The Board's Role in Expansion Planning

At the beginning of 1986, New Pioneer Co-op in Iowa City was thriving. In our 3300 square foot facility, we were setting new sales records regularly, and the store was bursting with merchandise and shoppers. When we learned that the business that shared our building was looking for a new location, it was only logical that we begin to plan for expansion. Although we were not able to take possession of the additional 2000 square feet until the summer of 1987, the intervening time was well spent analyzing our potential for growth and preparing our organization to accommodate it.

In the spring of 1987, even before the expansion in Iowa City was completed, our board was approached by the board of a small co-op in nearby Cedar Rapids. Their fifteen year old co-op had exhausted its capital and managerial resources. They asked us to consider a merger. Upon reviewing their situation, we proposed that New Pioneer of Iowa City acquire the co-op in Cedar Rapids. Our proposal was accepted by their membership, and the work began.

Once the Iowa City expansion was completed in the fall of 1987, full attention was given to the Cedar Rapids project, which involved building a new store in the fastest growing section of the city. From the initial conception to the grand opening, the projects took almost three years to complete. We discovered that despite the many differences between the two projects, both took longer and cost more than we thought they would. And it was more exciting than we had imagined!

In our experience, the board's role in expansion planning does not differ significantly from the board's general role of providing leadership and making decisions. What is different is the impact expansion has on the co-op -- its finances, operations, personnel, management, board and membership.

Looking back on what has made New Pioneer's expansion planning possible, we can see that the beginnings of success lie in building a strong board whose leadership is recognized and respected. A board prepared to handle an expansion effort is a board that has been years in the making: it takes time to recruit, train, educate, and solidify a working unit. But no matter what the present makeup of your board, you can take measures to begin or advance that process of education and strengthening.

Evaluate the strengths and weaknesses of your current board. This should be done constantly by the President, and also can involve a "Director of Board Development," a position we instituted three years ago. Strengths to look for include: directors with business, managerial, financial, cooperative or legal expertise; a well-developed planning process that includes review and revision (if necessary) of the co-op's goals; a good working relationship with management; and a clear organization and division of work within the board.

Recruitment and development

Recruitment of board members, we like to remind ourselves and others, is a year-round responsibility of each director. (See "Director Recruitment and Nomination," by Karen Zimbelman, in Cooperative Grocer #2, Dec.-Jan.1986, also found in the collection Challenges to the Cooperative Board of Directors.)

When the board is asked to evaluate a proposal, advise management, or make a decision, it will be much more able to do so with confidence if their ranks include some person(s) with experience in the matter at hand. People with management or cooperative experience are a valuable resource for the board and management. Their participation adds weight to the requests, suggestions, and decisions of the board.

For New Pioneer, recruitment for needed skills began in the summer of 1984. Management was at their wits end after three of five board members resigned, and in their search for candidates approached a local lawyer, a professor of urban planning at the university, and an old-time co-oper at Bloomington Prairie, our local co-op distributor. All three were elected that fall. The professionalism, organizational and meeting skills, and board and cooperative experiences of these newly elected directors were immediately put to good use. As the board emerged as a positive and dynamic force within the co-op, which itself was emerging as a positive and dynamic force within the community, it drew other qualified, creative people to it.

New Pioneer's success in recruitment is evident on this year's ballot. Formerly, we have struggled to find two quality candidates for each seat. This year, with two seats open and two incumbents running, we had more than twenty requests for candidate information and ten people on the ballot.

Although recruiting talented people is the primary concern, some training, especially in cooperative business, is a must. New Pioneer has brought in Karen Zimbelman for one-day board training workshops to help us establish common assumptions about our role as directors and see ourselves in a national as well as regional context. We have found this particularly helpful for board members coming from managerial positions in orienting them regarding how a director's concerns differ from a manager's.

Planning

Planning for the co-op's future is one of the board's major responsibilities. The planning process serves to clarify the goals of the co-op for the time period under consideration, be it 1, 3, 5 or 10 years. It is vital that the board devote adequate time to discussion and consideration of these goals, so that a unified vision can emerge. If the board suffers from serious internal dissension and battles over each proposal, your manager will not be able to move the co-op forward. Tough, fundamental questions about the nature and purpose of your co-op need to be examined, discussed and decided. Making decisions, after all, is one of the directors's fundamental jobs. As directors, you serve your co-op by working with other board members and management to plan and promote the direction of the co-op. And once decided, the direction and policy must be actively supported by all directors in order for them to be effectively executed by management.

The board is in a position to draw both management and members into the vision, and it is its key responsibility to do so.

In each of the past three years, our board has held a retreat, using it as an opportunity to build a vision for the cooperative. We have invited a variety of people from the local university as well as the local/regional and national co-op network to facilitate and participate. Besides the added dimension of their experience, outsiders provide a perspective that an insider cannot. We urge you to seek out such people and to consider planning a board retreat. Although it is difficult for the board and management to find a weekend to devote to this large discussion, and even though the emerging "product" may seem quickly outdated, the process of bringing management and board together is more valuable than you can imagine.

Management Relations

Working closely with management requires careful delineation of how your role differs from managerial functions. This is one of the hardest tasks for every board. It's not black and white, and within the shades of grey lies the potential for problems. You and management are on the same team, but you have different roles. The tensions of any employer-employee relationship exist, but overtones of distrust, suspicion, or disrespect are counterproductive or even destructive. One of our board members analogized the relationship to that of driver and passengers in a car: the manager is driving and each board member gives information and advice from her/ his position in the car -- but you had better trust your driver or get a new one.

We've found board training sessions very helpful, providing both new and experienced directors an opportunity to explore this delicate relationship. We begin each year with a training session attended by all board members and the general manager. We also take the opportunity to evaluate this relationship twice a year, in the general manager's evaluation and in the board evaluation. Three years ago during our board evaluation, we identified board/management relations as a key weakness. We asked Sue Futrell to facilitate an intensive session on clarifying these roles, and set ourselves on a whole new course.

Every situation is different, and only you can evaluate the current state of your relationship with management and determine how to improve it. You can bring in someone from the co-op network to work with your board, or send people to the national institutes held by NASCO or the Consumer Cooperative Management Association conference. It's worth it. As the board grows in the understanding of its relationship to management, it releases itself from the managerial burdens it has tried to carry (always unsuccessfully), and can devote itself fully to board duties.

Look for help if you think you need it - don't expect problems to solve themselves or go away. If your board and management are on a collision course, the co-op will be the wreck!

Work Division

Organizing the board's work so everyone has clear work assignments contributes greatly not only to the efficiency and strength of the board, but also to each director's understanding of his/her relationship to other directors and to management. The president or chair, in conjunction with whoever s/he feels appropriate, should give careful consideration to assigning work. Be sure that all important tasks are assigned and somewhat evenly distributed.

At New Pioneer the job descriptions of the current board are part of the packet given to each candidate. Shortly after election, the president talks with each director to discover which description most closely fits her/his skills, and if the director has an interest in developing a particular new skill. The job descriptions are the starting point of the process for matching the right person with the right job. Although the core of each job remains consistent from year to year, secondary committee assignments are traded to accommodate individual strengths or interests.

In addition, the president and directors consider the future of the board by assigning new people to jobs that will prepare them for taking a greater leadership role in later years. By devoting time to planning and organizing the work in this manner, you will ensure that all the board's work gets done and that your resident expertise isn't lost with the next board election. Proper attention to board development allows directors to become experienced, grow into their jobs, and avoid burnout.

You have a choice: make your board strong. A strong board takes a leadership role in the co-op, chooses the direction of the co-op's future, and monitors its progress. A strong board trusts management, offers expertise, and seeks the information it needs to make good decisions. There also is a hard to define yet very real quality that enables a group to work well as a team. When individuals respect each other, express opinions openly, question with confidence, and challenge each other in positive ways, they create an environment of excitement from which great things are born.

Now we've set the stage...

Expansion Proposals

The specifics of each expansion are unique; each co-op has its own culture, its own market niche, and its own trade area which require investigation. It is the board's job to scrutinize the proposals that management brings and decide whether to approve them. You must determine whether or not the proposal is consistent with the general purpose and long range plan of your business, and if so, whether or not it is feasible. Written materials should be provided well in advance of any meetings, so that the directors come to the table prepared to make a decision or to ask the questions whose answers will allow a decision. There should be no surprise proposals. Your job is to formulate astute questions and expect answers. You must be knowledgeable enough to know the hard questions and confident enough to ask them. In our case, the differences in demographics and our knowledge of the markets of Iowa City and Cedar Rapids required that we approach each project with a distinct set of questions.

Here are the areas you will want to examine closely in coming to a decision:

Market Analysis: This, in essence, will present a picture of the market in which you wish to expand or enter. It is important that sufficient background work be done on the population you intend to serve and the competition you are facing. Market analysis can be done in-house or hired out -- you will have to decide which is appropriate for your situation. Whichever way you go, the finished product should tell you the extent to which demand exceeds supply of the goods or services you will offer in a particular geographic location.

When we first considered expanding our Iowa City store, we hired Fred Stapenhorst & Associates to do a market study for us. We wanted to find out if the potential for increased sales existed, or if the natural foods market in Iowa City was already saturated. The report clearly showed that an expanded format would increase sales.

In contrast, we chose not to do a professional market study when we went into Cedar Rapids. Knowing that a co-op had existed there already for 15 years, that many Cedar Rapidians regularly shopped at New Pioneer in Iowa City, and that there would be virtually no direct competition, we decided to rely on in-house resources to analyze the market.

Market analysis is important, and it must be done. The level of detail will depend upon your situation, but you should be satisfied that the sales projections provided by management are reachable. There is a misconception that all answers to market potential questions must be answered before thinking can be done about other aspects of an expansion. You do not need all the answers before proceeding to the next step, but do consider what your decisions will be when the missing information is supplied.

Financial: Your job is to assess the risk to which you are exposing the investment of your members. The main tools you will use in determining this are the cash flow projections your manager has drawn up. They should be detailed, extending as far into the future as is necessary to show sustained profits -- the breakeven point is not enough! You need to decide if that time period (be it six or thirty-six months) is acceptable. Of course, the longer it takes, the greater the drain on the cash reserves of the business. How long you can afford to support losses is a key decision.

The three significant variables in the financial documents you will examine are the sales, margin, and expense projections. It is crucial that you know the assumptions upon which your manager has based the figures s/he chose. You need to determine if those assumptions are reasonable and wellfounded -- also a key decision.

Finally, a worst case scenario should be included in the proposal. No one wants it to happen, but everyone needs to be prepared to handle it if it does. If and only if you can live with the worst case scenario should approval be given.

The presence on our board of experienced financial professionals greatly assisted us in our analysis of the financial projections for our expansion projects. Our experience and proven track record in Iowa City, along with the positive prognosis of the market analysis, made that expansion much easier to review. The uncertainties of moving into a new market in Cedar Rapids required that we probe the figures more deeply. We went into detail with our manager on the financials until we were satisfied that the basis upon which the sales, margin, and expense projections were predicated was sound.

You should expect the highest level of care and attention to detail to be taken by your manager in the preparation of the financial documents in the expansion proposal. Question the assumptions upon which they are based. Ask for whatever information you feel is missing, and if you do not have the expertise on your board to analyze the documents thoroughly, bring in someone to help you. You can afford nothing but the most cautious scrutiny in this area.

Managerial Strength: This is a good time to ask the manager for a summary of the strengths and weaknesses in the personnel of the co-op. The expansion will stress the staff. Look at the key people -- are any of them planning or likely to leave soon? What would you do if you suddenly lost your manager in the midst of an ambitious expansion? Find out if the manager feels there is a strong second in command you could turn to. You will be very vulnerable if the whole operation is dependent on one person -- your bank or lending institution also will question you on the experience and depth of your management.

New Pioneer upgraded the bookkeeper position to financial manager in 1987, and relieved the general manager of responsibilities and tasks in the areas of both financial planning and personnel administration. The general manager also began to include department managers in the long range planning, exposing them to the view of the organization as a whole, and complementing their departmental focuses. We encouraged this move towards greater development of middle management.

One final note: Once you've decided to go ahead with expansion, establish a reporting system that does not shackle management yet provides the board with timely, significant and accurate information. The manager should certainly be in close touch with the president of the board should a crisis arise. Good communication between these two will be important in the coming weeks and months as the inevitable setbacks put both board and management on edge. You'll need to keep up the communication, the confidence, the hard work and the good humor.

Re-member

In all your planning between board and management, do not forget the membership. Board and management should be open and enthusiastic in their communication with members about the possibilities that expansion provides. After all, the co-op represents their investment.

Because New Pioneer's expansion was nicely divided into two parts, the members, excited about the Iowa City expansion and its success, more readily accepted expansion into Cedar Rapids. To prepare for these growth moves, the board held a member forum (summer 1986) to discuss expansion, opening it with a presentation on the mission statement of New Pioneer. We examined the ways in which expansion would fulfill the mission. This built the members' confidence and exposed them to the thinking upon which the board had based its decisions. Expansion was presented in the newsletter and was often the topic of conversations among board, members, staff and management. At the grassroots level, agreement was building that expansion was consistent with the long range purpose of the co-op.

While most members were enthusiastic, a few, operating on the "cheap cheese" philosophy, asked why their investment should help capitalize an operation for some other group of potential members. If the co-op has money, they argued, why not lower prices, stay small, and preserve the original co-op flavor. As leaders believing that cooperative economics is a better way to deliver goods and services, we affirmed expansion as a very natural outgrowth of our desire to spread cooperation, allowing others to become member owners, to join and capitalize our collective dream.

Communicating expansion to members can be exciting and sensitive. All the directors should be prepared to promote the advantages to the co-op in improved services and economies of scale, in opportunities and challenges to the management and staff, and the advantages to the community, the regional co-op movement, and the national co-op economy.

The board is in a position to draw both management and members into the vision, and it is its key responsibility to do so. If you decide expansion is in your vision, build a better board, lay careful plans and work with management. Expansion is a bold move, one not recommended to be undertaken by a weak board or management. Moving too quickly -- or too cautiously -- may be costly. Gather the facts, ask the experts, use sound judgment, and the co-op will do you proud on Grand Opening Day.