Building Business Skills of Cooperatives to survive in Market Oriented Economy Prof. Arvind Gupta Institute of Rural Management, Anand (IRMA) National Conference on Cooperative Development December 2007

What is Business?  Value  Risk  Environment Management

What are the generic business skills?  Technical  Human  Conceptual

Survival in the market…  Alignment of Internal logic of the organisation with market logic Internal logic: Policies, Structures, Product, Processes, Procedures Market Logic: Better than competition, Demand driven, Value Creation, Communication and Delivery

What is the internal logic of Coops?  Member Organisations  Patronage based ( unlike IOFs)  Business Organisations centered around economic activities

Coops are based on…  Common Needs of the members  Consumer Coops, Credit Coops, Service Coops  Common Resources  Commodity Coops, Dairy Coops  Common Skills  Handicraft’s Coops, Weaver’s Coops  Combination of the above

Consumption of marketable value created by Coops could be…  Internal: Mainly by the members  External: Mainly by the non-members

Typology Based on creation of marketable value and consumption InternalExternal Internal12 External3 Consumption Creation of Marketable value 1.Inside – In: Services Coops like education, transport, credit 2.Outside – In: Consumer Coops 3.Inside – Out: Commodities Coops, Dairy Coops

The typology brings out…  Scope of the market and competition  Insights for better value creation  Clarity in defining patronage Let us explore this further…

Case 1: Inside – In The case of Staff Credit and Supply Coop  Business Opportunity identified on the basis of heterogeneity  Developed two products  Savings  Advances  Better value proposition for both  Higher rate of interest on deposits  Within 24 hr sanction/disbursement of loan and recovery in installments Being patronised despite charging higher rates of interest.

Case 2: Outside – In The case of Credit Coop, Mehsana  One product Short term credit for production or consumption  Diversified membership base Self employed professionals, small businessmen, salaried people etc.  Immediate sanction/disbursement with flexible repayment Contd…

Case 2: Outside – In The case of Credit Coop, Mehsana  External Fund Mobilisation  Very Effective guarantor system – group guarantee. Being patronised despite higher rates of interest. Viable and sustainable operations.

Value  Contained not merely in rate of interest  Created by  Product  Communication  Delivery Value Product Communication Delivery

Technical Skills at work…  Demand and Supply management  Risk Management  Cost Control – Proportionately low fixed costs vis-a-vis variable costs  And one more important feature  Internal Locus of Control

In contrast – Agri Credit Coops  Short term production credit  External Fund Mobilisation  Locked in, prescribed institutional arrangements  Sole dependence on agriculture leading to higher risk profile Loss of internal locus of control

Case 3: Inside-Out The case of Dairy Coops  Unique Characteristics  Scattered Production  Highly Perishable  Small local markets Therefore need to access bigger markets…

Case 3: Inside-Out The case of Dairy Coops: Value creation Primary Level  Quality Checking  Aggregation  Dispatch Value creation through space utility and economies of scale Union Level  Processing  Local Marketing Value Creation through form and time utility and economies of scale Federation Level  MarketingUltimate Value Creation  Generation of demand  New Product Devp.  Communication and Brand

Case 3: Inside-Out The case of Dairy Coops: Risk Sharing Type of RiskShared By Production RiskMembers Spoilage RiskPrimary High Fixed Costs RiskUnion No RiskFederation

Suitability of Coop design at Processing stage?  High Complexity of operations  Need for Technology to garner cost advantage  Need for large capital By itself, Coop design does not seem to offer any intrinsic benefit at this stage.

 At Processing stage Coop design can succeed only with  Value based Coop leadership  High Caliber Professional Management  Funding Support to meet high capital costs without any compromise on internal locus of control

Emerging Generic Strategies for Inside- In and Outside-In  Diversification  Better Delivery  Better Service  Comparable Operational Costs  Least Fixed Costs

Emerging Generic Strategies for Inside-Out  Higher share in the marketable surplus to obtain favourable terms of exchange  High efficiency low cost operations  Technology  Economies of Scale  Movement up the value chain  R & D  Innovative Organisational Arrangement eg: Joint Ventures

Key Ingredients  Organisational form with autonomy and internal locus of control  Structures, Processes and Procedures  Capacity to garner resources  Capital  Technology  High Caliber management  Committed Value based Leadership

Coop Education and Training has a key role. It has to help build technical, human and conceptual skills required to survive in market oriented economy. Thank You