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  • 1. FEBRUARY 2012Characterizing the Determinantsof Successful Value ChainsA PAPER PREPARED FOR THE CANADIAN AGRI-FOOD POLICY INSTITUTE Characterizing the Determinants of Successful Value Chains 1
  • 2. About this publication Characterizing the Determinants of Successful Value Chains was prepared by the Value Chain Management Centre of the George Morris Centre for the Canadian Agri-Food Policy Institute. The opinions stated are those of the authors, and not necessarily those of the Canadian Agri-Food Policy Institute. Reproduction of this publication requires the permission of the Canadian Agri-Food Policy Institute. The Institute is focused on stimulating a national dialogue on agricultural issues, by addressing the policies that will enable Canada to thrive in the global agri-food marketplace. This paper is available from www.capi-icpa.ca in pdf format. For more information, please contact: Canadian Agri-Food Policy Institute 960 Carling Avenue, CEF Building 49, Room 318 Ottawa, ON K1A 0C6 Telephone: 613-232-8008 or Toll-free 1-866-534-7593 Fax: 613-232-3838 info@capi-icpa.ca www.capi-icpa.ca2 Characterizing the Determinants of Successful Value Chains
  • 3. Table of ContentsExecutive Summary 51.0 Introduction 6 1.1 Objectives 6 1.2 About the report 62.0 Value Chain Management 73.0 Value Chain Structure 8 3.1 Moving Beyond “Value Chain vs. Supply Chain” 8 3.2 Comparative Differences in Chain Structure 8 3.3 Comparative Matrix 9 3.4 Summary of Matrix 114.0 Comparative Analysis 12 4.1 Little Potato Company, Canada (Collaborative chain) 12 4.2 Fresh Pork, Canada (Cooperative chain) 14 4.3 Warburtons, Canada/UK (Canada = Coordinated; UK = Collaborative) 15 4.4 Blade Farming, UK (Collaborative Chain) 17 4.5 Livestock Marketing, UK (Collaborative chain) 19 4.6 Perfection Fresh, Australia (Coordinated chain) 215.0 Comparative Summary 23 5.1 Five Overarching Requirements 23 5.2 Summative Comparison 246.0 Value Chains vs. Value Chain Roundtables 25 6.1 Purpose, Potential Impact and Outcome 25 6.2 Australian Consultancy Program 267.0 Conclusion 288.0 References 29Appendix 1: Value Chain Models 32Appendix 2: Value Chain Maps 34 a) Little Potato Company 34 b) Atlantic Pork 34 c) Warburtons 34 d) Livestock Marketing 35 e) Blade Farming 35 f) Perfection Fresh 35 Characterizing the Determinants of Successful Value Chains 3
  • 4. This page intentionally left blank.4 Characterizing the Determinants of Successful Value Chains
  • 5. Executive SummaryValue chain management (VCM) is more than a theory. The real-world examples illustrate five importantIt is a strategic business approach that is helping a requirements relating to effective VCM. The first is thatgrowing number of businesses increase their long-term the decision to form and the ability to sustain a closelycompetitiveness. It would be extremely difficult, if not aligned chain depends on the attitude of the participants.impossible, to achieve such competitiveness by operating The second factor is that the extent to which members ofas an individual business within a fragmented value a value chain are motivated and able to learn and adapt aschain. The primary purpose of this paper is to address a strategically aligned system determines their own andmisconceptions surrounding value chains and VCM. The the overall value chain’s competitiveness. The third is thepaper provides an informed, objective perspective on extent to which the internal dynamics of the value chain,VCM by demonstrating how value chains operate at the and the external environment in which the chain operates,business level rather than the sector or sub-sector level. can positively or negatively affect the chain’s ability andIt also describes the factors required for effective VCM. In motivation to acquire knowledge and then translate it intodoing so, the paper provides a basis for more informed actionable management decisions. The fourth is that aand sophisticated discussions to occur on developing value chain’s success is determined by its adherence toinitiatives that could lead to a more competitive and a certain set of principles. It is not determined by howprofitable Canadian agri-food industry. The report is specific value chains put the principles into operation andbased on empirical research completed by the Value then monitor their operations and enforce managementChain Management Centre and other researchers. It is decisions. The fifth is that focusing on labels to evaluate aalso based on the commercial experience of the primary value chain is a pointless task. The focus needs to be onauthor, Martin Gooch. understanding how and why a value chain is managed in a certain fashion, on understanding the organizations andThe concept of VCM emerged from the realization that individuals that comprise the value chain, and the factorsappreciable and continual improvements in system which determine the nature of the business relationshipsdesign and performance can only occur when businesses that bond, or fail to bond, the chain together.seek closer coordination and integration with suppliersand customers than traditional, transactional buyer- This paper concludes by providing a high-level comparisonseller relationships allow. Developing closer strategic of value chains and value chain roundtables. It illustratesrelationships with customers and suppliers enables why differences exist between the discussions that occurbusinesses to learn and adapt more effectively than within the two entities, and what the separate entitiesif operating unilaterally. This paper uses real-world are able to achieve. None is more important than theexamples to illustrate the sustainable, competitive benefits other; they each have a role to play in enhancing thethat a number of businesses have achieved by working competitiveness of commercial businesses, sectors, andwith other members of the value chain. A number of the industries. The paper provides the example of a five-yearexamples are also used to illustrate the impact that the Australian initiative, formed in 2002, to help strengthen theexternal environment can have on the nature, structure, competitiveness of that nation’s industry by championingand competitiveness of a value chain. Differences in the value chain research, training and industry consultations.leadership approaches and management processes that The objective is to develop a whole-of-governmentdetermine the structure and nature of value chains are approach to competitiveness related issues.defined by comparing factors associated with fragmented,cooperative, coordinated, and collaborative chains. Characterizing the Determinants of Successful Value Chains 5
  • 6. 1.0 Introduction 1.1 Objectives 1.2 About the report The benefits to businesses of moving away from The report is based on empirical research completed producing undifferentiated commodities and exercising by the Value Chain Management Centre and other greater influence on the overall process of growing, researchers, along with the commercial experience of processing, and marketing agri-food products have the primary author, Martin Gooch. Martin has worked been extensively researched and documented. in the UK, New Zealand, Australian, and Canadian agri- Researchers and managers of commercial businesses food industries, and has assisted the development have stated that working with other members of their of successful value chain initiatives that have won value chain helps businesses increase revenues, domestic and international awards of excellence. He reduce costs and manage risks more effectively. Such holds farm management qualifications, a bachelor’s commentators include Beard (2008), Boehjle (1999), degree in International Business, and a master’s Collins (2011), Cowins (2007), Dunne (2008), EFFP degree in Value Chain Management. His master’s (2004), Fearne (1998), Gooch et al. (2011), Santiago thesis analyzed critical success factors for forming (2007) and Senge et al. (2006). and managing perishable food value chains. He is currently finalizing his PhD, which is evaluating the This paper uses the term Value Chain Management (VCM) effectiveness of experiential learning for enabling and to describe the processes businesses use to manage motivating farmers and agri-food business managers to their own operations and influence the operations of develop the skills required to increase profitability and others in their value chain. VCM is a reiterative process competitiveness by adopting value chain management that takes time, resources and skill. To increase the practices. Canadian agri-business industry’s understanding of VCM as a business model, this paper has four objectives: 1. Use real world examples to describe why the terms “fragmented,” “cooperative,” “coordinated,” and “collaborative” constitute a more suitable method for characterizing the structure and nature of value chains, and their relative ability to exploit long-term competitive opportunities, rather than attempting to determine a chain by whether it is a “supply chain” or a “value chain”; 2. Present a concise description of the benefits of different forms of value chains, the process that led to their development, and the factors that led to their sustainability; 3. Detail factors that have been found to affect the success of value chains; and 4. Illustrate that value chains and value chain roundtables, though they are different constructs, reflect certain similarities. 6 Characterizing the Determinants of Successful Value Chains
  • 7. 2.0 Value Chain ManagementIn a business environment typified by technological relationships allow (Sparling, 2007; Gruen, 1997; Wilson,innovation, industry consolidation, deregulation, and 1995). By developing closer strategic relationships withchanging consumer demands, traditional management customers and suppliers, businesses can learn andapproaches are proving to be increasingly ineffective in adapt more effectively (Cohen and Levinthal, 1990;enabling businesses to remain profitable. Businesses Spekman et al., 1998). Through co-innovation, multipleare therefore being forced to find new ways to compete firms working together through shared goals andin agriculture and agri-food, as much as in any industry integrated processes can simultaneously improve their(Boehlje, 1999; Senge, 1997; Senge, Dow and Neath, performance far beyond what they could achieve by2006). Value chain management (VCM), the deliberate operating as individuals (Bonnie et al., 2007; Fearne etdecision by members of a value chain to combine their al., 2008). Co-innovation allows businesses to improveresources to improve competitiveness, is proving a activities not only within their own operations, butpowerful strategic approach that enables organizations between businesses. Co-innovation is a process thatto adapt to a rapidly changing business environment provides businesses with competitive strengths that(Bonney et al., 2007; Collins, 2011; Dunne, 2008; Fearne, are extremely difficult for others to compete against2007; Taylor, 2006; Collins et al., 2002). without themselves adopting a VCM approach (Collins, 2011; Bonney et al., 2007). Several of the examplesThe concept of VCM emerged from the realization that described later in this report illustrate the sustainableappreciable, continual improvements in system design and competitive benefits that businesses haveand performance can only occur when businesses seek achieved by co-innovating with other members of theircloser coordination and integration with suppliers and value chain.customers than traditional transactional buyer-seller Characterizing the Determinants of Successful Value Chains 7
  • 8. 3.0 Value Chain Structure3.1 Moving Beyond “Value section presents an objective method for describing the types of value chains that exist. Each descriptionChain vs. Supply Chain” reflects the approach that businesses have taken to managing their own operations and interacting withMany attempts have been made to differentiate the operations of others in their value chain. How thebetween “value chains” and “supply chains.” This businesses that form a value chain interact with onepaper argues that, while such efforts make for an another and with their target consumer determinesinteresting theoretical exercise, the differentiation is in how the chain is structured.fact impractical. There are at least five reasons: 1. Making a black or white assumption, where 3.2 Comparative Differences opposites only exist in isolation as one trumps in Chain Structure the other, reflects a lack of understanding about a given topic (Ison and Russell, 2000); The following section describes the different structures 2. Management is a reiterating process; like any that exist among value chains operating in the skill, the process of successfully managing a international agri-food industry. Value chains fall into value chain has to be learned. As managers’ four distinct structures. These structures reflect a VCM skills grow, so does their ability to enter continuum that spans from traditional open (spot) into increasingly sophisticated commercial market approaches, to businesses that are closely arrangements and achieve a broadening array of aligned to the point that they may jointly invest in commercial opportunities (Womack and Jones, infrastructure and resources (Dunne, 2003; Spekman 2005; Kidd et al., 2003); et al., 1998). For the purposes of this paper, the four 3. Other than in exceptional cases, sudden changes types of value chains that inhabit this continuum are to how a business is managed will invariably lead referred to as fragmented, cooperative, coordinated, to employees reverting to their old habits and part and collaborative. While it is unlikely that a specific or complete failure of an initiative (Hamel, 2002); value chain will fit neatly into one of the structures 4. There is not one type of value chain. Value chains presented in this section, the typologies provide a come in various forms, each typified by a certain useful method of assessing and comparing the relative structure and set of characteristics (Dunne, 2003; nature, benefits and challenges associated with each Spekman et al., 1998); approach. The graphics and matrix were developed 5. Various elements of the same chain can be at through a review of current academic literature and different stages of development in terms of the empirical studies, along with research completed by relationships that exist between businesses and the Value Chain Management Centre. This process how much they are able and/or willing to utilize ensures that the descriptions accurately represent the their relationships for strategic advantage (Gooch structure and nature of value chains operating in the et al., 2011; Beard, 2007; Collins, 2007). Canadian and international agri-food industry.For these reasons, a supply chain cannot suddenly Below are a description and simplified diagram of themorph into a value chain, and a straightforward four types of value chain structures. For simplicity, thesimplistic analogy is misleading. Every business diagrams illustrate chains that comprise only threebelongs to a chain, and the commercial opportunities links. These diagrams form Figures 1, 2, 3, and 4. Thisand challenges to which a business is exposed are section is followed by a matrix that describes the keydetermined by the way a business operates in relation factors that determine how each structure operates.to its customers and suppliers (Collins, 2011; Dunne, The matrix is presented below in Table 1. A more2001; Spekman et al., 1998). Therefore, the following detailed version of the matrix is in Appendix 1.8 Characterizing the Determinants of Successful Value Chains
  • 9. Fragmented: Companies primarily compete on a least part of the chain to think and act from a strategictraditional trade footing. The majority of business – and not only operational or tactical – perspective.is conducted as a series of short-term, one-off A strategic perspective arises from operating in antransactions. Price, volume, and quality are commonly external environment that allows this type of approachparamount to business dealings. The primary onus to occur. Over time, the participants come to steadilyof strategic decisions is on self-preservation and acknowledge the benefits of conducting medium-termsharing the bare minimum of transactional information, business deals with chosen suppliers and buyers,for fear a company’s insights are used against it. leading to increased levels of commitment and theTypically, the result is a fragmented chain comprised development of more sophisticated value chainof businesses that share adversarial and distrusting management capabilities.relationships. These types of businesses often look topast experiences for solutions to current challenges,and have little opportunity to utilize the resources ofother members of the value chain. As a result, they are Business A Business B Business Climited in their ability to effectively and efficiently adaptto changing market demands. Figure 3: Coordinated Value Chain Business A Business B Business C Collaborative: Companies engage in longer-term strategic arrangements that involve collaboratively sharing resources and/or investing in the capabilitiesFigure 1: Fragmented Value Chain required to achieve mutually beneficial outcomes.Cooperative: Companies possess a mutual Successfully adopting this type of model requires theunderstanding of how and why they can benefit from involved businesses to possess compatible cultures,cooperating with one another over the medium term at vision, and leadership. It also requires an externalan operational level, rather than undertaking specific environment that is conducive to supporting andshort-term or one-off business deals. The attitudes enabling such an approach. While the model canand culture of the businesses involved will determine undoubtedly produce greater rewards than the threewhether a chain’s structure can develop into a more alternative models,strategically aligned approach, where the partners it also generatescan utilize one another’s capabilities for commercial increased risks, Business A Business Badvantage. Whether such an approach is feasible may particularly for bus-also be determined by the environment in which the inesses that arechain operates and in which it competes against other still developingchains and businesses. (as opposed to Business C refining) their value chain management skills. Figure 4: Collaborative Value Chain Entreprise A Entreprise B Entreprise C 3.3 Comparative MatrixFigure 2 Cooperative Value Chain The following matrix presents a concise comparisonCoordinated: Companies with complementary of how structural and operational factors differattitudes, cultures, and leadership styles choose to across value chain typologies, along with thecoordinate their business arrangements over a short resulting benefits and risks associated withto medium timeframe. A more strategically aligned each arrangement. An expanded version ofstructure than the one exemplified above causes at Table 1 forms Appendix 1. Characterizing the Determinants of Successful Value Chains 9
  • 10. Table 1: Four Primary Chain Structures Chain Structure Characteristics Fragmented Cooperative Coordinated Collaborative Strategic Factors Each members’ strategic Self interest Self interest, mutual benefit Mixed interest, Mutual interest, mutual orientation self benefit benefit Extent to which value Not unless accidental To a limited degree Closely, regularly Extensive, regularly chains’ and businesses’ evaluated in relation to monitored in relation to strategies are aligned specific goals specific goals Economic relationship to Business occurs in an External forces have Business environment Chain forms economic the wider industry environment shaped greatest impact on shaping shaped equally by internal environment in which largely by external forces business environment / external forces business occurs Most important Traditional business model, Provides opportunity to Enables cost reductions Enables co-innovation, benefit no new skills required learn/adapt with little risk and revenue gain unique strengths Governance Arrangements Existence of a chain No Perhaps, most often not Usually clearly defined Defined and articulated champion Presence of trust and Little existence of either Limited existence of either Considerable existence Extensive existence of commitment of both both Mechanisms to prevent Little to none Limited Usually significant Always extensive freeloading Financial Ownership structure Within physical boundary Within physical boundary May have joint ownership, Often jointly own of individual business of individual business usually in delivering service provider and/or services infrastructure Financial focus, basis of Maximize own profitability Enhance own profits Increase own profits first Protect/increase profits negotiation Primary method of Short-term focus, seek to Limit catastrophic risk Medium-term focus, Long-term focus; mitigating risk pass risk onto third parties through using preferred try to ensure correct regularly monitor, ensure suppliers accountability accountability Communication Key attitudinal Primary focus is towards Work closely with others Each member views itself Each member views characteristic own operations and as part of interrelated itself as part of aligned personal gain system interlinked system Nature of business Short-term; often untimely Short to medium-term; Short to medium-term; Short, medium and long- communication and inaccurate, limited often untimely, limited usually timely, accurate, term; timely, accurate, details details detailed detailed Key factor sustaining Ability to trade Able to use others’ skills Ability to learn and Ability to learn as a system, chain to enhance own trading influence others through then act on new knowledge ability emotional intelligence Operations Primary focus of chain’s Immediate Customer’s customers Customers and consumers Target consumers operations customer (to a degree) Number of customers Many customers, moderate Many customers, range Fewer customers, range A few important customers; and suppliers importance; many in importance; many in importance; fewer often few suppliers suppliers suppliers suppliers Level of technological Basic, transactional Usually basic, transactional Moderate Moderate to extensive integration Performance measures Mainly subjective Limited objectivity Subjective and objective Objective, consumer-driven10 Characterizing the Determinants of Successful Value Chains
  • 11. 3.4 Summary of Matrix The next section of this report expands on the concepts presented in the matrix, by describing specific valueThe preceding matrix shows that a value chain’s structure chains where the involved businesses have purposelyis predominantly an outcome of the leadership, culture, aligned their strategies and/or operations to differingattitude and management processes of the businesses degrees. In many cases, this alignment has allowedand individuals that together comprise the chain. them to achieve an outcome that would be impossibleCombined, these factors create the enabling environment if they had continued to operate individually. The termswithin which the businesses operate and the relationships cooperative, coordinated, or collaborative are usedthat bond the businesses together. The matrix also to reflect the predominant structure of each example.illustrates that the further along the continuum that a chain Where appropriate, the descriptions refer to specificresides, the less impact external forces will have on the factors that undermined the performance, structure, andway it operates and the factors from which it derives its competitiveness of each value chain.competitive strength. And the more it will reflect the sevenprinciples which Collins and Dunne (2002) determined asthe requirements of effective value chain management. Itis this combination of factors that provide value chainsand the involved businesses with competitive strengthsthat are difficult, if not impossible, for competitors toreplicate. The seven principles that reflect effective VCMare: 1. Share a clear vision and common goals 2. Possess capabilities to create value 3. Have a culture that supports cooperation and learning 4. Have compatible partners 5. Proactively manage the relationship 6. Regularly evaluate and report 7. Continually adjust to changing circumstances Characterizing the Determinants of Successful Value Chains 11
  • 12. 4.0 Comparative AnalysisThis section describes the differences in how value chains company in North America to specialize in working with thethat predominantly reflect a cooperative, coordinated, or entire chain to produce, pack and market little potatoes.collaborative structure operate. It illustrates the impact The company achieved this distinction by working witheach of these arrangements has on the performance of like-minded and capable partners to establish a valuethe involved businesses and the overall chains to which chain that comprises five primary links. In addition tothey belong. This section also highlights the extent of LPC, the links include seed breeders, growers based inthe strategic opportunities that each of the chains has Canada and the US, key retail and foodservice customers,been able to exploit, and how these opportunities were a and consumers. LPC, producers, and seed breedersfunction of a chain’s structure and method of operation. developed the capacity to innovative directly in line withThat the chosen chains encompass different sectors and consumer desires by working closely with retail andcountries illustrates the transferability of the value chain foodservice customers to test and develop new varieties.management concept. Notably, it is not the sector in As well, they utilize a closely aligned feedback loop thatwhich it operates or its location that determines a chain’s enables them to constantly improve operations andstructure, nor the opportunities that it is able to exploit processes at all stages along the value chain. Reflectingor the risks it is able to mitigate. Rather, it is the attitude the concepts presented in Section 3, a map of the LPCand capabilities of the participants, both of which can value chain forms part of Appendix 2.be influenced by the external environment in which theyoperate. Footnotes provide details of where to access Strategic Approachfurther information on each of the value chains. LPC and its committed partners have worked together4.1 Little Potato Company, to establish the strategic capabilities that have, in turn, allowed them to develop a unique value propositionCanada (Collaborative chain)1 by producing a product that commands a premium price, often while reducing costs. Three fundamentalOverview concepts guided the development and ongoing strategic and operational management of the LPC value chain:Founded in 1996, The Little Potato Company (LPC) is afamily-run business based in Alberta, Canada. Founder 1. Customer and consumer focus: The vision shared byand shareholder, Jacob van der Schaaf, wanted to emulate chain champion Angela Santiago is that the successthe small potatoes he had enjoyed from his European of LPC and its partners comes from producingbackground. He turned a concept into reality by working potatoes that appeal to target consumers’ definitionwith his daughter, Angela Santiago, who assumed the role of value, and from delivering uninterrupted suppliesof value chain champion. Santiago is also LPC’s CEO and of consistently high-quality products. Given thatprimary shareholder. quality results from many factors (including variety, growing, and harvesting conditions, storageThe company began by growing a one-acre test plot of conditions, packing, shipping, and handling topotatoes and selling them through farmers markets. They and at the retail location), maintaining such high-gained consumers’ feedback from restaurants before quality standards would be impossible without theapproaching their first retailer, who took their entire crop. existence of strategic and operationally alignedFrom this small beginning, they developed an entirely new businesses. To help the chain continually managecategory in the fresh vegetable market. LPC is the only quality throughout the year, LPC uses a distribution business that provides regular feedback on1 http://www.littlepotatoes.com/; activities occurring at the retail store level, and onhttp://www.valuechains.ca/documents/LITTLE%20POTATO%20COMPANY.pdf any quality issues it sees arising at the point-of-sale12 Characterizing the Determinants of Successful Value Chains
  • 13. to consumers. This input allows LPC to compare will enable the chain to constantly innovate in line with point-of-sale product performance with proprietary market opportunities. information acquired from upstream operations, and use the resulting insights to make informed 2. Managing and Delivering Quality management decisions. LPC has implemented strategies, systems and 2. Product Differentiation: Owning proprietary varieties protocols for managing the determinants of quality in and having in place the correct processes has order to meet the demands of increasingly sophisticated enabled LPC to establish a strong brand recognition customers. To ensure that each partner is motivated and value differentiation in what continues to be to continually seek opportunities to improve their own largely a commodity-driven category of the produce and the overall chain’s operations, LPC contracts the department. growing to a dedicated group of farmers. It also owns 3. Sharing Benefits: All partners are jointly involved in a modern processing plant that cleans, sorts and bags creating and capturing value. Their commitment and potatoes ready for sale, and works with a dedicated accountability is reinforced through a governance seed company to develop small potato varieties. system which equitably shares financial rewards LPC then trials and acquires the proprietary rights to according the performance of their business in varieties which are deemed to offer sufficient value relation to the overall chain and pre-determined from consumers’ perspectives, while offering growers targets. economically viable returns. With representatives of the entire chain, LPC regularly shares and reviewsGovernance information on the operations of the overall chain and the performance of individual growers, includingLPC believes that the chain’s sustainability depends on four current and promising varieties.factors. Together they underpin a governance structurethat lets the chain attain a high level of performance while 3. Marketingcontinually innovating developing new products and LPC has developed marketing programs that areprocesses. These four factors help the chain continually enabling the company to position itself as the categoryadapt to changing customer and consumer demands, leader with selected retailers. By involving onlyand defend its position in the market. those businesses who share its cooperative vision, and by viewing the ownership of unique proprietary 1. Leadership and Direction varieties as a tool that cannot be easily duplicated The LPC Board provides strong strategic direction and by competitors, LPC has been able to establish a leadership. Early on in LPC’s history, it was found that unique market presence and a competitive advantage, the composition of the board impaired the company’s whether branding products under its own or a private ability to align its activities with other members of (retailer) label. the value chain. The Board’s composition also made it difficult to determine precisely who along the chain 4. Systems, Strategies and Long-Term Growth should be accountable for what level of decision At LPC, day-to-day management decisions consistently making and reporting. The Board was too focused reflect a longer-term plan. LPC realizes that continually on the producer. By contrast, the current Board improving performance means accurately measuring includes a grocery retail expert, the owner of a regional operations according to Key Performance Indicators hotel group, an experienced agri-food management (KPIs) and involving other members of the chain in consultant, and a small number of carefully chosen monitoring, reporting, and suggesting/implementing primary producers. Approximately half of the Board improvements. Following this approach helps minimize are shareholders and the remainder are paid advisors. the potential for freeloading that would otherwise In addition to Board meetings, the Board meets as undermine the chain’s overall performance and lessen separate committees that work with industry experts its ability to innovate directly in line with consumer- and champions situated at different levels of the value recognized value. chain (e.g. Brad Bartko, a seed multiplier and potato grower). These committees identify opportunities that Characterizing the Determinants of Successful Value Chains 13
  • 14. Sustainability no one had actively tried to use existing relationships as a strategic differentiator, and not because the chainLPC has overcome competitive threats by facilitating participants suffered from poor relationships with oneopen communication throughout the value chain, and another. The business-level champions that existed alongestablishing clearly defined, measurable roles and the chain included a hog producer, an owner of the hogresponsibilities. This allows LPC to use chain participants’ processor, and the CEO of the distributor.knowledge and resources to develop the skills necessaryto consistently deliver and market potatoes that look, Because the chain’s members had limited interactionperform, and taste differently than commodity potatoes. with one another, or with consumers, they had a poorThis process also ensures LPC can ensure each participant understanding of what consumers valued. In fact, anis held accountable for its own performance in relation inadequate understanding about what determinedto predetermined goals and objectives. By employing consumer behavior led to many decisions being basedthis approach, the company creates an ongoing point of on assumptions. A key assumption driving managementdifference for customers and consumers by continually decisions was that consumers primarily buy pork on priceresponding to competing products and changing market alone. A second assumption was that little if anythingdemands. could be done to enhance consumers’ perception that fresh pork is not just a commodity. This left the chain with few strategic options, and it was unable to4.2 Fresh Pork2, Canada develop and market value-added products. As a result,(Cooperative chain)3 the chain continued to focus on price as the primary method of retaining market share. It also meant that theOverview chain’s participants possessed little desire to explore strategic opportunities that could help differentiate itselfThis description comes from the confidential analysis of from the wider industry. Such opportunities might havea value chain operating in Canada. The chain handles included developing a pricing model that would motivatefresh pork and has seven links, stretching from grain producers to produce a hog whose attributes directlyproduction (for feed), to hog production, through to reflected consumers’ perceptions of value. Instead, theconsumers purchasing fresh pork from a specific sub-set chain continued to adhere to a CME pricing model thatof the retail sector. Reflecting the concepts presented in produces a generic hog more suited to producing porkSection 3, a diagram depicting the value chain’s structure for processing than as fresh meat that could provide aforms Appendix 2. superior eating experience.Strategic Approach GovernanceThis chain is different from others examined in this paper. It With no overarching chain champion, the chain also hadis quite fragmented and primarily employs a transactional no overall chain governance structures in place. Mostrather than strategic approach to business. With the of the lines of communication that existed within andexception of the relationship that exists between the between the businesses situated along the value chaindistributor and retail stores, it more closely resembles the were quite weak. This affected the relationships thatfragmented commodity industry than the more effective existed between and within the individual businesses,and efficient chains described elsewhere in this paper. and hurt their ability to develop and implement medium-In the other examples, a chain champion emerged and to long-term programs or to monitor the effectiveness offostered a vision other chain members adopted. But in operations.this chain, recognized champions existed only at variouslevels of the chain and their influence over the businesses Without a governance structure, the chain was unabledecisions of others was marginal. This occurred because to mitigate injurious impacts that the wider industry had2 For commercial confidentially this value chain is anonymous. on its operations. For example, the retailer was keen on3 http://www.valuechains.ca/documents/Pork%20Case%20Study%20Final. moving high volumes of pork when the processor offeredpdf14 Characterizing the Determinants of Successful Value Chains
  • 15. it at a low price. This occurred during weeks when aprocessor was not supplying alternative retailers with 4.3 Warburtons, Canada/UK4pork for their promotions; consumers learned to time their (Canada = coordinated;purchases according to cyclical pricing decisions madeby this and other retailers, causing the chain to be caught UK = Collaborative)in a “Catch-22” situation. Since the chain failed to see thevalue of fresh pork beyond its use as a commodity, it put Overviewlittle effort into innovation and differentiation. Consumerslooked to buy pork from this particular retailer because it Established in 1876 and headquartered in Bolton, England,was not on offer elsewhere, and not because they thought Warburtons is the UK’s largest independent manufacturerit offered them a particular value proposition for which of bakery products. A fifth generation family-run business,they were prepared to pay. Warburtons’ core philosophy is to deliver fresh, great tasting, high-quality products by continually improvingThe processor determined many of the management operations and processes along the entire value chain.decisions occurring along the value chain. This limited the Even though its loaves can sell for five times that of theability of the distributor and retailer – the only two parties “value-based” alternatives, often retailed under privatealong the chain where both the lines of communication and label brands, attention to detail has enabled Warburtons-relationships are strong – to use their existing relationships branded bread to capture 24% market share in the UKto differentiate the chain from the wider industry. It also bread market (Teather, 2010). Today, it produces andprevented the chain from developing the infrastructure, markets two million products daily from 14 bakeries andalong with the capacity, skills, and incentives, to produce 15 depots.and market higher-quality fresh pork products. Poorcommunication and a lack of processes, infrastructure, Having once been a small regional company with 2%and monitoring capabilities made it inevitable that waste of the UK bread market, Warburtons embarked onoccurred at numerous points along the chain. As a result, a large expansion program in the late 1990s, whichthe chain was both unable to create or capture added continued in the 2000s. In 1998, following the successvalue through increasing revenue, and unable to minimize of the value chain sourcing Canadian wheat, Warburtonscosts to the extent that would have been possible if a tested a similar arrangement with Openfield (formerlymore effective governance structure had been in place. called Centaur Grain), the UK’s largest dedicated wheat marketing company. The dual sourcing arrangementsSustainability allowed Warburtons to combine UK and Canadian wheat to produce flour that precisely meets its bakingWith limited exchange of information and relationships requirements. Warburtons has innovated and grownthat are transactional rather than strategic, the chain’s its market share by developing detailed insights intolong-term survival may rest more on decisions made operations along the entire value chain, understanding theby the wider industry than those made within the value impact of differing factors on end quality, and being ablechain itself. The research concluded that the chain to influence management decisions from seed productioncould take advantage of opportunities to capture greater to flour milling. It has become the UK’s second-bestsellingvalue by differentiating itself in the market by developing food and drink brand after Coca Cola (Warburtons, 2011).the capabilities required to produce pork that offers A map showing differences between the structure andconsumers a superior eating experience. This would operations of the English and Canadian elements ofrequire it to evolve into a coordinated chain, where Warburtons’ value chain forms Appendix 2.business relationships are used strategically to achievespecific competitive advantages. Strategically aligningits grain, feed, hog production, hog processing, andmarketing/merchandizing operations would enable thechain to learn and adapt as a system, leading to a furtherstrengthening of its long-term competitiveness. 4 http://www.warburtons.co.uk/; http://www.openfield.co.uk/; http://www.valuechains.ca/interactivedvd.htm Characterizing the Determinants of Successful Value Chains 15
  • 16. Strategy in coordinating less strategically aligned elements of the value chain. The strategic coordinators are known as chainWarburtons’ value chain initiatives stem from a crisis in champions. Retailers are viewed as an avenue to market,1992, when, with little warning, the company was unable and are important partners that enable Warburtons toto use that year’s Canadian harvest due to quality issues. continually research consumer purchasing habits andIn analyzing the value chain, Warburtons realized that the attitudes.non-environmental causes of the quality problems thathad occurred over preceding years included: farmers’ Warburtons uses the resulting insights to help set themoves towards high-yielding varieties that did not suit contracts it offers producers and the pre-agreed premiumsWarburtons’ baking processes; industry’s focus on it will pay for wheat that meets its quality requirements.producing consistent quality vs. ideal quality for specific Once granted, it abides by the agreed arrangements,customers; wheat was not graded on all the key attributes even if the commodity price for wheat of a similar qualitythat influenced the quality of the bread that it produced; and is lower in any given year or if the volume of productionthe end quality of the wheat delivered to millers in the UK exceeds Warburtons’ needs. In return for standing bycould be compromised at multiple points along the entire its producers, Warburtons expects nothing less thanvalue chain. Warburtons saw that it could address many complete trust and commitment to its program. This isof these issues by taking a VCM approach to managing clearly communicated to producers, who are aware thatthe determinants of quality. Having successfully sourced any deviation from acting responsibly and in a trustworthyCanadian wheat, Warburtons tried a similar arrangement fashion will result in immediate suspension from thein 1998 with Openfield. program, with no chance of supplying Warburtons in the future.Warburtons’ Purchasing Director was the chain championwho led the development of the initial chain. He believed Canadian vs. English ChainWarburtons and its business partners could better satisfycustomers and gain a competitive advantage by working In the last two decades, the comparative importance oftogether to control quality and manage costs. Canada as Warburtons’ primary source of wheat has waned. This is due to internal factors that influence howSuppliers benefit by providing Warburtons’ plants with the English vs. Canadian elements of each chain operatebetter quality flour than that obtained by competing (e.g., differences in how growers are coordinated, alongmanufacturers. Possessing intimate knowledge of factors with the attitude and aspirations of those involved), andimpacting end quality and the entire array of characteristics factors that shape the external environment in which eachof the flour long before it arrives at their baking plants also of the value chains operate (e.g., legislation, regulations,enables Warburtons to innovate faster and more directly and geographic location). The change in comparativein line with consumer demands. The constant two-way importance is the direct result of the English element offlow of information enables everyone along the chain the chain being able to innovate at least five to six timesto make informed and timely management decisions, faster than the Canadian elements.leading to more efficient and effective operations and amore appropriate investment of resources. Ultimately, this There are a number of differences in how the two elementsapproach has lessened the business risk for everyone, of the value chain are managed and operate. For example,from producers through to Warburtons, and led to the the English elements of the chain have developed a closerbuilding of strong, interdependent relationships. strategic relationship to Warburtons and possess greater sophistication in translating lessons learned into innovativeGovernance solutions. In the UK, grain production and marketing is overseen by a strong chain champion named GrahamThere are essentially eight links in both the UK and Canadian Lacey, Openfield’s Commercial Director. Lacey workschains: seed breeders, producers, grain elevators, very closely with Warburtons’ Director of Purchasing, Bobtransport providers, millers, Warburtons, retailers and Beard. In Canada, instead of a single chain championconsumers. Like many chains, the Warburtons’ chain with the same position or influence of Lacey, there arefeatures individuals and businesses that play a crucial role numerous different entities and individuals, each with16 Characterizing the Determinants of Successful Value Chains
  • 17. competing interests. Another example is that there are largest grocery brand in the UK and is the market leaderkey differences in the Canadian and UK pricing models. in the bread category. For producers, the benefits includeThe Canadian system is essentially a blunt premium paid an opportunity to secure higher premiums and reducefor wheat that meets a certain quality benchmark, agreed costs by understanding their processes more effectively.on one year in advance. The UK model uses an algorithm It also allows them to plan more effectively over the longreflecting multiple attributes, which is agreed on up to five term, further reducing their exposure to risk. In additionyears in advance. Furthermore, in England, prices and to having a guaranteed market and access to premiumpricing strategies are negotiated between Warburtons prices or additional management fees, producers areand Openfield on behalf of their producer members, all applying lessons learned from the Warburtons’ initiativeof whom have direct commercial interests in the initiative to their operations in other markets, leading to distinctsucceeding. In Canada, prices and pricing strategies are financial benefits. For instance, Openfield is making morenegotiated between Warburtons and the Canadian Wheat informed management decisions throughout the processBoard (CWB), which has little direct commercial investment of producing, harvesting, and marketing grain, regardlessin the initiative itself and whose operations are meant to of the end customer. This means the company canbenefit the entire industry, not one marketing arrangement. produce crops of higher value and, often simultaneously, reduce its costs. For example, less than 50 percent ofWhile part of the difference stems from geographic producers’ wheat typically meets milling quality. Butproximity, attitude has the most significant influence on Warburtons’ producers regularly achieve a “hit-rate”how the two elements operate and what they have been of over 75 percent, even in difficult growing seasons.able to achieve. All of the main UK players also have a Moreover, these producers possess a supply contractcommercial stake in the chain and are more flexible in that they could sell with their farm if they wish.their interaction. The Canadian chain is more complexand more rigid than the UK chain. Openfield takes an Both of the Warburtons’ schemes have expandedactive role in strategically coordinating and managing considerably since their inception. However, the challengeeach of the links in a more system-based fashion. As well, facing the Canadian element of the Warburtons value chainthe operations of the Canadian element of the chain in is to identify how it can evolve so that it does not continueparticular are affected by non-commercial stakeholders to concede competitive strength to competitors. This willthat possess political philosophies or agendas that require changes to the internal operations of the chaindiffer from the approaches and attitudes reflected in itself, as well as the external environment within which itWarburtons’ or Openfield’s approach to business. operates. Without these changes, it is entirely possible that the English side of the Warburtons system will develop anOther factors play a role in causing the Canadian element ever stronger competitive advantage. The English side ofto take years to achieve what can be done in England the system is more open to sharing strategically importantwithin 12 months. These factors include inflexibilities information and has a greater propensity to identify, andinherent to the CWB, the Canadian Grain Commission and then act upon, new opportunities to create and captureother institutions. In England, if Warburtons or Openfield value.identifies a promising variety, it can be grown andcommercialized within one year; in Canada, regulatoryhurdles and industry structure mean the same process 4.4 Blade Farming, UK5takes multiple years, or may simply not be possible. This (Collaborative Chain)type of constraint diminishes the benefits that participantsalong the value chain can accrue from their endeavours. OverviewSustainability Blade Farming has grown to become one of the UK’s largest beef operations. It is a subsidiary of ABP, anFinancial results stemming from the Warburton value Irish processor. The Blade Farming model works on thechain are readily identifiable. By producing and concept that the cattle it produces are of such consistentconsistently supplying a quality product that resonates 5 http://www.blade-farming.com/ http://www.valuechains.ca/documents/with consumers, Warburtons has become the second- UK%20Beef%20Report%20V4%20062211.pdf; Characterizing the Determinants of Successful Value Chains 17
  • 18. quality that they are affectively pre-sold to retail customers Governance(including Tesco’s, one of the world’s largest retailers) orfoodservice customers (including McDonald’s) prior to The chain works on a batch system, with Blade Farmingconception. To achieve carcass balance, the hindquarters acting as the chain champion. The company coordinatesare supplied to retail, the forequarters to McDonald’s, and the entire chain, ensuring that the processes andthe fillets to restaurants. procedures lead to the production of the correct animals, at the correct place, at the correct time. They alsoEstablished in 2000 and centered largely in the South coordinate the ordering and supply of feed (milk powder,Western region of the UK, the initiative grew out of concentrates, etc.) to each of the involved producers.producers’ need to remain profitable in the face of Producers benefit by having access to better pricesincreasingly high feed prices. They also needed to access for feed and veterinary services than if purchasing asguaranteed volumes of consistently high-quality animals in individuals. Basing the chain’s protocols on scientificallyorder to satisfy increasingly discerning and sophisticated tested processes leads to the production of beef withcustomers and consumers. A map of the Blade Farming desired eating qualities. It also provides the chain withvalue chain is featured in Appendix 2. greater insights into which combination of feed and genetics result in the best feed conversion rates and beefStrategic Approach that offer consumers a superior eating experience. This results in reduced costs and increased revenue. In mostThe method by which the chain operates enables ABP to cases, the chain starts with Blade Farming purchasing aknow what animals it will have in the system and the quality cross-bred calf from a dairy farmer at aged 14 days. Forof the animals it will be receiving 18 months in advance. A committed farmers who have a history with Blade Farming,second strategic enabler is the ability to minimize waste the chain begins by the company offering artificiallyand maximize profits by producing high-quality products inseminated straws possessing specific genetics atfor which customers and consumers are willing to pay. discount rates. Blade Farming then contracts calf rearersFrom conception to processing, all business decisions to raise the calves to an age of 14 weeks. The calvesare based on the results of scientific research into factors are then sold to a finisher on a contractual arrangementimpacting eating quality. Negotiations primarily revolve whereby Blade Farming will buy the animal back on aaround margins and the performance required for each pre-agreed pricing arrangement, subject to it meetingmember of the chain to achieve target margins, not prices specific criteria relating to age of slaughter, yield, fatreceived. Notably, the chain views auctions as a source cover, and weight. This arrangement gives the processorof unnecessary financial risk. Auctions would lessen the greater control over the calves entering the system. Itchain’s ability to produce high-quality products. Avoiding also provides the processor with deeper insights into thethem also ensures its financial performance is not genetics and production methods that result in an animalimpacted by fluctuating commodity market prices. that best meets its requirements; and lets the processor plan supply and marketing arrangements many months inThere are six contractual links in the chain: dairy; calf advance. This process permits Blade Farming to minimizerearer; finisher; slaughter; processor; and retailer/ the potential for freeloaders to undermine the chain’sfoodservice. Blade Farming acts as chain champion and performance. This allows operations performed alongmanages virtually every aspect of the chain. This includes the entire value chain to focus on guaranteeing profits forhelping primary producers manage the financial risks all the participants by motivating every link in the chainassociated with cattle production. It achieves this by to coordinate its operations, unencumbered by pooroffering a loans program, assessing the level and cause performers. The result is the production of consistentlyof animal mortality, facilitating contractual negotiations, higher-quality beef at a lower cost.supporting information exchange, and productionplanning, as well as buying feed and providing veterinary The expectation is that contract weaners will make ~$70services on producers’ behalf. per calf. If performance matches expectations, they also receive premiums that total ~$15 per calf. Weaners are assessed for the numbers of calves that they can put through their system, on a four times per annum (quarterly)18 Characterizing the Determinants of Successful Value Chains
  • 19. rotation. This provides a one-week gap, during which timethe pens are sterilized. The process leads to healthier 4.5 Livestock Marketing, UK6calves, which in turn reduces mortality rates and increases (Collaborative chain)growth rates. Finishers raise the calf according to one oftwo types of contract. The first offers a guaranteed price, Overviewsubject to the finished animal’s conformation and health.The second is “share the pain or gain.” Here, a benchmark Driven by the experience and enthusiasm of its founder andprice is agreed, with the processor and producer sharing chain champion, Philip Morgan, the Livestock Marketing(50/50) any differences between the agreed price if market (LM) value chain is a collaborative tri-party productionprices fall below or rise above that benchmark. Finishers and marketing initiative that has allowed its partners tocan make a margin of $136-$160 per animal. The target expand their market share at twice the industry’s averagefinished carcasses weight of 260-270 kilograms is reached rate. Established in 1993, the chain involves three links:by all the cattle within 12-15 months of age. LM, which represents like-minded lamb producers; Waitrose, a national UK retailer with over 200 stores; andSustainability a secondary processor, Dalehead Foods. The primary processor, Randal Parker Foods, is a contracted partner.These arrangements ensure that weaners and finishers A value chain map is included in Appendix 2.receive a group of highly consistent animals. Their agesrange by no more than two to three weeks and their Starting out with 24 farmers, the initiative now includeshealth is guaranteed. As well, the processor’s exposure over 400 producers who supply Waitrose with Welsh,to financial risk is minimized. Key performance indicators British, and organic lamb. John Price, one of those originalare well communicated throughout the chain. Calves and 20 producers, has said that while most producers didproducers are also constantly assessed according to not expect Morgan’s idea to get off the ground becausespecific performance indicators, the results of which are it was so different from their traditional approach, it hasshared at set times during the production period and the evolved into a “brilliant business.” Facilitated by LM, theyear. When the finished animal is slaughtered, the front system has eliminated the need for agents or middlemanhalf goes to McDonald’s, the rear half goes to a major activities, including auctions. This has resulted in aretailer such as Tesco’s, and the preferred primals go to greater ability to actively monitor and share detailedrestaurants. The precise retail marketing stream to which information on the performance of the overall chain, asanimals are targeted depends on the quality of the meat. well as individual members. Meanwhile, accountability isPrime quality is aged for 21 days before being retailed as enforced throughout the entire chain, resulting in improvedpremium quality beef. information exchange, higher and more consistent quality lamb for consumers, and increased profits for all.As with all systems, some farmers consistently do thingswell, and others do not. While Blade Farming actively Strategic Approachworks to prevent freeloaders from being accepted intothe chain, it also works closely with committed producers In establishing the chain, the first stage was to identifyto continually improve performance. Blade Farming has and coordinate like-minded producers who weredeveloped the ability to accurately translate the information interested in supplying lamb to one large retailer throughthat flows from monitoring production programs into an equitable, though strongly governed network. Anyonecontinuous improvements to the entire system. Every unable or unwilling to perform to the expected standards,player in the chain knows what he/she will be doing and or proved insufficiently committed to the initiative, wouldreceiving in a coming year, how their performance will be let go. From the start, members do not pay fees orbe evaluated, and the rewards/penalties to which they sign legally binding contracts. Relationships are insteadwill be exposed if they do not perform as expected. This based on open, proactive communication of standards,is achieved by constantly measuring each individual’s expectations, and performance. Farmers who wish to joinperformance according to scientifically determined KPIs 6 http://www.livestockmarketing.co.uk/; http://www.valuechains.ca/and establishing a cost model that does not take lesser documents/LIVESTOCK%20MARKETING.pdf;performing farmers into account. http://www.valuechains.ca/interactivedvd.htm Characterizing the Determinants of Successful Value Chains 19
  • 20. the LM program must first be recommended by a current percent. Producers in the LM scheme commonly achievemember. a hit rate that exceeds 85 percent of supply.After a sufficient number of lamb producers were The tri-party system works well because of the level andon board, Morgan and the head buyer for Waitrose consistency of the information that is shared. To staynegotiated a pilot a scheme supplying farm-assured focused on providing a consistent supply of good qualityWelsh lamb from late spring through to early winter 1994. lamb to the end consumer, LM and Dalehead meet withSince then, Waitrose has proven its commitment to the Waitrose ahead of each season to produce a scheduleinitiative, aided by the dedication to quality of producers. based on historical and expected demand. LM thenIt continued to pay prices well above normal during the identifies the number of lambs each producer expectscollapse of the open market for lamb due to BSE in 1996 to have available each week and gains a commitmentand, more recently, the foot-and-mouth outbreaks of 2001 from each producer for that number. Once the season isand 2007. Waitrose also regularly provides LM farmers underway, supply and demand are monitored on a rollingwith access to privileged sales and marketing information, basis, as are producers’ actual supplies compared withwhich retailers historically do not share. In another commitments. Variations between expected demand andindustry innovation, LM, in conjunction with Dalehead available supply are factored into Waitrose’s promotionalFoods, directly works with New Zealand producers plans. Dalehead also monitors these numbers, maintainingduring the off-season. Contrary to traditional mindsets, the carcass balance and satisfying both retail andthe two groups (Welsh and New Zealand producers) do foodservice demand. At the end of the season, the farmersnot compete against each another, but rather visit and receive extensive reports on their lambs’ performanceshare insights into innovative production and marketing (supply, quality, and financial breakdown) compared withmethods, which help them to further reduce costs and/or the group average and the leading supplier. This allowsincrease revenue. Working together benefits everyone, as farmers to make informed management decisions acrossthey effectively and efficiently supply Waitrose consumers their entire enterprise.with consistently high-quality lamb all year long. SustainabilityGovernance Integrity, open communication, loyalty, and strongTo build strong working relationships and help the chain governance at all levels of the chain have spawned theengage in informed and meaningful dialogue, LM’s trust that underpins the success of the LM initiative. TheProcurement Manager spends time with new producers, resulting close relationships promote better coordinationdiscussing all aspects of their processes. This includes of the chain, which minimizes the need for costlythe types of farming that they undertake, the systems they inventory, reduces waste, and enables better utilization ofhave in place, their flocks and their expectations. They also the entire carcass. Despite having 30 different breeds ofmeet them in the plant and the abattoir in order to obtain lamb across the group, information provided to producersa greater understanding of the whole system. Special enables them to produce highly consistent lamb. It alsoarrangements allow farmers to visit Waitrose stores to allows them to improve efficiencies and increase revenuelearn about how lamb is handled and merchandized at the in ways that are not feasible for producers who are notretail level. The primary processor, Randall Parker Foods part of such a scheme. This combination of decreased(RPF), provides producers with extensive information on costs and increased revenue translates into significantlyindividual lamb grades and performance. Less regularly, improved profitability for everyone, from producersRPF provides a health status report that allows producers through to Waitrose, the retailer. Processors save by notto further improve production efficiencies. The value of having to dispose of any poor-quality product.this information is illustrated by the fact that the numberof lambs hitting the ”sweet spot,” for which producers Producers also benefit by having greater market securityreceive higher premiums, has continued to increase over and better financial rewards than they would under athe years the scheme has existed. For example, while all traditional supply model. Perhaps the greatest challengeUK retailers have similar lamb specifications, the industry that this type of system faces is that the opportunityaverage for lambs meeting these specifications is 56 to increase production is limited to the volume which20 Characterizing the Determinants of Successful Value Chains
  • 21. the retailer is able to market. Without an appropriate Strategic Approachgovernance structure, tensions could reach the point thatproducers or other members of the value chain might Michael Simonetta, CEO and chain champion, is a keendecide that their best option is to increase their sales observer of international industry trends occurring involumes by taking their product elsewhere and/or by sectors other than fresh produce. He observed thatlooking to develop closer relationships with a competing significant benefits could be achieved by developingvalue chain. strategic relationships with customers and suppliers. Simonetta believed that economic value could be created by more strategically managing the processes involved in4.6 Perfection Fresh, procuring, handling and marketing products throughoutAustralia7 (Coordinated chain) the chain. Value would not just come from the product itself; it would come from implementing and maintainingOverview systems designed to better service customers and provide information to suppliers. It was a difficult strategyPerfection Fresh (PFA) is a family-run business based in to follow; but Simonetta believed that adopting such anSydney, Australia. Established in 1978, PFA developed approach would enable PFA to capture greater value forinto one of 150 commodity-based operators based in itself and its business partners.the Sydney wholesale market competing to sell freshfruits and vegetables to an increasingly small number Through co-innovation, PFA has successfully introducedof large customers. By 1992, from trying to compete on several new varieties to the Australian market. Theyprice versus quality and differentiation, they were close to include Broccolini®, baby broccoli, baby capsicums, andbankruptcy. The Original™ grape tomato. In terms of market share and financial performance, the most successful of theirFollowing a significant change in strategy, PFA evolved products is The Original™ grape tomato, winner of theinto a recognized industry leader that supplies innovative, coveted 2003 SIAL D’Or prize for the World’s Best Newhigh-quality fresh fruit and vegetables, juices, and Fruit and Vegetable. The Original™ grape tomato (OGT)packaged fruit snack packs to supermarkets, independent project succeeded by virtue of a coordinated value chainretailers, fast-food chains such as McDonald’s, and partnership involving seed companies, producers andan expanding number of export markets. As the retail retailers. Every aspect of the value chain was overseensector consolidated, PFA has continued to succeed by PFA staff: research and development; production; foodby working closely with international breeders and safety and quality assurance; packing; logistics; finance;seed companies on ongoing research, developing best administration; sales; export services; customer service;practice processes, and developing high-quality branded and marketing.products. The company offers over 30 branded productsand over 40 general fruit and vegetable lines. In 2009, its Over a period of five years, a long-term strategic relationshipfacilities processed more than 21 million consumer units was established that culminated in the involvement of allof produce a year – the equivalent of 1.6 million cartons. A the participants in a coordinated chain. By replicating thevalue chain map of PFA’s proprietary programs is included lessons learned from the OGT initiative across its entirein Appendix 2. operations, PFA has established closer, more effective links with more than 2,000 producers, and significantly reduced costs across its entire business. Partners such as producers, retailers, food service operators, and seed companies have also become more profitable. Many have developed additional value chain alliances with PFA and other members of industry.7 http://www.perfection.com.au/;http://www.valuechains.ca/documents/PERFECTION%20FRESH.pdf;http://www.valuechains.ca/interactivedvd.htm Characterizing the Determinants of Successful Value Chains 21
  • 22. Governance in group settings. This has led to the development of a uniform culture and proactive communication styleAchieving this new approach, where people and across the value chain partnership. Greater openness andbehaviour are integral to success, allowed PFA to develop transparency at all levels of the value chain lead to fewera governance system that is sufficiently rigid to keep nasty surprises. This has strengthened relationshipsthe company’s entire operations on the same strategic horizontally between hundreds of producers, andpath. The system is sufficiently flexible to motivate the vertically between participants operating at differentpeople involved to challenge one another to continually levels of the chain. It also enables the creation and sharingimprove as a team. The governance model is based on a of knowledge, which empowers everyone to look for newcarrot-and-stick approach. Owning the proprietary rights opportunities to create or capture value, and the ability tofor many of the varieties that it markets enables PFA to continually improve how the system operates.contract specific producers to grow certain varieties, atcertain volumes, at certain times of the year. As well, PFA Sustainabilitydetermines how the products are produced, handled, andprocessed, and ensures that they can only be marketed The PFA example illustrates how a well-managed valuethrough their operations; only products that meet exacting chain differs from a commodity approach. In the widerquality standards appear on the market, and that price produce industry, loyalty among trading partners iscannot be undercut by lesser quality items. minimal and information is protected rather than shared. Poor communication results in missed opportunities,PFA balances the supply and demand by working with unnecessary waste, and higher costs. Taking a systemsmajor retail and foodservice customers to develop rather than functional approach to managing the value12-month rolling forecasts. It then works with seed chain has enabled PFA to exact greater influence andcompanies and producers to develop production control over the overall chain without establishing aschedules that are 20 percent higher than forecasts. bureaucracy which would have stifled performance. ItsThis provides a margin of error and spreads the risk of efforts have strengthened relationships and reducedexperiencing demand spikes that could not be met, or financial uncertainties, in turn facilitating faster, moreexperiencing supply shortages. Combined, consistent effective and commercially significant innovation.prices, effective grading, and market certainty lessenthe likelihood of conflicts occurring at any point along By understanding its customer base and developingthe chain. They also ensure that all participants take an products with partners throughout the chain, PFA isinterest in coordinating their operations in relation to the able to manage resources more effectively. Its strongoverall market demands and the chain’s operations. governance system discourages any member of the chain from exhibiting the opportunistic behaviour commonProducers are paid on quality, and penalized for poor to commodity markets. Such behaviour results in highquality via discounts. If quality is sufficiently poor, their transaction costs that limit the opportunities to extractproduce is rejected. The possibility of having growers economic value from the market. This change in behaviourbecome resentful of their produce being discounted is illustrated by producers consciously acknowledging thator rejected is addressed by using a uniform and widely they need to work together and openly share information incommunicated grading structure that extends across the order to enhance the quality of their produce and increaseentire chain. Daily or weekly written communications are profitability. They no longer compete against each other;supported through end-of-season reporting, along with they compete against other value chains.verbal communications that are commonly delivered22 Characterizing the Determinants of Successful Value Chains
  • 23. 5.0 Comparative Summary5.1 Five Overarching placed different motivators and enablers on the grain industries of Britain and Canada. This has, in turn, ledRequirements to different production and marketing arrangements in Canada versus the UK. It has also helped motivateThe preceding sections highlight five important and enable the emergence of an organization such asrequirements related to effective VCM. The first is that value Openfield, and a chain champion such as Graham Lacey.chains must operate at the business level, not the industry Compared with the Canadian elements of Warburtons’or sector level. VCM is therefore a strategic approach chain, this series of circumstances has enabled andthat can only be adopted through choice by individual motivated the UK elements of Warburtons’ value chainbusinesses. The decision to enter and the ability to sustain to innovate more quickly and attain a greater competitivea closely aligned chain will depend on the attitude of the advantage.participants. The attitudes of the involved individuals willalso determine what they are able to achieve. Attempting The fourth requirement is that partners in a value chainto operate a value chain at a sector level would force the must adhere to a certain set of principles. Success is notchain to accept participants who may be not be motivated determined by how specific value chains operationalize theor capable. Undoubtedly, this would impair the value principles, or the processes used to monitor operationschain’s performance and competitiveness. and enforce management decisions. Livestock Marketing and Blade Farming are both successful red meat chainsThe second requirement is that members of a value chain operating in the UK. They have succeeded by carefullybe motivated and able to adapt, which determines the value monitoring operations designed to reflect strategic goalschain’s competitiveness. Systems have what are termed and objectives. These goals and objectives are basedemergent properties, produced from complementary on known consumer perceptions of value. Through thiselements working in harmony. To ensure that the multiple approach, these companies have developed a governanceelements that together comprise a value chain operate in system that rewards producers for supplying animalsharmony, each chain must possess a governance system that meet market requirements, penalizes producers forthat determines who belongs to the system and their role supplying animals that do not meet market requirements,within the system. Everyone must be motivated to perform and permits the entire chain to reduce costs whereverto pre-determined standards through the regular sharing possible. Yet they have developed different approachesof strategic and operational information. This information is to achieving these outcomes. For example, Livestockused to develop financial rewards or penalties that directly Marketing provides producers with the target for carcassreflect consumers’ perceptions of quality and value. If the composition but lets the producers figure out how toperformance of an organization or individual continually make their lambs reflect the desired attributes. Thefails to meet expectations, clearly defined processes exist company does not take all animals. Blade Farming givesfor expelling them from the system. producers what amounts to a full package of genetics, feed, pharmaceuticals, and expert advice, and thenThe third requirement is that the internal dynamics of constantly monitors the operations. They take all animalsthe value chain and the external environment in which produced within the system, and producers know they willthe chain operates must enhance the chain’s ability to get rewarded according to pre-determined expectations.acquire knowledge and translate it into actionable andmeasurable management decisions. The impact that the The fifth requirement is to avoid evaluating a valueexternal environment can have on a chain by influencing chain by focusing on labels. This is a pointless task. It isits structure, operation, and ultimate competitiveness is important to understand how a value chain is managed,shown by the Warburtons example. Differing regulations the organizations and individuals that comprise the valueand laws related to seed registration, along with wheat chain, and the factors which determine the nature of theproduction and marketing (among other factors), have business relationships that provides the glue which bonds Characterizing the Determinants of Successful Value Chains 23
  • 24. (or fails to bond) the chain together. These factors have collaborative arrangement, while the Canadian elementsthe greatest influence upon the chain’s competitiveness reflect characteristics more akin to a coordinated orand the benefits that members can derive from their cooperative chain. These differences directly influenceparticipation. While it is rare that any chain will neatly fall the opportunities and benefits to which the participantsinto just one of the models described in Section 3, the can aspire, and the risks to which they are exposed.framework presented in Figure 5 and expanded upon inAppendix 1 provides an objective method for assessing The Perfection Fresh example shows that coordinateda value chain’s structure, the factors that determine what chains can also co-innovate by strategically aligningit is able to achieve, and opportunities to improve its operations with like-minded individuals and businessesperformance. located along the value chain. The role that the company’s governance processes play in balancing self-interest with mutual interest, leading to strong interpersonal5.2 Summative Comparison relationships and a willingness to learn through the sharing of information, is described by Tim Linnar, a producerOf the six chains described, Little Potato Company, Blade based in Queensland: “Because you’re not competingFarming, and Livestock Marketing illustrate the above against anyone, you help each other more.… By beingpoints by showing how three collaborative chains have involved with Perfection (Fresh) and the other farmers,implemented a similar set of principles in differing fashion. and knowing that the other farmer can’t grow anymoreIn all cases, the ultimate purpose is to enable the chain and than (Perfection) want you to grow, you feel obliged toits members to capture greater opportunities and reduce help each other.” Like Livestock Marketing, Perfectioncosts by continually improving operations in line with end- Fresh has succeeded by working strategically with othermarket demands. Little Potato Company achieves this members of the value chain to develop relationships thatby working closely with a breeder and taking ownership have let them and their partners learn and adapt. Oneof the proprietary rights of the varieties it decides to example is wholly domestic. The other spans the world,commercialize. The chain’s structure has, in part, been with New Zealand and UK lamb producers learningdetermined by the partners’ willingness to jointly invest in together.physical assets and operations. Blade Farming purchasescalves at 14 days old, contracts calf-rearing to specific As the above factors and examples demonstrate, theproducers, and then sells them to finishers at 14 weeks of most successful value chains succeed by devising,age with a contract to repurchase the cattle when they’ve implementing, and enforcing a structure that reflectsreached specific criteria. A dedicated team of coordinators their core strategic intent (Collins, 2011; Fearne, 2007;manages the chain’s operations. Livestock Marketing sets Egelhof, 1988; Chandler, 1968). A value chain does notthe target to which selected producers must achieve in succeed solely by applying the structure and operationsproducing lamb, uses social constructs rather than written in one of the models mentioned in Section 3. Rather, itcontracts to enforce accountability, and has just one key succeeds because it is well managed, which will becustomer. All of the chains have clearly defined chain thanks largely to the skill, business acumen, and visionchampions who ensure that the businesses that comprise of the chain’s champion; along with the attitudes of thosethe value chain are tightly aligned in their strategic intent involved. As shown by the Canadian pork example, whenand operational management. a value chain fails to reach its potential, the cause is most typically because the partners did not ensure the chain’sThe Warburtons example illustrates the importance that structure and management processes reflected theira combination of factors has on a value chain’s ability target consumers’ perceptions of value. A failed chainto capture value through co-innovation. These factors may also have neglected to apply the same consistentinclude the use of recognized chain champions who strategy with all of its value chain partners. As identifiedpossess a shared vision, the involvement in the chain of by researchers that include Gooch, Felfel and LaPlainonly committed partners who possess a clear commercial (2010) or Stank et al., (2001), this unbalanced treatmentstake in the process, a suitable geographic location, and prevents the chain from working together to reducea regulatory environment that fosters flexible, market- operating costs (as opposed to “low cost”), and canfocused innovation. These factors have led to the English prevent the chain from increasing its revenue growthelement of Warburtons’ value chain evolving into a through continual improvement in product and process24 Characterizing the Determinants of Successful Value Chains
  • 25. (as opposed to partners increasing their own revenue by a high level, differences between value chains and themaking their own products distinct in one-off “hits”). As Federal Value Chain Roundtables. A brief description isidentified by Christopher and Ryals (1999), unbalanced also provided of an Australian initiative that performedtreatment also decreases the chain’s ability to efficiently a similar though expanded role as the Value Chainutilize working capital (versus fixed capital efficiency). Roundtables that have been established in Canada.This report concludes (Section 6.0) by describing, at 6.0 Value Chains vs. Roundtables6.1 Purpose, Potential Impact or no control. VCRTs also provide an opportunity for wider industry stakeholders, including representativesand Outcome from government and industry organizations, to engage businesses in these discussions. Coming together as aThis section presents a high-level comparison of value forum enables businesses and stakeholders to proposechains and value chain roundtables. A value chain is initiatives that can only be implemented at the sector orcomprised of the businesses involved in developing, industry level and that could produce a public good whichproducing, processing, delivering, and marketing a value chains could not achieve by themselves. The dangerproduct or service to the final consumer for private good is that businesses or other stakeholders can use such(EFFP, 2004; Dunne, 2001). Value Chain Management forums to push an agenda that could harm the sector or(VCM) is therefore a strategic-level concept (Bowersox et industries’ long-term competitiveness.al., 1999; Cooper et al., 1997; Mentzer, 2001). The emphasisis on taking a multi-firm focus to creating strategic and The communication that occurs within a value chain willdefensible competitive advantage by maximizing the total be distinctively different from that which occurs withinvalue delivered to end customers and innovating to create, a VCRT context. Value chain communication will bethen capture value more effectively than competitors. As strategic, precise and often confidential. It will also oftenbusiness occurs at the level of individual enterprises, it be driven by the need to find a solution to a commercialis at the enterprise level that value chains operate. The problem or developing the ability to capture a commercialstrategies and processes that commercial enterprises opportunity ahead of competitors. They will therefore beemploy to attain and defend their competitive advantage oriented towards management of a private good. Withwill be influenced by the environment in which they operate. VCRTs occurring at a sector or industry level, where theThis environment will be shaped by factors that include sharing of sensitive information could prove injuriousgovernment policy, legislation, and regulations; along with to the involved businesses’ commercial interests, theindustry culture, attitude, and capabilities. As shown in information communicated will usually be generic inthe descriptions and examples presented in the previous nature. The communication will also be issue-driven andsections, these sector- or industry-level entities will affect focused on producing a public good.the approaches that specific value chains are able and/ormotivated to use to attain competitive advantage. VCRTs have benefitted Canada’s agri-food industry by supporting developments at the industry and sector level.A Value Chain Roundtable (VCRT) is a sector- or industry- These include proposing the formation of the Market Accesslevel entity, with a focus on providing a public good. It Secretariat to help industry secure international markets,8achieves this by giving representatives from businesses developing sector level strategies,9 and commissioningoperating within the numerous value chains (who together research to permit the development of new value-addedcomprise an industry or sector) the chance to voice markets domestically and internationally.10 VCRTs alsoconcerns about challenges that are external to theirbusinesses and limit their competitiveness. These are 8 http://www.ats-sea.agr.gc.ca/rt-tr/be-bo-su-re-eng.htm factors over which, as individuals, they will have little 9 http://www.ats-sea.agr.gc.ca/rt-tr/por-su-re-eng.htm 10 http://www.ats-sea.agr.gc.ca/rt-tr/pl-lg-su-re-eng.htm Characterizing the Determinants of Successful Value Chains 25
  • 26. played a proactive role in the establishment of the Agri- way it is being implemented. It may be that certain policiesSubcommittee on Food Safety.11 The Subcommittee’s or programs facilitate the continuation of adversarialpurpose is to foster collaboration among industry, relationships between agriculture and downstreamgovernment departments, and government agencies elements of the chain. Having factual objective insightsin the development and implementation of food safety would permit discussions that occur at the VCRTs to bepolicies and standards. As VCRTs are caught in forum- firmly based on a clearly identified cause and effect, versuslevel rather than value chain-level deliberations, however, symptoms and assumptions. Having more objectivefew if any of the resulting accomplishments are earth- insights would also lessen the likelihood that stakeholdersshattering. could use the VCRT forums to push an agenda that will harm a sector or industry’s long-term competitiveness.Given that VCRTs were established to provide a strategic Other benefits could include how informed perspectiveslink between government and industry, in theory they lead to more meaningful and sophisticated discussionscould play a more proactive role in developing an on the determinants of competitiveness, in turn fosteringenvironment suited to enabling and motivating the more innovative market-focused mindsets at all levels ofadoption of value chain approaches. For instance, industry and government. Approaches such as these areVCRTs could guide the process of shaping more effective not without precedent, to which the next section attests.Canadian agri-food policies and legislation, leading toincreased competitiveness. More effective policies areneeded, particularly given that commentators have stated 6.2 Australian Consultancythat agricultural and agri-food policies and regulations Programare often out-dated, sometimes before they are evenimplemented. They can also be detrimental to overall An example of initiatives undertaken in other jurisdictionsindustry competitiveness. Research describing the to strengthen industry’s long-term competitiveness is theinjurious impact that policies and regulations can have on National Food Industry Strategy (Australia). NFIS was athe performance of agri-food value chains and industry federally funded, industry-led program designed to providecompetitiveness include Curry (2002), Harris and Rae a blueprint to support the development of a sustainable(2004), Hart (2005), Kerr (1996), Mason (2008), McDermott and profitable Australian food industry.12 The five-yearet al. (2008), Scrimgeour and Sheppard (1998), Tamilia AUS$114-million initiative took a number of approachesand Charlebois (2007). For example, VCRTs could to acquiring an informed perspective on challenges andhelp address current shortcomings related to policy, opportunities facing the Australian agri-food industry. Thelegislation, regulations, or programs by commissioning initiative then utilized the resulting insights to develop aenterprise-level research to identify precisely how the blueprint for how government could more effectively helpcurrent external environment determines the effectiveness businesses and value chains (and, in turn, industries andand efficiency of value chains that together comprise an sectors) increase their long-term competitiveness. Theindustry, a sector, or a sub-sector. program’s strategic direction, research priorities, and connection to commercial industry was provided by aFrom this research, more objective comparisons could National Food Industry Council. Its mandate includedbe made on the impact that the external environment has developing a whole-of-government approach to foodon determining why one chain is more successful than industry issues by integrating the activities of federal andanother chain, or why one sector is more internationally state governments and agencies. The Council comprisedcompetitive than another sector. Generic research results ministers from eight separate portfolios and recognizedwould be shared with industry through awareness and leaders from commercial industry.training efforts, leading to more informed debate in thedevelopment and implementation of more effectivepolicies, legislation, and programs from a value chainperspective. It may be that an issue currently blamed onpolicy or legislation is in fact self-imposed. It may be thatit is not the policy or legislation that is at fault; rather the11 http://www.ats-sea.agr.gc.ca/rt-tr/sa-eng.htm 12 http://www.ats-sea.agr.gc.ca/rt-tr/sa-eng.htm26 Characterizing the Determinants of Successful Value Chains
  • 27. The strategic objective of the NFIS reflected four key A central tenet of the approach taken to developingthemes (NFIS, 2004): a blueprint for growth was the inclusion of a strategic funding initiative designed to increase industry’s value 1. Innovation – leveraging Australia’s science and chain management capabilities. It sought to achieve technology, and education and training by making this by supporting and enabling demonstration projects, Australia a recognized centre for innovation in along with training programs delivered to managers of food product, process, and systems development, commercial businesses. An example of a value chain anticipating and meeting consumer needs, and demonstration project funded by NFIS included a attracting follow-through investment; producer-owned cooperative that processed pineapples 2. Market Development – developing an international and beetroot. Over a three-year period, the cooperative food-market entry strategy that encourages went from losing AUS$20 million to making AUS$30 million Australian exports of food products, helping per annum. Sharing the results with industry through companies optimize profitability, investment, and awareness and training initiatives, the expectation was that employment; this type of effort would strengthen the competitiveness 3. Business Environment – building a globally of Australia’s food industry, first by increasing the range competitive business-operating environment to and depth of management skills, and then encouraging a enhance competitiveness and improved food shift away from the entrenched attitudes and perspectives industry investment; and that typified the agri-food industry. The program also 4. Environmental Sustainability – ensuring long-term focused on supporting the application of technologies resource availability and responsible management not traditionally associated with the agri-food industry. of environment, energy, and waste to support An example included adapting technology developed in industry growth. the mineral sector to allow for the production of flour that possesses unique value-added attributes. NFIS ran for five years and led to changes in government and industry programs, policies, and regulations. Characterizing the Determinants of Successful Value Chains 27
  • 28. 7.0 ConclusionValue chain management (VCM) is more than a theory. the development of an external environment thatIt is a strategic business approach that is helping a supports the development of competitive innovative valuegrowing number of businesses increase their long-term chains. This can only occur if industry and governmentcompetitiveness through means that would be extremely proactively work together to make strategic changes todifficult if not impossible for individual businesses within a policy, legislation, and regulations. Australia’s Nationalfragmented value chain. The primary purpose of this paper Food Industry Strategy was cited as an example of howwas to address misconceptions surrounding the topic of a federal government outside of Canada approached thevalue chains and VCM by providing an informed objective process of facilitating strategic changes at the industryperspective on why value chains operate at the business and business level through research that resulted in morelevel and not at the sector or sub-sector level, and the informed discussions.factors required for effective VCM. A secondary purposewas to provide a basis for more informed and sophisticated Competitiveness and profitability, along with trust anddiscussions to occur on developing initiatives that could commitment, result from the attitudes and motivationslead to a more competitive and profitable Canadian agri- possessed by the participants in a value chain.food industry. Conceptually, VCM is not a difficult topic to grasp. It can, however, be a difficult road to follow, particularly for anAs value chains operate at the business level, the paper industry in which adversarial relationships are common.also illustrated that a clear delineation exists between With this in mind, efforts focused on encouraging thevalue chains (and their management) and Value Chain adoption of VCM practices must acknowledge the roleRoundtables (VCRT). As the performance of value that education and training play in changing the mindschains can be positively and negatively affected by the of managers from commercial industry, as well as thoseexternal environment in which they operate, VCRTs can of government employees, industry organizations, andplay a meaningful role in fostering communication and politicians.innovation at the industry or sector level by encouraging28 Characterizing the Determinants of Successful Value Chains
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  • 32. Appendix 1: Value Chain Models Chain Structure Characteristics Fragmented Cooperative Coordinated Collaborative Strategic Factors Each members’ strategic Self interest Self interest, mutual benefit Mixed interest, Mutual interest, mutual orientation self benefit benefit Primary focus of chain’s Poorly defined short term, Reasonably defined Well defined medium Well defined long- term, strategic intent sector level opportunities medium- term, business to long- term, business business opportunities opportunities opportunities Extent to which value Not unless accidental To a limited degree Closely, regularly Extensive, regularly chains’ and businesses’ evaluated in relation to monitored in relation to strategies are aligned specific goals specific goals Incidence of shared Almost non existent Limited to operational side Yes: more on operational Yes: focused equally on vision of business side than strategy strategy and operations Economic relationship to Business occurs in an External forces have Business environment Chain forms economic the wider industry environment shaped greatest impact on shaping shaped equally by internal environment in which largely by external forces business environment / external forces business occurs Most important Traditional business model, Provides opportunity to Enables cost reductions Enables co-innovation, benefit no new skills required learn/adapt with little risk and revenue gain unique strengths Most limiting factor Limited ability to sustain Limited benefit compared Relies on involving only High risk to those without competitive advantage to coordinated / like-minded partners sufficient VCM experience collaborative Greatest strength Market savvy Able to seek opportunities Able to act on Able to innovate / act opportunities quickly Greatest weakness Slow to innovate, defensive Innovation occurs in silos Somewhat limited ability to Reliant on a few innovate customers Governance Arrangements Commercial Antagonistic Restrained Limited accountability Mutually accountability relationships Defined members each Unsolicited members with Solicited members with Clearly defined, Clearly defined, with clear roles and often ambiguous roles reasonably defined role performance info usually performance info always responsibilities shared with others shared with others Existence of a chain No Perhaps, most often not Usually clearly defined Defined and articulated champion Primary approach to Dominate others Inclusion when Inclusion of preferred Inclusion of committed governance with/over appropriate, dominate others; negotiate, enforce partners; negotiate, third parties when necessary enforce Relationship between Dominance, often with Restrained domination Positively use power to Positively use power to most and least powerful injurious effect on others influence and empower influence and empower members Presence of trust and Little existence of either Limited existence of either Considerable existence Extensive existence of commitment of both both Management control Centralized decision Decentred decision Irregular cooperative Mix of regular centralized systems making, centralized making, centralized strategic decision making, and collaborative strategic problem solving problem solving some local problem decision making, localized solving problem solving32 Characterizing the Determinants of Successful Value Chains
  • 33. Basis of contractual Wide use of legally binding Wide use of legally binding Legally binding written Social contractsarrangements, and written agreements written agreements contracts, aided by social form primary basis ofthe source of greatest contracts relationshipstrengthMechanisms to prevent Little to none Limited Usually significant Always extensivefreeloadingLikely influence of Reasonably common Reasonably common In specific circumstances Rarelyregulations or legislationto perpetuating structureFinancialOwnership structure Within physical boundary Within physical boundary May have joint ownership, Often jointly own of individual business of individual business usually in delivering service provider and/or services infrastructureFinancial focus, basis of Maximize own profitability Enhance own profits Increase own profits first Protect/increase profitsnegotiationBasis of incentive Focused on the individual Focused on the individual Largely focused on the Consciously reflectstructures individual, may reflect consumer value elements of group based contributed by group, with incentive structures individual accountabilityPrimary method of Short-term focus, seek to Limit catastrophic risk Medium-term focus, Long-term focus;mitigating risk pass risk onto third parties through using preferred try to ensure correct regularly monitor, ensure suppliers accountability accountabilityCommunicationRegularity of Individual transaction Over multiple transactions Primarily regular reporting Regular reportingcommunicationNature of Short-term; often untimely Short to medium-term; Short to medium- term; Short, medium and long-communication and inaccurate, limited often untimely, limited usually timely, accurate, term; timely, accurate, details details detailed detailedKey attitudinal Primary focus is towards Work closely with others Each member views itself Each member viewscharacteristic own operations and as part of interrelated itself as part of aligned personal gain system interlinked systemApproach to interacting Assign blame, largely Seek solutions with limited Seek solutions with some Vigorously find truewith others when managing symptoms vigour, limited ability to vigour, limited ability to cause, solve, learn,problem solving apply apply adapt, monitorKey factor sustaining Ability to trade Able to use others’ skills Ability to learn and Ability to learn as achain to enhance own trading influence others through system, then act on new ability emotional intelligence knowledgeAbility to proactively Limited. Innovation often Limited. Most innovation Reasonable. Most likely to Extensive. Create valueinnovate in relation to driven or enabled by relies on external sources adapt others’ innovation through adapting ownconsumer demands external factors to reduce costs, increase and others’ innovation in margin numerous waysOperationsPrimary focus of chain’s Immediate Customer’s customers Customers and consumers Target consumersoperations customer (to a degree)Number of customers Many customers, moderate Many customers, range Fewer customers, range A few importantand suppliers importance; many in importance; many in importance; fewer customers; often few suppliers suppliers suppliers suppliersFlexibility: ability to Cumbersome. Level of Reasonably cumbersome, Reasonably extensive, Extensive, often enabledproactively adapt to agility dictated by others adaptive capabilities often enabled by distinct by unique skill setsmarket fluctuations skill setsLevel of technological Basic, transactional Usually basic, transactional Moderate Moderate to extensiveintegration Performance measures Mainly subjective Limited objectivity Subjective and objective Objective, consumer- driven Characterizing the Determinants of Successful Value Chains 33
  • 34. Appendix 2: Value Chain Maps b) Atlantic Pork a) Little Potato Company Second Tier  Foodservice Retailers Distributor First Tier  Distribution Retailers Seed Breeders Producers Processor LPC Hog Producers Storage &  Retail Logistics In Animal Feed  pu Manufacturer t S up pl ie rs Grain Producer c) Warburtons Independent  Retailers Retailer A Distributor Retailer B Food Service Warburtons Shipping Varietal Testing &  Miller Development Marketing & Open  Logistics Elevators Fields Warburtons Production Brandon QA Facilities Growers Seed Breeders34 Characterizing the Determinants of Successful Value Chains
  • 35. d) Livestock Marketing Waitrose NZ Producers NZ Meat  Retail Packers Distributor UK Dalehead Producers Processor RPFe) Blade Farming f) Perfection Fresh Food Service Retailers Corporate  Retailers Distributor Independent  Food Service Retailers Perfection  RHM – Processor Fresh Wider Producer  WIder Seed  Base Industry First Tier  First Tier  Seed Breeder Producers Finishers Blade  Unique  Service  Farming Calf  Knowledge Providers Rearers Dairy Producers Characterizing the Determinants of Successful Value Chains 35
  • 36. 36 Characterizing the Determinants of Successful Value Chains