexity and Diversity

Contingency theory indicates that an organization facing a diverse environment can improve its

performance if it identifies like segments of its

environment and establishes separate structural

departments to accommodate each. The like segments of the organization’s environment become

the basis for dividing the organization into horizontal sections. A marketing cooperative may

increase the efficiency of its operations by establishing functional departments for retail, institutional, and international sales.

Large membership cooperatives may have similar members in diverse locations. Departmentation

can simplify this environment by geographically

dividing the membership. Elected officers can then

focus their attention on representing the interests

of particular segments of the membership. This

strings the structure out horizontally into a series

of geographic member districts and division. Other

bases of representation are also possible. Members

might be divided by type or size of farming operation or membership tenure. These divisions

account for member diversity.

These concerns about diversity and quantitative complexity suggest the following relationships:

4) The greater the diversity in membership

(large numbers of dissimilar characteristics),

the greater the need for horizontal division

into departments.

5) The larger the membership quantitatively

(large numbers with similar characteristics),

9
the greater the need for horizontal divisions into

departments.

6) The greater the number of horizontal

departments, the greater the possibilities for

representation.

Management and Operations Environment:

Technical Complexity

The technical complexity of an environment

increases along with the variety and technical

sophistication of activities pursued within it. As

cooperative operations add new products, services,

commodities, technologies, and market areas,

members are presented with an increasingly complex management environment. Member control at

the board level-oversight and policymaking-is

challenged. Loss of member control may occur as

directors are unable to process increasingly more

complex information. Contingency theory suggests

this complex environment may be simplified with

job and/or task specializations. Oversight and policymaking can be enhanced by using specialized

committees that deal with specific commodities,

markets, or single aspects of operations (e.g.,

finance, member relations, and marketing). A contingency approach suggests:

7) The greater the complexity of management

and operations, the greater the relative delegation of authority to management, the

greater the loss of direct control by members.

8) The greater the delegation of authority to

management and operations, the greater the

use of specializations within the board.

9) The greater the specialization of the board,

the greater the oversight and policymaking

possibilities.

Member and Management Environments:

Stability/instability

Some organizations operate in relatively

unchanging conditions, selling the same products

at the same prices to the same members year after

year. Other organizations face rapidly changing circumstances. In a stable environment, an organization can standardize many of its activities to

achieve coordination and predictability. In an

unstable environment, it is less appropriate to standardize because new situations constantly occur

that do not conform to the rules. The organization

must remain flexible to adapt quickly to new circumstances. Many different influences may make a

cooperative’s environments unstable. Examples are

irregular price movements, rapid member

turnover, high rates of urbanization, unpredictable

demand in international markets, or changing

Government policies.

Member control ultimately concerns communication channels. If communication fails during critical periods, so will member input. Various ad hoc

communications options such as temporary committees, surveys, and farm visits allow access and

coordination to occur. A contingency approach

suggests:

10) The greater the stability in a member structure environment, the greater the use of

standardization options, the greater the certainty of member control possibilities.

11) The greater the instability in a member

structure environment, the greater the use

of ad hoc communications options, the

greater the member control possibilities.

The Internal Environment: Size

As size of membership grows, so does the need

for horizontal differentiation. Large numbers of

horizontal departments in effect present the structure itself with quantitative complexity problems.

Departments need to be coordinated with vertical

differentiations. Contingency theory suggests:

12) The greater the number of horizontal

departments created, the greater the need

for coordinating vertical departments.

13) The greater the number of horizontal and

vertical departmentations within a membership structure, the greater the possibilities for representation.

Adding levels of representation to the membership structure includes more individuals to collect

information from members, thus improving representation.

10
However, structure complexity grows with horizontal and vertical differentiations. The structure

itself may block contact between the individual

member and oversight and policymaking centers.

Departmentation of sub-structures may simplify

this complexity. Separate department hierarchies

may be created for particular functions.

Separate paths from members to the board

might take shape in the form of resolutions, districting, delegate, and young member functions.

This approach suggests:

14) The greater the complexity of the membership structure, the greater the need for specialization of department hierarchies.

15) The greater the specialization of department hierarchies, the greater the possibilities for member representation.

Ultimately, the structure must limit itself, generating the following proposition:

16) Internal structural complexity (both quantitative and qualitative) imposes limits on

horizontal and vertical differentiations,

departmentations, and specializations.

The Cooperative Environment:

Environmental Capacity

While we have discussed membership structure

as resembling an organization, it is in fact part of a

larger organization, i.e., the cooperative. The cooperative contains membership, and management

and operations departments. The primary membership task is to control management and operations

in a manner that continues to meet member needs,

as articulated by the members. The environment of

operations is in effect the task environment of the

entire organization.

Success or failure of an organization depends

not only on the actions of the organization, and/or

how it is structured, but also on the capacity for

success inherent in its environment. Some business

contexts are simply “richer” than others and thus

present more opportunity for “success.” For

instance, a retail trade in luxury items is more likely to succeed in a high-income, high population

area (a high-capacity environment) than in the

poverty-ridden, sparsely populated area (a lowcapacity environment). A business is likely to be

more profitable where there is less competition.

Organizations in high-capacity environments

may not feel any need to “fine tune” their structures (“If it ain’t broke, don’t fix it” philosophy).

Conversely, an organization is more likely to try for

increased control over its operations through structural modifications when faced with a low-capacity

environment and small margins for error. Thus, we

would expect the relationship between organizational contingencies (such as complexity, diversity,

and stability) and membership structures to be

stronger in low-capacity environments.

Hage and Finsterbusch (1988) support this position, stating: “motivation or pressure for change

results from the identification of a performance or

output gap that is valued by organizational decisionmakers. . . . [quoting Leonard (1977)] . . . We know

of no stronger impetus to administrative reform

than clear, objective evidence of poor performance

in a significant output area.”

However, we take one theoretical exception to

this statement. The control issue is uniquely different in cooperatives compared with investor-owned

firms (IFOs). Authority in a cooperative is delegated from the owners, members, and users of services provided. The impact of environmental

capacity on membership structure may be more

curvilinear-deepening some accommodation,

while moderating others. In cooperatives with no

delegation of authority, there may be less likelihood to delegate in situations of low environmental capacity. This may be due not only to desires to

retain direct control while under pressure, but also

to a financial inability to hire and empower a professional management staff.

Further, as members, directors may be more

attuned to representation needs and support a

more articulated structure in a poor environment.

Members may be more ready to seek out the directors. This contingency suggests:

17) The poorer a cooperative’s environmental

capacity, the less delegation of authority to

management and operations.

18) The poorer the environmental capacity, the

greater horizontal and vertical differentiations in the structure.

11
And as a corollary:

19) The poorer the environmental capacity of a

cooperative, the less delegations of au thority to management, the less operation-driven specializations in the board.

Proposition List

1) The greater the complexity of the farmer

environment, the greater the delegation of

authority to a board.

2) The greater the complexity of the

farmer/board environment, the greater delegation of authority to management and

operations.

3) The greater the delegation of authority to

management, the greater the loss of direct

control by members.

4) The greater the diversity in membership

(large numbers of dissimilar characteristics),

the greater the need for horizontal divisions

into departments.

5) The larger the membership quantitatively

(large numbers with similar characteristic),

the greater the need for horizontal divisions

into departments.

6) The greater the number of horizontal

departments, the greater the possibilities for

representation.

7) The greater the complexity of management

and operations, the greater the relative delegation of authority to management, the

greater the subsequent loss of direct control

by members.

8) The greater the delegation of authority to

management and operations, the greater the

need for specialization within the board.

9) The greater the specialization of the board,

the greater oversight and policymaking possibilities.

1) The greater the stability in a member structure environment, the greater the use of

standardization options, the greater the certainty of member-control possibilities.

) The greater the instability in a member

structure environment, the greater the use

of ad hoc communications options, the

greater the member control possibilities.

12) The greater the horizontal departments created, the greater the need for coordinating

vertical departments.

13) The greater number of horizontal and vertical departmentations occur, the greater the

possibilities for representation.

14) The greater the complexity of the membership structure, the greater the specialization of department hierarchies.

15) The greater the specialization of department hierarchies, the greater the possibilities for member representation.

16) Internal structural complexity (both quantitative and qualitative) imposes limits on

horizontal and vertical differentiations,

departmentations, and specializations.

17) The poorer the environmental capacity of a

cooperative, the less the delegation of

authority to management and operations.

18) The poorer the environmental capacity of a

cooperative, the greater horizontal and vertical differentiations in the structure.

19) The poorer the environmental capacity of a

cooperative, the less the delegation of

authority to management, the less operation-driven specialization in the board.

This proposition list has not been generated to

test a theory (or its propositions) per se, but to provide a historically based collection of axiomatic

statements, that can help clarify member governance in large cooperatives.

Only some of these statements [by design] are

testable. Others cannot be accommodated to these

set of data and still others are identities meant only

to give conceptual continuity and relevance to the

propositions as a group. Such approaches help

define and explain central concepts and assumptions of related works, bring coherence to such

work with its summaries, and help give direction

to current and anticipated work and research

(Frankfort-Nachmias, Nachmias, 1992). We provide

a “pilot-test” of some of the propositions on

Wisconsin DHI cooperatives.
SOME EMPIRICAL SUGGESTIONS:

A PILOT-TEST ON WISCONSIN DHI CO-OPS

Given an environmental contingency model,

choice of data on Wisconsin DHI cooperatives simplified various concerns. All are in the same business-dairy herd records. Each offers a fairly limited number of services. They share the same

institutional environment. All are subject to similar

technological changes, governmental regulations,

policies, programs, and trends in the dairy industry. Given these shared characteristics, we focused

on variance in the immediate task environments.

Methodological concessions are made to number of

observations and statistical complexity, given the

primary interests in concept, language, and theory

development, and not to an empirical grounding of

DHI cooperatives. The methodology and measurement techniques used are consistent with those

designed by Van de Ven and Ferry (1980) and published in Measuring and Assessing Orgunizutions.

All 30 DHI cooperatives in Wisconsin were

examined. Twenty-six were “local associations,”

and four were centrally managed centers (WDHIC

centers). Membership structure varied among the

local associations and between the local associations and WDHIC centers.

Measures of Organizational Contingencies

and Membership Structures

Measures were based on information provided

from personal interviews with board chairpersons

and managers-key people knowledgeable about

information regarding DHI cooperatives. This

methodology is based on techniques developed out

of the “key informant” and “elite and specialized

interviewing” literature (Dexter 1970, FrankfortNachmias, Nachmias 1992).

Measures of Organizational Contingencies

We examined these five organizational characteristics: 1) quantitative complexity in size, 2) technical complexity of the cooperative’s operations, 3)

diversity of members’ interests, 4) stability of the

organization’s environment, and 5) capacity of the

organization’s environment.

1. Quantitative Complexity

The number of herds on test at the cooperative

was used as a production related measure of size.

Size varied from 113 to 2,300 herds, with an average of 559 per cooperative.

2. Technical Complexity of Cooperative

Operations

A measure of technical complexity should

reflect the variety of goods and services the cooperative offers and technical sophistication of its operations. Interviews with leaders revealed that DHI

cooperatives offered a range of activities. Some

only collect milk samples and do no laboratory

analysis. Some operate laboratories to analyze the

samples of only their own members. Others check

samples of other DHI cooperatives and a few analyze samples for non-DHI organizations such as

dairy plants.

The technical sophistication of the laboratories

also varied. Some have simple machines that only

measure butterfat. Others can measure protein,

somatic cells, and other attributes.

Local DHI associations that collect milk samples only, and do no laboratory work, are simple

operations. They hire few employees, require minimal capital investments, and do not require skilled

laboratory technicians. DHI units with advanced

laboratories for multi-county memberships hire relatively large numbers of skilled employees, require

significant capital investments, and must balance

the conflicting interests of widely dispersed members.

Technical complexity was assessed based on the

following categories:

Complexity =

1 No laboratory.

2 Simple laboratory (butterfat only).

3 Advanced laboratory - own members only.

4 Advanced laboratory - test for others.

Of the 30 DHI cooperatives polled, 9 had no

laboratory, 12 tested only for butterfat, 3 were more

advanced and served members only, and 6 had

advanced labs that also tested for others.

13
3. Diversity of Member Interests

Queries of the board chairpersons and managers of each DHI unit revealed that the relative

proportions of members on official and unofficial

tests indicated degrees of member diversity.

Breeders of purebred animals are required to produce “official” records to verify claims about their

stock. The commercial dairy producer needs only

unofficial records for guidance in culling, feeding,

etc. Breeders use DHI records as an advertising

tool. Commercial dairy producers, use them as a

management tool. This differing use generated conflicts of interest among members, suggesting it as

an appropriate measure of diversity.

When the proportions of members on official

and unofficial test are broadly unequal (nearly 100

percent in one category), member diversity is

understood as extremely low. In such cases, there

are few members whose interests diverge from the

bulk of the membership. However, when the proportions of members on official and unofficial test

are nearly equal (about 50 percent in each category), diversity of member interests is considered as

extremely high.

This formula was used to measure diversity:

diversity = 1 - absolute value of ( Percent Official -

Percent Unofficial). This formula yields a linear

measure that varies from zero to 1.00, with 1.00

representing the highest level of diversity. Actual

measures among the DHI cooperatives ranged

from 0.56 to 0.98, with the group presenting an

average score of 0.78.

4. Measuring Stability:

Board chairpersons identified 21 and managers

saw 23 different environmental factors that they

believe influenced the stability of the cooperative’s

environment. However, change in cow numbers in

the cooperative territory was the factor most often

mentioned by managers and directors as indicative

of stability. We used the reported IO-year changes

in cow numbers in each cooperative’s territory The

percentage change varied from 81 to 98.8 percent.

5. Capacity of the Cooperative’s Environment

Some business environments are simply richer

in opportunity than others. DHI managers and

directors identified cow availability most often as

the major influence on the success of their operations. Large numbers of cows in small geographic

areas lower transportation costs for field supervisors and milk sample collections.

Given these reports, the following capacity

measure was used:

Cow Capacity (Density) =

Total Number in Territory

Land’Area in Square miles

[While key informants identified this measure as most important in determining capacity,

interpretation suggests that it reflects cow

capacity only and not other influences such as

firm competition.] * Cow densities varied in

DHI cooperative territories from about 10 per

square mile to about 92 cows. The average was

about 48 cows per square mile.

Measuring Member Structure Characteristics

Five characteristics of member structure were

identified that can be modified in response to the

contingencies a cooperative may face: horizontal

divisions, vertical levels, specialization, delegation

of authority, and standardization. We used.simple

summations of ratings, and structural levels and

divisions, consistent with Van de Ven and Ferry’s

(1980) work on organizational design.

6. Measuring Horizontal Divisions

According to contingency theory, an organization facing a diverse environment will be more

effective if it identifies segments of its environment

and establishes separate organizational units to

respond to each segment. The measure of horizontal division used here is the number of units the

membership is divided into when electing the

board of directors.

14
Cooperatives displayed the following division

numbers:

Horizontal Divisions Number of Co-ops

1 18

2 1

4 1

5 4

6 1

7 3

9 2

While most cooperatives used just one division,

several used more than one, and two used as many

as nine horizontal divisions.

7. Measuring Vertical Levels

Adding vertical levels to a membership structure allows more individuals to collect information

from members. An example of a vertical-leveled

system is a delegate system. These DHI cooperatives were fairly simple in levels.

Most cooperatives used just one vertical levelmembers elected directors. In four cooperatives, an

additional structure was placed between the members and the primary membership governance

body. In one local association, members elected delegates who then elected the board of directors at

the annual meeting. In three of the DHI centers,

members elected area council members to meet in

particular geographic areas. These council members comprised a center council, which provided

policy guidance to an individual Wisconsin DHI

Cooperative center. Area council members caucus

and jointly cast the votes for membership of their

area on center council issues. Thus, there was an

intermediate structure between members and the

central governing body for the organization that

aggregated the votes of individual members.

8. Measuring Specialization

When a business is complex, more factors must

be considered when deciding the best way to do

something. In cooperative membership structures,

typical specialized roles are board officers such as

the president, vice president, secretary, and treasurer. Other specialized roles are created when the

board assigns segments of its work to committees

or appoints task forces or advisory committees to

advise on particular issues. The following role specializations were displayed:

Level of Specialization Number of Co-ops

4 10

5 16

7 1

9 3

Interviews revealed specializations included

president, vice-president, secretary-treasurer, nominations committee, alternate serving officers, specific personnel, wage and benefit specialists, and various other officers. Measures of role specialization

were determined by totaling the number of roles

included in the membership structure. Sixteen had

5 specializations, 10 had 4,3 had 9, and 1 had 7.

9. Measuring Delegation of Authority

Delegation of authority was measured by presenting a list of decisions relevant to operating a

DHI cooperative and asking respondents to indicate the level of board involvement. The decisions

were: hiring or firing field personnel; wages and

benefits; personnel policies; operating budget; capital equipment purchases; scope of operations; pricing of services; marketing strategy; and proposals

for bylaw changes. Each decision was scored

according to the level of board involvement. The

scores were then totaled. The score choices used

were:

1. The board is not involved in the decision.

2. The board is informed of management’s

decision.

3. The board presents input for a decision by

management.

4. The board formally approves a decision

made by management.

5. The board is presented with information,

and makes a decision.

6. The board initiates and makes the decision.

The final measure averages total scores of the

manager and board president. This yielded a measure with a range from 0 (no board involvement in

decisions) to 60 (the board initiates and makes all

decisions). Actual scores ranged from 23 to 45.5,

with an average score of 40. The lower the score,

the greater the delegation of authority. 3

15
10. Measuring standardization:

Queries to the board and management on standardization included:

1. Are board meetings scheduled for a year in

advance?

2. Is an agenda mailed to directors in advance

of board meetings?

3. Are Robert’s Rules of Order followed in

board meetings?

4. Is there a written job description for directors?

5. Is there a written description of the board’s

functions?

6. Does the board maintain a policy manual?

7. Does the board set formal goals annually?

8. Does the board participate in a formal planning process?

9. Does the board have a standard employee

grievance procedure?

10. Does the board have a standard member

grievance procedure?

11. Is the manager systematically evaluated?

12. Does the board regularly review starts and

quits?

The number of “yes” answers was averaged to

arrive at a measure of the level of standardization.

This method yields a measure which can range

from 0 to 12 with 0 indicating an extremely low

level of standardization and 12 indicating an

extremely high level. Actual scores ranged from 1

to 8.5 with 4.27 being the average.

Correlation Analysis

We examine correlation coefficients between

organizational contingencies and member structures. There are several deliberately imposed limits. Many individual propositions are provided for

logical continuity among the set of propositions as

a group and are not designed for testing. Because

we are analyzing the population of DHI cooperatives, and not sampling a broader population,

results pertain only to these set of cooperatives

only and cannot be directly extended to other kinds

of cooperatives. The small number of observations,

while making control of the larger environment

possible, limits generalizability. However, results

will tend to support or not support the theory. If

supported, the theory can be applied to other

research efforts. Organizational concepts and language as applied to membership, are opened for

further consideration. Propositions “2,4,5,8,10,

12,17,18, and 19” are considered in this pilot test.

A correlation coefficient indicates the level of

association between a pair of variables. A positive

association between two variables indicates they

tend to move in the same direction; i.e., large values of one variable are associated with large values

of the other, and visa versa. A negative correlations

indicates an inverse relationship between two variables; i.e., large values of one variable are associated with low values of the other. The absolute size

of a calculated correlation always varies between

0.0 and 1.0. The size indicates the relative strength

of a relationship between two variables. [For readers unfamiliar with correlation analysis, see footnote 4.1

We base our determination of whether a relationship between variables is weak, moderate, or

strong on probabilities associated with significance

tests.5 For this analysis, a correlation of less than

0.25 weak (p = c.10); 0.25 and 0.30 moderate (.lO c

p c .05); and more than 0.30 strong (p c .05). Table

Table 2- Correlations between organizational

contingencies, and member structures.

123456769

Contingencies:

1. Size

2. T-Complexity .58

3. Diversity -.47 -.60

4. Stability .14 .05 -.05

5. Capacity -.26 .02 .32 -.09

Structures:

6. Hor. Divs. .58 .30 -.44 .05 -.19

7. Vet?. Levs. 58 .30 -.36 .24 -.35 .51

8. Spec. Roles .74 .26 -.37 .25 -.29 .54 .34

9. Delegatn. .56 .04 -.28 .16 -.20 .17 .03 .56

1 O.Stndrdztn .50 .12 -.17 .23 -.17 .13 .07 .54 43

Note: Relationships are Pearson correlation coefficients, except

for relationships with complexity, which are Spaarman rank

correlation coefficients.

1 6
2 presents the levels of association between measures of organizational contingencies and member

structures.

Proposition List-Whole Sample

Propositions 2,4,5,8,10, and 12 are tested for

relationships, and then retested-along with

propositions 16,17, M-while controlling for environmental capacity.

Supported Propositions:

Proposition 2: The greater the complexity of

the farmer/board environment, the greater the delegation of authority to management and operations. Organizational complexity can entail two

dimensions, “quantitative complexity” or “size,” as

well as “qualitative complexity” or “T-complexity”

(table 2). The relationship between quantitative

complexity (Size) and delegation of authority to

management and operations (Delegatn), was supported with a strong correlation of 0.58.

Quantitatively complex environments are associated with greater degrees of delegated authority to

management and operations. However, the relationship between technical complexity (T-complexity) and delegation of authority (Delegatn) was not

supported with only a 0.04 correlation revealed.

Proposition 5: The greater the quantitative

complexity (Size) the greater the horizontal departmentation. The relationship between quantitative

complexity (Size) and horizontal departmentations

(Hor. Divs.) was strongly supported (0.58). It was

found that quantitatively complex environments

were associated with greater degrees of horizontal

departmentation.

Proposition 8: The greater the delegation of

authority to management and operations, the

greater the specialization of the board. The relationship between delegation of authority

(Delegatn) and specialization (Spec. Roles) was

strongly supported (0.56 correlation). It was found

that greater delegations to management and operations are associated with greater specialization of

the board.

Proposition 10: The greater the stability in the

member environment, the greater the standardization of procedures. The relationship between stability and standardization (Stndrdznt) was supported,

but rather weakly (0.23 correlation). The greater the

stability, the greater the standardization of procedures.

Proposition 12: The greater the horizontal

departments created, the greater the coordinative

vertical departments expected to occur. The relationship between horizontal departments

(Hor.Divs) and vertical levels (Vert.Levs.) was

strongly supported (0.51 correlation). It was found

that structures with a series of horizontal departments also have greater vertical levels.

Propositions Not Supported:

Proposition 2: The greater the technical complexity of the farmer/board environment, the

greater the delegation of authority to management

and operations. The relationship between technical

complexity (T-complexity) and delegation of

authority (Delegatn.) was not supported (O&l4 correlation).

Proposition 4: The greater the diversity in

membership (large number of dissimilar characteristics), the greater the horizontal departmentation.

The relationship between diversity and horizontal

departmentation was not supported. Rather, a

strong inverse relationship was found (-44 correlation). Results tend to mimic those of “capacity” and

will be discussed further with presentation of environmental capacity influences.

The remaining propositions were not measurable given the focus of the study, and/or the lack of

complexity with these specific cooperatives.

The Influence of Environmental Capacity

We previously suggested relationships between

contingencies and structural design are influenced

by the environmental capacity of the overall organization. (See initial list of propositions on page

12). Proposition 18 suggested structural relationships with the environment would be stronger in

poor capacity environments. We also suggested in

caveat, that the perceived need for control by decisionmakers may be stronger in these areas. And in

a cooperative, this may take shape as less delega17
Table 3 - Relationships between contingencies and

member structures with capacity controlled.

All High Low

Density Density

(n=30) (n=15) (

Relationship

Size/Horizontal divisions .57 -.25

Size/Vertical divisions .88 ’

Size/Specialized roles .74 .17

Size/Standardized procedures .50 -.24

T. Complexity/Vertical divisions .30 ’

T. Complexity/Specialized roles .28 .58

T. Complexity/Delegation -.04 .22

Diversity/Horizontal divisions -.44 -.06

Stability/Standardized procedures .23 .49

'n=l5)

.69

.89

.74

.62

.43

.09

.04

-.58

.03

1 Correlation cannot be computed because values for “vertical

divisions” are all 1.

Note: Pearsons correlation coefficients, complexity-Speannan rank

correlation coefficients.

tion of authority to management and operations,

and greater retention of decisionmaking authority

by the board (proposition 17). As a corollary

(proposition 19), we suggested less delegation

should be associated with less specialization at the

board level.

Table 3 indicates these relationships are partially borne out. There are strong relationships

between size (quantitative complexity) and the various structural measures of horizontal and vertical

differentiation in the low-capacity environments.

While no correlation is found between the

Delegation/Technical Complexity relationship in

the low-capacity environments, a moderate one is

found in the high-capacity environments. And

while no relationship is found between Specialized

role/T. Complexity in the low-capacity environments, a strong relationship is found in the highcapacity environments.

Propositions 17,X3, and 19 are supported when

considering environmental capacity. The strong

Stability/Standardization correlation in the highdensity areas is supportive as well, suggesting

these areas are less task crisis centered, and therefore more stable, allowing for standardization to

occur.

Diversity of membership and its relationship to

structure (proposition 4), is “not supported,” and

also shows a strong inverse relationship-opposite

from that expected. The horizontal differentiations

that occur in the cooperatives are predominantly

based on geographic location, not on type of farming operation. Zero order relationships between

capacity and structures in table 2 parallel those

between diversity and structures. The relationship

between diversity and capacity itself is strong and

positive (0.32 correlation). This suggests high

capacity environments are rich enough to support

both dairy product production and breeding enterprises.

As with other relationships, when capacity is

controlled, the relationship between contingencies

(Diversity) and structure (Horizontal differentiation) deepens. “Diversity” as measured in this

study may be more reflective of the capacity of the

environment of dairy herd production.

CONCLUSION

Most agricultural cooperatives began as relatively small, local, and single-product organizations. They were highly accessible to and easily

understood by their members. Many of these small

agricultural cooperatives have grown into large

multi-product businesses using sophisticated technologies and serving large geographical territories.

These large cooperatives use bureaucratic

structures and procedures to coordinate and control their complex operations, divide their work

among various departments and levels of the organization, hire professionals and specialists to make

specific decisions, and use standardized reports

and procedures.

Although these bureaucratic structures and

procedures make cooperative operations more efficient, they challenge the ideal of democratic member control. If information demands are so large

that me’mbers cannot process them (quantitative

complexity), or so technical that members lack skill

or time to figure them out (technical complexity),

or if demands change so rapidly that a timely

response is impossible (instability), the organization may fail. Failure from a membership structure

18
perspective is failure in member control, in representation, oversight, and policymaking.

An earlier paradigm of member control

research tended to focus at the social-psychological

level of individual farmers. It sought answers to

such questions as how to get farmers to meetings,

voting, involved in holding office, and patronizing

their cooperative.

A newer paradigm looks at an organizational

level of membership and at membership structure-if not an organization itself-very similar to

one. While earlier questions and answers remain

important, membership as organization needs to be

understood so new strategies may be produced to

help answer previous and newer questions.

New answers may include not only social-psychological ones, but such organizational strategies

as creating departments to handle quantitative

complexity, job specializations to handle technical

complexity, delegations of authority to handle both

aspects of complexity, and various standardization

and ad hoc communication alternatives to handle

stability/instability.

This report analyzes membership at the organizational level by developing a listing of axiomatic

statements to help articulate central concepts and

assumptions, and to provide a basis for developing

later research hypotheses. While the empirical

aspects of this work are fairly limited in application, various propositions have been supported,

showing promise for an organizational contingency

theory approach to membership. and eventually

member control.

FOOTNOTES

1 Appreciation is gratefully extended to Drs.

Alton Thompson and Keith Warner for their

review. However any omissions or errors in the

manuscript are the full responsibility of the coauthors. A much abbreviated version of this report,

emphasizing the theory, will appear in the Iour&

of Agricultural Cooperation, 1994.

2 More sophisticated analyses would likely

include such capacity-related variables as competition from other organizations. Interviews in this

study revealed that these managers and directors

held cow density as the major determinant of

capacity for these cooperatives. Unfortunately, we

cannot know from data from these 30 cooperatives

what proportion of total variability in capacity may

be due to cow density versus related variables.

3 As originally constructed, this variable

reflected centralization of decisionmaking within

the board. It was later reconceptualized and recoded to reflect delegation to management. Variable

values were therefore weighted with a -1 to reflect

this inverse change.

4 Readers unacquainted with this analysis

need only know a few things to understand correlation numbers. Correlations measure relationships

between variables. For example, the daily temperature and amount of cloudiness are variables.

Correlation numbers can only vary between 0.0

and 1.0. The larger the absolute size of the correlation number, the stronger the relationship’between

the two variables. If the correlation measure

between the amount of change in the daily temperature, and the amount of change in cloud cover is

[0.7,] this suggests there is a fairly strong relationship between changes in the daily temperature and

how much of the sky is covered with clouds.

Correlation numbers also have a sign-either

positive or negative. Positive signs imply that

when two variables change together, they change

in the same direction. Negative signs imply they

change in opposite directions. For example, if the

19
correlation between changes in the daily temperature and the amount of cloud cover in the above

example was found to be -0.8, we would know that

as larger proportions of the sky are overcast, daily

temperature readings will be lower-i.e., more

clouds, the lower the temperatures.

One might introduce a third variable, the probability of rain. If a correlation of +0.75 was found

between cloud cover and the probability of rain,

this number suggests there is a strong relationship

between cloud cover and rain-i.e., the more cloud

cover, the greater the likelihood it will rain.

5 These Wisconsin DHI cooperatives constitute

a population of cooperatives, rather than a random

sample, so inferential statistics are not used. The

measures of association between variables are not

estimates of population parameters. They are the

levels of association which exist among the variables in this population. The results of this analysis

pertain to this set of cooperatives. However, these

results can be used to support (or not to support)

the theory developed. The theory, if supported, can

then be applied to other kinds of cooperatives for

further development.

GLOSSARY

Coordination: Focusing and bringing together various disparate entities, behaviors, and decisions.

Delegation of Authority: Passing the legitimacy to

make sets of decisions to someone else or to another position. Members delegate authority to the

board of directors and to managers. Delegation

may serve a coordination and/or a specialization

function.

Democracy: A system of governance based on oneperson one-vote determination of decisions.

Department: An organizational design option for

processing quantitative and qualitative complexity.

Departments serve a specialization function.

Diversity: A condition in an organization’s environment. It creates stress in decisionmaking due to

large numbers of differing demands placed on the

organization.

Division of Labor: Dividing up tasks and assigning

them to individuals, and/or organizational structures.

Quantitative Complexity: A condition in an organization’s environment. It creates stress in decisionmaking due to large numbers of similar demands

placed on the organization.

Environmental Capacity: A condition outside of an

organization or an organizational structure. It

refers to the richness or poorness of opportunities

for meeting organizational goals and objectives?

Governance: The process of governing an organization in the collective interests of the owner-user

constituents of a cooperative.

Hierarchy: Multi-level structures of authority,

responsibility, and behaviors.

Horizontal Differentiation: Stringing out of organi20
zational departments, generally to serve a specilalization function.

Management and Operations Environment: That

part of a cooperative oriented to realizing goals

and objectives of the overall organization. It is outside of, or an environment to, the membership

structure.

Member Control: The process of governing an

organization in the collective interests of the

owner-user constituents of a cooperative.

Member Environment: The owners, controllers,

and users of a cooperative. They represent an environment to the membership structure.

Membership Structure: A stable coordination of

member positions ideally designed for member

governance. It is a mechanism for coordinating

specializations among a series of positions.

Organizational Contingency: Conditions existing

outside an organization or structure that create

uncertainty and that stress decisionmaking within

an organization.

Oversight and Policymaking: Processes of setting

broad guidelines for the management and operations of the organization, and the review of such

guidelines to assess if they have been realized.

Qualitative Complexity: A condition in an organization’s environment. It creates stress in decisionmaking processes, due to demands for sophisticated and/or specialized knowledge.

Quantitative Complexity: A condition in an organization’s environment. It creates stress in decisionmaking due to large numbers of similar demands.

Stability/Instability: A condition in an organization’s environment referring to how quickly or

slowly change occurs.

Specialization: Subdividing tasks as in a division

of labor.

Standardization: An organizational design option

that can routinize demands, and serve as a coordination function.

Technical Complexity: A condition in an organization’s environment. It creates stress in decisionmaking due to requirements for sophisticated

and/or specialized knowledge.

Vertical Differentiation: Building up of an organizational structure. It serves a coordination function.

21
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22
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23

U.S. GOVERNMENT PRINTING OFFICE: 1994 386-126/00363
U.S. Department of Agriculture

Rural Development Administration

Cooperative Services

Ag Box 3200

Washington, D.C. 20250-3200

RDA Cooperative Services 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.

Cooperative Services (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.

Cooperative Services publishes research and educational materials and issues Farmer

Cooperatives magazine. The United States Department of Agriculture (USDA) prohibits

discrimination in its programs on the basis of race, color, national origin, sex, religion, age,

disability, political beliefs and marital or familial status. (Not all prohibited bases apply to all

programs). Persons with disabilities who require alternative means for communication of program

information (braille, large print, audiotape, etc.) should contact the USDA-Office of

Communications at (202) 720-7808 (TDD).

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, D.C. 20250, or call (202) 720-7327 (voice) or (202) 720-1127 (TDD). USDA is an

equal employment opportunity employer.

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