© The Zone 2017. All rights reserved.

Reconnecting with core values to unify
a divided organisation

New Zealand’s largest company Fonterra was formed when the New Zealand Dairy Board merged with the New Zealand Dairy Group and Kiwi Co-operative Dairies. At the time of the merger New Zealand farmers had been promised big things but the merged cooperatives were never formally integrated and lacked a coherent strategy. Two years later the company’s payout to farmers was $1.47 per kilo below the small Waikato cooperative Tatua who had chosen not to become part of Fonterra. The Chairman and directors knew something needed to change and as a result decided not to renew the CEO’s contract.

Faced with a catch 22 Ferrier realised he couldn’t challenge a fundamental principle of co-operative ownership without first creating a compelling case for change.

Incoming CEO Andrew Ferrier believed Fonterra’s future was dependent on its ability to transform itself from a commodities reliant business into a value-added concern with a range of branded consumer products. ​This required significant capital investment but under the terms of the current shareholders contract it could only come from the farmer shareholders who owned the business. Farmers who were wary of the value added approach because they felt the cooperative had already chewed up large amounts of capital without delivering on its merger benefits.

Hoping to win their confidence Ferrier set out to improve the company’s return to shareholders, transforming core manufacturing responsibilities, integrating milk processing plants, creating a single supply chain and harnessing technology to improve operational efficiency. But despite the positive results farmers still didn’t trust Fonterra or believe in the value added strategy. Ultimately they remained unwilling to support change to the existing shareholder contracts so Fonterra could seek external investment.

Faced with a catch 22, Ferrier realised he couldn’t challenge a fundamental principle of co-operative ownership without first creating a compelling case for change. On the surface there was a logical argument. Long-term trends pointed to a steady shrinking of commodity prices, highlighting the need to increase the value added part of Fonterra’s business. But for farmers this was about more than numbers and logic. To them Fonterra was and always would be a co-operative. Opening it up to institutional investors and the public represented a loss of control and a risk that they were reluctant to support.

Fonterra’s real challenge was to bring the farmer and director factionalism to an end and successfully raise the external capital that would allow Fonterra to scale, diversify and maximise returns on milk.

Fonterra’s future was dependent on its ability to transform itself from a commodities reliant business into a value-added concern with a range of branded consumer products.

What Does Fonterra Stand For?

The Zone was engaged to align the executive team and help roll out the company values to the entire Fonterra organisation of 15,000 people.

We began by interviewing the senior executives and board members which revealed significant misalignment within the leadership team. Three companies had been collapsed into one amorphous farmer-owned cooperative which was now hamstrung by legacy issues, divided by internal politics, and crumbling under the weight of expectation. Everyone agreed the cooperative had failed to deliver on its merger promises but they were divided on how it should reverse its fortunes.

As a result of the interviews our message to Fonterra was clear:

  • The level of executive misalignment is significant and it has to be fixed before rolling out the values.
  • The story of the business, which is a key piece of alignment, is missing.

We recommended an executive alignment workshop during which the executive team could create the story for the business. One that encapsulated their vision, strategy and values in a language all stakeholders could understand. Ferrier supported our approach and gave us freedom to shape the workshop anyway as long as no changes were made to the existing strategy and values.

The workshop got off to a shaky start. Some executives felt alignment wasn’t necessary and had resistance to talking about “personal stuff”. Others didn’t believe the business needed a story.

After flushing out everyone’s expectations we drew a line on the whiteboard at the front of the room. At one end were the words​“Deliver Milk”​and at the other “​Change the World”. ​We then said:

Some of you want to change the world and some of you think Fonterra just deliver milk. This is preventing alignment and creating a lot of conflict. ​We want you to go for a walk and contemplate where you feel the organisation should sit on the continuum, then return and put a red x on the line. Once that’s done we’re going to talk about it and we don’t leave this room until we get alignment around how we’re positioning Fonterra.

“Some of you want to change the world and some of you think Fonterra just deliver milk.”

Delivering Goodness to the World

After much discussion and debate, the red cross sat slightly over half way on the continuum. Fonterra wasn’t about changing the world, but it wasn’t just about delivering milk either. Instead it was about delivering goodness to the world.

The executives were then asked to consider New Zealand’s role in the Fonterra brand.

We asked them a series of questions:

  • Are we going to keep New Zealand in the brand or are we going to grow into a global amorphous organisation that doesn’t have any allegiance to the country it originated in?
  • Does it matter that New Zealand is part of the brand?
  • Does it matter that it’s New Zealand milk?
  • Could it be made anywhere?

We drew another line on the wall and at one end wrote the words “New Zealand is critical” and at the other “International is fine” The exercise was repeated again and this time the executive team quickly aligned that having New Zealand in the brand was critical.

After much discussion and debate, the red cross sat slightly over half way on the continuum. Fonterra wasn’t about changing the world, but it wasn’t just about delivering milk either. Instead it was about delivering goodness to the world.

At this juncture two important strategic issues had been dealt with. F​onterra was about delivering goodness to the world and New Zealand was an important part of the brand. B​ut it still needed to find its identity.

The executives were then split into two teams. Armed with a dossier on the history of Fonterra they were given four hours to create a compelling story about the giant cooperative. At 8pm that night, after much debate and discussion, they came together to present their stories to each other. The stories were different but they had one clear similarity. Both groups had realised how important Fonterra’s heritage was and what a crucial role the farmers had played in getting them to this point. It was time to pause and reflect.

The following day the executives came back together and thrashed out one compelling story which in essence was about pioneering. New Zealand farmers, men and woman, closed down by the commonwealth and forced to go out into far flung countries and forge new markets for their milk. From those humble beginnings Fonterra had become the world’s largest dairy company.

Empowered by the story the executives saw a real opportunity to engage and win over the farmers. They wanted to roadshow it nationwide in preparation for the annual general meeting. But The Zone cautioned against doing this immediately. If Fonterra was going to roadshow the story it was essential to tell farmers where they were going. In addition Ferrier recognised that misalignment in the team was still pronounced and more work needed to be done in this area. His question to The Zone was ‘Where do we go next?”

We recommended another workshop to tackle vision and purpose.

Fonterra wasn’t about changing the world, but it wasn’t just about delivering milk either. Instead it was about delivering goodness to the world.

The executive team had tasted the success that came from an aligned team working together and they were ready for more. In workshop two they created a robust vision and things seemed to be tracking in the right direction. But we detected hesitation in the team. Our intuition told us something needed to be spoken but Ferrier’s presence was preventing it from being said. We requested he leave the room.

We then asked the executive team a question “Based on the story and the vision you’ve just created do you really believe in the values and the strategies?” The answer was a unanimous no. The next question had to be asked “Who’s going to tell Andrew because he thinks they are right and you’re his team and every single one of you thinks they’re not right. So if you don’t tell him that would be bullshit.”

They called Ferrier back into the room and as a united front delivered the news. His response took them by surprise. He said “I’ve been feeling the same way, so how do we do this?”

We recommended the values be created by internal employees, not the executive team, and suggested using a proprietary process called an Appreciative Inquiry to get input from across the organisation. It had to happen fast. The team had momentum and the annual farmer shareholders meeting was looming. Ferrier gave us the green light.

The appreciative inquiry involved training 60 Fonterra staff, in 19 different countries, to conduct more than a 1000 employee interviews over a period of eight weeks. These were blended with marketplace interviews comprising wholesale customers, New Zealand farmers and members of the public who were asked “What sort of business would you be proud of?”

The interviews came from every country Fonterra had staff and they represented a proportional cross section of the entire organisation. When they were complete the data was gathered together and the people who conducted them were flown to Auckland from all over the world. For three days the team of 60 worked together to shape the values. It was an emergent process, with a big team, working in multiple languages. Graphic facilitators supported them by creating images that helped communicate each values essence.

On the final day Ferrier and his executive team turned up to see what had been created. They were blown away. The values team had perfectly captured what Fonterra was about.

The energy inside the organisation had taken a dramatic shift. Alignment within the executive team had increased significantly and there was growing buzz rippling throughout the rest of the organisation. People could feel something big was happening. Fonterra was discovering who it really was.

This is Fonterra

The team was keen to get on the road and share the thinking with the cooperatives farmer shareholders but The Zone had a final challenge for them. What about your strategies? The executive team came together and rallied around one more time. Getting clarity around the strategies was the final part of the jigsaw. All that remained now was to package the thinking and take it to the farmer shareholders.

We understood the sacred nature of the work that had been completed by the Fonterra team. The organisation had found its heart. It wasn’t just a commercial entity anymore, it was a part of New Zealand that people could trust and be proud of. With this in mind we recommended they forgo charts and power points and instead produce a book. One that honoured the farmers and brought the cooperatives heart to life.

That book was named “This is Fonterra” and the energy it contained helped end the farmer director factionalism and set the company up for global success on an unprecedented scale.

“The desire to define ourselves, was such a big ask… It was only in working with The Zone that I started to get the confidence to take on that challenge.”

What had been missing in the farmers relationship with Fonterra wasn’t to do with strategy. It wasn’t that they wanted to go overseas and expand and invest in added value products. It was the fact that the farmers didn’t trust them and thought they didn’t have a heart.

When the farmers came to the road show they felt Ferrier and his executive team had understood what they did and what it meant to work the land. Nothing in the “This is Fonterra” story addressed the crunch issue, sourcing external capital but n​ow farmers felt they could trust Ferrier and the executive team leading the business.​ After nine years and two failed attempts, Fonterra’s farmer shareholders voted in favour of the proposal to allow them to raise capital by selling stock to external investors.

It meant that F​errier and his executive team would finally able to invest with confidence in long-term opportunities that built on Fonterra’s global, competitive advantage and maximised returns on milk.

As Ferrier said in his own words:

Although what The Zone did may seem like normal mission and values stuff, it was much more important to us. We did not know who we were. We had no rallying cry for the stakeholders, other than ‘To Lead in Dairy’, which came off a McKinsey shelf. The desire to define ourselves- to us and to our stakeholders, was such a big ask that I hadn’t got my head around how to get that going. I was very afraid of the token initiatives of Mission and Vision that we have seen too often. It was only in working with The Zone that I started to get the confidence to take on that challenge.

Perhaps the impact the Fonterra story had on its relationship with farmers is best represented by this anecdote. It involves a farmer who was one of Fonterra’s largest shareholders. He had notoriety amongst his peers because of his vehement and outspoken opposition to the idea of sourcing capital from external investors. “Over my dead body” were the words he uttered at one shareholders meeting.

Upon encountering the “This is Fonterra” story that same farmer became one of the cooperatives most fierce and loyal supporters. He was so moved by what it said that he had the words painted on his milking shed wall so he could read the story every day. And his was one of the votes that gave Fonterra permission to go public and unlock their capital.

Footnote:

Post our assignment there was a change of leadership at Fonterra. Andrew Ferrier left to take on new challenge and he was replaced by new CEO Theo Spierings. Under Spierings leadership the focus was shifted from creating added value branded products to producing greater quantities of milk powder via high intensity farming practices. Unfortunately, and true to Ferrier’s predictions, the price of wholesale milk powder declined drastically and Fonterra and New Zealand farmers are now faced with record low returns.

Get in touch with us

Liam Forde

liam.forde@thezone.co
+33 643 918499

Corina Roobeck

corina.roobeck@thezone.co
+44 7500 864008

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