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EXAMINE GROWTH STRATEGIES

Analysis integral to future growth of processors large and small

As Seen In Dairyfield Magazine, July 2000 issue - Special Edition “Top 100 Dairies”, Page 38

By Dick Albu, President, Albu Consulting.

Is it time to rethink your growth strategy? Your dairy operation has experienced steady growth for many years. Profits have also been growing steadily. You are prudent in managing the business. You are conscientious about managing costs and improving productivity. These activities have played an important role in maintaining competitive pricing without sacrificing profits.
But recently, your sales have flattened or are in decline. New sales initiatives are not returning the same income as before. The results of your cost compression activities are reaping fewer benefits.
What’s happening? Why weren’t you able to see this coming? Was there something more that you could have done? Is it too late to step back and consider your options? What signs would have alerted you of this problem sooner? What next?
Although CEO’s are constantly challenging the direction and vision of their companies, in the hectic day-to-day running of a business, it is sometimes difficult to recognize internal and external trends that can cause the company’s sales and earnings to slump. This is particularly true for companies that have experienced consistent growth over the long term. A certain overconfident optimism can set in and as a result, problem recognition comes too late. The more you can sensitize yourself to some well defined warning signs that are appropriate to the dairy industry, the earlier you can begin to address key issues.
Every industry has its own unique characteristics and the dairy industry is no exception, and it would be somewhat presumptuous to suggest that our list could serve everyone. However, the more aware you become to certain key indicators, the better prepared you will be to take action before problems arise. Consider the following list as a starting point in developing your own criteria that will alert you that it’s time to rethink your growth strategy.

1. Change in industry structure – Find out how your successful competitors go about selling. What are they doing differently? Be alert to customer and competitor strategies that could affect the way you go to market. Stay in tune with the trends occurring in your industry. Join dairy associations, and network with other dairy industry executives and consultants. Rethinking your growth strategy can help you get a jump on your competition.

As an example, the dairy industry is consolidating rapidly. At the same time the retail food industry is also consolidating. These larger retail-buying groups are searching for ways to become more efficient and profitable. Retailers are demanding more and getting more from their dairy products suppliers, who in turn, are scrambling to meet these demands. Large national dairy companies like Dean, Suiza and Kraft, have an advantage over middle-market and regional dairy processors with fewer resources. Second tier dairy processors, however, are responding to retailer demands by restructuring their sales organizations to form partnerships with their most important customers.

2. Margin erosion – Margin erosion due to increased competition is an inevitable business cycle in almost every industry. As same type product categories grow, over time the number of competitors increase, forcing prices down. One way to stay ahead of the curve is to implement cost compression programs, which should be an on going effort in every well run business. Cost reduction programs must be addressed at every level of the organization and should be a part of the day-to-day running of the business. Being a low cost producer is a competitive advantage that is essential to survival in the dairy business.
However, cost-cutting programs do have limits. At some point in the life cycle of a business, the number of cost reduction programs will diminish and the return on investment will shrink. This critical point in a company’s life cycle needs to be defined well before internal cost saving opportunities begins to dry up.
Identify alternative growth initiatives that will improve the cost structure. As an example, a mid-sized dairy processor was experiencing significant price competition on the company’s core product lines. This competitive environment had significantly reduced margins and most major cost cutting opportunities had been acted upon. In a reexamination of the company’s growth strategy, management chose to develop and introduce a new line of value added products with higher gross margins. The company’s resources were reallocated to support the diversification strategy, and over time, sales of the new product lines grew, increasing earnings and revitalizing top line growth.

3. Flat or declining sales – Companies that have experienced rapid growth over long periods and suddenly “hit a wall” must quickly rethink their growth strategy. The reality is that every company will need to reinvent itself periodically. When sales and profits are no longer responding to past techniques, dramatic changes must be considered.
How often have we read about the turnaround artist that completely overhauled a company by divesting declining core businesses and focusing on growth areas? Jack Welch at GE is a perfect example. Welch reinvented GE from a slumbering giant bureaucracy of 350 businesses into a dynamic organization of 12 businesses. Today, GE is one of the largest and most successful organizations in the world. Success depends on having the courage to take bold action to pull the organization out of its slump.

4. Dated products or services– Determine whether your product line is outdated. Are you falling behind the industry? How aware are you of new consumer trends driving new dairy products. Attend trade show. Listen to your salesforce and customers. Assess what your competitors are doing and the types of new products they are introducing. Actively consider changing and improving your product characteristics and develop new product programs.
In today’s fast paced dairy industry, speed to market is a critical success factor. And developing new products takes time. Be sure to follow growth trends, and when possible, be the innovator. Dean Foods’ Chugs is a great example of how packaging innovation applied to a traditional beverage has changed the way consumer think about milk. Implement growth strategy planning that will challenge and energize your management team to find new ways to improve and innovate.

5. Employee skills plateau– Sometime problems can be the result of something very close to home. Your own people may not be capable of taking your organization to the next level of growth. Not that they lack energy or enthusiasm. Rather, it is usually a lack of breadth of experience. As companies grow, the need for broader experience and expertise becomes greater. Homegrown employees are valuable assets, however, there will come a time when they will either need more training or someone with broader experience to lead them. This problem is not necessarily one that can be easily identified. And, unfortunately, it often is discovered only after sales and profits are in a slump.
A growth strategy planning process will take inventory of the employees who will be responsible for implementing growth initiatives. A basic understanding of the strengths and weaknesses of the management team is essential. Having the right people in place, with the skills and experience required to implement the plan, will make the difference between success and a mediocre performance.

6. Lack of focus – As companies grow, they are presented with a greater number of opportunities, and sometimes those opportunities do not fit strategically in the company’s core competencies. New ideas often outstrip the available resources. Chasing too many opportunities at once will dilute the company’s ability to focus resources on those growth initiatives that will result in the greatest reward.
A growth strategy plan will refocus the organization, eliminating opportunistic programs that return little, and focus resources on those strategic initiatives that will create the greatest value for the organization.

7. Static approach to growth planning – The growth strategy plan needs to be a “work in progress” document. It is a “living” document that the CEO is responsible for reviewing, managing and updating as often as necessary, and certainly more than once a year. The vision and growth goals may not change, but growth strategies and tactics will need to be examined and adapted to the internal and external pressures surrounding the organization.
Goals are not simply extensions of the annual plan. Strategy is not static or rigid – it is dynamic! Consider whether you need to reenergize your growth strategy planning process with your key managers.

8. Lack of creativity – Although sometimes difficult to admit, there may be a time when you and your management team are too close to the business and find it hard to define the direction that will take the organization to the next level. Consider employing a qualified outside resource to help expand your strategic thinking, challenge the status quo, enhance your creativity and bring clarity and enthusiasm back to the strategic planning process.

Link to other articles:
"All the Right Moves"
"Is Your Strategy at Risk?"