Searching for a Cooperative
Competitive Advantage
Dr. Chris Peterson
Michigan State University
The Key Question

In positioning cooperatives for
performance, is there any competitive
advantage to being a cooperative?

Or, are cooperatives really just a tax
dodge?
The Co-op Downside


Equity capital is hard to raise.
Returns to investment are hard to
measure and realize.
– Co-op level vs. member level
– Member and non-member share returns
– How do members realize growth in value?


Decision making is slow and political.
Investment strategy is overly
conservative.
Is There an Upside?

Future success in the global food and
fiber system will demand one or more of
the following:
– LARGE SCALE OF OPERATION
– SPEED OF RESPONSIVENESS
– GREATER INVESTMENT IN
“INTANGIBLES”
Is There an Upside?

The future would appear to play to the
downside of co-ops.
– LARGE SCALE DEMANDS CAPITAL.
– SPEED DEMANDS QUICK DECISION
MAKING.
– INVESTMENT IN INTANGIBLES
DEMANDS A GREATER WILLINGNESS
TO TAKE ON CALCULATED RISK.
What Is a Competitive
Advantage?


An organizational strength that clearly
places a firm ahead of its competition in
creating customer value.
Competitive advantage arises from:
– Tangible resources
– Intangible resources
– Core Competencies or Capabilities
• The complex ability to carry out a particular set
of operational tasks or competitive activities.
Examples of Different Resources
Tangible Assets
Intangible Assets
• Hampton Inn’s
• Nike’s brand name
reservation system
• Ford Motor’s cash
reserves
• 3M’s patents
• Georgia Pacific’s
land holdings
• Virgin Airlines’ plane
fleet
• Coca-Cola’s Coke
formula
• Dell Computer’s
reputation
• Wendy’s advertising
with Dave Thomas
• Jack Welch as GE’s
leader
• IBM’s management
team
• Wal-Mart’s culture
Organizational
Capabilities
• Dell Computer’s
customer service
• Wal-Mart’s
purchasing and
inbound logistics
• Sony’s productdevelopment
processes
• Coke’s global
distribution
coordination
• 3M’s innovation
process
What Makes a Resource Valuable?
1. Competitive superiority: Does the resource help fulfill a
customer’s need better than those of firm’s competitors?
2. Resource scarcity: Is the resource in short supply?
3. Inimitability: Is the resource easily copied or acquired?
4. Appropriability: Who actually gets the profit created by a
resource?
5. Durability: How rapidly will the resource depreciate?
6. Substitutability: Are other alternatives available?
Any Competitive Advantage in
What Co-ops Have Done?

Countering Market Power
– Countervailing Power
– Competitive Yardstick

Creating Cost Efficiency
– Assembly of Raw Commodities
– Achievement of Scale

Generating Returns from Adding Value
– Products/services for Members
– Products/services for Consumers
Any Competitive Advantage in
What Co-ops Have Done?

Providing member risk reduction from:
– Market access
– Pooling
– “Balancing plants”
– “Maintain-the-market”
– Diversification
– Selective vertical integration
What about the Future?

Does being a cooperative give us any
resource or capability that is
– competitively superior
– rare
– inimitable
– appropriable only by our members
– durable
– without substitute ? ? ? ? ? ?
One Suggestion to Ponder

A cooperative’s relationship with its
members.
– Competitively superior?
– Rare?
– Inimitable?
– Appropriable only by the members?
– Durable?
– Without substitute?
Searching for
Competitive Advantage?

What makes cooperatives unique in
their abilities to serve members and to
serve other firms or consumers in the
supply chain?

If our competitive advantages have no
roots in our ”cooperativeness,” then
why are we cooperatives?