By Robert Hickson 13/03/2016 2


I can’t help thinking whether Fonterra, and NZ’s dairy industry, would be in a better position now if they’d devoted some (more) resources to strategic foresight. They may have, but it isn’t evident so far.

What is “strategic foresight”, and what, if anything, is it good for?

Strategic foresight, which is being used increasingly now in the private sector rather than simply “futures”, is about linking foresight activities (scanning for trends and weak signals, scenarios, visioning exercises, etc) with strategy formulation and execution.

Strategic foresight needs to ask and answer the “So what?” questions, and identify actions to address anticipated challenges and opportunities. The organisation then deliberatively chooses to undertake them, or not.

A key factor is that the foresight activities should be systematic and utilize good methods and processes, so you don’t just focus on what you think is going to happen.

Fonterra’s been criticized the past few weeks for it’s poor forecasting of milk payouts. We hear that it’s a commodity market that inevitably has cyclical peaks and troughs, but that with some waiting and pain better days will be back again.

This isn’t the same as the magical thinking employed by Solid Energy over coal prices.But it doesn’t give the impression that the company has a cunning plan for managing through this and subsequent crises.

Fonterra isn’t blind to the challenges. It is investing in developing new products. But this takes time. And other dairy producers will probably be looking at similar transformations, so it still needs to develop other strategic edges.

Dairy NZ did look at scenarios back in 2002. These focused on what farmers thought dairy farming would be like in 2012, rather than the global dairy production and marketing system.

What I’m thinking about is along the lines of the approach that Shell started decades ago. While different in products, scope and scale, both are involved in the extraction, refining and distribution of commodity products internationally, competing with other big producers.

As Wilkinson & Kupers describe Shell used scenarios to varying degrees of effectiveness, but the approach did allow it to anticipate and respond quickly to some changes quicker than some of it’s competitors.

At Shell and elsewhere, scenarios have helped leaders prepare for futures that might happen, rather than the future they would like to create.

 

Keith Woodford has described the strategic challenges that Fonterra is facing, and notes the additional challenges its organisational and financial structures creates. He doesn’t see an easy way out for the cooperative.

It certainly isn’t easy, but I imagine that some good strategic foresight would have helped inform discussions about the implications of the Trading Amongst Farmers scheme, increasing production, the risks of milk over supply, and potential strategies of competitors.

Rohrbeck & Schwarz surveyed foresight activity in a range of large companies around the world. They identified four key benefits from employing foresight:

  • an enhanced capacity to perceive change,
  • an enhanced capacity to interpret and respond to change,
  • influencing other actors, and
  • an enhanced capacity for organisational learning

Not all companies achieved all of these, or fully realised even the first.

However, companies (and some governments) are seeing benefits in developing such skills and working to improve them, and the building the capability of management teams to embrace them.

These seem to be skills and capabilities that Fonterra and other NZ-based (aspiring) global companies should be thinking about too.


2 Responses to “Fonterra and foresight”

  • It seems to me unlikely that a company working in a global commodity market would not be doing informed crystal ball gazing, although it appears Fonterra hasn’t, or perhaps they have yet again applied woeful comms to the need to disseminate the information to their suppliers, ie the farmer. That said, it is concerning that rural banks were so happy to lend money to dairy farmers in a time of boom. What were they thinking? Didn’t the banks have their own understanding of what follows a boom trading period? As an aside, Fonterra was set up to create a central organisation that could invest money in developing new products. Fifteen or so years down the track, where are the genuinely new products, that will dilute the reliance on commodity products?

    • Undoubtedly they would have done some crystal ball gazing, but the issue is how well they did it. I know that a few years ago they were only prepared to pay a low price for some futures work.