Restructuring to Accommodate the "New" Model
Operationalising "One Team, One Way of Working"
Fonterra's conceptualisation of its business model has resulted in the business processes, and the information needed to support these processes, determining technology and software choices. The BPR focus and the "One Team, One Way of Working" concept have been translated into a company-wide organisational change exercise, branded as the JEDI programme. The objectives of the JEDI programme are seen as simplifying the business processes of Fonterra and "shrink(ing) the distance between the customer and our manufacturing sites", thereby "excel(ling) in supply chain management by "owning" the customer-to-cow chain and deliver the best sales proposition - one combining quality and reliability at the right price."8 The operational "glue" that holds all the elements of managing the value chain together is the information storage, processing, transfer and management systems of the company. Information networks thus act as an "engine room" of the company.
Culture Change, Business Process Change and ICT Implementation
JEDI embodies a culture change exercise within Fonterra as well as a business process change. The dairy industry has been subject to much change as a result of policy reforms to the agricultural sector dating from the 1980s, and the upheavals generated from the 2001 merger and deregulation in its exporting arm. Whilst the industry as a whole may have been feeling the effects of "change fatigue", there was also a sense that to date the brunt of changes had been borne by farmer-owners, and that the last part of the chain awaiting reform was the processing and marketing activities of Fonterra. As farmer-owners receive the benefits of increased industry competitiveness and profitability, support at the governance level of the organisation was assured. This support has been translated into appointment of a management team incentivised to make the necessary changes with a sense of urgency. The forty individual projects comprising JEDI will be completed by December 2004.
During the project, no "sacred cows" will be exempt from the effects of change. A harsh reality of the project is that it will halve the number of staff required to run the company - indeed, this saving in staff costs comprises a significant component of the bottom-line benefits of the project. However, change has become part of the culture of the New Zealand dairy industry that Alex Duncan believes participants have come to expect. Whilst JEDI will cause pain to some individuals, this is a necessary consequence of executing the strategy to deliver increased value to farmer shareholders. The cost of not implementing it is New Zealand's cost leadership in world dairy markets.
Staff "Buy-In"
Bringing JEDI into reality requires co-operation of staff. Getting staff "buy-in" is fraught with difficulty, as the people who hold the key to understanding processes, and hold much of the information and processes required to run the company in personal data storage (e.g. in their heads) and processing systems (e.g. personal spreadsheets), face the threat of losing their jobs. The change process could be at risk from individuals using possession of information as power or leverage to retain their positions, or by actively resisting changes to delay their implementation. As moving towards "one source of the truth" eliminates multiple data stores, and rationalising processes necessarily requires documentation, changes to, and in some cases electronic substitution, of processes currently carried out by individuals, the operational success of JEDI and reduction of the Fonterra's reliance on specific individuals is strongly dependent upon extracting and utilising this information.
Fonterra has managed the "hold-up" risk, and simultaneously ensured that business processes rather than technological requirements dominate the change process, by seconding two hundred Fonterra staff, experts in their various areas of business practice, to the JEDI project to design and implement the new systems and applications, with temporary staff recruited to cover their operational roles whilst they are engaged with JEDI. This creates a sense of ownership of the project in the seconded staff, as well as ensuring that the necessary human understanding of the business is captured, documented, and where appropriate, translated into the electronic information systems of the company.
Competition amongst staff to be selected as development team members has encouraged sharing of information and process knowledge rather than concealment and retention for personal leverage. Selection for JEDI has also offered those employees a greater degree of insurance against the costs of change, as once the JEDI projects become operational, these staff will transfer back into operational roles. As owner-champions, they will train staff in system use and remain an ongoing source of information about the business processes of Fonterra and their translation into various information technology-based applications. Such incentive-compatible arrangements further reduce the barriers to these staff contributing their otherwise "proprietary" information to the corporate pool.
Fonterra management also recognises that secondment to JEDI increases the skill level of those employees for the benefit of the company, as the specialist knowledge in the design and operation of the company's information systems will be an ongoing resource available to be utilised. The average level of service of employees in the industry is over fifteen years, and thus any investment in staff skills accrued during JEDI is likely to outlast any specific technology or software application created to serve the information management needs.
Technology Choices
In keeping with the concept of building a new business model that is free of any of the "sacred cows" of the "old" ways of doing business, it was decided to build a completely new electronic information management and processing system to support the new business model rather than adapting any of the existing systems. SAP applications systems were selected as the core electronic information storage and management technology. Group Controller Jason Dale says SAP was selected as it offered the best technological solution for Fonterra.
Learning from past experiences with complex systems, an early decision was made that no customisation of the fundamental SAP capabilities would be undertaken. Thus all Fonterra applications, used from any location around the world, will be utilising standard code. Future software upgrades can be applied with confidence that there will be limited risk of the unexpected failures and incompatibilities that can attend upgrades in highly customised systems. The only exception to the "no customisation" rule will be to accommodate the legal requirements of the various international jurisdictions in which Fonterra operates. Hence, the objective of simplicity in the system itself is addressed.
Staged Implementation
The vast scale of the Fonterra project has necessarily required a staged implementation, both to avoid disruption to existing activities, which must continue during implementation, and to ensure the implementation stays within constraints of supply of resources to fund the project and resources to undertake the specific technical tasks required in building the SAP system. This required both prioritisation and resource management.
As customer demand projections were deemed to be crucial to future production planning, and because customer relationships were assessed as the area where Fonterra was weakest, information flows back from the customer to processing plant and the farm gate were determined to be the first priority for JEDI. This was also the area where it was determined most gains could be made from staff reductions. Within this process, the various operational systems will be phased across. These are the forty individual JEDI projects scheduled for completion by December 2004.
It is acknowledged that there is potential benefit to be gained from capturing individual farm data, and using this to better manage the Fonterra operations. Farmer shareholders are able to access milk payment, shareholding and milk production and quality information both online via the Fencepost.com, on paper, and by calling the Contact Centre. Systems to best utilise farmer information still require significant research and development to be undertaken.
Staff Skill Issues
The two hundred Fonterra staff seconded to JEDI are providing the business design leadership for the project. However, specialist technical staff with the requisite software skills are undertaking the technical implementation of these designs into the SAP system.
The size of the Fonterra project means that it is infeasible to source the requisite technical staff from within New Zealand. Firstly, a stock of sufficient size from which to draw does not exist. Secondly, as Fonterra's project is a one-off, recruiting and training New Zealand staff for the project makes little sense as once the project is completed there will be limited demand for these skills within either the company or the country. Thirdly, the rapid change in technological development and the vendor-technology-specific nature of the skills means that the incentives to recruit, train and keep updating staff in these specialist skills lies with the technology vendors rather than client companies. Hence, in order to access the requisite quantity of already-skilled technical development staff for JEDI, recruitment has been managed by the SAP vendor from an international pool. Most of the Fonterra technical developers come from North America.
Fonterra Group Controller Jason Dale acknowledges that from Fonterra's perspective, the information technology staff used in JEDI are an international commodity that moves where the projects are. The company is quite happy to leave their recruitment to the technology vendors and manage future technical support requirements through contracts with the vendor.
Jason and Alex Duncan both identify Fonterra's most challenging recruitment need, both for JEDI and for the ongoing success of the business in a rapidly changing industry, to be skilled and experienced change managers who understand the dairy business. The company has generally recruited and trained its own staff for these roles, identifying talented individuals early and exposing them to the variety of roles within Fonterra, both in New Zealand and in the company's forty-plus international locations. Hence, Fonterra has become a "centre of expertise" from which the entire international dairy industry has tended to recruit. This has left the organisation vulnerable, even with the process of internal promotions, as each staff member who "moves on" must be replaced. International recruitment is difficult, due to differences in salaries and lifestyle opportunities offered in New Zealand, with most international recruitments tending to be New Zealanders returning after their "overseas experience". As Jason says, "you can't just go out into the market and hire these skills, so succession planning is a `must'".
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