An exercise in futility

This is the first article of his five-part series:

OPINION: Reviewing the SHC is like debating the performance of the orchestra after the captain of the ship has steered into an iceberg.

The SHC has no input to investment and strategy decisions of Fonterra and no mandate to change them once they were made.

A review of the SHC is a distraction and waste of resources and will tell us little or nothing about how we got to the position we are in or options we have for going forward from here.

What we should be reviewing is Fonterra’s strategy.

As shareholders we need to understand the key elements of strategy in a commercially competitive environment and how to measure performance.

Over the years, strategy presentations have been delivered on what Fonterra is doing and where it would be going. As shareholders we have watched and invested our faith and our capital, but for whatever reason the delivery has most often fallen short of the promise.

We know there is excellence within Fonterra, but for different reasons, the mirage of value-added returns have smothered performance and clouded our recognition of Fonterra’s core strategic capabilities.

We have read the statements in the press from commentators, such as, “culture”, “Fonterra is doing everything for everyone” and “Fonterra is stuck in the middle”. But what do they mean in a commercial context?

After eight years in the SHC, my understanding of how Fonterra formed its strategy was as much a perplexing mystery as when I started.

If there was one thing I could change about the input I had in that eight years, it would have been to educate and improve my understanding of strategy in a commercially competitive environment and then make sure my fellow shareholders were given the same opportunity.

Last year I completed an MBA through Massey University. The Massey MBA is strong on Leadership, Strategy and International Strategy and Leadership. 

As Miles Davis said, “knowledge is freedom and ignorance is slavery”. I have found that a rigorous education of strategy has afforded me a more complete understanding of the risks our industry faces and the opportunities there are available.

The NZ dairy industry is not a completely free competitive market as there are distortions presented by geography and legislation. However, the industry now has enough competitors and visibility to demonstrate different strategic approaches and how they can be measured.

The fitness of Fonterra’s performance and strategy can be gauged by understanding the performance and strategies of competing firms within the NZ dairy industry.

It is my aim in five articles over the next five issues to:

identify the different competitive strategies within the dairy industry

understand how strategic advantage is protected and measure performance

understand strategies for succeeding internationally

identify Fonterra’s core strategic capabilities

outline the recognised elements a successful strategy most often contains.

Fonterra’s recent profit announcement is good news and we should take heart. But we also need to understand exactly where we are going and how we are going to get there.

I don’t profess to know it all and it is often easy to counter complex arguments that have been presented simply. But as can be said about many organisations, “you get the governance you deserve”. The purpose is to present a perspective from which to view and question the strategic performance of our cooperative.

It will take you less than ten minutes to read.