In a recent article, I discussed how geographic location can make a huge impact on innovation -- how an industry can benefit from being in close physical proximity to the suppliers, researchers, educational institutions, and other organizations that support and complement the industry. In this blog, I introduce the Mondragon Co-op, an organization that has harnessed this "power of the commons."
Few people in the United States have heard of Mondragon (Arrasate in the Basque language), but this small mountain town in the Basque region of Spain is the birthplace of one of the most successful cooperative systems in the world. The Mondragon Co-op is the home of over 250 companies working together in areas of manufacturing, retail, finance, and knowledge. At the end of 2010, the combined revenue was around $20 billion. The Mondragon Co-op employs over 100,000 people, making it the fourth-largest industrial group in Spain. Since 1943, it has had its own technical school (now called Mondragon University), which offers curricula in engineering, business, social sciences, culinary arts, and more.
I remember my first visit to Mondragon in 1985. At the time, I was the technical director of a small software company in Madrid that had the distribution rights for AutoCAD in Spain. I went to Mondragon to give a presentation of a new version. That was my first experience in the Basque region. (In Spain, we call it País Vasco or Basque Country.)
I was really impressed. The town was bustling with activity, the facilities and buildings were impressive, and everything was organized in a campus where people worked together as one team. (Language, however, was an issue. Though only 15 percent of the Basque population at that time spoke the Basque language Euskera, it was the main language used by everyone at Mondragon.) I was amazed by the organization and the level of technology in the area. It was like nothing I had seen before anywhere else in Spain.
The Mondragon Co-op was officially incorporated in 1956, but the story begins in 1941 with the arrival of a young Catholic priest, Jose Maria Arizmendiarrieta. The town had been devastated by the Spanish Civil War, but the great social movements are those stimulated when boundaries are broken, and Arizmendiarrieta did just that. He established a vocational school, which later became a technical school to train the young people in technical skills, social responsibility, and human values. In 1955, he selected five former students, all workers at a locksmith factory, and created the Ulgor workshop (now the successful Fagor group of home appliance manufacturers).
Over the next 15 years, Spain's isolation from the international community (due to Francisco Franco’s military government) and the initial growth of the postwar economy sparked the creation of other co-ops in Mondragon. During that time, responding to the need for financial, insurance, and retail services, the co-ops started their own savings bank (Caja Laboral), the insurance and retirement group Lagun Aro, and the commercial group Ularco (now the Eroski group, the largest Spanish retailer).
The arrival of CAD/CAM/CAE systems in the 70s was the starting point of a new era for Mondragon. Due to the large investments necessary to acquire those systems before the PC revolution, the Mondragon Co-op decided to create a common research and development facility, Ikerlan, a nonprofit organization to provide development services to the members of the different cooperatives and other organizations. It now employs over 200 researchers and provides services in embedded systems, power electronics, process control systems, energy efficiency, and sustainability.
In "The Mondragon Experiment," a 2009 article published in Harvard International Review, Greg MacLeod wrote:
The Mondragon Corporation is striking in that their annual strategic plan usually includes a job creation target. Most large global corporations, in contrast, develop strategies to increase earnings through job reduction. Conventional corporate managers argue that a "job creation" strategy necessarily leads to inefficiency and losses. But empirical testing suggests otherwise.
In 2006 and 2007, most large global corporations experienced a decline in revenue. Mondragon, on the other hand, increased revenues from $15 billion to $17 billion, an increase of over 13%. In 2007, Mondragon returned over US$50 million to workers as a share in profits. During this period, Mondragon’s total workforce expanded from 83,000 to 103,000, an increase of 20,000. One reason for Mondragon’s freedom of operation compared to conventional corporations is that it does not rely on stock markets for capital. Instead, it relies on its associated bank and worker shares as well as commercial loans.
Mondragon is home to some of the most successful industrial and commercial companies in Europe, such as Fagor, Danobat, Eroski, ULMA, and MIK. Without the drive of collaboration, the use of the most advanced technology, and the commitment to the society and its values in a place that was almost destroyed by war, it would have been impossible.
The Mondragon Co-op system is a case study at many top business schools all over the world. Some of its ideas have been replicated in many places, especially in communities that suffered recent catastrophes like war, natural disasters, and resource shortages.
