Topic: Cooperative Business Model
Strategy?
What is a Business Model?
• Explains how an enterprise plans to make
money
• According to Peter Drucker, it answers the ff:
o Who is the customer?
o What is the customer value?
o How do we make money?
o How do we deliver value to customers?
• Seeks to create value in the market place.
• Aims to manage and organizes its people,
products, processes, and resources.
• Four Interlocking elements of a
Business Model
o Customer Value Proposition (CVP)
o Profit Formula
o Key Resources
o Key Processes
• What is a Customer Value Proposition (CVP)?
o Process by which a firm generate value for
customers
o Lower cost via innovation in process
technologies
o Adding value via innovation in product or
service
• What is a Profit Formula?
o Process on HOW to create value
o Revenue Model: Break-even pt
o Cost structure: fixed vs. variable
o Margin Model: CPM x Qty
o Resource Velocity: turnover of resources
• What are Key Resources?
• Resources –needed to deliver the CVP.
o People
o Technology
o Products
o Facilities
o Marketing Channels
o Finances
• What are Key Processes?
• Processes – What should be done to deliver the
CVP.
o Rules
o Policies
o Organizational Culture
• How does Business Model differ from Business
o Business Model - describe how you run your
business
o Business Strategy - explains how you will do
better than your rivals.
• What is bigger between Business Model and
Business Strategy?
• What are the signs that Business Model is in
trouble?
o difficulty to create new innovations
o innovations create smaller and smaller
improvements.
o ease of customers to find new alternatives.
• The Elements of a
Cooperative Business Model
o Regular components of a Business Model
o Member-based purpose, ownership,
governance, and beneficiary structure
o Cooperative Values & Principles
Topics: Comparison of Investor-Owned and
Cooperative Enterprises
• Comparison of Investor-owned firms and
Cooperatives enterprises in terms of …
o value proposition
o market segments
o value chain
o value network
o cost & profit potential
o strategy formulation
• … in terms of Value Proposition
o Investor-Owned - satisfy customer needs &
maximize shareholder returns
o Cooperatives - maximize member benefits
• Value Proposition: Retailing Business
o Investor-Owned - make profit by selling
higher priced goods
o Cooperatives - ensure members receive the
lowest price
• Value Proposition: Production Business
o Investor-Owned - seek lower costs
o Cooperatives - provide members with
highest prices
• … in terms of Market Segment
• Market Segmentation is the Separation of
customers into pre-defined groups to better
provide the right mix of products.
o Investor-Owned - target most lucrative
market opportunities
o Cooperatives - target areas with greatest
members’ need;
o Target Market failures
• … in terms of Value Chain
• Value Chain describes various value-adding
activities from supplier to end-consumers.
o Investor-Owned - suppliers & Customers are
outsiders to the firm
o Cooperatives - suppliers & Customers are
owner/members
▪ sacrifice short-term gains to exploit
future opportunities
▪ Long-term perspective
o Cooperatives
▪ offer best value to members
▪ Short-term perspective
Topic: Strengths and Weaknesses of Cooperative
Business Model
• Strengths of the Cooperative Business Model
o Market access and market risk reduction
o Financial benefits from enhanced pricing
o Improved productivity
o Access to resources
o Community building
• Market Access and Market Risk Reduction
o Become a part of the value chain
o Establish local and global markets for the
produce.
o Reduce risk – coop as buyer of the produce
• Enhanced Pricing
o Lower input costs for supplies
o Strengthen bargaining power with buyers
o Secure premium prices for products
o Seek better service

• … in terms of Value Network • Improved Productivity

• Value Network is the Interrelationship between o Pooling of resources
the value chain on one side, and its o Bulk purchasing
“substitutes” and “complements” on the other. o Increased income
o Investor-Owned o Improved efficiency
▪ block substitution threats
▪ form strategic partnerships with • Access to Resources
complements o Enhanced Information
o Cooperatives o Broader Knowledge
▪ block substitution threats o New Technology
▪ cooperate among cooperatives o Larger networks

• … in terms of estimating cost and profit • Community Building

potential o Develop local community
o Investor-Owned o Engage in self-help
▪ reduce supplier costs &
▪ increase price to customers • Weaknesses of the Cooperative Business Model
o Cooperatives o Free Rider Problem
▪ offer higher price to suppliers o The Horizon Problem
▪ give lower prices to customers o The Portfolio Problem
o The Control Problem
• … in terms of formulating competitive strategy
o Investor-Owned
• Free Rider Problem
o First mover advantage – risk/return trade-
off
o In coop, value of early or late entry is the
same.
o Outcome: unwillingness to invest

• Horizon Problem
o Equity share appreciate over time – Long
term thinking
o In coop, year-on-year patronage focus
affect strategic vision.
o Outcome: short-term perspective

• Portfolio Problem
o In coops, ownership is not transferrable nor
for sale.
o Coop portfolio ≠ Members’ risk preferences
o Risk-averse members may put pressure to
rearrange coop’s investment portfolio.

• Control Problem
o Divergence of interests between members
and management.
▪ Members: Patronage benefits
▪ Management: Capital Investment

• Is Cooperative Enterprise Superior?

• Historically…
o Early Theorists belived that Coops were too
decentralized to be competitive
o Great Depression (1939)
▪ 1940s – 1960s: strong focus on coop
o Global expansion of free market
▪ 1960s – 1970s
o Economic crisis
▪ 1970 – focus on coop was revitalized
o Findings: During economic crises when
markets fail, focus returned back to coop.

• “There is an opportunity for the co-operative

movement to promote their unique form of
business as a potential “third way.”
- Brugue, Moyano, Vargas & Hernandez, 2003