The Mondragon cooperative is one of the few organizations which are successful despite the use of alternative systems of business. This organization has its foundations in the Catholic church and follows Catholic principles. It was created in 1956 when a Catholic priest inspired five engineers to start it. The organization has grown to have 60,000 employees and managers who are referred to as 'worker owners'. It has grown to have over 140 cooperatives which earn about $8 billion each year.
Mondragon specializes in financial, retail and industrial operations which operate around Spain and other 12 countries worldwide. The cooperative also owns 34 facilities used for manufacturing and has three development and research centers. Mondragon also owns its bank, a university and healthcare facility. The priest who inspired its creation, Fr Arizmendiarrieta, still influences the operations of the cooperative, today, through his teachings. According to Spear and Defourny (2001), his role was that of a teacher as opposed to that of an administrator.
Occasionally, he played a direct role in the organization; he is the person who convinced the founders to start cooperative bank. This bank was founded in order to solve financing problems that occurred at the time. He combined the principles of Karl Marx and Adam Smith and used Catholic teachings and the utopian experiences of the 19th century to guide his students. Growth and change over the years. Mondragon is a worker owned and principle based organization that has an integrated a social and economic system that has accelerated growth and increased profitability for 45 years.
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According to Christopher and Merrett (2004), the organization attempts to promote the Catholic principles through in-cooperating them in the organizational culture and operations. Mondragon participates in the global market and at the same time embodies the Catholic principles. The cooperative was developed over four phases; the first involved establishing a school, in 1943 by Fr Arizmendiarrieta. According to Errasti (2003), the second phase involved developing the initial cooperative, in 1956 and which led to an accelerated growth. The third involved the economic recession that began in 1979.
This recession increased the rate of unemployment to 25%. The last phase began in 1986 and involved the complete recovery of cooperatives. This involves positioning resources in a way that there is competition with the global market. Mondragon created about 15,000 jobs within the first 20 years of existence. Between 1976 and 1983, the growth rate of the cooperative superseded the growth rate of the industrial output of Spain by four times. During the recession in 1976, Mondragon created over 4000 jobs and ensured all its members had access to assistance or employment.
Mondragon's growth was unique since unlike most of the other cooperatives that rely on service provision for growth, this cooperative grew using production that was highly organization and utilized modern technology. Today the cooperative employs over 50,000 workers in more than a hundred cooperatives throughout the world. In fact some people regard it as the cooperative network that is most successful in the world. How the concept fits in the modern society. The Mondragon approach shares various concepts that are present in the present society business environment.
The modern society has cooperatives and businesses that have the same principles that govern Mondragon. Such principles relate to the organizational culture, leadership, organizational structure, motivation, access to information, employee participation and among other principles. These principles and their effects in comparison to performance will be discussed below. In matters of organization structure, the cooperative is governed by managers chosen by a supervisory boards for a period of four years. The supervisory board has accountability to all members of the cooperative.
A social council is also elected and it deals with members' concerns. It does not deal with them as co-owners but rather as workers, and also holds the social council accountable to it. The cooperatives are held together with secondary institutions, which makes them distinctive. The bank is the major secondary institution that serves this purpose and is one of the major financial institutions in Spain. This bank serves the cooperatives by providing planning assistance, expert advice as well as capital to them.
The bank serves an even more important role as it acts as Mondragon's constitution. In terns of the organizational culture, Mondragon strives to focus on providing security of employees. It also involves them in decision making and participation at all levels. Mondragon motivates employees through providing a working environment that is comfortable, and also by bridging the gap between the highest and lowest earning employees. It also uses technology in most of its operations in order to improve efficiency and effectiveness of operations.
All these aspects are common in the modern business environment and they will be discussed in more detail when analyzing their impact on Mondragon's operations. There are also several differences that distinguish Mondragon cooperative from other business organizations in the modern world. According to MacLeod (1997), the first relates to ownership and in Mondragon cooperative, in the first two years, every employee makes equal contributions in terms of equity. These contributions are derived from earnings and the benefits are enjoyed throughout their lifetime provided that they do not leave the organization.
This is because members are required to surrender their stake if they quit the organization. This is a different approach from the ordinary Western economies which are more limited in terms of employee stakes in the organizations. According to Simon (2001), the second difference regards compensation, and the ratio of the employees who receive the highest renumeration to those who receive the lowest renumeration, is 6:1. This ratio is much lesser than the ratio in the Western economies, which give employees in higher management levels, perks which separate them from junior employees.
Profits accrued from shares held by members are invested in the business until the time when the member will leave the organization. The wages paid to workers at the level of entry are determined by the prevailing wage rates at the time of entry. Effectiveness of Mondragon's concept in the modern world. Mondragon ensures its workers participate in the running of the company and that the board is accountable to all workers. The cooperative also ensures that all workers are provided for with security and financial support in times of problems.
According to Babbie, (2001), this was evidenced during the recession where other organizations were undertaking job cuts, Mondragon was hiring employees and creating employment. During the recession, Mondragon also demonstrated genuine concern for its employees by ensuring that none suffered due to the economic situation. All these factors demonstrate that Mondagron values the welfare of its employees and that they are the best assets for the cooperative. This is a very important step in the modern world, since most organizations value technology at the expense of employees, forgetting that the same technology has to be controlled by humans.
When Mondagron takes care of the welfare of its human resource, the employees are motivated to achieve higher levels of output. Organizational culture is a very important factor that plays a role in determining whether organizations achieve their goals and objectives. Employees derive their motivation and positive perception of the workplace from organizational culture. Mondragon operates in such a way that employees are part of the process and are involved in decision making. Employees also hold a stake in the organization through equity that members hold.
This provides a sense of responsibility and accountability since the employees understand that if they perform below their optimum output levels, this will also affect them since they own part of the organization. This enables the employees to work hard so that they can achieve the goals of the organization. The end result is better performance by Mondragon. According to Macleod (1997), Mondragon also ensures that the employees have access to information which is important in the modern world which is constantly changing. This is done through employee participation in all aspects of the organization including decision making.
Access to information helps employees make informed decisions. It also prevents delay in making crucial decisions thereby improving efficiency and thus the overall performance of the organizations. Mondragon uses high levels of technology, which has assisted in increasing the sales revenues of the organization. This is contrary to most cooperatives which are resistant to technology. Since the roots of the cooperative movements can be traced to craftsmen's guilds, the resistance to technology can be linked to resistance of industrialization.
Mondragon on the other hand has realized the importance of technology in the modern economy. For instance, the largest Mondragon cooperative, FAGOR, is reputed to operate the most automated refrigeration assembly line in Spain. In fact, the machines are so sophisticated that they can manufacture four models of refrigerators simultaneously. Another cooperative that belongs to Mondragon, EROSKI, possesses forklifts that are computer driven. This shows that Mondragon has appreciated the value of technology that is important for any organization in the modern world, for survival.
This makes Mondragon relevant in today's economy. Social class conflict. According to Mugisho (2007), most cooperatives make the mistake of assuming that once there is democracy in the organization, the workers will be motivated and will perform at their optimal output levels. This is one failure of capitalism in the modern world and can be seen in the amounts of overhead incurred when dealing with stress, absenteeism, productivity, motivation among other problems for employees. Mondragon minimizes class conflict through its leadership style, which makes all employees perceive each other as equals.
According to a research conducted by Whyte and Whyte (2001), 45% of employees did not see any division in terms of social classes and only 18% saw it. This means that social conflict levels are lower as opposed to most cooperatives in the modern world. Such cooperatives insist on giving senior managers perks that make junior employees despise them. Mondragon, on the other hand operates with the interest of all the employees in totality. It emphasizes on the security of employees and rewards members with financial security.
The renumeration gap between the highest paid and lowest paid workers is regulated and remains at 6:1 ratio, which motivates the employees earning lower salaries. However, it must be pointed out that this strategy of rewarding employees with financial benefits has been known to provide short term motivation (Salacuse, 2005). Other methods such as praising employees for good performance or even a pat on the back has been known to elicit higher levels of motivation. Leadership style. The priest who inspired the founders of Mondragon, Father Arizmendiarrieta, was a charismatic leader who inspired many people to join the cooperative.
He was also seen to be a hands-on type of leader, since he is the person who advised the founders of Mondragon to form the cooperative bank. This is a lesson to the leaders of the modern cooperatives and organizations, that success of any company requires leaders who participate in the running of the companies or organizations. Leaders should not merely delegate responsibilities to junior employees, but they should instead participate in the day to day operations and motivate employees since that is one reason that ensured the success of Mondragon.
Conclusion. Father Arizmendiarrieta demonstrated that inspiration can make people achieve big things. He inspired five young men to start a Mondragon which has changed the lives of millions of people worldwide. Mondragon has also shown the importance of motivating employees and considering them the most important assets for a business. According to Michael (1997), this organization has done this through illustrating the support it gave employees during the recession, which increased their motivation to work for it and thereby achieve its objectives.
The organization has also demonstrated the importance of treating employees equally and reducing the gap between the most paid and least paid employees. This has been seen to minimize social conflict and lead to an optimal working environment. The value of technology has also been demonstrated and explained to be among the most important factors that have led to the success of Mondragon. It has an organizational structure and culture that should be emulated by modern cooperatives and organizations. The model used by Mondragon has been seen to be even better than some of the modern models of business ion the capitalist society.
Other cooperatives and organizations should emulate the example set by Mondragon in order to achieve the level of success that it has set over the last fifty years. References. Babbie, E. R. , (2001). The Practice of Social Research. Washington: Wadsworth Thomson Learning. Christopher D. , Merrett, N. (2004). Cooperatives and Local Development: Theory and Applications. Washington: M. E. Sharpe. Errasti, A. M. (2003). The internalization of cooperatives. Journal of Public and Cooperative Economics. New York: Blackwell Stnergy. MacLeod, G. (1997). From Mondragon to America: Experiments in Community Economic
Development. Spain: Cape Breton University Press. Mugisho, R. (2007). The power inside you. New York: Author House. Michael, G. (1997). International cooperative development. Retrieved on November 11, 2008 from ;books. google. com;. Salacuse, J. W. (2005). Leading leaders: how to manage smart, talented, rich, and powerful people. Washington: AMA COM div American management Association. Simon, W. H. (2001). The Community Economic Development Movement: Law, Business, and the New Social Policy. North Carolina: Duke University Press. Spear, R. , Defourny, J. (2001). Tackling social exclusion in Europe. Retr
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