Co-operation and Coordination in the Co-operative - eCommons

152 Pages·2010·1.09 MB·English

Co-operation and Coordination in the Co-operative Retailing System:
Essays on Economic and Identity Strategies
A Thesis
Submitted to the College of Graduate Studies and Research
In Partial Fulfillment of the Requirements
For the Degree of
Doctor of Philosophy
In the Department of Bioresource Policy, Business and Economics
University of Saskatchewan
by
Florentina Nicoleta Uzea
© Florentina Nicoleta Uzea, June 2010. All Rights Reserved
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ABSTRACT
Uzea, Florentina Nicoleta, Ph.D. University of Saskatchewan, Saskatoon, Canada, June 2010.
Co-operationandCoordinationintheCo-operativeRetailingSystem:EssaysonEconomicand
IdentityStrategies
Supervisor:Dr.MurrayE.Fulton
This thesis, which consists of three self-contained essays, examines, both theoretically and
empirically, some of the economic and identity strategies and mechanisms that federated co-
operatives,inparticular,andstrategicalliances,ingeneral,canusetoachieveco-operationand
coordination.Toaccomplishthisobjective,thethesisusesacombinationofindustrialorganiza-
tionandgametheoryconceptsfromeconomics,insightsfromsocialandcognitivepsychology,
andevidencefromin-depthinterviewswithdecision-makersintheCo-operativeRetailingSys-
tem(CRS)–anassociationof264independentWesternCanadianretailco-operativesandtheir
wholesaler,FederatedCo-operativesLtd.(FCL).
Essay One combines a case study of the CRS with an examination, in a game-theoretic
framework, of the co-operation and coordination problems arising among firms in alliances
and the potential solutions to these problems suggested in the economics and business strategy
literatures.Oneofthecontributionsofthisessayistoprovideexamplesofthemechanismsthat
canbeusedtoimplementthesetheoreticalsolutionsinabusinesssetting–i.e.,theessayidentifies
practicalwaysforalliancestoalterpartnerfirms’payoffs,toprovideprivaterewards,tomonitor
behaviour,toestablishlongtermgoalsamongpartners,tobuildhighgroupidentificationwithin
thealliance,andtofocuspartners’expectationsontheefficientoutcomes.Anothercontribution
ofthisessayistoidentifysomeofthesecond-orderco-operationproblemsthatariseinstrategic
alliances–e.g.,lackofincentivesbyalliancepartnerstocontributeresourcesthatarenecessary
to develop alliance management mechanisms – and to offer examples of the strategies that can
beusedtodealwiththeseproblems.
EssayTwodrawsuponsocialidentitytheoryanddevelopsaneconomicmodelofbehaviour
to show how the core firm in a strategic network can promote effective co-operation among
network members by inducing them to identify with the network. In addition, the essay offers
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empiricalevidencefromtheCRSthatidentityhassuccessfullybeenused,togetherwitheconomic
mechanisms, to foster co-operation among member retails, and provides examples of the most
importantmechanismsthatFCL,asthecorefirmintheCRS,hasusedtomanagetheidentityof
the retails. More generally, by incorporating the psychology (and sociology) of identity into an
economic model of behaviour, Essay Two contributes to an emerging view that non-economic
(behavioural) factors are complementary to the economic ones in the management of strategic
partnerships.
Essay Three considers the collective action problems that arise in co-operatives when it
comes to financing growth and identifies the conditions under which retained patronage can be
an effective way for co-operatives to raise growth capital. The essay develops a game-theoretic
modeltoexaminethetrade-offbetweentheshareofpatronagerefundsaco-operativewholesaler
paystomemberretailsincashandtheshareofpatronagerefundsitretainsandinvests,soasto
provideretailswithenoughshort-runbenefitstoencouragethemtopatronizetheirorganization,
while still retaining resources to invest in long-term growth. Analytical results show that when
there are increasing returns in patronizing the co-operative wholesaler, retails’ decisions to
patronizetheirorganizationarecomplementarystrategiesand,asaresult,multipleequilibriaare
possible.Someoftheseequilibriaareoneswithhighpatronageandhighinvestment,whileothers
arecharacterizedbylowpatronageandlowinvestment.Retails’expectationsabouttheactionsof
theircounterpartsarecriticalindeterminingtheprevailingequilibrium.Theanalysisalsoshows
thattheexistenceofthehorizonproblemfurtherconstraintstheabilityofthewholesalertoraise
growthcapital.Takentogether,theseresultssuggestthattheretentionofpatronagerefundscan
be an effective way for the co-operative wholesaler to raise growth capital, provided it acts to
focusretails’expectationsonthe‘good’equilibriumandtomitigatethehorizonproblem.
ByexaminingthestrategiesandmechanismsthattheCRShasusedtoachieveco-operation
andcoordination,andinsodoingillustratingthemechanismsthatfirmscanusetomanagepartner
opportunismandpreventcoordinationfailure,thethesiscontributestothealliancemanagement
literature. Firms today are increasingly forming strategic alliances with suppliers, buyers, and
even competitors in order to achieve sustainable competitive advantage. However, despite their
increasing popularity and value-creation potential, alliances more often fail than succeed, with
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alliance failure often attributed to opportunistic (non-co-operative) behaviour by one or more
of the partners and to coordination failure. As a result, it is important to identify strategies and
mechanisms that alliance partners can use to achieve co-operation and coordination, and thus
realizethebenefitsfromtheirassociation.
The thesis also contributes to the co-operative literature by shedding light on the age-old
debate on whether federated co-operatives need to be centralized to ensure efficiency. In par-
ticular, the thesis shows that federated co-operatives can be efficient, provided they address the
co-operationandcoordinationproblemsthatariseamongtheirmembers,andprovidesexamples
ofthemechanismsthatfederatedco-operativescanusetoachieveco-operationandcoordination.
Inaddition,thethesisoffersthefirstanalyticaltreatmentofhowthehorizonprobleminfluences
investmentdecisionsinco-operatives.
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ACKNOWLEDGEMENTS
Theauthorwishestothankthosewhocontributedtothecompletionofthisthesis:
Dr. Murray Fulton, my thesis advisor, for his thoughtful guidance, continuous encourage-
ment,andvaluableadviceoneffectivewriting.IamalsothankfultoDr.Fultonforhistrustand
beliefinme,whichhavegivenmeconfidenceinmyownresearchabilities;
Dr.JillHobbs,Dr.LouHammondKetilson,andDr.BrettFairbairn,membersofmyadvisory
committee, for the stimulating discussions during the early stages of this thesis and for their
insightfulcommentsandvaluablesuggestionsduringitscompletion;
Dr.PhilippeMarcoul,foragreeingtobecometheexternalexaminerformythesis,histime,
andveryhelpfulcommentsandsuggestions;
All the managers and board members from Federated Co-operatives Ltd., Calgary Co-
operative Association Ltd. and Saskatoon Co-operative Association Ltd., for participating in
the interviews. Special thanks go to Mr. Scott Banda from Federated Co-operatives Ltd. for
settinguptheinterviews;
Allthefaculty,staff,andgraduatestudentsintheDepartmentofBioresourcePolicy,Business
andEconomics,forcreatinganenjoyableandverystimulatingworkingenvironment;
TheCollegeofGraduateStudiesandResearch,theDepartmentofBioresourcePolicy,Busi-
nessandEconomics,andtheCanadianCo-operativeAssociationforprovidingfinancialsupport.
Funding for this research was also provided by the Social Sciences and Humanities Research
Council of Canada through the project entitled “Coordination, Identity and Success in a Feder-
atedMarketingSystem:RetailCo-operativesinWesternCanada”(Dr.MurrayFulton(Principal
Investigator)andDr.BrettFairbairn(Co-applicant));andfinally
My parents, Petrica and Vasile, my sister, Loredana, and my husband, Adrian, for their
unconditional love and support, and for always believing in me and encouraging me to pursue
mydreams.Youaremyworld–thiswouldnothavebeenpossiblewithoutyou!
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Contents
PERMISSIONTOUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
ListofTables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
ListofFigures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
1 Introduction 1
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2 TheCo-operativeRetailingSystem–AnOverview 9
2.1 CurrentStructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.1 TheFormationoftheCo-operativeRetailingSystem . . . . . . . . . . . . 11
2.2.2 TheFinancialCrisisoftheEarly1980s . . . . . . . . . . . . . . . . . . . 13
2.2.3 FederatedCo-operativesLtd.’sStrategicLeadership . . . . . . . . . . . . 15
2.2.4 TheFinancialCrisisofCalgaryCo-op . . . . . . . . . . . . . . . . . . . . 20
2.3 AStrongCo-operativeRetailingSystem . . . . . . . . . . . . . . . . . . . . . . 21
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3 EssayOne:MechanismsforSuccessfulAllianceManagement 28
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Co-operationandCoordinationinStrategicAlliances . . . . . . . . . . . . . . . 31
3.2.1 Co-operationandCoordinationProblems . . . . . . . . . . . . . . . . . . 31
3.2.2 PotentialSolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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3.2.2.1 SolutionstotheCo-operationProblem . . . . . . . . . . . . . . . 35
3.2.2.2 SolutionstotheCoordinationProblem . . . . . . . . . . . . . . . 40
3.3 Co-operationandCoordinationintheCo-operativeRetailingSystem . . . . . . . 42
3.3.1 ResearchMethod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3.2 Co-operationProblemsintheCo-operativeRetailingSystem . . . . . . . . 44
3.3.3 CoordinationProblemsintheCo-operativeRetailingSystem . . . . . . . . 46
3.3.4 AchievingCo-operationandCoordinationintheCo-operativeRetailingSystem48
3.3.4.1 StrategiesforAchievingCo-operation . . . . . . . . . . . . . . . . 49
3.3.4.2 StrategiesforAchievingCoordination . . . . . . . . . . . . . . . . 60
3.4 ConcludingDiscussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4 EssayTwo:IdentityandStrategicNetworkManagement 80
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.2 IdentificationandCo-operation . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4.2.1 TheNatureofCo-operation . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.2.2 IdentityandIdentificationatIndividualandGroupLevel . . . . . . . . . . 84
4.2.3 IdentityandIdentificationattheInter-OrganizationalLevel . . . . . . . . . 86
4.2.4 IdentityasaStrategicNetworkManagementTool . . . . . . . . . . . . . . 88
4.3 TheoreticalModel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
4.3.1 AnalyticalSolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.3.1.1 Stage2–TheMember’sChoiceBetweenCo-operationandDefection92
4.3.1.2 Stage1–TheOptimumIntensityofIdentityManagement . . . . . 92
4.4 IdentificationandCo-operationintheCo-operativeRetailingSystem . . . . . . . 94
4.4.1 OpportunismintheCo-operativeRetailingSystem . . . . . . . . . . . . . 95
4.4.2 ManagementofOpportunism . . . . . . . . . . . . . . . . . . . . . . . . 97
4.4.2.1 EconomicMechanisms . . . . . . . . . . . . . . . . . . . . . . . 98
4.4.2.2 IdentityMechanisms . . . . . . . . . . . . . . . . . . . . . . . . . 99
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4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5 EssayThree:RetainedPatronage,IncreasingReturnsandMemberPatronage 114
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
5.2 TheModel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
5.3 DiscussionandConclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
6 SummaryandConclusions 135
6.1 MainFindingsandImplicationsforStrategy . . . . . . . . . . . . . . . . . . . . 135
6.2 IdeasforFutureResearch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
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List of Tables
3.1 PayoffsinaPrisoners’DilemmaSituation . . . . . . . . . . . . . . . . . . . . . 33
3.2 PayoffsinaCoordination(Assurance)GameSituation . . . . . . . . . . . . . . 34
3.3 MechanismsforAchievingCo-operationintheCo-operativeRetailingSystem . . 50
3.4 Mechanisms for Achieving Co-operation in the Co-operative Retailing System
(Continued) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.5 MechanismsforAchievingCoordinationintheCo-operativeRetailingSystem . . 61
4.1 NetworkMembers’Material,Identity,andTotalPayoffs . . . . . . . . . . . . . . 91
ix