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The Mondragon Cooperative Experience

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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The Mondragon Cooperative Experience

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

  2. 1 The Mondragon Cooperative Experience 2 Crisis management in MONDRAGON 3 Application of the management tools and the results 4 Conclusions 2

  3. 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

  4. Beginnings • The Mondragon CooperativeExperience (MCE) startedin 1943, in Mondragon (Basque Country) • Thecooperativealternativewasbased on: Education and Training, Cooperation, Responsibility and EgalitarianEnterpriseDevelopment 4

  5. 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 5 5

  6. 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 6

  7. 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

  8. 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

  9. 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

  10. Impact of the crisis on MONDRAGON 10

  11. Impact of the crisis on MONDRAGON As a result, a significant decline in overall investment and in resources spent on social activities, non-profits 11

  12. 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 12

  13. 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

  14. 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? 14

  15. Network-level measures • Division-levelprofitpooling • Network-levelfunds • CentralInter-cooperationFund • Venturecapital and otherinvestments • Education and CooperativePromotionFund • Cooperative and professionaltrainingformembers • Research and technologicaldevelopment • CorporateSolidarityFund • Lossreduction 15

  16. 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

  17. 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 17

  18. 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 18

  19. Employment Assistance Fund & Benefits A significant raise in resources devoted to employment protection 19

  20. Flexible Calendar A significant increase in co-op workers' hours financed by the Employment Fund, during the crisis 20

  21. Relocations A considerable raise in worker-member relocations during the crisis 21 21 21

  22. Relocations and flexible calendar Comparing relocations and flexible calendar data... 22 22

  23. 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. 23

  24. Employment • Decline in MONDRAGON’s domestic employment, increase MONDRAGON’s overseas employment. * 24 * Basque Autonomous Community and Navarre

  25. 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 25

  26. 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. 26 26

  27. 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 27

  28. 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. 28

  29. Thank youGraciasEskerrik asko Naroa Elortza Gorrotxategi nelortza@mondragon.edu Blog: http://ilunkaran.com Twitter / Identi.ca: @naroaelortza LinkedIn: http://www.linkedin.com/in/naroaelortza

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