Coop Case Analysis – Mondragon

Evan Williams writes

Mondragon is a diversified group of cooperatives operating in finance, retail, industry and knowledge.  Members of the organizations comprising Mondragon Cooperative Corporation act as both workers as well as owners.  This creates very unique managerial dynamics.  The cooperative’s general assembly and social council are responsible for representing the members as a whole.  They ultimately determine the management and governing council of the corporation (Lafuente, 2012).  This structure truly represents Mondragon’s claim to be not only run by its members, but for the benefit of its members as well.  The viability of this model is put directly to the test through their global expansion efforts.  A truly effective cooperative will continue to yield successful results throughout international growth.  Despite these growth challenges, Mondragon’s true value is evident in their governing structures which enable them to overcome their expansion dilemmas.

Just as in any other organization, there are significant strategic concerns facing Mondragon when considering large scale growth.  One of the most detrimental factors is their growth through ownership strategy.  The corporation’s management has a primary concern about their ability to convert employees into coop worker-owners.  In this growth model, employees are afforded the opportunity to join the cooperative after working in one of the cooperative’s divisions for a predetermined amount of time.  The conversion rate of temporary employees to worker-owners is not as significant in other countries outside of Spain.  Some of these difficulties arise out of political reasons as stated in the following excerpt: “MCC (Mondragon) also looks for other advantages…Often, however, they run into difficulties, where another country’s laws treat cooperatives with disadvantages.” (Davidson, 2009).  These political barriers result not only in direct resistance from regulation, but also indirect apprehension from potential owners.  The general unfamiliarity throughout the population of these highly regulated countries inhibits Mondragon’s success rate for converting employees to coop owners.

Another compromising issue facing Mondragon is the high turnover of upper level managers.  These higher level worker-owners contend with salary caps which limit their compensation to levels below that of related jobs in non-cooperative organization.  Although these executive level positions have an intangible intrinsic value associated with the social mission, executives do pursue better paying careers in the market.  In considering Maslow’s Pyramid, if rewards at Mondragon are more in line with the self actualization level, then the turnover suggests the lower levels are not being met.  This could infer a lack of fulfillment of the lower needs like esteem or financial security.  Interestingly, the Economist philanthropy article alludes to high wealth donors attaining Maslow’s highest level of need through charitable donation (Economist, 2006).  This confirms the assumption that executives still establishing wealth are concerned more with the lower levels of need.  Therefore, the potential pool for effective executive level cooperative owners is severely limited.  The potential candidates would most likely consist of highly experienced, capable managers who are also married to the social mission.  They must also be at a unique point in their lives where they can rationalize the opportunity costs of foregoing a non-coop career with the intrinsic rewards gained through the Mondragon social mission.

As discussed in the Peredo Agua Dulce article, community based enterprises do not consider profit making as their main purpose.  The lowered expected return is acceptable in light of the organizations ability to bring about positive community development or change (Peredo, 2005).  Mondragon operates in a similar fashion where intangible factors are calculated into various business activities.  This is clearly depicted in the executive levels’ compensation being adjusted for the intrinsic rewards associated with the social mission.  More generally, this concept suggests that where Mondragon can be comparable to a typical business, as seen in their organizational governance, there are considerable differences as well.  These differences allow the cooperative to operate in less defined guidelines.  Where a typical business may have set profitability benchmarks to meet for its shareholders, Mondragon answers primarily to the community for which it operates.  In turn, however, when a company like GE has a loss making division, they have a broader course of action to mitigate the losses.  Mondragon, in comparison, must cover its losses over other divisions, or relocate their employees should they close the unprofitable division.  This ultimately exposes the cooperative to heightened levels of operational risk as it limits the possible business solutions that can be implemented.

Despite these expansion difficulties, Mondragon enjoys international success.  From its inception in the poverty stricken Basque region of Spain, the cooperative has been able to bring about positive social change.  More impressively, Mondragon has developed a financially sustainable way to bring about this beneficial social change.  Much of this is attributable to the democratic governing infrastructure.  The cooperative is organized in a considerably decentralized manner, which results in a very flat hierarchy.  Operationally, this structure affords more decision making power to lower levels of the coop worker-owners.  This has a profoundly positive effect on human resources and the quality of the work environment.  This is a direct result of employee empowerment.  The local worker-owners, regardless of location, have inherently closer ties to the community because of their heightened level of responsibilities.  Therefore, their decision making within Mondragon’s flat hierarchy will guide the cooperative toward successfully implementing social change effective locally and globally.

Mondragon proves that a highly effective organizational structure can ensure globalized success.  Where expansion efforts do, in fact, tend to dilute the social mission, the democratic governing infrastructure established at Mondragon effectively insulates it from being significantly compromised.  The viability of the governing structure is accurately described in the following excerpt: “Mondragon illustrates that an organization that is much more democratic and egalitarian than any capitalist company can succeed and can compete at levels worldwide.” (Herausgegeben, 2011).  Through the continued dedication to the “One member, one vote” policy, decisions are delegated to the local workers.  This effectively enables Mondragon to maintain its local connectivity no matter what country a division may be located.

Works Cited:

Davidson, Carl. “Steelworkers Seek Job Creation via Worker-Owned Factories.” Beaver County Blue. N.p., 27 Oct. 2009. Web. 15 Nov. 2012. http://beavercountyblue.org/2009/11/04/steelworkers-seek-job-creation-via-worker-owned-factories/.

Herausgegeben, Michael Von, and Anton Leist. The Corporation for Economic Success: The Mondragon Case. Rep. N.p.: n.p., n.d. Berkeley. Lucius and Lucius, Stuttgart, 01 Jan. 2011. Web. 15 Nov. 2012. http://burawoy.berkeley.edu/Public%20Sociology,%20Live/Flecha&Santacruz.Mondragon.pdf.

Lafuente, Jose L. “The MONDRAGON Cooperative Experience: Humanity at Work.” The MONDRAGON Cooperative Experience: Humanity at Work. McKinsey and Co, n.d. 17 Oct. 2012 Web. 26 Nov. 2012. http://www.managementexchange.com/story/mondragon-cooperative-experience-humanity-work.

 

Peredo, Ana María.  (2005). Community Venture in Agua Dulce: The Evolution of Civic Into Economic Democracy. The Journal of Applied Behavioral Science, 41(4), 458-481.

“The Business of Giving a Survey of Wealth and Philanthropy.” The Economist (2006): 1-14. 25 Feb. 2006. Web. www.economist.com/surveys.

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