Think of the companies that have been blindsided by change — Montgomery Ward, Polaroid, IBM, small-scale broiler producers and the list goes on. Increasingly, the changes and trends in the general business world impact the dairy industry.
In order to avoid being blindsided, strive to understand the changing business environment and how it affects not only your dairy business, but also the entire dairy food chain. Consider these seven points:
1.The rate of change is accelerating. Today, 95 percent of Sun Microsystems’ revenue comes from computer software products not commercially available just 18 months ago. It is estimated that 80 percent of the technology that we will use daily just 10 years from now has not been invented yet. And, as astounding as it may seem, the rate of change will increase.
That means, in order to thrive, businesses must change and re-invent themselves and their products.
2. Computer and communications technology continues to explode. Computer processing power doubles every 18 months, and that rate is expected to continue for at least another decade. Bandwidth, or communication power, increases three times as fast, doubling every six months.
3. Concentration and coordination will increase. Increased business size and market share associated with concentration is evident everywhere you look. For example, the total market share — not just food sales — of the 10 largest U.S. supermarkets increased from 33 percent to 45 percent between 1995 to 1999. And, their total market share is expected to increase to at least 55 by 2004.
Recent USDA data show that the percentage of U.S. milk production from herds over 500 cows increased from 27 percent to 37 percent in only four years.
More significant to dairy producers is the movement toward increased coordination through production contracts. While only occurring in a few areas right now, in the future milk will increasingly be produced under a contract that specifies quantity, price and quality parameters.
4. Recruiting and retaining the best people will become more difficult. People are the most important asset of every business. To remain competitive, businesses will have to develop and utilize all of the capabilities of all personnel in their business (empowerment). In addition, in order to attract and retain employees, businesses must become preferred employers.
5. Businesses must operate in real time. This means that data on production, marketing, financial performance, customer purchases and personnel performance are recorded, analyzed and can be retrieved immediately. Increases computer and communication capacity enables businesses to make real-time production, marketing, customer and personnel decisions. Improvements in food safety, biosecurity, animal disease prevention, and machinery and equipment maintenance will require real-time systems on dairy farms.
6. Understanding your customer will become more crucial. Today, the customer is in control. She decides what attributes she is seeking — price, convenience, healthfulness, safety, and environmental friendliness — and then purchases products that possess those attributes.
The dairy industry needs to emphasize these attributes in the production and marketing channels.
Convenience is important to the consumer. But only recently has milk been sold in round, plastic containers that fit in automobile cup holders. Increasingly, food safety and “friendly” production systems have become more important to the consumer. To remain competitive, all businesses will have to focus on the customer.
7. Think outside the box.The best way to avoid being blindsided is to eliminate all restrictions on recognizing and responding to changes that impact your industry. Maintaining and increasing diversity in all dimensions is critical. A business culture that encourages creativity and innovation — and views failure as an opportunity to learn — is a must. Your future success depends on it.
Bob Milligan is a senior dairy consultant with Dairy Strategies LLC, and a former professor at Cornell University.