Where to now for the bashed-up dairy industry?

Nov 12, 2019 | Governance, Strategy

 

There is an awful lot of hand-wringing going on amongst politicians, bureaucrats of various types, and industry pontificators about the state of the dairy industry. Sadly, it has been going on for as long as I have been an observer, which is a long time!

The current drought has been a disaster for the industry, but is not the cause of the long term decline. For 30 years, smaller family farms all over the place have been going to the wall, and those left are mostly just surviving as a result of the margin squeeze, caused by concurrent cost increases and downward price pressure, as well as short term thinking and often mismanagement throughout the supply chain.

This is not a recipe for long term industry health.

25 years ago I was booted out of a senior role in one of the largest businesses in the industry. I had consistently voiced disapproval of industry policy (this was before the inevitable de-regulation in NSW) and of some aspects of the management of my employer. They were as sick of me, as I was of them, so there I was, after a decade of delivering growth and profit, on the footpath with a young family.

After a frustrating search for another job, I emerged as a strategy consultant, never again to be required to act against my best instincts and experience.

Very recently I was asked to prepare a proposal for a body in the industry, and while I had little belief it would proceed, did some on the ground research to uncover the changes that had occurred in the 25 years since I had left active participation, upon which too base my recommendations.

Sadly, I could have almost written the list below 25 years ago.

The drivers of the industry have not changed much, nor has the lack of strategic response. Each factor has impacts on others, and the compounding impact has been significant, and probably terminal for most small operations in the absence of substantive and therefore unlikely change.  The reduction in numbers of family dairy  farm operations over the last 25 years leads to the conclusion that there will be very few, if any, left in another decade.

The list following is not weighted, or in any particular order.

Scale.

The big are getting bigger, sometimes vertically integrating through the chain, and the small are being squeezed out. This applies to all steps in the supply chain, farmers, processors, and retailers. In this environment, scale becomes the primary driver, delivering financial returns at the expense of other considerations. Product quality becomes ‘averaged’. The smaller operations cannot compete on price/cost, and do not attract a commercial reward for the higher quality they are able to deliver. A few have been able to find a niche that does value a superior product, but most have had no option other than to accept the price on offer, irrespective of costs incurred or quality delivered.

Capability.

Over a very long period we have hollowed out our scientific, management, and innovation capability in dairy, as well as allowing it to be taken into overseas ownership. The management focus of larger players is on international prices and commodity trading, rather than domestic demand responsiveness, market development and innovation. As a result, the whole industry has been commoditised. You can buy milk, a natural, nutritious product at your local supermarket for $1.10 a litre, while in the isle next door, water, virtually free from the taps sells for multiples of $1.10 a litre. A gross failure of industry and enterprise marketing, and not one that can be fixed with nonsensical regulation.

Financial depth.

Small farming operations do not have the financial capacity to expand beyond their dairy boundaries, and usually do not have the depth to even utilise existing technology to optimise current operations. This precludes both investing in potential productivity improvements on farm, and moving further into the supply chain to capture some of the value added margins that are potentially available.

Education.

The emerging generation of potential dairy farmers has nowhere to go to learn.  There is no longer any dairy education in Australia, which means that there will not only be a degradation of the management capability of existing industry participants, there will be no new blood coming in, and there will be no process or product innovation. This factor applies throughout the supply chain, but is particularly evident in dairying operations. There are a number of ‘cottage industry’ training courses around, such as cheese making courses. These only teach the ‘how,’ without any reference to the ‘why’ things happen. To a significant degree they also substitute for real education in the public mind, which makes it easier to close down the real education that has the potential to add long term industry value. Most of us would agree to the notion that education is a core foundation of long term success, and yet we have stood aside while it has been raped and thrown out into the street.

Scientific foundation.

The scientific base upon which all else is built has been discarded, not just degraded, discarded. Werribee, formerly the centre of dairy science is an uninhabited ghost-town, and as noted tertiary education in all its forms in dairy technology has been discontinued.  If I wanted my kids to do a degree in dairy technology, they would have to commute to New Zealand.

Food security.

Along with other parts of the food supply chain, Dairy has been sold off to international entities. We no longer control our own food supplies, the manufacturing capability is largely overseas, and local production increasingly in the hands of Multinationals who make decisions on their commercial needs, which are not necessarily aligned with the best interest of Australians.

Water security.

The current drought is a disaster but is not more than a nasty reminder that, in the driest continent on earth, we have allowed water security to diminish, and sub-optimal use to be made of the resource available. This impacts all aspects of primary production and has had a profound impact on the ecological and environmental management of the land.

‘Metro’ farming.

Dairy farming (and intensive farming generally) evolved close to population centres, often on the best land. That land is now more valuable as a short-term development opportunity than it is as a long-term producer of food, and so is largely sold off as ‘bedrooms’ to the population centres, pushing farming to more marginal and logistically costly areas.

Power.

Australia is a substantial net exporter of power, yet we have very high power prices by comparison to other developed economies. This is a failure of public policy over a long period. For dairy farmers, it has proved to be a real problem as they need a lot of power to drive refrigeration and their operational plant. Power costs alone are driving small operators out of the industry.

Survival mode.

Small farmers are in ‘survival mode’ working long hours for little financial return. This leaves little in the ‘kitty’, financial, time, or energy, to undertake the challenges of change on their own. They desperately need an infrastructure that supports and rewards their efforts. Rebuilding this infrastructure is not a short term ‘fix-it now’ press release response, it needs bipartisan political support across a number of  portfolios and geographies.

Demographics.

The average age of dairy farmers is now approaching retirement age (25 years ago it was 56 and it does not seem to have reversed). These people are retiring, selling the farms, and their children and grandchildren are not going to follow on. This loss of farming wisdom may seem minor in the scheme of things, but in the long term will diminish us all, as we try and address the increasing environmental challenges facing us.

 

The egg that is the dairy industry cannot be unscrambled, but there is some hope that a reasonable omelette can still be made. However the chefs seem to be out to lunch, and the apprentices do not know what to do, or how to do it. Only going right back to the basics, removing the politics of power and influence, of all types,  and rebuilding from the foundations up, has any hope of there being much more than a few corporate farms and the odd family with a couple of cows left in a few years.

13 Ideas to use analytics to improve the credibility of marketing investments.

Nov 10, 2019 | Governance, Marketing

 

Marketing is all about making assumptions about the future, and how your investment in marketing activity will enable you to deliver revenue and commercial sustainability.

Therefore, making informed assumptions then testing their validity as you implement, reassess and improve is a vital part of the exercise in investment optimisation.

CFO’s and CEO;s do not trust marketing: they are often seen as the makers of nice adds and suppliers of pens and mousepads to their children, they do not carry the credibility quotient of an analytical profession.

For a marketer, having credibility in the ‘c-suite’ is essential. You are seeking resource allocation decisions to be made on the basis of your best estimates of what the future holds, an imprecise exercise.

Therefore, tracking the performance of previous estimates, being transparent about those that did not work, while improving those that did,  is an essential part of building credibility.

Essential to continuous improvement of the returns from marketing investment is the ability to allocate scarce resources where they will deliver the most bang for the buck.

  • Shift revenue generating activity from low margin products to  those with higher margins. To do this you need to be able to segment revenues and margins by customers and product, as well as by actuals and percentages.
  • Focus investments in those larger opportunities at the expense of the smaller, maintenance ones. Unfortunately these are often the easier ones to ‘sell’ to the corner office, and it looks like useful activity so it is often the default. Explicitly dropping lower return projects in order to fund those with higher returns, and/or more strategically consistent outcomes builds credibility.
  • Increase investment in reducing customer churn, and increasing lifetime value. Recognising the costs of customer acquisition Vs the cost of retention explicitly, usually makes this an obvious strategy,  often ignored, particularly in commoditised markets.
  • Increase investment in attracting higher share of wallet for strategically important customers. Defining the depth and breadth of the ‘customer wallet’ usually leads to interesting debates that must be sheeted back to strategy, and where strategy is absent or thin, this debate throws a light on that situation.
  • Focus resources in the growing part of the portfolio where there is some level of product differentiation that customers value. As Warren Buffett has said often: ‘Price is what you pay, Value is what you remember’. Understanding the price/value trade-off your customers make is challenging, as there is so much inherent variation between customers and the context in which a purchase decision is made, but being able to articulate the quantitative parameters of those trade-offs builds great credibility.
  • Automate repetitive tasks while increasing the personal engagement at the close of the transaction cycle. The locus of power in the purchase decision has moved from the supplier to the customer by virtue of Dr Google. Potential customers no longer need sales reps, the most expensive part of the sales budget, to provide information, but customers still do often need the reassurance of another person to make the final conversion. Use your most expensive sales resource where you generate the best return from the investment.
  • Move into adjacent market areas, after demonstrating the risks and rewards of such a move.
  • Collaborations through the value chain to deliver leverage to your capabilities.
  • Increase investments in actionable marketing and market intelligence, and demonstrate the impact of good intelligence in the past.
  • Optimise high performing segments. Being explicit about the optimisation of current performance as a means to fund commercial sustainability builds credibility, and enables the more risky ventures to be supported by senior management.
  • Understand the customer journey and focus on the areas where conversion rates can be improved. Conversion rate dashboards are now relatively easy to set up and monitor in real time, and offer transparency and opportunities to improve by being tactically agile.
  • Increase investment in strategic account planning for strategically important customers. This may not always  be your biggest customers, it is those most aligned to your strategic aspirations, where a deepened relationship will deliver long term revenue sustainability.
  • Use the accountants tools, financial ratios, NPV and IRR, in your arguments, showing rolling results that give insights to the trends happening, and providing analysis that explains the trends.

 

Marketing will increasingly become the key  differentiator between success and failure in commoditising markets. Failure to build the credibility with the ‘c-suite’ necessary to make the long term investments in marketing required, will result in a shortened commercial lifespan.

 

Header cartoon courtesy of Tom Fishburne at www.marketoonist.com

 

 

9 process management questions from the World Cup finals

Nov 8, 2019 | Leadership, Management

The process drives the outcome, right?

Well, mostly.

So long as the process directs the actions to be taken, the order in which they are taken, and is able to withstand external pressure when it is brought to bear, then yes, it will drive an outcome.

We can look at an outcome and grumble, unexpected, unfair, and so on, but we cannot change it, although we can change the practises that drove it,

Competitively we can also disrupt the processes of others, and have our own disrupted, both internally and externally.

I watched the All blacks demolish the Welsh in the fight for third in the Rugby world cup. Demolition was one description, the All Blacks simply executed their processes with precision, focus and excellence, and the Welsh had no answer. How could anyone beat that?

Well, the previous week England did just that, they beat the All Blacks to go to the final. They beat them by disrupting their processes, not allowing them to execute in the manner in which their processes dictated they should, which would bring the outcome desired, a win.

As a result, England played the Springboks in the final, lucky to be there by beating the Welsh in the 78th minute. While England were the deserved favourites, they were beaten by a team that did to them what they had done to the All Blacks the previous week. The English processes were disrupted, and they were forced to play the game the Springboks preferred. For an hour it was a slug fest, anyone’s game, although the Springboks had the better of the set pieces, by a good margin, and then two pieces of individual brilliance sealed the fate of England.

I cannot let  this go by without reference to the Australian Wannabees. It seems they had no process, or at least not enough to make an impact when it really counted, against good opposition. How can you have a stable repeatable and yet agile process when those whose responsibility it is to execute are never the same people. The trial, mix, and match of team selection is hard to fathom, and makes building a robust, repeatable process next  to impossible, no matter how great the individual players may be.

In addition, processes must be designed with the end in mind.

No good designing a process that gives you an outcome then putting in place people to deliver the outcome who are not instantly aligned to the behaviours necessary to deliver that outcome.

Designing a process, then executing on it consistently while under pressure, are different. Both are challenging, but they are not the same thing.

  • How robust are your processes?
  • Will they be disrupted by competitive pressures?
  • Are they sufficiently agile to accommodate the unexpected?
  • Does each element of the process fit comfortably into those on either side?
  • Does each element of the process compound to build the impact of the whole?
  • Are you measuring the performance of each element?
  • How responsible are the people in ‘hands-on’ control of each element for the performance of their part?
  • Is there alignment between the processes and the desired outcome?
  • Has the overall objective been broken down progressively into its component parts?

Robust, repeatable processes are the foundation of performance, will yours withstand the pressure?

 

What do bees know about marketing strategy?

Nov 6, 2019 | Collaboration, Marketing

 

Bees are essential to our survival, they are fascinating insects. There is much we can learn from their habits, the outcome of millions of years of evolution. They do not just fly around at random, pollinating as they go, they are highly organised, focused, collaborative, and each plays a specific role in the hive.

As a kid, I used to watch my grandfather catch bees in his fantastic rose garden, cultivated to attract bees. He captured them in a bag, and made them sting him on his knees, believing it eased his arthritis, born of a life of physical labour. Modern medicine has isolated a molecule in bee venom that is associated with arthritic pain relief, demonstrating again, that old wives tales are sometimes true.

Back to  the question, what do bees know about marketing strategy?

It turns out, a lot.

Advertising and mutual benefit.

Flowers, which attract the bees, need to tell the bees that there is something they like, nectar, on offer. However, there is a mutual benefit, as the bees pollinate the flowers as they take the nectar. A mutually beneficial arrangement, with many variations across the varying ecosystems.

Value proposition.

To attract bees, plants that need to be pollinated, have flowers, the bigger and more decorative, in general the better. They want the bees to be attracted, be rewarded for the visit, and return, so they offer lots of nectar. The flower is an attractive façade that makes a promise, fulfilled by the nectar. This encourages the bees to return, which is much better than a once only visit. Bit like building a brand. Invest, attract, and work towards repeat business.

Communication and referral.

Bees communicate, they signal to each other when they have found a good source of nectar by doing elaborate ‘dances’ in the air. ‘Word of wing’ advertising perhaps?

Selective Resource allocation

Plants use a lot of their limited resources producing flowers. Being a world where nothing happens on a whim, it follows that there is more value in the allocation of resources to creating flowers than to alternative uses. Perhaps flowers are just plants with an advertising budget?

Collaboration and innovation.

Bees have roles in the hive. One role is of the explorer. These bees ignore the ‘word of wing’ of their colleagues, and range more widely looking for new sources of nectar. This is a necessary function, as if there was not exploration, the nearby sources of nectar would be consumed, and with no alternatives found, the hive would die out. In commercial terms, these are the R&D or Innovation bees. They are making the investment now, so the longer term survival of the hive is assured.

Not always as it seems

Not everything that appears attractive is valuable.  Orchids are rare, beautiful, and highly evolved, and are traps for the unwary bee. Usually orchids are a one stop shop for a bee, the scent of the orchid lures the bees in, they pollinate the orchid, but then cannot get out. Once word gets around the bee community these plants are dangerous, the bees avoid them, which is why orchids are an early flowering group of plants, and are widely scattered, so the bees have less opportunity to spread the word of the danger. They are like that really  nice looking restaurant in a tourist area, the locals avoid it like the plague, but the tourists go in, and get fleeced, but the owners know the tourists are a once only visitor, so it does not matter, as there is no tomorrow, it is a once only transaction.

 

Metaphors from the natural world abound in management literature, for a very good reason: we can learn a lot from them.

 

A critical antidote to confirmation bias.

Oct 28, 2019 | Governance, Leadership, Management

Confirmation bias is a seductive bitch.

We see what we expect to see, the things that confirm our existing views and expectations, to the exclusion of alternatives. When taken to extremes,  loonies like holocaust deniers, and the ‘no vac’ lot emerge and sprout their fact and logic free poison, and attract a small following, and the rest of us just fail to understand how.

We humans tend to see things as if we were looking out a window.  It consumes less cognitive energy when patterns of the past are just assumed by our brains to be repeated, so that is the brains default. The further back from the window, the narrower the view, but however close you get, there is still a restriction.

The challenge therefore is to find an alternative window through which to look at the problem facing you, or better still, assemble a few others with different windows through which they look at the same problem.

Do  not just  think outside the box, get another box!

One way to use this different box, or window, to continue the metaphor, when facing a challenge is to ask better questions, ones that force the challenge to be examined from different perspectives.

  • Why is it so?
  • Where is the leverage?
  • Have we described the problem correctly, or just the symptom?
  • What is the pain point?
  • What has to be true for this outcome to emerge?
  • For this expected result to become about, which assumptions have to be accurate?
  • What happens if we do not decide?
  • What does this challenge look like in other arenas?
  • Are we relying too much on data?
  • What does the behaviour of others when confronting this really look like?
  • Is the data we have reliable, or has it been ‘managed’?
  • How is this different?
  • Have we simplified the challenge sufficiently for a solution to emerge?
  • What would the devils advocate say?

I could go on, but you get the picture.

Driving change in a business means butting heads with confirmation bias.

This is why you need a distinct catalyst to kick it off, and keep it running, for the change process to be successful.

Ask better questions!