1. Searching for a Cooperative Competitive Advantage Dr. Chris Peterson Michigan State University

2. The Key Question n In positioning cooperatives for performance, is there any competitive advantage to being a cooperative? n Or, are cooperatives really just a tax dodge?

3. The Co-op Downside n Equity capital is hard to raise. n Returns to investment are hard to measure and realize. –Co-op level vs. member level –Member and non-member share returns –How do members realize growth in value? n Decision making is slow and political. n Investment strategy is overly conservative.

4. Is There an Upside? n Future success in the global food and fiber system will demand one or more of the following: –LARGE SCALE OF OPERATION –SPEED OF RESPONSIVENESS –GREATER INVESTMENT IN “INTANGIBLES”

5. Is There an Upside? n The future would appear to play to the downside of co-ops. –LARGE SCALE DEMANDS CAPITAL. –SPEED DEMANDS QUICK DECISION MAKING. –INVESTMENT IN INTANGIBLES DEMANDS A GREATER WILLINGNESS TO TAKE ON CALCULATED RISK.

6. What Is a Competitive Advantage? n An organizational strength that clearly places a firm ahead of its competition in creating customer value. n Competitive advantage arises from: –Tangible resources –Intangible resources –Core Competencies or Capabilities The complex ability to carry out a particular set of operational tasks or competitive activities.

7. Examples of Different Resources Tangible Assets Hampton Inn’s reservation system Ford Motor’s cash reserves 3M’s patents Georgia Pacific’s land holdings Virgin Airlines’ plane fleet Coca-Cola’s Coke formula Intangible Assets Nike’s brand name Dell Computer’s reputation Wendy’s advertising with Dave Thomas Jack Welch as GE’s leader IBM’s management team Wal-Mart’s culture Organizational Capabilities Dell Computer’s customer service Wal-Mart’s purchasing and inbound logistics Sony’s product- development processes Coke’s global distribution coordination 3M’s innovation process

8. What Makes a Resource Valuable? 1. Competitive superiority: Does the resource help fulfill a customer’s need better than those of firm’s competitors? 2. Resource scarcity: Is the resource in short supply? 3. Inimitability: Is the resource easily copied or acquired? 4. Appropriability: Who actually gets the profit created by a resource? 5. Durability: How rapidly will the resource depreciate? 6. Substitutability: Are other alternatives available?

9. Any Competitive Advantage in What Co-ops Have Done? n Countering Market Power –Countervailing Power –Competitive Yardstick n Creating Cost Efficiency –Assembly of Raw Commodities –Achievement of Scale n Generating Returns from Adding Value –Products/services for Members –Products/services for Consumers

10. Any Competitive Advantage in What Co-ops Have Done? n Providing member risk reduction from: –Market access –Pooling –“Balancing plants” –“Maintain-the-market” –Diversification –Selective vertical integration

11. What about the Future? n Does being a cooperative give us any resource or capability that is –competitively superior –rare –inimitable –appropriable only by our members –durable –without substitute ? ? ? ? ? ?

12. One Suggestion to Ponder n A cooperative’s relationship with its members. –Competitively superior? –Rare? –Inimitable? –Appropriable only by the members? –Durable? –Without substitute?

13. Searching for Competitive Advantage? n What makes cooperatives unique in their abilities to serve members and to serve other firms or consumers in the supply chain? n If our competitive advantages have no roots in our ”cooperativeness,” then why are we cooperatives?