Crisis Management
The case of MONDRAGON Corporation
Naroa Elortza Gorrotxategi
Researcher at MIK – Mondragon Innovation and Knowledge
Lecturer at MU Enpresagintza – Faculty of Business, Mondragon University
1
The Mondragon Cooperative Experience
2
Crisis management in MONDRAGON
3
Application of the management tools and the results
4
Conclusions
2
1
The Mondragon Cooperative Experience

Beginnings

MONDRAGON today

MONDRAGON as a reference and a successful
experience
2
Crisis management in MONDRAGON
3
Application of the management tools and the results
4
Conclusions
3
Beginnings


The Mondragon Cooperative Experience (MCE) started in
1943, in Mondragon (Basque Country)
The cooperative alternative was based on: Education and
Training, Cooperation, Responsibility and Egalitarian
Enterprise Development
4
The network
Its key INNOVATION was THE NETWORK... two elements:

Support institutions in common, jointly created and controlled.
Social security and insurance
Technology R&D
Lagun-Aro
Ikerlan (etc.)
Finance
Caja Laboral Popular

Firm-to-Firm Collaboration, mutual support and joint action. Take
advantage of new business opportunities AND help each other out in
hard times. Organised into Areas and Divisions,and coordinated by
Central Services (the Corporation)
5
MONDRAGON today

Formed by 258 cooperative enterprises, subsidiaries and
affiliated organisations

Total jobs: 83,859 (2010)

Total sales: 13,989 million euros (2010)




International sales: 3,594 million euros (2010), 63% of
industrial sales
Divided into 4 Groups: Finance, Industry, Retail and
Knowledge
Within the Industrial Group, 12 Divisions
Its own set 10 basic principles based on its experience and
on ICA's principles
6
MONDRAGON as a reference and successful experience

MONDRAGON's mission is expressed in its corporate values: cooperation,
empowerment, innovation and social responsibility

It is considered one the most successful experience if not the most
successful example of worker cooperatives

MONDRAGON's economic and social achievements: ENTERPRISE with
social commitment, broad worker ownership and control; and solidarity
among cooperatives

Supported by several external authors; benefits derive from the business
model based on networked cooperative enterprise.
7
MONDRAGON as a reference and successful experience
Blemishes, challenges and problems. PLENTY (especially overseas
plants), but save the discussion for another day.
Here, our focus:

Crisis management policy and tools in MONDRAGON

How MONDRAGON's business model and its management tools
make a difference in severe economic and social crisis.
8
1
The Mondragon Cooperative Experience
2
Crisis management in MONDRAGON


Impact of the crisis on MONDRAGON
MONDRAGON's crisis management tools

Firm-level measures

Network-level measures
3
Application of the management tools and the results
4
Conclusions
9
18000
900
16000
800
14000
700
12000
600
10000
500
8000
400
6000
300
4000
200
2000
100
0
2005
2006
2007
2008
2009
Million euros (consolidated results)
Million euros (sales)
Impact of the crisis on MONDRAGON
Sales in MONDRAGON
Sales in the Industrial Area
Consolidated Results
0
2010
10
Impact of the crisis on MONDRAGON
As a result, a significant decline in overall investment and in resources
spent on social activities, non-profits
3000
45
40
2500
2000
30
25
1500
20
1000
15
Million euros (social activities)
Million euros (overall investments)
35
10
500
5
0
0
Overall investments
Resources assigned to social activities
11
MONDRAGON's crisis management tools
Crisis management tools based on the solidarity and mutual
assistance (“Intercooperation”) among cooperatives:
MCE's 7th principle
Takes concrete shape in the 2 network elements we described
(1) joint institutions, (2) firm-to-firm cooperation AND in
specific policies and tools.
Precedents: the Energy Crisis of the 1970s-80s
12
MONDRAGON's crisis management tools
Main objective: reduce the crisis' effects on the cooperatives
and the society
Key elements:

Members' participation in crisis decision-making processes

Cooperatives balance: economic (profitability, productivity...)
and social objectives (employment creation and protection,
human and social development)
13
Firm-level measures
Principal measures:

Cutting pay and interest payments; a General Assembly decision




Interest on internal capital account
Profit share
ORDER OF
Salary
APPLICATION?
Vacation bonuses (2-3 pay periods of 14-15)

Internal transfer

Re-training

Redundancy of temporary and subcontracted employees (nonmember)
14
Network-level measures

Division-level profit pooling

Network-level funds

Central Inter-cooperation Fund



Venture capital and other investments
Education and Cooperative Promotion Fund

Cooperative and professional training for members

Research and technological development
Corporate Solidarity Fund

Loss reduction
15
Network-level measures
Lagun-Aro, EPSV
• (Re)Employment Assistance Fund; finances activities to
keep members employed during downturns.
• Relocation among cooperatives; temporary and
permanent relocations
• Re-training
• Flexible calendar
• Early retirements
• Compensation (when other measures are insufficient)
16
MONDRAGON's crisis management tools
Caja Laboral Popular




First phase... 1959-1990, financed cooperative development with
local consumers/depositors' savings and cooperatives deposits
Today cooperative bank business focused on retail banking:
consumers, SMEs, co-ops to small degree (Bank of Spain)
Can write off cooperatives' unpaid debt, though uncommon
Consultancy:
 First phase: “Business Division” inside the bank to assist startups and co-ops with problems.

Later, converted into Central Departments and LKS Consultancy
cooperative
17
1
The Mondragon Cooperative Experience
2
Crisis management in MONDRAGON
3
Application of the management tools and the results
4

Employment Assistance Fund and Benefits

Flexible Calendar

Relocations

Relocations and Flexible Calendar

Employment
Conclusions
18
Employment Assistance Fund & Benefits
A significant raise in resources devoted to employment protection
80000
70000
60000
Euros
50000
40000
30000
20000
10000
0
2005
2006
2007
Fund
2008
Collection
2009
2010
Benefit
19
Flexible Calendar
A significant increase in co-op workers' hours financed by the
Employment Fund, during the crisis
60000
50000
40000
30000
Flexible
Calendar Hours
/ Month
20000
10000
11/10
09/10
07/10
05/10
03/10
01/10
11/09
09/09
07/09
05/09
03/09
01/09
11/08
09/08
07/08
05/08
03/08
01/08
0
20
Relocations
A considerable raise in worker-member relocations during the crisis
600
40
35
500
25
300
20
15
200
10
100
5
10/12
10/10
10/05
07/10–08/10
Temporary Relocations
Permanent Relocations
10/03
10/01
09/11
09/09
09/06
09/04
09/02
08/12
08/10
08/07–08/08
08/05
0
08/03
0
Permanent Relocations
400
08/01
Temporary Relocations
30
21 21
Relocations and flexible calendar
600
50000
500
40000
400
30000
300
20000
200
10000
100
0
Temporary Relocations
Permanent Relocations
Flexible Calendar Hours
07/10–08/10
0
Permanent Relocations
60000
07/08–08/08
Temporary Relocations
Comparing relocations and flexible calendar data...
22
Employment
Still, a significant decline in employment in 2009; temporary workers made
redundant. Controversy/debate about temporary workers. Law: 70%,
MONDRAGON 85%, but still debate.
100000
90000
80000
Employees
70000
60000
Total
Basque Autonomous
Community
Navarre
50000
40000
30000
20000
10000
0
2005
2006
2007
2008
2009
2010
23
Employment
Decline in MONDRAGON’s domestic employment, increase
MONDRAGON’s overseas employment.
%60,00
%50,00
%40,00
*
Basque Country
The rest of the world
%30,00
%20,00
%10,00
%0,00
2005
*
2006
2007
2008
2009
Basque Autonomous Community and Navarre
2010
24
1
The Mondragon Cooperative Experience
2
Crisis management in MONDRAGON
3
Application of the management tools and the results
4
Conclusions

Crisis management and cooperative principles

Employment in MONDRAGON

MONDRAGON’s crisis management’s incoherence
with cooperative principles
25
Crisis management and cooperative principles
o Crisis management based on solidarity, consistent with the
MONDRAGON’s 7th cooperative principle
o Decision-making processes based on members' participation. Participatory
model might weaken short-term business efficiency, but fosters members'
sense of belonging and motivation and long-term efficiency.
o Worker-members' relocation and pooling of profits are signs of
cooperatives’ commitment to solidarity. THOUGH…
o Solidarity is far from perfect. Temporary workers,
overseas non-member workers, etc.
2626
Employment in MONDRAGON
o The tools were designed to reduce the negative effects of the crisis on the
co-ops and society broadly
o Their main purpose has been to protect jobs
o During previous crisis periods, MONDRAGON managed to mantain and
even expand employment
o The cooperatives made massive efforts to protect worker-members' jobs
during those periods
o Lagun-Aro's Employment Assistance Fund has been a key tool
27
Crisis mangement’s incoherences with Co-op Principles
o The vast majority of worker-members' jobs have been mantained, but
most temporary workers have been made redundant (up to 15% of
employment in some cooperatives)
o Proportionally, the number of jobs destroyed in the Basque Country
(Basque Autonomous Community and Navarre) in MONDRAGON is higher
than in other countries
o The ORDER in which measures are implemented is crucial to determining
consistency with cooperative principles. Mainly regarding temporary workers
jobs.
28
Thank you
Gracias
Eskerrik asko
Naroa Elortza Gorrotxategi
nelortza@mondragon.edu
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