An assessment of the strategies and strengths of medium-sized food processors

An Assessment of the Strategies and Strengthsof Medium-Sized Food Processors

Erna van DurenDepartment of Agricultural Economics and Business, University of Guelph,Guelph, Ontario, Canada, N1G 2W1. E-mail: [email protected]

David SparlingDepartment of Agricultural Economics and Business, University of Guelph,Guelph, Ontario, Canada, N1G 2W1. E-mail: [email protected]

Calum TurveyDepartment of Agriculture, Food and Resource Economics,New Brunswick, New Jersey 08901. E-mail: [email protected]

Linda LakeFiscal Policy, Ontario Ministry of Finance, Frost Building South,4th Floor Queen’s Park Crescent. Toronto, Ontario, Canada M7A 1Y7.E-mail: [email protected]

ABSTRACT

This article uses the case method of research to analyze the strategies and strengths of independent,domestically owned, successful medium-sized processing companies in Canada+ The assessment ofcompany strengths is based on responses from open-ended interviews and a questionnaire+ All as-sessment is based on managers’ perceptions, and the theoretical concept of a core competence isused+ The key conclusions of the research are ~1! there was no single internal factor rated as thenumber one strength across all managers in any one company, or across all companies, and ~2! thefactors on which managers rated their companies highest were highly interrelated+ Reputation, flex-ibility and customer service and a set of other management variables interact to produce successfulstrategies+ Being responsive to customer needs requires fast product development in industry nicheswhile close relationships with customers allow the in-depth understanding of customer needs re-quired for this pace of product development+ @EconLit citations: Q130, L200, L660+# + © 2003Wiley Periodicals, Inc+

1. INTRODUCTION

During the 1980s and 1990s, globalization and business consolidation resulted in moreintense competition for agrifood firms+ In many jurisdictions this resulted in public con-cern for the survival of nationally owned, medium-sized food processors+ In Canada, inparticular, passage of the Canada–U+S+ Trade Agreement ~1989! prompted many observ-ers of the food processing sector to predict that the disappearance of its high tariff wall onprocessed food products and the eventual reduction of marketing board power would

Agribusiness, Vol. 19 (1) 115–132 (2003) © 2003 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/agr.10039

115

result in Canada’s food needs being serviced by large-scale, foreign-owned, multination-als+ This sentiment was quite pronounced in 1989 in Canada, but perhaps particularly soin Ontario, which housed over 40% of Canada’s food processing industry within 500 kmof the U+S+ border+ Many marketing boards, industry associations, government depart-ments, and private consultants involved with agriculture and food feared the worst ~Mar-tin, van Duren, Westgren, & LeMaguer, 1991; Meilke & van Duren, 1996; van Durenet al+, 1989!+ This view developed due to the fragmented food processing industry thathad evolved with multiple regional or provincial plants of suboptimal scale behind thetariff wall,which was removed incrementally by the Canada–U+S+ Trade Agreement ~War-ley, 1982!+

Yet, by the mid-1990s it was apparent that segments of Canada’s food processing in-dustry were surviving and growing+ Not only were these firms expanding Canadian mar-ket share, many had seized the opportunity presented by reduced trade barriers and hadentered foreign markets+Many observers of Canada’s food processing industry attributedthis success to Canadian firm’s flexibility, competitive mindset, and market orientation+Generally, explanation of these factors was not detailed, and it often hinged on anecdotalevidence ~Martin, 1995!+ These reasons were appealing to managers, public policy mak-ers, and academics+ However, it is far from clear what these explanations involve in termsof organizational strategy+

This article provides case study analysis of Canadian companies that have achievedsuccess as independent companies in this more open business environment+ In particular,it focuses on the role of internal factors in the strategies of medium-sized food proces-sors+ The article is organized as follows+ Section 2 discusses our theoretical approach andthe procedures we chose for our case research in a small and very competitive segment ofthe food processing industry+ Section 3 presents our results, while Section 4 providesconclusions, a discussion of the study’s limitations, and recommendations for managers,public policy makers, and academics+

2. RESEARCH APPROACH

Our case analysis focuses on the internal factors in strategy, which involves understand-ing the organization’s resources, and how weaknesses and strengths in these resourcesallow it to create capabilities best suited to dealing with the opportunities and threats inits external environment+1 This type of understanding requires a depth of analysis that canbe achieved very well through case research methods ~Eisenhardt, 1989;Yin, 1994!+ Theresearch questions are concerned with “why” and “how” questions related to strategy andsuccess+ Figure 1 accompanies the remainder of this section, which discusses our casestudy research design and provides some insights into the challenges associated with thisresearch approach+

2.1. Case Study Objectives

The strengths or weaknesses of an organization’s internal factors are a function of howwell they fit the requirements of the external environment+ So although the focus of the

1Internal analysis is amply covered in most strategic management texts+ Strategic management: Competi-tiveness and globalizations ~4th ed+!+ Cincinnati, OH: Southwestern College Publishing, Cincinnati+

116 VAN DUREN, SPARLING, TURVEY, AND LAKE

Figure 1

ASSESSMENT OF MEDIUM-SIZED FOOD PROCESSORS 117

case study analysis is on the internal factors involved in the strategies of medium-sizedfood processors, it is necessary to develop an understanding of managers’ perceptions ofcritical success factors in the food processing industry+ Identifying managers’ perceptionsof critical success factors is the first objective of our case study analysis+ The secondobjective of the article was to report managers’ perceptions of the strengths of medium-sized food processors+ However, because organizational strengths can be defined and per-ceived quite differently for good reasons, it is important to define a conceptual frameworkfor discussing strengths and report on the results of its application+ Given the continuinguse of the core competency approach as a strategic management tool ~Rigby, 2001! andits high degree of suitability for an internally focused assessment of strategy, our otherobjective in this article was to use the concept of core competencies to develop a betterunderstanding of the strengths and strategies of medium sized food processors+

2.2. Case Study Constructs

Critical success factors were examined by asking senior managers about their perceptionof what factors were critical to success in the food processing industry+ Each managerwas asked to identify three critical success factors+ These managers were also asked toexplain why these factors were critical to their firm’s success, along with an explanationof if and how these factors would retain their critical role five years into the future+

Strengths were defined as activities that a company did exceptionally well+We askedmanagers to identify three activities at which their companies excelled relative to com-petitors+ For each of these strengths, we asked managers for a nonstructured explanationof what their companies had done to build their strengths+ To improve the quality of theinformation we concluded each interview with a structured questionnaire, which requiredthe manager to rate his0her company on how well it performed on a set of business ac-tivities, as well as relative to the competition+

To improve the quality of our analysis of strengths, each activity that a manager indi-cated his0her company did well was further investigated by the interviewers using a setof probing questions+ These probing questions were based on the criteria for a core com-petency; specifically, Prahalad and Hamel’s criteria of value, extendibility, competitivesuperiority and inimitability to structure the probing questions ~Prahalad & Hamel, 1990!+2

First, an organizational strength, which is something that a company is particularlygood at,must be “valuable+” Customers must be willing to pay for the products that makeuse of the company’s strength ~Barney, 1991; Collis & Montgomery, 1995; Prahalad &Hamel, 1990!+ The company also needs to be better than the competition at making use ofits strengths to maintain its position in the market ~Collis & Montgomery, 1995; Prahalad& Hamel, 1990!+ The criterion of being valuable is an important link between an orga-nization’s internal environment and the external environment+

Second, an organizational strength must be “extendable” into products that may sell indifferent markets or under new market conditions+ It is not worth being really good atsomething if a company cannot take an organizational strength and make use of it in newproducts, which reflect the needs of new or different markets ~Prahalad & Hamel, 1990!+

2The following authors contributed to the development of the resource based theory of the firm, on which theconcept of a core competency is based: Penrose ~1959!,Andrews ~1971!, Snow and Hrebiniak ~1980!, Hitt andIreland ~1985!, Reed and deFillippi ~1990!, Collis ~1991!, Leonard-Barton ~1992!, Barney ~1986, 1991, 1992!,and Prahalad and Hamel ~1990!+


The dynamic nature of the external environment and the firm’s ability to respond appro-priately are at the heart of the extendibility condition+

Third, the strength must be one in which the company shows “competitive superior-ity,” which means that they must perform that business activity better than the competition+

Finally, an organizational strength must be “inimitable,” something that cannot be im-itated+ This criterion is the one that has resulted in the criticism of the resource-basedtheory of the firm as excessively inward looking+ Numerous articles debating what makesan organizational strength inimitable have been published in academic journals in the lasttwo decades ~Barney, 1986; Lippmann & Rumelt, 1992!+3

2.3. Selection of Appropriate Case Study Companies

Determining suitable companies for the research and obtaining their cooperation was themajor challenge in this research+ Companies had to meet several criteria+ They had to be;~1! small to medium-sized ~$10–100 million in sales!, ~2! Canadian-owned, ~3! success-ful, and ~4! independent+ Criteria ~2! Canadian owned, and ~4! independent, are consid-ered important in this study because of the public policy concern with having a healthydomestic food processing industry+ Criterion three, which is being “successful,” was in-cluded to ensure that companies that were financially viable on their own at the time ofthe study were our focus+ Our interpretation of “success” was designed to ensure thatcompanies that were significantly aided by government but were not commercially suc-cessful over the longer run were excluded+ During the 2 years since the case studies werecompleted, two of the case study companies were acquired by other niche food-processingcompanies—both in 2002+ One was acquired by a larger U+S+ company, and the other aprivate Canadian company+ The latter acquisition was designed to take the acquired com-pany private, after being public for several years+ Certainly both these companies con-tinue to be successful because their brands are featured under a distinct banner of theacquiring company+ All the case study companies continue to be successful innovatorsthat are developing new products, new managerial approaches, and new business processes+

Based on our experience with Canada’s food processing industry, we chose the casestudy companies using a two-pronged approach+We searched trade magazines and con-tacted trade associations to develop a “long list” of companies that appeared to meet thecriteria listed above ~Fig+ 1’s initial list!+ To improve this list, we interviewed four con-sultants who specialized in the agrifood sector and asked them to identify firms that wouldmeet our study’s criteria+ They identified six private companies and one public firm+ Fourof the private firms were not on our initial list, while one private firm and the public firmwas+ This resulted in a combined list of 71 suitable companies, because the 12 multi-nationals were considered ineligible at this point+

Simultaneously, we used performance criteria from industry-benchmarking studies todetermine which companies on the initial list were “successful” ~Deloitte and Touche

3Inimitability can result from any combination of the following interrelated factors: ~1! Interconnectedness—the value of a resources may be inextricably linked to the presence of another complementary or cospecializedresource; ~2! Social complexity—relationships among resources may be very complicated and difficult to un-derstand and0or communicate to others; ~3! Causal ambiguity—the connection among an organization’s re-sources and its performance may be unknown or unclear; ~4!Historical uniqueness—resources may be developedunder past conditions, which cannot be replicated; ~5! Physical uniqueness—a resource may simply be physi-cally distinct, such as a specific location; ~6! Accumulation advantages—a resource many require developmentover time through learning, experience, firm-specific knowledge, etc+; and ~7!Time path—the resource devel-oped over time and in conditions that cannot be replicated+


Consulting Group; 1997; Financial Post, 1995–1997; Statistics Canada; 1997; Turveyet al+, 2000!+ These success criteria comprised the following performance benchmarks:double-digit sales growth over at least 3 years plus positive ROI, ROA, and ROS+ Forpublic companies on the long list, the required information was available from publicrecords ~n � 22, this includes the cooperatives!,while for the remainder we contacted anysenior manager in the private company ~n � 45!+ The performance criteria were calcu-lated for all firms for which data were available+ This resulted in a list of 26 companies+Three companies were removed because they were cooperatives, and would present ad-ditional conceptual dimensions and performance benchmark calculation problems+ Forthe remaining 23 companies, the performance benchmarks were applied+ Only one pri-vate company that was identified by the industry experts was willing to provide us withaccess to financial data to calculate their EVA, ROE, ROS, and ROA+ The other four firmshad these measures available and verified that they were in the top quarter of firms in thebenchmark sample and that they also met the other criteria ~i+e+, Canadian owned, highgrowth, etc!+

Four private companies that ranked in the top quarter of the sample according to thebenchmarks were willing to participate+ To bring the number of case study firms up tofive we contacted the best performing public company, and it agreed to participate+ Allfive firms wanted to remain confidential, and none agreed to release their financial datafor publication+

In each company, three senior managers had to be willing to discuss strategic issues inan in-depth interview taking at minimum an hour-and-a-half+ Table 1 provides a basicdescription of our case study firms, a brief description of their strategies, and the posi-tions of the three senior managers from whom the case study data were obtained+

Overall, selecting and obtaining companies to participate in the study was challenging,because very few potential candidate firms were willing to share their financial data orcommit three senior managers to sharing strategic information+

2.4. Interview Guide Development and Data Collection Process

We developed and used an interview guide comprising three major sections to developthe data for the case studies+ This guide was pilot tested with two companies+ For each ofthe five case studies, interviews with three senior managers were conducted during 1998and 1999+ With the exception of two interviews, two interviewers were used for the 15interviews+4 One interviewer took the lead in asking questions, while the other focused onprobing and clarification questions+ Each interview was also recorded and transcribedverbatim+ In each of the case study companies, the company president chose the othertwo managers who participated in the study+ In all cases, the most senior person respon-sible for an area in that company was selected, although formal job titles ranged from“vice-president” to “manager+” The relevant details are in Table 1+

Each interview was structured in three sections, which were designed to collect thetypes of data discussed below+

2.4.1. Interviews—Background. In the first part of the interview, managers wereasked to describe their role in their companies, as well as their perception of factors that

4This was due to the travel expense involved+


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were critical to success in the industry and how these might change in the next 5 to 10years+ This portion of the interview guide was intended to obtain managers’ interpreta-tions of factors of particular importance to success in the food processing industry and anunderstanding of their responsibilities and attitudes+ Both sets of information were neededto aid in the researchers’ interpretation of specific questions on company strengths+

2.4.2. Interviews—Open Ended. In the second part of the interview managers wereasked to identify activities that their companies did exceptionally well+ They were alsoasked how their companies had supported these activities in general+ This was followedby a set of probing questions related to the core competency criteria ~i+e+, valuable, ex-tendable, competitively superior, and inimitability!+ Managers were also asked about ifand how these factors would be relevant in the future+ The questions in this portion of theinterview focused on identification of strengths, as well as how and why these strengthshad been created in the case company+ This portion of the interview was open endedbecause we wanted to obtain managers’ perceptions and ideas in an unstructured manner+It provided the most detailed and insightful data for the research+

2.4.3. Interviews—Self-Performance and Competitor Evaluation. In the thirdpart of the interview, each manager was asked to rate his0her company on how well itperformed on a set of internal business activities, reputation, relationships with variousorganizations, as well as on an overall basis+ These factors were drawn from a review ofliterature dealing with internal analysis and industry success factors+ A 10-point scale,ranging from poor through average to excellent, was used to obtain manager’s percep-tions+ Along with the other parts of the interview guide, managers had received this sur-vey at least 1 week before the interview+ Managers had completed this evaluation andwere ready to report and discuss their perceptions+ The factors used in the evaluation ofa company’s own performance and the performance of its competitors were developedfrom the literature review on core competencies+ This part of the interview was used toensure that managers rated their companies on factors that were potentially relevant to thestudy if they had not discussed them previously+ It also enabled the researcher to do con-sistency checks+ In this part of the interview each manager was also asked to rate his0hercompany relative to its most important competitors on the same set of factors as for theself-performance evaluation+ A similar 10-point scale was used to obtain manager’s per-ceptions, but scoring ranged from performing an activity at a level “less than” through“equal to” and “better than” the competition+ This final part of the interview was de-signed to obtain data on competitive superiority, as well as allowing the researcher toassess consistency between data obtained from the open-ended questions and the scaledevaluation+

2.5. Case Analysis

Individual case analyses were written for each of the five companies+ These were devel-oped from the open-ended portions of the interview and described each company’s back-ground, general strategy, and managers’ perceptions of critical success factors, relativestrengths, and core competencies+ Each of the case studies was approximately 50 pages,and formed a resource for the crosscase analysis, which examined differences and simi-larities across and within the companies+


3. RESULTS

This section presents the results of our analysis, with particular emphasis on the cross-case analysis+ We begin with a brief discussion of the factors that managers think arecritical to their success, and then proceed to our analysis of the case study companies’strategies and their strengths+

3.1. Critical Success Factors in Canada’sFood Processing Industry

Managers in small- to medium-sized firms were asked to identify the top three successfactors in the food-processing industry+ The top three factors reported by managers areprovided in Table 2+ These factors are interesting in how they differ from competitiveapproaches of large, multinational food processors: economies of scale, superlative mar-keting, and0or dominance of the brand label market+ Being able to provide new productsat a price-cost point in market niches that are not targeted by the strategies of large multi-national is critical to success of these smaller firms+ Cost and quality tend to be marketentry requirements, dictated by competition in and around the market niches in whichthey compete+ The safety component of food quality is also important+ Use of food safetysystems such as HACCP was widespread+ Customer service was also critical to the suc-cess of these companies+ Ninety-seven to 99% fill rates are essential+ More importantly,on-going dialog with customer is essential to understanding the requirements for success-ful products in their selected market niches+ Order winning characteristics for these firmsare product innovation and premium quality, as many of the most profitable niches re-quire a premium product with a continuous stream of new product innovations+

3.2. Strengths of Canadian-Owned Medium-SizedFood Processing Companies

Table 3 shows proportions of managers who rated their companies as excellent, good,average, or poor on 23 variables, including overall performance+ The responses are listedfrom highest mean to lowest mean score ~provided in the last column!+ Company andproduct reputation have the highest means, which confirms the case study companies’excellent reputation+ Overall, performance is listed at the bottom because it is not directlycomparable to the other, separate, variables+ Our discussion also refers to Table 4, whichshows the percentage of managers in the case study firms that rated their companies asinferior, equal, or superior to the competition on the same variables+ The strengths of the

TABLE 2+ Critical Success Factors for Canadian Food Processing Firms

Critical Success Factors Number of Responses

Product innovation, research and development 7Price and cost management 6Identifying niches 5Customer service 4Quality 3Flexibility in operations 3


case study firms are discussed below+ Managers’ open-ended discussion of their compa-ny’s strategies and strengths are the other source of information for our discussion+

3.2.1. Reputation. Competitive reputation and product reputation were the variableson which managers rated their companies highest ~Table 3!+ All managers rated theircompanies as good or excellent+ Seventy percent of managers considered that their com-panies were superior to the competition in terms of overall competitive reputation and thereputation of their products ~Table 4!+ The source of the product and competitive repu-tation is mainly a function of these firms’ flexibility, customer service, selected manage-ment capabilities, and to a lesser extent specific support activities and relationships+ Thesefactors are discussed below+

3.2.2. Flexibility. Forty-six percent of managers ranked their companies as excellenton operational flexibility, while 46% ranked themselves as good+ Forty percent rankedthemselves as excellent on strategic flexibility, while 53% ranked themselves as good~Table 3!+ Seventy-seven percent of managers rated their companies as superior to thecompetition for operational flexibility, while 46% considered their companies competi-tively superior for strategic flexibility ~Table 4!+

Speed of customer service and the ability to produce different products on short noticeare the most important aspects of operational flexibility+ Processing equipment and plant

TABLE 3+ Managers Ratings of Their Own Company’s Performance by Variable ~Percentageof Managers per Rating Category!

Excellent Good fair PoorVariable 9 & 10 7 & 8 5 & 6 4 and Under Mean

Competitive reputation 50% 50% 0% 0% 8+5Product reputation 43% 57% 0% 0% 8+3Operational flexibility 46% 46% 8% 0% 8+2Strategic flexibility 40% 53% 7% 0% 8+1Customer service 43% 50% 7% 0% 8+1Relationships with customers 33% 55% 11% 0% 8+1Relationships with retailers 36% 57% 7% 0% 8+1Financial management 29% 50% 21% 0% 7+5General management 13% 67% 20% 0% 7+5Relationships with employees 7% 73% 21% 0% 7+3Operations 7% 78% 14% 0% 7+3Human resources 14% 57% 21% 7% 7+3Innovation, R&D 14% 65% 21% 0% 7+3Strategic alliances 27% 27% 36% 9% 7+3Government relations 28% 28% 29% 14% 7+2Industry relations 21% 50% 21% 7% 7+1Relationships with suppliers 14% 47% 33% 7% 7+0Relationships with brokers 20% 57% 20% 13% 6+9Public relations 23% 46% 8% 23% 6+9Procurement, inbound logistics 8% 69% 15% 8% 6+8Distribution, outbound logistics 7% 42% 29% 14% 6+8Market research 0% 38% 31% 23% 6+2Overall performance 8% 92% 0% 0% 7+8


layout had been designed to improve operational flexibility+ Incentives to encourage em-ployee involvement were also important to being able to achieve fast service and morerapid product development than the multinational firms that competed in different partsof the market+ The combination of equipment, plant design, and more intense use of peo-ple ~as opposed to automation! enabled smaller product runs, faster changeovers and moreoutput from the plants’ equipment+

Although most case study firms achieved operational flexibility in individual plants,one company developed it through a network of plants+ Several smaller plants closer tomajor population centers fit best with their strategy of producing more premium productfor several market niches+

Strategic flexibility was more widely defined by managers than operational flexibility+Many managers interpreted it to as excellent customer service and innovation, and ratedthemselves highly on these variables+ The strategic management literature defines stra-tegic flexibility as being able to identify opportunities and0or risks in the environment,having a system that is sufficiently flexible to respond to those opportunities and havingmanagement capable of executing an appropriate response+ Using this definition, strate-gic flexibility was apparent in only two of the five case study companies+ One companyhas refocused its business after passage of the Canada–U+S+Trade Agreement+ It had movedout of the middle of the market, had secured its low end of the frozen foods market, andhad developed a new focus on the premium frozen food market+ This enabled it to avoid

TABLE 4+ Percentage of Managers in Case Study Firms Rating their Companies as Inferior,Equal, or Better than the Competition by Variable

VariableInferior to theCompetition

Equal to theCompetition

Superior to theCompetition

Competitive reputation 15% 15% 70%Product reputation 23% 8% 70%Operational flexibility 15% 8% 77%Strategic flexibility 23% 31% 46%Customer service 31% 15% 54%Relationships with customers 25% 50% 25%Relationships with retailers 23% 23% 54%Financial management 23% 15% 63%General management 38% 38% 23%Relationships with employees 46% 23% 31%Operations 31% 31% 38%Human resources 31% 23% 46%Innovation, R&D 46% 31% 23%Strategic alliances 23% 31% 46%Government relations 23% 31% 46%Industry relations 31% 15% 54%Relationships with input suppliers 38% 31% 31%Relationships with brokers 15% 31% 54%Public relations 23% 31% 46%Procurement, inbound logistics 46% 31% 23%Distribution, outbound logistics 31% 15% 54%Market research 46% 15% 38%Overall performance 15% 38% 46%


the “competitive radar” of the multinationals, while leveraging its skills and assets acrossthe two end niches of the market+ The other used strategic acquisitions and new marketentries to extend its product offerings and exploit new market opportunities+

3.2.3. Customer Service. Flexibility is linked to product development and good busi-ness relationships with customers+ Forty-three percent of managers rated their companiesas excellent on customer service, while 50% rated themselves as good ~Table 3!+ Fifty-four percent of managers rated their companies superior to the competition ~Table 4!+

The case study companies achieve excellence in customer service largely through goodrelationships with customers and retailers, and to a lesser extent brokers+ Thirty-threepercent of managers rated their relationships with customers as excellent,while 55% ratedthem as good ~Table 3!+ Twenty-five percent ~25%! of managers considered themselvesas superior to the competition on relationships with customers, while 50% consideredthemselves equal ~Table 4!+With respect to relationships with retailers, 36% of managersrated their companies as excellent and 57% rated their companies as excellent ~Table 3!+Fifty-four percent of managers rated themselves as superior to the competition on rela-tionships with retailers ~Table 4!+

Management of relationships with customers and retailers required understanding andmeeting the needs of these customers+ Traditional, formal market research had a low pri-ority with the case study companies+ Most of the case study firms’ customers were do-mestic, but four of the five firms were actively expanding into the U+S+ market+ Three ofthe case study firms’ customers were customers were predominantly retail chains thatused private label products as a key part of their strategies, while two focused on theirbranded product business+All five case study firms had a branded business+ Food service,health care, and club stores were also important customers for the case study firms+

Managers in every firm stressed the importance of being able to respond to short cus-tomer lead times on orders+ Two to 7 days for order fulfillment was a common require-ment; hence, the emphasis on operational flexibility+ Being able to develop new productsquickly and being willing to develop challenging products for their private label custom-ers also featured prominently in the successful management of the case study firms’ re-lationships with customers and retailers+ Several of the case study firms learned how todevelop new products that met strict standards of cost, quality, and innovation+Managersin the companies who were developing their own-branded business in addition to servic-ing retailers’ private label business realized that meeting operational and private labelflexibility requirements of the industry gave them less strategic flexibility, in other words,less ability to respond to opportunities with their own branded business+ Balancing cus-tomers’ requests for new product development, standard product requests, and develop-ing one’s own branded business was never far from these managers’ minds given thedynamism of the market+

3.2.4. Management. Managers in the case study firms placed a great deal of emphasison management+ Twenty-nine ~29%! rated their companies as excellent on financial man-agement, while 50% gave a rating of good+ For general management, 13% of managersrated their companies as excellent, but 67% gave a rating of good+ Although only 7% ofmanagers rated their companies as excellent on operations, 78% rated them as good+ Four-teen percent of managers rated their companies as excellent in management of humanresources, while 57% rated them as good+ Relationships with employees were rated sim-ilarly ~Table 3!+ Sixty-three percent of managers indicated that their companies were


superior to the competition on financial management, while only 23% of managers felttheir companies were competitively superior for general management+ Thirty-eight per-cent of managers considered their companies superior to the competition in operations,46% did so for human resources and 31% for relationships with employees ~Table 4!+

Strong financial management is a necessary survival skill in the Canadian processedfood industry+Managers in the case study firms stressed that they had to be able to be ableto produce products on a smaller scale at competitive prices, and that this required ex-cellence in cost control+ Development of product costing models specific to the needs ofthe company is seen as important in managing the relationship between product cost andmarket price points+ The impact of a depreciating Canadian dollar against its U+S+ coun-terpart on their business’ relationships among sales, costs, and profits also appeared to bepoorly understood by several of the managers+ However, some managers were keepingclose tabs on this relationship+As one manager indicated, because 60% of his company’ssales were in the United States, the cost of servicing this business ~travel, etc+! increasedwhen the Canadian dollar depreciated+ One other manager stated that they had to keepdriving the costs of business down, especially as their sales in the United States grew,given the unknown future of the Canadian–U+S+ exchange rate+

Because production occurs on a smaller scale, managing human resources is very im-portant+ None of the firms was unionized, but all had an open culture that promoted in-volvement at all levels and “perks+” Providing BBQs on a patio for lunches0suppers,after-hours ESL training, parties for employees, 10 years of service awards with anexpenses-paid vacation, a generally flat management structure and open-door office pol-icy are among the many low-cost and high-impact human resource programs that main-tain satisfied, productive, and nonunionized employees+

The case study companies have all hired “corporate refugees,” managers with exten-sive experience working for multinational food companies+ These managers provide someof the disciplines of corporate planning and business management along with their pas-sion for the entrepreneurial ideas that their companies exhibit+

3.2.5. Innovation, Research, and Development. The role of product develop-ment in customer service and flexibility has been discussed above+ However, becauseproduct development is the main type of innovation and research and development, it isalso discussed separately in this section+ Fourteen percent of managers rated their com-panies as excellent on innovation and R&D,while 65% rated themselves as good ~Table 3!+Although 23% of managers ranked their companies as superior to the competition oninnovation and R&D, twice that proportion ~46%! rated themselves as inferior to theircompetitors ~Table 4!+ The latter number may be explained by the realization among man-agers in the case study firms of how important continued product R&D is to their futuresuccess and the level of concern that managers have being competitive in this area+ Threeof the five case study companies indicated that hiring qualified food scientists, technol-ogists, and creating relationships with demanding customers or consumers, innovativeingredient suppliers, and research institutions within a learning-oriented open culture wasimportant to sustained product development efforts+ Only in such an arrangement, is itpossible to invent new products and continually improve the characteristics and cost ef-ficiency of existing products+ For the case study companies involved in the private labelbusiness, product development is linked to the needs of demanding customers+Managingthis relationship is a central concern of senior management+ One of the five case studycompanies had allowed its product development abilities to suffer and was very aware of


the need to reemphasize this business activity+ The other company’s senior managementplanned to acquire the sustained ability to innovate and develop new products+ Their fo-cus was on managing a business model consisting of several plants and acquisitions thathad been successful in developing new products+

3.2.6. Relationships. There was considerable variation in the ratings that managersin the case study companies gave their companies on various types of business relation-ships, with the exception of the relationships with customers and retailers that have beendiscussed above+ This stems from the different roles that various types of relationships inthe case study companies’ strategies+ Two companies rely extensively on strategic alli-ances to increase their market scope, and the high level of management commitment andeffort investing in managing various alliances and relationships is reflected in its highratings+ Another company uses public relations in tandem with a marketing strategy thatis designed to hit outside the competitive radar of the multinational food companies+An-other company relies extensively on relationships to minimize the impact of supply man-agement regulations+

3.2.7. Procurement, Inbound Logistics. Most managers rated their companies asgood on procurement and logistics ~88%, Table 3!+ One manager indicated he gave arating of excellent because his company had done such an outstanding job of networkingamid restrictive supply management regulations+ The managers in this company werealso responsible for the 23% of managers who rated themselves as superior to the com-petition on procurement and inbound logistics ~Table 4!+

3.2.8. Distribution and Outbound Logistics. Although over 40% of managersrated their companies as good on distribution and outbound logistics, managers in thecase study companies often expressed that distribution and outbound logistics capabili-ties were constraining their companies ~Table 3!+ However, 54% of these managers feltthey were outperforming the competition on this business activity ~Table 4!+ Generally,they indicated that this was achieved through good relationships with customers+

3.2.9. Market Research. Again, although 38% of managers rated their companies asgood on market research, 31% rated their companies as fair and 23% as poor ~Table 3!+The nature of the market research conducted by the case study explains this variation+Only two companies were able to afford traditional, formal market research, and the casestudy companies relied extensively on their relationships with customers for marketinformation+

4. CONCLUSIONS, LIMITATIONS, AND RECOMMENDATIONS

This article provided case study analysis of Canadian companies that have achieved suc-cess as independent companies in this more open business environment+ First, we discusswhat we learned about how internal factors contributed to the success of medium sizedfood processors, and then we turn to the limitations of the study and our recommendations+

4.1. Conclusions

There are several general conclusions from the research+


First, there was no single internal factor rated as the number one strength across allmanagers in any one company, or across all companies+

Second, and not surprisingly, the factors on which managers rated their companieshighest were highly interrelated+ Reputation, flexibility, and customer service and a set ofmanagement variables work together to produce successful strategies+ Being responsiveto customer needs requires product development in industry niches, and the close rela-tionships with customers allow the in-depth understanding of customer needs requiredfor this pace of product development+ When linked with flexibility, these factors playvital roles in strategy of the case study companies+

4.2. Limitations

Case study research is challenging, and can be frustrating because the unstructured natureof the research means that the research process includes a certain amount of learningabout the process as well as about the companies+

First, we used open-ended questions and a survey with scaled responses in our re-search+ These two methods did not always produce consistent results+ We feel that bothsets of information are important, but cannot assess their relative importance+ Our ap-proach was to use both to the extent possible, and therefore, implicitly weigh informationfrom both portions of the interview as relatively equal+

Second, there were interesting intercompany differences in how managers ranked them-selves in the survey portion of the interviews+All managers in Company C tended to rankthemselves relatively higher, while all managers in company E tended to rank themselvesrelatively lower+ By combining points on our 10-point rating scale, we tried to minimizethe effect of the intercompany variation+

Third, there was considerable variation among managers in terms of their comfort levelin an interview setting+Managers in company B were the most articulate and comfortablewith the concepts covered in the study, while managers in company C and D were theleast comfortable+ Two of the managers in company C found it difficult to rank them-selves relative to the competition, although one of these managers had been with thecompany for approximately 10 years+ Two of the managers in company D did not haveconcrete opinions on the factors critical to success in the industry+

Fourth, it would have been interesting to use a comparison group to develop a betterunderstanding of the strengths of medium-sized food processors+We considered a com-parison group of major multinationals operating in Canada, but rejected them because thesize of their operations and scope of their strategies would make it impossible to obtainthe depth of data that would allow comparison to the medium-sized food processors+Wealso considered a comparison group of other less successful medium-sized food proces-sors+We abandoned this idea because it had been so difficult to obtain the cooperation ofsuccessful medium-sized food processors+

4.3. Recommendations for Managers, Policy Makers,and Researchers

The results of this research suggest some useful recommendations for managers, policymakers, and researchers+

4.3.1. Managers. Managers in Canadian companies that cannot meet the strategies ofmultinational food processing companies “head-on” need to play the edge of the market+


Due to the size of market segments at the edge of the food market, particularly in a smallergeographically stretched country, these market segments will not be of immediate interestto larger companies, and thereby will provide room for growth+ However, there will be alimit, which will be a function of the particular market segment ~demand-side! and theorganizational capabilities of companies competing there ~supply-side!+ Fortunately, eco-nomic and demographic trends and their resultant lifestyle factors will maintain or in-crease the size of nonmainstream markets+

Managers likely cannot be too creative when it comes to innovative human resourcesprograms that build a culture that supports product and process innovation and flexibility+Senior management commitment, through actions such as “living” frugally, open doorpolicies and being generally “flexible,” accessible, and receptive to criticism and newideas is also important+

4.3.2. Public Policy Makers. Public policy for the agrifood sector should recognizethat the strategies of smaller and medium-sized Canadian firms differ from the strategiesused by larger companies and multinationals+ Because this study did not analyze thestrengths and strategies of this latter group of companies and compare them to medium-sized Canadian firms, we cannot make direct recommendations here on if and how spe-cific programs might be tailored to meet the needs of both types of companies+ However,to meet the needs of medium-sized Canadian-owned companies, public policy should inno way constrain flexibility+ For example, some of the managers in our case study com-panies indicated that programs aimed at commercializing research and development ef-forts often required “a lot of paperwork” and a clearer commitment and description ofproject objectives than was realistic, and therefore,was not worth the effort+ Several man-agers indicated that the main negative impact of supply management was its lack of flex-ibility in responding to company specific needs and situations+As these firms are enteringthe U+S+ market, harmonization of regulations between Canada and the United States isessential+ Canadian companies should not be successful “despite” a government policy,and they should always be at least impacted neutrally or supported by public policy+

4.3.3. Researchers. Strategic management research has not been a traditional area ofcoverage for agribusiness academics, but with the decreasing use of interventionist pol-icies, the strategic management skills of managers in the agrifood sector are becomingmore important+ The diverse interests and technical research skills of academics in agri-cultural economics and business departments make strategic management research that isconducted by a team of academics rewarding, both in terms of learning experiences andthe results that can be generated for our stakeholders+ Strategic management research canbe conducted at many levels of theory and practice+At one extreme, it would be useful toexamine how biologic and other physical factors ~i+e+, climate! that are particularly im-portant in the agrifood sector affect strategic management under uncertainty and risk+Atthe other extreme, a representative survey of agrifood organizations, which would deter-mine perceptions of their organizational strengths and weaknesses and critical successfactors would also be useful+

For researchers who choose issues that are most appropriately examined using the casemethod of research it is very important to develop a comprehensive and detailed researchdesign or protocol+ This point has been stressed by Yin ~1994!, and to advance the ac-ceptability of such research in the agricultural economics and business disciplines, it isessential+


Overall, the challenges of performing strategic management research are significant,but the rewards make them worthwhile+

4.4. Postscript

During the 2 years since the case studies were completed, two of the case study compa-nies were acquired by other niche food processing companies—both in 2002+ One wasacquired by a larger U+S+ company, and the other a private Canadian company+ The latteracquisition was designed to take the acquired company private, after being public forseveral years+ Certainly both these companies continue to be successful because theirbrands are featured under a distinct banner of the acquiring company+

All the case study companies continue to be successful innovators that are developingnew products, new managerial approaches, and new business processes+

ACKNOWLEDGMENT

The authors thank the Ontario Ministry of Agriculture, Food and Rural Affairs for theirsupport for this study+

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Erna van Duren (B.A. 1985, University of Waterloo; M.Sc. 1987 and PhD 1989, both Universityof Guelph) is an associate professor with the Department of Agricultural Economics and Businessat the University of Guelph, Ontario, Canada. She can be contacted by phone 519-824-4120 x2100or e-mail at [email protected]. Her current research interests include strategicalliances, core competencies of entrepreneurial food companies, stragegic management of biotech-nology and innovation.

David Sparling (B.Sc. 1976, Queens University; MBA 1984, Sir Wilfred Laurier University; PhD1997, McMaster University) is an associate professor, Department of Agricultural Economics andBusiness at the University of Guelph, Ontario, Canada. He can be contacted by phone 519-824-4120 x2775 or e-mail at [email protected]. His current research interests includestrategic alliances, operations management, supply chain management and strategic managementof biotechnology.

Calum Turvey (B.Sc. (agr) 1983, University of Guelph; M.Sc. 1985, University of Guelph; PhD1988, Purdue University) is a professor with the Department of Agricultural, Food and ResourceEconomics at Cook College, Rutgers University, New Brunswick, NJ. He can be contacted by phone519-824-4120 x2765 or e-mail at [email protected]. His current research interestsinclude finance, managing risk, and derivatives.

Linda Lake (B.Sc. (agr) 1989, McGill University; M.Sc. 1994, University of Guelph; PhD 2000University of Guelph) is a manager of fiscal policy at the Ontario Ministry of Finance in Toronto,Ontario, Canada. She can be contacted by phone 416-327-2058 or e-mail at [email protected]. Her current research interests include the core competencies of entrepreneurialfood processing companies.


An assessment of the strategies and strengths of medium-sized food processors

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