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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.

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Crisis ManagementThe case of MONDRAGON CorporationNaroa Elortza GorrotxategiResearcher at MIK – Mondragon Innovation and KnowledgeLecturer at MU Enpresagintza – Faculty of Business, Mondragon University

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1

The Mondragon Cooperative Experience

2

Crisis management in MONDRAGON

3

Application of the management tools and the results

4

Conclusions

2

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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

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Beginnings

  • The Mondragon CooperativeExperience (MCE) startedin 1943, in Mondragon (Basque Country)
  • Thecooperativealternativewasbased on: Education and Training, Cooperation, Responsibility and EgalitarianEnterpriseDevelopment

4

the network
The network

Its key INNOVATION was THE NETWORK... two elements:

  • Support institutions in common, jointly created and controlled.
  • 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)

Social security and insurance

Lagun-Aro

Technology R&D

Ikerlan (etc.)

Finance

Caja Laboral Popular

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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 principlesbased on its experience and on ICA\'s principles

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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.

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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.

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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

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Impact of the crisis on MONDRAGON

As a result, a significant decline in overall investment and in resources spent on social activities, non-profits

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MONDRAGON\'s crisis management tools

Crisismanagementtoolsbased on thesolidarity and mutualassistance (“Intercooperation”) amongcooperatives:

MCE\'s 7thprinciple

Takesconcreteshapeinthe 2 networkelementswedescribed(1) jointinstitutions, (2) firm-to-firm cooperationAND inspecificpolicies and tools.

Precedents: the Energy Crisis of the 1970s-80s

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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)

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Firm-level measures

Principal measures:

  • Cutting pay and interest payments; a General Assembly decision
      • Interest on internal capital account
      • Profit share
      • Salary
      • Vacation bonuses (2-3 pay periods of 14-15)
  • Internal transfer
  • Re-training
  • Redundancy of temporary and subcontracted employees (non-member)

ORDER OF

APPLICATION?

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Network-level measures

  • Division-levelprofitpooling
    • Network-levelfunds
        • CentralInter-cooperationFund
            • Venturecapital and otherinvestments
        • Education and CooperativePromotionFund
            • Cooperative and professionaltrainingformembers
            • Research and technologicaldevelopment
        • CorporateSolidarityFund
            • Lossreduction

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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)

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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 start-ups and co-ops with problems.
      • Later, converted into Central Departments and LKS Consultancy cooperative

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1

The Mondragon Cooperative Experience

2

Crisis management in MONDRAGON

3

Application of the management tools and the results

  • Employment Assistance Fund and Benefits
  • Flexible Calendar
  • Relocations
  • Relocations and Flexible Calendar
  • Employment

4

Conclusions

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Employment Assistance Fund & Benefits

A significant raise in resources devoted to employment protection

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Flexible Calendar

A significant increase in co-op workers\' hours financed by the Employment Fund, during the crisis

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Relocations

A considerable raise in worker-member relocations during the crisis

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Relocations and flexible calendar

Comparing relocations and flexible calendar data...

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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.

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Employment

  • Decline in MONDRAGON’s domestic employment, increase MONDRAGON’s overseas employment.

*

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* Basque Autonomous Community and Navarre

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1

The Mondragon Cooperative Experience

2

Crisis management in MONDRAGON

3

Applicationofthemanagementtools and theresults

4

Conclusions

  • Crisis management and cooperative principles
  • Employment in MONDRAGON
  • MONDRAGON’s crisis management’s incoherence with cooperative principles

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Crisis management and cooperative principles

  • Crisis managementbasedonsolidarity, consistentwiththeMONDRAGON’s 7thcooperativeprinciple
  • Decision-makingprocessesbasedonmembers\' participation. Participatorymodelmightweaken short-termbusinessefficiency, butfostersmembers\' sense of belonging and motivation and long-termefficiency.
  • Worker-members\' relocation and pooling of profits are signs of cooperatives’ commitmenttosolidarity. THOUGH…
  • Solidarityisfarfromperfect. Temporaryworkers, overseas non-memberworkers, etc.

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Employment in MONDRAGON

  • Thetoolsweredesignedto reduce thenegativeeffects of the crisis ontheco-ops and societybroadly
  • Theirmainpurpose has beentoprotectjobs
  • Duringprevious crisis periods, MONDRAGON managedtomantain and evenexpandemployment
  • Thecooperativesmademassiveeffortstoprotectworker-members\' jobsduringthoseperiods
  • Lagun-Aro\'sEmploymentAssistanceFund has been a keytool

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Crisis mangement’s incoherences with Co-op Principles

  • Thevastmajority of worker-members\' jobshavebeenmantained, butmosttemporaryworkershavebeenmaderedundant (up to 15% of employment in somecooperatives)
  • Proportionally, thenumber of jobsdestroyed in theBasque Country (BasqueAutonomousCommunity and Navarre) in MONDRAGON ishigherthan in othercountries
  • The ORDER in whichmeasures are implementedis crucial todeterminingconsistencywithcooperativeprinciples. Mainlyregardingtemporaryworkersjobs.

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Thank youGraciasEskerrik asko

Naroa Elortza Gorrotxategi

[email protected]

Blog: http://ilunkaran.com

Twitter / Identi.ca: @naroaelortza

LinkedIn: http://www.linkedin.com/in/naroaelortza

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