Management

1. Management The process of designing and maintaining an environment in which individuals can work with others efficiently and effectively to accomplish set goals.

2. What is Management? • Science and an art • Interacting with people to achieve results • Using resources to achieve objectives • Balancing tradeoffs

3. Manger’s Roles in the Cooperative • Figurehead – public face of the cooperative • Leader – makes decisions and leads employee group • Liason – gateway between board and employees • Recipient-- receives information from board, employees and members • Disseminator-- issues information to board, employees and members • Spokesperson -- represents co-op externally • Entrepreneur-- calculated risk taker • Disturbance handler-handles disputes between employees and members • Resource allocator-develops budgets and assigns personnel • Negotiator-bargains with suppliers and buyers

4. Management Skills • Technical and operational • Financial • Human resource management • Planning and project management • Critical thinking and decision making

5. FUNCTIONS OF MANAGEMENT • Planning • Organizing • Directing • Staffing • Controlling • Coordination • Social & ethical responsibilities

6. Goals of the Cooperative Manager • To run an efficient operation • To manage and build human resources • To collaborate with the board of directors • To create a profit • To plan for and protect the future viability of the cooperative • To distribute benefits to members through service, patronage and revolving equity

7. Is Managing a Cooperative Different? • Closer, more long-term relationship with customers • Must weigh trade-offs between member’s realized return and financial well being of cooperative • More political, more emphasis on communication • Possibly, a greater emphasis on ethics • More complex objective function since members benefit from market access, price, patronage, revolving equity and risk pooling

8. Adjusting Decision Making When the Customers are Owners • Owners also receive returns through transactions • Maximizing ROE is not the only objective • Guaranteeing a market or supply is also important • Customers have long-term relationship with firm and manager

9. Distributing Net Earnings is Much More Complex • Single or multiple patronage pools • Retaining earnings as unallocated reserves • Distributing in cash, qualified stock or non-qualified stock • Inter-related with balance sheet management, equity retirement and infrastructure investment

10. Cooperative Manager Works in A Spotlight • Owners evaluate the cooperative with every transaction • Customer/owners express opinions directly to the manager • Decision on product line, inventory, hours of operation and seasonal locations may be more political • Cooperative manager is more likely to have a hands-on role in local operations

11. Cooperative Business Model Has Different Control and Incentive • Cooperative manager does not gain stock options or ownership • Cooperative manager has to respond to the majority of the ownership not just the major stockholders • Management styles from investor owned firms may not be successful in a cooperative • The goal (objective function) of a cooperative is more complex

12. Four and ½ Ways Members Benefit • Favorable Prices- • Patronage Refunds (cash and stock) • Services Provided • Dividends on invested capital (not as common) • Increased Competitive Environment

13. Favorable Prices • Immediate benefit popular with young members • Problems for manager • Miss estimate costs and generate a loss • Cannot generate equity • Benefit not realized by members • Competition reacts benefiting non-members • Distorts the value of investing in the cooperative since there is low ROE

14. Dividends on Invested Equity • May be limited by state or federal statute • Often is set at zero • Would increase willingness to invest and/or maintain long revolving cycle • Popular with heavily invested members who may not be using the cooperative • Competes with the ability to provide funds to users through patronage refunds

15. Patronage Refunds • Fundamental cooperative principle and method of creating equity • No relation to invested capital • Provided in stock and cash-members always prefer the immediate benefit of cash • Conflict arises in redeeming previously issued stock refunds since it competes for the cash needed to pay current refunds

16. Services Provided • A common rationale for establishing a cooperative • Other firms may not provide the service or provide it at competitive prices • Cooperative may be a better position to understand customer needs • Conflict in multi-product or multi-service cooperatives when one product or service is being subsidized by others

17. Increased Competitive Environment • Invisible benefit of cooperatives • Problem is that it is often not recognized until the cooperative disappears • Half a benefit because it also is available to non users

18. How do members exercise control in a cooperative • Voicing opinions to board and manager • Voting to elect directors • Occasionally voting on big issues involving structural change • Voting with their feet (discontinue using the cooperative) • Democratic process should not interfere with good business decisions but may require more communication

19. The Cooperative Management Dilemma Do we operate as a membership organization? Do we operate as a business enterprise? The manager should operate as an efficient business organization but they must realize the inherent differences that arise when most customers are also owner and who expect to have frequent opportunities to provide input to the manager.

20. The following slides have examples of cooperative management activities involving: • People • Capital • Planning • Decision making • Commodity marketing • Farm supply • Activities in larger cooperatives • Other

21. Cooperative Manager-People • Manager involved in customer relations • Two way communication with customer/members • Educating members about the cooperative • Relationship with lender • Relationship with regional cooperatives • Frequent contact with board members

22. Cooperative Manager: Capital • Cooperative board and manager must actively manage the balance sheet • Inherent tradeoff between member’s realized return and liquidity of the cooperative • Distributions of returns are complex

23. Cooperative Manager Role: Planning • Operating budgets must be prepared each year • Fixed asset replacement budget • Harvest and fertilizer season preparation • Formal or informal feasibility studies • Most cooperatives have one or more on-going infrastructure replacement projects at all times

24. Cooperative Manager RoleMarketing • Assembling or owning trucks, rail arrangements • Pricing products and establishing margins • Establishing and monitoring contracts with members • Establishing grain storage policies • Monitoring stored product management

25. Cooperative Manager Role-Farm Supply • Determining market potential and forecasting needs • Purchasing supplies • Managing inventories • Pricing supplies • Establishing and monitoring credit • Providing custom and technical services • Providing information to patrons

26. Cooperative Manager Role: Larger Cooperatives • Establishing departments and branch operations • Developing a management team • Managing a large employee team • Communicating with a large number of members over a wide geographic area • Establishing fair operating policies across branches • Evaluating and participating in JVs and Alliances

27. Cooperative Manager Role: Other • Understanding and complying with requirements of government agencies and regulators • Evaluating mergers and acquisitions • Participating in industry organizations • Continuing to learn about the competitive environment and innovative strategies

28. Questions?