Membership Struc+ral Design:A Pilot Test On DHI Cooperatives

Thomas W. Gray, Ph.D.Cooperative Services DivisionRural Development AdministrationU.S. Department of AgricultureWashington, DC 20090-6576

Gillian Butler, Ph.D. (abd)University Center for CooperativesUniversity of Wisconsin- ExtensionMadison, WI 53703

Cooperatives are organized to be democratic. However, large membership sizecan create problems for democratic process and governance. Attending meet-ings and casting votes may not be enough to preserve democratic characteris-tics. This report develops a set of propositions-a theory-for structuring mem-bership to improve democratic opportunities and responsiveness. Aspects ofthese propositions are tested against data from dairy herd improvement cooper-atives in Wisconsin and are supported. These propositions suggest potentialstructural design options, given specific stressors in the membership environ-ment, and the management and operations environment.

Keywords: Cooperatives, Membership Structure, Democratic Organization,Governance, Dairy Herd Improvement.

CS Research Report 131November 1994Price Per Copy: $3.50 Domestic, $4.00 Foreign

Preface

While various events have led to highly complex cooperative operations,development of membership structures has lagged. The purpose of thisresearch is to distill a series of propositions-a theory-for improving structuralopportunities for democratic process within large cooperatives. These proposi-tions are developed and then tested against data from dairy herd improvementcooperatives (DHI) in Wisconsin.

The report’s intended audience is social and economic researchers andthose involved directly in the design of large cooperative membership struc-tures. Therefore, the report is fairly technical in style and intended to serve as aresource for this relatively specialized group.

Readers should note the report presents new, perhaps awkward terminolo-gy for the first-time user. The authors’ intent is to contribute to a systematic andmore rigorous understanding of membership. To develop new strategies formember governance in changed environments, the concepts and language ofanalyses must also develop. We have provided a “Glossary” to facilitate thisprocess.

This research is part of a series of reports on organizational design of coop-erative membership by Thomas Gray, Rural Development Administration-Cooperative Services, and Gillian Butler, University of Wisconsin.

Contents

HIGHLIGHTS .................................................................................................... iv

INTRODUCTION AND PREVIOUS STUDIES ................................................. .1

THE CONCEPT OF ORGANIZATION .............................................................. 2

Bureaucratic/Democratic Organization and Design Options ..................... .3

Structural Design Options and Use .................................................... 3

A CONTINGENCY APPROACH TO MEMBERSHIP STRUCTURE ................ .8

Original Cooperative Structuring ................................................................ 8

The Member Environment: Quantitative Complexity and Diversity .......... .

Management and Operations Environment: Technical Complexity ....... ..lO

Member and Management Environments: Unstable Environments ...... ..lO

The Internal Environment: Size ................................................................ 10

The Cooperative Environment: Environmental Capacity ........................ .ll

Proposition List ........................................................................................ .12

SOME EMPIRICAL SUGGESTIONS: A PILOT-TEST ON DAIRY HERDIMPROVEMENT COOPERATIVES IN WISCONSIN ...................................... 13

Measures of Organizational Contingencies, and Membership Structures . ..13

Measures of Organizational Contingencies ..................................... 13

Measuring Member Structure Characteristics ......................................... 14

Correlation Analysis ................................................................................. 16

Proposition List-Whole Sample ..................................................... 17

The Influence of Environmental Capacity ........................................ 17

CONCLUSIONS ............................................................................................... 18

GLOSSARY ..................................................................................................... 20

. . .111

Highlights

Based on the development of cooperatives from simple to complex organi-zations, this research develops a series of propositions that can help guide thedesign of membership structures.

Membership structure is conceived as organization-like, producing a service(member control) for members. In large cooperatives, member control is effec-tively thought of as involving three aspects-representation, policymaking, andoversight. The goal of structural design should be creation of organizationalarrangements that help facilitate the realization of representation, policymaking,and oversight.

Design cannot be done in a vacuum, but rather must take into account itsown environments-the members themselves and management and opera-tions. Using the language and concepts of organizational design, and followingthe development of cooperatives from simple to complex organizations, the fol-lowing propositions are derived. Definitions and explanations of terms are foundin the text.

Proposition List:I) The greater the complexity of the farmer environment, the greater the del-

egation of authority to a board.2) The greater the complexity of the farmer/board environment, the greater

the delegation of authority to management and operations.3) The greater the delegation of authority to management, the greater the

loss of direct control by members.4) The greater the diversity in membership (large numbers of dissimilar

characteristics), the greater the need for horizontal divisions into departments.5) The larger the membership quantitatively (large numbers with similar

characteristic), the greater the need for horizontal divisions into departments.6) The greater the number of horizontal departments, the greater the possi-

bilities for representation.7) The greater the complexity of management and operations, the greater

the relative delegation of authority to management, the greater the subsequentloss of direct control by members.

8) The greater the delegation of authority to management and operations,the greater the use of specialization of the board.

9) The greater the specialization of the board, the greater the oversight andpolicymaking possibilities.

10) The greater the stability in a member structure environment, the greaterthe use of standardization options, the greater the certainty of member-controlpossibilities.

11) The greater the instability in a member structure environment, thegreater the use of ad hoc communications options, the greater the member-control possibilities.

12) The greater the number of horizontal departments created, the greaterthe need for coordinating vertical departments.

13) The greater the number of horizontal and vertical departmentations, thegreater the possibilities for representation.

iv

Highlights

14) The greater the complexity of the membership structure, the greater theneed for specialization of department hierarchies.

15) The greater the specialization of department hierarchies, the greater thepossibilities for member representation.

16) Internal structural complexity (both quantitative and qualitative)‘impos-es limits on horizontal and vertical differentiations, departmentations, and spe-cializations.

17) The poorer the environmental capacity of a cooperative, the less thedelegation of authority to management and operations.

18) The poorer the environmental capacity of a cooperative, the greater thehorizontal and vertical differentiations in the structure.

19) The poorer the environmental capacity of a cooperative, the less thedelegations of authority to management, the less operation-driven specializa-tion in the board.

These propositions should be considered a group-as a theory-for under-standing the design of membership structure. We tested aspects of this set ofpropositions against data from Wisconsin (DHI) cooperatives. Propositions 2,5,8, 10, 12, 17, 18, and 19 are supported. Few of the other propositions weretested directly, due to limitations of the data, i.e., small size of cooperatives. Werecommend researchers use these propositions in future empirical studies, andthat organizational designers examine these propositions and their implications,in their work on membership. Departmentations and specializations are struttural innovations that can help accommodate complexity and diversity in themembership, and management and operations environments. Such accommo-dations can then enrich the setting for representation, oversight, and policymaking.

V

Membership Structural Design:A Pilot Test On DHI Cooperative&

Thomas W. Gray, Ph.D.Rural SociologistRural Development AdministrationCooperative ServicesU.S. Department of Agriculture

INTRODUCTION AND PREVIOUS STUDIESMost modern cooperatives try to follow a set of

principles and practices first laid down systemati-cally during the British consumer cooperative andGerman credit union movements of the 1840s and186Os, i.e., the Rochdale, Raiffeissen, and Schulze-Delitzsch principles. Various reformulations haveoccurred, although all have common themes.Briscoe, et a1.(1982:40) suggest five differentaspects:

1. Open and voluntary membership confined toall persons using the cooperative, with nodiscrimination on the basis of race, sex, poli-tics, religion, or family background.

2. Ownership of the cooperative by member-users only.

3. Control of the cooperative vested with mem-bers. Organization of the cooperative shouldencourage member participation in decision-making and balloting on a one- member,one-vote basis.

4. Benefits received by members in proportionto their use of the cooperative.

5. Return on investment set at a limited rate ofinterest.

Dunn (1988:85) suggests a more succinct ver-sion:

1. The User-Owner Principle: People who ownand finance the cooperative are those whouse the cooperative.

2. The User-Control Principle: People whocontrol the cooperative are those who usethe cooperative.

3. The User-Benefits Principle: The coopera-

Gillian Butler, Ph.D. (abd)University Center for CooperativesUniversity of Wisconsin - ExtensionMadison

tive’s sole purpose is to provide and distrib-ute benefits to its users on the basis of theiruse.

Some see member control via democraticprocess as the core principle and central to variousdefinitions of cooperatives (Schomisch andMirowsky [Butler] 1985:4).

A cooperative is a business voluntarilyowned and controlled by its memberpatrons, and operated by them on a nonprof-it or cost basis (Schaars 1980:7).

Cooperative societies are democraticorganizations. Their affairs should be admin-istered by persons elected or appointed in amanner agreed by the members and account-able to them. Members of primary societiesshould enjoy equal rights of voting (onemember, one vote) and participation in deci-sions affecting their societies (InternationalCooperative Alliance 1967:36).

Historically, the focus of research on member con-trol has predominantly been at the social-psycho-logical level, with such questions as how to getmembers to meetings, involved in holding officeand voting. Singer (1983) characterizes this body ofwork as the “member relations paradigm.” It is asubset of the larger participation research area andis represented by various authors includingAnderson and Sanderson 1943; Beal et al. 1951; John1953; Folkman 1955; Brown and Bealer 1957; Copp1964; Torgerson et al. 1972; Rogers 1971; Heffernan1967; Warner 1966; Warner and Rogers 1971; andothers. Most of these papers focus specifically onparticipation, with an implicit assumption that

1

member control can be realized with memberinvolvement.

Boynton and Elitzak (1983) address membercontrol more directly, defining control as “the abili-ty of an individual or group to affect an organiza-tion’s objectives and the strategies used in the pur-suit of those objectives.” They suggest control maybe “active” and involve such behaviors as voting,serving on committees, and holding office. Or, itmay be more “passive, ” and involve such consider-ations as “the amount of control members couldpotentially exercise if dissatisfied with the coopera-tive.” Their focus remains at the social-psychologi-cal level, asking members how much control theyperceive they should have, and how much theybelieve they actually have.

Size of cooperatives has increased dramaticallyduring the past 40 years (Kraenzle et al., 1993).Most agricultural cooperatives began as relativelysmall, local, single-product organizations. As such,they were highly accessible to their members andeasily understood by them. However, many ofthese cooperatives have since grown into largemulti-product businesses that use sophisticatedtechnologies and serve large geographic territories.

In the small cooperative, those that can accom-modate their total membership in town-meetingtype decisionmaking, member control [influenceand equality] does not present compromising prob-lems. Membership tends to be homogeneous acrossseveral characteristics. Elected representatives tendto be representative, i.e., embodying many of thewants, needs, and opinions typical of the generalmembership. As cooperatives grow into thousandsof members, new requirements are placed on theshape that democratic decisionmaking must take inpursuit of member control. All members can sel-dom be assembled at one place and at one time. Ifthey could be assembled, getting member inputorganized, articulated, and discussed wouldbecome extremely awkward and difficult (Swanson1985; Gray 1988; Butler 1988).

This empirical context has driven cooperativesize into analyses of participation. Studies emergedto isolate the effect of size of cooperative on partici-pation/control (Warner and Hilander 1964:39;Lasley 1982; Elitzak and Boynton 1983; and Als

1984). Lasley (1982) introduced formal organization-al concepts into the member relations research,relating participation to various organizationalmeasures-formalization, centralization-of coop-erative operations. Butler (1986) and Gray (1990) fol-lowed by beginning conceptual work on member-ship structure as organization.

In this report, we seek to deepen understandingof member control in cooperatives with large mem-berships. We seek to further answer questionsabout the organization of large membership struc-tures, and how to orient them toward accentuatingmember control.

The authors imported “organizational theory”concepts into the member control literature, sug-gesting their continuity with concepts of democrat-ic organization, exploring their application tomembership structure, deriving a set of internallyconsistent organizational propositions, and testingthese propositions against data from dairy herdimprovement (DHI) cooperatives. This reportfocuses on the agricultural cooperative.

THE CONCEPT OF ORGANIZATIONThe study of organization has not yielded one

common “theory of organization.” Rather, severaldifferent perspectives have emerged-sometimescategorized as organizational development, theory,and/or design (Hage and Finsterbusch 1987). Wefollow Mintzberg (1979), and Van De Ven and Ferry(1980), for rudimentary definitions of an organiza-tion, and combine these with the concept of organi-zational contingency, first introduced by Burns andStalker (1961), and Lawrence and Lorsch (1967).This terminology will be explained as the reportunfolds.

Organizations develop out of two dynamics-specialization and coordination-both central andinterrelated within an organization (Mintzberg1979). People come or are brought together to pur-sue certain goals and objectives. Behaviors andactivities are specified, sometimes narrowly, some-times broadly. Several people may do the same jobsin different locations; a few people, or a lot of peo-ple, may do narrowly defined jobs independentlyor together. A specialization occurs.

2

Coordination occurs with specialization.Specialization allows some tasks to be completedmore efficiently. Coordination brings tasks togetherin an overall pursuit of organizational goals. Theinterplay of these two tendencies defines organiza-tional structure. “The structure of an organizationcan be defined simply as the sum total of the waysin which it specializes its labor into distinct tasksand achieves coordination among them (Mintzberg1979:3).”

“Contingency theory argues that different orga-nizational structures are required for differentorganizational contexts (Hage and Finsterbusch1987:87).” Specializations and coordinations mustbe accommodated in different arrangementsaccording to pressures from an organization’s envi-ronment. These arrangements-or organizationaldesign options-mediate the tension between spe-cialization/coordination and environmental stres-sors. Stressors create uncertainty while designoptions rationalize and manage the stress so thatgoals and objectives can be approximated (table 1).

Table l- Structural design strategies

StructuralSources of Uncertainty Design Options

Quantitative Complexity Departmentalizationand/or Diversity (Horizontal Differentiation)

Delegation of Authority(Vertical Differentiation)

Technical Complexity Job Specialization(Delegation of Authority)

Stability/Instability Standardizationof Information Flows

Ad hoc and FormalCommunication Alternatives

Environmental Capacity Heightens or Lessens Use of(Performance Gap) Design Options

Note: Adapted from Butler 1988:8; Gray 1989:2.

Bureaucratic/Democratic Organizationand Design Options

Bureaucracy and democracy are frequentlyviewed as opposing ways of organizing. And thereare distinctive differences. Personnel selection proce-dures and criteria differ. In a bureaucracy, an indi-vidual is hired for a position on the basis of abilityto do a certain job. In a democracy, an individual iselected to fill an office, theoretically becausehe/she can represent constituent interests.Dismissal procedures vary. In a bureaucracy, a fewprespecified officials have authority to dismiss anemployee. In a democracy, a body of representa-tives or qualified electors make dismissal decisions(impeachment or recall) through prespecified vot-ing rules.

Both, however, are rational-legal~mechanismsbased on formally defined rules and procedures.Authority in both is embedded in the positionrather than in a person. Both also have specializa-tion and coordination dynamics that are centrallyimportant. Structural forms of each take shape asmediations that account for, and are able toprocess, stresses from their respective environ-ments.

Structural Design OptionsDesign options are the structural choices that

can be made to realize specialization and coordina-tion. Democratic and bureaucratic organizationssolve this dynamic in similar ways.

1. Horizontal divisions (horizontal differentia-tions)

Organizations have various demands placed onthem. To help sort out and homogenize demands,an organization can split into departments. Thesedepartments are specialized in handling a narrow-er range of problems than those faced by the entireorganization. At the most basic level, this depart-mentation may be defined along a direction andgoal identification function and an operations andmethods function. These are organizational depart-ments with separate tasks and located in separateplaces within the structure. Various logics can beused. The split between members/directors and

3

Figure l- Management & Operations Structure Example

I I

Traffic & Bean Reporter Grain Merchandiser

Agronomist

I I IPlant SUPPlYSuperintendent Manager

Comptroller

IEmployees Receptionist Accounting Manager

I IPlant Plant PlantSupervisor Supervisor Supervisor

I

1

I Data Proc. Mgr.Employees Employees

[!j;;i- 1 ~p;;;rsor / ~~$L~~e~

Employees

IEmployees

Employees Employees Employees

(Butler 1988:16)

management/employees is by function. Furthersplits could be made by product, market, geogra-phy, or client group (figures 1,2,3, and 4).

Figure 1 depicts operations of a cooperative inwhich departments have been created predomi-nantly by function, i.e., plant production, supply,and comptrolling. It also shows departmentationby product, with one production area specializedfor beans and grain. Figure 2 depicts departmenta-tion by function-operations, sales, and secretary-treasurer, and grove production, maintenance, andharvesting-but also within grove production, bylocation-North, South, East, and West. Figure 3shows horizontal departmentation by homoge-neous function, i.e., production managers and theiremployees. This is volume departmentation-simi-lar functions being conducted by different peopleto account for volume difficulties.

Similarly, a democracy may divide tasks into

departments. Figure 4 depicts a membership struc-ture with departments by function-young cou-ples, resolutions/districting committees, and dele-gate body-and by geographic district and region.There are three regions and 11 districts. Eachdepartment is separated from the others and hasseparate duties and delegations of authorities(although departments can be created without del-egated authorities). The structural task of depart-ments is specialization.

When several departments are created, theorganization is strung out horizontally (horizontaldifferentiation).

2. Vertical levels (vertical differentiation)Horizontal departments must be coordinated

so that their end results contribute to overall objec-tives of the organization. The organization will failwithout coordination.

4

Figure 2- Management & Operations Structure Example

Ft ece p:Fet ary

-lDirector ofOperations

Dispatcher Fert. Plant Operator Sales Mgr. Clerks Data Procs.F

Mechanics

-4 -Maintenance

I I I I ISouth East

Spray &Fen.

West NorthForeman Foreman

ForemanForeman Foreman

Asst. :. .. .

Ass?.I

IA

I I IPacking Packing PackingSupervsr. Supervsr. Supervsr.

Crew Crew Crew Crew Crew Packers

GroveInspector

Grove GroveInspector Inspector

(Butler 1988:28)

Packers Packers Formers Graders

5

Figure 3- Management & Operations Structure Example

Sales Manager, East Assistant Manager

Sales Manager, West

Assistant

/I Employees

I I I I _ I I I I I IProd. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod. Prod.Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr.

I I I . I I I - I - I I IEmployees Employees Employees Employees Employees Employees Employees Employees Employees Employees

(Butler 1988:19)

Overhead departments must be created tobring about cohesion and organizational purpose.For example, figure 1 shows the “plant superinten-dent” integrating activities for the three “plantsupervisor” locations. One of the “plant supervi-sors” brings activities together from the “beans,grain, and maintenance” areas. The’general manag-er coordinates the entire organization. In figure 4the “young couples committee” coordinates thevarious “young couples groups.” The board ofdirectors coordinates efforts of the resolutions/dis-trict committee, the delegates, and various commit-tees shown. Each level has authority over levelsunder it.

In a bureaucracy, employees may report tosupervisors, who report to department heads. Theyreport to a general manager. A democracy mayhave local districts, regional boards, delegates, anda board of directors. (Although sources of authorityare respectively reversed. In a bureaucracy, thesource of authority may lie within the general man-ager’s position, who may in turn delegate down-ward. But, in a democracy, the source of authoritylies with the members, who may in turn delegateupward.)

6

These departments add height to organization-al charts and are termed vertical differentiations.

3. Job or Task Specialization“Individuals are generalists when their jobs

involve a large number of broadly defined tasks,problems, or issues, but they are specialists when asmall number of rather narrow tasks and problemsoccupy most of their working time (Van de Ven1980:210).” Job specializations generally are devel-oped within departments, focusing on departmen-tal duties within the confines of delegated depart-mental authorities. They are assigned to particularpositions filled by individuals. (Authority to makefinal decisions may or may not be delegated toindividual positions.) A bureaucracy may haveproduction managers, clerks, and mechanics. Ademocracy may have board officers, advisory com-mittee members, resolution committee members,and a president of the young leaders group.

4. Delegation of AuthorityIn both bureaucracies and democracies, some

decisions are delegated to specific organizationaldepartments and/or positions. For instance, a

Figure 4- Member Structure

Board of Directors (11)

Resolutions/Districts Delegate Body (220) andAlternates (-110)

\

- Regions (3) I I I

Districts (11) II I

I Units (44) I

I

(Butler 1988:27)

Members (2232)

bureaucracy may delegate to the finance depart-ment decisions about which applicants shall begranted credit. A democracy may delegate respon-sibility for oversight of these credit decisions to itsfinance committee. Decisionmaking is highly cen-tralized whenever a few people at the top of theorganization have the authority to make most deci-sions. Conversely, decisionmaking is decentralizedwhen the authority to make decisions is widely dis-persed among members. The structural task of del-egations can be both coordination and/or special-ization.

In a cooperative, where member control andinfluence over decisionmaking is central to defini-tions of the organization, delegation to the board of

directors and to hired management are both cen-tralizations. Authority is removed (or delegated) tofewer members. When delegated to management, itis entirely removed from direct member decision-making. It is centralized out of the realm of directmember decisionmaking and into a member envi-ronment, i.e., management and operations.

5. Standardizations or Ad Hoc Communications“Standardization is the extent to which organi-

zational activities are routinized. Standard proce-dures include official arrangements which areeither formal (documented in writing), regular, orcustomary (repeated behavior occurring at pre-scribed time intervals) (Butler 1988:36). “Examples

7

are strict rules, formal meetings at prescribedtimes, and standard operating procedures. Both abureaucracy and a democracy use formally definedprocedures. Bureaucracies have credit policies, cashdiscount policies, sick leave policies, etc.Democracies have established procedures for nomi-nating candidates, making resolutions, notifyingmembers of meetings, etc. The higher the numberof formally defined procedures, the higher the levelof standardization in the organization.

Examples of ad hoc structural options includetemporary committees to handle specific one-timeproblems, or survey instruments to assess mem-bers’ views on specific issues. Formal communica-tion alternatives could include permanent commit-tees and positions that bypass other sub-structureswith the organization. The structural task of theseoptions is coordination.

Complex organization and democratic organi-zation share many similarities and are suited tosimilar conceptual treatment. Fundamental is thatboth kinds of organization must resolve the spe-cialization/coordination dynamic and do so usingthe described structural options. What specificoptions are exercised and the shape the structuretakes depends upon environmental conditions. Thefollowing section will again present the structuraloptions, but from an environmental context.

CONTINGENCY APPROACHTO MEMBERSHIP STRUCTURE

From a contingency theory approach, structuraldesign choices must consider accommodations thatmesh environmental contingencies with specializa-tion/coordination to account for member control.Five environmental contingencies will beaddressed in this report-quantitative complexity,diversity, qualitative complexity, stability, andenvironmental capacity.

Complexity/Diversity refers to the manageabilityof problems facing an organization (Van de Venand Ferry 1980). Can problems be handled directlyor do they need to be subdivided? Are thedemands so great in number that they overburdenan organization so nothing can be done? Are they

so complicated, that technical training is requiredto resolve them?

The first set of problems is termed “quantita-tive complexity.” The second set is “technical com-plexity.” Diversity is similar to quantitative com-plexity. A number of demands are placed on anorganization, although from several differentsources.

Stability/Instability refers to the speed withwhich change in an organization’s environmentoccurs. When a cooperative works in a stable envi-ronment, the time and nature of demands basicallyare known, or at least roughly predictable in char-acter and occurrence. In an unstable environment,events occur rapidly and tend to be unpredictable.

Environmental Capacity refers to the richness orpoorness of the field in which the organizationworks. In a rich field, the organizational goals canbe easily met, but in a poor field, goals are difficultto meet. Some business contexts are simply “rich-er” than others and thus present more opportunityfor “success.”

Original Cooperative StructuringEmpirically, when farmers pool their marketing

and purchasing needs in forming cooperatives,they typically encounter quantitative complexityproblems. Not all farmers’ needs will overlap.Some will be contradictory and others unique toindividual farmers. Farmers have to establish pro-cedures to serve collective versus individual inter-ests. Coordination has to occur through a legiti-mately held process.

“Authority is the power to decide what is to bedone, by whom, and to what standard (Kenny etal., 1986:49).” Members delegate authority to aboard of directors via an election process. An orga-nizational form takes shape and diversity amongthe several members-from an organizationalviewpoint-is resolved. The board, as a body,assumes authority and responsibility for managingthe cooperative, bringing coordination to the sever-al different member interests.

Members may further delegate to a hired man-

8

agement. Historically, agricultural cooperativeshave been small organizations, providing few, easi-ly understood services for local farmers in localmarkets. The operations component of the organi-zation may only involve weekly, monthly, or evenseasonal management.

Under these circumstances, a member of theboard of directors might serve as both director andhired manager. However, many cooperatives havesince grown into large and complicated organiza-tions; environments are no longer simple; productsand services are many and varied. Managementlikely requires specialized knowledge and full-timeattention to operations. Hiring a full-time profes-sionally trained manager, with delegated authori-ties may be necessary to bring coordination andinterpretation to a technically complex environ-ment that is difficult to manage.

Delegations from members to management alsomay be due to a quantitatively complex environ-ment. Aside from responsibilities on the board, thefarmers-director also have individual farm busi-nesses to operate. They generally cannot be avail-able to perform the range of tasks associated withdaily operations of the cooperative. Further, direc-tors hold authority as a board. To require commit-tee decisionmaking for countless operationaldetails would severely hamper organizationaleffectiveness. Delegation to management quantita-tively simplifies the farmer’s environment.

These delegations put in place, from the stand-point of initial organizing and structuring, a mem-bership structure with two environments, the mem-bers themselves, and management and operations.

These original structurings suggest:1) The greater the complexity of the farmer

environment, the greater the delegation ofauthority to a board.

2) The greater the complexity of thefarmer/board environment, the greater thedelegation of authority to management andoperations.

3) The greater the delegation of authority tomanagement, the greater the loss of directcontrol by members.

In one sense, delegations represent loss of con-

trol. Members give their authority to make deci-sions to someone else. Generally, operational deci-sions are delegated to management. Policymakingand oversight provisions are retained for memberrepresentatives. Member control becomes differen-tiated within the structure depending uponwhether the goal is representation, policymaking,and/or oversight. Representation is most cogent inresponse to the member environment and policy-making and oversight to the management environ-ment.

The Member Environment:Quantitative Complexity and Diversity

Contingency theory indicates that an organiza-tion facing a diverse environment can improve itsperformance if it identifies like segments of itsenvironment and establishes separate structuraldepartments to accommodate each. The like seg-ments of the organization’s environment becomethe basis for dividing the organization into hori-zontal sections. A marketing cooperative mayincrease the efficiency of its operations by estab-lishing functional departments for retail, institu-tional, and international sales.

Large membership cooperatives may have sim-ilar members in diverse locations. Departmentationcan simplify this environment by geographicallydividing the membership. Elected officers can thenfocus their attention on representing the interestsof particular segments of the membership. Thisstrings the structure out horizontally into a seriesof geographic member districts and division. Otherbases of representation are also possible. Membersmight be divided by type or size of farming opera-tion or membership tenure. These divisionsaccount for member diversity.

These concerns about diversity and quantita-tive complexity suggest the following relation-ships:

4) The greater the diversity in membership(large numbers of dissimilar characteristics),the greater the need for horizontal divisioninto departments.

5) The larger the membership quantitatively(large numbers with similar characteristics),

9

the greater the need for horizontal divisions intodepartments.

6) The greater the number of horizontaldepartments, the greater the possibilities forrepresentation.

Management and Operations Environment:Technical Complexity

The technical complexity of an environmentincreases along with the variety and technicalsophistication of activities pursued within it. Ascooperative operations add new products, services,commodities, technologies, and market areas,members are presented with an increasingly com-plex management environment. Member control atthe board level-oversight and policymaking-ischallenged. Loss of member control may occur asdirectors are unable to process increasingly morecomplex information. Contingency theory suggeststhis complex environment may be simplified withjob and/or task specializations. Oversight and poli-cymaking can be enhanced by using specializedcommittees that deal with specific commodities,markets, or single aspects of operations (e.g.,finance, member relations, and marketing). A con-tingency approach suggests:

7) The greater the complexity of managementand operations, the greater the relative dele-gation of authority to management, thegreater the loss of direct control by mem-bers.

8) The greater the delegation of authority tomanagement and operations, the greater theuse of specializations within the board.

9) The greater the specialization of the board,the greater the oversight and policymakingpossibilities.

Member and Management Environments:Stability/instability

Some organizations operate in relativelyunchanging conditions, selling the same productsat the same prices to the same members year afteryear. Other organizations face rapidly changing cir-cumstances. In a stable environment, an organiza-

tion can standardize many of its activities toachieve coordination and predictability. In anunstable environment, it is less appropriate to stan-dardize because new situations constantly occurthat do not conform to the rules. The organizationmust remain flexible to adapt quickly to new cir-cumstances. Many different influences may make acooperative’s environments unstable. Examples areirregular price movements, rapid memberturnover, high rates of urbanization, unpredictabledemand in international markets, or changingGovernment policies.

Member control ultimately concerns communi-cation channels. If communication fails during crit-ical periods, so will member input. Various ad hoccommunications options such as temporary com-mittees, surveys, and farm visits allow access andcoordination to occur. A contingency approachsuggests:

10) The greater the stability in a member struc-ture environment, the greater the use ofstandardization options, the greater the cer-tainty of member control possibilities.

11) The greater the instability in a memberstructure environment, the greater the useof ad hoc communications options, thegreater the member control possibilities.

The Internal Environment: SizeAs size of membership grows, so does the need

for horizontal differentiation. Large numbers ofhorizontal departments in effect present the struc-ture itself with quantitative complexity problems.Departments need to be coordinated with verticaldifferentiations. Contingency theory suggests:

12) The greater the number of horizontaldepartments created, the greater the needfor coordinating vertical departments.

13) The greater the number of horizontal andvertical departmentations within a mem-bership structure, the greater the possibili-ties for representation.

Adding levels of representation to the member-ship structure includes more individuals to collectinformation from members, thus improving repre-sentation.

10

However, structure complexity grows with hor-izontal and vertical differentiations. The structureitself may block contact between the individualmember and oversight and policymaking centers.Departmentation of sub-structures may simplifythis complexity. Separate department hierarchiesmay be created for particular functions.

Separate paths from members to the boardmight take shape in the form of resolutions, dis-tricting, delegate, and young member functions.This approach suggests:

14) The greater the complexity of the member-ship structure, the greater the need for spe-cialization of department hierarchies.

15) The greater the specialization of depart-ment hierarchies, the greater the possibili-ties for member representation.

Ultimately, the structure must limit itself, gen-erating the following proposition:

16) Internal structural complexity (both quanti-tative and qualitative) imposes limits onhorizontal and vertical differentiations,departmentations, and specializations.

The Cooperative Environment:Environmental Capacity

While we have discussed membership structureas resembling an organization, it is in fact part of alarger organization, i.e., the cooperative. The coop-erative contains membership, and managementand operations departments. The primary member-ship task is to control management and operationsin a manner that continues to meet member needs,as articulated by the members. The environment ofoperations is in effect the task environment of theentire organization.

Success or failure of an organization dependsnot only on the actions of the organization, and/orhow it is structured, but also on the capacity forsuccess inherent in its environment. Some businesscontexts are simply “richer” than others and thuspresent more opportunity for “success.” Forinstance, a retail trade in luxury items is more like-ly to succeed in a high-income, high populationarea (a high-capacity environment) than in thepoverty-ridden, sparsely populated area (a low-

capacity environment). A business is likely to bemore profitable where there is less competition.

Organizations in high-capacity environmentsmay not feel any need to “fine tune” their struc-tures (“If it ain’t broke, don’t fix it” philosophy).Conversely, an organization is more likely to try forincreased control over its operations through struc-tural modifications when faced with a low-capacityenvironment and small margins for error. Thus, wewould expect the relationship between organiza-tional contingencies (such as complexity, diversity,and stability) and membership structures to bestronger in low-capacity environments.

Hage and Finsterbusch (1988) support this posi-tion, stating: “motivation or pressure for changeresults from the identification of a performance oroutput gap that is valued by organizational deci-sionmakers. . . . [quoting Leonard (1977)] . . . We knowof no stronger impetus to administrative reformthan clear, objective evidence of poor performancein a significant output area.”

However, we take one theoretical exception tothis statement. The control issue is uniquely differ-ent in cooperatives compared with investor-ownedfirms (IFOs). Authority in a cooperative is delegat-ed from the owners, members, and users of ser-vices provided. The impact of environmentalcapacity on membership structure may be morecurvilinear-deepening some accommodation,while moderating others. In cooperatives with nodelegation of authority, there may be less likeli-hood to delegate in situations of low environmen-tal capacity. This may be due not only to desires toretain direct control while under pressure, but alsoto a financial inability to hire and empower a pro-fessional management staff.

Further, as members, directors may be moreattuned to representation needs and support amore articulated structure in a poor environment.Members may be more ready to seek out the direc-tors. This contingency suggests:

17) The poorer a cooperative’s environmentalcapacity, the less delegation of authority tomanagement and operations.

18) The poorer the environmental capacity, thegreater horizontal and vertical differentia-tions in the structure.

11

And as a corollary:19) The poorer the environmental capacity of a

cooperative, the less delegations of au thori-ty to management, the less operation-dri-ven specializations in the board.

Proposition List1) The greater the complexity of the farmer

environment, the greater the delegation ofauthority to a board.

2) The greater the complexity of thefarmer/board environment, the greater dele-gation of authority to management andoperations.

3) The greater the delegation of authority tomanagement, the greater the loss of directcontrol by members.

4) The greater the diversity in membership(large numbers of dissimilar characteristics),the greater the need for horizontal divisionsinto departments.

5) The larger the membership quantitatively(large numbers with similar characteristic),the greater the need for horizontal divisionsinto departments.

6) The greater the number of horizontaldepartments, the greater the possibilities forrepresentation.

7) The greater the complexity of managementand operations, the greater the relative dele-gation of authority to management, thegreater the subsequent loss of direct controlby members.

8) The greater the delegation of authority tomanagement and operations, the greater theneed for specialization within the board.

9) The greater the specialization of the board,the greater oversight and policymaking pos-sibilities.

1) The greater the stability in a member struc-ture environment, the greater the use ofstandardization options, the greater the cer-tainty of member-control possibilities.

) The greater the instability in a memberstructure environment, the greater the use

of ad hoc communications options, thegreater the member control possibilities.

12) The greater the horizontal departments cre-ated, the greater the need for coordinatingvertical departments.

13) The greater number of horizontal and verti-cal departmentations occur, the greater thepossibilities for representation.

14) The greater the complexity of the member-ship structure, the greater the specializa-tion of department hierarchies.

15) The greater the specialization of depart-ment hierarchies, the greater the possibili-ties for member representation.

16) Internal structural complexity (both quanti-tative and qualitative) imposes limits onhorizontal and vertical differentiations,departmentations, and specializations.

17) The poorer the environmental capacity of acooperative, the less the delegation ofauthority to management and operations.

18) The poorer the environmental capacity of acooperative, the greater horizontal and ver-tical differentiations in the structure.

19) The poorer the environmental capacity of acooperative, the less the delegation ofauthority to management, the less opera-tion-driven specialization in the board.

This proposition list has not been generated totest a theory (or its propositions) per se, but to pro-vide a historically based collection of axiomaticstatements, that can help clarify member gover-nance in large cooperatives.

Only some of these statements [by design] aretestable. Others cannot be accommodated to theseset of data and still others are identities meant onlyto give conceptual continuity and relevance to thepropositions as a group. Such approaches helpdefine and explain central concepts and assump-tions of related works, bring coherence to suchwork with its summaries, and help give directionto current and anticipated work and research(Frankfort-Nachmias, Nachmias, 1992). We providea “pilot-test” of some of the propositions onWisconsin DHI cooperatives.

SOME EMPIRICAL SUGGESTIONS:A PILOT-TEST ON WISCONSIN DHI CO-OPS

Given an environmental contingency model,choice of data on Wisconsin DHI cooperatives sim-plified various concerns. All are in the same busi-ness-dairy herd records. Each offers a fairly limit-ed number of services. They share the sameinstitutional environment. All are subject to similartechnological changes, governmental regulations,policies, programs, and trends in the dairy indus-try. Given these shared characteristics, we focusedon variance in the immediate task environments.Methodological concessions are made to number ofobservations and statistical complexity, given theprimary interests in concept, language, and theorydevelopment, and not to an empirical grounding ofDHI cooperatives. The methodology and measure-ment techniques used are consistent with thosedesigned by Van de Ven and Ferry (1980) and pub-lished in Measuring and Assessing Orgunizutions.

All 30 DHI cooperatives in Wisconsin wereexamined. Twenty-six were “local associations,”and four were centrally managed centers (WDHICcenters). Membership structure varied among thelocal associations and between the local associa-tions and WDHIC centers.

Measures of Organizational Contingenciesand Membership Structures

Measures were based on information providedfrom personal interviews with board chairpersonsand managers-key people knowledgeable aboutinformation regarding DHI cooperatives. Thismethodology is based on techniques developed outof the “key informant” and “elite and specializedinterviewing” literature (Dexter 1970, Frankfort-Nachmias, Nachmias 1992).

Measures of Organizational ContingenciesWe examined these five organizational charac-

teristics: 1) quantitative complexity in size, 2) tech-nical complexity of the cooperative’s operations, 3)diversity of members’ interests, 4) stability of theorganization’s environment, and 5) capacity of theorganization’s environment.

1. Quantitative ComplexityThe number of herds on test at the cooperative

was used as a production related measure of size.Size varied from 113 to 2,300 herds, with an aver-age of 559 per cooperative.

2. Technical Complexity of CooperativeOperationsA measure of technical complexity should

reflect the variety of goods and services the cooper-ative offers and technical sophistication of its oper-ations. Interviews with leaders revealed that DHIcooperatives offered a range of activities. Someonly collect milk samples and do no laboratoryanalysis. Some operate laboratories to analyze thesamples of only their own members. Others checksamples of other DHI cooperatives and a few ana-lyze samples for non-DHI organizations such asdairy plants.

The technical sophistication of the laboratoriesalso varied. Some have simple machines that onlymeasure butterfat. Others can measure protein,somatic cells, and other attributes.

Local DHI associations that collect milk sam-ples only, and do no laboratory work, are simpleoperations. They hire few employees, require mini-mal capital investments, and do not require skilledlaboratory technicians. DHI units with advancedlaboratories for multi-county memberships hire rel-atively large numbers of skilled employees, requiresignificant capital investments, and must balancethe conflicting interests of widely dispersed mem-bers.

Technical complexity was assessed based on thefollowing categories:

Complexity =1 No laboratory.2 Simple laboratory (butterfat only).3 Advanced laboratory - own members only.4 Advanced laboratory - test for others.

Of the 30 DHI cooperatives polled, 9 had nolaboratory, 12 tested only for butterfat, 3 were moreadvanced and served members only, and 6 hadadvanced labs that also tested for others.

13

3. Diversity of Member InterestsQueries of the board chairpersons and man-

agers of each DHI unit revealed that the relativeproportions of members on official and unofficialtests indicated degrees of member diversity.Breeders of purebred animals are required to pro-duce “official” records to verify claims about theirstock. The commercial dairy producer needs onlyunofficial records for guidance in culling, feeding,etc. Breeders use DHI records as an advertisingtool. Commercial dairy producers, use them as amanagement tool. This differing use generated con-flicts of interest among members, suggesting it asan appropriate measure of diversity.

When the proportions of members on officialand unofficial test are broadly unequal (nearly 100percent in one category), member diversity isunderstood as extremely low. In such cases, thereare few members whose interests diverge from thebulk of the membership. However, when the pro-portions of members on official and unofficial testare nearly equal (about 50 percent in each catego-ry), diversity of member interests is considered asextremely high.

This formula was used to measure diversity:diversity = 1 - absolute value of ( Percent Official -Percent Unofficial). This formula yields a linearmeasure that varies from zero to 1.00, with 1.00representing the highest level of diversity. Actualmeasures among the DHI cooperatives rangedfrom 0.56 to 0.98, with the group presenting anaverage score of 0.78.

4. Measuring Stability:Board chairpersons identified 21 and managers

saw 23 different environmental factors that theybelieve influenced the stability of the cooperative’senvironment. However, change in cow numbers inthe cooperative territory was the factor most oftenmentioned by managers and directors as indicativeof stability. We used the reported IO-year changesin cow numbers in each cooperative’s territory Thepercentage change varied from 81 to 98.8 percent.

5. Capacity of the Cooperative’s EnvironmentSome business environments are simply richer

in opportunity than others. DHI managers anddirectors identified cow availability most often asthe major influence on the success of their opera-tions. Large numbers of cows in small geographicareas lower transportation costs for field supervi-sors and milk sample collections.

Given these reports, the following capacitymeasure was used:

Cow Capacity (Density) =Total Number in Territory

Land’Area in Square miles

[While key informants identified this mea-sure as most important in determining capacity,interpretation suggests that it reflects cowcapacity only and not other influences such asfirm competition.] * Cow densities varied inDHI cooperative territories from about 10 persquare mile to about 92 cows. The average wasabout 48 cows per square mile.

Measuring Member Structure CharacteristicsFive characteristics of member structure were

identified that can be modified in response to thecontingencies a cooperative may face: horizontaldivisions, vertical levels, specialization, delegationof authority, and standardization. We used.simplesummations of ratings, and structural levels anddivisions, consistent with Van de Ven and Ferry’s(1980) work on organizational design.

6. Measuring Horizontal DivisionsAccording to contingency theory, an organiza-

tion facing a diverse environment will be moreeffective if it identifies segments of its environmentand establishes separate organizational units torespond to each segment. The measure of horizon-tal division used here is the number of units themembership is divided into when electing theboard of directors.

14

Cooperatives displayed the following divisionnumbers:

Horizontal Divisions Number of Co-ops1 182 14 15 46 17 39 2

While most cooperatives used just one division,several used more than one, and two used as manyas nine horizontal divisions.

7. Measuring Vertical LevelsAdding vertical levels to a membership struc-

ture allows more individuals to collect informationfrom members. An example of a vertical-leveledsystem is a delegate system. These DHI coopera-tives were fairly simple in levels.

Most cooperatives used just one vertical level-members elected directors. In four cooperatives, anadditional structure was placed between the mem-bers and the primary membership governancebody. In one local association, members elected del-egates who then elected the board of directors atthe annual meeting. In three of the DHI centers,members elected area council members to meet inparticular geographic areas. These council mem-bers comprised a center council, which providedpolicy guidance to an individual Wisconsin DHICooperative center. Area council members caucusand jointly cast the votes for membership of theirarea on center council issues. Thus, there was anintermediate structure between members and thecentral governing body for the organization thataggregated the votes of individual members.

8. Measuring SpecializationWhen a business is complex, more factors must

be considered when deciding the best way to dosomething. In cooperative membership structures,typical specialized roles are board officers such asthe president, vice president, secretary, and treasur-er. Other specialized roles are created when theboard assigns segments of its work to committeesor appoints task forces or advisory committees to

advise on particular issues. The following role spe-cializations were displayed:

Level of Specialization Number of Co-ops4 105 167 19 3

Interviews revealed specializations includedpresident, vice-president, secretary-treasurer, nomi-nations committee, alternate serving officers, specif-ic personnel, wage and benefit specialists, and vari-ous other officers. Measures of role specializationwere determined by totaling the number of rolesincluded in the membership structure. Sixteen had5 specializations, 10 had 4,3 had 9, and 1 had 7.

9. Measuring Delegation of AuthorityDelegation of authority was measured by pre-

senting a list of decisions relevant to operating aDHI cooperative and asking respondents to indi-cate the level of board involvement. The decisionswere: hiring or firing field personnel; wages andbenefits; personnel policies; operating budget; capi-tal equipment purchases; scope of operations; pric-ing of services; marketing strategy; and proposalsfor bylaw changes. Each decision was scoredaccording to the level of board involvement. Thescores were then totaled. The score choices usedwere:

1. The board is not involved in the decision.2. The board is informed of management’s

decision.3. The board presents input for a decision by

management.4. The board formally approves a decision

made by management.5. The board is presented with information,

and makes a decision.6. The board initiates and makes the decision.The final measure averages total scores of the

manager and board president. This yielded a mea-sure with a range from 0 (no board involvement indecisions) to 60 (the board initiates and makes alldecisions). Actual scores ranged from 23 to 45.5,with an average score of 40. The lower the score,the greater the delegation of authority. 3

15

10. Measuring standardization:Queries to the board and management on stan-

dardization included:1. Are board meetings scheduled for a year in

advance?2. Is an agenda mailed to directors in advance

of board meetings?3. Are Robert’s Rules of Order followed in

board meetings?4. Is there a written job description for direc-

tors?5. Is there a written description of the board’s

functions?6. Does the board maintain a policy manual?7. Does the board set formal goals annually?8. Does the board participate in a formal plan-

ning process?9. Does the board have a standard employee

grievance procedure?10. Does the board have a standard member

grievance procedure?11. Is the manager systematically evaluated?12. Does the board regularly review starts and

quits?The number of “yes” answers was averaged to

arrive at a measure of the level of standardization.This method yields a measure which can rangefrom 0 to 12 with 0 indicating an extremely lowlevel of standardization and 12 indicating anextremely high level. Actual scores ranged from 1to 8.5 with 4.27 being the average.

Correlation AnalysisWe examine correlation coefficients between

organizational contingencies and member struc-tures. There are several deliberately imposed lim-its. Many individual propositions are provided forlogical continuity among the set of propositions asa group and are not designed for testing. Becausewe are analyzing the population of DHI coopera-tives, and not sampling a broader population,results pertain only to these set of cooperativesonly and cannot be directly extended to other kindsof cooperatives. The small number of observations,while making control of the larger environmentpossible, limits generalizability. However, results

will tend to support or not support the theory. Ifsupported, the theory can be applied to otherresearch efforts. Organizational concepts and lan-guage as applied to membership, are opened forfurther consideration. Propositions “2,4,5,8,10,12,17,18, and 19” are considered in this pilot test.

A correlation coefficient indicates the level ofassociation between a pair of variables. A positiveassociation between two variables indicates theytend to move in the same direction; i.e., large val-ues of one variable are associated with large valuesof the other, and visa versa. A negative correlationsindicates an inverse relationship between two vari-ables; i.e., large values of one variable are associat-ed with low values of the other. The absolute sizeof a calculated correlation always varies between0.0 and 1.0. The size indicates the relative strengthof a relationship between two variables. [For read-ers unfamiliar with correlation analysis, see foot-note 4.1

We base our determination of whether a rela-tionship between variables is weak, moderate, orstrong on probabilities associated with significancetests.5 For this analysis, a correlation of less than0.25 weak (p = c.10); 0.25 and 0.30 moderate (.lO cp c .05); and more than 0.30 strong (p c .05). Table

Table 2- Correlations between organizationalcontingencies, and member structures.

1 2 3 4 5 6 7 6 9

Contingencies:1. Size2. T-Complexity .583. Diversity -.47 -.604. Stability .14 .05 -.055. Capacity -.26 .02 .32 -.09

Structures:6. Hor. Divs. .58 .30 -.44 .05 -.197. Vet?. Levs. 58 .30 -.36 .24 -.35 .518. Spec. Roles .74 .26 -.37 .25 -.29 .54 .349. Delegatn. .56 .04 -.28 .16 -.20 .17 .03 .561 O.Stndrdztn .50 .12 -.17 .23 -.17 .13 .07 .54 43

Note: Relationships are Pearson correlation coefficients, exceptfor relationships with complexity, which are Spaarman rankcorrelation coefficients.

16

2 presents the levels of association between mea-sures of organizational contingencies and memberstructures.

Proposition List-Whole SamplePropositions 2,4,5,8,10, and 12 are tested for

relationships, and then retested-along withpropositions 16,17, M-while controlling for envi-ronmental capacity.

Supported Propositions:Proposition 2: The greater the complexity of

the farmer/board environment, the greater the del-egation of authority to management and opera-tions. Organizational complexity can entail twodimensions, “quantitative complexity” or “size,” aswell as “qualitative complexity” or “T-complexity”(table 2). The relationship between quantitativecomplexity (Size) and delegation of authority tomanagement and operations (Delegatn), was sup-ported with a strong correlation of 0.58.Quantitatively complex environments are associat-ed with greater degrees of delegated authority tomanagement and operations. However, the rela-tionship between technical complexity (T-complex-ity) and delegation of authority (Delegatn) was notsupported with only a 0.04 correlation revealed.

Proposition 5: The greater the quantitativecomplexity (Size) the greater the horizontal depart-mentation. The relationship between quantitativecomplexity (Size) and horizontal departmentations(Hor. Divs.) was strongly supported (0.58). It wasfound that quantitatively complex environmentswere associated with greater degrees of horizontaldepartmentation.

Proposition 8: The greater the delegation ofauthority to management and operations, thegreater the specialization of the board. The rela-tionship between delegation of authority(Delegatn) and specialization (Spec. Roles) wasstrongly supported (0.56 correlation). It was foundthat greater delegations to management and opera-tions are associated with greater specialization ofthe board.

Proposition 10: The greater the stability in themember environment, the greater the standardiza-

tion of procedures. The relationship between stabil-ity and standardization (Stndrdznt) was supported,but rather weakly (0.23 correlation). The greater thestability, the greater the standardization of proce-dures.

Proposition 12: The greater the horizontaldepartments created, the greater the coordinativevertical departments expected to occur. The rela-tionship between horizontal departments(Hor.Divs) and vertical levels (Vert.Levs.) wasstrongly supported (0.51 correlation). It was foundthat structures with a series of horizontal depart-ments also have greater vertical levels.

Propositions Not Supported:Proposition 2: The greater the technical com-

plexity of the farmer/board environment, thegreater the delegation of authority to managementand operations. The relationship between technicalcomplexity (T-complexity) and delegation ofauthority (Delegatn.) was not supported (O&l4 cor-relation).

Proposition 4: The greater the diversity inmembership (large number of dissimilar character-istics), the greater the horizontal departmentation.The relationship between diversity and horizontaldepartmentation was not supported. Rather, astrong inverse relationship was found (-44 correla-tion). Results tend to mimic those of “capacity” andwill be discussed further with presentation of envi-ronmental capacity influences.

The remaining propositions were not measur-able given the focus of the study, and/or the lack ofcomplexity with these specific cooperatives.

The Influence of Environmental CapacityWe previously suggested relationships between

contingencies and structural design are influencedby the environmental capacity of the overall orga-nization. (See initial list of propositions on page12). Proposition 18 suggested structural relation-ships with the environment would be stronger inpoor capacity environments. We also suggested incaveat, that the perceived need for control by deci-sionmakers may be stronger in these areas. And ina cooperative, this may take shape as less delega-

17

Table 3 - Relationships between contingencies andmember structures with capacity controlled.

All High LowDensity Density

(n=30) (n=15) (RelationshipSize/Horizontal divisions .57 -.25Size/Vertical divisions .88 ’Size/Specialized roles .74 .17Size/Standardized procedures .50 -.24T. Complexity/Vertical divisions .30 ’T. Complexity/Specialized roles .28 .58T. Complexity/Delegation -.04 .22Diversity/Horizontal divisions -.44 -.06Stability/Standardized procedures .23 .49

'n=l5)

.69

.89

.74

.62

.43

.09

.04-.58.03

1 Correlation cannot be computed because values for “verticaldivisions” are all 1.Note: Pearsons correlation coefficients, complexity-Speannan rankcorrelation coefficients.

tion of authority to management and operations,

and greater retention of decisionmaking authorityby the board (proposition 17). As a corollary(proposition 19), we suggested less delegationshould be associated with less specialization at theboard level.

Table 3 indicates these relationships are partial-ly borne out. There are strong relationshipsbetween size (quantitative complexity) and the var-ious structural measures of horizontal and verticaldifferentiation in the low-capacity environments.While no correlation is found between theDelegation/Technical Complexity relationship inthe low-capacity environments, a moderate one isfound in the high-capacity environments. Andwhile no relationship is found between Specializedrole/T. Complexity in the low-capacity environ-ments, a strong relationship is found in the high-capacity environments.

Propositions 17,X3, and 19 are supported whenconsidering environmental capacity. The strongStability/Standardization correlation in the high-density areas is supportive as well, suggestingthese areas are less task crisis centered, and there-fore more stable, allowing for standardization tooccur.

Diversity of membership and its relationship tostructure (proposition 4), is “not supported,” andalso shows a strong inverse relationship-oppositefrom that expected. The horizontal differentiationsthat occur in the cooperatives are predominantlybased on geographic location, not on type of farm-ing operation. Zero order relationships betweencapacity and structures in table 2 parallel thosebetween diversity and structures. The relationshipbetween diversity and capacity itself is strong andpositive (0.32 correlation). This suggests highcapacity environments are rich enough to supportboth dairy product production and breeding enter-prises.

As with other relationships, when capacity iscontrolled, the relationship between contingencies(Diversity) and structure (Horizontal differentia-tion) deepens. “Diversity” as measured in thisstudy may be more reflective of the capacity of theenvironment of dairy herd production.

CONCLUSIONMost agricultural cooperatives began as rela-

tively small, local, and single-product organiza-tions. They were highly accessible to and easilyunderstood by their members. Many of these smallagricultural cooperatives have grown into largemulti-product businesses using sophisticated tech-nologies and serving large geographical territories.

These large cooperatives use bureaucraticstructures and procedures to coordinate and con-trol their complex operations, divide their workamong various departments and levels of the orga-nization, hire professionals and specialists to makespecific decisions, and use standardized reportsand procedures.

Although these bureaucratic structures andprocedures make cooperative operations more effi-cient, they challenge the ideal of democratic mem-ber control. If information demands are so largethat me’mbers cannot process them (quantitativecomplexity), or so technical that members lack skillor time to figure them out (technical complexity),or if demands change so rapidly that a timelyresponse is impossible (instability), the organiza-tion may fail. Failure from a membership structure

18

perspective is failure in member control, in repre-sentation, oversight, and policymaking.

An earlier paradigm of member controlresearch tended to focus at the social-psychologicallevel of individual farmers. It sought answers tosuch questions as how to get farmers to meetings,voting, involved in holding office, and patronizingtheir cooperative.

A newer paradigm looks at an organizationallevel of membership and at membership struc-ture-if not an organization itself-very similar toone. While earlier questions and answers remainimportant, membership as organization needs to beunderstood so new strategies may be produced tohelp answer previous and newer questions.

New answers may include not only social-psy-chological ones, but such organizational strategiesas creating departments to handle quantitativecomplexity, job specializations to handle technicalcomplexity, delegations of authority to handle bothaspects of complexity, and various standardizationand ad hoc communication alternatives to handlestability/instability.

This report analyzes membership at the organi-zational level by developing a listing of axiomaticstatements to help articulate central concepts andassumptions, and to provide a basis for developinglater research hypotheses. While the empiricalaspects of this work are fairly limited in applica-tion, various propositions have been supported,showing promise for an organizational contingencytheory approach to membership. and eventuallymember control.

FOOTNOTES

1 Appreciation is gratefully extended to Drs.Alton Thompson and Keith Warner for theirreview. However any omissions or errors in themanuscript are the full responsibility of the co-authors. A much abbreviated version of this report,emphasizing the theory, will appear in the Iour&of Agricultural Cooperation, 1994.

2 More sophisticated analyses would likelyinclude such capacity-related variables as competi-tion from other organizations. Interviews in thisstudy revealed that these managers and directorsheld cow density as the major determinant ofcapacity for these cooperatives. Unfortunately, wecannot know from data from these 30 cooperativeswhat proportion of total variability in capacity maybe due to cow density versus related variables.

3 As originally constructed, this variablereflected centralization of decisionmaking withinthe board. It was later reconceptualized and recod-ed to reflect delegation to management. Variablevalues were therefore weighted with a -1 to reflectthis inverse change.

4 Readers unacquainted with this analysisneed only know a few things to understand corre-lation numbers. Correlations measure relationshipsbetween variables. For example, the daily tempera-ture and amount of cloudiness are variables.Correlation numbers can only vary between 0.0and 1.0. The larger the absolute size of the correla-tion number, the stronger the relationship’betweenthe two variables. If the correlation measurebetween the amount of change in the daily temper-ature, and the amount of change in cloud cover is[0.7,] this suggests there is a fairly strong relation-ship between changes in the daily temperature andhow much of the sky is covered with clouds.

Correlation numbers also have a sign-eitherpositive or negative. Positive signs imply thatwhen two variables change together, they changein the same direction. Negative signs imply theychange in opposite directions. For example, if the

19

correlation between changes in the daily tempera-ture and the amount of cloud cover in the aboveexample was found to be -0.8, we would know thatas larger proportions of the sky are overcast, dailytemperature readings will be lower-i.e., moreclouds, the lower the temperatures.

One might introduce a third variable, the prob-ability of rain. If a correlation of +0.75 was foundbetween cloud cover and the probability of rain,this number suggests there is a strong relationshipbetween cloud cover and rain-i.e., the more cloudcover, the greater the likelihood it will rain.

5 These Wisconsin DHI cooperatives constitutea population of cooperatives, rather than a randomsample, so inferential statistics are not used. Themeasures of association between variables are notestimates of population parameters. They are thelevels of association which exist among the vari-ables in this population. The results of this analysispertain to this set of cooperatives. However, theseresults can be used to support (or not to support)the theory developed. The theory, if supported, canthen be applied to other kinds of cooperatives forfurther development.

GLOSSARY

Coordination: Focusing and bringing together var-ious disparate entities, behaviors, and decisions.

Delegation of Authority: Passing the legitimacy tomake sets of decisions to someone else or to anoth-er position. Members delegate authority to theboard of directors and to managers. Delegationmay serve a coordination and/or a specializationfunction.

Democracy: A system of governance based on one-person one-vote determination of decisions.

Department: An organizational design option forprocessing quantitative and qualitative complexity.Departments serve a specialization function.

Diversity: A condition in an organization’s envi-ronment. It creates stress in decisionmaking due tolarge numbers of differing demands placed on theorganization.

Division of Labor: Dividing up tasks and assigningthem to individuals, and/or organizational struc-tures.

Quantitative Complexity: A condition in an orga-nization’s environment. It creates stress in decision-making due to large numbers of similar demandsplaced on the organization.

Environmental Capacity: A condition outside of anorganization or an organizational structure. Itrefers to the richness or poorness of opportunitiesfor meeting organizational goals and objectives?

Governance: The process of governing an organi-zation in the collective interests of the owner-userconstituents of a cooperative.

Hierarchy: Multi-level structures of authority,responsibility, and behaviors.

Horizontal Differentiation: Stringing out of organi-

20

zational departments, generally to serve a specilal-ization function.

Management and Operations Environment: Thatpart of a cooperative oriented to realizing goalsand objectives of the overall organization. It is out-side of, or an environment to, the membershipstructure.

Member Control: The process of governing anorganization in the collective interests of theowner-user constituents of a cooperative.

Member Environment: The owners, controllers,and users of a cooperative. They represent an envi-ronment to the membership structure.

Membership Structure: A stable coordination ofmember positions ideally designed for membergovernance. It is a mechanism for coordinatingspecializations among a series of positions.

Organizational Contingency: Conditions existingoutside an organization or structure that createuncertainty and that stress decisionmaking withinan organization.

Oversight and Policymaking: Processes of settingbroad guidelines for the management and opera-tions of the organization, and the review of suchguidelines to assess if they have been realized.

Qualitative Complexity: A condition in an organi-zation’s environment. It creates stress in decision-making processes, due to demands for sophisticat-ed and/or specialized knowledge.

Quantitative Complexity: A condition in an orga-nization’s environment. It creates stress in decision-making due to large numbers of similar demands.

Stability/Instability: A condition in an organiza-tion’s environment referring to how quickly orslowly change occurs.

Specialization: Subdividing tasks as in a divisionof labor.

Standardization: An organizational design optionthat can routinize demands, and serve as a coordi-nation function.

Technical Complexity: A condition in an organiza-tion’s environment. It creates stress in decision-making due to requirements for sophisticatedand/or specialized knowledge.

Vertical Differentiation: Building up of an organi-zational structure. It serves a coordination func-tion.

21

REFERENCES

Als, J. “Andelshavernes aktivitet, viden ogholdinger i Sma og store andelsvirksomheder.”Lundbrukskooperutionen i Norden, pp. 37-55. Esbjerg,Denmark, 1982. Cited in Petri Ollila, “MemberInfluence in Cooperatives,” Journal ofAgriculturalScience in Finland. vol. 56(1984):106

Anderson, W.A. and Dwight Sanderson. MemberRelations in Cooperatives Organizations. CornellUniversity Agricultural Experiment Station, Ithaca,NY, 1943.

Beal, George. et al. Agricultural Cooperatives in lowa.Iowa Agricultural Experiment Station, Iowa StateUniversity, Ames, Research Bulletin 379.1951.

Boynton, Robert, and Howard T. Elitzak. MemberControl ofFarmer Cooperatives. Washington, D.C.:USDA ACS Serv. Rep. 7,1982.

Briscoe, Bob et al. The Co-operative Idea. UniversityCollege of Cork, Bank of Ireland for Co-op Studies,1982.

Brown, Emory and Robert Bealer. “ValueOrientations and Behavioral Correlates of Membersin Purchasing Cooperatives.” Rural Sociology. Vol.22 (1957).

Burns, Thomas and Jay W. Stalker. The ManagementofInnovation. London: Travistock. 1961.

Butler, Gillian. Designing Membership Structures ForLarge Agricultural Cooperatives. Washington, DC:USDA ACS Res. Rep. 75,1988.

Cobia, David W., Gene Ingalsbe, and RichardVilstrup. “Structural Dynamics,” in David W. Cobia(editor), Cooperatives in Agriculture. Prentice Hall:Englewood Cliffs, NJ 1989.

Copp, James H. “Perceptual Influences on Loyaltyin a Farmer Cooperative,” Rural Sociology Vol. 291964.

Dunn, John R. “Basic Cooperative Principles andTheir Relationship to Selected Practices,” journal ofAgriculture Cooperation. Vol. 3 1988.

Folkman, William. Membership Relations in FarmersPurchasing Cooperatives. Agricultural ExperimentStation, College Agriculture, University ofArkansas, Fayetteville, AR, 1955.

Frankfort-Nachmias, Chava and David Machmias.Research Methods in the Social Sciences. St. Martin’sPress, NY, 1992.

Ginder, Roger G. and E. Ron Dieter. “ManagerialSkills, Functions and Participants,” in David W.Cobia (editor), Cooperatives in Agriculture. PrenticeHall: Englewood Cliffs, NJ 1989.

Gray, Thomas W. Membership: An OrganizationalView. Washington, D.C.: USDA/ACS CooperativeRes. Rep. 96. October 1991.

Gray, Thomas W. Structuringfor Member Control inLarge Cooperatives: A Case Study in Dairy,USDA/ACS Res. Rep. 72, July 1988.

Gray, Thomas W. and Gillian Butler. “ChartingFrom Within a Grounded Concept of MemberControl,” Journal ofAgricultural Cooperation. Vol. 6,1991.

Hage, Gerald. “An Axiomatic Theory ofOrganizations,” Administrative Science Quarterly.December 1965.

Hage, Gerald and Kurt Finsterbusch. OrganizationalChange as II Development Strategy. Lynne ReinnerPublishers, London 1987.

Heffernan, William and Keith Warner. “BenefitContingency in Voluntary Organizations,” RuralSociology. Vol. 32 1967.

International Cooperative Alliance. “Proceedingsof the 23rd Congress of the InternationalCooperative Alliances.” Review ofInternationalCooperation. Vol. 60 (1967):36

22

John, M.E. Factors Influencing Farmers’ AttitudesToward a Cooperative Marketing Organization,Pennsylvania State University, AgriculturalExperiment Station, State College, PA 1953.

Kenny, Sean D., “Functions, Authority and Roles ofthe Board of Directors,” in Harold E. Chapman,Douglas A. Holland, Sean D. Kenny (editors), TheCon temporary Director: A Handbook for ElectedOjficials of Co-operatives, Credit Unions and otherOrganizations. The Cooperative College of Canada,Saskatoon, Saskatchewan 1986.

Kraenzle, Charles et al., Cooperative HistoricalStatistics. USDA/ACS Info. Rep. l-26, January 1993.

Lasley, Paul. “Organizational Structure andMember Participation in Farmer Cooperatives,”Ph.D. dissertation. University of Missouri-Columbia, 1981.

Lawrence, Paul R. and Jay W. Lorsch. Organizationand Environment. Harvard Graduate School ofBusiness Administration, Cambridge, MA 1967.

Leonard, David K. Reaching The Peasant Farmer:Organization Theo y and Practice in Kenya.University of Chicago Press, Chicago 1977.

Mintzberg, Henry, The Structuring of Organization.Prentice-Hall: Englewood Cliffs, NJ 1979.

Ollila, Petri. “Member Influence in Cooperatives,”Journal of Agricultural Science in Finland. Vol. 56(1984):106

Rogers, David. “Contrasts Between Behavioral andAffective Involvement in Voluntary Associations,”Rural Sociology. Vol. 36 (1971).

Schaars, Marvin. Cooperatives, Principles nndPractices. University of Wisconsin-Extension,Madison, 1980.

Schomisch, Thomas and Gillian Mirowsky [Butler].“The Challenge of Maintaining Producer Control,”Farmer Cooperatives for the Future. University Center

For Cooperatives, University of Wisconsin,Madison, 1981.

Torgerson, Randall et al, Farm Operator’s AttitudesToward Cooperatives. University of MissouriExtension Service, Columbia, MO 1972.

Van de Ven, Andrew and Diane L. Ferry. Measuringand Assessing Organizations. Wiles, New York, 1980.

Van Ravensway, Eileen. “Formal and SubstantiveDemocracy in Cooperatives.” Cooperative WorkingPaper No. 5. Michigan State University, EastLansing, 1980.

Warner, Keith and James Hilander. “TheRelationship Between Size of Organization andMembership Participation,” Rural Sociology Vol. 29,1964.

Warner, Keith and David Rogers. “Some Correlatesof Control in Voluntary Farm Organizations,” RuralSociology Vol. 36,197l.

23

U.S. GOVERNMENT PRINTING OFFICE: 1994 386-126/00363

U.S. Department of AgricultureRural Development Administration

Cooperative ServicesAg Box 3200

Washington, D.C. 20250-3200

RDA Cooperative Services provides research, management, and educational assistance tocooperatives to strengthen the economic position of farmers and other rural residents. It worksdirectly with cooperative leaders and Federal and State agencies to improve organization,leadership, and operation of cooperatives and to give guidance to further development.

Cooperative Services (1) helps farmers and other rural residents develop cooperatives to obtainsupplies and services at lower cost and to get better prices for products they sell; (2) advisesrural residents on developing existing resources through cooperative action to enhance ruralliving; (3) helps cooperatives improve services and operating efficiency; (4) informs members,directors, employees, and the public on how cooperatives work and benefit their members andtheir communities; and (5) encourages international cooperative programs.

Cooperative Services publishes research and educational materials and issues FarmerCooperatives magazine. The United States Department of Agriculture (USDA) prohibitsdiscrimination in its programs on the basis of race, color, national origin, sex, religion, age,disability, political beliefs and marital or familial status. (Not all prohibited bases apply to allprograms). Persons with disabilities who require alternative means for communication of programinformation (braille, large print, audiotape, etc.) should contact the USDA-Office ofCommunications at (202) 720-7808 (TDD).

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,Washington, D.C. 20250, or call (202) 720-7327 (voice) or (202) 720-1127 (TDD). USDA is anequal employment opportunity employer.

t

!: