Dutch Organic Food Cooperatives: Strategic Management - Case Study Example

Running Header: Case Study Report Surname: First Names: Student Number: Institution: Course Number: Course Name: Assignment Due Date: Title Case Study Report Dutch Organic Food Cooperatives Table of Contents Table of Contents 3 Introduction 3 The external and internal Environment 5 Performance management systems 18 Employee training and development 18 Research and development 19 Introduction Several scenarios have led to the increased demand for strategic management. This is because many organizations are faced with tough competition from the rivals and consequently difficulties in developing themselves. The competitive nature of the market has been motivated with the evolvement of modern technology which has made the process of strategizing the company business very easy. With this trend therefore, it means that it’s only those who are good players will survive the competition that is experienced world over. Advanced communication technology has been identified as one of the important strategy that a company can use in the global business to communicate with its customers, stakeholders and other business partners. The word strategy has been a very complex terminology to define as different literature present it differently. However, according to Harrison and John (2009), strategy is referred to as “a tool that can be developed by the business in order to create specific skills and capabilities that can be used to achieve a competitive advantage in the market.” At the market place, strategies are used to make profits in the long-term. In order to develop good strategies for the business, there is need to understand the market environment in which the company operates as one way of generating good strategies over the rivals. According to (Johnson, et al 2005), the term strategy can be interpreted in five different ways which include: plan, ploy, perspective, pattern and position. In summary, the term strategy may defined as a “ as the step or direction taken by the organization in order to achieve both its short-term and long-term goals by employing the available company resources to meet the ever changing demands in the market by fulfilling the customer and stakeholder demands” (Chavan, 2009). In general terms, for a company to succeed in the competitive environment, there is need to continuously engage in strategic planning. The objective of this report is to critically analyze the strategic challenges that are currently facing the Dutch Organic Food Cooperatives at the market. The report will do a thorough analysis of the Cooperative’s external environment and its internal strategies in relation to the customers and the industry stakeholders. The report will also look into the goals that should be outlined by the company. Finally, the paper will pose various recommendations and strategies specific to this business environment. The external and internal Environment The process of assessing the external and internal environment is an important step for any business towards achieving high level of level of strategic management. The analysis of the company’s operating environment is an important for understanding the company’s current situation. Analysis of the internal situation of the company is always aimed at determining the strength and weaknesses that will affect the business in executing its predetermined strategies (Harrison and John 2009). On the other hand, external analysis, involves the assessing of the opportunities and threats that are presented by the business environment. However, the main difference in the two scenarios that is the internal business analysis and the external environment is the level of control the business has over them. A. External environment PEST analysis is the commonly used method for analyzing the company’s external environment. The PEST framework is composed of four main factors that are external and that can affect the business’s operations at the market place. The four factors are: political, economic, social and technological factors. The external analysis is done by assessing the impact of each of the four factors to the Cooperative Organic Food Markets in the Netherlands. Analysis The Cooperative Organic Food Markets in the Netherlands are affected by all the PEST factors that have been identified above. These factors are considered very essential for the industry since in one way or the other they have continued to affect the overall performance of the business (Meulenberg 2000). For one, the political environment has been witnessed to be a major factor in this sector since the government of the Netherlands for many years has been on the forefront in supporting agricultural enterprises in order to convert them into organic food production. This has been necessitated by the fact that there increased demand for organic consumption. Therefore it is evident to say that the Organic Food sector in the Netherlands is greatly influenced by the government policy which is aimed at motivating organic consumption as well as organic production. The government of Netherland through the ministry of agriculture is intended at increasing the production and consumption of organic foods to reach 10% of the total country’s production and consumption. The government policy has been considered as the major cause of political influence in the sector. Important to note is that, the government policy is also expected to influence the economic policies such as pricing and funding that will directly impact on the sector. Since the government of Netherland has been funding agricultural enterprises, it has continued to impact on the cost of production which consequently influences the price trends of such products at the market. This is because the cost of production is subsidized both trough funding by the government and innovation of new production technologies. The economic factors are also witnessed by the government’s control of farming lands and the process of acquiring land for farming. The government policy allows for agricultural enterprises to combine their resources in order to purchase land for their farming. This means that low income earners and households can come together and get government funding to purchase land and enterprise. The policy has enhanced competition for the market whereby small agricultural enterprises have embarked on organic production something the cooperatives are yet to do. In addition to this, the standards of living are higher in Netherland given that the country is a developed economy and many households can afford organic foods. In terms of social factor, the country’s population is relatively higher and that the market for organic food is readily available. This is because of the lifestyle of the indigenous. This means that there is persistent need for the Organic Food Cooperatives to change their strategy in order to move from agricultural production to organic production. This is because many people prefer organic food more than other types of foods. Given the fact that many agricultural enterprises are being funded by the government, then it means the competition for the cooperatives at market place is becoming stiffer since many of them are able to apply modern technology to support their production. Modern food preservation methods through new technologies has helped many agricultural enterprises to dominate the market thus posing a great challenge to the cooperatives in the country which for many years have been dominating the market not only in Netherland but also in entire Europe through agricultural production. Porter’s five forces model In addition to the PEST analysis, the Porter’s Five Forces Model could also form a good basis for assessing the market environment for Organic Food in the Netherlands operates. This model has identified five main forces that influence the market and they include: entry of competitors, threat of substitutes, bargaining powers of the buyers, bargaining powers of the suppliers as well as the rivalry among key players in the market. This model best explains how businesses can maximize profits rather than locating excess profits. However, considering the case of Organic Food Cooperatives in the Netherlands, it is evident that the market has been predominantly based on agricultural production and it has never been demand oriented for many years. With the introduction of the production policy government as stipulated in the “Plan of Action 1997‐2000”, it is now clear that many farmers are now moving from intensive agricultural production to organic production. The challenge for the cooperative is how to behave and succeed in the organic food market. On the other hand, the government’s support for agricultural enterprises towards organic production has been considered as a threat to the market. This is because the many farmers are converting into organic food production and they are now competing against the cooperatives. The conversion of several agricultural producers into organic producers implies that the cooperatives have the competitors to deal with at the market place (Aaker 2001). For many years the country has been oriented with agricultural production without taking into consideration the available demand. This has been a distinguishing feature for the cooperatives. This means that the cooperative for decades has never appreciated the importance of converting into organic production and consumption. But now with the conversion of many farmers into organic producers, for the cooperative, it means that there are more substitutes than ever before. These substitutes are even cheaper than those produced by the cooperative. Given the market environment which is now dominated with a variety of organic foods, it’s now clear that it’s the consumers who have the power to bargain at the market place. This is because there are many farmers in the market alongside the cooperative where they can choose from. This means that the producers have no much control on the market trends but rather move the direction of the consumers. Finally, with high number of players in the market, rivalry among the producers is reduced since no farmer is competing with any other single producer but the entire market players. This therefore means that the cooperative has to come up with a strategy will neutralize rivalry with other competitors. B. Internal environment In the recent past, the organic farming systems in Netherland have attracted a lot of attention from different cooperatives. This is because the systems have had a lot of political support since apart from being environmental friendly; they are also able to ensure that the country is safe in terms of food throughout. This step has been taken by the government as away of addressing both food and environmental challenges. Because of the government support, the cooperative if they choose to become organic production and consumer oriented, they are assured of the political support in terms of funding from the government something will enable them to develop their capacity towards quality and efficiency as well reorientation towards consumer oriented production. The cooperative is also supported by the EC Reg. 2078/92 which is a 1992 European CAP for reform on organic food production. It is important to note that many Dutch cooperatives have managed to recognize the importance of specialization and concentration towards realizing efficiency. This way the cooperative has persistently continued to ensure high stability of income over years. The efficiency strategy has also been used by the cooperative to improve their performance. This has also been motivated by the development of the EU framework which has promoted good relationships within the market. This trend has enabled the Dutch cooperatives to heavily invest in new technology for maximum production (Baourakis, et al 2002). At the moment the Dutch cooperatives are involved in the sector’s production and marketing and therefore they have managed to develop the supervisory organizations that oversee the quality and origin of their produce. This for many years has remained the cooperatives’ internal strength in organic food production. In addition to this, the Dutch cooperatives through the ministry of agriculture’s enactment, has managed to come up with mechanisms that are being used to ensure they are on top in terms of quality. The appointment SKAL organization was aimed at ensuring that there was continuous inspection on the processes used to manufacture and market organic foods. The role of SKAL was to certify that all production, processes and trading conditions have been met by the cooperatives. This has remained strength for many of the Dutch cooperatives in attaining high levels of quality in the whole of European market. This development has seen the Dutch cooperative bear very strong brands at the market. This is because all their certified organic foods are branded. All organic products are labeled EKO while the organically grown vegetables are labeled DEMETER. This strategy has been incredible for the organic products manufactured and processed by the Dutch Cooperatives. The Dutch cooperatives apart from developing a very strong brand both locally and internationally, they have also managed to establish specialized retail shops across Europe and other parts of the world to make the process of reaching the customer easier. Apart from using the specialized retail shops, the cooperatives have managed to establish good relationships with major supermarkets in Europe such as Albert Heijn and AH Biologish to market their organic foods. Use of retail shops and supermarkets has been applied the cooperatives to ensure that the products reach the market while fresh. However, regardless of all internal strengths, the Dutch cooperatives are being faced with criticisms from the customer about their prices. This is because many of the customers are of the view that Dutch organically produced foods are the most expensive in the market. Summary of the environmental analysis The application of the SWOT analysis was a very important tool for summarizing the cooperatives’ influential factors. The term SWOT is an acronym for Strength, Weakness, Opportunities and Threats. Therefore this framework is a method used to briefly describe the cooperatives’ internal strengths and weaknesses against their opportunities and threats. Distinctive for these factors is that, ‘strengths and weaknesses’ are from the business side, while the ‘opportunities and threats’ generates from the external environment under which the business operates. According to Gregory (2000), these factors are important in developing the business missions, objectives and strategies. Strengths Strong reputation Developing of good public image High recognition of customer demands Motivated staff Highly skilled labor force High innovative strategies and technologies Strong regional presence Strong financial background Good customer relationships Focused mission and vision Transparency and accountability Weaknesses Inadequate Lack of enough farming fields Opportunities • There are viewer competitors at the market, • Ever growing demand, • increased population both locally and internationally, • Adaptable fields to new farming technologies, • Development of partnerships with major business dealers and supermarkets. Threats • Complexity of customer needs, • emerging of new competitors, • Losing staff through turnover, retirements and maternity leaves • changing tastes and versions • Increasing land cost and firm inputs, • Change of state laws, • Failure to meet all customer demands, • Low income in some quarters, • Environment impact, • High cost of accessing funding, • Economic downturn, • Deflation, Strategic issues Strategic issues are determined by the business stakeholders’ concerns. With this regard it is therefore important to identify the major stakeholders for the Dutch cooperatives and their interests to the business. Stakeholder is term that describes all those parties that in one way of the other influences the business activities either directly or indirectly. In many occasions the stakeholders carry with them different perspectives towards the business. Therefore the most important thing to take into consideration when formulating the business strategies is the interests of the stakeholders. In the case of the Dutch Cooperative stakeholders include: the farmers, the directors, the employees, the customers, the government, the general community and the suppliers. While formulating strategies it is always important to take into consideration all these key players as one way of making sure that important issues have been addressed and above all how the business vision will be realized. However, according to (Kotler 1994), there are those business stakeholders who are more important than others. To determine the level of importance the business cycle is considered from its formation to where it is currently. According to (Day 1994), this is a very way of determining individual stakeholder role to the business. However, according to Gregory (2000) the level of importance of different stakeholders can be classified into four main categories namely: primary-secondary, voluntary vs. non voluntary, social and non-social as well as internal and external. In this paper the primary-secondary classification will be applied. According to the Dutch cooperatives, the primary stakeholders are the customers, the bank, the local government and the board members who are responsible for determine the cooperative’s business direction. On the other hand, the secondary stakeholders include: the competitors, the community, independent funding organizations, media and the government. While doing this analysis, many strategic issues are likely to emerge based on the stakeholders’ interests. The term ‘strategic issue’ is used to refer to unresolved question which demands for a solution in order for the business to realize its vision. According to (Cook and Chaddad 2004), strategy can change the business direction and the future of the business. The interpretation process of this concept is known as Strategic Issues Diagnosis (SID). This model is divided into three main events which include: activation, assessment of urgency as well as assessment of feasibility. This design is used by scholars to determine why different business organizations respond differently to different strategic issues. Ideally, different organizations behave differently to the changes in the business environment depending on what ways the company decisions makers perceive the issue. The following are the strategic issues that have resulted from the case of the Dutch Cooperatives: first and foremost is the expansion of the general market in order to remain at the top in terms competitive advantage. This is because expansion of the available market will mean that the Cooperative will have more bargaining power in the market and will continue to influence much of the decisions in the market. The Dutch Cooperatives are faced with a strategic issue on how they should achieve control of the market leadership without causing any conflict now that the government has enacted the policy which will ensure that farmers are supported in order to convert from agricultural production to organic food production. To tackle this issue will mean that the board decisions must be able to address the final users’ needs and at the same find the new uses for the current products in order to maximize the current usage rates. The overall strategic issue therefore in expanding the general market is to create more demand for the already existing firm products as the cooperative continues to embark in developing new products. Another strategic issue that has been identified with the Dutch Cooperative is the process of funding. This is because continuous funding of the Cooperative will ensure that it is able to survive the competition in the market now that so many farmers have converted into organic production. Availability of enough funds will assist the cooperative to sponsor many internal activities that will see increased production and use of more appropriate technology to produce quality organic food products. The other strategic issue with the Dutch Cooperative has to do with quality promotion. This is to ensure that the cooperative products are of high standards when compared with those of the rivals both from local and international fronts. To ensure quality is of high standards the cooperative is obligated with finding ways of ensuring that appropriate skills are in place. Protecting the already existing market is a strategic concern for the business stakeholders. This means that the business has to position itself strategically against its rivals in all areas including pricing and quality. This means continuous innovations should be encouraged apart from developing good customer relationship in order to continue winning their trust. In addition to this, there is also need to expand on the current market share. The strategy may involve heavy business investments on advertising, distribution, price lowering, new product development and by considering going into acquisitions and forming mergers. Finally, at the market place there is total shift from supply driven competition to demand driven competition. This has resulted into many businesses investing heavily on aggressive marketing. This change now means that the businesses have decided to invest extensively on innovation. However, important to note is that technology employed is different with regard to individual business activities. Strategic goals The business’ long-term strategic goals are formulated in terms of vision, mission and the company general philosophy and activities. This is actually the highest level of planning process since it forms the foundation for the overall objective of the business. A well articulated plan is used is used to draw a framework that will be used to attain the long-term goals of the business. The plan is also used to fulfill the business vision and mission. The scorecard proposed by the Kaplan and Norton in 1992, clearly stipulates organization objectives into four main performance metrics namely: customer, innovation and internal as well as financial perspectives. The organization vision for the Dutch Cooperative is build on the cooperative’s philosophy which is to “make the product and sell it” on the one hand, and “choose the value, provide the value and communicate the value”. This vision is aimed at encouraging the cooperative stakeholders to come up with strategies that will ensure that quality organic foods are produced and availed for the market use (FAO 2004). The ultimate goal for the cooperative is to ensure value for customer money. The cooperative’s mission is intended at mobilizing enough financial resources in order to develop a variety of products that will see many of the customers’ demands met. In order to develop a well balanced scorecard, different ideas are recommended which include: the first and foremost idea is about soliciting for enough funds that will be used to increase the cooperative’s activities that will ensure persistent growth in revenue growth. The goal here is to control the cooperative expenditure and operational costs as one of ensuring that value for money is created within the business. Customer satisfaction is also an important goal score. This is because it is only through customer satisfaction that the business will be able to win customer trust. However, this will only be achieved if customers are supplied with a variety of organic foods that will meet their varied demands. Quality is also considered as a key way of satisfying the customer need. In order to achieve this, there is need for continuous innovation in order to promote efficient communication with the customers and at the same ensure that new ways are developed to help in producing and marketing high quality organic food products for the customers. This perspective briefly describes what the organization can do to create value both for the business and the customer. In addition, the perspective also requires that there be continuous development and training of employees alongside providing them with conducive working environment whereby they will be able to develop their skills and competences for the long-term success of the cooperative. Important to note as apart of the business goal is to remain focused on the cooperative’s vision and mission. However, according to (Hamel and Prahalad 2005), the framework is also associated with some limitations. This is because every business has got it is own strategy and is placed at different points in the market and therefore alone it is not sufficient enough to address other metrics experienced by other businesses. After analyzing both the Cooperative’s internal and external environment a number of goals and objectives could be developed for the business. The goals are related to the best interest of the stakeholders of the Cooperative and they include: Goal 1 Ensure quality production and marketing of organic foods for the market. The main objective of doing this is to make sure that customer needs are satisfied through increased quality. Goal 2 Remaining committed to the customer need by ensuring they are able to quality food at more affordable prices. The objective of doing this is to ensure a variety of products are made available for the market and that they are enough to satisfy all demands. This is also aimed at ensuring that customers’ wishes are always listened to and provided for. Goal 3 Sourcing for more project funds The main of objective of intending to improve the financial capability is to venture into the new market and build long-term business partnerships for better bargaining power at the market place. Goal 4 Corporate social responsibility The objective of this goal is to ensure that the public and more especially the local community is made part of the stakeholders of the business by empowering them. Goal 5 Business growth and expansion The objective of doing this is to make sure that the continued of the Cooperative is assured irrespective of the prevailing market threats. In other words the cooperative will be interested in increasing its market size to averse its risk. Goal 6 Relationship building The main objective of developing good relationships with the community and the customers at large is to make sure that the business is able to develop strategies that can be used to manage unfair competition behaviors at the market. Performance management systems Employee training and development Employee training and development, is a strategy that is used by employers to impart the required knowledge and skills to the employees. The strategy has been associated with high levels of psychological satisfaction among the employees and consequently low levels of employee turn-over. Traditionally, lack of employee satisfaction has been argued as the main cause of high employee turn-over in many companies. Career progression and development are some of the important expectations have. Employee training is an important strategy that employers especially in the telecommunication use to ensure that employees have the necessary capabilities to perform their tasks. However, the main challenge that many of the employers have been facing against this strategy is that nature of work that is somehow involving and many employees are not able to enroll in training programs. Research and development Research and development is a system that can be used by different organizations to ensure that there strategies are made a success. Through research the businesses can come up with a variety of products that can be used to satisfy different customer demands. Referring to the Dutch cooperatives, research and development is important in ensuring that they are cost efficient by inventing new ways of producing and marketing organic foods. Strategy and recommendation Different businesses are differentiated from the rivals based on the different strategies they employ to serve the customer demands and values. A strategy is used by the business to move from the known to unknown business context. A business can be said to have a strategy if it is able to do different business activities in a different way or do the same things as the other competitors but in a different way. According to (Jawahar and McLaughlin 2001), there are three main sources of business strategies which include: cost leadership, product differentiation as well as focus strategy which is used by the business to reflect where it is coming from and where it wants to go. However, according to some scholars like (1988) and Murray (1988) as well as Wright (1987), are of the view that the approach is not self sufficient in building a good business and therefore they consider it as a limitation to strategy formulation. In the case of the Dutch Cooperatives strategy formulation is an important business process now that the competition is very stiff both in the domestic and international market with regard to the production and marketing of organic foods. The following recommendations have been developed after an extensive analysis of the cooperative both in terms of internal environment and external environment: First, there is need to do extensive market research in order to determine unmet customer demand for organic food. In this case the business strategy will involve analyzing the consumer demand and then communicate some of the important benefits that the products have in response to serving their needs (Trail and Meulenberg 2002). The ultimate agenda of this strategy is to produce those products that are demanded by the market. Especially in the case of the cooperative what needs to be done as a corporate strategy is to engage in producing highly nutritious firm products. However, most important for the business is to ensure that there is proper communication channel whereby important product features can be communicated through. This can be done by use of the already established market chains. Second, there is still some challenge for the Dutch Cooperatives in engaging in cost effective organic food production and marketing methods. This explains the reason as to why the country’s products are considered the most expensive in the European Organic market (Dijk and Van Boekel 2001). This is because they want to cover for the high cost of production. Therefore the cooperatives are obligated to set prices that can attract customers especially in different market contexts such as monopolistic and oligopolistic where the competition may be very stiff. At this level the cooperatives are supposed to come up with those strategies that are defensive in nature in order to cover up for the offensive strategies that are used by the other organic food manufacturers both from the domestic and the global market. Finally, at the moment the cooperatives are investing heavily on promotion in order to maintain certain distribution channels. In the long-run this strategy has limited the market expansion for the cooperatives products. With this regard therefore there is need to target relatively larger market by introducing different brand names to market their products. This therefore means that there is need to invest both research and development as one of coming up with different brands which can meet the demands of the end user. Conclusion From the review a number of lessons have learnt about strategy management in relation to cooperatives and more especially the Dutch Organic Food Producing Cooperatives. First, a business strategy is considered as “as the step or direction taken by the organization in order to achieve both its short-term and long-term goals by employing the available company resources to meet the ever changing demands in the market by fulfilling the customer and stakeholder demands”. Second, analysis of internal and external environment using the right tools such as the ‘Porter’s five forces model and SWOT analysis’ is the first and most important step that is used by businesses to come up with the most appropriated strategy that can be used to lead the business towards realizing its vision and mission. In the case of Dutch Organic Food Producing Cooperatives, strategy management is considered very vital given the kind of environment under which the business is operating in that is very competitive. In addition, it has been realized that the cooperatives are now using strategies that are more aggressive in the market and at the same they are also re-thinking their current focus. This trend has been enhanced by increased concerns about health and safety issues with regard to organically produced foods. 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