Following the government’s announced commitment to work with co-operatives and mutuals to double the size of the sector, the question now really comes down to where that growth is going to come from?
Co-ops and mutuals operate in a wide range of industrial settings. It’s hard to generalise because of the diversity of the whole spectrum of mutual enterprise.
From food retail to farming, to financial services in banking, savings and insurance, to housing, healthcare, energy, professional services and a wide range of community-based organisations, co-operatives and mutuals will represent customers, producers and employees in whatever way serves their mutual purpose.
So, if we are looking at devising a plan for growth, to double the size of the co-operative and mutual sector, then it needs to be a collection of growth plans, specific to the individual industries and sectors concerned.
The components of each plan would need to consider how you might:
- establish new mutual entrants to that particular industrial sector,
- scale existing businesses within that sector
- transfer existing, non-mutual organisations into a mutual form,
- or, begin mutuals in entirely new sectors.
You’d have to repeat this for each of the industrial settings in order to then curate them into one comprehensive plan for growth.
We need to remember that mutuals and co-operatives operate in the same economy as other businesses and are subject to most of the same challenges.
So, in many ways, the growth question for our sector is the same as it would be for lots of different businesses.
Businesses grow in one of two ways.
Firstly, organic growth is achieved by doing more of what you are currently doing – as you sell more goods and services, you expand your operations and hopefully increase your profitability.
Related: What does ‘doubling’ the co-op economy mean – and how do we do it?
This type of growth is the foundation for most business and it actually speaks volumes for co-ops and mutuals that they have patiently grown their businesses, often from very small beginnings through to the significant operations we see today.
By necessity, however, this kind of growth requires time, patience and determination, which means that it’s not always the fastest way to increase the size of any individual business.
But it is also about harnessing innovation. Developing new products or lines of business that are relevant to an established mutual will facilitate increased engagement with customers and members and grow balance sheets.
Often you will find commentators that describe co-ops and mutuals as boring or conservative types of organisations, but another way of looking at this is that they’re actually pretty good at the organic growth.
Steady, careful steps to increase the size of the business.
As a result, they are solid, keenly focused on purpose and resilient over the long term.
The second type of growth is what you might call transformative growth and that happens when a business diversifies into a new area, attracts a significant investment or perhaps acquires a competitor.
In this example, you can grow organisations very rapidly so the total revenues and the potential for greater profitability will increase in a shorter space of time.
Now it’s true that mutuals and co-operatives have been less likely to get involved in this type of growth, but what we’ve seen in the UK in the last year or so is a significant couple of deals in the building society sector where Nationwide acquired Virgin Money, which was a listed company, and Coventry Building Society acquired the Co-operative Bank which was owned by private equity.
Both of these acquisitions were game changers for the building societies concerned and delivered significant growth and diversity to their operations overnight.
You do see transformative growth, maybe less frequently, but this type of growth is not something that’s just brand new.
If you look at the history of the Co-operative Wholesale Society for example, from the 1880s through to the early 1900s it grew rapidly and was involved in a whole range of vertical integrations and diversifications from transportation logistics through to manufacturing, farming and all types of product processing. This led to unparalleled growth for co-operatives at the time.
The main constraints on this type of growth for co-ops and mutuals is access to capital, so if you built up a strong war chest from retained earnings, this can be deployed to facilitate such bold moves.
Alternatively other forms of capital are required and inevitably there will be a restriction on the amount of debt that any mutual wants to carry. We can talk about that another time.
Both types of growth are equally valid, though any co-operative or mutual business will be very keen to ensure that a strategy for increasing its size is in line with the ultimate mutual purpose of the business.
Going back to the government’s ambition to double the size, we know that growth will principally come from the sector itself – mainly by scaling existing firms and taking advantage of new opportunities.
Government’s role is therefore to help build the best business environment possible to facilitate this – as an acknowledged policy objective.
There are three elements to this role:
- establishing the policy logic for why co-operatives and mutuals are a positive thing – the permission note if you like, that signals this intent to see growth;
- making sure that legislation is fit for purpose as a framework for growth;
- ensuring that regulators accept and understand the imperative to enable corporate diversity and a level playing field for mutuals.
Of these, I would always say that the policy part is the most important because the others flow on from that. There has been good progress on this so far from the government and we will continue to work in partnership to make this work as well as it can.
The newly formed Mutual and Co-operative Business Council is already working on helping to curate growth plans as suggested here and we would encourage everyone to be thinking of what contribution their co-operative or mutual might make to this – once in a lifetime – opportunity.
