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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 18-19 December 2007
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What is Business? Value Risk Environment Management
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What are the generic business skills? Technical Human Conceptual
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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
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What is the internal logic of Coops? Member Organisations Patronage based ( unlike IOFs) Business Organisations centered around economic activities
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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
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Consumption of marketable value created by Coops could be… Internal: Mainly by the members External: Mainly by the non-members
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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
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The typology brings out… Scope of the market and competition Insights for better value creation Clarity in defining patronage Let us explore this further…
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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.
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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…
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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.
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Value Contained not merely in rate of interest Created by Product Communication Delivery Value Product Communication Delivery
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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
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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
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Case 3: Inside-Out The case of Dairy Coops Unique Characteristics Scattered Production Highly Perishable Small local markets Therefore need to access bigger markets…
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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
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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
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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.
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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
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Emerging Generic Strategies for Inside- In and Outside-In Diversification Better Delivery Better Service Comparable Operational Costs Least Fixed Costs
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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
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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
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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
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