Co-operative Lifecycle Business Model

Dr Anthony Jensen, University of Newcastle, (a world leader and practitioner who specializes in employee owned businesses and business ethics) presented this paper at C-Mac’s Board Meeting four months after the business was transferred to a 100% employee owned workers co-operative.

The aim of this paper was to make C-Mac aware of the hurdles that face co-operatives as they progress through their life cycle.

Co-operative Lifecycle Business Model

1. START UP REQUIREMENTS FOR SUCCESS

  1. Strong Leadership
  2. Cohesive Culture
  3. Ongoing Support and advice

Features of Co-operative in Start Up

  1. Structural — legal, governance, incentives, entry and exit requirements
  2. Relational — Members commitment, suitability for participation and democratic processes. Leadership and group dynamics
  3. Economic human, financial and physical resources. Relationship to market place
  4. Technological — work processes Flexible open and self critical. Initial goals — make money or personal growth

Factors to realize superior efficiency of employee owned firm:

  • Decision making structure
  • Motivational structure
  • Information structure

2. EARLY MATURITY (2 - 5 Years)

Survival seems assured. Job motivation high. Members have high commitment. Tolerance and experimentation.

Destabilising Forces — if not a homogeneous culture

  1. Tensions-between skilled and unskilled
  2. Uncertainty in roles and decision making
  3. Education important to deal with controversial issues
  4. Institutionalisation — new norms, values and structures take over
  5. Free rider

These set up forces of decline which begin to take hold.

3. LATE MATURITY ( > 5 Yeas)


Need ability to overcome general forces of decline. Death, convergence and incorporation.

  1. Routinisation and Mechanisation — flexibility declines, novelty wears off. Membership increases but democracy atrophies. Loose by experimentation — stay with prove methods.
  2. Goal displacement. Move from democratic, job preservation and job satisfaction where new members lookfor financial returns.
  3. Environmental decay. Market changes. External shocks
  4. Suboptimal investment. Tension between old and new members

a. Horizon problems — failure to maintain physical capital in order to maximise cash flow. Excessive debt burden on current borrowing.
b. Tension — old members don't want to share revenue flows with new members
c. Co-operative Spirit and High Commitment Declines. Investment decisions based on self interest not collective good. Discourages investment
d. Overinvestment in early stages replaced by undrinvestment

   5. Self Extinction Forces — peculiar nature of co-operative enterprise — natural forces of self extinction. Fundamental to neo classical literature namely mainstreameconomists.

a. Co-ops will reduce size of membership
b. Employ non members
c. Liquidation — founding members leave or retire.
d. Increase net worth of business sell and make a profit
e. Ageing and retirement. Fail to recruit new members

4. REGENERATION

a. Regeneration constantly learning organisation
b. Manage the tensions and debates
c. Don't let the tensions become unmanageable
d. Key role of Manager to manage tensions
e. "Stay humble"

Anthony Jensen and Frank Webb

anthony.jensen©newcastle.edu.au

Would you like to learn what C-Mac Industries Co-operative are working through to transform the business into a "High Performing Workers Co-operative"? 

Click here for 11 Steps of The Staff Succession/Buyout Process

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