A cooperative belongs to for-profit social organizations.
A cooperative is a group of people or businesses that join together for the greater good of all members. They are owned, run and controlled by their members.
Cooperatives provide benefits for a group of people with the common goal. All members can contribute to the running of the business by sharing workload, responsibilities and decision-making. Cooperatives operate in various industries, especially in agriculture and farming, retailing, financial services, child-care service and housing associations.
Some advantages and disadvantages of a cooperative structure are given below.
Advantages of cooperatives
1. Decision-making power. Employees who work together to produce a good or service in a worker cooperative, also have a say in how the business is run on daily basis. Each member is highly involved in decision making. There is a democratic system of members where each worker has equal voting rights. This can improve the members’ commitment, therefore reducing conflict. Working together to solve problems and make decisions can be a great sense of fulfillment.
2. Incentives to work. Employees have a key stake in the cooperative, so they are more interested in how it performs and how much profit it makes. Because cooperatives are run in the interest of their members, who are also the owners of the cooperatives, hence receive dividends, they have higher motivation to work and it increases labor productivity. In this way, cooperatives are a great source of motivation for all members to work hard as they benefit from shared profits.
3. Social benefits. Cooperatives are often run on socially responsible principles, leading to gain for other members of the society rather than just for the few greedy owners who invest in a business purely for the purpose of maximizing returns from investment.
4. Public support. A key advantage of social enterprises such as cooperatives is that there tends to be public support, e.g. people (including customers) want to help them succeed because they believe in the cause. Worker cooperative can also be involved in supporting back the local community by giving donations to local groups in need, or even having underprivileged members of the society become members of the cooperative.
5. Buying in bulk. Cooperatives can create social gains that can be enjoyed by the wider community such as buying food in bulk directly from a farmer or from a wholesaler, and then selling that food at reasonable prices. The profit made will also be distributed to members of the society in the form of a dividend.
Disadvantages of cooperatives
1. Disincentive effects. Because cooperatives often do not pay high salaries and bonuses to their members as incentives to work, there might be inefficient management. Members of the cooperative may have poor management skills, unless professional managers are employed. It may take a long time to make accurate decisions. Also, decisions are most likely to be slowed down as all members of the cooperative work in a democratic way being involved in the decision-making process. So, all members are to be consulted on important issues.
2. Limited sources of finance. Cooperatives might suffer from a lack of capital as most of them cannot sale shares to raise funds through a stock exchange. Sources of finance are limited to the amount contributed by their members, therefore capital shortages may happen often affecting the growth of the cooperative.
3. Limited promotional opportunities. Cooperatives tend to have flatter organizational structures, so there are minimal opportunities for their members to progress in their professional careers.
4. Fierce competition. Cooperative retail stores face strong competition from professionally-run supermarkets like Walmart and international chain stores with stable supply chains. In order to survive, cooperatives sometimes must respond by offering additional services such as long opening hours, or must locate in remote areas as they are not able to afford to secure the best locations in the city.
