Agribusiness: The value-added approach

Hamish Gow, Professor of Agribusiness at Massey University.

Three key strategic disciplines will create more product value, writes Hamish Gow.

There is a lot of confusion around the call to take a more value-added approach to the marketing of agricultural products.

What does added value really mean? Are we not already adding value to our products? How do we evaluate value?

Discussions about the restructuring of the dairy and meat industries have shown the need for a simple framework to understand and evaluate different firms' strategic market position and how they create value.

Without a simple conceptual model that everyone understands, people talk at cross purposes and meetings end with more confusion and frustration than when they began.

So how should we start to understand and evaluate the strategic market positioning of a firm and how it creates value?

After much trial and error, I've found that Treacy and Wiersema's Value Disciplines framework provides some good guidance.

They argue there are three core strategic disciplines that companies can follow for creating value: operational excellence, product leadership and customer intimacy.

For companies to add value to their products in a sustainable way, they need to excel at one of these value disciplines with strong support from the others.

Here's some examples.

The Talleys Group is one New Zealand agribusiness that has adopted an operational excellence approach to value creation. All its divisions are known for being competitive price leaders that deliver standardised products with outstanding efficiency.

They create value by stripping out the supply chain fat, leveraging competitive market-based procurement processes, delivering to exact specification, and only investing in what is absolutely necessary.

As a result of their model, they can deliver fair and competitive market prices to farmers based on standard market relationships. This clear and simple marketing relationship requires no capital investment by farmers and allows them to focus their scarce resources (land, time and capital) on what they know and can control best -- farming.

Zespri is an exemplar of a product leadership approach to value creation. Its business model, brand and market positioning strategy is tightly aligned to two key products: green and gold kiwifruit.

To ensure that they can create sustainable value, Zespri has undertaken a channel captain's role, co-ordinating research and development, production, quality assurance, supply chain management, category management, distribution and branding to ensure that everyone's programmes (from farmer to retailer) are aligned to deliver consumers a superior branded product that always performs to expectations.

Although the model has come under attack from some individuals, I would argue that the successful transition to SunGold after the arrival of the PSA disease in New Zealand positively reinforces the continued use of this value discipline approach for the kiwifruit industry.

Then there is John Brakenridge and the New Zealand Merino Company who have taken a customer intimacy approach to create value. The company has created a two-sided platform that links individual merino growers, such as Jack and Kate Cocks at Mt Nicholas Station, directly with branded clothing retailers and manufacturers like Icebreaker.

For companies to add value to their products in a sustainable way, they need to excel at one of these value disciplines with strong support from the others.

Hamish Gow

The platform solution offers each brand a customisded suite of programmes that can be packaged in a win-win manner to assist each brand to deliver their desired outcomes for their target consumers. The farmer is no longer just a merino grower, but a brand partner.

For many growers this has been a significant mindset change as their long-term success is now tightly connected with their brand partner's success. This is a value discipline alignment that some farmers want and others do not. But if you want to play in this space there is no halfway house -- it's all in, or nothing.

So what does this all mean?

As a member of any agrifood value chain, you need to know the strategic value discipline of your marketing channel. Does it align with the strategic market positioning of your enterprise? If not, you will need to find a new marketing channel that does.

On an industry level, some sectors are lucky because their leadership have strategically positioned them with the appropriate value discipline and then built an appropriate operational structure around it.

However other sectors are not so lucky, with groups still fighting over how to make the wrong thing right by restructuring, rather than doing the right thing right.

That means getting the strategic market positioning and value discipline correct, then allowing the structure to follow.

Hamish Gow is Professor of Agribusiness at Massey University.