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This is to certify that the

dissertation entitled

AN ANALYTICAL FRAMEWORK FOR INDUSTRY STRATEGIC
PLANNING AND COORDINATION

presented by
Conrad Power Lyford
has been accepted towards fulfillment

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Doctoral degree in Agricultural Economics

 

 

 

 

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AN ANALYTICAL FRAMEWORK FOR
INDUSTRY STRATEGIC PLANNING AND COORDINATION

By

Conrad Power Lyford

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural Economics

1998

 

 

 

 

ABSTRACT

AN ANALYTICAL FRAMEWORK FOR
INDUSTRY STRATEGIC PLANNING AND COORDINATION

By

Conrad Power Lyford

Commodity industries in agriculture are being challenged to respond to many dynamic
changes affecting their competitiveness and economic viability including opportunities for
domestic and international demand expansion, changing government regulations, competitive
pressures, and customer quality requirements. In order to effectively compete in markets which
are increasingly global, very dynamic and often fiercely competitive, commodity industries, as
well as the individual firms and organizations within these industries, need to plan for needed
strategies for the future. Such an approach can aid an industry to adjust rapidly to changing
market and economic conditions as well as improve the industry’s overall performance in serving
changing customer needs. Some industries, comprised of firms and other organizations within a
commodity industry, are pro-actively addressing challenges through planning strategically. As
these aspects are addressed then industry performance can be improved. This sort of planning
activity with the goal of improving the competitiveness and economic viability of commodity
industries is what is termed industry strategic planning and coordination (ISPC).

A key purpose of this dissertation is to contribute to the development of a pragmatic,
broad-based analysis framework for accomplishing ISPC. As one step toward this goal, a
review of theoretical concepts and ideas from several relevant disciplines was developed. These
concepts and ideas were subsequently used to develop an ISPC framework as an effective guide

for practitioners of ISPC. This ISPC framework was then related to the empirical setting of two

 

 

 

industry case studies which involved industry strategic planning and coordination. Based upon
the case studies, the framework was evaluated in relation to these empirical settings. This

evaluation indicates that the ISPC framework is a useful model and can be used in other

industries.

Experiences studied in this dissertation indicate that ISPC can be effective in helping an
industry to develop and implement strategies that are likely to lead to improved industry
performance. This indicates that further research on ISPC and applications of ISPC will likely
provide useful contributions. This dissertation documents this and further contributes to the

development of a comprehensive analytical framework for industry strategic planning and

coordination.

 

 

 

ACKNOWLEDGMENTS

Many good people have helped me on the way through my Ph.D. program and
dissertation. In the dissertation, Dr. Ricks proved to be a consistent source of knowledge and
information, especially in how to work pragmatically with agricultural industries. Dr. Peterson
provided substantial insight and earlier in my program helped inspire me to focus more on a

career in agribusiness management research and teaching. Drs. Allen and Pierson provided

needed support and feedback.
In my Ph.D. program, I would especially like to thank Dr. Schmid who is one of the

best human beings that I know. His wisdom and guidance in my program were invaluable. I
enjoyed working and learning with Drs. Yumkella and Swinton who provided good opportunities
for me to work and grow. I have been blessed with many friends in Michigan who have made
the stay fun and rewarding in many ways.

There are many others to which I could express my gratitude. I appreciate the support
and sacrifices that my parents made to my life and education. I especially thank Vicki for

persevering with me through the Ph.D. process and for her support. I praise God who makes all

things possible.

iv

 

 

TABLE OF CONTENTS

LIST OF TABLES ............................................ xi

LIST OF FIGURES ........................................... xii
CHAPTER 1

RESEARCH SETTING AND PLAN ........................................ 1

1.1 The Research Setting ................................................ 1

1.2 Industry Strategic Planning and Coordination (ISPC) ..................... 3

1.2.1 The Process of Strategic Flaming at the Industry Level .............. 3

1.2.2 Rationale for the Terminology of Industry Strategic Planning

and Coordination .................................. 4

1.2.3 The "Industry" in ISPC ....................................... 5

1.3 Research Objectives ................................................. 6

1.4 Research Procedure ................................................. 7

1.5 Organization of the Dissertation ...................................... 12
CHAPTER 2

THE CONCEPTUAL BASIS OF ISPC AND LITERATURE REVIEW ........ 14

2.1 Strategic Management and Strategic Management Frameworks ........ 15

2.1.1 The Evolution of the Concept of Strategic Management ......... 15

2.1.2 Frameworks in Strategic Management .................... 17

2.1.3 The Five Tasks of Strategic Management .................. 18

2.1.4 A Framework in Strategic Management for Competitive Advantage . 20
2.2 Differences Between Firm Strategic Management and ISPC Frameworks. . 23

2.2.1 Need for a Method to Initiate an ISPC Process ............... 25
2.2.2 The Nature of ISPC Strategy .......................... 25
2.2.3 Rivalry in an ISPC Process ........................... 27
2.3 Existing Industry Strategic Planning and Coordination Frameworks ..... 28
2.4 Analysis of the Vertical Production-Marketing System ............... 33
2.4.1 Subsector Analysis ................................. 33
2.4.2 Value Chain Analysis ............................... 34
2.4.3 Transactions Cost Analysis ............................ 35
2.5 Core Competencies ....................................... 36
2.6 Potential Benefits of ISPC .................................. 38
2.6.1 Improving Generic Demand Expansion Activities ............. 39
2.6.2 Addressing Externalities to the Firm ...................... 40

 

 

 

2.6.3 Developing a Critical Mass ........................... 41

2.6.4 Improving the Industry's Ability to Act as a Group ............ 41
2.6.5 Achieving First Mover Advantages ...................... 42
2.6.6 Improving Cost, Technological, and Managerial Capabilities ...... 44
2.6.7 Developing Information in Critical Areas .................. 45
2.7 Examining the Possibility of Collusion as a Motivation for ISPC ........ 46
2.8 Theoretical Issues Related to Developing an ISPC Framework ......... 49
2.8.1 Group Theory and the Process of ISPC .................... 49
2.8.2 Providing Public Goods as an Implementation Issue in ISPC ...... 50
2.8.3 Vertical Coordination as a Special Topic in ISPC ............. 53
2.9 Summary of Relevant Findings to ISPC Framework Development ....... 54
LPTER 3
A FRAMEWORK FOR INDUSTRY STRATEGIC PLANNING AND
COORDINATION ..................................... 57
3.1 The Pr0posed Framework .................................. 57
3.2 Process Initiation ........................................ 60
3.2.1 Articulation of an Industry Need for an ISPC Process .......... 62
3.2.2 Formation of an ISPC Leadership Group ................... 63
3.2.3 Selection of a Set of Common Objectives for ISPC ............ 65
3.2.4 Development of a Method to Pay for the Costs of the ISPC Group . . 66
3.2.5 Provision of Staff Support for the Process .................. 67
3.3 Strategic Planning ........................................ 68
3.3.1 Situational Analysis ................................ 69
3.3.1.1 Shift-Share Analysis ......................... 70
3.3.1.2 SWOT Analysis ............................ 71
3.3.1.3 Value Chain Analysis ......................... 73
3.3.1.4 Competitor Analysis ......................... 75
3.3.1.5 Transactions Cost Analysis ..................... 77
3.3.1.6 Analysis of Major Driving Forces ................ 78
3.3.1.7 Identification of Key Success Factors .............. 79
3.3.1.8 Summary of Situational Analysis ................. 80
3.3.2 Determination of the Industry’s Vision Statement and Guiding
Strategies ...................................... 81
3.3.2.1 Generation of an Industry Vision Statement .......... 81
3.3.2.2 Guiding Strategies ........................... 82
Growth Positioning .......................... 83
Focus on Developing Core Competencies ............ 85
Determination of Value Based Actions to Meet Customer
Needs .............................. 86
Selection of the Overall Mix of Differentiation and Low
Price .............................. 87

3.3.4 Determination and Prioritization of Major Improvement Objectives . 91
3.3.4.1 Is Industry Action Necessary to Achieve an Objective? . . . 93

3.3.4.2 Does the Objective Address a Critical Industry Gap? . . . . 94
3.3.5 Development of Specific Strategies for Facilitating Needed Industry
Improvement .................................... 95

vi

 

 

3.3.5.1 Strategies in Each Major Improvement Objective ....... 97

3.3.5.2 Impact Analysis ............................ 98

3.3.6 Summary of Strategic Planning ......................... 99

3 .4 Implementation and Coordination of Specific Strategies .............. 99
3.4.1 Developing an Implementation Plan for Each Strategy ......... 102

3.4.2 Communication of the Strategy to the Industry .............. 102

3.4.3 Obtaining Resources for ISPC Strategies .................. 104
3.4.3.1 Voluntary Contributions ...................... 104

3.4.3.2 Mandatory Assessment ....................... 106

3.4.4 Progress Measurement ............................. 107

3.4.5 Enforcement .................................... 107

3.5 Strategy Review and Re-evaluation ........................... 109
3.6 Chapter Summary and Conclusion ........................... 110

PTER 4 _

LYING THE FRAMEWORK IN THE MICHIGAN APPLE INDUSTRY ........ 113
4.1 Overview of the Michigan Apple Industry ...................... 114
4.2 The Framework Applied to the Michigan Apple Industry ............ 117

4.2.1 Process Initiation ................................. 117
4.2.1.1 Articulation of Industry Need for an ISPC Process ..... 118
4.2.1.2 Formation of an ISPC Leadership Group ........... 119
4.2.1.3 Selection of a Set of Cormnon Objectives ........... 121
4.2.1.4 Development of a Method to Pay the Costs of the ISPC

Group ................................. 122
4.2.1.5 Provision of Staff Support for the Process .......... 122
4.2.2 Strategic Planning ................................ 123
4.2.2.1 Situational Analysis ......................... 124
Shift-Share Analysis and Major Trend Analysis ....... 124
SWOT Analysis ........................... 125
Competitor Analysis ......................... 127
Value Chain Analysis ........................ 128
Major Driving Forces ........................ 129
Key Success Factors ......................... 138
Summary of Situational Analysis ................. 145
4.2.2.2 Determination of the Industry's Vision Statement and Guiding
Strategies ................................ 145
The Generation of an Industry Vision Statement ....... 146
Guiding Strategies .......................... 146
4.2.2.3 Determination and Prioritization of Industry Major
Improvement Objectives ...................... 154
4.2.2.4 Development of Specific Strategies for Facilitating Needed
Improvement ............................. 156
4.2.2.5 Summary of the Strategic Planning Phase ........... 160

4.2.3 Implementation and Coordination of Specific Strategies ........ 161
4.2.3.1 Development of an Implementation Plan for Each Strategy 162
4.2.3.2 Communication of the Strategy to the Industry ....... 166
4.2.3.3 Obtaining Resources for ISPC Strategies ........... 167

vii

 

 

4.2.3.4 Progress Measurement ....................... 167

4.2.4 Strategy Review and Re-evaluation ..................... 168
4.2.5 Concluding Observations on Construct Validity ............. 169
4.3 Further Reflections on Quality Management Strategies ............. 169
4.3.1 Total Quality Management ........................... 172
4.3.1.1 Maturity Information Program (MIP) ............. 173
4.3.1.2 Pre-Harvest Workshop ....................... 175
4.3.1.3 Expert Consultation for TQM .................. 176
4.3.2 Premium Grade .................................. 177
4.3.3 Mandatory Minimum Quality Standards .................. 180
4.3.4 Information on Quality Incentives ...................... 182
4.3.4.1 Returns in Tray Pack Relative to Poly Bags ......... 183
4.3.4.2 Returns to Size in the Michigan Poly Bag Market ...... 186
4.3.5 Conclusion to the Quality Management Section .............. 190
4.4 Assessing the Effectiveness of the ISPC Process in the Michigan Apple
Industry ..................................... 191
4.4.1 Progress in ISPC Strategies .......................... 192
4.4.2 Considering Broad Measures of an Industry's Performance ...... 198
4.4.3 Testing Prescriptive Elements in the ISPC Framework ......... 212
4.4.3.1 Broad-Based Strategy and the Framework's Prescription in
Implementation and Communication ............... 213
4.4.3.2 Actual Implementation and Communication Planning and the
Gap ................................... 214
The Premium Grade ......................... 215
Minimum Mandatory Quality Standards ............ 216
4.4.4 &1mmary of the Tests for Internal Validity ................ 217
4.5 Synopsis ............................................. 218
[ER 5
:TRY STRATEGIC PLANNING AND COORDINATION
3 U.S.IMICHIGAN TART CHERRY INDUSTRY ..................... 220
5.1 Overview of the U.S.lMichigan Tart Cherry Industry .............. 221
5.2 The ISPC Framework Applied with the U.S.lMichigan Tart Cherry
Industry ........................................... 224
5.2.1 Process Initiation ................................. 224
5.2.1.1 Articulation of an Industry Need for an ISPC Process. . . 225
5.2.1.2 Formation of an ISPC Leadership Group ........... 226
5.2.1.3 Selection of a Conunon Set of Objectives ........... 226
5.2.1.4 Development of a Method to Pay the Costs of the ISPC
Group .................................. 228
5.2.1.5 Provision of Staff Support for the Process .......... 228
5.3 Progress in ISPC Through the Council ........................ 229
5.4 Impact Analysis of the Federal Tart Cherry Marketing Order ........ 231
5.4.1 Mechanics of the FMO ............................. 233
5.4.2 Effects of Board Policy on Secondary Market Diversion Credits. . . 238
5.4.3 The Grower Price Equations .......................... 239
5.4.3.1 A Piece—Wise Linear Grower Price Equation ......... 242

viii

 

 

5.4.3.2 A Logarithmic Grower Price Equation ............. 245
5.4.4 Estimated Economics of the Federal Marketing Order ......... 245

5.4.4.1 Scenario #1 - Movement Adjusted for Developing Markets 247

5.4.4.2 Scenario #2 - Unadjusted Movement and Diversion Credits

 

 

for Developing Markets ...................... 249
5.4.4.3 Scenario # 3 - Unadjusted Movement with No Diversion
Credits ................................. 249
5.4.4.4 A Comparison of Potential from Marketing Order Options -
Using the 1995 Crop as an Example ............... 252
5.4.5 Summary of the Impact Analysis ....................... 254
5.5 Synopsis ............................................. 254
PTER 6
ISPC: FINDINGS AND FUTURE NEEDS ......................... 256
6.1 The Framework Revisited ................................. 257
6.1.1 An Overview of the ISPC Framework ................... 257
6.1.2 Effectiveness of the Framework and Improvements Based on
the Cases ..................................... 260
6.1.2.1 Process Initiation .......................... 260
The Importance of Existing Industry Organizations to the
Process Initiation Phase ................. 263
Considering the Cost of an ISPC Group Related to Its Size
and Structure ........................ 265
6.1.2.2 Strategic Flaming .......................... 265
Situational Analysis ......................... 265
Determination of the Industry's Vision Statement and
Guiding Strategies ..................... 266
Determination and Prioritization of Major Improvement
Objectives .......................... 267
Development of Specific Strategies for Facilitating Needed
Improvement ........................ 267
6.1.2.3 Implementation and Coordination of Specific Strategies. . 268
Expanded Methods for Achieving Broad-Based Industry
Strategies .......................... 269
The Importance of Time for Broad-Based Industry
Strategies .......................... 271
6.1.2.4 Overall Conclusions on the Effectiveness of the
Framework ......................... 271
6.2 The External Validity of the ISPC Framework ................... 272
6.3 Potential Benefits of ISPC from the Industry and Public Policy
Perspectives ....................................... 273
6.3.1 Benefits from the Industry Perspective ................... 273
6.3.1.1 Improving Generic Demand Expansion Activities ...... 275
6.3.1.2 Addressing Extemalities for Industry Firms .......... 276
6.3.1.3 Developing a Critical Mass .................... 277
6.3.1.4 Achieving First Mover Advantages ............... 278

 

 

 

 

 

 

 

6.3.1.5 Improving Cost, Technological, and Managerial

Capabilities .............................. 279

6.3.1.6 Improving Information ....................... 279
6.3.1.7 Summary of Benefits from the Industry Perspective ..... 280

6.3.2 From the Public Policy Perspective ..... _ ................ 280
More Effectively Meeting Customer Needs ............... 282
Improving Industry Economic Health ................... 282
Reducing Harm to the Environment .................... 283
Communicating Industry's Needs to Governmental Organizations. 284
Absence of Seeking Monopolistic Benefits ................ 284
Overall Summary on Benefits to the Public ............... 285

6.4 Summary and Suggestions for Future Research ................... 286

 

 

 

 

LIST OF TABLES

 

ble 4-1. Major Driving Forces in the US. Apple Industry ................. 130
ble 4-2. Key Success Factors for a US. Regional Apple Industry ............. 139
ble 4-3. Current Market Trends and Goals by Major Market Segments in 1993 . . . . 148
ble 44 Major Strategies Supported by the Task Force .................... 158
316 4-5. Types of Strategies Supported by the Task Force and Implementation ..... 159
)le 4-6. Price, Costs, and Grower Returns for Tray Pack Vs. Bags,
Red Delicious, 1991-1994 ..................................... 185
)le 4—7. A Comparison of Michigan Season Average Fall Sale Prices
Between 2 1/z” and 2 11:” Minimum Size Apples, 1991-1994 ............... 187
ble 4-8. A Comparison of Michigan Season Average Cold Storage Prices
Between 2 IA” and 2 1/4 ” Minimum Size Apples, 1991-1994 ............... 188
tle 4-9. A Comparison of Michigan Season Average Fall Sale CA Prices
Between 2 'A” and 2 1A ” Minimum Size Apples, 1991-1994 ............... 189
1c 4-10. Selected Key Performance Measures for the Michigan Apple
Industry, 1987-1995 ......................................... 200
1e 4-11. A Comparison of Michigan and US. Grower Prices for
Fresh and Processed Apples, 1990-1995 ............................ 205
le 4-12. Tray Pack Volume for Selected Michigan Varieties, 1990-1995 ......... 210
1e 4—13. Tray Pack Percentages for Selected Michigan Varieties, 1990-1995 ...... 211
1e 5-1. An Example of Optimum Supply and Free Tonnage Based on the
Situations in the 1995 Marketing Year ............................. 235
[e 5-2. Estimated Grower Prices for Selected Quantities of New US Crop ...... 246
.e 5-3. Scenario #1: Marketing Order Formula Adjusted for Export and Dried
- and These Approved for Diversion Credit for the 1996 Marketing Year ...... 248
5-4. Scenario #2: Unadjusted Supply Formula for the 1996 Marketing Year
- with Diversion Credit for Export and Dried ........................ 250
5-5. Scenario #3: No Diversion Credit for Secondary Markets for the
1996 Marketing Year ........................................ 251
5-6. A Comparison of the EMU Options - Using the Example of
the 1995 Crop ............................................ 253
6-1. A List of the Various Phases of the Framework and Their
General Purpose ........................................... 261
6—2. The Steps of the Strategic Planning Phase and Their General Purpose ..... 262

xi

 

 

 

 

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2-1.

 

LIST OF FIGURES

Peterson’s Framework for the Strategic Management of

Entrepreneurial Agribusiness .................................... 21
3-1. A Framework for Industry Strategic Planning and Coordination .......... 58
4—1. The Michigan Apple Industry and Main Marketing Channels ........... 115
4-2. The Michigan Apple Industry Strategic Planning Task Force ........... 120
4-3. Percent Tray Pack of Total Michigan Fresh Volume ................ 208
44. Red Delicious Tray Percent of Total Fresh Red Delicious Volume ....... 209
5-1. The U.S.lMichigan Tart Cherry Industry and Marketing Channels ....... 222
5-2. The US Tart Cherry Council .............................. 227
5-3. Grower Prices and Total Supply, 1980—1994 ..................... 240
54. Comparing the Linear and Semi-Logarithmic Equations .............. 243
6-1. A Framework for Industry Strategic Planning and Coordination ......... 258

 

 

 

 

 

CHAPTER 1

RESEARCH SETTING AND PLAN

e Research Setting

Commodity industriesI play an important role in our economy. They provide important
0 food manufacturers (e.g. corn, wheat) and market some products to consumers in non-
ed forms (e.g. apples, peaches, oranges). There has been a long public interest in these

es given their important roles in providing food to the nation as well as employment in
mmunities. Many dynamic changes are affecting the competitiveness and economic

' of these industries. These include changing government regulations, domestic and

Lona] demand expansion or contraction, increased competitive pressures, and greater

r quality requirements.

At the level of an agricultural firm, industry changes can be systematically identified, their
ions assessed, appropriate strategies developed and implemented through a process of
management. However, in addition to firm-level strategic management, there may be

1] opportunities to improve industry performance and competitiveness through industry-
irts to address certain types of issues that may be most effectively addressed by some
:ed industry responses. This suggests that some form of “industry strategic planning”
useful endeavor to improve an industry's competitiveness and economic viability.

, such strategic planning and coordinated action for improved industry performance are

ant goal of the Michigan apple and U.S./Michigan tart cherry industries.

FA.

idustry in this setting refers to firms and industry support organizations involved in
and marketing an agricultural commodity from a particular region.

1

 

 

 

2

One example of an industry improvement strategy that can be enhanced through
inated industry efforts would be to strengthen the industry's reputation in providing high
y products to the market. This strategy could help enable firms in one regional industry to
d market share and develop new markets for their products in competition with other
iodity industries. Often an industry's reputation depends on the action of all firms in the
y area. Therefore, improving the shared reputation has some facets that are beyond the
ility of any one firm or organization alone, most especially in a commodity industry.

The need for such industry—level strategic planning and coordination is accentuated by the
at the role of the public interest in agriculture is changing. Agriculture as a whole has long
:d substantial support at the public policy level, but this is increasingly less the case. There
luced government price and income supports for such farm industries as wheat, corn, and
Increasing amounts of public regulations affect agriculture in such areas as pesticide and
er use, hired labor, and food safety. National public investments through such institutions

grant universities and cooperative extension are declining under budgetary pressures.
l, the public investment in production agriculture seems to be declining while the costs of
Dry compliance by agriculture and food firms are increasingly important. This provides

of motivation for commodity industries to collectively recognize and address these

Industry strategic planning and coordination has or is being used in some industries and
Iotential to be useful in a number of other industries. Recent experiences with the

m apple industry indicate this potential (Woods, 1996). One benefit from this approach is
d coordination within the industry to enhance and quicken needed adjustments in such
production and marketing.

Although relatively little has been written about industry strategic planning and

rtion, some recent works are quite relevant as a base to build upon. These include current

 

3
nent of the area of industry strategic planning and coordination (Ricks and Woods, 1996),
r analysis (Shaffer, 1980; Marion 1986, Boughton et al, 1995), and strategic management
rm (Porter, 1985; Peterson, 1996). Furthermore, because the Michigan apple and
:higan tart cherry industries are currently engaged in a process of industry strategic
and coordination, these situations provide a special opportunity to both contribute to and
n these industry strategic planning and coordination processes. Thus, further exploring
loping the use of industry strategic planning and coordination concepts and approaches

we to be useful as a practical and conceptual contribution.

stry Strategic Planning and Coordination (ISPC) 2
re use of strategic planning for an entire industry with related types of coordination has
widely used than strategic planning for an individual firm or organization. An
te definition for industry strategic planning is thus a necessary starting point. In
1g this definition, three key issues will be addressed:
1 What is industry strategic planning and coordination?
1 Why were these particular words chosen to describe this type of activity?
What is the most useful way to look at the industry in this context?
ing three sections address these questions.
Process of Strategic Planning at the Industry Level
itegic planning at the industry level is a process where firms and organizations within
' strategically plan together to take selected coordinated actions to improve industry
mess, performance, and economic viability. In the Michigan apple industry

representatives from firms and industry organizations have met periodically in a

[——

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ership roundtable format to synergistically deve10p strategies and plans to set the stage for the
re success of the industry. One of the key expected outputs of this type of process is a set of
ritized strategies or action alternatives where industry action can help improve performance.
The participants in the industry planning process selectively work on developing strategies
dress certain issues that can supplement strategies of individual firms and can help set the
e for improved performance by both individual firms and the aggregate industry. This process
be expected to focus attention on certain opportunities or problem areas where individual
3 and/or support organizations can respond with appropriately identified strategies. Strategic
ning at the industry level may involve selected actions or programs, possibly including
datory regulations such as minimum quality standards or voluntary informational approaches.
1 the minimum quality standard example, the strategic planning process could raise awareness
e issue and promote effective policy responses by individual firms and industry organizations.
Rationale for the Terminology of Industry Strategic Planning and Coordination
There are a number of potential choices in determining the apprOpriate terminology to
ibe strategic planning at an industry level. One obvious choice is to call the activity industry
gic planning. However, strategic planning as a term in the business literature has been
:d as only part of the needed overall process. Managers generally need to implement as well
. This has resulted in the development of the strategic management term to describe firm
trategic planning and implementation efforts (Hussey, 1994).
Industry strategic management is a potential choice to describe efforts to plan and
ent certain kinds of changes for the future at the industry level. However, the use of the
anagement" in this context implies a level of implementation control that is clearly beyond
e1 that most industries could achieve. A diverse and complex industry of many different
rganizations, and marketing channels with several vertical levels in the production-

ing chain cannot be "managed" to the degree that is possible within a firm. Therefore, the

 

 

 

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industry strategic management has its drawbacks in the context of a diverse and complex
rodity industry.

The goal of integrating strategic planning with implementation suggests that an element of
trategic plans can or will be implemented at the industry level should be included in a most
ariate term for this approach. The strategies developed through industry strategic planning
ost likely require some manner and degree of coordination and COOperation between the
md organizations in the industry - - although in many cases this may be quite informal and
I knit. This type of cooperation must largely be achieved through voluntary actions of firms ‘
other organizations comprising the industry. The use of the word coordination in the term
3» strategic planning and coordination arises from this important consideration. Therefore
dissertation, the phrase industry strategic planning and coordination (or ISPC) will be used
ribe this approach.

The "Industry" in ISPC
ISPC when applied to an agricultural commodity industry focuses on the interrelated firms
ustry organizations from the farm level through other phases of the production and
ng system that identify themselves as having a common interest in that commodity
r. This common interest may focus around a number of issues often including some
hic basis. For example, the Michigan apple industry includes growers, packers, shippers,
)rs, and apple industry organizations. These firms and organizations in the Michigan
ustry share to some extent a set of common interests and reputation with Michigan apples

5 as well as common production and marketing problems such as market development,
election, quality issues, supply-demand balance, etc.

important distinction about industry strategic planning and coordination is that it is not

(1 by a centralized planning agency. ISPC is developed largely by the industry itself.

 

 

 

 

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3 means that the firms and organizations provide the direction, and thus the strategies and
irities developed will be grounded in and closely linked with the needs of the industry.

From the public policy perspective, some might be concerned that the goal of industry
tegic planning and coordination might be to restrict quantity and achieve a higher collusive
e for the industry. There are, however, many other prOSpects and motivations for improved
[stry performance in a dynamic, highly competitive environment that are much more likely
s for attention in industry strategic planning and coordination. These include developing
stry public goods (such as consumer market research), improved vertical coordination, and
r benefits with the primary goal of more effectively serving customer needs. The issues of the
fits of industry strategic planning and coordination as well as possible monopoly motivations
rese efforts are discussed in Chapter 2 from a theoretical perspective and in Chapter 6 based

{periences in the Michigan apple industry and the U.S.lMichigan tart cherry industries.

.esearch Objectives

ISPC is an approach that offers substantial promise for aiding the competitiveness,
rmance, and economic viability of industries. The broad objectives of this dissertation are to
=r analyze and develop the concept of ISPC as well as to develop effective approaches in
rplishing ISPC. In doing this, the dissertation has the following key research objectives:

1. Contribute to the further development of a pragmatic, broad-based analysis

framework for accomplishing ISPC.

2. Develop an improved understanding of the potential benefits and

‘ limitations of ISPC.

3. Provide evidence, to the extent that data and information are available, that

ISPC can be useful in some industry settings.

 

 

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4. Apply certain aspects of the ISPC framework developed here and in other
recent works to the Michigan apple and U.S./Michigan tart cherry
industries to further show the usefulness of the ISPC approach in practical

applications.

Research Procedure
To accomplish the above research objectives, it is necessary to develop an appropriate
:arch procedure. This section presents such a procedure by (1) pr0posing two researchable
rositions, and (2) describing the testing procedures that will be used to establish the validity of
propositions.
1 Research Propositions
As mentioned earlier, ISPC is a complex, relatively new approach with potentially
)rtant economic outcomes. At this point, there has been relatively little research about ISPC
:h means that developing an exploratory Understanding of ISPC and its theory would be
apriate.
Research Objective 1 of this dissertation is to further develop an ISPC analytical
work. This objective leads to the following preposition:
Proposition I
Based on theory fiom relevant disciplines, a framework of interrelated
activities can be specified as an aid for accomplishing ISPC.
proposition may seem trivial. However, it is not necessarily apparent that established theory
les an adequate source on which to develop an ISPC framework. Economic theory and
1st practice have historically argued against a legitimate ISPC process while management

has been focused on the firm level.

 

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Proposition I is the theory building phase of the research design. Theory about how to

ively accomplish ISPC from relevant disciplines is integrated in a framework. The relevant
ure for building a useful ISPC analytical framework comes from several sources. The
ure on firm-level strategic management provides considerable foundation material. Then
literature from economics, agricultural economics, management, and other social sciences
used to modify and adapt relevant firm-level concepts for application to the industry level.
pts and relevant aspects for an ISPC framework can also be drawn from the small body of
g literature on ISPC (Ricks and Woods, 1996; Woods, 1996; Ricks, Woods, Boughton, and
,1996)

The empirical phase of the research design of this thesis applies the ISPC framework
red in the context of two industry cases where ISPC is being used. This application
:es Research Objective 4 listed above. Using the specific industry cases in this manner
~nsiderable empirical information and an inductive emphasis towards illustrating,
ing, and validating the prOposed ISPC framework. The case studies are used to test a
proposition:
Proposition 11

An actual ISPC process that follows the framework of Proposition 1 can
substantially contribute to improved industry performance.

Lng of this proposition addresses Research Objectives 2 and 3.
Proposition I can be explored through an extensive literature review and synthesis of key
from that review into a framework. Investigating Proposition 11, however, requires
ie empirical validity of the proposed framework. A design for this testing is needed.
ting and Empirical Validation of the Framework
is mentioned earlier, the case study approach has been chosen to explore and investigate

sis is appropriate because the case study approach is particularly useful in developing an

 

 

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tratory understanding of a new area (Yin, 1994) and can be used to develop and test relevant
:hesis and theory (Hartley, 1994). Specifically, the framework will be applied in the cases of
lichigan apple industry and the U.S./Michigan tart cherry industry to evaluate the
iveness of the resultant I SPC process and the ISPC framework.
There are several specific measures of validity for the data collection and analysis efforts

3 study research. Yin (1994), a prominent authority on case study research, discusses his
on four types of relevant validity for case study research -- construct validity, internal
y, external validity, and reliability. These measures of validity seem appropriate then to the
:h design in this dissertation. The following considers these measures of validity for this
ation and maps out how they are addressed in the structure of the dissertation.

Construct Validity

Construct validity is considered one of the most important advances in the science of
ement theory and practice (Kerlinger, 1986). Construct validity is achieved through
hing apprOpriate operational measures for the concepts under investigation. That is, it is
nt to establish methods to measure the issues under investigation. Two important elements
ruct validity are (1) does the theoretical concept have an operational counterpart, and (2)
operational counterpart by objectively measured.
In this dissertation, the first element of construct validity can be established if the
irk can be shown to correspond with the activities that were actually done in an industry
In other words, construct validity can be established if the theoretical constructs of the
rk accurately describe what happened in actual setting. In this, the description provides
.tional measure of the framework.
,’ in argues that the second element of construct validity should be based on using multiple
f evidence that mutually reinforce the same findings. In the case study of the Michigan

ustry, three main sources of information were used in developing the case. One source

 

 

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rforrnation was from the author’s participant-observation of the activities of the Michigan
e industry ISPC process. This included attending meetings of the ISPC group as well as
:loping informational analyses based upon the priorities and suggestions of the group. A
nd source of information was the minutes of the ISPC group’s meeting that established a
en record of key discussion points and decisions made in the meetings. A third source of
me was from interviews and discussions with key informants. Substantial discussion in
ter 4 will focus on evidence of construct validity for the framework provided by the apple
try case.
2 Internal Validity

Another key test of validity is internal validity. Internal validity focuses on establishing a
l relationship where certain conditions are shown to result in other conditions. That is,
1 conditions cause other conditions. The need to establish internal validity is important for
mework and the ISPC approach in general because a key expectation about the framework
it provides effective methods for carrying out ISPC. This means that the ISPC framework
guide an ISPC process which results in improved industry performance -- the essence of
ition II.

Internal validity will be pursued within the case studies using three tests. First, it can be
that applying the framework facilitated the development and implementation of strategy
:red the industry’s course from what it would have been and hence could result in
3d performance over time. This is a weak test of internal validity, but it is appropriate to
s since they are being analyzed as works-in-progress rather than after an extended
entation period.

A second, stronger test of internal validity is to show that the ISPC process actually
ted to improved industry performance and not merely a change in course. This second

be addressed in the Michigan apple industry case study, but results remain tentative.

 

A third test c
designed to effective
certain actions should
that in specific situat
not entirely parallel (
possible to test the sp
francwork's set of pr
outcomes for the ISP
1.423 External Va

External vali
the set of situations tr
generalizable is the I:
ll has been tested. R:
obtained from a 3am;
research by its very n
horn Which to genera
somewhat tentative b
MWMW
discounted, 1m
validity will be revisi
1.4.2.4 Reliability

Yin Mates an
another researcher usi

t .
rung, etc. would cor

lo
radequate d°°llmer

 

l l
A third test of the framework's internal validity focuses on the fact that the framework is

gned to effectively guide ISPC processes. This means that the framework prescribes that
in actions should be accomplished in specific ways in an ISPC process. However, it is likely
n specific situations the actual practice, i.e., what is actually done in an ISPC process, will
rrtirely parallel or follow the prescribed actions of the framework. In those situations it is
ble to test the specific elements of the framework in which actual practice diverged from the
:work's set of prescribed actions. If the divergence from framework results in undesirable
mes for the ISPC process, this helps confirm the internal validity of the framework.
3 External Validity

External validity is the issue of considering how generalizable are the results or what is
: of situations to which a study’s findings can be generalized. A key issue in this is how
rlizable is the ISPC fi'amework to be developed to situations beyond the case studies where
Jeen tested. Results would be generalizable to a particular population if the results were
ad from a sample which was expected to represent a particular population. Case study
h by its very nature generally has a small sample size, often with only one or two cases
'hich to generalize. As such, the generalizeability obtained through case studies is
hat tentative because there often are unique characteristics in the particular cases studied.
sans that, based on this dissertation alone, the external validity of Pr0position II can not be
tablished. In the concluding chapter of the dissertation (Chapter 6), the issue of external
will be revisited for further elaboration.
Reliability
Yin relates another key test of the validity of a case study, reliability. This test is whether
researcher using the same evidence to deve10p the case study including data collection, ’
etc. would come to the same conclusions as the case study. For reliability, it is essential

uate documentation of the case studies to be kept and review received from other relevant

 

 

researchers. ln devel
were made. Records
case studies and cont

drawn appear to be re

1.5 Organization of

The remaindr
relevant literature in '
on these conceptual s
that an ISPC frameWr
some guidance in ada
the industry context.

The third

approach or guide to .
concepts from the lite

In Chapter 4,
industry is developed
analytical overview o
approach. Evaluation
effective in the Michi
and industry perform;

The fifth chap
U“Michigan tan ch:

hunt
. ndugrry. An in

 

l2
rrchers. In developing the reliability of the case studies in this dissertation several efforts
made. Records were kept of ISPC group meetings and other key events. Furthermore, the
studies and conclusions were reviewed by key informants who suggested that the conclusions

n appear to be reliable.

rganization of the Dissertation

The remainder of the dissertation is organized as follows. The second chapter reviews
nt literature in the fields of business, agricultural economics, and economics in order to draw
se conceptual sources in developing an improved framework for ISPC. Some key issues
rISPC framework will need to address based upon theory are identified. This provides
guidance in adapting and modifying existing planning and implementation frameworks to
ustry context. Furthermore, a discussion of theoretical benefits of ISPC is deveIOped.

The third chapter develops an ISPC framework that is designed as a generalizable

ch or guide to accomplishing ISPC. The framework is based upon integrating relevant
ts from the literature reviewed in Chapter 2.
In Chapter 4, a case study of the strategic planning experiences in the Michigan apple
I is developed. The goal of this case study is to apply the framework and provide an
:al overview of the entire process in one industry that has and is using this type of
h. Evaluation and analysis focus on the extent to which the ISPC process has been
a in the Michigan apple industry and to which a causal relationship exists between ISPC
ustry performance.
The fifth chapter is a case study of emerging strategic planning efforts in the
:higan tart cherry industry. This chapter describes current efforts in ISPC for the tart

rdustry. An impact analysis of one recently developed industry-wide program, the federal

 

i

marketing order for Mi
analysis.

The sixth chapt
homework developed in
U.SJMichigan tart chem
framework as well as pr
the ISPC fiamework is c

suggestions on some are

ISPC are provided.

 

 

 

 

13

ting order for Michigan/US. tart cherry industry, is developed as an example of impact
is.

The sixth chapter summarizes the entire dissertation. Within this final chapter, the
work develOped in Chapter 3 is revisited based upon the Michigan apple industry and
llichigan tart cherry case studies. These provide some indications for improving the
work as well as practical innovations on how to accomplish I SPC. The generalizeablity of
PC framework is considered. The current state of ISPC research is assessed, and
rtions on some areas and approaches where future research could improve knowledge about

are provided.

 

 

As caller
the foundation or
frameworks and
framework. The
will be used in in

In review
inanumber of an
previous framewr

Strickland (1995)

 

 

 

CHAPTER 2
THE CONCEPTUAL BASIS OF ISPC AND

LITERATURE REVIEW

As called for in Chapter 1, relevant theory and literature need to be reviewed to develop
rndation of an ISPC framework. A key part of the effort in this chapter is to review
vorks and concepts of relevance to developing and explaining the use of an ISPC
vork. The information developed in this chapter represents well established theory that
used in further developing an improved framework for ISPC in Chapter 3.

In reviewing literature for ISPC framework development, this chapter reviews literature
rnber of areas. The first section reviews the concept of strategic management and
s frameworks for strategic management that have been developed by Thompson and

d (1995) and Peterson (1996). The second section considers key differences between

management and the different needs for an ISPC context. The third section reviews an

ISPC framework by Ricks and Woods (1996). Subsequently, subsector, value chain,

actions cost analysis are reviewed as important tools to evaluate the performance of

roduction-marketing systems and consider means to improve performance in a fourth

A fifth section reviews the concept of developing core competencies for an industry. A
ion of this chapter reviews the potential benefits of ISPC to an industry from a

perspective. These describe the potential in exploring the ISPC concept and

g an ISPC framework. In the seventh section of the chapter, three important aspects
are identified, i.e., group theory, the problem of public goods, and vertical

l4

i

coordination. They arr
modifying and adapting
summarizes the inform;

3.

2.1 Strategic Managu
A key goal of th
framework for ISPC. 0
management framework
aid strategic managemerr
evolution, purpose, and :
frameworks.
2.1.1 The Evolution of
Strategic plannin

usedasatoolinawider

   
  
  
   
  

differences between this
Nonetheless, strategic p1

firms should be able to p

Plans of action to aehiev

 

herbal resources and ex

dtfiaed strategic p1

 

 

 

15

ination. They are reviewed for the purpose of providing some theoretical aspects for
fying and adapting existing firm-level frameworks to the needs of ISPC. A final section

arizes the information in the chapter to prepare for the framework develOpment in Chapter

trategic Management and Strategic Management Frameworks
A key goal of this dissertation is to contribute to the deveIOpment of an effective
:work for ISPC. One of the base starting points for ISPC is the various strategic
gement frameworks that have been developed by various analysts and that are designed to
'ategic management for individual firms. Given this goal, it is worthwhile to consider the
ion, purpose, and method of strategic management and industry strategic planning
works.
The Evolution of the Concept of Strategic Management
Strategic planning and management at the individual firm or organization level has been
ra tool in a wide number of contexts. As will be shown later, there are important
oces between this firm-level approach and planning strategically at the industry level.
reless, strategic planning and management ideas, concepts, and frameworks for individual
hould be able to provide important insights relevant to ISPC.
Strategic planning was developed as a planning tool for large businesses in the 19503.
e other organizations, such as, large government and non-profit organizations, have
approach as well. It is a method for firms and organizations to develop strategies or
action to achieve the goals of the firm or organization, taking into consideration the
resources and external environment of the firm or organization. Henry Migliore (1990)

trategic planning as:

 

 

 

i

. . . the proces
and a process.
where the mg;
The plan incluci
success. The p
Evert/one invol
A problem with
practical experience tha
faded to lead to innovat
easily degenerated into 1
competitive advantage".
incorporate an understar
Strategic plannir
oofrrm performance (M
improve performance, It
undertaken carefully in a
and determine how an in
performance.
Partly to addres
(cg, strategic plans no
Performance, etc), ano
management“. Even th
sometimes used interc
implementation implied
not only on developing
hue and finite (1986)

We cannot plan
with strategic tlr

 

 

l6

. . . the process of developing direction for an organization. It is both a product
and a process. The product is the plan itself. It is in writing and clearly defines
where the organization intends to be in the long term, usually three to five years.
The plan includes objectives, strategy, and the short-term steps to ensure overall
success. The process is the interaction that takes place in developing the plan.
Everyone involved in executing the plan should be involved in its development.

A problem with many strategic planning efforts was that "...organizations teamed from

 

actical experience that simple extrapolation of history and cadres of professional planners
ed to lead to innovation, adaption for change, and even survival. Planning processes too
3in degenerated into goal-setting exercises, failing to embody any real understanding of
.npetitive advantage". (p. 20, Rumelt et a1, 1994). It seems from this that it is important to
.orporate an understanding of competitive advantage in strategic planning activities.

Strategic planning in itself has empirically often been shown to have limited or no impact
firm performance (Mintzberg, 1994). Given that the general goal of strategic planning is to
trove performance, this result is surprising and suggests that strategic planning must be
lertaken carefully in a particular firm. In an industry context, it is also important to evaluate

determine how an industry can accomplish strategic planning that will result in improved
Formance.

Partly to address the problems of strategic planning already mentioned in this section
., strategic plans not having a real understanding of competitiveness, not positively impacting
'ormance, etc.), another term and practice has evolved, referred to as "strategic
agement". Even though the terms strategic planning and strategic management are
etimes used interchangeably, strategic management encompasses more fully the issue of
ementation implied by efforts at strategic planning. That is, strategic management focuses
mly on developing an effective strategic plan but implementing the strategic plan as well.
re and Buffa (1986), writing in the business firm context, comment:

We cannot plan for everything in great detail, so managers must fill that gap
with strategic thinking on a day-to—day basis and manage strategically—strategy

 

 

 

 

 

must be a part 0:
the strategic P”u

In strategic mam
organization are more C]
go on in the orgmtim
developing strategies Sh‘
managers to implement.
2.1.2 Frameworks in i

A review of rele
because the ISPC frame‘
strategic management ap
use of frameworks in str
complex, specific situati
evolve. This applies to
conventional economic a
approaches often focus (
complexities of competit
c0priority of the many
relatively abstract situati
iii Particular model. 1
“Simmons that are oft:

compefiiile business fin

 

 

17

must be a part of every decision. Strategic issues should not arise only during
the strategic planning cycle. (p.231)

In strategic management the goal is that those deve10ping the vision and strategy for the
lization are more closely tied to the actual management and implementation processes that
r in the organization than was often the case in earlier strategic planning efforts. In this,
oping strategies should not be an activity that is driven by planners and then given to
tgers to implement.
t Frameworks in Strategic Management

A review of relevant and well-established strategic management frameworks is important

use the ISPC framework to be deveIOped can be based in part on modifying and adapting
:gic management approaches to ISPC. Michael Porter (1994) comments on the purpose and
of frameworks in strategic management research. He indicates that firms face a highly
alex, specific situation that is dynamically changing as the firm, industry, and environment
re. This applies to industries as well as firms. This complex, dynamic setting strains
ntional economic approaches to theory building. Conventional economic theory
aches often focus on isolating a few key variables of interest abstracted from the many real
lexities of competition. Economic models have not been able to embody the full
exity of the many economic factors and competition that the firm faces, and are limited to
ely abstract situations, such as, where small groups of firms approximate the assumptions
articular model. The results of these models are further highly influenced by their
rptions that are often quite different from the real world complexities of dynamic and
:titive business firms and industries.

Frameworks are especially valuable and useful for explaining real-world economic
or. Frameworks can seek to encompass the many variables and complexities that

ad the competition and economic setting of the real world. An important part of the

 

 

theory in each framewol
how they are organized-
based upon in-deprh emp
spur the development of
in the following
frameworks are designer
efforts and aid in unders
trategic management. 1
irdicares should be used
useful in ISPC.
2.1.3 The Five Tasks 0
Arthur Thompso
irmework for the main
iamewOrk is to describe
mm tasks that should t
1. Developinga
2' Sitting Object
3' Crafting a str
4‘ Strategy imp]
5‘ Review and r
is fust three tasks are r

in ‘
elves implementation

\

1
Efltagicie' Ute of the ‘th
iviidth in a partitular at
053 engaged in SI

 

18
in each framework is the choice of particular variables to include in the framework and
ey are organized. Porter further notes that " . .. as long as the building of frameworks is
spon in-depth empirical research, it has the potential not only to inform practice3 but to
re development of more rigorous theory" (p. 429).

In the following section two frameworks of strategic management are reviewed. These
works are designed to be useful for those engaged in strategic planning and implementation
, and aid in understanding the many complex and dynamic factors that are relevant for
tic management. An important focus is on the key activities that management theory
res should be used by a firm as it prepares for the future, as these activities will likely be
in ISPC.

The Five Tasks of Strategic Management

Arthur Thompson and A. J. Strickland (1995) have developed and summarized a
work for the main interrelated tasks of strategic management. One overall goal of the
rvork is to describe the tasks necessary to making and implementing firm strategy. The

tasks that should be completed sequentially are:

y—a

. Developing a strategic vision and business mission

N

. Setting objectives

0»)

. Crafting a strategy

A

. Strategy irnplemention and execution

 

5. Review and re—evaluation
:t three tasks are related to the development of the strategic plan while the fourth task

; implementation of the plan. The fifth task reviews and re-evaluates the earlier tasks in

 

.e use of the term " inform practice " by Porter apparently means to inform those who are
in a particular activity. In strategic management, informing practice would likely mean
we engaged in strategic management such as managers, executives, analysts, etc.

 

light of changing circum
following section discus:
mommmm

Developing a str
frrm strategic manageme
fun while the strategic r
of the firm and its future
employees to have a betr
idenu'ry may be establish

To meet the over
and 10118 range objective
Miller the firm. As t
Militants, it is pusher
accomilliSh particular 01).

drafting a Strategy

Objectives are th
objectives are to be achir
hens and extemai situ
dialysis of the finn's intr
the exterrml environment
bloomers factors, chan

W' - .
ii this urforrmation, a l

t
did on the realities faci

 

19
; of changing circumstances and shows strategic management as an iterative process. The
wing section discusses each of these tasks.
sloping a Strategic Vision and Business Mission
Developing a strategic vision and business mission for the firm is at the foundation of

strategic management. The business mission identifies the main overall direction of the
while the strategic vision shows what the firm is working to become. This overall portrayal
: firm and its future plans can provide a motivating description of the firm. It may help
ayees to have a better understanding of how to serve customers, and a strong organizational
.ty may be established.
.g ijectives

To meet the overall business mission and strategic vision, it is necessary to develop short
tng range objectives or performance targets. These objectives can be usefully employed to
nge the firm. As the firm seeks to close the gap between current performance and desired
mance, it is pushed to be creative in achieving these objectives. A specific tirneline to

plish particular objectives develops a sense of urgency in meeting the objectives.

 

Objectives are the desired end results while strategy includes the methods by which the
ves are to be achieved. A situational analysis or a complete evaluation of the firm’s
land external situation provides an important basis for developing strategies. The
s of the furn's internal situation defines its capabilities and limitations. The analysis of
:rnal environment provides information on key emerging trends, external driving forces,
cess factors, changes in technology, and other factors that have relevance to the firm.

5 information, a set of strategies or an overall strategic plan can be deveIOped that is

n the realities facing the firm.

 

 

 

n is rational“ 1’
meet changing circumsu
be modified in an emerg
mixture of intended 833'
changing circumstances-
mm

Strategies develr
hm toward its long tern
to get the strategy to W
process. Within this, it .
will be provided to noon:
Review and Re-evaluatig

Another importa
and implementation is nr
monitoring process whr
itclors are identified in 2
the lion's evolving strata
chosen should be review
reevaluated as needed.
militia] goal,

2‘1“ AFrarrreworlr in

Elements of thesv
maidtorrent and econorr
finish Peterson

(1996)

brain
it Stages (Situationa

 

20
It is important in developing the strategic plan that the strategies selected be flexible to
changing circumstances. Over time, as events unfold, the strategies deveIOped will need to
todified in an emergent fashion. The overall strategy actually implemented is usually a
are of intended strategy from the strategic plan and emergent strategy to respond to
ging circumstances.
egy Implementation and Execution
Strategies develOped need to be implemented if they are to be effective in moving the
toward its long term objectives. To do this, it is necessary to determine what must be done
t the strategy to work and to meet the time schedule for progress identified in the planning
:33. Within this, it should be specified who will accomplish the strategy and how resources
re provided to accomplish the strategy. ‘
:w and lie-evaluation
Another important task of strategic management recognizes that strategy development
nplementation is not a one-time exercise. Strategic management is most effectively used as
inning process where relevant trends, technologies and other competitively important
are identified in a dynamic fashion and appropriate firm responses determined, built into
'5 evolving strategies, and implemented. Given this, the decisions made and strategies
should be reviewed in light of changing circumstances. Each facet of the process can be
uated as needed. The search for better strategy and improved competitiveness should be a
at goal.
Framework in Strategic Management for Competitive Advantage
Elements of these strategic management approaches with writings from other
.ment and economic literature were the basis for a strategic management framework for
y Peterson (1996). Peterson's framework, shown in Figure 2—1, is made up of three

stages (situational analysis, strategy selection, and irnplemention). These stages, that

 

 

 

 

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should be completed set
There are specific methr
these stages.

The first stage c
emiching an understand
economic, and competit
situational analysis. Fo:
weaknesses is developer
isolso developed, Ther

The second stag
deve10p Strategy for the
meals and resources tha

“Wm set of choices

Product, etc.) is an esse;

its industry is evaluated.
the firm will lead the ins
challenge the industry it
gaps in the market (Inn
Some overall alternative
tail the industry.

Once the core st
irrmeworlt operationaliz

d .
outs for the product rr

.\

Pete .
(1985) iSOn "1001mm

 

22
should be completed sequentially, can contribute to effective strategic management of firms.
There are specific methods associated with each step. The following section describes each of
these stages.

The first stage of Peterson's strategic management framework focuses on clarifying and
enriching an understanding of the characteristics of the firm that is being studied and the market,
economic, and competitive context in which the firm operates. This is typically called a
situational analysis. For this purpose, a comprehensive analysis of a firm's strengths and
weaknesses is deve10ped. Knowledge about the external threats and opportunities facing the firm
is also developed. Then within this stage, the vision and mission for the firm is developed.

The second stage of strategy selection uses the knowledge gained in the first stage to
levelop strategy for the firm. Three strategic areas form a firm's core strategy. First, the
means and resources that a firm can use to create competitive advantage is associated with an
mportant set of choices. The type of products to be marketed (e. g., quality, positioning of the
roduct, etc.) is an essential part of the choices. Second, the overall role for the firm to play in
5 industry is evaluated. A key set of questions addressed in the overall industry role is whether
Le firm will lead the industry (Leader), adapt to the successful strategies of others (Adaptor),
tallenge the indusz leader (Challenger), or Operate with a unique industry approach to serve
ps in the market (Loner) 4. Third, the overall strategic initiative of the firm is developed.
me overall alternatives here are whether the firm will grow, maintain, reposition, retrench, or
t the industry.

Once the core strategies for the firm have been developed, then the third stage of the
mework operationalizes the strategies. This would include developing a plan with the specific

ils for the product mix of the firm and actually implementing the strategic initiatives.

P—

Peterson incorporates and extends the industry role concepts that were discussed by Porter
5).

 

 

 

  
  
  
  
  
   
 
  
  
  

Appropriate controls
strategies in meeting th

Feedback loops
reevaluated based upo
approaches can be sel
an iterative process wh

The purpose of
for developing a
steegic management
The framework can be
the framework is to cl

management process

22 Diderences Betvvr

Firm strategic 1
individual firm can use
Performance. An ISP(
the broader industry ra
coaoepmal or theoretic
between the firm conte
addressed in developin

One important
the firm and ISPC can
decided, and irnplemer

implemented). This is

 

 

 

23

ppropriate controls must be put in place to determine or verify the effectiveness of the
ategies in meeting the objectives of the firm.
Feedback loops represent the possibility that the stages in strategic management can be
evaluated based upon changing circumstances. Different strategies and implementation
proaches can be selected and used. This process of strategic management is conceived of as
. iterative process where the firm continually seeks the best strategy overtime.
The purpose of Peterson's framework is to provide a graphical illustration and a guide
' developing a sustainable competitive advantage for the firm. Those considering developing a
ategic management approach for their firm are intended to be the main users of this approach.
3 framework can be used by analysts as well as managers in the firm. An important benefit of
framework is to clarify and eXplain the key steps in the process that may help the strategic

nagement process be easily understood by a wide audience with a variety of backgrounds.

Differences Between Firm Strategic Management and ISPC Frameworks
Firm strategic management frameworks represent well established approaches which the

vidual firm can use in developing and implementing strategies to improve their competitive

rrnance. An ISPC framework should have a similar focus except that the focus will be on
aroader industry rather than the firm. Firm strategic management offers a central part of the
eptual or theoretical base for deve10ping an ISPC framework. However, key differences
een the firm context and the industry context need to be recognized, discussed, and
:ssed in developing and applying an ISPC framework.

One important consideration is whether the difference between strategic management for

 

and ISPC can be characterized as primarily a matter of content (i.e., what is analyzed,
d, and implemented) or a matter of process (how it is analyzed, decided, and

ented). This is a complex question. It is likely that ISPC will be somewhat different in

 

 

 

  
  
  
  
  
  
  
 
   
 
 

both ways. Nonethel
develop the content an
example, an industry, 1
its dynamic environme
need to be selected and
and reevaluated. Ho
areas in different ways
involve some further a

eonsnaints of ISPC as

onerous firms at vari
as industry support org
firm's CEO or group 0
developmem and imple
context there are many
decisionmakers and go:
firm strategic managerr
iIltportant differences c
0 a less clear,
0 the nature of
0 rivalry amor

The following subsecti

lofirm strategic mamas

industry context.

 

 

 

24

th ways. Nonetheless, an ISPC framework will need to develop methods to accomplish or
velop the content areas that are somewhat similar to those in firm strategic management. For
ample, an industry, like the firm, will need to develop a thorough analysis of it current setting,
dynamic environment, and its competitive situation through situational analysis. Strategy will
ed to be selected and implemented for the industry, and the overall process should be reviewed
d re-evaluated. However, an ISPC framework may need to develop some of these content
as in different ways so that an ISPC process is most effective. In addition, ISPC may need to
volve some further additional steps and aspects because of the various complexities and
nstraints of ISPC as discussed below.
One fundamental difference between ISPC and firm strategic management is the
ference in organizational and control structures. The industry is made up of a complex set of
nerous firms at various stages with various levels of vertical and horizontal linkages as well
ndustry support organizations. In an industry, there is no inherent clear leader, such as, a
1'3 CEO or group of t0p executives, with the responsibility and power to lead the
elopment and implementation of strategy at the industry level. This is because in the industry
ext there are many autonomous firms and industry organizations with separate
sionmakers and goals. A number of the main issues in developing an ISPC framework from
strategic management arise from this difference in organizational structure. Some of these
rtant differences can be broken down into three main areas that are:
0 a less clear, inherent method to start or initiate an ISPC process
0 the nature of ISPC strategy
0 rivalry among firms as a limiting factor in ISPC strategy

ollowing subsections discuss the relevance of these issues and suggests some modifications

strategic management frameworks in order to be most appropriate and relevant for an

try context.

 

 

 

   
  
  
  
  
  
  
  
  
   
   

2.2.1 Need for a M
One key need '
strategic management,
management, starting
top executives can acc
not focus on this aspec
contrast, there is no cl
process. This indicat
and complex than for
include a component f
One key aspec
industry to perceive
incentives to attract th
improved industry perf
inthis chapter.
2.2.2 The Nature of
In firrrr strategi
firm's CEO, top execut
implementation in a pa
firm. In the ISPC cont
complex and complicat
industry organizations
decisionmaldng power
comprehensive ISPC e

Wmmon interests and t

 

 

 

25

2.2.1 Need for a Method to Initiate an ISPC Process
One key need in any planning and implementation process, such as, ISPC or firm

strategic management, is to effectively start or initiate the process. In firm strategic
management, starting or initiating the process is more straightforward since the CEO or group of
top executives can accomplish this. Hence, firm strategic management frameworks generally do
not focus on this aspect of the planning and implementation process. In the industry context, by
contrast, there is no clear leader or group of leaders with the responsibility to start an ISPC
process. This indicates that initiating an ISPC process is likely to be substantially more difficult
and complex than for a firm, and that an ISPC framework which will be most effective needs to
include a component focused on process initiation.

One key aspect of initiating an ISPC process in a particular industry is the need for the
industry to perceive possible benefits from an ISPC process. These possible benefits can provide
incentives to attract the various segments of the industry to work together on some aspects for

mproved industry performance. A discussion of possible benefits from ISPC is developed later

11 this chapter.

.2.2 The Nature of ISPC Strategy

 
 
   
  
  
  
  
  

In firm strategic management, strategies once decided upon can be implemented by the
's CEO, top executives, and managers. The relative ease of strategy making and
nplementation in a particular firm is dependent in part upon the size and complexity of the
rm. In the ISPC context, such strategy making and implementation will likely be much more
amplex and complicated because it covers a broad, diverse and complex industry. Firms and
dustry organizations in the industry are separate organizations with autonomous
:cisionmaking power and different objectives. If there is to be any continued involvement in a

mprehensive ISPC effort by industry leaders, this will need to be based upon recognition of

 

on interests and continued voluntary participation among the diverse industry participants.

 

 

   
  
  
  
  
  
 
 

This means that
dun strategies in firm s
the firm in a search for
fonts primarily on thos

such as, addressing ve

or may not provide the'
improvement strategies.
addressed in an ISPC
with public good issues
Another import:
strategy is the necessity
tommplishing strategies
aspects of firm strategy
be more readily sanctior
be much more difficult :
Organizations in the indv
Anther importer
innature. Stageesem'ng
etrample, an ISPC strata

idfttlnsinthe industry!

 

 

 

26

This means that ISPC strategies will likely in some respects be more limited in scope
than strategies in firm strategic management. Firm strategic management focuses on all areas in
the firm in a search for firm competitive advantage. In comparison, ISPC strategy will likely
focus primarily on those areas where there are interdependencies between firms in the industry,
uch as, addressing vertical coordination issues or facilitating the provision of certain industry
trategies related to selected types of public good strategies.

Given the necessary focus on interdependencies within the industry for ISPC, there is an
sue of implementing certain industry public good strategies. If ISPC strategies are successful
d industry performance is improved, then all firms in the industry may benefit whether they

ontributed to accomplishing the effort or not. In these types of situations, individual firms may
may not provide their share of adequate actions or resources to accomplish needed industry
nprovement strategies. This is the public or non-excludable good problem that needs to be
idressed in an ISPC framework. There is substantial theory in the economics literature dealing
ith public good issues that are reviewed later in this chapter.
Another important difference between firm level strategic management and ISPC

"ategy is the necessity for greater reliance on the use of voluntary cooperation for
complishing strategies in the ISPC context. In firm strategic management, implementing key
sects of firm strategy is mandatory to a greater degree and non-compliant firm members can
more readily sanctioned by the firm. Use of mandatory strategy in the industry context would
much more difficult and would need to be based upon consensus of the diverse firms and
‘anizations in the industry.

Anther important differentiation about ISPC strategy it that it is likely to be stage-setting
sature. Stage-setting strategies are strategies which require additional actions by firms. For
mple, an ISPC strategy that develops information in a critical area will only be truly effective

ms in the industry use the information. Further, stage-setting strategies will likely have a

 

 

 

widespread impact in t1
strategies should be rea
processors) and betwee
the stage-setting SW38
organizational level.

2.2.3 Rivalry in an If

Another key di
possrlrle extent of rival
employees of the firm,
one another for top po;
acommon goal of imp
lets prevalent in an int
another.

Various ISPC
fans may often be pro
mean that group actic
“flirts their joint act
hitched to be m
means that in the indu

constraints for the effe

 

 

 

27
widespread impact in the industry. ISPC participants will likely be concerned that ISPC
strategies should be reasonably equitable between industry segments (e. g. growers versus
processors) and between firms in particular market segments. It is important to emphasize that

the stage-setting strategies from an ISPC context may or may not be implemented at the industry

organizational level.

2.2.3 Rivalry in an ISPC Process

Another key difference identified between firm strategic management and ISPC is the
possible extent of rivalry (Woods, 1996). In the firm strategic management context, the various
employees of the firm, e.g., CEO, executives, managers, etc., may compete to some extent with
one another for top positions and authority, but at least in principle they are all working towards
a common goal of improved competitive advantage for the firm. Such a unifying goal is much
less prevalent in an industry setting as individual firms are often in direct competition with one
another.

Various ISPC strategies may help set the stage for future industry success. However,
firms may often be predisposed to focus heavily on rivalry conditions among themselves. This
means that group action to address a particular common problem may be difficult to achieve if it
requires their joint action. This is especially true if the benefits of the expected change are
aerceived to be asymmetric, i.e. , one group might gain more than others from the change. This

means that in the industry context, the issue of rivalry will likely pose some obstacles or

onstraints for the effectiveness of an ISPC process.

 

 

as Existing Industry

Through a serit
comprised of a number
analytical package that
describes a number of 1
excellent source for aic‘
licks and Woods (R-Vl
ideas, concepts, and ap
hon firm strategic mar
development of an ISP

lhe R-W tram.
mamdement literature
Middldn apple industr

1. Situational

2. Identificam

3' Analysis of

4' Gap analys:

5. Determinat

6' Analyois an

7- Followup .

8' IIltpact may

9‘ Strategy res

\

5 .
RICks and WOOds

 

28

5.3 Existing Industry Strategic Planning and Coordination Frameworks

Through a series of publicationss, Ricks and Woods (1996) developed a framework
omprised of a number of components that can together provide an extensive informational and

nalytical package that university research can provide in the ISPC context. Their framework

 

escribes a number of methods that can be used by analysts in the ISPC context and is an
tcellent source for aiding the further development of an ISPC framework. Building on the
”dos and Woods (R-W) framework can be done by usefully extending a number of the relevant

eas, concepts, and approaches in their framework and by incorporating additional methods

 

our firm strategic management and other literature in order to contribute to the further

 

velopment of an ISPC framework.

The R-W framework was developed drawing to some extent upon fum strategic

magement literature and frameworks as well as some early experiences in working with the
.chigan apple industry ISPC process. Their framework includes the following components:

1. Situational analysis

2. Identification and analysis of major driving forces

3. Analysis of key success factors

4. Gap analysis

5. Determination and clarification of priority issues and needs

6. Analysis and identification of appropriate action alternatives

7. Follow-up with in-depth analyses of selected priority action alternatives

 

8. Impact analysis

9. Strategy review and re-evaluation

M

ticks and Woods (1995), Ricks and Woods (1996), and Woods (1996).

 

 

 

In some ways, the vari
common in fimr strate;
would be useful in ace
context. The followin;
.Si a ' i
Situational ana

firm setting. In this, 5
setting of the industry
rpona number of sour
perspective of the dynt
base to develop indusn
real opportunities and
‘ Another comps
forces for the industry
driving the industry or
adjustments. In the fir
considered part of sits
the W framework su
analysis that takes on s

l delay considerations

w

‘ For example, Th
of situational analysis.

A

 

 

     
  
  
  
   
 
  
   
  

29
In some ways, the various components of the R-W framework are similar to content areas
common in firm strategic management. Some components further provide key analyses that
would be useful in accomplishing certain kinds of strategic management activities in the ISPC
ontext. The following discusses the various components of their framework.
. Situati nal Anal sis

Situational analysis in the R—W ISPC framework is similar to situational analysis in the
rrm setting. In this, situational analysis develops an up-to-date perspective on the dynamic
etting of the industry and its competitive situation. This can be developed through drawing
pon a number of sources and methods to provide the up—to-date industry perspective. This
rspective of the dynamic setting developed through situational analysis provides a powerful
se to develop industry strategy because it roots the strategy making in the present reality and
:al opportunities and challenges for the industry’s future.
Identification and Analysis of Major Driving Forces

Another component in the R-W framework is to identify and analyze major driving
rces for the industry. These major driving forces are those fundamental factors that are
lving the industry or are at the present time causing the most important industry and market
ustments. In the firm strategic management literature, accomplishing this is usually
tsidered part of situational analysis? The focus on major driving forces as a component in
R-W framework suggests that analyzing the major driving forces is a key aspect of situational
lysis that takes on some special irnportance in the ISPC context. The major driving forces

key considerations in developing apprOpriate industry strategy.

E

For example, Thompson and Strickland (1995, 74-78) list analysis of driving forces as part
national analysis.

 

 

 

 

‘

3. I si 0 Su
Analysis of the
component in the R-W
firm strategic manager:
be competent or must 1
performance. Doing at
industry strategy and sl
R—W note an it
context. Key successf
(1) the industry
(2) the major ty
lhe key success factor:
one another and semen
‘ modification to the start
incorporated in an ISP(
manna
R-W discuss ga
rehtive to the key suco
uncut industry perforr
let this indicates that t
t This gap analysis hence

dt thirsty for the nex
The determined

drain on the most CI

 

24

 

 

 

t. Analysis of Key Success Factors

Analysis of the key success factors for an effectively competitive industry is another
omponent in the R-W framework that is commonly included as part of a situational analysis in
rm strategic management. The key success factors are those areas in which an industry must
3 competent or must focus on developing competencies for competitive success and improved
erformance. Doing an analysis of key success factors is a key consideration in developing

dustry strategy and should prove to be a useful activity in accomplishing ISPC.

 

R-W note an important practical issue about analyzing key success factors in the industry
text. Key success factors should be detemrined at two different levels:

(1) the industry as a whole

(2) the major types of firms in the industry
e key success factors for different types of firms in the industry may well be different from
: another and somewhat different for the industry as a whole. This is an important process
dification to the standard firm strategic management framework and hence should be
)rporated in an ISPC framework.
ianAnalxsis

R-W discuss gap analysis in the ISPC context. The industry's performance is assessed
:ive to the key success factors for the industry. If there are substantial differences between
ent industry performance and desired future performance for individual key success factors
this indicates that there is an important "gap" upon which strategic action should focus.
gap analysis hence identifies key areas on which the industry needs to focus and prepares
ndustry for the next component in the R-W framework.
’ ' ' 11 an lari c tio f Pri ri I du t Issues and Needs
The determination and clarification of priority industry issues focuses the industry's

:ion on the most critical factors for its future performance. This seems to be somewhat

 

 

 

 

similar to objective sen

management "objective

According to F

setting in the industry r

O the need for

focus on her

simultaneous

0 decisions abs

compared to

broader indt

joint efforts

lhese two issues are in

order to adapt to the 15
l. l . [E .

The analysis of

hit framework in wh"

industry's priority need

alternatives" could be r

to meet the industry's l

bloomed on broadec

Would improve the ow:

ldmtary implemented

deletion that will not 1

dmsor industry segmt

A

 

 

31

ilar to objective setting in the firm strategic management context because firm strategic
anagement "objectives" are similar to developing "priority industry issues and needs".
According to R—W, some important concerns in accomplishing this type of objective
ttting in the industry context include:
0 the need for the industry to prioritize the objectives and select some to
focus on because the industry can probably not focus on all issues

simultaneously.

 

O decisions about which objectives can be dealt with entirely by firms as
compared to those which need facilitative joint efforts by firms and the

broader industry. The implication is that objectives with more need for

 

joint efforts should be given some primary emphasis in the ISPC process.

:se two issues are important modifications of the firm strategic management framework in

 

er to adapt to the ISPC context.
W

The analysis of potential action alternatives for industry strategies is a component of the
/ framework in which the various action alternative are evaluated and selected to address the
stry's priority needs (or objectives as discussed in the last section). The "action
natives " could be referred to in strategic management terminology as "strategies" designed
eet the industry's priority objectives. R-W note that strategies or action alternatives should
rcused on broad-scope issues that will be stage-setting in nature. Stage-setting strategies
d improve the overall ability of firms to compete while usually requiring additional
rtary implementation actions by individual firms. Usually attention will also be given to
gies that will not greatly favor certain individual firms or industry segments over other

or industry segments. An example they cite is the possibility that an industry could

 

develop more appropr
customer needs.

7. InDepth Evaluation
As an ISPC pr
selected priority problv
especially to help in dt
analysis is in more dep
participants after the e
important role in this I
iterative and interactiv
can add to the overall ‘
mm
Another comp
has implemented some
evaluation. The impac
changes as well as the
W note that the dynt
mgesetting industry p
forces and other extert
e v'e
r Strategy reviet
management. This cor
clltnnents in the RM
c0Ilinlully changing o

titration analysis, etc

 

A

 

 

 

32

develop more appropriate quality standards to improve industry performance in meeting

customer needs.

7. In-Depth Evaluation Qf Selected Remedial Action Alternatives

As an ISPC process continues, the R-W framework indicates that in-depth evaluation of

selected priority problems, issues, and/or potential action alternatives is often needed ~-
especially to help in developing the sufficient broad-based consensus needed for ISPC. This

analysis is in more depth on those strategies for which there is priority interest by ISPC

 

participants after the earlier initial overall industry analysis. The industry leadership have an
immrtant role in this by directing which of these analyses be pursued. This emphasizes the
iterative and interactive nature for ISPC. R—W further suggest that this sort of in—depth analysis

can add to the overall usefulness and relevancy of an ISPC process.

Imat li

Another component in the R—W framework is to use impact analysis after the industry
ras implemented some strategies. This can also be used a priori as part of the earlier in-depth
:valuation. The impact analysis in this context is to measure the effect of dynamic industry
hanges as well as the effect of the implemented strategies on the industry’s competitive position.
L-W note that the dynamic changes and the industry’s changing position may be the result of

age-setting industry programs, as defined earlier, and/or continuing effects of major driving

>rces and other external effects.
tr te v'ew d - val ati n
Strategy review and re—evaluation is similar to review and re—evaluation in firm strategic
anagement. This component recognizes the need to periodically reassess the earlier
mponents in the R-W framework because the industry, its environment, and its needs are
ntinually changing overtime in unexpected ways. Thus, industry strategy, objectives,

national analysis, etc. need to be reassessed. This indicates an overall feedback loop for the

 

‘

overall analysis. Over
modify and adjust curt
effective at improving
and needs of the indus
nc d' e

The R-W frarr
adapts them to the ind'
Michigan apple indust
effective practice from
important adaptations

build an ISPC framew

2.4 Analysis of the V
n One important
production-marketing
vertical levels in the it
element of overall per
analysis tools that are .
context. The followin
hmacdons cost analy
r production-marketing
ltdonnance.

2.4.18ubsoctor Anal:

Subsector anal

illtoqocntly developn

 

A

 

 

33

  
   
    
 

verall analysis. Overall, strategy review and re-evaluation is a necessary feedback loop to
odify and adjust current industry strategies to altered industry strategies that will be most
ffective at improving industry competitiveness and performance due to the changing situation

d needs of the industry.

The R-W framework uses some concepts and ideas from firm strategic management and
dapts them to the industry context. This framework was also used in early experiences in the
lichigan apple industry and some other similar industries and was modified to incorporate
ffective practice from working with these industries. Overall, the R-W provides a number of
nportant adaptations to the industry context and is an excellent source of material upon which to

rild an ISPC framework.

4 Analysis of the Vertical Production-Marketing System
One important feature of agricultural industries is that they are part of an overall vertical

)duction-marketing system. Performance in the vertical coordination between different
rtical levels in the industry and with the industry's SUppliers and customers is an important
ment of overall performance. Due to the importance of vertical coordination, considering
tlysis tools that are especially related to vertical coordination aspects is important in the ISPC
rtext. The following sub-sections review three such analysis tools (subsector, value chain, and
hsactions cost analyses) that seem to offer substantial promise in analyzing vertical
duction-marketing systems and evaluating ways to improve the vertical system's
romance.
1 Subsector Analysis

Subsector analysis was initially conceptually described by Shaffer (1973) and

equently developments were made in a number of books and articles including French

 

 

 

 

(1973), Shaffer (1980)
and Mead (1986). Sui
system of production a
contractual ties, marke
focus thus commonly 1
additional vertical stag
through consumption.

As subsector a
to analyze at the instin
Instinrtional factors int
established through f0:
Inf01111211 males and star
melCXities of the so]
coIntuitive setting are
the interactions hem
entire vertical SlleCCtt
emphaSiZed, This he
Idle and importance 0
appropriate to be into
2'4'2 Value Chain A

Valor: chain a]

 

 

34

973), Shaffer (1980), Ricks et al (1982), Marion (1986), and Boomgard, Davies, Haggblade,
d Mead (1986). Subsector analysis focuses on studying the performance of the entire vertical
stern of production and marketing for a commodity, including various ownership forms,
ntractual ties, markets, institutions, and transfer arrangements in the system. A subsector
cus thus commonly not only includes "the industry" as used in this dissertation, but includes
ditional vertical stages in the marketing system from input suppliers and initial producers
ough consumption.

As subsector analysis is applied in specific contexts, an important part of the analysis is
analyze at the institutional and broad environmental situation in which the subsector operates.
stitutional factors include formal rules, such as, government policies and those rules
'ablished through formal markets as well as certain types of organizational arrangements.
:‘ormal rules and standard Operating procedures are also considered. The environmental
nplexities of the subsector and various aspects, such as, technological change and the
npetitive setting are another consideration. A key goal of subsector analysis is to understand

interactions between technologies, institutions, policies, conduct, and performance for the
ire vertical subsector. Vertical coordination aspects and subsector performance are also
phasized. This focus on the vertical production-marketing system and an awareness of the

= and importance of institutional factors and the enviromnental situation is quite relevant and
ropriate to be incorporated in an ISPC framework.

2 Value Chain Analysis

Value chain analysis is an approach described in a number of publications including
er (1985) and Cooper and Kaplan (1988). It focuses on the "value chain" that is made up of
ctivities that are performed by the firm, such as, designing, producing, marketing,
ering, and servicing its products. The analysis focuses on costs in the system and the

ionship that these costs have with the value received by buyers from the firm's products.

 

 

The goal in value chair
the anus prod“Cts “1“
Porter also uses a "Va“
also focuses on the intt
suppliers, channels, an
It will likely bl
“the industry" value cl
system concept as devr
institmmual and other
context.
2.4.3 Transactions C
Transactions c
transferred across a te
transaction occurs (or
These transaction gov:
tonuol structures will
the total cost of produ
Smotions, it might be
Esplicit cousin
human are "intended
me °°gnitive limitatio
mionality of human a
idea of onpomtnism 0
We there is bow

for the seller of a pro

 

 

35

e goal in value chain analysis is to identify ways to increase the value that buyers receive from
e firm's products through reducing costs or adding differentiation aspects desired by buyers.
orter also uses a "value system " concept that deals with not only the value chain of the firm but
so focuses on the interrelationships between the firm's value chain and the value chains of its
ppliers, channels, and ultimate customers.
It will likely be useful to use the value chain/value system concept in ISPC to analyze
6 industry" value chain with this goal in mind. In this, it would be useful to expand the value
stern concept as developed in the firm strategic management literature to incorporate
titutional and other factors commonly considered in subsector analysis for use in the ISPC
ntext.
3.3 Transactions Cost Analysis
Transactions cost analysis focuses on the transaction - when a " good or service is
nsferred across a technologically separable interface" (Williamson, 1985, p. 1). As the
nsaction occurs (or could occur) there are a number of potential " governance structures".
ese transaction governance structures relate to different institutions, such as, markets or
ttrol structures within the firm. The governance structure used is based upon economizing on
total cost of producing and marketing the product including transactions costs. In some
ations, it might be possible to modify the governance structure to improve performance.
Explicit consideration is given to bounded rationality in transactions cost analysis as
ans are "intendedly rational, but only lirnitedly so " (Simon, 1961, p. xxiv). This takes into
ognitive limitations of humans, limited information, and other conditions that limit the
nality of human actors. This concept of bounded rationality in transactions gives rise to the
of opportunism or opportunistic behavior from one party in a transaction. For example,
use there is bounded rationality (e.g. , imperfect information about a product) it is possible

e seller of a product to hide defects, i.e., engage in opportunistic behavior. Williamson

 

 

(1985, p. 32) argues th
rationality while protec
opportunism can hence

It is possible tc
within an industry and
perionnance. The "go
relevant ones) might b4
control might improve
levels of Opportunism :
Transactions cost anal)
“PW Performance i

useful tool in ISPC.

2.5 Core Competenci

One relatively
fan's core competenci
publications 8, is that a
competencies more qui
flint something well i

competitors and that In

coIrrpetencies is both a

l

generatirig :rm govern:
tore ctivrtres is

 

36
( 1985 , p. 32) argues that governance structures should be designed to economize on bounded
rationality while protecting against the hazards of opportunism. Bounded rationality and

Opportunism can hence effect the performance of marketing systems.

 

It is possible to use transactions cost analysis in assessing the governance of transactions
within an industry and with suppliers and customers to consider ways to improve industry
performance. The " governance structure "7 of possible transactions (or only strategically
relevant ones) might be assessed to determine if modification of market rules or organizational
control might improve performance of the industry. Often various transactions have various
levels of opportunism and bounded rationality that affect the efficiency of transactions.
Transactions cost analysis could be used to consider various alternative governance structures to

improve performance in an ISPC context. Hence, transactions cost analysis is a potentially

 

useful tool in ISPC.

2.5 Core Competencies

One relatively new area in the strategic management literature is the development of a
rm's core competencies. This area, originated by Gary Hamel and CK. Prahalad in a series of
ublications 8, is that a firm's competitive advantage results from a firm's ability to create core
ompetencies more quickly and efficiently than other firms. The idea of core competencies is

oing something well in comparison to competitors that is especially difficult to copy by

 

mpetitors and that makes an important competitive difference. Strategically developing core

mpetencies is both a state and a process.

 

7 The term governance structure refers to how the exchange between different value
nerating activities is achieved. Two basic governance alternatives are the hierarchic

vernance structure of the firm or the interaction in markets.

3 Hamel and Prahalad (1989), Prahalad and Hamel (1990), Hamel and Prahalad (1993), and
el and Prahalad (1994).

 

An industry In:
competitive advantage.
competencies or streng
the industry. Core cor
innovation in developir
carehrlly crafted proce
respond to new trends.

ISPC may aid
It would be expected tl
be more successful tha
competencies. In the a
successful at developir
industries.

The New Zea]
marketing a series of r
c0lilpttred with some C
through early planting
price premium before

One core corny
development over tims
overall perfonmm ir
Delicioug This has in
standards, This has or

tip .

 

37
An industry may develop core competencies that at a given time provide it with a
competitive advantage. An industry may also work on the process of deve10ping more core
competencies or strengthening existing ones to improve the performance and competitiveness of
the industry. Core competencies may lie in a number of potential areas, such as, unusual
innovation in deve10ping new products, excellent skills in producing a high quality product, or a
carefully crafted processes for researching customer needs and tastes with an ability to spot and
respond to new trends.
ISPC may aid the firms within an industry to further develop certain core competencies.
It would be expected that industries that are more effective at developing core competencies will
be more successful than other industries that are less able to innovate and develop core
competencies. In the apple industry, two regional apple industries that have been especially
successful at developing core competencies include the New Zealand and Washington apple
industries.
The New Zealand apple industry has invested heavily and effectively in deve10ping and
arketing a series of new apple varieties that are superior in meeting customer preferences
ompared with some of the traditional varieties. The overall New Zealand industry benefits
ough early planting of the superior new varieties which have high demand and hence reaping
rice premiums before competitor apple industries can respond with large supply responses.
One core competency of the Washington apple industry has been the evolution and
evelopment over time of various parts of a quality management system with relatively high
verall performance in delivering consistent, high quality apples especially Red and Golden

elicious. This has included substantial consumer market research and industry quality

  
  
  

andards. This has seemed to be effective in both U .S. and international markets, and currently

e Washington apple industry is continuing to expand it markets and production.

 

 

 

The concept 0‘
may include aiding the
strengthening existing
develop industry-wide
understanding of needs
areas, the entire indust
competencies.

In both the W:
section, some level of
ISPC can aid in identi}
development of selects
relevant for an ISPC f
2.6 Potential Benefits

UP I0 this poi]

for developing an ISP1

important to consider ‘
rationale for developir

As discussed e
coordinating together .
benefits to the industrs
individual firm or ind
he individtml frrrn ant
Photos for improved

facilitate improved per

 

38

The concept of core competencies is potentially important in ISPC. The goal of ISPC
lay include aiding the industry's firms in the process of deve10ping core competencies and
:rengthening existing core competencies as well as facilitating needed industry actions to
:velop industry-wide competencies. This may be partly accomplished through increased
aderstanding of needed changes so firms can respond effectively in a timely fashion. In other
eas, the entire industry may need to make important commitments to developing core
mpetencies.

In both the Washington and New Zealand apple industries discussed earlier in this
:tion, some level of group, i.e., industry, action facilitated developing the core competencies.
PC can aid in identifying potential and/or needed core competencies and perhaps can facilitate
velopment of selected core competencies. Hence, the concept of core competencies can be

evant for an ISPC framework.

3 Potential Benefits of ISPC

Up to this point, some frameworks and literature have been reviewed that are relevant
developing an ISPC framework. Before such an ISPC framework is developed, it is
vortant to consider what are the potential benefits of ISPC. This provides an important
anale for developing an ISPC framework.

As discussed earlier, ISPC involves firms and industry organizations planning and

 

dinating together on certain aspects for improved industry performance. The potential

fits to the industry from ISPC would likely focus on areas where planning efforts by

idual firms or industry organizations would not be most effective by themselves, but where
dividual firm and industry organization planning efforts could be facilitated by an ISPC
$3 for improved industry performance. A key question in this is how can an ISPC process

tare improved performance? Economic theory suggests that one key overall area where an

 

 

ndustry 00““ benefit
needed
An essential 61
free rider problem. P‘
to exclude any firm f“
share the costs. The f
ride and avoid sharing
tests including Tirole
goods not being proviv
perspective, indusz ]
kinds of needed public
Industry publi
subsections discuss so
different public goods
creating the needed pt
motivation and ration
2.6.1 lrnproVing Ge
Expanding ge
aparticular brand) ha
iiilis and Pierson, l
Mimi to increase tl
Higher prices for the
demand exDansion m;

TWO commor

gem Promotion an

 

 

39

ndustry could benefit from working together is in the provision of industry public goods that are
eeded.
An essential element in ISPC and joint actions relates to industry public goods and the
ee rider problem. Public goods provide benefits to firms within the industry, but it is difficult
exclude any firm from receiving the benefits of such a public good even if these firms do not
are the costs. The free rider problem is that individual industry firms have an incentive to free
de and avoid sharing the cost of providing the public good - as is discussed in a number of
xts including Tirole ( 1990), Moulin (1995), and Schmid (1987). This can result in public
ods not being provided or being under-provided. That is, from an overall industry
rspective, industry performance would be expected to be improved if the amount of certain
ds of needed public goods could be increased.
111de public goods could potentially arise from many areas. The following
bsections discuss some potential benefits that are interrelated in some respects for developing
'ferent public goods in a commodity industry and how ISPC might facilitate deve10ping and
:ating the needed public goods. Providing these types of public goods can be one major
tivation and rationale for accomplishing ISPC.
.1 Improving Generic Demand Expansion Activities
Expanding generic demand for the overall industry's products (in contrast to demand for
trticular brand) has important potential benefits for the various firms within an industry
:ks and Pierson, 1978). Successful generic demand expansion may allow firms within the
rstry to increase their volume of business and net returns to meet the expanding demand.
aer prices for the industry's products may also result. Strategies for more effective generic
and expansion may be an important part of ISPC.
Two common approaches often used to expand demand in commodity industries are

:ric promotion and developing new products or markets. In commodity industries these

 

public goods are 0m“
organization that is P3
U.S.lMichigan la“ Ch
assessment programs
uses, expanding mark
use, as a p12
certain aspects for the
perhaps which produc
promotional program
ISPC might provide a
expansion activities.
2.6.2 Addressing Fl
One importar
Where there are exter
many possible definit
ertemality as an "effi

“0111131 market behav

Impact. A common 1

industry context of a
the industry as~a~grov
industry as such won
products. However,
quality reputation of

1
She could be to ide

 

 

4O

ublic goods are often achieved through an industry promotional or demand expansion
rganization that is paid for by assessments of firms within the industry. For example in the
.S./Michigan tart cherry industry, the Cherry Marketing Institute, that is supported by grower
ssessment programs in several participating states, has the broad goal of promoting tart cherry
ses, expanding markets, and facilitating development of new products.
ISPC, as a planning tool, brings together firms and industry organizations to plan on
ertain aspects for the future. This will likely aid in determining which market segments and
rhaps which products the industry organization(s) should emphasize in their generic
omotional programs. Opportunities for new products or new markets may also be identified.
iPC might provide an important coordinating role in the industry to aid in improved demand
spansion activities.
6.2 Addressing Externalities to the Firm
One important area that involves interdependencies between firms in an industry is
rere there are extemalities or spillovers (Tirole, 1990; Eggertsson, 1990). While there are
my possible definitions of extemalities (Panpandeaou, 1994), Nicholson (1989) defines an
emality as an "effect of one economic agent on another that is not taken into account by
al market behavior" (p. 777). In general the interactions can have a positive or negative
act. A common example of a negative extemality is pollution. For an example in the
ustry context of a negative impact of spillovers, buyers of an industry's products may view
industry as-a—group in regards to performance in a particular area such as quality. The
try as such would have a quality reputation that affects demand for the entire industry's
ucts. However, individual firms may market products without regard for the "public good "
ity reputation of the industry and hence damage an industry's reputation. A motivation for

could be to identify ways to increase positive extemalities or reduce negative extemalities.

 

 

 

2.6.3 Developing a C
Certain benefit
product volume or this
potential benefits of a
by Dixit and Nalebuff
changes or types of pr
For example, it might
customers in order to ‘
minimum critical mass
learn about the new pr
new variety may be br
16.4 Improving the
It has been no
there are possible gait
effective means to fac
ISPC might facilitate
iiiivnntnce. Some (
provide benefits and 2
AS an industr
hnherbeCOme a foe;
on an ISPC group rep

The horned ability

\

eiifli
Filter? ll Changes

PC it In
degcription of their 3y i
"idliStry rip

C ChangE

 

41
.6.3 Developing a Critical Mass

Certain beneficial changes in industry performance may require a critical mass of

  
  
  
  
  
  
 
 

roduct volume or change adopters9 in order to achieve success. Critical mass theory and the
otential benefits of a critical mass were modeled extensively by Schelling (1980) and discussed
y Dixit and Nalebuff (1991). The ISPC process could both aid in identifying the needed

anges or types of products and perhaps by facilitating the development of the critical mass.

r example, it might take a substantial quantity of a certain new apple variety being supplied to
istomers in order to be viewed as a consistent and reliable supplier of the new product. A

inimum critical mass of volume of a product or variety may also be necessary for consumers to

 

about the new product. At the same time, developing the critical mass of volume of the
w variety may be beyond the abilities of any one producer.
6.4 Improving the Industry's Ability to Act as a Group

It has been noted that often the institution for collective or group action is missing when
:re are possible gains from such action (Shaffer 1980, Schmid 1987). ISPC could be an
ective means to facilitate industry group action to improve certain types of performance.
’C might facilitate identifying problem areas or opportunities for improved industry
formance. Some of these areas might focus on developing new or modified institutions to
vide benefits and aid industry performance.

As an industry works on identifying strategies to irnprove industry performance, it may

   
   
   
 
  

er become a focal point for industry communication and group action. This could be based
ISPC group representing to some extent the collective will of the industry on some issues.

improved ability to communicate can be within the industry itself and/or with organizations

 

Certain changes can be established if a critical mass within an industry does the change.
xample, it may be the case that if a sufficient number of firms use a particular quality
iption of their product then this quality description may become the standard for the

try. The change is establishing the new quality standard.

 

outside the industri-
money's needs.
Being more r
may be other 01ng
industry performanCI
industry. For examl
funding for research
the Michigan apple i
improved ability of I
night more effective
ISPC might
ustitutions as the IS
earlier, individual fr
providing a industry
create institutions as
Period of time, almc
U-S. grains even thr
iiiiii. 1990). Porter
agreeing on basic te
developing and irnp
or technical standar
2'65 AthieVing F
If an inde
and 0lilihlhlnities, i

advantages illid hen

 

 

42
outside the industry. The ISPC may provide an important public good in communicating an
industry's needs.

Being more effective at communicating the industry's needs can be important as there
may be other organizations or groups outside the industry that are interested in some aspects of
industry performance. Communicating effectively with these groups can be beneficial to the
industry. For example, the Michigan Apple Industry Task Force supported an effort to obtain
funding for research from the U.S. government on Fireblight, a common production problem for
the Michigan apple industry. This funding effort was eventually successful and may result in
improved ability of the Michigan apple industry in apple production as the Fireblight problem
might more effectively be controlled.

ISPC might be an organizational approach that could facilitate creating needed
institutions as the ISPC process aids the industry in acting as a group. As has been discussed
earlier, individual firms have the incentive to free ride and not pay the cost of the institution
providing a industry public good. Furthermore, it often takes a substantial period of time to
create institutions and ISPC could facilitate this process. For example, it took a substantial
period of time, almost 25 years, for a uniform set of grades and standards to be established for
J.S. grains even though many industry participants had recognized the benefit of such action
Hill, 1990). Porter (1990) notes that cooperative processes sometimes aid the process of
greeing on basic technical standards. The ISPC process could thus reduce the cost and time of
eveloping and implementing strategies for needed industry public institutions, such as, grades
7 technical standards through improving the industry's ability to act as a group.

6.5 Achieving First Mover Advantages
If an industry develops a pro-active stance towards addressing certain issues, problems,
1 opportunities, in some circumstances it may be able to capture certain types of first mover

tantages and hence gain some competitive advantage over rival industries. Porter (1980)

 

 

 

 

 

writinginthefinn

markets when:

4) early e
leading t
easily
innovati

Essentially it seems
industry with poten
knowledge of the ir
example, the Wash
advantage when it i
itself as an industry
the Washington ap]
been forced to adju
Porter goes
advantages. These
1) Technology of

superseded ea

 

 

—————*Mfl"" — '

43
thing in the firm context notes that the first mover advantage is particularly important in

rarkets when:
1) early pioneering efforts help to build a prime image and reputation with
customers,
2) an early commitment in technology and resources leads to an absolute cost
advantage,
3) first-time customers have a high degree of loyalty to the first to get their
business,

4) early experience in an industry initiates the learning process in the firm,

 

leading to more effective business practices, etc. This effect may not be
easily copied by imitators and may not be eroded by later technological

innovations.

 

issentially it seems a first mover gains advantages by being in a privileged position in the
rdustry with potentially lower unit costs, higher customer loyalty, improved image, and better
rowledge of the industry. These aspects can apply to an industry as well as a firm. For
:ample, the Washington apple industry seemed to obtain something of a "first mover"
lvantage when it instituted minimum condition quality standards and other efforts to establish
elf as an industry that supplied a uniform consistently good quality product. In some respects,
: Washington apple industry has been sufficiently successful that other apple industries have
en forced to adjust to compete effectively with this first mover apple industry.

Porter goes on to note that there are some potential risks when pursuing the first mover
antages. These include:
Technology changing so quickly that technology developed by the first mover can be

superseded easily by later movers

 

 

insome regards.
enhanced Washingtc
region and one with
2.6.6 Improving C
Many comm
particular geographi
production problerm
production capabilit
important areas whi
product that is avail
availability of trainc
interdependence of
production capabilit

thus be considered 1

 

 

 

44
2) Costs of developing the market are high and may not develop strong proprietary
benefits. To the extent that the benefits of market develOpment cannot be made
somewhat proprietary, then later movers are able to capture the benefit of the
developed market while paying little or none of the costs
In the industry context, it is often difficult for the industry to achieve first-mover
benefits in certain areas because developing a market for a commodity is almost inherently non-
proprietary. This may result in some first-mover advantage or benefits are often not available to
commodity industries. However, certain ISPC first-mover advantages can be developed. For
example as already mentioned, the Washington apple industry has developed a number of pro-
active quality standards for apples produced and marketed as Washington apples and many other
aspects of high industry performance that places it in a type of "first mover" position - at least
11 some regards. Many of Washington's high performance features have seemed to have
enhanced Washington's ability as a region in establishing itself as a high quality producing
'egion and one with high performance in effectively serving customer needs.
:.6.6 Improving Cost, Technological, and Managerial Capabilities
Many commodity industries have some unique attributes because they are based in a
articular geographic region. Firms producing a particular product in a region face similar
roduction problems and issues that are tied to the region. The region often has a specific set of
roduction capabilities based upon weather conditions, pests, etc. that can affect a variety of
rportant areas which perhaps include the type of genotype or specification of a particular
oduct that is available to producers as well as localized external conditions, such as, taxes,
ailability of trained personnel, etc. There is a public good aspect in these areas because of the
erdependence of nearby firms in agricultural production systems. Improvements in the
eduction capabilities or external conditions might benefit many firms in the industry and can

5 be considered a public good. There may further be substantial economies of scale for the

 

 

available to produce

production research
Tweeter (1979),
Porter notes
an industry (1990, p
importantly, the jo'
new technology and
some of the success
projects in emergin
A role of IS]
potential to improve
include analyzing an
capabilities. ISPC c
as needing more res
more research in a 1
developing the reset
2.6.7 Developing]
One potenti
effective planning is

the performance of

good benefits from

 

 

 

45
ndustry to develop research or other efforts to improve the production capability of the region.
2or example, the production research developed at many land grant universities has often
vorked towards improving the production capabilities, e. g., varieties, strains, etc., that are
.vailable to produce and market from a particular region. The benefits from agricultural
tl'OdllCtiOD research are discussed in a number of works including Bonnen (1987), Knutson and
Tweeten (1979), and Shumway (1993).

Porter notes that there is a stimulative effect of joint research projects on the success of
n industry ( 1990, p. 636). The joint research developed may itself be beneficial. Perhaps more
nportantly, the joint research can focus research efforts by the individual firms in developing
ew technology and processes for the success of their individual firm. Porter further notes that
)me of the success of Japan in manufacturing can be traced to the effective use of joint research
rojects in emerging technical areas because it stimulates proprietary firm research.

A role of ISPC could be to deve10p an improved understanding of priority areas with
>tentia1 to improve an industry’s production capabilities should be best emphasized. This could
clude analyzing and identifying priority areas for research efforts to improve an industry's
pabilities. ISPC could also aid in mobilizing resources to address a particular area identified
needing more research attention. For example, if an ISPC process recognizes the need for
are research in a particular area, then industry research organizations could foucs on
veloping the research.

L7 Developing Information in Critical Areas

One potential benefit of ISPC is to focus on developing improved information for
:ctive planning by individual firms. The government often provides information to improve
performance of the marketing system because there are perceived to be substantial public

:1 benefits from market information (Gardner, 1983; Byerlee and Anderson, 1982).

 

 

The ISPC pr

useful to the industry
industry's vertical

market fresh apples 1
varieties due to their
mob less informatio

variety for market co

coordination in the
performance. This
ISPC may de
lnfonnational analys
comprehensive unde
Specific performancr
overall improved ecv

degree this aspect oi

2.7 Examining the

Economic tl
collude by forming
concern of many pt

firms cooperate or '

resulting in definite

 

 

46

The ISPC process may help to identify areas where improved information would be
useful to the industry and can work on remedying that situation. This may improve the
industry's vertical coordination. For example, in the Michigan apple industry, shippers who
market fresh apples learn information about trends in customer demand for the various apple
varieties due to their close contact with buyers of apples. Growers, on the other hand, have
much less information on customer preferences. Growing, packing, and shipping the best
variety for market conditions has important effects upon the returns to the entire industry. The
Michigan Apple Industry Strategic Planning Task Force has sponsored a variety survey of
shippers and processors so that the results of the survey can provide improved information to
growers for their planting decisions. The ISPC process thus helps to improve the vertical
coordination in the marketing system through improved information and hence its overall
performance. This example also relates to the critical mass aspect.

ISPC may develop information that is a catalyst for change in the industry.
informational analyses, such as, a situational analysis,'may aid the industry in improving their
:omprehensive understanding of needed changes by the firms and industry organizations.
ipecific performance gaps and opportunities can be identified that the industry can address for
overall improved economic performance and competitiveness of the industry. To a substantial

egree this aspect of ISPC may be informational in nature about needed changes and strategies.

.7 Examining the Possibility of Collusion as a Motivation for ISPC

Economic theory suggests that if firms in an industry cooperate together they might
illude by forming some type of cartel to increase industry prices. This form of behavior is a
ncem of many public policy economists, such as, Sherer (1980) who contend that whenever
ms c00perate or work together towards jointly achieving goals there are monopolistic practices

:ulting in definite negative public policy impacts. As explained with earlier discussions

 

 

regarding ISPC in '

and organization invo
policy perspective wi
benefits from ISPC '
activities, etc. from
the public policy pe
public policy conside

public. Hence, coll

share of the market
let us consit
monopolistic practio
shorts be. lndustria
often been used to e
regulations from a 1:
determine its effect

organization predict

‘° Another act
on the market with
restricting quantity
minimum quality st
quantity in the egg]
controllable than it
restricting quality t
overall market sup]

 

 

 

47
regarding ISPC in this dissertation, there are many non-collusive potential motivations for firms
and organization involved in ISPC that involve improved industry performance from a public
policy perspective without negative collusive effects. These potential non-collusive potential
benefits from ISPC include improved information, improved generic demand expansion
activities, etc. from which positive economic benefits would be expected to be generated from
the public policy perspective as well as from the industry perspective. Nonetheless, there is a

public policy consideration as to whether ISPC as an approach is desirable for the broader

 

public. Hence, collusion as a potential motivation for ISPC efforts deserves discussion.
According to the theory of industrial organization, the general goal of collusion is to
achieve higher prices through restricting quantity towards a monopoly level‘o (Tirole, 1990).

All firms in the industry would benefit from the higher price and each firm could have a certain

 

share of the market according to the theory.

Let us consider the idea that firms in an industry might seek to achieve collusion or
monopolistic practices through ISPC. A key question to consider is how effective would such
efforts be. Industrial organization theory may be somewhat useful in this regard because it has
often been used to examine various economic activities, such as, mergers and government
regulations from a public policy perspective. Overall the economic activity is evaluated to
determine its effect on public welfare. At a general level, what would the theory of industrial

organization predict about an industry's efforts to increase prices through decreasing quantity?

1° Another activity that firms in an industry might engage in is to restrict quality allowed

on the market with the goal of restricting quantity (Bokstael, 1984). This could be through

restricting quantity on the market through a minimum quality standard. In this situation, the

minimum quality standard chosen would be deliberately over-restrictive and would restrict

quantity in the aggregate. In agricultural markets, quality at the production level is much less
ontrollable than in manufacturing markets due to weather and other variable effects, so that
estricting quality through a minimum quality standard may in some situations effectively limit
verall market supply.

 

 

 

It is likely th

desired results of mo
would limit the effect
supply a sufficient rn
toaffeet prices, then
market and reduce
prices received. An
same product as we

profit effects of a m

that even if an indus
likelybeunstable. I
Cooperating with the
Porter, 1984). Alsr
rapidly increasing d
P- 252). In those si

The overall
cOlliritodity industri
Commodity industt
would likely be bOt
attempt to raise pri
because of the res;

Will be pursued by

 

 

 

48
It is likely that an industry's monopoly efforts would be ineffective and not generate the
desired results of monopolistic efforts, i.e. , increased prices, due to at least three factors that
would limit the effectiveness of such a strategy. One of these is that the industry would have to
supply a sufficient market share to have some effect on market prices. If the industry is not able
to affect prices, then their quantity restriction would only reduce the amount they supply to the
market and reduce their market share and sales volume with little or no resulting increase in
prices received. Another irnportant factor is that competitor industries that are supplying the
same product as well as substitute products would increase sales and hence mitigate any price or
profit effects of a move to increase prices through restricting quantity. The decrease in quantity
by the industry which tried to accomplish such collusive behavior would allow the competitor
industries and/or substitute products to increase market volume and share that could substantially
limit the effect of collusive strategy for the supply-limiting industry. A third important factor is
that even if an industry could gain some temporary monopoly gains for themselves, these would
likely be unstable. Individual firms in an industry would have the incentive to free ride by not
cooperating with the "monopoly" behavior through supplying more to the market (Green and
Porter, 1984). Also, some theory suggests that monopoly price setting is unstable in the face of
rapidly increasing demand (Rotemberg and Saloner, 1986) or a slump in demand (Tirole, 1990,
p. 252). In those situations, firms tend to not cooperate in a discipline of quantity restriction.
The overall implication is that ISPC will not likely hurt consumers - especially for

ommodity industries that cannot affect price or for which there are close substitutes.

ommodity industries are unlikely to pursue a collusive strategy because industry collusion

ould likely be both ineffective and unstable. The actual effect of restricting quantity in a futile

ttempt to raise prices would likely be very harmful to the industry and its competitive position

ecause of the responses of competitor industries. ' Hence, this makes it unlikely that collusion

ill be pursued by an industry. In any case, if an industry does pursue a strategy of trying to

 

 

 

hoary, public good

from these areas and
2.8.1 Group Theo
An industry
the industry is to de
organizations must
Given this, group th
One key asp
different objectives.
there are common it
objectives and agree
sateen.
Helmbergei
common goals. Th
identify and agree (
A related is
anlSPC group or c
trategies. Hence,

This consensus bui

V°1ootory actions c

 

 

 

 

49

attain monOpolistic profits, then appropriate public policy can counter the monopolistic practices

if they harm the public interest.

2.8 Theoretical Issues Related to Developing an ISPC Framework
Three additional areas of theory provide insights potentially relevant to ISPC: group

eory, public good theory, and vertical coordination. The following subsections consider theory

om these areas and how an ISPC process should address the considerations developed.

.8.1 Group Theory and the Process of ISPC

An industry is comprised of a number of firms and industry organizations. In ISPC if

e industry is to develop and implement certain strategies as an industry, the firms and industry
rganizations must at some level engage in group building and other productive group behaviors.
iven this, group theory is relevant to understanding and guiding an ISPC process.

One key aspect in group theory is that different members of the group have somewhat
ifferent objectives. Despite this, for the grOUp to be effective, the group must cooperate where
tere are common interests. Group theory would thus suggest that developing a set of common
ejectives and agreeing to the various steps and activities in an ISPC framework is essential to
ccess.

Helmberger and Hoos (1962) note that participants in a group must share one or more
mmon goals. This means that it will be an important task in developing an ISPC process to
:ntify and agree on a common set of goals for the ISPC group.

A related issue is how decisions in ISPC will be made. Essentially, the industry through
ISPC group or other industry forums will need to come to consensus about industry

tegies. Hence, one key aspect of an ISPC process is that it is essential to build consensus.
s consensus building is so essential to ISPC because industry action depends largely upon

ntary actions or the tacit approval of individual organizations within the industry. This

 

 

 

 

needed consensus in:

“ownership“ of each

 

about ISPC with the

group is how to mo
attention to incentiv
Overall, '
homework. These
0 the need

0 the esser

0 the need
participat

The ISPC framewo:
2.8.2 Providing P
Mama?
extent with the crez
addresses the challt

public goods paid t

molseektobeafr

 

 

 

 

50

needed consensus may be aided through adequate involvement of industry leaders and their
"ownership" of each stage of the analyses and implementation by consistently communicating
about ISPC with the industry and by a number of other key approaches to aid in building and
maintaining consensus. The ISPC framework should mention important consensus building
within each part of the framework.

Another important related issue from group theory is how to get individual firms and
industry organizations to participate in the group. There must be ways to allocate that costs and
benefits of the group action so that each participant will have incentives to participate in the,
group (Staatz, 1987). Essentially, one issue that will need to be considered in forming an ISPC
group is how to motivate active involvement of firms and industry organizations through explicit

attention to incentives.

Overall, this section has identified three main issues that should be addressed in an ISPC

framework. These are:

0 the need for an ISPC group to agree on a common set of objectives

0 the essential nature of consensus for decisionrnaking and implementation
0 the need for possible participants to have adequate incentives to
participate in an ISPC process
The ISPC framework as it is developed in Chapter 3 will refer back to these issues.

2.8.2 Providing Public Goods as an Implementation Issue in ISPC

As argued in Section 2.6, many of the potential motivations for ISPC have to do to some
extent with the creation of certain kinds of public goods. One of the areas within group theory
hddresses the challenges of providing public or non-excludable goods. It is often difficult to get

ublic goods paid for due to the free rider issues as has been discussed earlier. Each member

y seek to be a free rider and avoid paying part of the public goods cost with the hope that

 

 

     
 
  
  
  
  
  

 

other group membe
benefit.

This means
strategy is likely to
strategy. In this a
rtrmgies with stro
overcome? Group

unless either (Olso

benefit from provit

there is the free rit
titration whether 1
public good.

The role 0
industry organizat
commodity indust
demand for the ct
industry public gt

This type
firms For exam]

Particularly profit

develop a critical

 

 

 

51
other group members will pay the cost while all, including the free riding non—payers, obtain the
benefit.

This means that in an ISPC framework overcoming this public good aspect of ISPC
strategy is likely to be an important issue to be addressed in the implementation of ISPC
strategy. In this a key question to address is how are the resources or actions for ISPC
strategies with strong public good characteristics to be provided and the free rider issue
overcome? Group theory predicts that public goods will not be provided by group members
unless either (Olson, 1965):

1) group members achieve a net benefit from providing the good;

2) coercion is used to force group members to provide the good.

This gives rise to different implementation issues for strategies with public good characteristics.

In the first condition listed above, if fimis or organizations in an industry perceive a net
benefit from providing a strategy, then they would be more likely to do their part. However,
there is the free rider problem in the provision of public goods and it is uncertain in many
ituation whether firms or industry would be willing to voluntarily provide the resources for the
ublic good.

The role of an ISPC process could be in coordination, i.e., helping individual firms and
dustry organizations identify where strategic action should be undertaken. For example, many
ommodity industries have generic demand expansion programs with a mission to expand
emand for the commodity. The role of ISPC could aid industry organizations that supply
dustry public goods in identifying appropriate strategy to undertake.
This type of coordination to develop industry public goods can extend in some cases to
s. For example, if an ISPC process identified a new variety or product for the industry as a
rticularly profitable opportunity, then firms could work in their individual best interest to

:velop a critical mass of the new variety or product.

 

 

Industry organizatio

provide some of th

sufficient benefit re
An indus

paying for certain

possible mandatory

To some extent as
ittintly by perform
firms may have a t
quality apples, esp
may act in this ma
aggregate affect s
an overall poor pt
products.

In the We
inrplemented bast
apples below a m

the quality stands

 

 

 

52

This means that many ISPC strategies may not require coercion. For some issues and
strategies, firms and industry organizations will have sufficient incentives to provide them.
Industry organizations with a mandate to provide certain industry public goods may decide to
provide some of the ISPC public goods. For other ISPC strategies, firms may individually gain
sufficient benefit relative to the cost that they are willing to pay for the public good.

An industry may also decide that some sort of coercion or required participation in
paying for certain public goods would be useful to improve the industry's performance. Some
possible mandatory methods might include assessments of firms in the industry to pay for an
industry public good, such as, industry funds for marketing promotion, as well as regulations,
such as, a marketing order, that would limit the behavior of firms.

An example of where mandatory requirements could be necessary is some industries
where a strategy of minimum quality standards might improve an industry's shared reputation.
To some extent as mentioned earlier, reputation for a regional apple industry may be earned
ointly by performance of all firms in a region. However, the many relatively small, individual
irms may have a short-run incentive to sell all the apples to the fresh market, including marginal
luality apples, especially if the quality characteristics cannot be visually identified. The firms
may act in this manner because they are relatively small and hence can largely disregard the
ggregate affect such action will have on their industry's quality reputation. This can result in
n overall poor performance in shared reputation and reduced demand for an industry's
roducts.

In the Washington apple industry, a mandatory minimum quality standard was
nplemented based upon overall industry support. With this standard, firms could no longer sell
>ples below a minimum condition standard to the fresh market. This requires firms to achieve

e quality standard, that provides the "public good " of an enhanced quality reputation. The

standard seems to has
overall production.
The key imp]
good problem. Eithe
the industry must fin
work. This is an im]
2.8.3 Vertical Coot
Vertical coo
‘0 improve its perfo]
industri involves tht
Mimi's products
central dimensions ‘
WWW (Marion 1g
Improving .
Production and dist
of the production a
Packers, and Shith
comm” With the
in a cum
firms that horizOm
Sistem in achiev'm

controls all of the

marketing of the p

\

l 1
Marion is 10

l
contort is quite sir

 

53
standard seems to have helped firms in increasing demand and obtaining higher returns for their
)verall production.

The key implication from group theory about ISPC strategy is to be aware of the public
good problem. Either firms and organizations have the incentive to implement the strategy or
he industry must find some way to enable some mandatory requirements to make the strategy
vork. This is an important consideration in ISPC strategy development and implementation.
3.8.3 Vertical Coordination as a Special Topic in ISPC

Vertical coordination would be expected to be a key topic in ISPC as the industry seeks
0 improve its performance in regards to these aspects. Effective vertical coordination in an
ndustry involves the coordinated actions of each stage of the production and marketing of an
ndustry's products (Mighell and Jones, 1963). Indeed, vertical coordination is one of the
entral dimensions of the organizations and conduct of economic activity for a commodity
rdustry (Marion 1986, p. 53). ”

Improving vertical coordination is one central goal of an ISPC process because in the
roduction and distribution of agricultural commodities there are usually multiple vertical levels
fthe production and marketing system. For example, in the Michigan apple industry, growers,
tckers, and shippers are all important distinct specialized vertical levels in providing the
onsumer with the industry's products.

In a commodity industry each of these vertical levels is usually made up of a number of
ms that horizontally compete with each other and interact with the other vertical levels of the
stem in achieving a return for their production efforts. No one individual vertical level fully
ntrols all of the quantity and quality of the production, processing, handling, advertising, and

irketing of the product. This situation is in contrast to the production and marketing of many

F;

“ Marion is looking at the commodity subsector context; however, the commodity industry
rtext is quite similar.

manufactured produ:
production-marketin
turn could be viewe
of the production, h
manufacturing firm
retailer of their prov
This issue t

be a common topic
levels of the produ
direct knowledge f
it effectively coon
demand (or possib

aPPoopriate tools f

ISPC framework.

coorfiltration me

However, vertical

Ventral coordinat

2.9 Smart 01

Many the
chapter. The Pri
literature that Car
been to discuss fl

 

 

54
manufactured products where the producer firms have substantially more control of vertical
production—marketing channel for sale to the final consumer. The large, branded manufacturing
firm could be viewed as a vertical integrator of much of the above system with control explicitly
of the production, handling, advertising, and marketing of their product although the
manufacturing firm still deals with input suppliers to their process as well as usually a final
retailer of their products.

This issue of vertical coordination of production, marketing, and distribution is likely to
be a common topic area in many commodity industries. This would especially be the case if
levels of the production-marketing system do not come in direct contact and hence do not receive
direct knowledge from the ultimate user of the industry's product. In this there may be an issue
of effectively coordinating the supply (quantity and quality) of an industry's products with
. demand (or possible demand) of an industry's products. A key issue in relation to ISPC is that
appropriate tools for analyzing and addressing vertical coordination issues need to be part of an
ISPC framework. Subsector and value chain analysis are common methods to analyze vertical
coordination issues and were reviewed earlier in this chapter for their use in situational analysis.
However, vertical coordination is of central importance in a commodity industry, and hence

vertical coordination should be a continuing theme throughout the ISPC framework.

2.9 Summary of Relevant Findings to ISPC Framework Development

Many theoretical concepts and ideas from relevant disciplines have been reviewed in this
chapter. The primary focus has been on identifying and evaluating effective tools in the
literature that can contribute to effective ISPC framework development. A secondary focus has
been to discuss the potential benefits of ISPC as additional reason for deve10ping an ISPC

framework and furthering the knowledge base regarding an ISPC approach. In this section, key

 

 

Points of soecial "
specific ISPC frat
strategic]
analysis, and othe
Mei developed
context provide at
management firm
finnsinlhebllSiD‘
acontplex envirot
for the industry Ct
and discussed. T
ISPC strategy, an
and other differer
Strategic manager
Inthisfra
management from
strategically. Se\
strategic manager
0 Develt

0 Situati

0 Setting

0 Develt
share;

0 Additi

parties

 

55
)oints of special relevance to framework development are summarized in preparation for the
specific ISPC framework development in the next chapter.

Strategic management frameworks, currently existing ISPC frameworks, value chain
analysis, and other areas provide some substantive bases from which an ISPC framework can be
iarther developed. In particular, strategic management frameworks deveIOped for the firm
:ontext provide an especially important baseline to deve10p an ISPC framework because strategic
management frameworks are based upon well established theory that is considered effective for
firms in the business literature in their efforts to plan for the future for improved performance in
a complex environment. In integrating knowledge from various sources into an ISPC framework
for the industry context, several relevant differences between firms and industries were identified
and discussed. These include the importance of firm rivalry within an industry, the nature of
[SPC strategy, and a potential need for effective approaches to initiate an ISPC process. These
and other differences necessitate the development of an ISPC framework distinct from firm-level
ptrategic management frameworks.

In this framework development, while there are key important differences, strategic
management frameworks do, nonetheless, provide substantial insight into how to plan
trategically. Several content areas need to be addressed in an ISPC framework as well as in
trategic management. These strategic management content areas can be described broadly as:
0 Developing a strategic vision

0 Situational analysis

0 Setting objectives

 

0 Developing strategy to meet the desired results including developing a
strategic intent or core strategies
0 Additional specific strategies to achieve the core strategies and address

particular goals or problem areas

 

 

 

o hnpleme
0 Review
In the ISPC context
different process or
Akeyfocu
industry context an
process. 0vera11,t
these major differe
inlSPC for:
0 ametho
e awayft
0 ametho
0 aneffec
here are areas th:
This sectio
development. Th1;

as discussed in the

 

56

0 Implementation of strategy

0 Review and re-evaluation
n the ISPC context, these content areas will be addressed to some extent differently through
.ifferent process methods to focus on being most effective in the ISPC setting.

A key focus in this chapter has been to evaluate differences between the firm and
ndustry context and consider how these differences have a practical effect upon an ISPC
urocess. Overall, some of the areas that need to be addressed in an ISPC framework to reflect
hese major differences can be summarized from a number of sections in this chapter as a need
11 ISPC for:

O a method related to effective initiation of a comprehensive ISPC approach

0 a way for the industry to decide upon a common set of objectives in ISPC

O a method to deal with the public good aspect of certain ISPC strategies

0 an effective method to achieve vertical coordination for an industry
These are areas that will be addressed in the ISPC framework developed in the next chapter.
This section of the chapter has summarized the key findings of relevance to framework
evelopment. This helps to indicate the important linkages between various sources of authority,

is discussed in the literature review, to the framework developed.

 

 

This cha
coordination (18]
steps that in tot:
homework is int
managers of fin
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the material cov
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CHAPTER 3
A FRANIEWORK FOR

INDUSTRY STRATEGIC PLANNING AND COORDINATION

This chapter develops a conceptual framework for industry strategic planning and
coordination (ISPC). This framework is comprised of main activities organized into phases and
steps that in total are thought to provide an effective method or approach to ISPC. The
framework is intended to be of use to practitioners of ISPC that may include industry leaders,
managers of firms and support organizations in an industry who might consider using ISPC, and
university faculty who work closely with industries. The framework is built substantially upon
the material covered in Chapter 2. The first section of the chapter presents an overall
perspective on the framework. Four subsequent sections cover the phases of the framework. A

summary section provides an overall conclusion to the chapter.

3.1 The Proposed Framework

The basic structure of the framework, as shown in Figure 3-1, is conceived as a series of
phases that involve key analysesand related activities for an industry to accomplish as part of an
effective ISPC process. Following a series approach is consistent with the standard firm
strategic management framework in which well identified activities are accomplished in a
)articular order. The "boxes" in the framework represent overall flow activities (i.e., (1)
)rocess initiation, (2) strategic planning, (3) implementation and coordination of strategy, and (4)
:trategy review and re—evaluation) or phases that must be accomplished in approximate order.
The logic behind this flow is that an ISPC process has some unique start-up characteristics that
re captured in process initiation as a meaningful first phase. Then, strategic planning should be

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59
pursued by the industry so that the best industry strategies are selected based upon the knowledge
developed and choices made. The strategies selected must then be implemented and pr0per
coordination among industry participants assured. Strategy review and re-evaluation represents
the reconsideration of earlier phases based on changing circumstances.

The four "ovals" of Phase 2, shown in Figure 3-1, represent major steps in the strategic
planning phase. As with firm-level strategic management, the logic behind the order of the steps
in strategic planning proceeds as follows. Situational analysis should be completed first because
it provides key information and knowledge on which the industry can develop a shared
understanding and consensus. The situational analysis then leads to a vision statement and
guiding strategies for the industry. The vision statement and guiding strategies provide an
overall strategic intent for an industry's competitive advantage and as such can guide the industry
in determining and prioritizing major improvement objectives. More specific strategies should
then be developed to meet the major improvement objectives.

These steps represent key activities that can be completed to a degree simultaneously or
with some overlap. For example, the shared understanding of the industry's situation deve10ped
situational analysis may continue to evolve over a period of time even as the overall guiding
trategies are developed. Nonetheless, the steps in strategic planning are listed in serial order as

ey are probably best accomplished in this fashion.

Another important element in the framework includes the feedback loops from

plementation and coordination of strategies as well as strategy review and re-evaluation.

ese represent the iterative nature of ISPC planning efforts. Strategies will be implemented

(1 coordinated in the industry with varying degrees of success and need to be reexamined based
n the experiences and results. This provides feedback into possible changes in another round of

ategic planning. Strategy review and re-evaluation represents an overall reconsideration of

arlier phases in the strategic planning activity framework and serves as an overall feedback on

 

 

 

their effectiveness :
overtime.

The variou
shategie managem
work. As diseusse
that are relevant at
Chapter 2, such as
sources of guidant

The follor
framework, For 1
relevant past theo

literature and the

3.2 Process Init

If an indt
initiation, As di
generally no Clea
inmarked Conn;
could aecomplisl
hence “Weary
mum Contexr

A key Sp
ISPC based 11130
benefits from in

new: to be gro-

 

60
their effectiveness and for possible modifications to ISPC strategy as circumstances change
overtime.

The various phases and steps of the ISPC framework were deve10ped using firm
strategic management as a main baseline for framework development along with previous ISPC
work. As discussed in Chapter 2, firm strategic management provides a number of content areas
that are relevant and useful in the ISPC context. Furthermore, the other literature reviewed in
Chapter 2, such as, subsector analysis, the earlier ISPC framework, etc. provide other important
sources of guidance for further ISPC framework development.

The following sections of this chapter describe and discuss the various phases in the
framework. For each phase of the ISPC framework, the relevant sources of reference from the
relevant past theoretical literature are cited. This provides an explicit linkage between the

iterature and the framework deve10ped.

3.2 Process Initiation
If an industry is to work together through ISPC, the logical first phase is process

nitiation. As discussed in Chapter 2, there is a special need for this phase because there is
enerally no clearly established industry control structure in place to accomplish ISPC. This is
l marked contrast to fum strategic management where a firm's CEO or group of top executives
>uld accomplish process initiation in a relatively straightforward fashion. Process initiation is
:nce necessary for there to be an ISPC process that precedes strategic planning within an
dustry context.

A key starting point for ISPC is an awareness among industry leaders of the need for
PC based upon some level of commonality, shared problem areas, and the possibility of shared
refits from industry actions that facilitate improved industry performance. This need for ISPC

:ds to be grounded in an understanding among some industry leaders that there are numerous

 

interdependencies
capitalize on the ii

The aware
interdependence c
apple industry, su
the fresh apple in:
impetus to ISPC t
industry about ad
hthe U.S./Mich
contributed to a l

The key
at least, by a cor
focused on a Con
indus‘ly base or
t0gether to intprr
C‘mlltrehensive 1
Process.

Five ma
important early
task [he industr
The“ the indust
Process (ISPC t
“16me inir
Process‘ and an

The following 1

 

61
interdependencies between firms and industry organizations. An ISPC process would seek to
capitalize on the interdependencies in developing ways to improve industry performance.

The awareness of the possible need for ISPC as well as the recognition of industry
interdependence can be aided by catalysts, i.e., problems, concerns or events. In the Michigan
apple industry, such catalytic challenges as the threat of Washington's ever greater dominance in
the fresh apple market and the loss of important pesticide inputs provided some of the important
impetus to ISPC efforts. Such catalysts can further help to establish a sense of need in the
industry about addressing a particular problem and the potential gains from ISPC. For example,
in the U.S./Michigan tart cherry industry, the extremely low prices for the 1995 crop have '
:ontributed to a felt need for the ISPC efforts in that industry.

The key outputs of the process initiation phase include an agreement in the industry or,
at least, by a core of industry leaders, to have an ISPC process and to have some sort of group
focused on a comprehensive ISPC process. The agreement to have an ISPC process provides an
ndustry base or starting point and some initial consensus in the industry that they can work
ogether to improve their industry’s performance. The group that is focused upon a
.omprehensive ISPC process is needed to turn the initial consensus into a practical ISPC
rrocess.

Five main tasks can be delineated for completing the process initiation phase. One
nportant early task is the articulation among the industry leaders of the need for ISPC. In that
tSk, the industry, or at least a core of leaders, decides that an ISPC process would be useful.
hen the industry needs to go through a process of forming an industry group to lead the ISPC
rocess (ISPC group). After this, the ISPC group can provide a focal point for the other tasks of
.e process initiation phase (i.e., deciding on a common set of objectives, paying for the ISPC
mess, and arranging for staff support for the process) simultaneously or in parallel fashion.

1e following discusses these tasks of process initiation.

 

3.2.1 Articulation
The first ta
process. This is in
or even a mandate
leadership who sup
communications rr
why ISPC is need
meetings could ad
discuss, learn and
to some extent ho
The indus
fashion that ISPC
SOUtces such as:
0 leader
public
' leader
° leader
Alternatively, it
Worthwhile. Sur
00mmllllicate the
Whatew
notes, It Him
or at least a CO“

”menus build

 

62
3.2.1 Articulation of an Industry Need for an ISPC Process
The first task in process initiation is an articulation of an industry need for an ISPC
process. This is important because this articulation of industry need forms a base, starting point,
or even a mandate for the ISPC process. Initially, to help develop this articulation, industry
leadership who support the idea of an ISPC process for their industry can develop various
communications means, such as, informational bulletins and articles, that explain to the industry
by ISPC is needed or desirable. Various industry discussions, forums, etc. at industry
eetings could address this t0pic as well. Through this process, the overall industry can
iscuss, learn and understand the commonality and interdependencies in the industry as well as
0 some extent how an ISPC process might develop related beneficial strategies for the industry.
The industry articulation may come from a number of industry leaders agreeing in some
ashion that ISPC would be useful. This industry leadership could come from a number of -
ources such as:
O leaders of industry organizations ~ especially those supplying industry
public goods
0 leaders representing various industry segments
0 leaders representing individual fimls in the industry
,tematively, it may be possible for an industry to vote on whether an ISPC process would be
trthwhile. Such a referendum would likely require an effort by industry leaders to
nmunicate the need for ISPC broadly throughout the industry.
Whatever the method of articulation, its goal is to provide a mandate for an ISPC
cess. It represents an important initial part of industry consensus building in that the industry
t least a core of leaders has decided to have an ISPC group. As discussed in Chapter 2

:ensus building is important in the ISPC context.

 

 

3.2.2 Formation (
After indus

need to be given It
lSPC process. Th
involved in ISPC t
inachieving certai
himplenrentation
group further can
developed and re
ln ISPC 1

type of organizat
lttfttrmance resr
organtzational ar
industry. Organ
‘ inform

gener

° aSpet

' one u

' ad hr

0 an in

The Specifm 0
needs. For ex:
ISPC group an

leprescmativfl

 

63

3.2.2 Formation of an ISPC Leadership Group

After industry leaders decide to proceed with an ISPC process, some consideration will
teed to be given to the membership and form of an ISPC group that will be used to focus the
SPC process. The need for the ISPC group itself is based upon the need for an industry
nvolved in ISPC to engage in group decisionmaking. Group decisionmaking can aid an industry
1 achieving certain benefits as well as facilitating efforts to overcome the public good problem
a implementation. This ISPC group can focus and lead the ISPC process for the industry. The
poup further can bring to the broader industry - and seek consensus there - the key strategies
eve10ped and recommended through ISPC.

In ISPC group formation, consideration will need to be given to the question of what

 

pe of organizational arrangement might help facilitate the ISPC process and strategic
hrformance results with that industry. Logically, it would be expected that the selection of
'ganizational arrangement for the ISPC group depends upon the nature and structure of the
dustry. Organizational alternatives may include:

0 informal arrangements led by the main industry organization(s), such as, a

generic promotional organization or trade association

0 a special ISPC planning group

0 one main industry organization taking the lead with ISPC

0 ad hoc groups of leaders getting together

0 an industry roundtable where all major industry organizations are represented
specifics of how such an arrangement operates may evolve over time to meet the industry's
s. For example, an ad hoc group of industry leaders might initially form an small informal
3 group and later might decide to deve10p a special more definitive ISPC group with

sentatives from all major industry organizations.

 

The choice
particular industry
industry completel
comprised of man
adlfferent arrange
meet to facilitate
of the industry be
base of ownershi
nplementation e

Another
leaders to involc
10tether can for
The industry lea
level strategic u
would rellft‘een

A very
indu“ key vis
Usual1y hava er
Bringing the le
Whose of Is}

shafegic Choic

\
11

H filler

Wiener, the

aphropnate‘

 

64
The choices regarding the specific organizational arrangements need to be based on the
particular industry's situation. For example, one main industry organization, if it represents the
industry completely enough, can seek to lead ISPC by itself. Alternatively, an industry
comprised of many industry organizations and an especially diverse set of firms might well need
a different arrangement, such as, an arrangement by all of the main industry organizations to
meet to facilitate ISPC in a roundtable format. In general, it is important that all key segments
of the industry be represented or have some input in the group since this can facilitate a broad
base of ownership of ISPC within the industry as well as more effective planning and
implementation efforts (W alzer, 1996) “.
Another important issue in forming an ISPC group includes decisions regarding which

leaders to involve in the group. This is important because the leadership in the ISPC group

together can form an initial consensus and can influence the broader consensus in the industry.

 

 

The industry leaders would be expected to have similar roles as executives that work on firm
level strategic management -- with the main difference for ISPC being that industry leaders
would represent various diverse firms and support organizations within an industry.

A very important aspect is that the involvement in the ISPC leadership group needs to
include key visionary, progressive leaders of the industry. The best leaders in the industry
usually have excellent insights into the industry, its problems, and its future needed direction.
Bringing the leadership group together organizes a group of industry experts for the common
purpose of ISPC. This is valuable, especially as it develops synergy, in making effective

strategic choices in the ISPC process, i.e. , an ISPC group that is comprised of the top visionary

l‘

“ Walzer is working in the strategic Visioning in the community development context.
Iowever, the implications for the "community" of a commodity industry are equally
ppropriate.

industry leaderslu
process.

The grou
or advocated thre
context that a sin
1996). In the lllt
actions is even n
consensus amon;
direction or com
exPlanning to the
will provide her
provide impetus
regt'ildiltg the v;

Once it
COtttplete in the
"1”me payir
group.

3'2'3 Seleflio:

One of
guidlflg Princip
improve indust
enhanced in du
ammo“ Objec

effective you]

 

 

65
industry leadership is a likely effective group to make choices, prioritization, etc. in an ISPC
process.

The group of industry leaders can aid in implementing the various strategies developed
or advocated through the ISPC process. It is important in the firm-level strategic management
context that a similar group of firm leaders be developed to advocate needed change (Kotter,
1996). In the industry setting, having an effective group of leaders in support of particular
actions is even more necessary than in firm strategic management due to the need for deve10ping
consensus among an even more diverse group of planning participants as well as the lack of
direction or control found in the industry context. In ISPC, the leadership is essential in
explaining to the industry why industry action is needed and how the particular pr0posed action
will provide benefits in meeting certain industry needs. Such a group of industry leaders can
provide impetus for working on implementing and developing consensus in the broader industry
regarding the various strategies being considered.

Once the ISPC group has been formed, it has some important choices and activities to
complete in the process initiation phase. These include deciding on a common set of objectives,
means for paying for the ISPC planning process, and methods for providing staff support for the
group.

3.2.3 Selection of a Set of Common Objectives for ISPC

One of the initial goals of the ISPC leadership group should be to develop a set of
guiding principles for the group. These should contain the general mission of the ISPC group to
improve industry competitiveness. The overall expected outputs of an ISPC process, such as,

nhanced industry-wide cooperation and a strategic plan, may further be included in the set of
ommon objectives. Group theory suggests that such a set of common objectives is critical to

ffective group action.

 

 

The set 0
communicate the
raise interest in t
possible benefits
the industry, the
is striving to imp
communicating I
achieve monopo
statement for the
32.4 Developr

Another
the planning eff
issue of who wi
that various p05
knowing how u
lllppon for an ]
WWW, televz
partiCipate in I:

In gene
the Costs of the
the Structure 0.
determining h(
much staff wip
represemapm

are kept low.

 

 

66

The set of common objectives provides a focus point for the ISPC group. It serves to
communicate the main reasons and motivations for ISPC. For the industry, this may serve to
raise interest in the ISPC process because the industry can come to clearly understand the
possible benefits and pay attention to ISPC industry—improving strategy efforts. For those not in
the industry, the set of common objectives may serve to (1) show customers how the ISPC effort
is striving to improve performance and customer service, (2) may assist the ISPC group in
communicating the needs of the industry, and (3) allay fears that the ISPC group is seeking to
achieve monopolistic practices. The set of common objectives is to some extent the mission
statement for the ISPC group.

3.2.4 Development of a Method to Pay for the Costs of the ISPC Group

Another important choice an ISPC group needs to make is to decide on a way to pay for
the planning efforts. To some extent, the planning efforts are a public good and there may be an
issue of who will pay for the planning process due to free rider concerns. Group theory suggests
that various possible members of an ISPC group need to have incentives to participate. By
knowing how the costs associated with running an ISPC group, such as, providing the staff
support for an ISPC group, communication costs, etc., will be paid for and allocated within the
industry, relevant firms and industry organizations can judge part of their individual incentives to
participate in ISPC.

In general, it would be expected to be easier to pay the costs of the planning process if
the costs of the process are not extensive in relation to perceived benefits. This would mean that
the structure of the group, use of staff and other resources should likely be considered in
determining how often the group will meet, how many members the group will have, and how
much staff will be allocated. In this, the ISPC group might use approaches similar to a
representative democracy so that all groups are represented while group membership and costs

re kept low.

 

Who v
willingness of
would be expe
Due to free rie
pay a substant
firms may oftr
major firm, pt
so that it wort

lndust
alternative to
some form of
between their
organizations
Promotion, pr
resources f0r
an ISPC pm

It is ir
There are sew
indllefties that
industry publ:
Organmiom
interected in ,
3‘25 Provis

Anor]

ISPC prOCCSS

 

67

Who will pay for the ISPC planning process will likely depend upon the industry and the
willingness of the industry's firms and industry organizations to pay the costs. Logically, it
would be expected that some group of firms and/or industry organizations would pay the costs.
Due to free rider issues mentioned above, there may be reluctance by some firms to individually
pay a substantial amount of the ISPC planning cost if there are many industry firms because
firms may often focus on industry rivalry conditions. This would be different if there was one
major firm, perhaps a large cooperative, that was sufficiently large with a dominant market share
so that it would be willing to pay the costs of the group.

Industry organizations paying the costs of the ISPC plamiing process provide an
alternative to needing individual firms to pay the costs. Industry organizations already provide
some form of industry public goods that means that they might logically see the connection
between their mission and improving overall industry performance. For example, industry
organizations with an organizational mission of providing such public goods as generic
lpromotion, publicly available research, etc. may be willing to provide the staff and other

esources for an ISPC process. Individual firms may then be willing and able to participate in
ISPC process where they do not directly pay the out-of-pocket costs of the group process.
It is irnportant to find effective ways to pay the costs of an ISPC process in an industry.
ere are several possible alternatives depending on an industry. However, it is likely in many
dustn'es that industry organizations will play an important role since they already provide an
dustry public good. There may remain an issue of how to allocate the costs between industry
rganizations. This will need to be resolved through negotiation about the costs within those
terested in achieving the benefits of an ISPC process.
.2.5 Provision of Staff Support for the Process
Another important issue for the process initiation phase is to have staff support for the

PC process. The staff of an ISPC process is similar to professional analysts and planners that

are often used in
inportant roles i
group. For exar
use.

The ISP
choice for provi
organizations th
to fulfill the star
are well regard

The sta
analyses, orgar
facilitators of a
allliety of sin
s“llllttrt hence

inall ISPC pm

3-3 Strategic
Asece
Emphasis 0ft}
Phaseanmnl
‘ sih
’ de
' de

‘de

 

68
are often used in firm strategic management and provide important inputs. Staff can have
irnportant roles in developing analyses, information and other resources requested by an ISPC
group. For example, staff support may develop much of the situational analysis for a group to
use.

The ISPC group can designate some individuals to provide staff support. A logical
choice for providing the staff support would be from those individuals, firms, and/or industry
organizations that are interested in an ISPC process. Alternatively, a consultant could be hired
to fulfill the staff support roles. In general, it would be most effective if the individuals selected
are well regarded in the industry and not favoring one particular industry segment.

The staff can provide important communication roles, such as, doing background
analyses, organizing meetings, focusing discussion on key points, and in an overall sense being
facilitators of an ISPC process. The staff support can further coordinate informal discussions in
a variety of situations for clarification of key points and for improved consensus. The staff
support hence has important roles in consensus building, communication, and analysis developed

11 an ISPC process.

v.3 Strategic Planning

A second phase in the ISPC framework which involves major work and considerable
mphasis of the entire ISPC process is embodied in the strategic planning phase. In this complex
base, a number of steps are completed:

0 situational analysis

0 determination of the industry’s vision statement and guiding strategies

0 determination and prioritization of major improvement objectives

0 development of specific strategies for facilitating needed improvement

Aceomplishing the
strategies which a
implementation tl
within the frames
overlap.
3.3.1 Situation:
The strat
analysis focuses
factors for ISPC
in the firm settir
represents man)
°lganizations
Situatio
strategies and F
lhe industry lea
relevant aSpecr
is 3‘“ i“Thoreau
for the indust;
infermation or
PIOblem areas
The p
kinds 0f infor
“Talegy‘ The

69

Accomplishing these steps helps to move the industry grOUp through a process where the specific
strategies which are most likely to result in improved industry performance are selected for
implementation through coordinated actions in the industry. While these steps are listed in order
within the framework, these steps can to a degree be completed simultaneously or with some
overlap.
3.3.1 Situational Analysis

The strategic planning phase of ISPC starts with a situational analysis. Situational
analysis focuses on developing a comprehensive understanding of the industry and the relevant

factors for ISPC. The situational analysis in the industry setting is similar to situational analysis

 

in the firm setting except that the focus for the industry setting is on the broader industry that
represents many firms at different levels in the marketing chain and industry support

organizations.

 

Situational analysis in ISPC should be done prior to developing industry guiding
strategies and priority industry objectives because before these decisions can be properly made
the industry leadership group needs to develop some level of shared understanding about the
relevant aspects of the industry, e. g., its problems, opportunities, etc. The shared understanding
is an important component of deve10ping a shared industry vision, guiding strategies, consensus
for the industry's future, etc. The ISPC situational analysis can involve developing key
information on market performance, customers, competitors, how the industry creates value,
problem areas, opportunities, and other areas that are important to strategy development.

The process of situational analysis can begin with the ISPC group indicating that certain
kinds of information would be useful in understanding the industry's needs and developing
strategy. Those who are providing staff support for an ISPC process can make use of various

analytical tools or methods, e. g., SWOT analysis, value chain analysis, etc., and provide the

 

desired inforrnat
review the infor
and hence provi
solutions. To 5
analysis by pro
future of the in
The 13
situational anal
comprised of i
in and into pot
marshals the a
There
leadership grc
Various inim
and melhods 1
3.3.1.1 ship
An ir
shifl-Share a;
“dustry sale:
quantum,e :
0” Wham
areas is llllpe
Tellurium“

“inmate. an

 

7O
desired information to the ISPC group. The ISPC group will likely then discuss, analyze, and
review the information developed. This helps to develop shared knowledge in the ISPC group
and hence provides a key basis for deve10ping consensus on key industry problem areas and
solutions. To some extent, the overall industry may be involved in developing the situational
analysis by providing important information, such as, their opinions, thoughts, etc. about the
future of the industry.

The ISPC leadership group can be particularly effective in accomplishing an industry
situational analysis since this group is a panel of experts on the industry. Such an ISPC group is
comprised of industry leaders who have important insights into the situation that the industry is
in and into potentially effective industry responses. This means that situational analysis in ISPC
marshals the analytical resources of a number of key leaders in the industry.

There are a number of possible tools that can be used in situational analysis. An ISPC
leadership group and staff support may choose among the tools discussed below given the
various informational needs of the ISPC group. In the following subsections, a number of tools
and methods for situational analysis are described and discussed in relation to their use in ISPC.
3.3.1.1 Shift-Share Analysis

An important tool that can be used as part of the ISPC process for situational analysis is
shift-share analysis. This is an analysis of changes and trends in market share, size of market,
industry sales volume, and value of key industry market segments over time. This provides a
quantitative assessment of some key market trends as well as some overall baseline information
on important aspects of industry performance in major market segments. Knowledge in these

reas is important for ISPC because it provides facts about current status of industry

erformance. An example of shift-share analysis in the industry setting is provided in Ricks,

inman, and Woods (1995).

 

Some in
example, the ap
shown in the ca
These indicated
juice market se

Shift-s]
perfomrance o
to focus atteuti
and trend anal
successes, anc‘

reasons behine
improved indv
One v
ltends will cc
“labels of m
can generate
3.3.1.2 sw.
SW(

that can aid
lllcluding "pp
level SWOT
and in some
the mum

\
12 SWC

 

 

71

Some important trends may be identified through shift-share and trend analysis. For
example, the apple sauce processing growth as well as the growth in U.S. juice imports were
shown in the earlier mentioned shift-share and trend analysis for the Michigan apple industry.
These indicated a growing Opportunity in applesauce markets as well as important threats in the
juice market segment.

Shift-share and trend analysis provides some aspects of an overall assessment of current
performance of the industry. The information further can provide ideas or areas for the industry
to focus attention for irnproved future performance. The statistics developed in the shift-share
and trend analysis can show some overall base line information about some of the recent trends,
successes, and challenges in the industry. Further investigation is important to determine the
reasons behind the trends and potential choices to influence the trends in positive ways for
improved industry performance.

One way that the shift-share analysis can be extended is to analyze whether current
trends will continue. It may be possible to project future trends taking into consideration the
analysis of major driving forces and competitor analysis. This integration and further analysis
can generate information on ways to improve future industry performance.

.3.l.2 SWOT Analysis
SWOT ‘2 analysis is a method in ISPC to provide an overview of the industry's situation
at can aid the overall ISPC process. For firms, this method is described in a number of books
eluding Thompson and Stickland (1995, pp. 92-96). The main difference between the firm
evel SWOT and the industry level SWOT is the unit of analysis for the industry is much broader
d in some aspects involves more complexities than with a firm orientation. This means that

e industry-level SWOT analysis must look at the wide array of firms and interrelated vertical

 

‘2 SWOT refers to Strengths-Weaknesses-Opportunities-Threats.

 

 

 

coordinating syst
analysis. This is
firm-level SWO'
A key p
relative to other
it important cap
he ability to pr
capabilities or :
disadvantage tl
chosen. For e
Wesbington ap
lled Delicious
alittle industry
Michigan app
red color is fit
disadvantage
Other
to areas in w
ill economr
minors bar
c“Strainers rs
mduleY's w
or increased

The
technillites.

 

 

72
coordinating systems within the broad industry and seek to develop meaningful industry—wide
analysis. This is more complex with usually more emphasis on vertical coordination issues than
firm-level SWOT analysis.

A key part of SWOT analysis is to focus on the industry's strengths and weaknesses
relative to other competitor industries. Strengths are the characteristics of the industry that give
it important capabilities. These could include such capabilities as proximity to major markets or
the ability to produce a consistent top quality product. Weaknesses are where an industry lacks
capabilities or achieves poor results. These weaknesses are likely to result in a competitive
disadvantage the degree of which depends on the competitive marketplace and the strategies
chosen. For example, the Michigan apple industry finds it somewhat more difficult than the
Washington apple industry to get a complete and consistently red color in its production of the
Red Delicious variety due to weather conditions. This has traditionally placed the Michigan
apple industry at somewhat of a competitive disadvantage in the U.S. market. However, as the
Michigan apple industry is beginning to market to such international markets as Brazil where all-

ed color is not such an important factor, this weakness may yield much less of a competitive
isadvantage to Michigan for this market.

Other parts of the SWOT analysis refer to opportunities and threats. Opportunities refer
0 areas in which the industry can focus attention to improve its performance, competitiveness

d economic viability. Opportunities may include a new markets, new technologies, reduction
export barriers, new products, or changed strategic emphasis to more effectively serve
ustomers in changing markets. Threats refer to conditions that could negatively affect the
dustry's well-being. These might include, for example, increased regulation of pesticide inputs
r increased imports.
The SWOT analysis can be accomplished using a variety of information gathering

chniques. For example, Ricks and Woods (1996) used a combination of surveys and

 

 

interviews with
industry along v
share and trend
of SWOT.

3.3.1.3 Value
Value e
to understand r
well as what a
Simultaneouslj
adding activiti
because it car
Performance,
At th
Ploduction ar
Plekers, Stop
apples from
exist for the
ill Value add
The

and that its

emilhlSize '
\

13 The 1
Used Other
Producr‘m

Ward, 3
manageme

73

interviews with key industry informants to help develop a SWOT analysis for the Michigan apple
industry along with synergistic analytical discussions with the ISPC leadership group. Shift-
share and trend analysis can also be useful in SWOT analysis in guiding awareness of key areas
of SWOT.
3.3.1.3 Value Chain Analysis

Value chain analysis ‘3, developed by Porter (1985), emphasizes that a firm should seek
to understand what is valuable to buyers (or potential buyers) of its products and/or services as
well as what are the costs and sources of differentiation in providing its products and/or services.
Simultaneously analyzing production and value to customers focuses attention on the firm's value
adding activities. Attention in ISPC to value chain analysis for the industry can be very useful
because it can help the industry identify where needed changes might improve the industry's
performance, especially relating to vertical coordination in effectively serving its customers.

At the most basic level, value chain analysis includes a depiction of each part of the
production and distribution chain. For example, in the Michigan apple industry growers,
packers, storage Operators, shippers, and retailers all have important roles in providing fresh

apples from Michigan. These interrelationships are an important aspect of the value chains that

    
 
   
   
  

exist for the industry. More detail can be generated by analyzing the performance and amount
of value added at each vertical level.

The industry generates value to customers in the products and services that it markets
and that its customers decide to purchase. A focus in ISPC value chain analysis can be to

mphasize knowledge about what is valuable to buyers of its products. This could include

 

‘3 The term value chain analysis was used by Porter (1985), but other research efforts have
sed other terms to describe a similar type of analysis that focuses on the entire system of
roduction and distribution. These other terms include production systems research (Sellen,
oward, and Goddard, 1993), commodity chain analysis, and subsector analysis (Boomgard et
a1, 1986). The term value chain analysis is used here due to its wide use in the strategic
management literature.

 

 

market research
hrnher useful to
order to help an
service.

In an in
and sources of
value adding ae
the behavior 0'
hrdustry can b
industry, The
generating act
one in which
example, in p

modernize p;
for more uni
aortas-mp,

Am
1995» to. re
Similar acr'p
coIttpare th
Washingtor

lien subser

\

'4 Exa
Betas, Ri

74
market research efforts through surveys and interviews with key buyer informants“. It could be
further useful to investigate the linkages between the industry and the industry's customers in
order to help analyze if there are ways to further add value, reduce costs, or improve customer
service.

In an industry strategic planning setting, an industry can focus on the drivers of costs
and sources of differentiation for firms in the industry. This would entail breaking down the
value adding activities of the industry into strategically relevant segments in order to understand
the behavior of costs as well the possible sources of differentiation. For example, the apple
industry can be described by the different value generating activities that are accomplished in the
industry. These include producing, packing, storing, and shipping apples. Particular value
generating activities, such as packing, might be identified as an area needing improvement or
one in which a degree of product differentiation and target marketing might be generated. For
example, in packing segment of the Michigan apple industry, there has been substantial efforts to
modernize packing technology that has improved the Michigan apple industries ability to pack
for more uniform size and color. These are product characteristics that seem to be valued
increasingly by customers in recent years.

Another useful approach for ISPC could be to benchmark (Thompson and Strickland,
1995, pp. 101-105) the cost of a particular activity with comparable cost and performance of the

similar activity in a competing industry. For example, the Michigan apple industry could
compare the per-unit cost of packing with the per-unit cost of a packing a similar unit in the
Washington or New Zealand apple industries. If the other industry had markedly lower costs,

hen subsequent analysis could be developed to identify the causes as well as seeking methods to

'_

’4 Examples of this in the industry context are Ricks, Heinze, Beggs, and Miklavcic (1995),
eggs, Ricks, and Heinze (1995), and Ricks, Heinze, and Beggs (1996).

 

 

 

 

lower the cost tl
goods and servi
3.3.1.4 Compe
Compe
industry-level 2
focuses on the
the Washingto
the U.S./Mick
between frrrm
Nevertheless,
management.
Since
be analyzed
eunent key 1
the expected
in this, anal
evolving to
about the b.
mm m:
ideas may
°°mpetitio
lllash'mg‘<
Pleinium ‘

lilOliVapio.

75
lower the cost through imitation or further research or to provide compensating higher valued
goods and services to the customers.
3.3.1.4 Competitor Analysis
Competitor analysis focuses on the relevant competition of an industry. In this, an
industry-level analysis is somewhat different from firm-level analysis. Industry-level analysis
focuses on the competitive differences between regions (e.g. , the Michigan apple industry versus
the Washington apple industry) or the competitive differences between substitute products (e. g. ,
the U.S./Michigan tart cherry industry versus the blueberry industry) rather than the differences
between firms. This puts competitor analysis at a much broader level for an industry.
Nevertheless, competitor analysis can be quite relevant for ISPC as well as firm strategic
management.

Since competition is complex, there are many facets to competitor analysis that need to
be analyzed in the industry setting. Deve10ping information on major competitors and their
current key strategies and performance is a part of the analysis. Extending the analysis to who
the expected future major competitors will be and their likely performance is also worthwhile.
In this, analyzing the competition to see what new ideas or strategies that they are using and
evolving to be successful can provide relevant information, since this may provide information
about the best methods or strategies for the industry in question. This is useful because the
industry may thus duplicate or modify its strategies or ideas, and the competitor's strategies or
deas may give the industry ideas about what the competitor thinks will be the basis for future
ompetition. For example, the Michigan apple industry has been quite interested in the
lashington apple industry's success using various quality management strategies, such as, a
"emium grade and mandatory minimum quality standards. These have provided some

)tivation for considering those two ideas in the Michigan apple industry.

 

 

 

 

 

 

There at
comprehensive :
leonard Fuld (1
point, it is usefi
he efforts of Ce
isto identify ar
with key infor.

Anoth
strategies and
industry can I
that is favora
unfavorable e
Bentanin (u
the lapanese

production :
Yamaha hae
since indus
eVerr thong
logicauy c.
reSpond is

later in [p],

76

There are many possible methods to developing a competitive analysis. A
comprehensive approach to developing a competitor analysis in the firm context is provided by
Leonard Fuld (1995) in The New Competitor Intelligence. In particular he notes that, as starting
point, it is useful to determine what information is desired about competitors because this focuses
the efforts of competitor analysis on the most relevant aspects. Another key part of his approach
is to identify and use various information sources including literature reviews and interviews
with key informants.

Another facet of competitor analysis is to evaluate current and potential industry
strategies and their interaction with competitor industry's strategies. Strategies considered by the
industry can be evaluated to see if they will aid in developing an overall competitive situation
that is favorable to the industry (Porter, 1985). Some strategies may logically lead to
unfavorable outcomes, such as, a dramatic price war. For example, in the firm-level setting,
Benjamin (1996) discusses how Yamaha tried to challenge Honda to become the top producer in
the Japanese motorcycle market. However, the Yamaha challenge led to a large increases in
production and stocks along with an overall one-third price reduction by Honda. Eventually,
Yamaha had to sue for peace in the price war. This illustration is relevant in the industry setting
since industries might also fight such expensive battles where price reduction is the main result
even though the "goal" of the strategy was to gain market share. A major point here is that
logically considering the likely response of competitors along with competitor's ability to
respond is useful in competitor analysis. This facet of competitor analysis could also be used

later in the ISPC framework when considering different strategies.

 

 

 

3.3.1.5 Transac
Transacti
within the indust
provided by curr
performance. is
value chain aria
strategically rel
organizational
An ex:

the Michigan :
apples and ch;
adverse conse
possible to cc
effort into in
because of tl

govemancg
sill price 0‘
incteased, e
higher rem

Tr

that Varies

Ways. A

\

lS

generarin
3°Venrar

77
3.3.1.5 Transactions Cost Analysis

Transactions cost analysis could be used to assess strategically relevant transactions
within the industry, This would evaluate to what extent governance structures”, such as, those
provided by current market arrangements, could be altered to improve the industry's
performance. In this, it would be possible to use transactions cost analysis in combination with
value chain analysis for ISPC. The " governance structure" of possible transactions (or only
strategically relevant ones) might be assessed to determine if modification of market rules or
organizational control might improve performance of the industry.

An example of where transactions cost analysis might be useful might be where, as in
the Michigan apple industry, growers provide their apples to shippers while shippers sell the
apples and charge a fixed price per box of apples. However, this system may provide some
adverse consequences, because shippers may have the incentive to sell as much volume as
possible to cover their fixed costs and add to their profits. Shippers may not put the appropriate
effort into finding the highest return for the apples or developing high return market segments
because of the fixed per box way that the transactions are accomplished. An alternative
governance ~structure, that is being tried by some, is for shippers to charge a percentage of the
sale price of the apples instead of a fixed price per box. This alternative might provide
increased, direct incentives for shippers to market at the highest possible prices and develop
higher return market segments.

Transaction cost analysis is particularly relevant to ISPC to the extent that it is suspected
that various forms of opportunism are reducing the performance of the industry in important

ways. A transactions cost study could focus upon identifying what exactly is the nature of the

‘5 The term governance structure refers to how the exchange between different value
generating activities is achieved. Two basic governance alternatives are the hierarchic
governance structure of the firm or the interaction in markets.

 

 

 

problem in a tra
alternative marl
structures often
complex, but p
chain analysis '
3.3.1.6 Analy
Major

causing the In
from a numbe
arise from so
types of maje
0 ch

0 ch

0 p]

'te

78

problem in a transaction that leads to the poor performance as well as identifying possible
alternative market structures that would improve the industry's performance. As institutional
structures often have many positive and negative features, this type of analysis could be quite
complex, but potentially useful for certain kinds of problems. It could be combined with value
chain analysis in looking at ways to improve performance.
3.3.1.6 Analysis of Major Driving Forces

Major driving forces are those fundamental factors that are driving the industry or
causing the most important industry and market adjustments. Major driving forces can arise
from a number of different sources. Some may be unique to a given situation, but they usually
arise from several main areas according to Thompson and Strickland (1995). Some common
types of major driving forces as outlined by Thompson and Strickland include:

0 changes in long term growth rate of the market

0 changes is who buys the product and how they use it

0 product innovation

0 technological change

0 marketing innovation

0 entry or exit of major firms

0 diffusion of technical know-how

0 increasing globalization of the industry

0 changes in costs and efficiency

0 emerging buyer preferences for differentiated products instead of a commodity

product (or for a more standardized product instead of strongly differentiated
products)
0 regulatory influences and government policy changes

0 changing societal concern, attitudes, and lifestyles

 

 

 

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79

0 changes in uncertainty and business risk
Determining the most important major driving forces of an industry requires careful analysis and
consideration. An awareness of these key forces of change or major driving forces is important
in ISPC because these are the forces that the industry should be aware of when considering
various strategies to improve its current and future industry performance. Major driving forces

are further important as they may indicate the nature of future competition.

 

Some emphasis or prioritization can be developed for ranking the importance of the
various major driving forces. This can indicate which major driving forces (or group of major
driving forces) are most important to the industry. This prioritization would be expected to
change over time as some driving forces may have consistent long term impact, while the effect

of other driving forces may fade away (Ricks and Woods, 1996).

 

As a practical matter, determining what the major driving forces are, how they interact,
and their impact on the industry is difficult. A clear understanding of the industry and the
external forces impacting it is necessary. Other tools in situational analysis (shift-share and
trend analysis, SWOT analysis, and competitor analysis) can often in help to develop this
understanding of the driving forces because they provide substantial, relevant information. The
ISPC leadership group, comprised of industry leaders as discussed earlier, and discussions with
key informants are useful sources of information for these analysis components.
3.3.1.7 Identification of Key Success Factors

The key success factors are those areas in which the industry must be competent at, or
focus on developing the competence, in order for the industry to improve its competitiveness and
to be economically viable. The key success factors are those areas with the most direct bearing
on the ability of the industry to be competitive due to high performance in the key success

factors. Any regional industry of a particular commodity must be successful with the key

 

 

 

success factor
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80

success factors in order to prosper and grow. Directing attention to the key success factors can
be an important part of ISPC because this helps to prioritize and focus strategies that are
developed toward achieving the industry's most important key success factors and hence are
particularly important in strengthening industry performance.

In an industry setting, the key success factors can be determined for (a) the industry as a
whole as well as (b) the major types of firms or industry segments, such as, growers, packers,
and processors. This aids the industry as a whole in focusing its ISPC attention and can aid
individual industry segments in making needed changes. The other tools of situational analysis
help provide the information that is necessary for developing an awareness of the key success
factors.
3.3.1.8 Summary of Situational Analysis

There are several important potential outputs from situational analysis. The foremost of
these can be the already mentioned shared understanding by the ISPC leadership group and the
industry of the driving forces, key success factors, and the overall environment of the industry.
Other key outputs from situational analysis are information on major problems, unmet
opportunities and various measures of the industry‘s performance. These can be developed into
various explicit informational statements, publications, etc. that should be communicated to the
industry. This may facilitate overall industry actions as well as aiding in consensus building.

Situational analysis should help in developing an awareness of changing customer and
marketplace expectations and requirements. Industry performance levels in such areas as quality
that were once acceptable may no longer be acceptable and may have limiting effects upon
demand for an industry's production. Looking into the future, situational analysis can aid the
ISPC process by showing the current and future situation that the industry is seeking to adapt and
adjust to. This understanding of the dynamic, evolving industry including its current

complexities and major issues is essential to effective strategy deve10pment for the industry.

 

 

3.3.2 Deterr
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81
3.3.2 Determination of the Industry's Vision Statement and Guiding Strategies

Using the results of the situational analysis, the ISPC leadership group with some help
from staff and, to some extent, the broader industry, will likely want to consider the industry's
overall vision statement and some broad guiding strategies. This is a second step in the strategic
planning phase of the ISPC framework and is similar to developing a strategic vision statement
and overall core strategies in firm-level strategic management.

Extensive communication with the ISPC group and the broader industry is essential to
ensure that an industry's vision statement and guiding strategies are supported by the industry
and that the industry is aware of them. The vision statement and guiding strategies can be
important consensus building tools for the industry. The vision statement and guiding strategies
may also serve to improve vertical coordination in the industry as they aid the overall industry in
identifying and making needed adjustments.

The vision statement and guiding strategies are overall tools to prepare for determining
the major improvement objectives for the industry. To a certain extent, they are not absolutely
essential for the industry to accomplish its objective setting; however, the above arguments
suggest that they can be effective in setting the stage to choose the best objectives for improved
industry performance and competitiveness.
3.3.2.1 Generation of an Industry Vision Statement

In an ISPC process, the ISPC group should consider whether developing a mission or
vision statement for the industry would be useful. The industry vision statement would likely be
similar to a firm's vision statement except that the focus would be on the industry. An industry
vision statement would likely answer the same types of questions that a firm's vision statement
would address. In this, the industry vision statement would define the industry's major arena of
business that the industry intends to pursue and the long term course for the future of the

industry. Key questions to address in this are what are the needs served, target markets, and

 

 

functions pei
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3.3.2.2

These 1

82

functions performed (Thompson and Strickland, 1995, p. 25). Such an industry vision statement
should be simple and concise and could serve to inspire and challenge the industry for increased
buy-in into ISPC.

There is some question as to whether an industry vision statement would provide
meaningful benefits as part of an. overall ISPC process. Various groups, industry segments,
individual firms, etc. may have diverse opinions on the industry, the future of the industry, and
the role of the ISPC process. This means that developing an industry vision statement could
likely take a considerable amount of discussion and evaluation. The vision statement may
become too broad to be meaningful and may divert attention from identifying and capitalizing on
areas where industry strategy could be especially beneficial. Moreover, an industry strategic
vision might reduce industry buy-in and consensus into an ISPC process because some groups,
firms, or organizations could be turned off by the vision statement.

Developing an industry vision statement may have certain benefits as well as possible
limitations and costs in the industry context. To what extent developing an industry vision
statement is worthwhile will likely depend upon the industry in question. Vision statements in
some industries may provide a key part of defining and communicating the industry and its
strategies while in other industries a vision statement could be a divisive, time consuming
exercise with little benefit. Future experience may provide further useful information on this.
However, at the present time the question of developing an industry vision statement should be
considered individually by the ISPC group, given its collective knowledge of the industry and
subsequent knowledge of likely benefits and costs of developing a vision statement.
3.3.2.2 Guiding Strategies

It will be useful for the ISPC group to consider guiding strategies for the industry.

These guiding strategies can serve to provide perspective on the intended overall industry

 

 

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83
direction. These can include elements of master strategy for the industry to achieve improved
performance. They contain aspects that are commonly used in firm strategic management that
have been modified to be appropriate to the industry context.
3.3.2.2.1 Growth Positioning

As part of the overall guiding strategy of the ISPC framework, it may be useful to
develop an overall assessment of the future possibilities for the industry or individual market
segments that the industry serves. This is similar in many respects to growth positioning as
shown in Peterson's strategic management framework reviewed in Chapter 2. Partly as a result
of the situational analysis, the industry as a whole may adopt an overall goal for the industry to
either grow, maintain its current size, refocus, or as a last resort to exit. An industry might also
want to break down the various market segments that the industry serves into meaningful
components or market segments for this type of growth positioning. For example, the Michigan
apple industry serves the fresh, sauce, slice, and juice major market segments.

Aided by the information developed through shift—share and trend analysis and other
parts of situational analysis, each market segment can be assessed for future growth and return
prospects. Each major or minor market can be assessed for whether the growth positioning of
growth, maintain, refocus, or exit are more attainable or appropriate for that market.
Additionally, goals for each segment can be developed with specific steps to achieve the desired
outcome. Specific actions may be identified for firms and industry organizations to enable the
market growth positioning to be achieved.

A growth strategy could indicate that the industry has a reasonable likelihood of
expanding its production and markets for a particular major (or minor) market segment as the
market segment's needs are effectively responded to. Furthermore, a growth strategy for a

particular market segment would indicate that the market segment offers relatively good

 

 

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84
opportunities for increasing returns. Firms may need to gear up production levels and/or
accomplish other strategies to accomplish this. Industry organizations may need to accomplish
particular activities to set the stage or facilitate the growth strategy.

Perhaps if an industry faces especially difficult threats and limited opportunities in a
particular market segment, then the industry may determine that a more reasonable or attainable
goal for the industry is to maintain its position in the market segment. An industry might also
choose a maintain strategy because a particular market segment does not offer relatively high
returns compared to other market segments. Firms and industry organizations may still need to
address particular issues for the industry to maintain a market segment.

A refocus growth position would indicate that in order to effectively serve a particular
market the value chain of the industry needs to be radically or substantially altered. This could
be based on an awareness that the current competitive approach will not generate the best
performance for the industry in terms of market share, volume, returns, etc. This would likely
be based on a current lack of competitive abilities for the industry in changing markets.

If long and short term growth and return prospects for a particular market segment are
especially low or negative and there is not a reasonable likelihood of this changing, then the
industry could consider the overall growth positioning strategy of exit. In the exit strategy, the
goal would likely be to facilitate the industry's transition from this market segment to market
segments with better return prospects. In particularly dire circumstances for all an industry's
market segments, an industry might consider identifying altogether alternative products for the
industry to transition its production to while exiting production and marketing of its current
products.

The growth positioning goals can provide substantial motivation for firms and

organization to support ISPC action because they indicate possible levels that the industry could

 

 

 

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85
attain if certain strategies are developed and implemented to actuate the growth positioning
strategy. That is, the industry's goals will likely be accomplished if the industry effectively
develops the strategies to make that, growth positioning goal a reality. For example, it could be
useful to plan that an industry will be expected to grow if it is effective at improving its quality
reputation, etc.

Individual firms can plan according to the overall growth positioning outlined as realistic
for the industry. A firm can gear up for future expansion or prepare for efforts to maintain or
refocus by market segment. Firms can implement the specific strategies that the ISPC effort
identified as key areas in which adjustments need to be made.

Growth positioning may also aid individual firms in perhaps understanding the reasons,
possibilities, requirements, etc. behind particular strategies for the industry. For example, firms
in an industry would be more likely to support an action that will clearly result in increased
demand for the entire industry. Hence, growth positioning may aid in developing consensus
support for particular desired actions.
3.3.2.2.2 Focus on Developing Core Competencies

As discussed in Chapter 2, the idea of core competencies is doing something well in
comparison to competitors and that makes an important competitive difference. Core
competencies are further especially important if they are difficult to copy by competitors. The
key to competitive advantage, according to core competency theory, is for a firm to be able to
create core competencies more quickly and efficiently than other firms. A key approach of ISPC
should be to identify core competencies for the industry that have been achieved or are needed as
well as exploring ways to effectively develop them more fully. The format of ISPC with its

involvement of generating industry synergy as well as group analysis and efforts may aid in the

process of developing core competencies for the industry.

 

 

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86

The actuality of explicitly working on core competencies in an ISPC group would likely
include discussions, analyses, and evaluation of various possible core competencies for the
industry now and in the future. Information developed in situational analysis, such as, key
success factors, major driving forces, etc. may provide some indications of where core
competencies could and should be developed for the industry. Overall the idea is for the group
to identify, if possible, one or more core competencies for the industry to develop. Hamel and
Prahalad (1994) define three tests to identify core competencies for a firm that seem to be
applicable to the industry context as well. The tests are:

0 Provides access to a wide variety of markets

0 Makes a significant contribution to the perceived customer benefits of the

end products

0 Should be difficult for competitors to imitate
These tests may be useful for an industry in evaluating if a particular strategy is a core
competency that the industry should pursue.
3.3.2.2.3 Determination of Value Based Actions to Meet Customer Needs

An important common goal in ISPC is to facilitate needed transitions by the industry into
better meeting customer requirements and hence improving industry performance. This may be
through aiding firms' abilities inmany areas, such as, being able to successfully target various
markets by meeting quality needs. This is a continuing challenge for all firms, but there also
seems to be substantial promise in ISPC aiding industries in doing this more effectively in order
to move to a higher performance path, especially as improving vertical coordination is a special
topic area in ISPC.

One of the very important facets of competition is effectively evaluating and responding

to changing customer and marketplace expectations and requirements. Performance levels in

 

 

 

 

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87
such areas as quality that were once acceptable in the past may no longer be acceptable as
customer preferences and competition change and thus may have limiting effects upon demand
for an industry's production. if commensurate adaptions are not made by that industry. By
astutely looking into the future, ISPC may be able to aid firms in adapting and adjusting to
present and future market needs through serving current and potential customer needs. A part of
the challenge is to determine what customers want and need in the dynamic marketplace as well
as possible ways to more effectively provide those needs.

Situational analysis can provide important information in this. Value chain analysis
especially focuses on what users of industry's product value and how the industry creates value.
Strategy in this area seeks to better provide value given the ability of the industry to produce in
competition. The goal of ISPC efforts in this area is to enable more rapid industry responses to
changing preferences as well as potentially enabling access to high return market segments as
these evolve to improve the industry‘s performance in vertical coordination.
3.3.2.2.4 Selection of the Overall Mix of Differentiation and Low Price

One key decision for the industry involves a strategy regarding the mix and balance of
low cost and differentiation for the industry's overall strategy. That is, in general what
approximate emphasis or percentage of the industry's efforts should be for low cost commodity
products, or a cost leadership segment of the industry, as compared to how much should be
marketed with substantial quality features using a differentiation approach. An industry may
decide as a whole that some shift in the overall balance would be useful for improved industry
performance in meeting customer needs and for increased returns to the industry.

Choosing the most appropriate mix may aid an industry in production and marketing
efforts. Firms could decide that it is advantageous to shift product and marketing efforts, and
industry organizations could change their agendas, e. g., research, advertising, etc., to facilitate

this change in strategy. Furthermore, to the extent that the industry does shift toward a different

 

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88
emphasis in end product strategy, then the shift may communicate to buyers the unique
performance aspects and core competencies of the industry in regards to cost, quality features,
etc. For example, the Washington apple industry's emphasis on deve10ping somewhat
differentiated '6 apples sold in tray pack may have communicated an industry-wide message to
buyers about quality, consistency, and other features of Washington apples.

In the industry context, it is unlikely that the extremes of either low cost or
differentiation end product strategies will be pursued. Individual fums in a commodity industry
compete with one another for markets and use a variety of end product strategies. Firms also
have different capabilities in regards to low cost and differentiation. Since individual firms
would largely implement this overall shift in end product strategy to varying degrees, the
industry's performance in this area would probably not simply be cost leadership or
differentiation strategy but some approximate combination of these since an industry as a whole
would find it difficult to pursue just one kind of end product strategy.

In the firm context, Porter (1980) warns that a firm should not pursue what he refers to
as a "stuck in the middle" strategy between the two broad strategies of cost leadership and
differentiation. This is based upon the idea that focusing on one of these two generic strategies
is crucial to a firm's focus in achieving competitive advantage. Although perhaps some degree
of focus on one generic end product strategy or the other might aid the industry in focusing
attention, this would be difficult to achieve in the industry context, especially as it would require
that individual firms give up substantial control of the production and marketing of their
products. However, it may be that in some industries firms will need to focus as-a-group in

achieving a particular end product strategy to gain certain benefits. It would be up to the ISPC

 

‘6 Some aspects of the Washington apple industry's "differentiation" approach included
establishing minimum condition standards, a particular color for Red Delicious, and some
standards to establish a minimum maturity level as well as the industry specializing in marketing
tray pack.

 

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89

group along with the overall industry to consider and evaluate if such an approach would be the
best approach to follow for their industry.

It may be more realistic in many industry situations to consider the idea that firms in an
industry might seek to differentiate as a group on selected aspects. That is, an industry might
develop or have some features or characteristics that are somewhat unique and to a certain extent
differentiate an industry's products. The following discusses this differentiation approach as it
compares this approach with the cost leadership approach.

Cost leadership in strategic management terminology is the strategy of being the lowest
cost producer. Effective efforts to accomplish this strategy focus on reducing costs while
maintaining an adequate level of quality. The commodity focus of traditional agricultural
production has some important similarities to cost leadership. Goods such as corn, wheat, and
soybeans are traded in highly price competitive markets. Quality differences between regions of
the United States or even the world are often fairly small. For example, in the soybean industry,
quality differences between the production of the U.S. and Brazil have historically been
determined by genotype produced in each region, that is largely selected for yield potential.

This is the essence of commodity production, producing a non-differentiated product and
competing primarily on price. Attaining a position of being a low-cost producing region is a key
element of success in this overall strategy.

Using strictly the commodity approach in agricultural production often has key
unintended results including low profit margins for firms in the industry based on the industry's
strong price competitiveness and related conditions. Cost efficiency, scale, and often volume
become the key drives for long-term profitability. There are relatively low entry costs for
expanded production and new producers in the production of many agricultural commodities --

that can lead to even more competitive pressure from new entrants if returns are promising for a

 

 

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90
period of time. Innovations in production are generally readily copied by competitors leading to
supply increases and the so-called "treadmill of agricultural production" (Tweeten, 1989, p.102).
This means that firms in such an industry can expect to experience ongoing trends for downward
pressure on prices and returns from production with emphasis on low cost and strong price
competition in commodity markets.

It is possible for some industries to develop distinguishing product characteristics and
other differentiating factors that enable the products to be somewhat unique in certain ways that
are valued by buyers -- at least for some portion of the industry's production. This involves
using a degree of a differentiation strategy. In these industries, the goal of the industry would be
to achieve improved profit performance. This might be achieved if the industry is able to
receive price premiums above the costs of differentiation. It is often extremely difficult for an
individual, relatively small producer firm in agriculture to market and produce a product that is
markedly different from the general commodity produced.

How might this type of differentiation strategy be achieved by a commodity industry? It
might involve developing superior products to meet customer needs, coordinated quality
Standards, joint advertising for a consistently superior product, and perhaps joint research
investments on selected aspects that will improve quality, performance, or the ability of firms to
target market their product. The possibility may be available in certain circumstances for a
industry to build on its inherently different production possibility set to somewhat differentiate
their products from competitors and earn higher returns than would be available from merely
being a low cost supplier of a standard commodity product. This strategy may be able to be
copied by competitor commodity industries (or competing commodities) or may only be partially
duplicable due to production possibility differences, institutional structures, or other reasons. In

the apple industry, a certain level of a product "differentiation" strategy has been a key part of

the overall
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91
the overall strategy of the Washington apple industry that has apparently resulted in some
improved industry competitiveness and improved industry performance through better meeting
the needs of consumers.

Overall the choice of end product strategy for a commodity industry will probably be
some mix or combination of cost leadership and differentiation. This is based upon the nature of
the industry since the industry is made up of individual firms seeking competitive advantage.
There are substantial possible benefits of selected industry differentiation on some aspects such
as various quality characteristics, service features, etc. This type of "differentiation" has the
possibility of improving the overall effectiveness of the industry's production and marketing
efforts.

3.3.4 Determination and Prioritization of Major Improvement Objectives

To achieve the vision and guiding strategies developed in the preceding step of strategic
planning, it would likely be effective for an industry to determine and prioritize major
improvement objectives for the industry to accomplish. These major improvement objectives are
a critical intermediate step to moving from the vision and broad strategies to developing
implementable strategies. This then represents a third step in the strategic planning phase of
ISPC.

The improvement objectives are broad topics or areas that the industry needs to address
in the next 3 to 5 years. These are areas on which the ISPC group and the industry decide to
focus on as priorities in order to improve the broader industry's performance. Examples of
these areas in the Michigan apple industry include expanding exports, improving quality
management, and maintaining effective pest control resources. This objective setting step was
developed in Ricks and Wood’s framework as discussed in Chapter 2 and is also consistent with

long-range performance objectives in firm strategic management.

 

 

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92

It is important to be aware that industry objective setting is complicated because an
industry is complex and various firms and industry organizations may have different priorities in
regards to what the industry should strive for as objectives. Given this, considerable discussions
in the ISPC group and other industry forums are important for the industry to develop some
consensus on the major improvement objectives. Staff analysis may aid the industry in
evaluating particular objectives.

Developing a list of possible major improvement objectives may be a useful early
activity in determining priorities. This list could possibly be developed in many ways including
discussions in the industry, suggestions from various leaders, and other sources. Earlier steps in
the framework, such as, situational analysis, guiding strategies, etc., should provide a solid
foundation for this step. For example, the situational analysis in the Michigan apple case helped
to identify increasing exports as a possible major improvement objective to develop for the
industry.

In selecting among possible priority improvement objectives the situational analysis,
vision statement, and overall guiding strategies that have already been developed during the
ISPC process should help. The earlier steps frame and provide much of the needed information
and choices for selecting and prioritizing among various proposed improvement objectives. For
example, growth positioning helped the Michigan apple industry to focus on both expanding
exports and improving quality management as a high priority areas because if Michigan is to
expand fresh marketing volumes then improving quality is a needed action.

From the broader list of possible improvement objectives, a small number (perhaps 4 or
5) of the most improvement objectives should probably be selected for priority attention by the
industry at a given time. This limitation to a small number of major objectives is based on the
common situation that an industry typically has limited leadership resources to address a large

number of possible improvement objectives simultaneously. Limiting priority attention to these

 

 

 

 

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93
most important areas serves to focus and conserve the limited leadership and resources of the
ISPC group. It will also likely maximize the chances for consensus and thus ultimately
implementation. ,
For determining and prioritizing possible improvement objectives there are two general
screening questions that may aid an industry in identifying and selecting the best ones. They are
useful in that they help to identify objectives that are the most important for the industry to focus
on. These screening questions are:
0 To what extent is industry-level action needed to achieve success in regard
to a particular objective?
0 Does the proposed objective address an important gap between current
industry performance and needed 'or desired performance?
The following two subsections discuss the relevance and application of both of these screening
questions.
3.3.4.1 Is Industry Action Necessary to Achieve an Objective? ‘7
In considering various possible improvement objectives, it is useful to consider whether
industry attention is necessary to achieve such an objective. Alternatively, if firms and industry

organizations will likely make sufficient progress without broader industry attention, then the

objective would be of lower priority. The following two examples from the Michigan apple

 

industry illustrate the relevance of this question.

Modernization of fresh apple packing houses is important for the Michigan apple
industry. This modernization enables the Michigan industry to achieve enhanced performance in
uniform color and sizing, and this enhanced performance will likely enable the Michigan
industry to have increased performance in certain high return markets, such as, tray pack and

k

'7 Ricks and Woods (p. 13, 1995) discuss this issue briefly.

 

 

export. Hr
for the indi
some dogs
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One or
Wheth
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3.34

Whet

94
export. Hence, modernization of fresh apple packinghouse is considered an important objective
for the industry. However, individual packinghouses are accomplishing this modernization to
some degree with little coordinated industry attention. This provides some indications that while
packing house modernization is a priority objective for the industry on this modernization need,
it is less than top priority for joint industry action.

Maintaining effective pest control resources has also been found to be important for the
Michigan apple industry. Having effective pest control resources enables the Michigan apple
industry to supply apples with the quality characteristics (e.g., no insect or disease damage, etc.)
that are demanded by the market. The availability of the needed pest control resources is
threatened by regulations that could prohibit the availability or use of many of these important
pest control resources. Individual firms and industry organizations can most effectively respond
to this threat jointly as a group to fund research on new effective pest management technology,
to adjust the industry's pest management practices to reduce pesticide use, communicate their
needs, and advocate appropriate public policy. The objective of maintaining adequate pest
control resources would hence be a good candidate for a priority major industry improvement
area based on the need for industry attention.

Overall, the major improvement objectives selected should be the ones for which
industry attention would be most useful. Such industry attention should include strategies that
individual firms and industry organizations cannot best accomplish by themselves. This is only
one consideration in evaluating a particular improvement objective and should be combined with
whether the objective addresses a critical gap in performance by the industry as is discussed in
the next sub-section.
3.3.4.2 Does the Objective Address a Critical Industry Gap?

Another important consideration in determining and selecting priority objectives is

whether the objective addresses a critical industry gap. Answering this question is suggested in

 

 

 

 

kicks and‘
analysis, tl
assessed.
such as, w
objective 1
A
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3.3.5 ]

on Spec
impror
Should
group
earlie-

“Don

95
Ricks and Woods (1995) and is similar to gap analysis (Collion, 1993; Holloway, 1986). In this
analysis, the gap between desired industry performance and current industry performance can be
assessed. If there is a substantial gap, i.e., if the industry does not meet desired performance,
such as, with a key success factor or critical issue, then this would suggest that a priority
objective could be to improve performance in that area.

Areas where performance can be assessed by gap analysis include many areas of
industry performance. Key success factors, identified in situational analysis, are one important
area to focus on, since the key success factors are areas in which an industry must be successful
in order to have competitive success. Guiding strategies selected earlier in the framework may
indicate performance areas to be evaluated in gap analysis. For example, if an industry decided
that it would like to shift more of its production to the differentiation approach, then the
differentiation capabilities of the industry can be assessed to see if there is a gap. If there is
sufficient gap between an industry's performance and the requirements, this would indicate that
it should be a priority area for the industry to look for ways to differentiate their production.
3.3.5 Development of Specific Strategies for Facilitating Needed Industry Improvement

A fourth step designated in the strategic planning phase of the ISPC framework focuses
on specific strategy development. The development of specific strategies for facilitating needed
improvement indicates what actions firms, industry organizations, and the industry as a whole
should undertake to improve industry performance. These indicate strategies that the industry
group thinks should be implemented through coordination in the industry. This builds upon the
earlier steps in the strategic planning phase of the framework, since specific strategies focus

upon how the industry's vision, overall guiding strategies, and objectives are to be achieved.

 

ISP
enable imp
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Michigan .
step in the
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96

ISPC strategies will often be stage setting ‘8 in nature and will focus on areas that will
enable improved performance by firms and industry organizations. For example, developing
information on variety demand for the Michigan apple industry sets the stage for improved
Michigan apple industry responses to variety needs as indicated by the market. The use of this
step in the industry context is discussed in Ricks and Woods (1995) ISPC framework19 and is
similar to functional strategy development in firm strategic management.

Deciding on which strategies to undertake is considerably more difficult in the ISPC
context compared to the firm strategic management context. This is because, while there may be
a general agreement on objectives at this point, the industry must still come to agreement on the
strategies to accomplish the objectives based upon consensus within the ISPC group and the
larger industry. Obtaining the needed consensus on specific strategies may be difficult in an
ISPC context. As has been discussed in Chapter 2, this consensus may be particularly difficult
to achieve because firms may tend to focus on their rivalry conditions or benefits to their firm,
rather than focusing upon the industry benefits of a strategy.

Coming to a consensus agreement in the ISPC process will likely be particularly difficult
for those strategies that would require a joint decision and that all of an industry or an industry
segment must follow in order to be effective in its implementation. These types of strategies can
be termed broad-based industry strategies because these strategies require a broad-base of
industry support. Some examples of broad-based industry strategies include federal marketing

orders, grade standards, and/or forming a new industry organization paid for by industry

‘8 The term "stage setting" as used in this dissertation refers to strategies which help provide
an environment that is positive for the industry and does not change the competitive position
between firms. These strategies generally need additional related actions by individual firms for
most effective performance.

19 This step was described as one component, "analysis and identification of appropriate
action alternatives".

 

assessments
difficulties '
To

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group, in r
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3.3.5.1

Strategi
major i
strateg

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indust

fOcus

97
assessments. As was discussed in group theory, these sorts of strategies face particular
difficulties in achieving necessary consensus and have special issues that need to be addressed.

To develop consensus and overcome the problems discussed above, the ISPC group and
the industry leadership can play a pivotal role. An effective approach could be for the ISPC
group, in consultation with other industry leaders, to work identifying and developing specific
industry strategies through discussion, brainstorming, and careful analysis. The industry
leadership, including the ISPC group, may propose, consider and evaluate various strategies.
The industry leadership may request further analysis of certain strategy alternatives or certain
aspects of these, perhaps using projected or a priori impact analysis discussed below - and then
have further discussion and group analysis based on these. After analysis of alternative
approaches, possible results, costs, benefits, and obstacles, certain strategies will need to be
chosenfor consensus building and implementation.

The ISPC group should consider deve10ping strategies for each major objective that has
been deve10ped during the ISPC process as well as using impact analysis to support the relevance
of the strategies. The following two subsections discuss the use of these methods.
3.3.5.1 Strategies in Each Major Improvement Objective

In an ISPC group's strategizing efforts, it should explicitly evaluate a member of possible
strategies for each major improvement objective. Logically, this creates a linkage between the
major improvement objectives, on which consensus has been achieved, to the methods, i.e. ,
strategies, by which these objectives are to be achieved. Hence, linking strategies to objectives
will enhance the likelihood that the objectives will be achieved.

A combination of strategies might be most effective in addressing and improving
industry performance for some major improvement objectives. The different strategies may

focus on the strategic area from different perspectives. For example, the area of improving

 

quality man
analyzed as
focuses on
getting gor
considered
top quality
demand ft
progress i
possible t
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3.3.5.2

strategy
Woods 1
complic
t’vStirnati
Analys-
Powerf
cramp
U.S. t

the po

risks

aItaly

98

quality management in the Michigan apple industry is a complex area. Several strategies can be
analyzed and considered. One current strategy (the on-going Maturity Information Program)
focuses on developing information for apple growers on the most appropriate harvest dates for
getting good quality in regard to firm/crisp apples. Another ISPC strategy that has been
considered relates to developing appropriate incentives for firms to be consistently rewarded for
top quality, e.g. , a premium grade. A third strategy involves market research on consumer
demand for quality characteristics. Taken together, these strategies in combination illustrate that
progress in an strategic area can be attempted from several directions simultaneously. It is
possible that a synergistically greater impact will result from a combination of strategies for a
major improvement objective.
3.3.5.2 Impact Analysis

When evaluating various strategies, it may be useful if the potential impact of the
strategy can be anticipated in 'an a priori fashion. Impact analysis as discussed in Ricks and
Woods (1995) is a method to do this. 2° This sort of analysis may be especially useful for
complicated, difficult strategies that require industry-wide support or consensus; however,
estimating the likely impact of complicated strategies will likely be difficult and uncertain.
Analysis of the potential beneficial impacts of a strategy to various industry segments can be a
powerful tool in explaining and convincing the industry to implement needed strategy. For
example, an impact analysis of the potential impacts of the (then) proposed marketing order for
U.S. tart cherries was an important tool in explaining and showing the nature of the problem and
the potential for the marketing order as a strategy for improved industry performance.

Impact analysis can show the current knowledge about the expected benefits, costs, and

risks of using a particular strategy. This can provide important information to decisionmakers to

2° Ricks and Woods (1996) focused primarily on ex poste impact analysis, but using impact
analysis before a strategy is implemented can be useful as well.

 

 

 

 

 

facilitate the
can help to j
This also or
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3.3.6 Surr
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best 1i]

3.4 I]

ittdus

Strait

99
facilitate their evaluation of whether they should support a strategy. That is, an impact analysis
can help to provide a more complete set of relevant information to decisionmakers on a strategy.
This also means that results of impact analysis have the potential to be an important tool in
establishing consensus support for needed strategies.
3.3.6 Summary of Strategic Planning

The strategic planning phase is comprised of four steps which together provide a method
by which the industry decides upon the best future course for the industry. The first step,
situational analysis, provides essential information about the industry's current performance and
competitive environment. This information is useful in the second step as the industry
determines its vision and guiding or overarching strategies which chart the industry's overall
competitive intent. To achieve the vision and guiding strategies, the third step of strategic
planning develops major improvement objectives. The fourth step of strategic planning,
developing specific strategies, identifies specific strategies for facilitating improved industry
performance.

The strategic planning phase with its four steps provides important benefits. Specific
strategies that are selected are based upon the decisionmaking and information developed from
the earlier steps. The earlier steps provide key supporting evidence for the need of a particular
strategy and should have developed some level of consensus support for a strategy. This means
that the specific strategies developed for implementation in the next phase are those which the

best likelihood of improving the industry's performance.

3.4 Implementation and Coordination of Specific Strategies
After various industry improvement strategies have been developed and some level of
industry consensus support has been obtained, the next phase is to move from planning the

strategies to the implementation and coordination of these strategies. This phase is consistent

 

 

 

 

 

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100
with implementation in firm strategic management where support and action from key firm
decisionmakers, such as the CEO and top executives, are important for implementation of
particular strategies. However, an industry usually has quite a diverse make up with various
types of firms and industry organizations that can complicate the implementation of strategies —
even after these have received the necessary consensus. This often makes implementing ISPC
strategies more complicated, different, and difficult for ISPC than for a firm.

A key difference between firm strategic management and ISPC is that in ISPC there is
generally no centralized hierarchical command and control structure in the industry to facilitate
the implementation of strategies as was discussed in Chapter 2. The ISPC group can serve toa
limited degree as a coordination or facilitating structure in which various activities and actions
for strategies that need to be accomplished by various firms and industry organizations can be
encouraged or delegated. This may facilitate the implementation of industry improvement
strategies.

One main choice in selecting individual strategies is to what extent the strategy will
probably be voluntary or mandatory in nature in regards to implementation. A strategy would
be voluntary if firm(s) and/or industry organization(s) will be expected to achieve a strategy or
provide the resources for the strategy without some mechanism to enforce that a strategy is
implemented. Strategies with some mandatory aspects would include ways by which individual
firm and industry organizations are mandated to do the strategy. An example of a mandatory
strategy would be to have an assessment of all marketed fruit to pay for industry public good
research. Individual firms in marketing their products would need to define their relevant
products by the grades and improper grading would be sanctioned by some mechanism.

Mandatory strategies, as such, have an enforcement mechanism and have required
expectations of firms and/ or industry organizations. Firms and industry organizations would

have to agree on and support the strategy, because they would view the strategy as benefiting

 

them. This
organizatio
achieve voT
mandatory
strategies :
Tl
in nature.
may irnpl
interest tr
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strategy.

irnplemr

role in '

facilitat

101
them. This agreement is often difficult, uncertain, and costly since firms and industry
organizations have varying agendas and goals. This means that it is substantially easier to
achieve voluntary strategies. Furthermore, given the cost and difficulty associated with
mandatory strategies, it is likely that an industry can address only a few new mandatory
strategies at a particular time.

This is one reason why most strategies developed in an ISPC process will be voluntary
in nature. That is, individual firms and industry organizations with varying agendas and goals
may implement strategy depending upon their individual perceptions that it is in their best
interest to do so. Even for strategies with-mandatory aspects, the ISPC group would be expected
to advocate change for improved performance and to facilitate the implementation of the
strategy. The ISPC group, itself, will not usually have substantial power nor resources to
implement strategy, but can more often play coordination or facilitating roles.

There are a number of approaches that an ISPC group can use in its overall coordination
role in the industry for its progress and improved performance. These approaches can help to
facilitate the implementation of strategy. These include:

0 Develop an implementation plan for needed industry improvement

strategies that will indicate how key steps for each strategy are to be
implemented.

0 Continue communicating the need for and the elements of the strategy to
the broader industry because the firms and industry organizations will be
less likely to implement strategy that they are not aware of or if they are
not convinced is in their best interest to do.

0 Facilitate the provision of the needed resources for implementing the
strategy because strategy will not be implemented unless resources are

provided to pay for it.

 

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102

0 Measure progress for each strategy becausethis will aid in assessing how

effective current strategies are in meeting desired objectives.

0 Consider enforcement mechanisms if there are strategies that include

mandatory components, such as, assessments, grade regulations, etc.
The following subsections considers these approaches.
3.4.1 Developing an Implementation Plan for Each Strategy

ISPC effectiveness can usually be aided if the ISPC group develops an irnplementation
plan for each industry performance-enhancing strategy. An implementation plan could include
information on:

0 Who will accomplish the strategy?

0 What are key tasks that need to be completed to implement the strategy?

0 What is the overall planned timetable to accomplish the strategy?

0 What are the desired and/or expected outcomes from the strategy?

0 How will resources be provided for implementing the strategy?

Effectively addressing these issues for an entire industry may be complex and difficult for some
strategies. Nevertheless, if this is accomplished, it facilitates a group industry effort towards
accomplishing various industry performance-enhancing strategies.

Overall, the implementation plan can be critical to implementation success. For
strategies requiring extensive coordination between various industry firms and organizations, an
implementation plan is probably essential. For other strategies where implementation can be
accomplished by a few firms or industry organizations, the implementation plans can be less
formal.

3.4.2 Communication of the Strategy to the Industry
Along with an implementation plan for a certain industry strategy, it is vital to

communicate the strategy and the appropriate aspects of the irnplementation plan to the industry.

 

 

 

 

 

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103

In the firm strategic management context, Kotter (1996) notes that is important to use many
means to communicate strategy throughout a firm. Firm transformation efforts often fail due to
inadequate communication efforts. Just because the leadership agrees on a set of strategies, does
not mean that the others in the firm are aware of and/or will support the strategy. The need for
effective communication in an industry setting is even greater due to the many diverse firms,
organizations, rivalry in the industry and the need for many voluntary actions for ISPC strategy
implementation. Effective communication of ISPC strategy is therefore a critical task in the
implementation of strategy.

The communication approach should be tailored to each specific strategy. Since ISPC
strategies may be implemented by some combination of individual industry organizations,
individual industry segments, or the broader industry as a whole, a key is to effectively
communicate the information to the appropriate decisionmakers on the need for the strategy as
well as tasks to accomplish the strategy.

There may be a need to reconsider the strategy if appreciable resistance or problems in
implementing a particular strategy are perceived or arise. The ISPC group could discuss
alternatives to improve the strategy. This is suggestive of an appropriate iterative nature
between strategy development and implementation.

Communication is even more important for broad-based industry strategies because a
broad effort or plan of communication to various appropriate industry segments is necessary if a
broad-based industry improvement strategy is to be implemented. This communication plan
should include some aspects of why a proposed strategy is needed and its positive and negative
features. The evaluation and consideration of the strategy by the ISPC group and the broader
industry that was developed earlier may contain useful information in the explanation of the need
for the strategy. Further, this information may be developed and provided to the industry

through written reports, articles in industry periodicals, etc.

 

 

 

 

 

3.4.3 Obo
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strategy. '
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104
3.4.3 Obtaining Resources for ISPC Strategies

One of the key facets in ISPC implementation is to determine who will pay for the
strategy. This question can be important in the firm strategic management setting as the firm's
managers determine who will pay for a strategy, but it is considerably more complicated and
potentially difficult in the industry setting because there may be disagreement about who should
pay and varying willingness to pay for needed ISPC strategy implementation.

This issue is especially a problem in the industry context because many of the strategies
developed through ISPC provide non-excludable or public goods. Based on group theory
discussed in Chapter 2, the provision of such goods requires that one of two conditions hold.
These conditions, modified to apply to the industry context, are:

(1) Firms and/or industry organizations must receive sufficient direct net

benefit from providing the public good that they are willing to pay even

if there are free riders;

(2) Firms and/or industry organizations as a group must find some

mechanism to require the provision of the public good.
If condition (1) holds, then cost contribution or assessments may be voluntary because the
cost/benefit relationship can be stressed in implementation. If condition (2) holds, then cost
assessment will need to have at least some mandatory elements because a compelling cost/benefit
relationship does not exist for firms and/or industry organizations.
3.4.3.1 Voluntary Contributions

For implementing voluntary strategies, once the strategy is communicated to the
appropriate industry decisionmakers, then providing the resources is up to decisionmakers in the
relevant individual firms and/or industry organizations. This highlights the importance of

communication in developing many ISPC strategies. The ISPC process for these types of

 

 

 

 

 

voluntary s
communicz
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105
voluntary strategies mainly serves in a coordinating role through identifying needed strategy and
communicating the need to the appropriate firms and/or industry organizations.

Voluntary allocation requires essentially that firms and/or industry organizations are
willing to allocate the resources without coercion. Let us consider for a moment conditions in
which firms would be willing to allocate resources for an ISPC strategy. Firms must
individually expect receive a net benefit based on their contribution (condition (1) above). A
method to achieve voluntary contributions for ISPC strategy would likely involve discussions and
persuasion with firms that would likely contribute. If a core of these firms recognize the need
for the ISPC strategy, and are committed to the strategy, then they would develop a memo,
article, or other form of communication to other relevant and prospective industry participants
explaining why the strategy is needed. This information on the need for the strategy would be
brought to the attention of potential contributors to the strategy.

The above discussion indicates a possible approach for achieving voluntary contributions
for resources for a needed strategy. However, two factors substantially limit the net benefit that
firms receive from a strategy where there are substantial public good characteristics. First, the
individual firm does not receive the entire benefit of its contributions since other firms also
receive a benefit even if they do not pay their share of the costs. Second, this results in a further
problem which can be accentuated by rivalry conditions. That is, the strategy may provide a
public good that would benefit rivals and be paid for by the group of contributing firms. This
consideration provides a serious obstacle for individual firms voluntarily contributing the
resources for a strategy.

Broad industry organizations which have a primary mission of supplying this type of
industry public good, on the other hand, will likely have substantially greater motivation for

allocating resources for agreed-upon ISPC strategy. These organizations often supply some

 

 

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based indu
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106
forms of industry public goods. This raises the possibility that allocating the resources for the
strategy may be consistent with the general goal of the organization. Further, this type of broad-
based industry organizations generally do not have the same amount of rivalry as an industry’s
firms often do in an industry. Overall, this indicates that industry organizations will be
substantially more likely to volunteer to allocate resources for ISPC strategy than will individual
firms.
3.4.3.2 Mandatory Assessment

An alternative to voluntary contributions is a mandatory assessment approach for the
necessary resources that essentially forces firms and/or industry organizations to allocate
resources for the strategy. This can essentially overcomes the public good problem associated
with voluntary contributions of resources by firms as discussed above. However, using the
mandatory approach has some substantial potential obstacles.

ISPC strategies that require mandatory assessments for resources will require substantial
broad industry support to achieve this, i.e., there will need to be substantial industry consensus
on the benefit of the strategy in order to implement a mandatory approach. Examples of this
kind of public good strategy include forming a new industry organization to provide an industry
good, such as, improved generic advertising, or developing a mechanism to accomplish vitally
important research.

Some method to collect the resources, such as, an assessment, will also need to be
identified and established within the overall legal environment. The exact mechanism will likely
be a source of controversial discussions within the industry because often individual firms may
be expected to push for an allocation approach that benefits their firm over rival firms or for a
voluntary approach where they can be free riders. These facts may make the strategy more

controversial and involves problems and/or difficulties to accomplish than strategy compared to

the voluntary approach.

 

 

 

 

 

 

 

3.4.4 Prog
For
industry pr
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107
3.4.4 Progress Measurement

For each ISPC strategy, it may be useful to develop method(s) to measure progress in
industry performance as is commonly done in firm strategic management. Progress
measurement should indicate to what extent a particular industry improvement strategy has been
implemented and how effective that strategy has been in meeting desired objectives. Particular
progress milestones for particular strategies that were developed can be checked to evaluate if
desired performance has been achieved. For example, determining and achieving a critical mass
of a new variety produced and marketed could indicate that a progress milestone in marketing
the new variety has been achieved.

Progress measurement is particularly useful as it indicates as time unfolds how effective
particular strategies have been. This monitors the effectiveness of a given strategy so that it can
be altered if there is a need to do so. The alteration could be based upon a number of facts, such
as, the strategy not actually being implemented or the strategy not achieving the desired results.
This can then feedback directly into the subsequent strategic planning efforts for an industry
along with modified strategies for greater progress.

3.4.5 Enforcement

If an industry strategy is to be implemented through some type of mandatory approach,
there will likely be a need to consider how the strategy or program will be enforced. In firm
strategic management, the hierarchical control structure of management can enforce and see that
the strategy is implemented by pushing for change and sanctioning non-compliant individuals,
divisions, and sub-units. As has been discussed earlier, such control structures are generally not
in place in an industry setting. However, certain desirable strategies, nonetheless, may have
some mandatory aspects that need to be enforced by some mechanism. The mandatory aspects
could come in several forms, such as, someone to police firm actions. An example of this type

of strategy is grades and standards in the U.S. grain industry. The grade and standards provide

 

 

some benel
grain grade

Fo
come to Cl

fromintl

These ti

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tot

108
some benefits to the grain industry's performance, with the U.S. government enforcing that
grain grades and standards to assure that they are properly followed in the marketplace.

For strategies with mandatory aspects, the industry group and overall industry need to
come to consensus on the method for enforcement. An industry has two main options to choose
from in this:

0 using a government agency and appropriate laws or government rules to

enforce the mandatory aspects
0 forming some sort of industry organization to do the enforcement, usually
with contractual arrangements.
These two different choices have some different implications regarding the cost, legality, and
effectiveness.

One important aSpect is the enforcement cost of the mandate. Someone must pay the

- cost of having an inspector checking to see if the mandate is enforced. Often the government is
willing to pay the cost of enforcement, especially if benefits to public interests can be shown.
Alternatively, forming an industry organization would almost necessarily require the firms

and/or industry organizations to pay for the enforcement.

 

Another issue in enforcement is legality. Government enforcement of mandatory aspects
ties in with the numerous regulatory roles the government is currently engaged in and generally
has substantial legal standing, especially in sanctioning non-compliant, i.e., illegal, behavior.
Further, the government may often be seen as a neutral party, especially in regards to rivalry in
the industry. An industry organization focusing on mandatory aspects may not have similar legal
standing or a general ability to sanction that would limit effectiveness of an industry organization
in enforcement except through legal contracts.

One benefit of an industry organization enforcing mandatory aspects would be the ability

to be flexible to the changing needs of the industry. Government regulations and enforcement

 

   

 

are often in
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109
are often inflexible and are not easy to change. Slow government responses to changing needs
could result in missed opportunities for an industry.

This sub-section has discussed some of the issues an industry should consider when
evaluating the 'choice between government or industry enforcement of regulations and other
mandatory aspects if these are used. As discussed, legality, flexibility, and cost are key issues in
this. The option chosen would be based upon the options that are available to the industry and

what the industry decides is most appropriate.

3.5 Strategy Review and Re-evaluation

Strategy review and re-evaluation, the fourth phase in the ISPC framework developed in
this chapter, recognizes that an industry, its competition, the overall economy, etc. are
constantly evolving in a very dynamic fashion. Hence, the strategies developed through ISPC
will likely need to be periodically reviewed and modified. This is similar to the review process
in firm-level strategic management. In this phase of ISPC, the industry needs to be alert for
major new changes and/or driving forces that are important to the industry. Old problems and
challenges may become less of a priority, or perhaps in some cases no longer be relevant, and
new opportunities may become available. This is particularly relevant since the future is only
partially foreseeable. As time unfolds, more appropriate strategies and actions can be developed
to meet the new conditions.

Part of a comprehensive review process could include updating the situational analysis
and re—assessing the appropriateness of the conclusions reached in other earlier phases and steps
in ISPC. This sort of comprehensive review may be needed on an annual basis in agricultural

industries due to the annual nature of production and marketing or, in some cases, it might be

done every 3—4 years.

 

T
to improv
especially
and puss
industry

and re-e

learnt]

than

anan
Varie
cspe
in d
agr?
adc‘
efi

an.

 

110

The focus in review and re-evaluation would appropriately be on how to change strategy
to improve performance with changing industry conditions. The leadership of the industry,
especially in the ISPC group, can use their judgement about the effectiveness of current strategy
and possible future strategy. Industry segments can be surveyed to assess the general level of
industry views on industry strategy and performance. While doing this overall strategy review
and re-evaluation, it may be useful to consider the following questions:

a. How well are current strategies working?

b. What unforeseen results and obstacles have surfaced?

c. What new areas, including new problems and opportunities, need to be addressed?

d. What additional ways are there for the region to further deve10p and

sustain a viable, competitive industry?

This task of ISPC recognizes the benefit and need to adjust strategy overtime in an iterative,
learning process. The strategy review and re-evaluation has feedback to the industry's strategic

planning as the earlier steps are reassessed in light of current circumstances.

3.6 Chapter Summary and Conclusion

This chapter has included the development and explanation of an ISPC conceptual or
analytical framework that is designed to be potentially useful to practitioners of ISPC in a wide
variety of industry contexts. Existing frameworks of firm strategic management provided an
especially important conceptual baseline and a useful starting point for some of the content areas
in the framework. A number of other areas in strategic management, economics, and
agricultural economics provided important relevant information for modifying, adapting, and
adding relevant aspects to the firm strategic management framework to be relevant and most
effective for an industry context. The ISPC framework presented here is hence an integration

and synthesis of many areas of concepts, ideas, insights and empirical experiences developed in

 

 

 

the literature and or
and the ISPC frame
development.

The ISPC
strategic planning,
evaluation. Ordir.
should necessarily
process. In strate
industry develop:
determines its ov

areas to focus or
specific strategic
strategies).
The fou
that strategies 5
industry perfor
the industry thr
ftttmework, irr
Strategy reviev
Changing circr
0t assistance 1
A key
framework to

developed is

 

Hit

111
the literature and other sources. Linkages were drawn between the various theoretical concepts
and the ISPC framework developed to show the logic behind the ISPC framework's
development.

The ISPC framework is comprised of four designated phases (1) process initiation, (2)
strategic planning, (3) strategy implementation and coordination, and (4) strategy review and re-
evaluation. Ordinarily these main phases should be completed in order. Process initiation
should necessarily be undertaken first because in this phase the industry decides to have an ISPC
process. In strategic planning, the second phase, the industry goes through four steps where the
industry develops an understanding of its competitive environment (situational analysis),
determines its overall strategic intent (vision statement and guiding strategies), decides upon key ‘ '
areas to focus on in meeting the strategic intent (major improvement objectives), and selecting
specific strategies to improve performance in the major improvement objectives (specific
strategies).

The four steps in strategic planning together have the goal of increasing the probability
that strategies selected for implementation are the ones that are most likely lead to improved
industry performance. The specific strategies selected in strategic planning are implemented in
the industry through a process of industry coordination in the third phase of the ISPC
framework, implementation and coordination of strategies. The fourth phase of the framework,
strategy review and re-evaluation, deals with reconsideration of the strategies selected in light of
changing circumstances. Overall, the ISPC framework is posited to provide a model that can be
of assistance for the effective practice of ISPC.

A key goal of this ISPC framework, as has already been mentioned, is for the
framework to be applicable in a wide variety of industry contexts. At this point, the framework

developed is based upon theoretical concepts and some prior work with ISPC. These theoretical

 

 

 

linkages provide some
represents some mean
Based on It
activities Ct
However, the framev
the literature and by ;
essentially be to test
An actual
substantia
The framework can
as outlined in Chapt
additions or change:
the framework with
industries as case Sf

c0IISIruct and interr

 

 

 

 

 

112

linkages provide some face validity to the ISPC framework. The development of this framework
represents some meaningful progress towards the fulfillment of Proposition 1:

Based on theory from relevant disciplines, a framework of interrelated

activities can be specified as an aid for accomplishing ISPC.
However, the framework, while logically developed and supported from concepts, ideas, etc. in
the literature and by selected theory, has not been fully tested or validated. This effort will
essentially be to test Proposition 11:

An actual ISPC process that follows the framework of Proposition I can

substantially contribute to improved industry performance.
The framework can be tested with empirical experiences with the tests of construct and internal,
as outlined in Chapter 1. Applying the framework in this manner could also point to possible
additions or changes that should be made in the framework. The following two chapters relate
the framework with empirical experiences of the Michigan apple and U.S./Michigan tart cherry
industries as case studies. One goal of these chapters is to test Proposition 11 using the tests of

construct and internal validity.

 

 

 

 

In the last c
chapter is to illustrz
framework based u
ISPC strategic plar
analytical tools to ‘
industry.

The effort
address the tests c
Michigan apple n
0f the ISPC framt
applied context v
a11d thus provide
industry will be ;

WhiCh folIOWs th

This cha
overview or bar
The Second sect
discussion of th

A SUbsection s1

CHAPTER 4
APPLYING THE FRANIEWORK

IN THE MICHIGAN APPLE INDUSTRY CASE

In the last chapter, a conceptual framework for ISPC was developed. The goal of this
chapter is to illustrate and take important steps toward establishing the validity of the ISPC
framework based upon the case study of the Michigan apple industry. Since 1993, a number of
ISPC strategic planning and problem solving activities have been undertaken along with various
analytical tools to improve the competitiveness and economic viability of the Michigan apple
industry.

The effort to illustrate and validate the framework has several important parts that
address the tests of construct and internal validity presented in Chapter 1. The experience of the
Michigan apple industry working on ISPC has provided fertile ground for empirical observation
of the ISPC framework in application. Describing the actual situations and activities in the
applied context will indicate the appropriateness of the constructs in the conceptual framework
and thus provide a test of construct validity. Performance changes in the Michigan apple
industry will be assessed to test the internal validity of Proposition 11, i.e., that an ISPC process
which follows the ISPC framework can contribute to improved industry performance.

This chapter is organized in the following manner. The first section provides an
overview or background of the Michigan apple industry to familiarize readers with the industry.
The second section relates the ISPC framework to the Michigan apple industry along with
discussion of the approaches and tools that have been used in the apple industry ISPC activities.

A subsection summarizes knowledge gained regarding the test of "construct" validity. The third

113

 

 

lulu

 

 

section reviews quality
an example of part of ti
tests of internal validity

an overall conclusion t

4.1 Overview of the
The Michigan
0f $ 82 million at the
four main areas of co
rural Michigan comn
Murry have been g
The Michiga
Shippers as well as t
Sfbimetnts who Comn
Al’llles are :
Channels, fresh and
Some aPPles are in
substantial V01urne

packing houses in‘

\

21

e
approximately 13'

114
section reviews quality management approaches/strategies to illustrate this t0pic in more depth as
an example of part of the Michigan apple ISPC process. The fourth section considers the three
tests of internal validity of the framework as discussed in Chapter 1. The final section provides

an overall conclusion to the chapter.

4.1 Overview of the Michigan Apple Industry

The Michigan apple industry is Michigan's number one fruit crop, grossing an average
of $ 82 million at the grower level in recent years. The industry is geographically located in
four main areas of concentrated production in Michigan and plays an important role in numerous
rural Michigan communities within these main production areas. Production levels in the
industry have been growing slowly.

The Michigan apple industry includes Michigan apple growers, packers, processors, and
shippers as well as industry organizations associated with these groups. These are the main
segments who commonly consider themselves part of the Michigan apple industry.

Apples are marketed in the Michigan apple industry through two main marketing
channels, fresh and processing, as illustrated in Figure 4—1 , with several distinct vertical stages.
Some apples are marketed by numerous growers 2‘ directly to processingzz; however,
substantial volume is sorted for various fresh and processing markets by the approximately 120

packing houses in Michigan. The packing house sorts according to various fresh packs. Apples

 

2‘ The Michigan Rotational Fruit Survey (MDA) for 1991 indicated that there were
approximately 1300 grower operations.

22 Apples marketed directly to processing would likely be of varieties that are preferred
for processing, such as, Northern Spy where substantial fresh markets are not available for the
variety. Apples with low quality characteristics such as color, condition or size are also
sometimes marketed directly to processing as well.

 

 

 

 

Al

i Processin

5.
l
a

l l

1‘ Processc
\

L.“

 

 

Food
Manufactu

Figure 4.1. The I

The Michigan
Apple Industry

G rowers

Processing \ Fresh

Packers

/l

Processors < Shippers

\

Export

 

 

 

 

 

 

 

V i
Food » Grocery
Manufacturers \s\ / Retail-Wholesale

 

\Food
Service

\

Consumers

Figure 4-1. The Michigan Apple Industry and Main Marketing Channels

 

 

 

 

not meeting fICSh quality I
20-25 shipsers market Mi'
shipper “brand” on the pa
commodity. Overall, the
processing markets taking
The fresh market
consumers. Intermediate
markets. The fresh mar
markets, but requires a s
appearance, and conditir
Michigan apples are soh
bulk retail displays in tr.

The processing
that do not meet fresh n
into such products as ju
differentiated commodi
customers.

In recent years
forces. Consumers an
preferences for apple 1
consul“ption, such as
go"eminent regulatior

availability of other kt

\

a The Michi

 

 

 

116
not meeting fresh quality requirements are sent to the roughly 20 processors”. Approximately
20—25 shippers market Michigan's apples to the fresh market. Although shippers often put their
shipper “brand” on the package, most of these fresh apples are essentially a non-differentiated
commodity. Overall, the fresh market takes about one-third of Michigan's production with
processing markets taking the remainder.

The fresh marketing channel is used for apples that are sold in unprocessed form to
consumers. Intermediate customers are the grocery-retail trade, food service and export
markets. The fresh market often provides higher returns to the grower than the processing
markets, but requires a set of much higher quality characteristics such as color, finish,

appearance, and condition. Fresh market returns are also more variable. In the fresh market, '

 

Michigan apples are sold primarily in 3 or 5 pound poly bags with some apples being sold for-
bulk retail displays in trays packs.

The processing market provides a large volume alternative for apples including some
that do not meet fresh market quality and variety requirements. Michigan apples are processed
into such products as juice, sauce, and slices. These products are marketed primarily as non-
differentiated commodities to food manufacturers, food service, and grocery retail trade
customers.

In recent years, returns to Michigan growers have been impacted by many important
forces. Consumers are demanding increasingly higher quality performance, and consumers'
preferences for apple varieties are changing as well. Media scares about the safety of apple
consumption, such as the Alar scare, can have very negative effects upon returns. Furthermore,
government regulations are increasing the cost of inputs, e.g., labor, while threatening the

availability of other key inputs, e.g., pesticides. The loss of key pesticides can have a very

 

23 The Michigan Apple Committee Processor Directory includes 23 processors.

 

damaging affect, if effect
may make it difficult for
negatively impact the M

On the national
Washington apple indus
to increase market shart
through high performar
Washington industry's .
tl’piCally been the secor

and Califomia dependi

4.2 The Framework
The ISPC frat
effective ISPC approa
and the relationship 0'
framework. Further,
ISPC process provide
4.2.1 Process Initia
As was discu

process in any indust
process began when
the potential gains a
inportant threats or
Several indt

aWareneSS of the po

 

1 17
damaging affect, if effective alternatives are not available. The loss of key pesticides in itself
may make it difficult for the industry to meet customer quality requirements and hence can
negatively impact the Michigan apple industry's ability to compete.

On the national scene, Michigan is faced with a difficult competitive environment. The
Washington apple industry has dramatically increased production and is marketing aggressively
to increase market share and volume. Part of the Washington apple industry‘s success has come
through high performance in meeting consumer quality requirements and this has extended the
Washington industry's dominance in the U.S. apple market. The Michigan apple industry has
typically been the second through fourth largest production state, trading places with New York

and California depending on the production season.

 

4.2 The Framework Applied to the Michigan Apple Industry ISPC Process

The ISPC framework developed in Chapter 3 is designed with the goal of describing an
effective ISPC approach. A description of ISPC experiences with the Michigan apple industry
and the relationship of these case experiences to the ISPC framework illustrates the use of this
framework. Further, the extent to which the framework describes or corresponds to the actual
ISPC process provides a measure of the construct validity of the ISPC framework.
4.2.1 Process Initiation

As was discussed in Chapter 3, the initiation phase is important for an effective ISPC
process in any industry context. In the Michigan apple industry, the initiation phase of the ISPC
process began when a group of apple industry leaders and MSU analysts focused discussions on
the potential gains and needs for coordinated industry planning efforts to address a number of
important threats or problem areas and to more fully exploit certain opportunities.

Several industry organizations and groups within the industry were important in raising

awareness of the potential benefits of using an ISPC process. Three organizations were of

 

particular note because of I
The Michigan Apple Con“
apples to retail grocery. fc
Michigan growers, packer
Apple Research Committe
stimulating needed researt
including its agricultural t
role in improving the per
4.2.1.1 Articulation of i
The ISPC frames

some point, industry heat
would be useful for their
serves as an industry’s a
In the Michigan

needed to do some joint
rapidly changing setting
development committee
apple industry and how
discussions by industry
ISPC. Subsequently, a
and MSU met. This in
0“ apple industry Sm

I"d“StTl’ Strategic Plan

Task Force,

 

 

 

118
particular note because of their extensive involvement with the process initiation phase of ISPC.
The Michigan Apple Committee (MAC), that is funded by growers, has promoted Michigan
apples to retail grocery, food service, and export customers while working closely with
Michigan growers, packers, and shippers to meet trade and consumer needs. The Michigan
Apple Research Committee (MARC), similarly funded by grower assessment, has focused on
stimulating needed research for the Michigan apple industry. Michigan State University (MSU),
including its agricultural economics department and extension programs, has had a longstanding
role in improving the performance of Michigan agriculture including the apple industry.
4.2.1.1 Articulation of Industry Need for an ISPC Process

The ISPC framework indicates that if such an ISPC process is to be accomplished, at
some point, industry leaders will need to meet and decide that accomplishing an ISPC process
would be useful for their industry. This decision can form a basis for an ISPC process and
serves as an industry’s articulation of the need for ISPC.

In the Michigan apple induStry case, certain industry leaders proposed that the industry
needed to do some joint strategic planning for the benefit of the industry in its challenging and
rapidly changing setting. Through initial discussions, it was decided to use a temporary
development committee to consider the idea of industry-wide strategic planning for the Michigan
apple industry and how this would be effectively approached. Preliminary informal analysis and
discussions by industry leaders from the MAC, MARC, and MSU indicated some benefits from
ISPC. Subsequently, an initial group, comprised of industry leaders from the MAC, MARC,
and MSU met. This initial group recommended the formation of an industry task force to focus
on apple industry strategic planning. The group was formally named the Michigan Apple
Industry Strategic Planning Task Force that hereafter in the case will simply be referred to as the

Task Force.

 

 

 

Overall, the Task i
competitive position and if
rather that focusing upon ‘
developing strategy for th'
strategic direction, selecti
strategy selection and imp
4.2.1.2 Formation of at

The ISPC framev
phase is to form an ISPC
In this, the group can ma
of the strategies decided
of group formation are r:
group.

In the Michigan
regard to the structure 0
representatives from the
4-2 shows these groups
motivation for this orga
group,

Attempts were :
Who are some of the t0]
shown some understant
helpful that the groups
km)‘il‘éfigeable of the i'

individuals in the ISPC

 

 

 

 

119

Overall, the Task Force was designed to focus on the industry’s performance and
competitive position and to address strategic issues in a future oriented and pro-active manner
rather that focusing upon day-to-day concerns. Practically, this group has worked through
developing strategy for the Michigan apple industry including situational analysis, choosing a
strategic direction, selecting strategies, etc. The group has also provided leadership in industry
strategy selection and implementation.
4.2.1.2 Formation of an ISPC Leadership Group

The ISPC framework indicates that one of the key decisions in the process initiation

 

phase is to form an ISPC group. This is a group that can actively go through the ISPC process.
In this, the group can make decisions about industry strategies and facilitates the implementation
of the strategies decided upon. The ISPC framework from Chapter 3 suggests that two key parts
of group formation are related to the structure of the group and who will be represented in the
group.

In the Michigan apple industry case, a number of important decisions were made in
regard to the structure of the Task Force. A round table format for the group was chosen with
representatives from the industry's many different segments and support organizations. Figure
4-2 shows these groups and organizations that have been represented on the Task Force. A
motivation for this organizational structure was to facilitate broad industry ownership of the
group.

Attempts were made to involve representatives from the various industry organizations
who are some of the top visionary, influential leaders of the industry. These leaders also have
shown some understanding of the possible benefits of industry-wide strategic planning. It was

helpful that the groups and individuals who were working on starting an ISPC process were
knowledgeable of the individuals within the industry and were able to engage these kinds of

individuals in the ISPC process. The leaders selected for the Task Force included key members

 

   

Michigan Apple
Shippers
Association

  

  
   
  
    
    
  

  

MACMA
Processing
Apple Division

Michigan State
HOI‘ticultural
Society

  

Michigan State
0mesters
Association

  

Figure 4-2‘ The Mic

 

 

 

 

Michigan Apple
Shippers
Association

120

 

 

 

 

Michigan Apple
Committee

 

 

 

 

 

 

MACMA
Processing
Apple Division

 

 

 

 

Michigan State
Horticultural
Society

     

 

 

 

 

Michigan State
Pomesters
Association

 

Michigan Apple
Industry Strategic
Planning Task

Force

Michigan Apple
Research
Committee

 

 

 

Apple
Processors

 

 

 

Michigan Apple
Promoters

 

 

 

 

 

 

 

Michigan
State
University

 

 

 

 

 

International
Apple Institute

 

Figure 4-2. The Michigan Apple Industry Strategic Planning Task Force

 

 

 

 

 

from industry support or gar
MSU extension that workeC
and processors. As such, t
of the Michigan apple indu
4.2.1.3 Selection of a Set
As discussed in tht

agree on a set of common
for the Michigan apple in
supported by the Task F0
duplicate the activities of
but to focus on areas wer
organizations could work
approach. Several broac
by the Task Force. The
1- To assist in t

2. To help find

on priority 1

action alone

3- To enhance

4- To develop
Michigan 2

These MS pIOVided t

purpose of Task F Om

\

2“ Strat '
e 1
for the Michigangr‘fpi)J

 

 

121

from industry support organizations including the executive director of the MAC, and leaders in
MSU extension that worked closely with industry, and influential growers, packers, shippers,
and processors. As such, the group was a panel of experts working to improve the performance
of the Michigan apple industry.
4.2.1.3 Selection of a Set of Common Objectives

As discussed in the ISPC framework, to function effectively a group needs to select and
agree on a set of common objectives. In the Michigan apple industry, the initial planning group
for the Michigan apple industry ISPC effort decided on a set of common objectives that was later

supported by the Task Force. Overall, the general goal of the Task Force would not be to

 

duplicate the activities of individual firms or organizations such as private firms or the MAC,
but to focus on areas were cooperation and coordinated actions between various apple industry
organizations could work towards improving the apple industry's performance through an ISPC
approach. Several broad goals were developed to guide and filter strategies under consideration
by the Task Force. These goals are“:
1. To assist in clarifying and setting overall priorities for future industry needs.
2. To help further strengthen cooperation among various industry segments
on priority issues that are not likely to be solved by individual firm
action alone.
3. To enhance Michigan's competitive position in the future.
4. To develop a future oriented strategic plan for the benefit of the

Michigan apple industry.

 

These goals provided the set of common objectives for the Task Force and indicated the overall

purpose of Task Force activities.

 

2“ Strategic planning and the goals are discussed in the staff paper "Strategic Planning
for the Michigan Apple Industry" by Donald Ricks ( 1992).

 

 

4.2.1.4 Development ”f a
One key issue, indi

the costs related to the ISP(
pocket costs of the ISPC g1
ongoing activities of the 15
for the ISPC planning p10c
good as it generates stratet
maybe free rider problem
In the Michigan at

upon the voluntary supper
support by MSU. Admin
some considerable help fr
directly contributed subst
to indicate that industry c
essential role in supplyin
Whether industries witho'
4.2.1.5 Provision of St
Another impona
dete"nine how the staff
provide important analy
c(”133118118 through focu:
faCihating an ISPC pm
In the Michigan
Chairs of “facilitators”

because of their long-tr

 

 

 

 

122

4.2.1.4 Development of a Method to Pay the Costs of the ISPC Group

One key issue, indicated by the framework, is that there needs to be some way to pay
the costs related to the ISPC group. In this, it is useful to consider who will pay the out-of-
pocket costs of the ISPC group as well as provide the staff resources to initiate and support the
ongoing activities of the ISPC group. Obtaining the needed financial and leadership resources
for the ISPC planning process is difficult since an ISPC group itself is to some extent a public
good as it generates strategies with substantial public good characteristics. As a result, there
may be free rider problems in providing the needed resources for an ISPC process.

In the Michigan apple industry case, funding for Task Force activities has been based

 

upon the voluntary support of organizations within the industry, including MAC, MARC, and
support by MSU. Administration and communication costs were largely covered by MSU with
some considerable help from the MAC. Notably, individual firms in the industry have not
directly contributed substantially to the funds for the ISPC planning process. This would seem
to indicate that industry organizations with goals of providing industry public goods have an
essential role in supplying the resources for ISPC. This raises an important question as to
whether industries without such industry organizations can have an effective ISPC process.
4.2.1.5 Provision of Staff Support for the Process

Another important element in the process initiation phase of the ISPC framework is to
determine how the staff resources for an ISPC process will be provided. The staff support can
provide important analyses as directed by the ISPC group. The staff can aid in developing

consensus through focusing on key points, organizing meetings and, in an overall sense,

 

facilitating an ISPC process.
In the Michigan apple industry case, two MSU extension personnel were selected as co-
chairs or “facilitators” of the Task Force. These members were selected by the industry leaders

because of their long-term successful roles with the industry and their many previous works in

 

helping the industry Thief
positively viewed by the A”
favoring one segment 0f Th
The staff support P
Force. The staff support,
often focused on identifyir
presently addressed. In tl
production-marketing syst
specific organizations tha-
broad industry problems,

The staff had an
accomplished preliminary
Force meetings. This se
good ideas and Opinions
step.

The Staff furthe:
obstacles to progress an
facilitate Compromise a
suppert staff served to
422 Strategic Planni

The ISPC has
for the industry to con
are Tm“ Steps that nav

strategies that should I

 

123
helping the industry. Their roles have been especially effective because they have been
positively viewed by the industry due to their long-term industry relationships and by not
favoring one segment of the industry in their approach.

The staff support played a number of important roles in developing analyses for the Task
Force. The staff support, especially as they were neutral in regards to individual segments,
often focused on identifying gaps where there were greater opportunities than were being
presently addressed. In this, the staff took a broad, long-term perspective of the vertical
production-marketing system. Other individuals on the Task Force represented their own
specific organizations that had specific needs and concerns and were encouraged to focus on the
broad industry problems, opportunities, and needs.

The staff had an important role in industry consensus building. The staff often
accomplished preliminary exploration of possible alternatives with influential leaders before Task
Force meetings. This served to engage the industry leadership in the topic as well as getting
good ideas and opinions. This often served as an initial informational and consensus building
step.

The staff further often worked to develop joint implementation plans and overcome any
obstacles to progress and consensus building. They mediated between groups and factions to
facilitate compromise and the identification of acceptable solutions. In an overall way, the
support staff served to expedite the consensus and strategy development and implementation.
4.2.2 Strategic Planning

The ISPC framework discussed in Chapter 3 indicates that the second phase of ISPC is
for the industry to concentrate on and accomplish strategic planning itself. In this phase, there
are four steps that have the goal of leading the industry toward selecting the most implementable

strategies that should be most likely to improve industry performance. The following sub-

 

 

 

sections consider the frame
industry.

4.2.2.1 Situational Anal:
Situational analyst

broad understanding of th
number of analytical tech
developed at the directior
situation, recent changes1
knowledge of competing
deve10ped through SWO
success factors. The fol

. used in the Michigan ap'
4.2.2.1.1 Shift-Share .
A shift-share ar

“POD published data of
prices for major compe
in market share by may
luportam Inalor baseli
The shift-share

apple industry in U.S.
“WWII that Washir
been emPhasized as a
ISPC strategy develo]
The shift Shaj

about Michigan' 8 per

124
sections consider the framework's steps in this phase and their application in the Michigan apple
industry.
4.2.2.1 Situational Analysis

Situational analysis, the first step in the strategic planning phase, seeks to develop a
broad understanding of the situation that the industry is in. Situational analysis can include a
number of analytical techniques or tools, and a number of these different analyses were
developed at the direction of the Task Force. Base line information on the competitive market
situation, recent changes, etc. were assessed with shift-share and major trend analysis while
knowledge of competing industries was developed in competitor analysis. Useful analyses were
developed through SWOT analysis, analysis of major driving forces, and identification of key
success factors. The following section discusses each of these analytical techniques as they were
used in the Michigan apple industry's situational analysis.
4.2.2.1.1 Shift-Share Analysis and Major Trend Analysis

A shift-share and major trend analysis of the U.S. apple industry was completed based
upon published data of a number of important factors such as fresh and processed volumes and
prices for major competing regions (Ricks, Hinman, and Woods, 1995). This showed changes
in market share by market segment for each major apple producing state. This clarified certain
important major baseline trends in the industry.

The shift-share and major trend analysis highlighted the dominance of the Washington
apple industry in U.S. fresh market apples. Furthermore, it showed the large production
expansion that Washington had been undertaking. Overall, the Washington apple industry has
been emphasized as a key competitor that has needs to be considered in a top priority fashion in
ISPC strategy development.

The shift share and major trend analysis also showed a number of other key factors

about Michigan's performance in various markets. These key factors included:

 

 

 

 

1. rapid growth by 1
increased markel
2. slow growth in f
3, mixed performar
This analysis provided basl
strategic direction and goat
i.e., where current industr
played an important role i
Overall, the shift-
number of key facets oftl
Washington apple industr
assessment of changes in
other overall performanc
4.2.2.1.2 SWOT Anal}
Along with shift
SWOT analysis for an 0
included discussions Wit
share and major trend a
”“99 key segments oft
WOOdS, 1995; Woods,
SWOT aItalysis of the
One small mm
Weaknesses and threat
because industry lead

the industry Would int

 

125

1. rapid growth by the Michigan industry in the canning market and its

increased market share;

2. slow growth in fresh and juice markets;

3. mixed performance and fluctuations in apple slice markets.

This analysis provided basic information for the Task Force to use in determining overall
strategic direction and goals. It also emphasized areas in which more attention was warranted,
i.e., where current industry strategy could perhaps be improved. The shift share analysis also
played an important role in goal setting by market segment.

Overall, the shift-share and major trend analysis provided a factual basis for analyzing a
number of key facets of the apple industry. Some key opportunities and threats from the
Washington apple industry in the fresh market were indicated in an overall sense. An
assessment of changes in competitive position in other market segments further identified some
other overall performance aspects of the Michigan apple industry.
4.2.2.1.2 SWOT Analysis

Along with shift-share and major trend analysis, the Task Force and MSU developed a
SWOT analysis for an overview of the Michigan apple industry's strategic situation. Early steps
included discussions with and among Task Force members as well as observations from the shift-
share and major trend analysis. The Task Force also requested a series of surveys focusing on
three key segments of the Michigan apple industry: shippers, growers, and packers (Ricks and
Woods, 1995; Woods, 1996). These surveys provided various perspectives and input for a
SWOT analysis of the Michigan apple industry.

One small modification in the standard format for the SWOT analysis was to refer to
weaknesses and threats as industry challenges, issues, and problems. This change was made
because industry leaders thought that using the words "weaknesses" and "threats" in referring to

the industry would increase the risk of alienating parts of the industry to the ISPC process (Ricks

 

 

and Woods, 1995). This 1
priority issues and concerr
"challenges, issues, and p
0 expanding den

0 improving qua

0 meeting the in

0 addressing en‘

0 availability of

' evaluating top

The SWOT anal

for which there was son
0 the location t

' an ability to

' a combinatit

These Strengths were v
for the Michigan apple
Indus“ °PPor

for its products, TheSt
fresh, marketing more
areas in Which the ind
The Overall in
discussions, etc. prov
Michigan apple in dug

analyns and SUrVeys

 

126
and Woods, 1995). This resulted in that part of the SWOT analysis focused more on identifying
priority issues and concerns for the industry. Some of the items that were found to be important
"challenges, issues, and problems " were:
0 expanding demand
0 improving quality
. 0 meeting the intensifying competition from other regions

0 addressing environmental, food safety, and labor regulations

0 availability of key pesticide inputs

0 evaluating apple varieties

The SWOT analysis further identified several strengths of the Michigan apple industry
for which there was somewhat of a consensus among industry segments. These included:

0 the location (proximity to major markets and favorable climatic conditions)

0 an ability to viably market a number of varieties

0 a combination of strong fresh and processed markets
These strengths were viewed as providing some of the current sources of competitive advantage
for the Michigan apple industry.

Industry opportunities focused in part on ways that the industry could expand demand
for its products. These included expanding export markets, improving quality especially for
fresh, marketing more tray pack apples, and modernization of packing houses. These indicated
areas in which the industry can focus to improve industry performance.

The overall industry SWOT analysis developed in industry surveys, Task Force
discussions, etc. provided a good aid in developing strategies that appropriately meet the
Michigan apple industry's internal abilities and external situation. These results of the SWOT

analysis and surveys were communicated to the industry through a series of publications

 

 

including Ricks and SChW‘
consensus building for the
4.2.2.1.3 Conanetitor N
Competitor analy
relevant competitor indus
the nature of competition
relevant information on t
One thrust of co
analysis of strategic plat
(1996, pp. 88-97) with :
Washington apple indus
aid awareness of the T2
these strategies to the l
The shift-share
for example, indicated
The Washington apple
anallZed and discusse
was that the Washing
apples. This had rais
Which the Michigan 2
management practice
The competit
the fresh market are

discussion that Mich

127

including Ricks and Schwailler (1996a, 1996b). These communications provided a step in
consensus building for the industry.
4.2.2.1.3 Competitor Analysis

Competitor analysis focuses upon acquiring information about important aspects of the
relevant competitor industries. The scope and focus of a competitor analysis will depend upon
the nature of competition for an industry. The key goal of competitor analysis is to provide
relevant information on competitors that will aid in strategy development.

One thrust of competitor analysis for the Michigan apple industry had been some

 

analysis of strategic planning efforts of competing apple industries. This was covered in Woods
(1996, pp. 88-97) with a discussion of strategic planning efforts by the New York and

Washington apple industries. A primary purpose of this was to be to get ideas on strategies to

 

aid awareness of the Task Force and the Michigan apple industry and possibly to adapt some of
these strategies to the Michigan apple industry's needs. 9

The shift-share analysis provided some useful information for competitor analysis as it,
for example, indicated the growing success of the Washington apple industry in fresh marketing.
The Washington apple industry's currently successful and possible future strategies were
analyzed and discussed at length and constantly in the Task Force. One area of particular focus
was that the Washington apple industry was marketing high volumes of consistent good quality
apples. This had raised the marketing requirements for quality in the fresh market overall - to
which the Michigan apple industry was trying to respond through improving total quality
management practices.

The competitor analysis thus provided information that increasing quality expectations in
the fresh market are a major driving force. Some Task Force members indicated in the

discussion that Michigan should not try to "Out Washington, Washington", i.e., that Michigan

L_—

 

should not just copy W218hi
not only appropriately met
The Michigan app
ideas and strategies of its l
on the quality managemer
that aided the Task Force
to improve quality manag
4.2.2.1.4 Value Chain
Value chain anal
analysis develops an unc'
potential differentiation
"value-chain" strategy t
Sllpplied supplemental 1
mole“. The goal oft
buyers value in their a]
preferred packaging ft

series of reports 15.

The consumer
preferences. For exa

bags. This has partic

fresh apples are sold

demand for new vari

128
should not just copy Washington because the Michigan apple industry needs quality levels that
not only appropriately meet buyer needs, but are realistic for Michigan production conditions.

The Michigan apple industry's competitor analysis focused upon analyzing the situation,
ideas and strategies of its competition from other regional apple industries -- with some emphasis
on the quality management area as a major driving force. This provided important information
that aided the Task Force and the ISPC process in considering and evaluating various strategies
to improve quality management practice.
4.2.2.1.4 Value Chain Analysis

Value chain analysis is another important tool in situational analysis. Value chain
analysis develops an understanding of what is valuable to buyers as well as costs and sources of
potential differentiation in production. One area that the Task Force identified as an important
"value-chain" strategy was to expand consumer market research. The MAC and MARC
supplied supplemental research funds and MSU accomplished a series of market research
projects. The goal of this market research'work has been to improve knowledge about what
buyers value in their apple purchases, such as, different quality features in apples, variety, and
preferred packaging form. This information has been subsequently provided to the industry in a
series of reports 25.

The consumer market research indicated several interesting facts about consumer apple
preferences. For example, more consumers preferred to purchase apples in tray pack than in
bags. This has particular implications for the Michigan apple industry since most Michigan
fresh apples are sold in bags. Another important aspect is that consumers indicated increasing
demand for new varieties that have good taste and condition. A very important market research

result was that consumers expressed strong preferences for high condition apples or crisp,

—_

3 These reports include Beggs, Ricks, and Heinze (1995), Ricks et al (1995), and
Ricks, Heinze, and Beggs (1996).

 

 

 

“crunchy” apples. This f“
for high fruit condition by
industry interest in consun
The value chain a
research into approaches,
enabling effective industr
important role in the Mic
4.2.2.1.5 Major Drivin
Major driving it
adjustments in the indus
impact the industry in tl
effective strategic plann
analyzed and used in tlr
informant discussions,
of industry publication
major trend analysis, a
Table 4-1 lists
forces were (and at th
Want and are expe
discusses each major
lite Michigan apple i]
Ri in ali e up
One of the It
U-S- markets by hot

t
o demand consisten

129
“crunchy” apples. This finding reinforced interest in working on improving quality management
for high fruit condition by the Michigan apple industry. This indicated a strong Michigan apple
industry interest in consumer preferences, i.e., consumer’s value chain.

The value chain analysis was extended through the chain from production through
research into approaches, such as, Total Quality Management, that would have the goal of
enabling effective industry responses to consumer demand. Value chain analysis has played an
important role in the Michigan apple industry ISPC process.
4.2.2.1.5 Major Driving Forces

Major driving forces are the forces that are causing the most important changes and
adjustments in the industry and its marketplace. Understanding how the driving forces will
impact the industry in the future as well as the interaction between these forces is useful for
effective strategic planning. A set of major driving forces for the apple industry were identified,
analyzed and used in the ISPC process (Ricks and Woods, 1996). These were based upon key
informant discussions, Task Force analyses, industry surveys, consumer market research, review
of industry publications, etc. The related analyses such as the SWOT analysis, shift-share and
major trend analysis, and competitor analysis also provided useful inputs.

Table 4-1 lists major driving forces of the U.S. apple industry. These major driving
forces were (and at the present time continue to be) the forces impacting the Michigan apple
industry and are expected to continue at least though the next 5 years. The following section
discusses each major driving force, interactions between driving forces, and likely impacts on
the Michigan apple industry.

_R.i§i g Quality Requirements by Trade and Consumer Customers in OS. Fresh Markets

One of the most important driving forces for change is rising quality requirements in

U.S. markets by both the trade and consumers. Quality requirements are growing increasingly

to demand consistent quality apples with high condition and good taste along with defect-free and

 

 

 

 

 

 

Table 4-1. Major Drivin
' Rising Quality

0 The U.S. App]

0 The Washingtt

0 Changing Var

I lnternationall

0 Successful Pe
Increasing R

0 Technologies

0 National Den

130

Table 4-1. Major Driving Forces in the U.S. Apple Market

Rising Quality Requirements by Trade and Consumers in U.S. Fresh Markets
The U.S. Apple Market is Commodity Oriented, Slow Growing, and Mature
The Washington Apple Industry's Dominance of the U.S. Fresh Apple Market
Changing Variety Preferences

International Markets are Increasingly Important

Successful Pest Control and Pesticide Availability are Threatened due to
Increasing Regulation

Technological Changes and Modernization

0 National Demand-Supply Balance

 

 

 

 

adequate size, color, and L‘
inportant trends including
well as very effective, cor
requirements.

The most fundam
Consumers want crisp, t2
tolerant of soft or mushy
apple is often less of a on

The trade, i.e.,
consumer demand in qn
to influence the terms 0
increasing concentratio
because some segment
0f quality improvemer
testing the quality of f

demanded that apples
quality Characteristics

A major piec

with its dominate p05

We of providing unit
fueled consumer ant
apple regions must 1
Mining fresh may
The fresh n

a 1 -
pp e Indus“y, bee

131
adequate size, color, and uniformity. These rising quality requirements are caused by several
important trends including increasingly stringent quality demands by the trade and consumers as
well as very effective, competitive responses by the Washington apple industry to these demand
requirements.

The most fundamental cause of rising quality requirements is consumer demand.
Consumers want crisp, tasty apples (Ricks et al, 1995). Consumers seem to be becoming less
tolerant of soft or mushy apples that relates to the condition of the apples, while price of the
apple is often less of a concern, at least to many consumers than quality.

The trade, i.e., retailers of apples to consumers, are to some extent aware of increasing
consumer demand in quality and are responding. The retail trade has increasing market power
to influence the terms of trade with suppliers including quality demands. This is due in part to
increasing concentration of the trade customers, i.e. , retail chains are merging, and partly
because some segments of the apple industry are responding very effectively with a progression
of quality improvements. Many individual retailers have also responded by more stringently
testing the quality of fruit condition of purchased fruit. Furthermore, retailers have often
demanded that apples have long shelf life, i.e. , that they retain excellent condition and other
quality characteristics while sitting on the grocery shelf at room temperature for several days.

A major piece of the rising quality requirements is that the Washington apple industry,
with its dominate position in the U.S. fresh apple industry, has been doing a high performance
job of providing uniform, consistent quality apples with good condition and maturity. This has
fueled consumer and trade expectations in regards to quality from all sources. Therefore, all
apple regions must respond, or they may not be part of the fresh market -- or at least face
declining fresh market demand.

The fresh market share is very important for a U.S. apple region, like the Michigan

apple industry, because the fresh apple market provides the potential of higher returns than the

 

 

 

 

processing market. It has
position in fresh market it
investment costs for new
even to maintain it currer
This driving for
continue and perhaps in
will expect the apples to
especially the Washingt
quality to meet these cc
quality improvement st
tasty apples for this co:
Underlying fo
imitttrtance of the nati
having large volume ;
desired to capture inc
largely take market s
Ctimpetitive With app
acoHumidity by cus
One import:
Wilmington apple if
demand. All on-gn
enabled Washingto
price prelim-title rel

indicates that the ‘

132
processing market. It has been mentioned by some industry leaders that a successful competitive
position in fresh market is necessary to generate the necessary returns for paying off the
investment costs for new plantings. Hence, for the Michigan apple industry to grow or likely
even to maintain it current position, it will likely have to be meet fresh market quality demand.

This driving force is further likely to increase in the future. Consumers will likely
continue and perhaps increasingly expect a consistently tasty, crunchy apples, while the trade
will expect the apples to retain their quality in the store at room temperature. Some industries,
especially the Washington apple industry, are proactive and effective at providing the needed
quality to meet these consumer needs. Overall an industry will need to develop a progression of
quality improvement strategies to have the ability to consistently deliver uniform, high condition
tasty apples for this competitive environment.

The . . 1e Market i i r‘ n e Slow Growin and Ma re

Underlying forces within the U.S. apple market are its growth prospects as well as the
importance of the national supply and demand balance. U.S. apple markets can be described as
having large volume and growing at mature, slow rates. Therefore, if a regional apple industry
desired to capture increased market share or increasing marketed volume, then it would need to
largely take market share or volume from competitors. The markets are highly price
competitive with apples from various apple regions and supplier firms being viewed primarily as
a commodity by customers.

One important feature of the fresh apple market is the improvement efforts by the
Washington apple industry, especially in regards to quality, to more effectively meet customer
demand. An on-going series of quality improvement efforts by the Washington industry has
enabled Washington to market superior quality, and Washington fresh apples consistently receive
price premiums relative to apples produced in other U.S. apple producing regions. This

indicates that the Washington apple industry has achieved some level of perceived differentiation

 

 

 

with the trade and consurr
tool by Washington State
mm
In recent years, t
markets over half the app
producing industries (Ne
U.S. fresh market volur
greater fresh market prt
industry has further ins
quality expectations ant
competitive position.

A regional app
Wmhington apple indr
lmPaets upon the othe
Washington apple ind
need to effectively ar
apple industry, espec
W

Changing V:
in Wery stores an
JWmgold. These nt
retain their conditit
varieties, Tim w
Red Delicious van

because of their 01

 

133

with the trade and consumers. Furthermore, this differentiation feature seems to be an effective
tool by Washington state apple marketers in increasing their sales volume and market share.
WWW—Mamet

In recent years, the Washington apple industry’s fresh market share has grown so that it
markets over half the apples sold to the U.S. fresh market. The next three largest apple
producing industries (New York, Michigan, and California) each market about 10 percent of
U.S. fresh market volume. This means that the Washington apple industry has a substantially
greater fresh market presence than the other regional apple industries. The Washington apple
industry has further instituted a number of progressive quality improvements that have raised the
quality expectations and requirements in the marketplace and have improved Washington’s
competitive position.

A regional apple industry, like Michigan, needs to continually be aware of the
Washington apple industry's strategies. Washington apple industry strategy can have substantial
impacts upon the other regional industries. Of special interest is the quality levels that the
Washington apple industry establishes in the marketplace. Other regional apple industries will
need to effectively and appropriately respond to the competitive challenge of the Washington
apple industry, especially if they want to be an increasing part of the fresh market.

Changing Variegy Preferences

Changing variety preferences include a shift by consumers towards more variety choices
in grocery stores and newer, superior varieties for fresh such as Fuji, Braebum, Gala, and
Jonagold. These newer varieties generally have excellent crispness, good taste, and usually
retain their condition in storage and on the store shelf better than some of the long-established
varieties. Even though these newer varieties tend to have less all-red color than the traditional
Red Delicious variety, consumers are often willing to pay substantially more for these varieties

because of their other superior attributes. This is an important shift from earlier consumer

 

 

 

 

demand in the 19805 that
Smith in many areas of ti
The changing c0l
perennial crop like apple
difficult and expensive ti
also offer the possibility
substantial opportunities
In a regional a;
ways to provide inforrr
It also highlights the in
climate and other grov
mm
' International 1
international trade po
world incomes in sor
the US, apple indus
substantial export 01:
Large inlpor
market. This can It
Pleduction that is SI
not good enough t c
0r sauce,
World mar
indUStry has incre:

are expected to gr

134
demand in the 19808 that primarily favored Red and Golden Delicious with perhaps Granny
Smith in many areas of the U.S.

The changing consmner demand for new varieties is particularly important for a
perennial crop like apples. Long-term orchard investments can last several decades and make it
difficult and expensive to shift varieties. The changing preferences increase risks for grower but
also offer the possibility of some high returns. Therefore, this driving force presents both
substantial opportunities and challenges to the industry.

In a regional apple industry, changing variety preferences provide impetus to explore
ways to provide information on future variety preferences for better variety planting decisions.
It also highlights the importance of developing or adapting the high return fresh varieties to the
climate and other growing conditions of Michigan.

Intennatinnal Maskets are increasingly Important

‘ International markets are becoming increasingly important for the apple industry as
international trade possibilities are expanding. These expanding opportunities relate to rising
world incomes in some countries and reduced trade barriers due to GATT and other efforts. In
the U.S. apple industry, the U.S. imports 50-60 percent of total apple juice consumed and has
substantial export opportunities in the fresh market.

Large imports of apple juice concentrate reduce the overall price for juice in the U.S.
market. This can negatively affect the return to U.S. apple growers for the portion of their
production that is sent to the juice market. U.S. apples are usually juiced when their quality is
not good enough to meet requirements for fresh or other processing markets such as apple slices
or sauce.

World markets for apples are also of growing importance because the U.S. apple
industry has increased its exports substantially for fresh apples and future export opportunities

are expected to grow. The Washington apple industry has been most successful in exporting to

 

 

such countries as Taiwan
exporting the Empire var
been important in the mat
increased effective overa
An important fer
different quality prefere
strong demand in the U
example, in the Brazili:
apple producing regior
markets to earn higher
ability to target the qu
adequate supplies.
mailman
Successful pt
considerable damage
control methods our
concern about pestit
important force as p

““393! threaten e:

pesticide tools,

The pestic
There are increasi

government set to

federal legislatior

135

such countries as Taiwan and Mexico. The Michigan apple industry has been successful in
exporting the Empire variety to England and recently in exporting to Brazil. The exports have
been important in the national supply demand balance because in the aggregate they have
increased effective overall demand and prices in comparison to prices with no or lower exports.

An important feature about export markets is that the different export markets have
different quality preferences. This can mean that a type of quality pack, that may not be in
strong demand in the U.S., may have appreciable demand in certain export markets. For
example, in the Brazilian market non-full red color in Red Delicious is quite acceptable. An
apple producing region may be able to sort and send apples to various domestic and international
markets to earn higher overall returns. Capturing export market opportunities requires the
ability to target the quality requirements of foreign markets, good logistical capability, and
adequate supplies.
Succes 1 Pest C ntrol and Pesticide Availa ili Are Threatened Increa i Re lati 11

Successful pest control is important because insect and disease pests can cause
considerable damage to the quality and quantity of apples produced. Many of the effective pest
control methods currently available were developed in an era when there was relatively limited
concern about pesticide use and regulation. In recent years, pest control has become a more
important force as government regulations with potential for large negative impacts on the apple
industry threaten existing pest control methods and the availability of crucially necessary
pesticide tools.

The pesticide regulations are related to public environmental and food safety concerns.
There are increasing pressures at the public level for less use of pesticides. This has reduced the
government set tolerances for some pesticides while banning the use of other pesticides. Recent

federal legislation on minor crop (e.g., apple) uses of pesticides is likely to further reduce the

 

 

 

availability of important p
industry to continue to su
These pesticide r
the apple industry in gen
with superior attributes i
then the apples may be ]
public view of apples as
demand damaging even
develop effective, inexr
While pesticide
more important in the
government regulatior
regional industry to p:
imiddling pest contrr
programs, and for de
such research and op.
able to Tilliekly reSpc
continue to produce
W
TeCilnologi.
my an apple indus
exarnple, changes 5
mm“, the Yielt
marketing, imbrm

136
availability of important pesticides that with current technologies are crucial for the apple
industry to continue to supply the high quality apples required by the market.

These pesticide regulations may indirectly and eventually provide some overall benefit to
the apple industry in general. As pesticide use is reduced and if newer pesticides are developed
with superior attributes in regards to food safety and worker risks or the environment concerns
then the apples may be perceived by consumers more positively. This could further enhance the
public view of apples as a heathy product as well as aiding in the prevention of future possible
demand damaging events such as the Alar scare. Furthermore, research may be able overtime to
develop effective, inexpensive alternatives to some pesticides currently in use.

While pesticide availability is currently a major driving force, it could become even
more important in the near future. It is quite possible and seems highly likely that future
government regulations may accentuate the importance of this factor. It is important for a
regional industry to prepare for this possibility. This increases the priority of research on
improving pest control technologies, e. g. , more effective Integrated Pest Management (IPM)
programs, and for developing a series of complex non-chemical pesticide alternatives. A goal of
such research and other related strategies on pest management would be for the industry to be
able to quickly respond to the changing government regulations in order that the industry can
continue to produce the quality demanded and expected by the market in a cost effective manner.
Technnlngical Changes and Mndemizntinn

Technological changes and modernization have important impacts upon all phases of
how an apple industry goes about producing, marketing, and distributing its products. For
example, changes in orchard planting systems and rootstock can improve the quality of apples
produced, the yields per acre, and improve flexibility in variety planting decisions. In
marketing, improving packing house technology can aid in more effective quality sorting and

control. This means that technological changes are having important impacts.

 

Improving technc
govemment regulations.
controlling pests while It
these types of benefits.

lrnproving techr
competitive needs. For
condition testing for apj
eventually permit the rt
an apple industry needs
technology t0 improve
The national 3

“mm An apple ind
Of these important eff
long-fem trends and
The long ten
Willing demand it
markets are increasi
From year t

“9011811 and nation;
whether in a Partict
regional apple in (in

Year of an overall ,

137

Improving technology may allow the industry to reduce costs and meet certain
government regulations. IBM is a set of effective technologies that reduce the use and cost of
controlling pests while maintaining adequate quality. Improving spray technology also provides
these types of benefits.

Improving technology will be important since it helps the industry respond to
competitive needs. For example, in the future there is the possibility of non-destructive
condition testing for apples that could improve quality management. Biotechnology may
eventually permit the radical alteration of biological capabilities in apple production. This means
an apple industry needs to be alert to improving technological and exploring ways to use
technology to improve industry performance.

Natinnal Supply-Demand Balance

The national supply-demand balance plays an important role in prices and grower
returns. An apple industry needs to be alert to the changing supply and demand balance because
of these important effects. The two key facets in the national supply-demand balance are the
long-term trends and short term fluctuations around those trends.

The long term trend in the national supply-demand balance is that there is slowly
increasing demand for both fresh and processing along with increasing supply. International
markets are increasingly important due to increasing fresh exports and substantial juice imports.

From year to year, regional production is strongly affected by weather. This causes
regional and national production to fluctuate. Returns to a region are to some extent based upon
whether in a particular year the region had a short, average, or large crop. The best returns to a
regionalapple industry are achieved in those instances when there is a large regional crop in a

year of an overall short U.S. apple cr0p.

 

 

4.2.2.1.6 Key Success?
Key success fact
developing the compete:
areas that have the mos
economically viable. A
industry to aid in under
was developed as a syr
Task Force. The follc
Table 4-2.
mun
Given the ma
modern marketplace
re(illirements are not
likely fresh market s
quality requirements
time, a continuing e
The quality
such as Red Delicit
human that app}
other nportant qu
' absence
. ull'lfOrn
‘ mediur
' freedo:

° desirab

138
4.2.2.1.6 Key Success Factors

Key success factors are those areas where the industry must be competent or focus on
developing the competence for the industry to be successful. The key success factors are those
areas that have the most direct bearing on the ability of the industry to be competitive and
economically viable. An analysis of key success factors was developed for the Michigan apple
industry to aid in understanding where the industry needed to focus its strategies. The analysis
was developed as a synthesis of the other elements of situational analysis and discussion with the
Task Force. The following sub—sections discuss each key success factor which are listed in
Table 4—2.

Consistent Fresh Oualitv That Meets Modern Buver “ ‘ ‘

Given the major driving force of increasing quality requirements, it is essential in the
modern marketplace for fresh apples to meet increasingly high quality requirements. If quality
requirements are not met consistently, then the region will lose fresh market customers and
likely fresh market share. Given this, it is important for a region to strive to meet the fresh
quality requirements of the marketplace. Since these quality requirements are be increasing over
time, a continuing effective effort at improving quality management is important.

The quality requirements for fresh markets include high red color for certain varieties
such as Red Delicious as well as other quality characteristics. In recent years, it is increasingly
important that apples be consistently crisp that is achieved by having good condition. Additional
other important quality requirements include:

0 absence of bruising and pest defects

0 uniform size and color

0 medium to large size

0 freedom from internal breakdown

0 desirable shape especially for certain varieties, such as, Red Delicious

 

 

 

Table M. Key Succe
0 Consistentl
0 Ability to S
0 Ability toS
0 Visionary,
0 Strong Ind
and Resea

0 Modern lv
0 A Strong
0 A Cost-C
Deliveret

' Consistei
Processi

0 Adequat

139

Table 4-2. Key Success Factors for a U.S. Regional Apple Industry

 

Consistent Fresh Quality That Meets Modern Buyer Requirements
Ability to Supply the Types of Packs Demanded by the Market

Ability to Supply the Varieties Desired by the Market

Visionary, Progressive Leaders with a Broad Industry Focus

Strong Industry Programs for Advertising, Promotion, Merchandising,
and Research

Modern Management for Growing, Packing, Storage, and Shipping Practices
A Strong Customer Orientation

A Cost-Competitive Region with Competitively Priced Products (on a
Delivered Basis)

Consistent, Large Volume and Well-Linked Combination of Fresh and

Processing Marketing

Adequate Industry Input Suppliers

 

 

There are some difficult
levels due to weather va
To consistently
quality management syr
harvest, transportation,
receive. This quality r
performance in meetin
unscrew
A regional ap
market. At the curre:
apples that will be pr
use of modern packi]
Sort to various unifo;

latest PaCking house

process.
mutton]
One of the
preferring certain I
excellent condition
the new varieties v
new variety and at
short run returns.
practices for that
It is not a

high realms beca

140
There are some difficulties for some regional apple industries in achieving the required quality
levels due to weather variability and other effects.

To consistently meet modern buyer requirements, it is necessary to have an effective
quality management system. The system should encompass all relevant parts of the production,
harvest, transportation, packing, and distribution system that effect the quality that buyers
receive. This quality management system should be able to consistently achieve high
performance in meeting the quality requirements of the marketplace.

Ability to Supply the Types pf Pack Demanded by the Market

A regional apple industry needs to have the ability to supply the packs demanded by the
market. At the current time, this means that the industry needs to be able to pack trays, i.e.,
apples that will be primarily sold in bulk displays at retail. Effectively packing trays requires the
use of modern packing facility technology. This equipment and technology enables packers to
sort to various uniform sizes and color to meet the requirements of particular customers. The

latest packing house technology also protects against damage from bruising during the packing

process.
Abilig tp Sppply thg Varieties Desired in the Market

One of the major driving forces in the U.S. apple industry is that consumers are now
preferring certain new varieties with preferred quality characteristics such as good taste and
excellent condition. A key success factor for a regional industry is hence being able to deliver
the new varieties with the required quality characteristics. If a region is able to quickly plant a
new variety and achieve the required qualities, then the region may be able to earn exceptional
short run returns. For success with a new high return variety, the variety and production
practices for that variety will need to be well adapted to the growing conditions in a region.

It is not always clear which of the new varieties will be the ones that generate future

high returns because-there are a number of new varieties and the future trade and consumer

" “*4

 

 

demand is somewhat at
particular new varietier
particular new varietie
This information can a
varieties.

Visionary, p]
important factor for
industry needs to be
accomplished for th
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future competitive
‘0 try to compete v
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demand is somewhat uncertain. Developing information on changing demand conditions for
particular new varieties can help alert growers in a region to expected opportunities with
particular new varieties and suggest adoptions in varieties planted to meet changing demands.
This information can also aid research efforts in adapting regional production systems to the new
varieties.
Visionag, Progressive Industgg Leaders with a Broad Industg chus

Visionary, progressive leadership in a regional commodity industry can provide an
important factor for its success. This leadership should have visionary capability of where the
industry needs to be in the future to improve industry performance and what steps need to be
accomplished for the industry to get there. Progressive leadership can help to focus attention on
needed areas of change and push for needed adjustments. This can help prepare the industry for
future competitive success. Not having visionary, progressive leadership can cause an industry
to try to compete using strategies or approaches that are less appropriate and effective for current
or future competitive conditions.

The effectiveness of industry leadership can be enhanced with a broad-based perspective.
This means that it is desirable for the leaders to have appropriate vision beyond the needs in their
own firm and/or organization to include the needs and strategies for the overall industry and
what the basis for the industry's future competitive advantage may be. This can help the
industry as-a-whole recognize which particular adjustments need to be made. A broad-based
perspective can further aid the industry in developing and implementing broad-based industry
actions, such as perhaps a new marketing order or new industry organization, that can aid
industry's performance.
Str 11 n ust r ram for verti in P ti n Merchandi in and Re arch

Having strong industry programs for generic advertising, promotion, merchandising,

and research can provide numerous potential benefits for a regional apple industry. Regions that

 

 

are increasing in prodr
programs like this. H
industry assessments i
Advertising, j

efforts to promote ne
perhaps in the export
industry's customers
Consumer 11
merchandising and 1
research can idemif
adjustments in the i
can use this infolm
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facilitate deve10prr
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incorporating m
dynamic fashiol

142
are increasing in production, (i.e. , Washington, New York, Michigan, and California), all have
programs like this. Having these kinds of programs in place usually requires some sort of
industry assessments within the regional apple industry to fund the programs.

Advertising, promotion and merchandising are important. They can include targeted
efforts to promote new industry products, expand existing markets, and develop new markets
perhaps in the export arena. In order to benefit the industry, a goal is to communicate to an
industry's customers the desirable attributes of the industry’s products.

Consumer market research can provide an important informational base for effective
merchandising and promotion for changing customer and market needs. The consumer market
research can identify important trends in changing customer needs and point the way for needed
adjustments in the industry’s product mix and other strategies. Firms and industry organizations
can use this information in making suitable adjustments.

Research programs for a regional apple industry are also important because they may
facilitate development and adaptation of new technologies, practices, market research, and in
some cases develop new strains that are appropriate to a regional industry and its growing
conditions. This can aid firms by enabling them to more quickly respond to market incentives.
Adapting technology can aid firms in many areas including lowering costs and improving quality
management practice.

M o r _ anae et 0 _ 1e ive rw_in _‘a 'n_ trae nd ' ' : Pr ics

It is important that a regional apple industry have throughout all segments of the industry
a critical mass of growers, packers, storage operators, and shippers who are using and applying
the most effective modern management methods in their operations. This should include
incorporating new improved technologies and implementing needed changes in an ongoing
dynamic fashion. Operations need to be preparing for future needs and the competition of the

future rather than only based on how business has been conducted in the past.

 

 

tr n
An industry 116'
modern market require
because markets are b
is in marked contrast 1
With a “production“ a
better low cost job of
industry produces. I
selection of possible
and consumers are c
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AMEN
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FurtherInOre, :

143
r ri nt ti n

An industry needs to have a strong consumer orientation in order to effectively meet
modern market requirements. Having a strong customer orientation is especially important
because markets are becoming increasingly segmented and are under considerable change. This
is in marked contrast to the traditional "production" orientation in some agricultural industries.
With a "production" approach, an agricultural industry tends to focus their efforts on doing a
better low cost job of production while consumers are assumed to want and buy whatever the
industry produces. In the current marketplace, consumers and trade buyers have a wide
selection of possible choices, consumer preferences are continually making substantial changes,
and consumers are constantly demonstrating their preferences for the best products and services
that most closely meet their needs.

One aspect is that an industry needs at least some market research for understanding and
properly addressing changing customer needs. For the apple industry, this needs to include
market research on the trade that purchases the industry's apples as well as on the final
consumers. This may include market research on current needs and preferences as well as
indications of expectations about future customer demand that could aid in the industry’s plans
for the future.

Increased responsiveness to consumer needs through effective performance in meeting
these consumer needs is a key basis for the long term future success of an industry. Therefore,
one key success factor is to be aware of and then effectively respond to these consumer needs.

a 0 - ouo‘g‘i'éog J on." 3'0 m, - n.|-")"I:._,
A key success factor for the industry is to continue to be a cost competitive region with
competitively priced products on a delivered basis. Being cost competitive helps enable a region

to be profitable because costs play an important role in determining overall profitability.

Furthermore, a key aspect of being cost-competitive is to be able to deliver apples to particular

 

 

 

 

 

markets that are compt
aspect of gaining marl
sold. Hence, efforts t
profitability and perfc
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144

markets that are competitively priced on a delivered basis because price or cost is an important
aspect of gaining markets and market share in the many markets world-wide where apples are
sold. Hence, efforts to reduce cost of production and marketing are important to an industry‘s
profitability and performance in meeting customer needs.

Woman

An adequate group of industry input suppliers who provide the needed specialized
technology such as fruit machinery and other key inputs that support the industry is another key
success factor. This can aid the industry in adapting technology and other inputs to achieve high
industry performance. This helps enable a quicker, more cost effective response by the industry
to changing market needs. This factor is especially important in a modern, high-technology
economy in which the most effective set of technologies and specialized inputs are important for
an industry's competitive advantage.

0|, '. .-_“ 0.-"‘21' ‘-_ 1“. Q"...,.'. -.,_..’.A- “U,‘

Having a consistent, large volume with a well-linked combination of fresh and
processing markets is important for a number of reasons. Having a large volume is important
because it provides a substantial critical mass of apples to have a continued presence in
individual market segments. Consistent supply is important because supply volatility adds risk
throughout the industry, hurts market development for the industry, and allows competitors to
take market share —- especially when the region has short supplies.

Linking fresh and processed markets provides an important diversity of market outlets
for industry's production. In the apple industry in which there is some variability in quality as
affected by weather conditions, etc. , some apples will not meet the quality requirements of the
potentially higher return fresh market segments. Having good processing outlets with reasonable

prices received by the industry provides desirable markets to help the producers in an industry

 

 

 

 

 

 

 

to achieve some reasor
markets.

It is important
high quality requirem
market, but are satisf
sufficient quality to d
over the juice proces
4.2.2.1.7 Summary

The situatio
Task Force with co
WSW; its compe
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Several pc
mall. It woulr
all POSSible tools ‘
Situational analys
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4'2‘2'2 DEterr

A seco

Chapter 3 is tr

145
to achieve some reasonable return by marketing the lower quality apples to these processing
markets.

It is important for an industry to have both fresh and processing outlets, especially if
high quality requirements cause a substantial amount of apples to not qualify for the fresh
market, but are satisfactory for the processed market. Also, having substantial volumes of
sufficient quality to develop strong slice and sauce processing market can earn higher returns
over the juice processing market for the industry.
4.2.2.1.7 Summary of Situational Analysis

The situational analysis of the Michigan apple industry, which was accomplished by the
Task Force with considerable university input, provided a comprehensive understanding of the
industry, its competitive environment, and other main elements of the current situation of the
industry. This developed a foundation and a degree of shared understanding for developing
effective strategy based upon the situational analysis. ,,

Several possible tools for the situational analysis were used in the Michigan apple
industry. It would likely be expected, based upon the framework developed in Chapter 3, that
all possible tools might not be used in an ISPC process with a specific industry since the
situational analysis focuses only on those aspects that are of interest to strategy in a particular
industry context. The main tools used in apple industry case were shift-share analysis, SWOT
analysis (with some modifications), value chain analysis, some aSpects of competitor analysis,
analysis of major driving forces, and identification of key success factors. Transactions costs
analysis was not used explicitly but may be in the future. The tools used seemed to be effective
at developing an industry situational analysis for this case study industry.
4.2.2.2 Determination of the Industry's Vision Statement and Guiding Strategies

A second major step in the strategic planning phase of the framework developed in

Chapter 3 is to develop a vision statement and broad guiding strategies for the industry. This

 

 

 

can include goals and i
industry. This broad 1
appropriate major imp
(Step 4 in Strategic P1
In the Michig
strategic directions a1
summarize what has
4.2.2.2.1 The Gene
The ISPC fr

group to consider d:
Provide an overall 1
case, aspects relate
0“ a finalization of
because the indust
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4.2.2.2.2 Guidin;
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can define a key

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Growth Positio

One WT
growth goals fc

such goals by r

 

146
can include goals and overall methods for achieving a sustainable competitive advantage for the
industry. This broad perspective can help the industry in selecting the more specific and
appropriate major improvement objectives (Step 3 in Strategic Planning) and specific strategies
(Step 4 in Strategic Planning) to focus upon.

In the Michigan apple industry case, the Task Force developed and set some overall
strategic directions and worked on some Visioning for the industry. The next subsections
summarize what has been done in the Michigan apple industry case on this phase of ISPC.
4.2.2.2.] The Generation of an Industry Vision Statement

The ISPC framework of Chapter 3 indicates that there is usually a need for an ISPC
group to consider developing an industry vision statement. An industry vision statement can
provide an overall motivating statement for the industry's future. In the Michigan apple industry
case, aspects related to a vision statement have been discussed, but to this point a clear consensus
on a finalization of a specific vision statement have not been a high priority. Part of this is
because the industry has tended to focus on other specific issues or strategies which they
consider higher priority.
4.2.2.2.2 Guiding Strategies

The ISPC framework suggests that determining an industry's overall guiding strategies
can define a key aspect which can aid the industry in achieving competitive success and
economic viability. The framework indicates several types of guiding strategies for the industry
to use. In the Michigan apple industry case, these guiding strategies were addressed to some
extent.

Growth Positioning

One type of guiding strategy is for the group to determine what are the broad overall

growth goals for the industry in the various major market segments that it serves. Developing

such goals by market segment can be important because it indicates the market segments that can

 

 

 

 

 

 

 

 

be expected to grow, I
necessary to achieve t'
organizations in an in
be done to help achie
In the Michig
provided some base-
MSU analysts, and t
of their four main II
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Michigan aPol

\
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147
be expected to grow, maintain, retrench, or exit/end. Furthermore, specific strategies that are
necessary to achieve these goals can be identified. This indicates to firms and other
organizations in an industry the likely future for a market segment as well as what can or should
be done to help achieve that the outcome goals.

In the Michigan apple industry, information from shift—share and major trend analysis
provided some base-line input for the growth positioning step of ISPC. The industry leaders,
MSU analysts, and the Task Force analyzed current trends in each major market segment. Each
of their four main market segments (fresh, sliced, sauce, and juice) was evaluated to consider in
which market segment(s) industry attention would be most productive. A framing question in
this overall goal setting effort was "Which are the markets with the most growth potential? “.

Considerable discussion and some initial analysis were also made of possible specific
industry strategies for each segment to achieve these goals. This was accomplished through
discussions with industry leaders. These current trends and goals by market segment are
summarized in Table 4-3 26. These provide overall goals as guiding strategies for the Task Force
activities and suggest some overall key strategies that need to be accomplished to achieve the
identified goals in each market segment.

The fresh market segment was emphasized and given special attention by the Task Force
and by other industry groups. The fresh market segment was emphasized because this segment
of the market was judged by industry leaders to be an area where there are substantial
opportunities for the Michigan apple industry to grow and industry-level action would be
particularly useful.

A report was developed based upon the industry meetings and analyses that outlines the

Michigan apple industry strengths and needed strategies in the fresh market segment. The area

 

26 These goals were selected in 1993.

 

 

 

 

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27 F0
Beggs, and Iv

149

of consistently working towards improving quality management practice was an area especially
identified as important to industry action in the fresh market.

In summary, growth positioning at an early stage of the ISPC process helped to focus the
Task Force and other industry leaders to set realistic goals for the future of the industry for each
major market segment. One market, the fresh market, was targeted as one which offers
substantial opportunities for expansion. This helped the Task Force to focus attention and
strategic planning efforts towards this market segment.
Focus on Deve10ping Core Competencies

According to the framework developed in Chapter 3, core competencies are those areas
where the industry does something particularly well in comparison to competitor industries. A i.
core competency should provide an important competitive benefit and would ideally be difficult

for competitors to copy. Information on possible core competencies for the industry's future

 

may be based on information generated in the situational analysis. The overall emphasis is on
developing some core competencies for the industry that will enable the industry to compete
more effectively and add to the industry's long term strengths. The core competencies may
build upon earlier competencies or expand into new strategic competencies.

In the Michigan apple industry case, a primary area identified in which the Michigan
apple industry needs to further develop its core competence is in the area of high performance in

quality management including improved vertical coordination. As documented by recent

 

consumer market research, consumers expect apples that they purchase to be crisp, tasty, and
unbruised 27. Michigan's performance in the quality area has been somewhat mixed in the past,

which means that considerably greater emphasis is needed to gear up for this change that is

 

 

27 For more discussion of the consumer market research refer to Ricks, Heinze, and
Beggs, and Miklavcic (1995) and Ricks (1997).

 

 

 

 

 

crucial for future COII

industry in increasing

Determination of V:

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150
crucial for future competitiveness. Higher performance in quality management could aid the
industry in increasing domestic and export marketing opportunities.
Determination of Value Based Actions to Meet Customer Needs

The framework outlines that a useful guiding strategy to consider in ISPC is to
determine value based actions that are based upon an understanding of the value chain of the
industry. Knowledge about what creates benefits or value for buyers as well as what drives costs
for the industry are important main research components that may result from value chain
analysis. Value chain analysis can provide an overall perspective and clarify awareness of the
entire system of production, packing, shipping, marketing, and use.

A key linkage in ISPC should be between value chain analysis and the selection of
appropriate strategies that will provide high performance in meeting the customers’ value needs.
In. the Michigan apple industry case study, one main aspect of value chain analysis focused upon
what was of priority value to customers. The value chain analysis generated several important
aspects that included:

0 More consumers prefer to buy their apples in tray pack rather than in bags.

0 There is increasing demand for superior new varieties with good taste,

crispness, and shelf life.

0 Consumers have strong preferences for unbruised, high condition/crunchy apples.
These provided a part of an important informational base for analyzing how to improve the
Michigan apple industry's value chain to supply the qualities, varieties, and types of pack
demanded by the market. Many of the major improvement objectives developed in the Task
Force had this goal in mind. The major irnprovement objectives of improving quality
management, increasing tray pack, and responding to changing variety preferences were all part

of the value based responses planned by the Task Force.

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One major focus of the Task Force has been in the fresh quality area, since this has been
viewed as an essential aspect for creating value and meeting consumer demand. The quality area
has been discussed at almost every Task Force meeting. A strategy to evaluate the entire
vertical system of production-marketing, Total Quality Management, for the Michigan apple
industry has been proposed and is being evaluated.

Overall, focusing on value adding actions helped the industry to decide on what is of key
importance to competitive advantage. In the Michigan apple industry case, this has helped to
focus attention on key areas, e.g., quality improvement, variety selection, etc. Further efforts in
the Michigan apple industry in increasing value generation would be improved as the value chain
analysis is extended through how the industry creates value.

Selection of the Overall Mix of Differentiation and Low Price

Shifting the overall mix of differentiation versus low price for the industry's products
may be an important part of an industry‘s overall strategic direction. Such a shift in strategic .
emphasis may be due to expectations that buyer's will demand more or are willing to pay more
for differentiated products with less value received from low price products or vice versa.
Higher gross and net returns may also be generated through this type of shift. The ISPC
leadership group can analyze if such as shift is considered desirable and can emphasize strategies
that will aid in this adjustment.

In the Michigan apple industry traditionally the primary focus has been upon low price.
Quality levels in Michigan's apples were more variable than from some competitor industries,
but Michigan sold them cheap. Furthermore, Michigan had tended to focus mainly upon
marketing apples sold in poly bags that tend to be a low-price, higher volume commodity market
segment.

Recent consumer surveys of the Michigan apple industry's customers have pointed to the

need for possible altered emphasis in industry directions. Consumers are now willing to pay

 

 

 

 

 

 

substantially more to
purchasing decisions
for more of a differe
industry as a whole.
pack“.

In response
industry towards a ;
part of this, the Ta
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dependable 3“?

“R1

152

substantially more to get crisp, tasty, unbruised fruit. Price seems to be less of a factor in
purchasing decisions than previously. Thus, the market seemed to offer increasing opportunities
for more of a differentiation approach as compared to mainly a low price approach for the
industry as a whole. More consumers were also found to prefer to purchase apples in tray
pack”.

In response to these facts, the Task Force has focused upon facilitating a shift by the
industry towards a greater strategic emphasis on premium price-quality and types of pack. As

part of this, the Task Force decided that an overall emphasis on improving quality management

 

would be a beneficial focus. This would improve the ability of Michigan's firms to differentiate
to some degree through achieving the high condition fruit preferred by customers.

Two forms of differentiation, i.e., premium price strategies, that the Task Force has
focused upon are (1) the levels of particular quality characteristics to have, mainly condition, and

(2) the type of pack to produce, i.e. , trays or bags. The Task Force considered what could be

 

some useful shifts in overall production emphasis for the industry.

Increased quality in general, especially condition, was viewed as essential to success as
well as any attempt at increased differentiation by the industry. Meeting rising quality
requirements, especially in regards to condition, were seen as a necessary requirement for being
competitive in the fresh market. Furthermore, ways for the industry to be able to differentiate
based on quality and market high quality apples seemed to be promising.

The question of differentiation in regards to trays and bags was also considered. For the

tray market, the Michigan apple industry had a goal of expanding markets and become a

 

dependable supplier of the quality that the tray market requires. There was also indications that

 

28 Ricks, Heinze, Beggs, and Miklavcic (1995)

 

 

 

 

 

 

 

shifting more emph:
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apple industry achi
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aCtions focus

153
shifting more emphasis to tray pack marketing needs and requirements might be a useful guiding
strategy for the industry.

In the bag market, some in the Task Force have advocated the idea of the Michigan
apple industry achieving the reputation as being a superior supplier of bags. They argued that
achieving core competence in quality coupled with effective marketing could result in the
Michigan further developing a profitable niche as a superior supplier of bagged apples.

Within the Michigan apple industry, an increased awareness of the need for some shift in
emphasis from primarily low price to a more of a differentiation approach has grown. The Task
Force has focused upon facilitating this type of shift toward more differentiation in its focus upon
quality. Further considerations have focused upon being a dependable supplier of tray pack
apples.

Summary of Guiding Strategies

An industry's guiding strategies seek to describe the main overall competitive thrust of
the industry in the future. The ISPC framework developed in Chapter 3 identified four different
types of guiding strategies: growth positioning, core competencies, value based actions, and the
selection of the overall mix of differentiation and low price. The Michigan apple industry ISPC
group worked in each of these types of guiding strategies.

Each of the guiding strategies provided an important set of choices by the industry. In
growth positioning, market share and volume goals were developed for the fresh, slice, and
sauce market. Of these markets, the fresh market was identified as a market meriting a high
level of attention because of the especially good opportunities presented to increase value in this
market. To achieve the needed improvements in the fresh market, a core competency that
needed to be developed for the industry has been in the area of working towards continually
improving quality management including improving vertical coordination. Key value-based

actions focused on capturing opportunities with new varieties and in other areas. In the

 

 

 

 

 

differentiation versus l
of emphasis on differe
market opportunities.
seemed to offer usefc
improved competitiv
4.2.2.3 Determinal
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for the industry to c'
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154
differentiation versus low cost mix, the ISPC group indicated that somewhat increasing the level
of emphasis on differentiation versus low cost would probably be desirable based upon current
market opportunities. These guiding strategies were somewhat interrelated, but they individually
seemed to offer useful perspectives for the industry to consider in developing their strategies for
improved competitiveness in the future.
4.2.2.3 Determination and Prioritization of Industry Major Improvement Objectives

A third step in the strategic planning phase of the framework indicates that it is useful
for the industry to determine and prioritize major improvement objectives for the industry to
focus on in light of the overall strategic direction or vision for the industry. These major
improvement objectives are where the industry will focus considerable, consistent attention since
they have been recognized as high priority areas where industry strategy will be most useful.
Numerous strategies may be developed for each strategic area. The earlier elements of the ISPC
framework, such as the situational analysis, are helpful for this step in the ISPC process. since
they provide relevant information about the complex industry and the competitive markets.

As a part of the Michigan apple industry ISPC process, the Task Force spent some time
considering various major improvement objectives. A list of twenty or so possible major
irnprovement objectives was generated by the Task Force and other industry discussion for
possible focused attention by the ISPC leadership group. After substantial discussion and
evaluation that may be considered as related to earlier steps in the framework, the Task Force
decided to give some focus to the following major improvement objectives:

0 Quality Management for Fresh Apples

This area focuses on continually looking‘for strategies to improve the
quality management aspects within the vertically linked segments of the
Michigan apple industry to meet modern market and customer

requirements.

 

 

 

0 Variety Eve
The objec
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155
0 Variety Evaluation and Strategies
The objective of this area is to develop appropriate informational research
and strategies to enable Michigan growers and apple marketers to produce
and market the varieties that will provide the best returns to Michigan
growers through meeting various changing customer needs for varieties
including the retail trade, consumers, and processors.

0 Domestic Demand Expansion

 

In domestic demand expansion, the goal is to research current trends in
the U.S. market and develop and irnplement effective strategies to expand
Michigan’s market expansion performance working closely with the
MAC, which is the Michigan apple industry generic demand expansion
organization.

0 Pest Management Threats and Issues
This area has the objective of considering and evaluating current pest
management threats and issues and to develop appropriate pro-active
industry strategies to meet or exceed current and future regulations in a
cost effective manner.

0 Export Expansion Programs
An important objective is to identify key potential export markets and to
develop strategies to facilitate high performance in export expansion.

0 Increased Marketing of T ray Pack
In expanding emphasis on tray pack, the objective is to consider strategies
that will improve the Michigan apple industry's ability to increase tray

pack volume in a profitable manner.

 

 

 

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156
O Facilitating and Prioritizing Needed Research

The objective is to identify research priorities that need to be

accomplished, communicate these research needs to appropriate

organizations, such as, government agencies, and facilitate appropriate

responses by non—industry organizations.
These major improvement objectives have been focused upon at many Task Force meetings
because of their especially high potential to improve industry performance. Strategies for each
strategic area have been developed as the next section discusses.
4.2.2.4 Development of Specific Strategies for Facilitating Needed Improvement

The ISPC framework indicates that a fourth step in the strategic planning phase is for an
ISPC group to develop specific strategies to facilitateneeded improvement in the industry.
These are the specific strategies that particular group(s), individual(s), etc. within the industry
can do to achieve the desired industry objectives.

The Task Force has considered a number of specific strategies to aid the industry. Many
have focused upon the major improvement objectives that were previously selected as part of the
ISPC process, while others were more situationally prioritized as opportunities unfolded.
Alternative strategies were developed from the situational analysis, overall major improvement
objectives, Task Force discussions, suggestions from leaders and MSU analysts, etc. Based on
these discussions, and in some cases further analysis, the strategies were discussed by the Task
Force, and in some cases recommended for implementation by an apprOpriate industry
organization or segment.

Possible specific strategies were screened to see if they should be supported by the Task
Force. Several questions were used to screen if specific strategic would be worthwhile for the

Task Force to support or pursue:

0 Can it be readily accomplished?

 

 

 

 

157

0 Will it have positive benefits?

0 Will it make a significant difference?

0 Is it adequately supported by the appropriate industry segment?

These screening questions have been useful in prioritizing and selecting strategies where a
certain amount of industry-level action would be most useful. I

The Task Force has developed many strategies for the major improvement objectives.
Table 4-4 shows the breakdown of strategies supported by the Task Force for each strategic
area. This indicates the high level of attention and expected future improved performance in
these areas.

Quality management for fresh apples has had the greatest overall number of delineated
strategies and has been discussed at almost every Task Force meeting. The area of quality
management and industry efforts in this area are so complex and critical that they will be
discussed in detail in the next major section of the chapter.

Another observation from the Michigan apple industry is that the various strategies
selected for implementation seemed to fall into four relevant categories:

1) strategies to develop information that will influence implementation by

individual firms

2) strategies selected for industry organizations to implement

3) strategies to communicate with non-industry organizations

4) strategies to develop or modify market rules and regulations
An illustration of a number of proposed strategies into these four types is provided in Table 4-5.

One type of strategy proposed by the Task Force was for industry organizations to
develop key information for use by firms within the industry (Type 1). This type of strategy was

the most commonly proposed and emphasized. Informational items for firms to use included the

 

%

 

 

158

Table 44. Major Strategies Supported by the Task Force

re' f M'rIndut Imrvmn ' v

0 Quality Management for Fresh Apples
I Total Quality Management (TQM)
- Maturity Information Program
- Pre-Harvest Workshops
- Bringing in a TQM Expert Consultant
I Premium Grade Standards
I Mandatory Minimum Quality Standards
I Developing Pilot Management Practices and/or HAACP Programs

Variety Evaluation and Strategies
I Information on Consumer Demand. for Varieties
I Shipper Survey on Future Fresh Variety Demand
I Processor Survey on Future Processor Variety Demand
I Analysis of Trends in Production by Variety

Domestic Demand Expansion
I Developed a 5 Year Strategic Plan by the Michigan Apple Committee
I Increased Funds for the Michigan Apple Committee
I More Consumer Market Research

Pest Management
I An Apple Industry Stewardship Plan on Pest Management and Pesticide Issues
I Efforts to Secure Funding for Integrated Pest Management Research

Export Expansion
I Work with Other Regions Through the U.S. Apple Export Council
I Sponsor Industry Visits to Promising Foreign Markets
I Work to Enable Access to Targeted Foreign Markets
I Develop Protocols to Overcome Phytosanitary Trade Barriers

Increased Marketing of Tray Packs
I Information on Opportunities and Economic Returns for Packing Trays
I Encourage Continued Packinghouse Modernization
I Encourage Continued Orchard Modernization and Management for More Tray Pack
Quality Fruit

Facilitating and Prioritizing Needed Research
I Industry Survey Information
I Support Actions to Retain an ARS position in Michigan
I Efforts to Obtain Federal Fireblight Research Funding
I Priorities for Needed University Research and Extension

 

 

 

159

Table 4-5. Types of Strategies Supported by the Task Force and Implementation
W
(1) DEVELOP INFORMATION FOR FIRMS TO IMPLEMENT
0 Total Quality Management (TQM)
- Pre-Harvest Workshops
- Maturity Information Program and Harvest Timing

- Bringing in a TQM Expert

- Develop Pilot Management Practices and/or HAACP Programs
0 Varieties for the Future
- Processor Survey of Future Processor Variety Demand
- Shipper Survey on Future Fresh Variety Demand
- Information on Consumer Demand for Varieties
- Analysis of Trends in Production by Variety
0 Information on Incentives for Packing Trays
(2) DEVELOP STRATEGIES FOR INDUSTRY ORGANIZATIONS TO IMPLEMENT
0 MAC 5-Year Program Plan
0 Increase Funding for the MAC
0 More Consumer Market Research (parts also relate to (1) above)
I Work to Enable Access to Targeted Foreign Markets
(3) COMMUNICATE WITH NON-INDUSTRY ORGANIZATIONS
I Priorities for Needed University Research and Extension
0 Efforts to Secure Funding for [PM Research
0 Support Actions to Retain an ARS Position in Michigan
0 Efforts to Obtain Federal F ireblight Research Funding
(4) MODIFY on DEVELOP MARKET RULES AND REGULATIONS
0 Develop a Premium Grade Standards for Fresh Apples
0 Possible Mandatory Minimum Quality Standards for Fresh Apples

 

 

 

 

160
Maturity Information Program, a set of strategies to accomplish Total Quality Management,
information on quality incentives, information on consumer demand, etc.

Some strategies proposed by the Task Force were for strategies for industry
organizations to implement (Type 2). Within the strategy selection context, it became clear that
certain strategies would best be accomplished by particular industry organizations because the
strategy would help achieve the objectives of the industry organization. Commonly, the industry
organizations volunteered to implement the strategy that had been analyzed discussed and agreed
upon by the Task Force.

Another type of strategy focused on communicating industry needs to non-industry
organizations. In this, the Task Force recognized that it would be useful if certain research
needs were accomplished and decided to communicate the needs to the appropriate non-industry
organization, such as, the USDA.

A fourth type of strategy focused on new approaches to develop or modify existing
market rules and regulations. These strategies had the goal of improving the playing field or
overall marketplace in which the industry operated.
4.2.2.5 Summary of the Strategic Planning Phase

The strategic planning phase of the ISPC framework indicates that several steps are
useful in selecting industry strategies that are most likely to improve performance. The process
of strategy selection is grounded in the situation the industry is facing, as developed in the
situational analysis, while key choices are made in choosing guiding strategies and selecting
major performance objectives. Furthermore, because the ISPC group, comprised of various
industry leaders, has agreed on the specific strategies with substantial communication with the
industry, this means that a substantial level of consensus support for the ISPC strategies may
have been achieved. The strategies selected are intended to be those most likely to improve

performance and to be implemented.

 

 

 

 

 

 

161

In the Michigan apple industry case, each step of the strategic planning phase was
accomplished - although to varying degrees. The activities and choices in the steps of the
strategic planning phase seemed to be useful in selecting specific strategies which were most
likely to improve industry performance and were likely to be implemented due to the consensus
developed in the ISPC group through the ISPC process. The strategic planning phase seemed to
be a useful and effective approach.

4.2.3 Implementationand Coordination of Specific Strategies

The framework suggests that a third phase in an ISPC process should focus on
implementation and coordination of specific strategies. In this, an ISPC group can recommend
that certain specific strategies be implemented by appropriate firm(s) and/or industry
organization(s) and the ISPC group can serve in a valuable coordinating role. Ultimately, an
ISPC process will have limited effectiveness if the strategies that are viewed as having the best
potential for improving the performance of the industry are not implemented. Further,
considering that many ISPC strategies have strong public good characteristics, it would be
expected that strategies that require the industry as a group to support an action and supply
needed resources, i.e. , broad-based industry actions, would be difficult to get implemented.

As discussed in the section on strategy selection, there have been a number of strategies
deveIOped by the Task Force for improved industry performance. A common feature of these
strategies has been that each strategy is often accomplished by a group of firms and industry
organizations working together. Different groups may form to work on different strategies. For
example, the strategy to expand exports has been implemented by the U.S. Export Council,
shippers, MAC, U.S. Apple Association, MSU, and USDA. The strategy to increase the
assessment of the MAC was implemented by the MAC and Michigan Department of Agriculture.

Often one of the industry organizations may take the lead in implementing a strategy.

For example, the MAC led efforts to increase funding for their programs. The lead organization

 

 

 

 

 

 

 

 

Hit-u

162

is likely to provide the key push for the ISPC strategy as well as perhaps much of the resources

such as staffing and funding for the strategy.

 

Three strategies that were supported by the Task Force but were not implemented:
0 Expert Consultation for TQM
0 Premium Grade
0 Minimum Mandatory Quality Standards
These strategies have not been implemented to date. The reason why these strategies were not

implemented was due to the lack of consensus support for these strategies within the broader

 

 

industry. Part of the difficulty in implementing the premium grade and minimum mandatory
quality standards was the result of the fact that they focused on changing market rules and
regulations that would impact most industry participants and would require broad-based industry
support. Hence, they would be expected to be particularly difficult to implement, as indicated
by the framework, because they would require substantial industry consensus support for these
broad-based strategies as compared to strategies not requiring such an extensive industry

consensus. Further analysis of the lack of implementation or "implementation failure” will be

 

presented later in this chapter.
4.2.3.1 Development of an Implementation Plan for Each Strategy
The ISPC framework developed in Chapter 3 suggests that one important task for
implementation of a strategy is determining a specific plan of how the strategy will be
implemented. As discussed in Chapter 3, there are several possible aspects of this that include:
0 Who will accomplish the implementation of the strategy?;
0 How will resources be provided for implementing the strategy?;
0 What are key steps that need to be completed for the strategy?;
0 What is the overall planned timetable to accomplish the strategy?;

0 What are the desired/expected outcomes from the strategy?.

 

 

163
The extent to which an implementation plan needs to be developed depends in part upon the
complexity of the strategy and necessary coordinated strategies in the industry.

In the case study of the Michigan apple industry, once the Task Force had decided that a
strategy should be implemented, the specifics of implementation planning were then practically
discussed and to varying degrees assigned to key designated industry leaders and staff.
Appropriate industry leaders, representing their particular organization, made voluntary
commitments to accomplish particular aspects of these strategies. Almost all strategies of Types
1, 2, and 3 have been successfully implemented at least to some degree using this approach.

Type 4 strategies, that required broad-based industry support, have so far been less
successful in implementation than other strategy types. These non-implemented strategies were:

0 a premium grade standards for fresh apples

0 mandatory minimum quality standards for fresh apples
Part of the reason for the lack of implementation for the above strategies was the need for
substantial coordination and strong consensus within several parts of the industry involved in
each strategy. The future likelihood of implementing the strategies listed above would likely be
improved if an explicit implementation plan to develop the necessary consensus within each
industry segment were developed. This is partly because it seems that the consensus developed
within the Task Force has not necessarily led to a sufficient industry consensus for
implementation.

As would be expected based upon the ISPC framework, the strategies that require broad-
based support from the industry were especially difficult to implement. Strategies that did not
need broad—based industry support were much more likely to be implemented. Those strategies
discussed to date by the Task Force that require a substantial degree of industry consensus

include the premium grade, minimum quality standards, and the MAC ftmding increase. Of

 

 

 

164
these, only the MAC assessment increase was supported by the required industry segment (i.e. ,
growers in a referendum for this action) and implemented.

It is instructive to look at how consensus for the MAC funding increase was developed,
since this may provide some general guidance or principles for implementing needed industry
strategies that require substantial consensus. The MAC, as mentioned earlier, is funded by a
grower assessment with its primary mission of supporting the promotion and demand expansion
for Michigan apples. The MAC staff and board of directors decided a needed strategy should
include an assessment increase so the MAC could more effectively promote Michigan apples,
and, in part, to help fund needed research including some priorities identified through the ISPC
process. In the ISPC process, the survey of Michigan apple growers was an important source of
these priorities. This grower survey also indicated an overall support for an increase in the
grower assessment - to be phased in over three years. The MAC staff developed a promotional
video to explain why the assessment increase was necessary and a beneficial strategy for the
industry. The MAC staff further spent considerable time at grower meetings and other forums
discussing and explaining the need for the assessment increase and program expansion.
Substantial leadership and promotion were accomplished. Based upon these efforts, the
proposed assessment increase passed in a special grower referendum to increase the financial
base needed to implement the related program changes to improve industry performance.

In comparison, the proposed premium grade and minimum mandatory standard§9 were
supported by the Task Force and some leading shippers, but did not receive the adequate
consensus building and promotional efforts. These ideas were at different times brought to the
shippers association who decided to not support either action as an association. Because shippers

are a key participant segment for both of these industry strategies, neither of these strategies

 

29 The premium grade and mandatory minimum quality standards strategies are discussed
and described in the section on which discusses quality strategies in detail.

 

 

 

165
have been implemented to date. However, they will likely continue to be considered in the
future. The benefits of the proposed strategies may not have been adequately and convincingly
explained to the shippers. The negative possibilities were discussed by those who were skeptical
of the benefits of these approaches.

A comparison between the successfully implemented MAC assessment increase and the
non-implemented broad-based strategies in the quality area seems to suggest a pattern about what
is needed for successfully developing consensus for strategies that require substantial levels of
consensus. All three strategies had similar base support:

0 The support of the Task Force

0 A survey which indicated if the proposed action was widely supported in

the industry and to learn about major objections
These two consensus building conditions or activities were not in themselves adequate for
implementation.

Further consensus building efforts were made for the implemented MAC assessment
strategy. The strategy that was successful had in comparison to the non-implemented strategies:

0 An identified leader, group of leaders, or organizational sponsor

0 Organizational staff to deve10p the strategy, rationale, and explanation the

potential benefits of the strategy
0 Informational materials developed (reports, videos, etc.) that explained the
benefits of the proposed action
0 Leadership that spent a large amount time and resources explaining the
rationale and potential benefits for the proposed action
At least in the case of the MAC assessment increase, the combination of these seemed to be very

effective at building adequate consensus for the proposed action.

 

 

166

The assessment increase is also only an alteration of a currently existing strategy as
compared to the other strategies that were essentially new broad-based strategies for the
industry. The substantial and ultimately successful effort to implement the assessment increase
probably required less additional progress on consensus building because the assessment itself is
an already accepted practice. This suggests that even more extensive efforts and carefully
crafted implementation planning will be necessary for strategies that are brand new and require a
broad-base of industry support.

4.2.3.2 Communication of the Strategy to the Industry

 

The ISPC framework developed in Chapter 3 suggests that communicating selected
strategies by an ISPC group to the broader industry is important for implementing these
strategies because there are many decisionmakers in an industry and their actions are often
necessary to implement the strategy. A key in this communication effort is to stress the need
for the strategy, its potential benefits for the industry, and how the strategy can be implemented.

In the Michigan apple industry, various communication approaches have been used for
the various strategies developed. A common approach was for representatives on the Task
Force to go to their home organization and to recommend implementation or joint
implementation efforts for the strategy. For example, the need for more consumer market
research by the MAC was communicated to the MAC by the MAC's executive director, a
member of the Task Force. Communication in this type of strategy is relatively easier than a
strategy that requires a total industry consensus and an industry vote.

If key decisionmakers were not on the Task Force, then additional communication

efforts were used. These included developing articles in industry newsletters, trade publications,

 

university staff papers, and developing discussions with the appropriate industry leaders or

group. For example, in attempting to implement the premium grade strategy, this issue was

 

167
brought to and discussed with the Michigan Apple Shippers Association and other industry
leaders.
4.2.3.3 Obtaining Resources for ISPC Strategies

The ISPC framework indicates that one of the key issues in the implementation of any
strategy is obtaining the necessary resources that are needed for the strategy. If the necessary
resources of funding, staff hours, etc. are not available then the strategy may not be implemented
or may be implemented incompletely. An important issue in this is overcoming free rider
problems in obtaining resources for ISPC strategies with strong public good aspects.

In the Michigan apple industry case, the most common way for the resources to be
provided for a strategy has been through the voluntary actions and/or support of various industry
organizations and firms. The combination of firms and/or industry organizations that implement
the strategy would most likely also provide the resources to do so. For example, resources to
implement the MAC funding increase were from the MAC itself and the Michigan Department
of Agriculture.

As would be expected from the ISPC framework, strategies for which individual firm
and/or industry organizations were not willing to provide resources were more difficult to
implement. An example of this kind of strategy is the proposed mandatory minimum quality
standards for fresh Michigan apples. In this strategy, no individual firm or industry organization
was willing to make a substantial or sufficient commitment to achieving the strategy. This has
contributed to or may even have resulted in the strategy not being implemented at this point
although it is still being considered.
4.2.3.4 Progress Measurement

The ISPC framework outlines that another aspect of strategy implementation and
coordination should include analysis on the progress of the strategy. This can serve to check on

how effective a particular strategy has been in achieving desired outcomes and if modifications in

 

 

 

 

168
the strategy are warranted. Progress milestones as they are achieved can further indicate short-
terrn achievements in relation to long-term objectives.

In the Michigan apple industry case, progress measurement has been achieved through
Task Force discussions and evaluation of various strategies. In fact, a key aspect of many Task
Force meetings has been to consider progress and achievements from particular industry
improvement strategies. The strategies have been reassessed periodically by the Task Force and
member organizations, especially as key progress has been achieved. Next steps for particular
strategies have then been developed.

4.2.4 Strategy Review and Re-evaluation

The strategy review and re-evaluation phase, the fourth phase in the ISPC framework,
focuses on developing a comprehensive review of earlier decisions and strategies selected in the
ISPC process. This phase recognizes that it is important to be continually aware of the
changing circumstances (e. g. , market forces, government regulations, etc.) that the industry
needs to deal with. As circumstances change, then appropriate strategies may need to change as
well. Up to this point in the Michigan apple industry case, such a comprehensive review of
strategy for Michigan has not been completed - partly because the comprehensive ISPC process
has only been ongoing for the last three years. There has, however, been an overall keen
awareness and attention to changing circumstances that are impacting the industry.

Several informational analyses that could be considered part of such a review of industry
strategy have been completed. These include changes in Michigan's market volumes and
industry incomes in line with growth positioning for the industry. Tray pack volume and percent
have also been assessed. More detail on these efforts will be presented later in this section.

At some point in the future a comprehensive review of all choices and strategies will

probably be worthwhile to help to evaluate the industry's progress. This would add to the on-

 

 

 

 

169

going analyses for needed future strategies and major improvement objectives that will aid the
industry in its imperative overall goal of being competitive and economically viable.
4.2.5 Concluding Observations on Construct Validity

Construct validity, as discussed in Chapter 1, can be established if (1) the theoretical
concept has an operational counterpart and (2) the operational counterpart can be objectively
measured 3°. The theoretical construct in this dissertation is the ISPC framework developed in
Chapter 3 with all its numerous phases and steps. In the case study of the Michigan apple
industry ISPC process, the operational counterpart to this theoretical or conceptual construct is
the actual ISPC process in the Michigan apple industry. A key question to address here is
whether this construct, i.e. , the ISPC framework, adequately describes the actual ISPC process.

This section has described the actual situations and activities of the Michigan apple
industry ISPC process in relation to the conceptual ISPC framework deve10ped. This description
was developed using multiple sources of evidence including participant observation, written
records, and key informants. Each phase and step of the framework seemed to have an
operational counterpart in the actual practice of the case study. This indicates that the
framework provides an effective description of the activities necessary for an ISPC process. In
addition, essentially all major ISPC activities that fell within the constructs of the ISPC
framework. Hence, at least in regards to the Michigan apple industry case, the framework

meets the test of construct validity.

4.3 Further Reflections on Quality Management Strategies
Section 4.2 reviewed a broad perspective on the ISPC process for the Michigan apple

industry. The information provided in the overall review of the many individual strategies could

 

3° The concept of construct validity is discussed further in Chapter 1. Some sources on
construct validity are Yin and Kerlinger.

 

 

7"“

170

only provide a limited level of detail related to each particular strategies because of the
considerable complexity of the broad process of strategy development and implementation. This
section focuses on providing a more detailed description and illustration of how the process
worked for selected specific strategies within the quality management area. A second purpose
for this section is to elaborate on how the review and reevaluation phase of the ISPC framework
could be approached with a detailed example from the quality management area. This is an
example of the type of strategy review and re-evaluation that might be useful for all of the Task
Force's major improvement objectives.

Continuously working on and improving quality management, especially the vertical
coordination aspects, has been one of the key elements of identified needed strategy by the
Michigan apple industry, especially for the fresh segment. Part of the need for a priority focus
on this area has been generated by increasingly exacting fresh quality requirements in the
marketplace. The need for work in this area by the Michigan apple industry is also accentuated
by the effective progress that competitor industries are continuing to make in supplying high
quality products. Fundamentally, if Michigan wants to serve a major or even an increasing
portion of the fresh apple market, especially in the tray pack segment, then the Michigan apple
industry must work to continually improve quality performance in order to meet increasingly
exacting customer quality requirements.

There are many facets of quality that the Michigan apple industry must respond to.
These include color, sizing, freedom from internal breakdown, uniformity, bruising, and
condition. There has been considerable progress in recent years in many of these quality facets.
For example, modernization of packing houses with new technology aids effective sorting for
size, color, and uniformity.

One aspect of quality, condition, has been particularly problematic in the Michigan apple

industry. High condition or having crisp apples is one of the most important for apple

 

 

 

 

 

 

17 1
consumers as recent consumer market research has shown (Ricks, Heinze, Beggs, and Miklavcic
1995). However, providing high condition to the market requires the effective management and
actions of all segments of the production-marketing chain including growers, packers, shippers,
and retailers and there are complex market incentives as well as complex technological aSpects.
A good reputation in the market for being able to provide apples with consistently high condition
would be very helpful in the Michigan apple industry‘s efforts to increase its demand, market
volume, market share and returns.

In their efforts to assist the Michigan industry to progress in needed directions, the Task
Force has discussed and considered a number of alternative approaches or strategies to improve
the Michigan apple industry's effective responsiveness to changing customer quality needs.

Some of these approaches include informational research on the potential benefits of packing
more tray pack, the Maturity Information Program, and developing information on many aspects
for a Total Quality Management approach for high performance of all of the several vertical
levels of the Michigan apple industry's production-marketing chain.

Possible voluntary and/or mandatory changes in grade standards were also considered.
These included a possible premium Michigan grade and the idea of mandatory minimum quality
standards. Both of these strategies focused on condition for fresh apples and had the goal of
improving the Michigan apple industry's performance in quality management.

This section provides a detailed illustration and description of a number of the main
quality management strategies supported by the Task Force. It further evaluates the current
status of the various alternative strategies for improving the Michigan apple industry's
performance and responsiveness to consumer and market demands, mainly in regards to the fruit
condition aspect. Each alternative strategies is described, and some ideas for possible next steps

to further develop or implement the alternative strategies are discussed. The ISPC framework is

 

 

 

 

 

172

also shown to provide a useful source of ideas for both strategies that have been decided upon
buy have not yet been implemented.
4.3.1 Total Quality Management

Total Quality Management (TQM) is the concept of comprehensively designing,
developing, and implementing a system of producing and marketing products for consistent top
quality that has a goal of preventing quality problems before they occur. In the apple industry, a
TQM system might be especially important because high performance at all vertical levels in a
integrated and coordinated fashion is very important. There are several kinds of potential benefit

from this sort of action:

 

1. Customers may have increased satisfaction due to improved consistency
in quality - for apples, this is especially important for condition.
2. Increased customer satisfaction by consumers and the trade can lead to

growing demand for Michigan apples.

 

3. Improved reputation of the Michigan apple industry in the quality area.

4. Higher quality may retum price premiums.

5. There may be increased efficiency if certain resources (such as storage space and
time on the packing line) are not used on poor quality lots of apples. This may
lead to reduced waste and can aid in more efficiently marketing the product to the
appropriate market.

The main need for the industry as a whole to be interested in a TQM approach is that
high industry performance on quality requires many segments of the Michigan apple industry
production-marketing chain to all achieve t0p performance in quality. This means in order to
continually achieve high fresh quality performance, the quality actions of Michigan growers,

packers, storage operators, and shippers need to be coordinated.

 

173

Performance by each segment is necessary for achieving high overall industry
performance. Key apple quality characteristics such as condition and freshness do not improve
after the apples have been harvested. To maintain the key quality characteristics, each industry
segment needs undertake a complex set of good management practices to accomplish this. The
industry's various participants in the marketing chain need to work together to continually
improve quality management with the goal of meeting and exceeding customer expectations.
Points in the marketing chain where quality damage occurs need to be addressed in a high
performance fashion and high quality customers can be more effectively served.

The important potential benefits of TQM discussed above led the Task Force and overall
industry to consider several methods to accomplishing TQM. These included the Maturity
Information Program, pre-harvest workshops, and bringing in a TQM expert to examine,
promote, and explain the TQM concept to the industry as well as developing pilot programs on
good managerial practices and/or HAACP. The following sections discuss these strategies
prOposed for facilitating a TQM approach to improving quality management in the Michigan
apple industry.
4.3.1.1 Maturity Information Program (MIP)

A major influence on the quality of apples, especially for fruit condition and color, is
determined by when the apples are harvested. The harvest timing affects the condition, color,
sugar content, and taste of the apples. As discussed earlier, condition is a key factor in
determining customer satisfaction. Hence, harvesting apples at the appropriate time is an
important part of achieving overall high performance in quality management. This is made more
complicated because the desired levels of quality characteristics in regards to maturity and color
in fresh marketed apples only arise during certain fairly narrow harvest windows that vary by

region and even within an orchard.

#—

 

 

 

174

The Task Force has supported the importance of continuing Maturity Information
Program (MIP) by Michigan State University. The goal of the MIP is to improve the knowledge
and awareness of the appropriate harvest qualities especially for condition, and dates by region
and by variety. Improved knowledge of appropriate harvest dates was developed by Michigan
State University research and extension. The industry’s shippers firms provided some
supplemental funding for this work. Maturity and harvest timing information has been
disseminated throughout the industry and seems to be highly useful in aiding quality management
decisions by growers along with their packers and shippers. Some of the latest available
information on this subject was disseminated to the industry including in a recent pre-harvest
workshop.

Further research needs are a particularly high priority for newer apple varieties for the
fresh market, such as, Jonagold. The industry has less experience with the newer varieties
including the best timing of the harvest for top condition. Furthermore, meeting market quality
requirements for new varieties is crucial if the Michigan apple industry is to be successful with
new varieties.

Possible Next Steps for the Industry on Maturity Information

The Task Force and other groups in the industry indicate that the MIP is a useful
program. Michigan growers are aware of the information and are using it in coordination with
their packers in making harvesting and marketing decisions. Further research efforts, especially
for newer varieties, seem warranted. Some possible next steps for furthering the MIP program
include:

1. Continue to focus additional research on newer varieties.

2. Continue to disseminate information on appropriate harvest dates throughout the

industry.

3. Implement MIP on a more wideSpread basis.

#—

 

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175

a. Shippers expand the use of field persons with growers.

b. Packers and shippers could require growers to use maturity information.

c. Incentives to make sure all growers, packers, storage operators, and shippers

implement what is known to be needed.

The already mentioned successful contributions of the MIP program and the importance of
harvest timing suggest that the MIP program is an excellent area for continued future industry
efforts to improve performance.
4.3.1.2 Pre-Harvest Workshop

As part of the informational contribution to TQM, the Task Force recommended that
extension and industry jointly develop an annual pre-harvest quality workshop on integrated top
management practices for fresh market quality. The emphasis is on the needed, although
difficult, appropriate management practices for achieving good condition levels and avoidance of
bruising. An initial pre-harvest quality workshop was recently accomplished. The goal of the
workshOp is to review for growers and packers the latest information on quality techniques,
management practices, market needs, etc. and thus to aid in immoving growers' and packers'
harvesting and handling management decisions.

The workshop contained an informational series on the latest Maturity Information
Program developments, grower methods to reduce bruising, fruit condition testing methods,
market research studies, and other information. University research and extension as well as
industry leaders jointly developed and conducted the workshop. Growers and packers learned
the most up-to-date information to aid in their quality management decisions.

Possible Next Steps for the Industry on the Pre-Harvest Workshops
The workshop seemed to be a success based upon participant's reaction to the

information. Possible next steps for the pre-harvest workshop could include:

 

 

 

 

176
1. Plan to do pre—harvest workshops on an annual basis, with expanding
geographical coverage, emphasizing similar information on using top
management and technologies to improve quality.
2. Develop a workshop planning group representing appropriate
organizations to aid in providing the best information on quality
management as well as communicating to the industry about the
workshop.
This workshop is a useful approach where information that has been developed can be provided
and explained to those who can most effectively use the information for improved TQM
performance.
4.3.1.3 ' Expert Consultation for TQM
In the Michigan apple industry, the Task Force considered the idea of a project with a
TQM expert to help with the development of information on specific facets of such a TQM
system that might be used by firms at different vertical levels to achieve high quality
performance for the industry. The idea was that studying such a TQM system, identifying
critical points in the system, and developing a pilot model and information might aid growers,
packers, and shippers in improving performance. As an initial step, an outside expert was
brought in to do a preliminary analysis and to discuss the idea further with the industry, mainly
the shipper community. The plan also included the possibility of developing an example TQM
plan as information for the industry.
The Michigan Apple Shippers Association eventually decided to not support further
study by the expert for a number of reasons, including that they did not see enough benefit from
the consultant. This led to some frustration on the part of those promoting the idea of TQM in

the industry.

#—

 

 

 

 

177

Part of the reason for the lack of support for bringing in a TQM expert was the fear that
it might portray an image to buyers of an industry with poor current quality performance. Two
other contributing factors may have been that the shippers association did not initiate the
consultant project, and the idea of TQM (especially what the industry study might accomplish)
had not been fully explained to the shippers. Further, considering that TQM would be
implemented by the individual organizations, the industry role would be likely to just aid
individual firms with information. It may not be altogether clear to many shippers how bringing
in a consultant would help the industry accomplish this.

Possible Next Steps for the Indusny to the TQM Consultant Idea

Due to the current lack of progress on this strategy, suggestions based upon the
framework include some possible steps to revitalize the TQM consultant idea and build
consensus in the industry might include:

1. A clear explanation or articulation of the what bringing in a TQM

consultant might potentially achieve and how firms could use the resulting
information.

2. Further discussions with influential shippers about more detailed and

flexible implementation plans for this strategy.
The idea of bringing in a TQM expert could provide some benefits because the expert might
bring considerable experience and knowledge about modern effective TQM practices. This
might help the industry to more quickly and effectively respond to consumer quality demand.
4.3.2 Premium Grade

One idea that has been considered in the Michigan apple industry is to develop a
premium grade. This premium grade for the Michigan apple industry could aid in more clearly
differentiating top quality apples - especially for condition. The need for this type of grade is

that current grade standards do not adequately reflect a number of important quality

 

 

17 8
characteristics, including condition, that are important to customers. Apples are traded on
quality standards that are more exacting than the current grades. Since current grades do not
distinguish accurately between high and low quality for condition, some have asserted that, to
some extent, high condition fruit is not rewarded sufficiently, since high condition fruit can be
confused with and marketed similarly to low condition fruit. A premium grade might increase
market incentives for doing an excellent job on condition through better product identification
and improve the Michigan apple industry's performance in serving customer needs, especially
for high condition fruit.

A premium grade could be another signal to buyers that the Michigan apple industry is
serious about being progressive and getting the job done on quality as demanded by the market.
This would be best considered as part of an overall effort to improve the quality performance of
the industry.

The premium grade would probably contain a high level of certain quality
characteristics, probably centering on fruit condition or firmness as one key factor. The intent is
that it would be voluntary in that shippers would not have to sell using the premium grade unless
they wished to do so. This might further help the industry develop a critical mass of top quality
apples that would be useful in marketing to certain types of customer accounts that prefer a high
volume of those consistent top quality apples.

One important issue related to a premium grade would be how the grade would be
enforced, i.e. , how would those using a premium grade be monitored for compliance with the
grade. This type of inspection has usually been done by spot inSpections by government
inspectors.

In general, the premium grade idea has been supported by the Task Force. The idea was
brought to the Michigan Apple Shippers Association for the shippers to consider. At that time,

the shippers decided to not support, as a group, the premium grade idea for Michigan.

 

 

179
At the current time, the premium grade idea has been put "on hold ". This idea could perhaps
still be useful for the Michigan apple industry at some time in the future.
Possible Next Steps for the Premium Grade
At a future time, the premium grade idea for the industry might gain adequate support
for implementation. Some possible alternatives that might be suggested based on the ISPC
framework would be to expand consensus and communication within the industry on this topic
including:
1. An economic study, i.e. , an impact analysis, of the possible or potential
benefits of a premium grade for the Michigan apple industry. This could
include a comparison with the Washington apple industry efforts in this
area. Further, it might be possible to work with some progressive
shippers who ship a top condition quality pack to learn the sort of
premium top quality gets in the market.
2. Develop further discussion of the premium grade by various segments of
the industry, e. g. , growers and packers.
3. One alternative option could be for a group of progressive shippers to
agree to pack a certain premium grade. This could allow the progressive
shippers to make progress in this area and perhaps increase returns for
growers for premium fruit. This sort of approach would need to be
initiated by individual shippers and could result in a demonstration effect.
Overall, more consideration of the premium grade might be useful for industry performance and
progress. With the premium grade strategy, there is a definite possibility that improved industry
returns might result. Markets demanding top condition fruit could be more consistently served

and premiums from meeting this customer demand may be achieved.

 

 

 

180
4.3.3 Mandatory Minimum Quality Standards

Another alternative to address the fact that current grade standards do not address
condition might be to use mandatory minimum quality standards. A mandatory minimum quality
standard could be used to prohibit the marketing of apples that did not meet a minimum
condition level. The minimum condition level could be set so that customer needs on fruit
condition are more consistently met. Furthermore, some of the lowest condition fruit, that
consumers have been shown to not prefer, would not be marketed to consumers so that increased
demand for an industry may be developed as a result of improved consumer confidence in their
products. The minimum quality standard can help give greater assurance of at least minimum
quality and consistency to buyers.

An example of a minimum quality standards program has been implemented in the
Washington apple industry that has a mandatory program where all apples sold to the fresh
market from Washington must meet a minimum condition level. This program seems to be an
important part of the Washington apple industry's success in domestic and international markets.

The Task Force has had considerable discussions on the topic of the desirability of
minimum quality standards for the Michigan apple industry. Several years ago in Task Force
discussions, there was considerable support by this group of leaders for a minimum quality
standards program for the Michigan apple industry that would focus mainly on condition.
However, when this was brought to the larger industry by Task Force members, it was met with
considerable opposition, especially by the shippers. One Task Force member lamented that " my
car got chewed off" when bringing the topic up to non-Task Force shippers and industry leaders.
A subsequent survey of Michigan apple growers (Woods, 1996), that asked about this question
showed a majority of growers in favor of this, although this type of action was supported less
than many other possible strategies listed in the survey. A survey of Michigan shippers

indicated that shippers were split 50-50 on this issue (Ricks and Woods, Dec. 1994).

 

 

 

 

181

With these overall mixed reactions from the broader industry, it is not altogether clear if
this idea would be adequately supported for adoption by the industry. Several Task Force
members have noted that in the Washington apple industry, it was the growers that were the
main force behind Washington's mandatory minimum quality standards - and that they believe
that this needs to be the case in Michigan as well if this approach is going to be implemented.
Also, in the Washington apple industry it is reported that it was difficult in the first year to meet
the new standards, but thereafter the industry has adapted to the new standard. Now the
standard seems to have widespread support in the Washington apple industry.

Mandatory minimum quality standards could provide substantial direct incentives to
provide more consistent condition fruit to the market. Initially, this might result in more product
being diverted to processing markets. In the long run it would be expected that the Michigan
apple industry's quality reputation would improve as customers recognize the better, more
consistent job that the industry is doing in condition. Customers would be expected to pay more
for the better quality apples, The minimum standard could further aid the industry in moving
more quickly to a higher performance path in meeting market needs in regards to condition.
Overall, this means that over the long run mandatory standards have potential to aid Michigan's
competitive position in the marketplace, but firms in the industry would have less flexibility in
marketing marginal condition fruit.

Possible Next Steps for the Industry for Minimum Quality Standards

The current status of mandatory minimum quality standards is that more industry
consensus is needed before such an action could be undertaken. Some possible next steps that
are suggested based upon the ISPC framework include:

1. Increase or promote industry-wide discussion and debate regarding a

minimum quality standards program including the potential gains, costs,

shortcomings and obstacles.

 

 

 

 

 

182
2. Articles in newsletters or industry publications discussing the relative
merits of minimum quality standards.
3. Some group or organization taking leadership to push for this type of
change.
4. An economic analysis of possible or potential benefits from mandatory
minimum quality standards for the industry“. That is, it might be useful
to develop an impact analysis.
Mandatory minimum quality standards may offer considerable potential benefits that the industry
should consider fully, especially considering the competitive threat of the Washington apple
industry. Consumer research has shown that they give a high priority to consistently high
condition apples. Washington's market share is growing, perhaps in part because of their
minimum condition program. The Michigan apple industry needs to respond with high
performance in condition if it hopes to compete with Washington and have growing fresh market
demand.
4.3.4 Information on Quality Incentives
Market prices and returns to growers, packers, and shippers can provide strong
incentives for performance. To help to clarify some of the current market returns in relation to
incentives for tray pack and larger size apples, some analysis information was developed by
Michigan State University researchers for the industry. The following section summarizes this
information and discusses price trends for tray pack relative to bags as well as for larger size

apples in bags.

 

3‘ Ricks and Hinman (1987) discuss this topic. This could be a good start to future
economic evaluations in this area.

 

183
4.3.4.1 Returns in Tray Pack Relative to Poly Bags

One of the priority strategies identified by the Task Force and other industry leaders as
seeming to have potential for the Michigan apple industry in the future is to increase somewhat
the state's future emphasis on tray pack. Some in the industry have questioned whether the
market provides sufficient price and net return incentives to adequately support this strategic
direction for Michigan. Therefore, an analysis was made of market returns and incentives for
marketing more Michigan tray packs as opposed to Michigan's traditional heavy emphasis on
apples shipped in bags 32.

There are a number of reasons why Michigan's somewhat greater emphasis and effective
marketing of tray packs seems to be an important opportunity for the future. Tray pack
generally is the higher gross return market and compared to bags can generate substantial price
premiums at retail and f.o.b. shipper. Demand for apples in tray pack has been growing and is
expected to continue growing faster than apples packed in bags. As confirmed in recent
consumer market research, more consumers prefer to buy tray pack rather than bags. The Task
Force has discussed that the Michigan apple industry needs to shift somewhat from its traditional
focus on bags to more emphasis on trays since this may provide some good opportunities for the
future. This is partly because bags often provide lower f.o.b. returns and have relatively smaller
and overall slower growing market than trays for both the U.S. and export market.

As was discussed earlier, marketing to the tray pack market requires higher quality fruit
in regard to size, uniformity and to some extent color than marketing to the bag market.
Modernization of packing house technology has raised the ability to achieve higher performance
in providing this type of high quality fruit to the market. Recent investments by some packing

houses in the Michigan apple industry have increased the Michigan apple industry’s capabilities

 

32 This extends research by Ricks and Schwallier ( 1989) in this area.

 

 

 

 

 

 

184
in being able to supply tray pack. This modernization effort could be expanded by more
individual firms. If there are strong market price incentives for tray pack with expected future
growth, this could provide important incentives for more emphasis on marketing tray pack as
opposed to bags.

Table 4-6 shows the prices for Michigan Red Delicious tray pack (40 pound box)
relative to poly bag pack (12 - 3 pound bags) over the period 1991 to 1994 for the fall sale, cold
storage, and controlled atmosphere seasons”. The market prices, costs, and net premium for
marketing as trays relative to bags are shown taking into consideration the packaging costs and
weight differences between tray pack and poly bags. Tray pack weights are about ten percent
more per carton than bags that results in an adjustment for weight differences being needed.
Tray pack packing also costs about S 0.40 more per 40 lb. box. Taking these factors into
consideration, a price premium net of the additional costs is developed that shows the premium
for a 40 pound box of apples.

Overall the table shows that there is often a substantial premium for packing tray packs
as opposed to packing the same apples in bags. This indicates that growers and packers who
only pack bags are missing out on some substantial premiums often around $ 1.50 per 40 lb. unit
of apples that are tray pack quality. This premium can often amount to ten to thirty percent
increase in price, but, the return to tray pack is highly variable. In some market seasons there is
no premium to packing trays relative to bags.

The price premium for tray pack probably reflects several key market factors. One is
the improved quality of Michigan tray packs caused by recent packing house modernization.
Another is that there is some increasing demand for tray pack. The future seems to point to high

returns from the tray pack market segment. It is important for the Michigan apple industry to

 

33 The fall season ends about November 5 and the cold storage season is for apples
marketed from November 5 until early January from in regular cold storage (i.e. non-CA).

 

 

 

 

 

 

185

Table 4-6. Price, Costs, and Grower Returns for Tray Pack Vs. Bags,

Red Delicious, 1991-1994

FALL SEASON

Average Tray Price (1008)
- Adjusted for Weight Difference
- Additional Packaging Costs

- Average Bag Price (2 1/2" min.)

Premium

COLD STORAGE SEASON

Average Tray Price (100s)
— Adjusted for Weight Difference
- Additional Packaging Costs

Average Bag Price (2 1/z" min.)

Premium

CONTROLLED ATMOSPHERE SEASON
Average Tray Price (100s)
- Adjusted for Weight Difference
- Additional Packaging Costs

Average Bag Price (2 V2 " min.)

Premium

1991

$ 13.00
— 1.05
M

$ 11.50
1.0.59
M

1991

$ 12.50
- 1.03
ALAS

$ 11.07
10.25
+_LQ.§2

1991

$ 13.50
- 1.23
41.49
$ 11.87
12.25
2103.8

 

1992

$ 10.50
- 0.93
11.4.0

33 9.17
2.25
M
1992

$ 10.50
- 0.75
LQIAQ

$ 9.35
1.5.0
M

1992

$ 10.25
- 0.80
LQAQ
$ 9.05
8.112

1993

$ 12.00
- 0.93
-_Q.Afl
$ 10.68
2.25

ALA;

1993

$ 12.00

- 0.78
:QAD

$ 10.82
1.15
M

1993

$ 11.50
- 0.90
:03!)
$ 10.20
2.1!!

1994

$ 11.70
- 0.90
M
$ 10.40
2.1!)

:t_;£__léQ

1994
$ 11.50

- 0.88
._QA._Q

$ 10.22
8.15
_i__$_;__J_-i8

1994

$ 11.50
- 1.00
:QAQ
3 10.10
111.112

##4##

Source: Marketing Michigan Fruit, Market News Service, various issues.

 

 

 

186
continue modernization of packing houses to gain more access to the returns available in the tray
pack market segment.
4.3.4.2 Returns to Size in the Michigan Poly Bag Market

A recent change in marketing Michigan apples packed in poly bags has been a switch
from the traditional size of primarily 2 14 " minimum to primarily 2 V2 " minimum apples
marketed in bags. The 2 1/2 " minimum apples have become the main standard in recent years.
This increase in the overall minimum size requirements for bagged apples was forced on the
industry by the trade, customer demand, and competing suppliers. This increase in the minimum
size in Michigan bagged apples also somewhat increases the uniformity of Michigan apples that
may helpful in competition with Washington bagged apples that are more uniformly sized.

To aid in industry adjustments to the new market requirements for size, an analysis was
completed on the market incentives for marketing 2 1/2 " minimum apples compared to the old
standard of 2 16 " minimum apples. This analysis was made for a number of important Michigan
varieties. The analysis included prices and returns in Michigan's three main marketing seasons:
fall sale, cold storage, and controlled atmosphere (CA). Overall, the analysis indicates that there
are higher prices and hence market incentives for packing 2 V2 " minimum apples. It is important
to be aware of the fact that the market for 2 1A " apples has really shrunk considerably. This
means that there is currently a relatively small volume sold in that market.

Tables 4-7, 4-8, and 4-9 summarize the analysis results for poly bags (12 - 3 pound
bags). for 2 1A " and 2 1b" apples for fall sale, cold storage, and controlled atmosphere prices for
some of Michigan's main varieties in current production. This analysis focuses on the price
premiums available for 2 1/z" apples relative to 2 1A " apples. There is an overall indication of an
increasing price premium over the time period with the exception of the Empire and McIntosh
variety where premiums fluctuate and seem to have declined somewhat over time. The

premiums overall have grown to about 15-20 percent of the price received.

 

 

 

 

 

Table 4-7. A Comparison of Michigan Season Average Fall Sale Prices Between

187

2 V2." and 2 1/4" Minimum Size Apples, 1991-1994

RED DELICIOUS

12 - 3 lb. Bags

NRflNToma
12 - 3 lb. Bags

GOLDEN DELICIOUS

12 - 3 1b. Bags

JONATHAN

12 - 3 lb. Bags

EMPIRE
12 - 3 lb. Bags

GALA

12 - 3 lb. Bags

2 1/2" min.
2 111" min.

Difference

2 1/z" min.
2 1,4" min.

Difference

2 1b" min.
2 %" min.

Difference

2 1h" min.
2 1It"min.

Difference

21/2"min.
2 1/4" min.

Difference

2 1/2" min.
2 1%" min.

Difference

1991
$ 10.50
2.15
m

 

$ 10.25

$ 10.75

$1L2§

1992
$SL25

Source: Marketing Michigan Fruit, Market News Service, various issues.

 

1993
$ 9.25

1994
$91K)

$ 9.25

 

188

Table 4-8. A Comparison of Michigan Season Average Cold Storage Prices Between
2 1/z" and 2 1/4" Minimum Size Apples, 1991-1994

RED DELICIOUS

12 - 3 lb. Bags

MCINTOSH
l2 - 3 lb. Bags

GOLDEN DELICIOUS
12 - 3 lb. Bags

JONATHAN

12 - 3 lb. Bags

EMPIRE

12 - 3 lb. Bags

GALA
12 - 3 lb. Bags

2 1/2" min.
2 111" min.

Difference

2 1/2" min.
2 1,4" min.

Difference

2 1h" min.
2 l,é"min.

Difference

2 1/2" min.
2 111" min.

Difference

2 1h" min.
2 1it"min.

Difference

2%" min.
2 l,4"rnin.

Difference

1991
$ 10.25
2132
§=ng

$ 9.50

$ 10.25

filllé

[1.8.

1992
$ 7.50

:82:
Sing;

7.50

$2L25

SJLKE

$151K)

Source: Marketing Michigan Fruit, Market News Service, various issues.

 

1993
$1L75

1994
$1175

$91K)

 

 

 

 

 

189

Table 4-9. A Comparison of Michigan Season Average CA Prices Between
2 1/z" and 2 1A" Minimum Size Apples, 1991-1994

RED DELICIOUS

l2 - 3 lb. Bags

MCINTOSH
l2 - 3 lb. Bags

GOLDEN DELICIOUS

12 - 3 lb. Bags

JONATHAN
12 - 3 lb. Bags

EMPIRE
12 - 3 lb. Bags

2 1/2" min.
2 Vi" min.

Difference

2 la" min.
2 1,6" min.

Difference

2 V2" min.
2 %" min.

Difference

2 1/2" min.
2 IA" min.

Difference

2 1/2" min.
2 %"min.

Difference

1991
$ 12.25

lLéQ
3.035

$ 11.00

$ 11.75

S 9.75

$ 11.25

SJLZQ

 

1992
$81K)
ILQQ

Source: Marketing Michigan Fruit, Market News Service, various issues.

 

1993
s 9.00

1.50
s__1__,x1

9.25

1994
$ 10.00

$ 10.00

 

 

190

In the future another potentially useful analysis would be to compare the returns
available from 2 1/1" minimum bagged market with returns available from the juice market
because the juice market is often the alternative if fresh market buyers cannot be found for these
smaller apples. This could be compared with the amount received if the apples were sold to the
juice market. The costs of packaging and packing would need to be taken into consideration
when making this comparison. In some years, returns from the juice market might be higher
than returns from small (2 1A " to 2 1b ") apples.

Overall, there are some substantial and growing premiums for marketing to the 2 lb "
bag market relative to the much smaller 2 V4 " bag market. Growers can adjust to this market
trend by adopting a number of practices for larger fruit size, e. g., thinning, that result in larger
apples. A market generated incentive pattern for packing larger size apples is clear from this
analysis.

4.3.5 Conclusion to the Quality Management Section

Getting the job done in quality management and meeting the quality requirements of the
market are essential to the Michigan apple industry - as it is in other fruit industries. The
Michigan apple industry needs to be working hard to meet continually higher competitive
requirements for quality. Meeting the higher requirements may aid the industry in achieving
improved fresh market returns, market share, and volume.

Over time, a slow response in the condition area may lead the Michigan apple industry
down a path of relatively low performance since condition is a high priority quality area as
demanded by the market. It is an area where some shippers have indicated they get the most
complaints from buyers. If the Michigan apple industry is not as effective as it needs to be in
meeting buyer requirements on condition, then overall demand for the industry's apples will not

be as high as it could be and efforts to expand the fresh market could be hurt. However, in the

 

 

 

 

 

191
long run, if buyer requirements and needs are pro-actively and effectively met, then increased
demand should result.

This section has reviewed several quality management efforts where action or strategies
have been proposed to improve industry performance. While there has been some considerable
progress in many quality areas, condition remains a problematic area where more attention
seems to be needed based upon industry leaders insights. Industry action can continue to play an
important role in helping the Michigan apple industry meet current and future competitive
requirements. Overall, for industry action to work it will require consistent, focused support of
key industry leaders. These leaders must also communicate the need for effective change

throughout the industry.

4.4 Assessing the Effectiveness of the ISPC Process in the Michigan Apple Industry
The usefulness of an ISPC process is ultimately measured by the improved performance
and desirable outcomes achieved for the industry. Measuring performance and testing to show if
improved performance is the result of ISPC is a test of internal validity, i.e. showing causation.
For the ISPC process and the framework, this test was succinctly stated in Chapter 1 as
Proposition 11:
An actual ISPC process that follows the framework of Proposition I can
substantially contribute to improved industry performance.
As discussed in Chapter 1, there are three tests of internal validity that will be applied:
(1) the ISPC process may be shown to have altered the industry's course in
ways that can be expected to improve performance;
(2) the ISPC process can be shown to improve industry performance;

(3) the ISPC framework can explain undesirable outcomes in an ISPC process.

 

;_—

 

 

 

 

 

192
The following sub-sections discuss these tests and apply them in the Michigan apple industry
ISPC case study.
4.4.1 Progress in ISPC Strategies

One test of the internal validity of Proposition H is whether an ISPC process can be
judged, in part, to facilitate the development and implementation of more responsive strategies to
industry conditions than would otherwise have been pursued. The ISPC process in the Michigan
apple industry identified several major improvement objectives on which to focus strategies.
Each of these represents a major improvement Obj ective which key industry leaders, after careful
consideration, thought certain actions or strategies would be most effective in aiding the
industry. This section reviews progress in each of these major improvement objectives.

This review provides one test of the effectiveness to date of the ISPC process in the
Michigan apple industry. An ISPC process could be considered effective if it can:

1) identify areas in which the industry needs to focus strategy and make

irnprovements;

2) facilitate strategies to improve industry performance in the priority areas.

The following discusses the specific strategies and progress that were supported by the Task
Force. This discussion shows that the Task Force was generally successful in addressing a
number of major improvement objectives, developing appropriate strategies, and facilitating
appropriate industry responses.

Wanner»

Improving quality management for fresh apples has been identified as a top priority for
the Michigan apple industry. In this area, a number of specific strategies were supported
including several strategies to accomplish Total Quality Management (maturity information
program, pre-harvest workshop, expert consultant), information on quality incentives, premium

grade, and mandatory minimum quality standards. Of these, the maturity information program

 

 

 

 

 

 

 

193
(MIP) and information on quality incentives were ongoing prior to the ISPC process, but the
ISPC process enabled greater support for continuing and expanding these two strategies which
may not have continued without support form the ISPC group.

There has been an overall increased industry awareness of the importance of quality
management. ISPC efforts have helped in facilitating this awareness through industry
publications and forums as well as the support of the many strategies in the quality management
area. The firms in the industry have further made substantial efforts to improve quality
management. The firms' efforts have included increased use of field persons for coordinating
needed practices on quality and modernization of packing and storage facilities.

The customer trade reported perceptions of substantial improvements in Michigan's
fresh quality with the 1995-96 marketing year. Individuals outside the Michigan apple industry,
such as in competing apple industries, have noted Michigan's improved performance in
supplying quality apples that meet marketplace requirements in a high performance fashion.
While these changes have occurred and they are related to some priority ISPC goals on industry
performance, the degree to which these were caused by the ISPC process is unclear.

I! . E l . | E l l S .

Variety evaluation and strategies were selected as a priority area as part of an ISPC
process because it is important that growers make appropriate variety selections for their
required long term investments made with new plantings. There are also major changes in
variety demand preferences that cause considerable uncertainty in variety demand due to these
changing customer preferences. The other segments of the industry such as shipper, packers,
and processors are also very interested in the most appropriate or best varieties being planted in
Michigan. To aid growers in the industry in making the most appropriate variety decisions,
several research strategies or projects were or are being accomplished by the MSU researchers

working with the Task Force and other ISPC efforts.

 

 

 

 

 

 

194

These variety research efforts focused upon demand and supply for Michigan apple
varieties. Consumer market demand for fresh varieties has been one topic in market research
(Ricks, Heinze, and Beggs, 1996). This demand for varieties has also been measured through a
survey of shippers about their expectations for fresh demand (Ricks, Lyford, and Woods, 1996).
Processor demand by variety is currently being analyzed through an on-going variety survey of
processors. In addition to the demand analyses, an analysis of current supply by varieties is
being concluded. These reports have or will be communicated widely to the industry. Together,
this information on supply and demand by variety is providing timely information to growers to
aid in their variety selection decisions.

D . E l E .

Domestic demand expansion for Michigan apples was designated as an important major
improvement objective during the ISPC process because the U.S. market is where the vast
majority of Michigan apples are sold. Expanding domestic demand could also increase both
sales volume and prices that would lead to higher returns to Michigan growers and a more
economically viable industry. The discussions in the Task Force and industry surveys identified
several strategies that would be useful in expanding domestic demand. These strategies focused
on the MAC because that industry organization is the grower funded organization with a primary
responsibility for demand expansion. These strategies included:

0 more emphasis in advertising, promotion, and merchandising programs on new

Michigan varieties with preferred characteristics;

0 an expanded use of trade field persons;

0 new and expanded efforts to use various media to promote and advertise Michigan

apples;

0 an assessment increase for the MAC to provide the funding to develop

these new areas;

 

195

0 increased market research on consumer and trade preferences.

These identified strategies were useful for the MAC in focusing on the priority areas to expand
demand.

In its recently developed strategic plan, the MAC included the priorities and industry
strategies identified by the Task Force as well as much information from the ISPC activities
including the industry surveys requested by the Task Force. A considerable effort by the MAC
focused on achieving industry support through a referendum for an assessment increase to pay
for the expanded and new program focuses. The referendum passed that raises the budget base
for the demand expansion programs. The MAC is now implementing the major new program
components with the improvement objective of domestic demand expansion through its larger
financial base.

mm

In recent years, there has been increasing consumer and government concern about food
safety and the environment in regards to pesticide use. Pesticides are, on the other hand, crucial
to producing market acceptable-quality apples in Michigan because pesticides are necessary to
control the many pests that effect the quality and quantity of apples produced. Hence, pesticide
availability and effective pest management strategies such as Integrated Pest Management are
very important issues in the Michigan apple industry. The Task Force recognized this major
improvement objective as important because the industry wants to be progressive and responsive
to these public needs as well as to provide the market demands for top quality fruit that is free
from pest damage. This would enable the industry to produce the quality demanded by the
market as well as maintaining the consumer's perceptions of apples as a healthy food.

The Task Force and the ISPC process have made some important contributions in this
area. The major industry-university ISPC effort developed a landmark Stewardship Program for

the Michigan Apple Industry Through Integrated Pest Management. This report was based upon

 

 

 

 

196

discussions and analysis with the Task Force working closely with a multidisciplinary team of
MSU research and extension staff as well as with all segments of the Michigan apple industry.
The report discusses the various pest management needs and issues for the Michigan apple
production and considers a number of different methods to most effectively improve the use of
Integrated Pest Management. The overall goal was for the industry to be pro-active in
addressing the pest management issue, to allow the reduction in the amount of pesticide use, and
to decrease the cost of pest management. Areas where additional research would be most useful
were identified. The report was subsequently picked up by the national apple industry
organization and viewed as a "model " of how to go about putting such a report together. This
information was also used by the national apple industry organization (The U.S. Apple
Association) in their various work on pesticide activities.
Exmmfimans'm

As part of the analysis for ISPC, export markets have been evaluated as an excellent
opportunity especially for Michigan. Some export markets have different, less exacting quality
requirements than the domestic market. Michigan apples that do not meet quality requirements
for U.S. customers may be able to earn a good return in certain foreign markets. Furthermore,
expanding export markets provides more outlets and demand for Michigan apples. Historically,
export sales have not been a large percent of the overall market for the Michigan apple industry.

The Task Force identified the export area as an important opportunity for Michigan
based on information developed in the situational analysis and discussions of the Task Force.
Subsequently, several shippers visited some export markets as part of a market exploration
project done with the U.S. Apple Export Council and made valuable contacts. In the 1995
season, a substantial volume of exports went to Brazil. This helped raise overall prices for
Michigan apples. Also, the MAC worked with the U.S. government to ensure that Michigan

apples could be exported to Brazil in relation to phytosanitary requirements. The MAC did this

 

197
along with MSU research through developing a export protocol to meet Brazilian phytosanitary
import requirements in a reasonable manner.
WW

Another area of emphasis by the Task Force and the apple industry analyzed and
implemented strategies to facilitate effective industry responses in tray pack marketing.
Traditionally, the Michigan apple industry has had a very heavy marketing emphasis on
polybags. This change in emphasis by the industry is sought to take advantage of increasing
opportunities in tray pack. As discussed earlier, this shift in emphasis is based upon market
trends and cOnsumer research that indicate that more consumers prefer to buy apples in bulk
displays than from tray pack. However, tray pack Often requires apples which are larger and
more uniform in size and color.

In response to the discussions by the Task Force and information from industry surveys,
some information was developed by MSU to measure the relative returns and hence market
incentives for tray pack compared to bags. This information on returns and market incentives
was developed to indicate the variable price premiums available from marketing tray pack. This
information is discussed Section 4.3.1.1 and summarized in Table 4-6.

Another analysis of the changing trends in the Michigan apple industry's tray pack
volume and percentage marketings relative to bags was completed. This information described
recent Michigan industry performance and trends in regard to expanding tray marketing by
major apple variety. The Task Force may find this information useful when evaluating this
strategic area.

ET' lE'H' “113 1

One of the areas for which the Task Force seems to have been very effective is in

communicating, facilitating, and prioritizing Michigan apple industry needs to non-industry

organizations. Non-industry organizations, such as the USDA or MSU, have an interest in the

 

 

 

198
performance of the industry and can provide resources in various priority areas. The Task
Force seems to be effective at providing a collective industry "voice" to communicate these
priority needs.

The communication of the industry's needs to non-industry organizations has developed
some specific beneficial outputs for the Michigan apple industry. One of these is to strengthen
research support and funding. Research funds have been requested in several high priority areas
that the Task Force has supported. These include Fireblight research, Integrated Pest
Management research, technical characteristics of varieties for processing, consumer market
research, retention of an ARS presence in Michigan, and variety surveys. An example of this is
a recent substantial additional commitment by the U.S. government to fund Fireblight research at
MSU. In another example, industry research priorities for needed research by MSU and
extension have been developed.

The strengthened and broad-based industry voice seems to be effective at promoting
effective responses by non-industry organizations. Non-industry organizations are prompted to
respond because the ISPC leadership group, i.e. , the Task Force, represents the collective will
of the industry. These responses should be particularly effective because they are based within
the overall context and awareness of the industry's future competitive advantage.

4.4.2 Considering Broad Measures of an Industry's Performance

A second way to test the internal validity of Proposition II is to analyze broad measures
of economic performance, such as market share and relative prices, that describe the
competitiveness and economic viability of the Michigan apple industry. To the extent that
performance can be shown to increase as a result of ISPC, then some reasonable level of
confidence in causation can be developed. However, these broad measures are impacted by
many factors and only some of these may have been influenced by the ISPC process. For

example, if the ISPC process identified improvement in a particular broad measure, as the

 

 

199
Michigan apple industry ISPC process did for tray pack volume, then if improvement has
occurred ISPC may have been the cause. Alternatively, some broad performance measures may
take many years to changes, e.g., total volume produced for perennial crops, which means that
those measures would need a long period of time to measure the extent they are impacted by an
ISPC process. Overall, since many short and long term forces affect broad industry
performance trends, the effect of ISPC can only be tentatively assessed at this point in time.

Recent broad measures of economic performance, that were especially noteworthy with
the 1995-96 crop, indicate that the Michigan apple industry's competitiveness and economic
viability seem to be improving. This section. will consider and analyze several important
performance trends for the Michigan apple industry —- at least to the extent that data is available.
These trends include sales volume by major market, total value of Michigan apples, market
share, relative prices, tray marketing, and profitability.
Wt

Sales volume is one indication of performance for a commodity industry. It would be
expected, all other things equal, that an industry's performance and competitive position would
be improving if sales volume to major markets was increasing because this would provide
information on overall growth of market demand for the industry's products. In an apple
industry, sales volume can be expected to vary based upon weather conditions in a given
production season as weather affects total supply that can be marketed. Therefore longer term
trends are an appropriate measure of progress in regard to sales volume.

Three major markets of the Michigan apple industry are the fresh, canning, and slice
markets. Table 4-10 provides information relating to overall market volume for these major

markets. This indicates strong performance for the Michigan apple industry especially in the

1995 marketing year.

 

 

 

 

 

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In the fresh market, 1995 was an excellent year with 9.5 million bushels marketed fresh.
This matches that highest marketed volume (in 1992) to this market. Furthermore, the sales
volume during the 1993-1995 post-ISPC period to the fresh market was greater than in the three
preceding years which were pre-ISPC. This indicates some improved performance for fresh
market volume that is in line with the growth positioning goals developed for the Michigan apple
industry through ISPC. This performance probably reflects the Michigan apple industry's
efforts to improve its competitiveness in this area including the ISPC efforts.

Michigan's canning 3‘ or sauce market increased substantially from the late 1980's
(average 4.9 million) and early 1990's volume (average 5.7 million) in the 1993-1995 marketing
years which are post-ISPC (average 6.2 million). Sauce market share improved substantially in
the recent years of 1993—95 with almost a 20 percent share of the market up from 16 percent
market share in the three previous years. The goal for the industry in its ISPC growth
positioning for sauce volume was to continue the gradually increase in volume. Performance
over the 1993-1995 period represents some success on this goal and continuing strong
competitive position in the sauce market.

The apple slice market is another important market for Michigan. The time period
1993-1995, since ISPC began, has shown an increase in slice market volume that is especially
important given the declining volume in the market had previously been declining during the
1990-1992 period (Pre-ISPC). This performance is the strongest for the industry since the 1989
marketing year and is in line with the rebound growth positioning goal for this market

established by ISPC which was to increase market volume.

 

3“ Most of the canning market for Michigan is for applesauce with some also for baby
food, canned apple slices, and pie filling. Given the predominance of applesauce, this market
segment is simply referred to as "sauce" after this point.

 

 

 

202

The overall sales volume picture shows that the Michigan apple industry is progressing
towards the goals that were developed through growth positioning in the ISPC process. The
high level of fresh market volume is particularly relevant to the ISPC process because the ISPC
process and strategies have focused much of their attention on this market segment. Overall, up
to this point, this broad industry performance measure would tend to support the hypothesis that
the ISPC process is contributing to improved performance. On the other hand, more time is
needed before this can be clearly established.

W

The value of an industry's production provides one indication in an overall sense of the
size and economic health of an industry. In general, more value indicates a better performing
industry. The increase in value could be based upon increases in market volume or prices for an
industry's products.

During the 1993-1995 (Post-ISPC) years, Michigan had strong performance in regards
to total value of the apple crop. In the 1995 marketing year, the Michigan apple industry earned
$ 120 million to growers that is by far the best year in Michigan history of total industry grower
returns. This to some extent reflects a favorable national supply for the Michigan industry
because the Washington apple industry had somewhat of a short year compared to its longterm
growth trend. Nonetheless, this high performance on aggregate grower income also to some
degree reflects enhanced overall industry performance in meeting customer needs and creating
value. The ability of the Michigan apple industry to market its high volume of production in the
1995-96 marketing year at good prices is likely reflective to some extent of the strategies
promoted by the ISPC process and the effective responses by the many competitive firms in the

industry.

 

 

 

203

Marketiharc

Greater market Share is Often viewed as one of the key indicators of firm success --
especially for large firms. An industry's performance in the various market segments it serves
can be examined in a somewhat similar fashion. Expanding market share in a particular key
market might indicate that the price, quality, and service combination offered by an industry is
becoming more competitive with other industries than previously in that market.

Market share Of fresh markets is especially of interest because the ISPC process and the
Task Force has had a strong focus on improving quality management and other strategies for
fresh apples. As has already been discussed, the fresh market may potentially provide higher I
grower returns as well as requiring higher quality levels. However, market share for the
Michigan fresh, sauce, and slice market all provide some indication of the Michigan industry's
performance. The market shares for the Michigan fresh, sauce, and Slice market are shown in
Table 4-10.

The Michigan apple industry's fresh market share for the 1995 marketing year was
almost 7 percent of the U.S. market. This is similar to the other relatively high market shares
achieved in certain recent years such as the 1992 and 1987 marketing years. This probably
indicates increased performance for the Michigan apple industry in the 1995 marketing year (as
well as favorable market conditions). The increase in market share in the 1995 marketing year
is strongly in line with the overall growth positioning, identified by the ISPC process, that seeks
to achieve somewhat higher fresh market share.

The ISPC goal for the Michigan sauce market in growth positioning has been to continue
increasing market share. The recent performance in the post-ISPC period of the 1993-95

marketing years has been an overall increase in market share over prior years that indicates that

this performance goal was met strongly.

 

 

 

 

204

The slice market share was quite high in the 1995 marketing year as the Michigan
industry had a 47 percent market share. This result is similar to the market share achieved in the
late 19808 that the industry's ISPC identified growth positioning had hoped to attain. Overall,
the current market result has substantially exceeded the ISPC growth positioning goals that
sought to maintain current market share for slices.

The market share performance measure strongly indicates that the Michigan apple
industry is achieving strong performance with greater market share as well as attaining its
growth positioning goals for the main markets that its serves. These results would be supportive
of the hypothesis that the ISPC process is contributing to these market goals and playing an
important role in improving industry performance.

B l . E .

Another important indicator of competitiveness in apple markets is market prices of an
industry's products. As an industry's market price increases this could indicate higher
performance of the industry. However, higher market prices for an industry's products could
reflect temporary increased relative scarcity or a short market while lower market prices could
reflect abundant supplies. This means that a more apprOpriate measure for an industry's
performance would be the industry's prices relative to competing industries. The industry's
prices could be compared with overall market prices for the commodity or with prices of a key
competitors for a particular product. Table 4-11 summarizes Michigan and U.S. fresh and
processed grower prices to assess relative prices and Michigan's performance in that regard to
this measure which is an important performance measure from the grower’s perspective.

As shown in Table 4—11, Michigan average fresh prices were 56 - 71% of the U.S.
prices for the 1990-95 period - although there was considerable annual fluctuations. Michigan's
relatively lower price probably is a reflection of its historical focus on the relatively lower priced

bag market and its tendency to compete strongly on price.

 

 

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Overall, a positive change in the Michigan industry’s performance should be noted for
relative fresh prices. During the 1993-1995 period there seemed to less fluctuation in this post-
ISPC period as compared to the three previous years and the three year (1990-1992) decline in
relative fresh prices prior to ISPC was halted.

Considering that substantial percentages of Michigan apples are processed, it is also
irnportant to consider relative processing prices. Table 4-11 indicates that Michigan processed
apples generally receive substantially higher prices than average U.S. grower processed prices.
This indicates that there seems to be a consistent relationship in which Michigan apples receive
higher prices than competitors.

This probably reflects high performance in meeting processor needs as well as strong
group bargaining for processed apples. It may also reflect the fact that Michigan markets more
higher value processed products such as sauce and slices as compared to comparatively low
value juice.

In regards to the ISPC process, relative prices have been higher overall in the post-ISPC
1993-95 period as compared to the three previous years. This suggests that the ISPC process
may have helped to enable the higher relative processed prices. More time would indicate if this
will continue.

IraxMarketing

As has already been discussed, increasing tray pack marketing has been designated in the
ISPC process as a major opportunity for the Michigan apple industry. Nationally the tray pack
market segment is growing and generating relatively high possible returns that are important for
Michigan to have an increasing part of. Success in this area would have increased volume of
tray pack sold as well as a relative percentage increase in the percent of tray pack relative to

bags. The following section discusses current trends in tray pack marketing for Michigan's main

 

 

 

 

207
fresh varieties of Red Delicious, McIntosh, and other important varieties and look at progress in
tray marketing for Michigan aggregating across all fresh varieties.

Figure 4-3 shows the percent of fresh Michigan apples sold in tray pack relative to bags,
aggregating across all varieties. Since 1992, there has clearly been an increasing trend in tray
pack market volume and an overall important shift towards tray pack. By 1995, over 20% of
Michigan fresh apples were sold in tray pack compared to 13 % in 1992.

Much of the increase in tray pack marketings has been of certain established varieties
with large sales volumes, such as, Red Delicious. AS Figure 4—4 shows the percentage of Red
Delicious sold in tray pack increased from around 11% in 1991 to about 16% in the 1995
marketing year. This increase is especially important because the Red Delicious variety has such
a large volume compared with other varieties.

Table 4-12 provides information on tray pack volume for Michigan's major fresh
varieties. The amount of Michigan apples marketed in trays of all major fresh varieties except
Romes expanded dramatically over the time period 1990 to 1995. This indicates Michigan's
expanding capabilities in marketing tray pack demanded by the market. Increased tray pack
marketings may also be a result of increased market incentives for tray pack as discussed earlier
in this chapter and shown in Table 4—6.

The percent of all major fresh varieties (except Romes) sold in trays has also expanded
somewhat as Table 4-13 indicates. Established varieties shifted more towards tray pack than had
traditionally been the case. Newer varieties marketed from Michigan, such as Fuji and Gala,
have a much higher percent marketed as trays than more established varieties such as Red
Delicious. This is having a strong impact on aggregate tray marketing levels because these
newer varieties are expanding production rapidly in Michigan. These two factors have

contributed to the overall expanded tray percentage for Michigan apples and indicates that the

 

 

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Table 4-12. Tray Pack Volume for Selected Michigan Varieties, 1990-1995

 

Pr: - ISPQ Egst - ISPQ

.1229 .1221 1.222 .1223 1224 1225 % Change

-—--------Thousands of 40 pound units ---- 1990-95
Red Delicious 383 221 393 379 382 521 + 36%
Jonathan 83 106 102 112 103 143 + 72 %
McIntosh 90 90 1 16 11 1 134 155 + 72 %
Gala n.a. 12 28 49 54 101 + 741 %‘
Fuji n.a. n.a. n.a. n.a. 10 21 n.a.
Empire 152 180 151 286 222 325 + 1 15 %
Golden Delicious 13 15 21 23 19 27 + 111 %
Romes 90 133 44 73 60 68 - 24 %
Total 784 851 931 1 129 1056 1507 + 92 %

 

' 1991 to 1995.
Source: Marketing Michigan Fruit, Market News Service, various issues.

 

 

 

211

Table 4-13. Tray Pack Percentages for Selected Michigan Varieties, 1990-1995

 

M M
% Change
1229 1221 1.222 .1223 1.293 1225 1990-95
Red Delicious 14% 11% 11% 13% 14% 16% + 2%
Jonathan 10% 11% 13% 14% 14% 16% + 6%
McIntosh 16% 16% 21% 17% 25% 19% + 3%
Gala n.a. 44% 32% 45% 33% 44% n.a.
Fuji n.a. n.a. n.a. n.a. 56% 52% n.a.
Empire 52% 48% 41% 52% 49% 52% + 0%
Golden Delicious 3 % 4% 4% 7% 4% 5% +2%
Romes 14% 18% 10% 13% 11% 13% - 1%
Total 14% 14% 13% 17% 18% 22% + 8%

 

Source: Marketing Michigan Fruit, Market News Service, various issues.

 

 

 

 

212
Michigan apple industry is making substantial progress on achieving its goal of increasing
emphasis on tray marketing.
E E 1 il'

One important measure of industry performance is how profitable are firms within the
industry. Fundamentally, if an industry is to grow and be successful, firms must achieve an
adequate return on their investment to cover their costs including overhead costs and costs for
new investments and modernizations needed to be competitive. Increasing profitability to
growers could also indicate that growers and their industry are doing a better job of providing
value to customers taking into consideration their costs. As part of an overall long term
assessment of the effectiveness of the industry's success, it would be useful to measure
profitability of growers and other apple industry segments such as shippers, processors, and
fresh packers.

Measuring profitability is complex and must take into consideration many factors that
are beyond the scope of the dissertation. This measure is listed here because it is considered an
important potential measure that an overall evaluation of the effectiveness of ISPC process
should consider. One likely important reference for measuring profitability for Michigan apple
growers is from Kelsey and Schwallier (1989) in which grower profitability is evaluated to some
degree. Kelsey and Schwallier evaluate the cost of producing fresh apples in Michigan taking
into consideration labor costs, equipment costs, variable costs, overhead costs, and prices
received from marketing fresh apples. This study could be updated to deve10p time series
observations of the industry‘s profitability including prices as well as costs.

4.4.3 Testing Prescriptive Elements in the ISPC Framework

The ISPC framework developed in Chapter 3 represents a synthesis of conceptual and

theoretical aspects that are drawn from many sources. As discussed in Chapter 1, a third way to

test the internal validity of such a framework is to consider situations in which the procedures

 

 

 

 

 

 

213
indicated by the framework were not necessarily followed. If the actual practice achieves
success, despite not following the framework, then this would indicate that the framework is
perhaps not complete and/or should. be modified, at least, in regard to the specific elements of
the framework related to the situation. However, if the framework's procedures are not
followed and this leads to some aspects of an ISPC process being ineffective, then this would
indicate, at least tentatively, that the framework has additional internal validity because this tends
to substantiate the framework as an appropriate model for an ISPC process.

By and large, the experience of the actual practices of the Michigan apple industry ISPC
case were consistent with the ISPC framework developed in Chapter 3. This means that the
ability to apply the third test is limited. However, all the ISPC framework‘s prescribed actions
were not always followed in the phase of implementation and coordination of specific strategies
especially for the two broad-based industry strategies that addressed:

(1) Premium grade standards for fresh apples

(2) Mandatory minimum quality standards for fresh apples
Some main problems related to these strategies have been that while the ISPC group supported
the strategies, the larger industry has not moved to implement them or even given the strategies
substantial industry-wide consideration. The following discusses: (a) what specifically would
the ISPC framework suggest would be effective and why in implementing and coordinating
broad-based strategies, (b) what specifically was done in regard to each strategy, and ° how the
gap between (a) and (b) may explain the lack of implementation to date in strategy development
and implementation.
4.4.3.1 Broad-Based Strategy and the Framework's Prescription in Implementation and

Communication

Broad-based strategies are industry strategies that require a broad-base of industry

support for the strategies to be implemented. Implementation of a premium grade would require

 

 

 

214
the support of most of the shipper segment in the industry while mandatory minimum quality
standards would require the support of most of several industry segments of the fresh marketing
chain including growers, packers, and shippers. Hence, both these strategies that have not yet
been implemented are broad—based industry strategies.

The framework argues that it is particularly vital for broad-based strategies for the
industry to work to deve10p consensus. A first level of consensus can be achieved through
consensus support of the ISPC group. However, the ISPC framework indicates that this is not
sufficient for broad-based strategies, and the industry needs to generate a well-developed
implementation plan and use an effective communication plan for the broader industry if such a
strategy has a sufficient consensus for implementation. This communication plan should
describe why the strategy is needed and the positive and negative features of the strategy.
Furthermore, the main reasons why the ISPC group decided on the strategy should be explained.
The framework indicates that this set of information should be communicated to the industry in
several forms such as written reports, articles in industry periodicals, etc.
4.4.3.2 Actual Implementation and Communication Planning and the Gap

The previous section discussed the elements of the ISPC framework that address
implementation and communication planning for broad-based industry strategies. It is asserted
here that a main reason why the two indicated strategies were not implemented by the industry
had to do with ineffective implementation and communication planning for the two non-
implemented broad-based strategies, the premium grade and minimum mandatory standards.
The following two sub-sections discuss actual activities accomplished for these strategies in those

areas and the resultant gap between the actual activities and those prescribed by the framework.

 

 

 

215
4.4.3.2.1 The Premium Grade

The premium grade strategy 35 is a strategy to identify a specific set of high quality
levels, mainly focused on fruit condition, that shippers could voluntarily use in marketing their
premium apples. This strategy was supported by the ISPC group and some influential shippers
on the Task Force. Subsequently, a two-page paper that described the premium grade strategy
was developed. The strategy was then brought to the Michigan Apple Shippers Association to
consider the desirability and implementation of the strategy. In the ensuing meeting of the
Association, discussion seemed to focus on the possible negative aspects of the premium grade
rather than the possible benefits, and some shippers did not seem to be very familiar with the
strategy. Furthermore, the influential shippers, who supported the premium grade in the ISPC
group, did not push strongly for the strategy in the meeting. The overall result was non-support
by the Association for the strategy. To date the premium grade strategy has not been
implemented.

The ISPC framework would suggest that improved implementation and communication
planning would have increased the likelihood of implementation of the premium grade. The
framework argues that a well-developed implementation plan should be developed for a broad-
based strategy, and it does not seem that one was developed for the premium grade. The
communication plan for the premium grade seemed to revolve around one two-page paper
describing the strategy and word of mouth discussion in the industry. Other communication
devices such as industry newsletters, forums, etc. were not used extensively. It is not clear that
a full articulation of why the strategy could be beneficial and its positive and negative benefits
was developed. When the Shippers Association met to discuss and vote on the premium grade,

it is likely that a number of shippers were not really sure why they should support the strategy

35 The premium grade strategy is discussed in more detail in Section 4.3.2.

 

 

 

216
and tended to focus negatively on the strategy based, in part, on rivalry among shippers. This
suggests that an important reason why the premium strategy might have been because of
insufficient implementation and communication planning.
4.4.3.2.2 Minimum Mandatory Quality Standards

The idea for the minimum mandatory quality standards strategy“5 had the goal of
establishing a minimum quality level for all Michigan fresh apples, focusing on fruit condition.
The need for this strategy was identified by the Task Force because of the successful use of a
similar approach by a major competitor industry and its potential ability to irnprove quality
management in the Michigan apple industry, a major improvement objective. The Task Force
has supported this idea, but when the idea was brought to the larger industry in tentative
discussions - there was an overall negative reaction. This led to further progress on the idea not
being made even though there were several later Task Force meetings in which support for the
minimum mandatory quality strategy was discussed and reiterated.

It can be suggested from the ISPC framework that a possible reason for the lack of
implementation (or even full consideration) of the minimum mandatory quality standards may
have been the result of insufficient irnplementation and communication planning. In the
implementation planning, it seems clear that the ISPC group did not fully appreciate the level of
effort that would be necessary to achieve implementation of this strategy. When opposition
surfaced, then further implementation planning should have occurred including the methods and
feasibility of convincing or overcoming this Opposition. Another part is that in communication
planning, an effort could have been mounted to describe the possible benefits and costs of the
proposed strategy as well as why it could improve industry performance substantially. This has

not been accomplished to date for the minimum mandatory quality standard. Overall, it can be

3‘ Section 4.3.3 discusses this strategy in more detail.

 

 

 

 

217
suggested based upon the ISPC framework that the lack of implementation of the minimum
mandatory quality standard might be expected because an entire set of needed activities in
regards to implementation and communication for such a broad—based industry strategies were
not accomplished.
4.4.4 Summary of the Tests for Internal Validity

Section 4.4 in total has developed three tests of the internal validity of Proposition 11
about the ISPC framework. The importance of this Proposition is central to examining the
usefulness and effectiveness of the ISPC framework because the ISPC framework is only useful
to the extent that it can serve as an effective guide to an ISPC process that substantially
contributes to improved industry performance. The Michigan apple industry case has provided
one opportunity to examine the internal validity of the Proposition.

The first test examined whether the Michigan apple industry ISPC process had changed
the future course of the industry. It was found that the ISPC process has resulted in strategies in
areas that were deemed most likely to result in improved industry performance. Some highlights
of this are that the ISPC process in the Michigan apple industry seemed to be synergistically
effective at:

O highlighting major improvement objectives for the industry to focus upon;

0 facilitating appropriate industry responses (e.g. , pre-harvest workshop,

consumer market research, etc.);
0 communicating industry needs and priorities with non-industry
organizations such as the USDA, Federal Government, MSU, etc.
These indicate that the Michigan apple industry ISPC process has deve10ped and implemented
strategies that can be expected to result in improved industry performance.
The second test of internal validity focused upon broad measures of economic

performance for the Michigan apple industry. These included sales volume, market share by

 

 

 

218
major market segment, value, relative prices, and tray pack volume. Changes since the
beginning of the ISPC process were examined and results, while necessarily tentative at this
point, indicate generally improving industry performance. Furthermore, the ISPC growth
positioning goals for the industry have achieved excellent progress to date by the industry.
These facts suggest that the ISPC process in the Michigan apple industry is making a substantial
contribution to industry performance.

The third test of internal validity focused on situations in which some activities that were
suggested by the ISPC framework were not accomplished thoroughly in the practice of the
industry. In this section, the experienced difficulties in implementing two specific broad-based
strategies were considered. These two strategies were among those considered as potentially the
most beneficial for the industry’s fresh segment according to the ISPC group; however, they
have not been implemented and did not seem to even receive full consideration by the broader
industry. It seems that the main reasons for this had to do with insufficient consensus building
and implementation planning for the strategies which the ISPC framework indicates are essential
activities for broad-based strategies. This supports the internal validity of the framework in
prescription.

Each of the three tests support the internal validity of the framework based on the
experiences and outcomes from the Michigan apple industry ISPC process. This means that
there is support for Proposition 11, i.e. , an ISPC process, guided by the framework, can

substantially contribute to improved industry performance.

4.5 Synopsis
This chapter has focused upon ISPC efforts in the Michigan apple industry. After
providing some background, the ISPC framework developed in Chapter 3 was related to

experiences in the context of the Michigan apple industry's ISPC efforts. This provided an

 

 

219
illustration of the situations, activities, etc. of the Michigan apple industry as a case study. This
further served as a practical example of ISPC and provided support for the construct validity of
the framework. The ISPC framework is consistent with the Michigan apple industry’s ISPC
process experiences.

A further effort in this chapter focused on establishing that the ISPC process in the
Michigan apple industry has contributed to improved industry performance and thus provides a
type of test of the framework‘s internal validity. Three tests were used in examining this
pr0position. The first two tests respectively indicate that the framework's application in the
Michigan apple industry ISPC process has (1) contributed to altering the course of the industry
that can be expected to lead to improved performance and (2) improved industry performance
has resulted during recent years (although the results are tentative at this point). Further, the
internal validity of the prescription of the framework was supported in a third test where some of
the framework's prescriptive elements seemed to be useful in explaining undesirable industry
outcomes (i.e. lack of implementation of certain strategies) and prescribing some effective
approaches. In an overall way, the internal validity of Proposition 11 has been supported by this
case.

Overall, it was found that ISPC seemed to be effective at aiding an industry in making
important responses to improve competitiveness and economic viability. Strategies were
identified and implemented with this goal in mind. The industry, as a commodity producing

region, seems to be improving performance in creating value through ISPC.

 

 

 

CHAPTER 5
INDUSTRY STRATEGIC PLANNING AND COORDlNATION

IN THE U.S./MICHIGAN TART CHERRY INDUSTRY

The U.S./Michigan tart cherry industry has recently taken some steps toward an ISPC
process. This provides another opportunity to explore and analyze the ISPC process in an
industry case. To the extent possible, the ISPC framework, developed in Chapter 3, is

illustrated with the cherry industry experience. The application of the ISPC framework is

 

necessarily limited in the tart cherry case because the ISPC process in this industry has only been
ongoing for a short period of time. The short time period means that only construct validity and
the prescriptive test of internal validity (test 3) can be assessed and that these tests of validity can
only be through the parts the ISPC framework that have been used.

The first section of the chapter provides an overview of the U.S./Michigan tart cherry
industry. The second section evaluates the extent to which the experiences of the U.S./Michigan
tart cherry industry correspond with the framework as a test of construct validity. The third
section considers the prescriptive test of internal validity where the framework, if it is not
followed, can be shown to explain undesirable industry outcomes. The fourth section describes
the extensive impact analysis that was done for a number of key aspects of the proposed U.S.
tart cherry federal marketing order. 37 This is an important example of impact analysis as
discussed in the ISPC framework deve10ped in Chapter 3, and this impact analysis was used in
facilitating this broad-based industry strategy. The fifth section summarizes key findings of this

chapter.

 

37 The impact analysis was developed by the author of this dissertation working with Dr.
Donald Ricks.

220

 

221

5.1 Overview of the U.S./Michigan Tart Cherry Industry

Tart cherries are a perennial tree crop, grossing from $ 25 to 52 million in U.S. grower
returns in recent years. Tart cherry production is located in a number of states including
Michigan, New York, Utah, Wisconsin, Washington, Oregon, and Pennsylvania. Over seventy
percent of total U.S. production is concentrated in Michigan. Thus, the U.S. tart cherry
industry can be referred to as the U.S./Michigan tart cherry industry. Those who commonly
identify themselves as part of the tart cherry industry are tart cherry growers, processors, and
industry organizations that work closely with growers and/or processors.

There are common and extensive vertical linkages between growers and processors
because almost all tart cherries are processed. Tart cherries are processed into a number of
forms including frozen, pie filling, canned, and juice. Tart cherries are then generally sold by
processors in these processed forms as non-differentiated commodities (Hinman and Ricks,
1991) to food manufacturing, food service and grocery customers who in turn market tart cherry
products to consumers as shown in Figure 5-1.

In terms of vertical coordination, the numerous tart cherry growers’8 often have
longterm relationships with their less numerous processors”. In fact, growers have often
vertically integrated into processing through grower processing cooperatives. Further stages in
the production-marketing chain do not have such close longterm relationships. For example,
since food manufacturing and grocery customers generally deal with many food products along
with tart cherries, and because tart cherries are often viewed as a minor product by these firms,

they usually buy cherries on a spot market basis. However, the overall marketing activities

38 The 1995 Michigan Rotational Fruit Survey listed 846 tart cherry growers for the state of
Michigan.

39 The 1994 Red Tart Cherries Crop Statistics & Market Analysis listed 64 processors.

 

 

222

 

Growers

The U. SJMichigan

Tart Cherry
Industry

 

V
Processors

Food
Man ufactu “ISA Export
Grocery

Y
Food Service _
Firms Retail-Wholesale

\ /

Consumers

 

 

 

 

Figure 5-1. The U.S./Michigan Tart Cherry Industry and Marketing Channels

 

223
(e.g., pricing, product line decisions, advertising, etc.) of these customers have important effects
upon overall demand for tart cherries and thus have substantial indirect impacts on growers and
processors.

One key feature of the overall tart cherry market for the U.S./Michigan tart cherry
industry is that demand is price inelastic. That is, relatively small changes in volume marketed
causes a greater variation in prices - especially at the farm level. This is a problem because
there is commonly substantial variation in tart cherry production.

Production of tart cherries can be quite volatile from year to year due largely to weather
effects such as spring freezes and the concentrated of production in relatively localized areas,
such as, Michigan and in the other nearby major tart cherry producing states of New York and
Wisconsin. The fluctuations in supplies, in combination with the inelastic market demand,
results in prices and returns to growers which are exceptionally volatile from year to year. For
example, in the 1982 marketing year tart cherry grower prices were 13.5 C/lb. with a total
market supply of 264 mil. lbs. while in the following 1983 marketing year tart cherry grower
prices were 49.1 C/lb. with a total market supply of 169 mil. lbs.

Acreage adjustments at the grower level take a number of years, since tart cherries are a
perennial crop with a planning horizon of many years. This means that there can be periods of
relative oversupply or undersupply in tart cherry production along with the frequently volatile
prices.

Ricks et al (1978) note that the volatile tart cherry prices impose a high level stress due
to risk and uncertainty on all phases of the tart cherry production-marketing system. They note
that this leads to a number of negative effects which are (p. 12):

1. Hampers development and introduction of new cherry products.

2. Reduces the number and frequency of cherry products offered for sale by
restaurants and other food service establishments.

 

 

 

 

 

224

3. Causes consumers and food service managers to discontinue buying and
using cherry products (for some this remains a fairly permanent behavior
pattern).

Restricts manufacturer's promotional activities for tart cherry products.
Reduces the budget of industry promotional organizations and thus
hampers and disrupts their promotional activities.

6. Reduces the amount of shelf space and hence consumer exposure to
cherry products in retail grocery stores.

Hampers the development of export markets.

Reduces the incentive for processors to build sufficient processing
facilities to handle the largest crops.

5"?

9°>l

This indicates the real problems caused by volatile tart cherry prices and this remains as a
central issue in the U.S./Michigan tart cherry industry. Indeed, the supply management

provisions of the recently ratified tart cherry FMO are designed to reduce this price volatility.

5.2 The ISPC Framework Applied with the U.S./Michigan Tart Cherry Industry

Leaders of the Michigan/U.S. tart cherry industry decided in 1996 to undertake a
comprehensive round of an ISPC process. Although this particular effort is in its early stages, it
can provide some useful insights as an early-stage industry case study. At the current time, the
process initiation phase of ISPC is underway. The following relates the experiences in the
U.S./Michigan tart cherry industry ease up to this point in time to the ISPC framework
developed in Chapter 3.
5.2.1 Process Initiation

The ISPC framework indicates the first step in ISPC is process initiation This involves
steps for heightened awareness of needs and decisions by industry leaders that industry strategic
planning and problem solving can be useful. In the U.S./Michigan tart cherry industry,
initiation began because some industry leaders were impressed with the recent results of ISPC in
the Michigan apple industry and saw the possibility of gaining similar benefits for their industry.
The very low tart cherry prices for the 1995 crop further pr0pelled interest in ISPC because

there was an increased awareness in the industry that there were significant problems in the

 

 

 

 

225
industry and that changes needed to be made. In essence, this meant that the climate was
favorable to begin an ISPC process.

Several industry organizations played an important role in considering ISPC for the
U.S./Michigan tart cherry industry. These organizations represent ongoing industry group
efforts towards improving industry performance. Three industry organizations played pivotal
roles of particular note. The Cherry Marketing Institute (CMI), which is an organization funded
by growers with the goal of expanding demand for tart cherries, provided early impetus for the
ISPC efforts. The Michigan Agricultural Cooperative Marketing Association - Tart Cherry
Division (MACMA), a cooperative group focused on cherry marketing, was also involved.
Michigan State University (MSU) through extension and research in the department of
agricultural economics has had a long term focus on improving the performance of the
U.S./Michigan tart cherry industry.
5.2.1.1 Articulation of an Industry Need for an ISPC Process

The framework developed in Chapter 3 indicates that one essential task in ISPC process
initiation is for the industry to articulate a need for an ISPC process. This requires some
substantial industry support for an ISPC process at least among a core of t0p industry leadership.
This support is essential because an ISPC group and an ISPC process need to have a sufficient
mandate to represent an industry.

The articulation of the need for a U.S./Michigan tart cherry ISPC process came in
several parts. Initially, staff from CMI, MACMA, and MSU met to consider a comprehensive
ISPC effort, and they supported the idea. After several meetings of the staff development
committee, a large industry ISPC conference was held with representatives from key Michigan
tart cherry firms and industry organizations participating. This group decided by consensus that
developing an ISPC process for the broader U.S./Michigan tart cherry industry would be

potentially useful. Subsequently, a national conference of leaders from the major tart cherry

 

 

 

226
producing states throughout the U.S. was held and the participants decided to support the ISPC
idea for the tart cherry industry. Furthermore, the group decided to form an ISPC leadership
group, called the Tart Cherry Industry Council (Council).
5.2.1.2 Formation of an ISPC Leadership Group

The framework developed in Chapter 3 indicates that another important task in ISPC is
group formation. This ISPC group can provide a core leadership role for the ISPC process. It
may also facilitate some strategy decisions for the industry.

In forming a group, important decisions related to the structure of the group and
representation in the group are made. In the U.S./Michigan tart cherry industry, a national
industry council or leadership round-table format was selected. All key U.S./Michigan tart
cherry industry organizations were represented as shown in Figure 5-2. This involves top
leadership from all major tart cherry organizations in the ISPC process. Organizers of the initial
ISPC conference noted that involving the staff from the key industry organizations in planning
the meeting seemed to be effective in helping to get key industry leaders within those
organizations involved. This involvement of industry leadership should provide an important
benefit to the Council as a panel of experts focused on the needs of the industry.
5.2.1.3 Selection of a Common Set of Objectives

As the framework in Chapter 3 discusses, selecting a common set of objectives is an
important decision in ISPC process initiation. The common set of objectives outlines what the
ISPC group and process is seeking to achieve. Developing such a set of objectives can be useful
in communicating the goals of an ISPC process to the broader industry.

In the U.S./Michigan tart cherry industry, one of the decisions of the cherry industry
group, who decided on the formation of the Council, was to develop a set of goals for the
Council. These goals for the Council are to:

0 Identify, define, and prioritize major industry problems, issues and opportunities.

 

 

 

 

 

 

MACMA
Tart Cherry
Division

 

 

 

 

 

Red Tart Cherry
Information
Program

 

 

 

 

Industry
Advisory
Board

 

 

 

 

Michigan State

 

Society

 

Horticultural ‘——>

 

 

Michigan
Department of
Agricultural

 

 

 

 

Utah Cherry
Growers
Association

 

 

 

Oregon Tart
Cherry Growers
Association

 

 

 

227

 

 

Cherry

Marketing
Institute

 

 

 

 

     

ll

 

   

U.S.

Tart
Cherry

Industry
Council

A

 

V

Michigan
Cherry
Committee

 

 

 

 

 

Washington

Tart Cherry
Growers

 

Michigan Food
Processors
Association

 

 

 

 

Cherry
Processors

 

 

 

 

/ Michigan

‘—-~ State

 

 

 

\ University

 

New York
Cherry Growers
Association

 

 

Wisconsin Red
Tart Cherry
Growers
Association

 

 

 

 

 

 

 

Pennsylvania
Cherry

Growers

 

 

Figure 5-2. The U.S. Tart Cherry Industry Council

 

 

 

 

228

0 Discuss and recommend solution approaches for priority issues.

0 Identify and recommend who would logically implement the needed steps.

0 Provide a Visioning round table as an industry group for discussing major

problem areas, commonalities, and industry needs.

0 Provide a broad industry group to communicate industry needs.

These could be viewed as a preliminary statement of common objectives for the Council.
5.2.1.4 Development of a Method to Pay the Costs of the ISPC Group

The ISPC framework from Chapter 3 discusses that it is important to develop a method
to pay the costs of the ISPC group because necessarily an ISPC group entails some expenses.
These include the costs of going to meetings, communications, staff resources, etc. It is
important to consider who will pay these out-of-pocket expenses. There may be a free rider
problem of financing ISPC costs in that having an ISPC group can provide substantial public
good benefits.

In the U.S./Michigan tart cherry industry, the costs of the ISPC group have initially
been covered by a combination of the CMI, MSU, the Michigan Cherry Committee, and
MACMA. However, there has been some expectations that other industry organizations would
also pay some of the costs of the Council. Leadership amongst these organizations have not yet
come to an agreement on how to pay for the group on an ongoing basis. Furthermore, as the
Council has membership from throughout the U.S. , there are substantial costs to members of the
Council in attending a meeting associated with travel. Both these aspects pose some challenges
to the ISPC process in this industry.
5.2.1.5 Provision of Staff Support for the Process

The framework suggests that it is desirable in an ISPC process for the ISPC group to
designate some individuals as staff support. The staff support can prepare analyses and

information requested by the ISPC group. Furthermore, the staff can facilitate effective

 

 

 

229

communication within the ISPC group and to the overall industry based upon the many roles
necessary for consensus decisionmaking and moving a large, complex industry in some common
strategic directions. Hence, it is beneficial if the ISPC group is able to designate some
individual(s) to fill the staffing roles.

In the U.S./Michigan tart cherry case, staffing has largely been provided by the main
supporting industry organizations. These have included staff from the CMI, MSU, MACMA,
and the Farm Bureau. Currently, three key staff from the CMI, MSU, and MACMA provide

staffing for the Council.

5.3 Progress in ISPC Through the Council

Based on the ISPC framework developed in Chapter 3, it would be expected that once
the process initiation phase is well underway that the next phase for emphasis would be the
strategic planning phase itself including the steps: (1) situational analysis, (2) determination of
the industry's vision and guiding strategies, etc. Instead, the Council quickly decided to focus
on specific program development which relate to the implementation and coordination phase in
the ISPC framework. These two program strategies were:

0 Developing and implementing a "super-coop",

0 Effectively deve10ping policies and implementing the new FMO.
The need to implement of these two strategies, which had received considerable prior industry
attention for strategy development, was judged to be very pressing and t0p priority by the
industry's leadership.

The decision to focus almost exclusively so far on implementing the two strategies listed
above has meant that the Council has to date proceeded in only a limited fashion on broader,
more comprehensive ISPC aspects. One of the initial Council meeting was devoted to issues

related to the "super-coop". Further, meetings of the Council were requested to be scheduled

 

 

 

 

230
just preceding the meetings of the new FMO Board in order to reduce travel costs incurred by
industry leaders from various states in travelling to both a Council meeting and the FMO Board
meeting. Since the FMO issues were deemed of more immediate urgency, this scheduling
resulted in limited progress on broader strategic planning issues. Industry leaders point out that
much of their limited available time, attention, and resources for this type of broad industry
improvement planning by industry leaders were being taken up by the FMO and the super-coop
strategies. However, these two strategies are two of the very top priority new strategic
directions needed by the industry. Thus, the decisions by the industry to concentrate their scarce
leadership resources on these two strategies at this time is a logical approach and is consistent
with the industry’s top priority.

The progress to date indicates that there are obstacles to immediate further concentration
on a comprehensive ISPC process for the tart cherry industry at this time. Instead the industry
has decided to focus on the two main strategies and to limit the industry’s broader ISPC efforts
for now. The main obstacles to a broader and more comprehensive ISPC process at this time
are mainly the lack of leadership time and, as a much less important factor, the high cost of
group meetings that limit the frequency of broad-based meetings. The framework suggests two
possible approaches towards a comprehensive ISPC process.

One possibility to stimulate further comprehensive ISPC through the Council would be
to extend the articulation of the need for ISPC. This could encourage industry leaders to focus
more attention on an ISPC process as well as expanding understanding of the need for the
Council. An assessment of a broader array industry interests and problems might further
confirm that this is not be the best moment in time for doing an extensive and comprehensive
ISPC process this industry. Perhaps when the FMO and/or the "super-coop" are well underway
with their implementation, then that would be a better time for concentrating on a comprehensive

ISPC plan. Expanded articulation of the need for ISPC might further encourage firms and

 

 

231

industry organizations to support and pay the cost of the ISPC group - but this seems unlikely at
this time.

Another possible method to stimulate a more comprehensive approach and broader-based
ISPC progress make use of a smaller ISPC group. This would reduce the obstacle of costly
travel expenses. In the current organizational structure, key leaders from all major tart cherry
organizations are expected to be quite active, and this makes it inherently expensive to the
industry leaders to get together in the U.S./Michigan tart cherry case. A smaller organizational
structure might be politically expedient if most segments are represented. This suggests one
possibility to reduce the costs of the organization through reconstituting it with fewer, more

committed members who are mainly from Michigan. This would reduce the costs of the Council

 

in general, and industry leaders in the leading state could relatively inexpensively attend a
meeting. The Council, as it developed key strategies, could then bring the ideas to the larger
industry's leadership at periodic intervals, such as, at FMO Board meetings.

In summary, there are some current heavy concentration on the FMO and a super-c00p
as new program strategies with less industry focus on a comprehensive ISPC process in the
U.S./Michigan tart cherry industry. This section has discussed some of the key issues,
problems, and related settings that are involved. Two different alternatives were identified,
based on the ISPC framework, that the U.S./Michigan tart cherry industry might use to address

the current problems with the Council.

 

 

5.4 Impact Analysis of the Federal Tart Cherry Marketing Order

The new FMO program was developed through some extensive industry-wide strategic
planning which emphasized several major problem areas of the industry. It represents a broad-
based industry strategy to improve the tart cherry industry's competitiveness and economic

viability. Although each of the steps developed in Chapter 3 were not followed explicitly, the

 

 

 

 

232
efforts with the FMO can be related to at least some aspects of the ISPC framework and are
instructive as to how to effectively approach developing and implementing such an industry
strategy in a comprehensive ISPC framework. The following discusses developing and
implementing the FMO.

The FMO was developed with some major leadership from the CMI, a key industry
marketing and promotion organization, as well as many other industry leaders. The CMI further
worked closely with the U.S. Department of Agriculture in developing a FMO that would meet
USDA policy requirements to be enforced, if necessary, by the rule of law related to marketing
orders. The CMI spent substantial time and other resources holding the many industry strategic
planning sessions, industry consensus development, the necessary public hearings, developing
legal documents, etc. necessary for the FMO.

A key step in getting the FMO implemented was a referendum of both growers and
processors. Prior to the referendum, the CMI leadership worked to explain the need for the
FMO through grower and processor meetings and explaining the need and likely effect of the
then proposed FMO. In this effort, the industry leadership also requested MSU extension to be
involved in explaining the likely economic effects of the FMO. An impact analysis of the FMO,
described later in this chapter, was used in analyzing some of the potential impacts of the FMO
under different circumstances. This FMO impact analysis provides an example of an impact
analysis that was described as a possible tool in the ISPC framework developed in Chapter 3.

The FMO impact analysis focuses upon FMO supply management in the U.S. tart cherry
industry. Supply management with the FMO is based, in part, upon the need in the industry to
reduce dramatic market supply and price fluctuations and the associated risks caused by wide
swings in tart cherry production. For example, in some years grower prices have been as high
as 45¢/lb while in other years prices have been as low as 5¢/1b. This high level of supply and

price fluctuations leads to a highly variable grower income as aggregate industry grower income

 

 

 

233

has recently been as low as $ 30 million or as high as $ 88 million per year. Furthermore, as
mentioned earlier, the large supply and price uncertainties can lead to considerable marketing
systems problems in other parts of the production-marketing system, such as, food manufacturer
customers.

The follow subsections focus upon the impact analysis for the FMO that was developed
to assess the potential effect of the FMO on industry prices and income. This impact analysis
has several important parts that together help to assess the likely impact of the FMO. The first
part relates to the mechanics of the FMO as they affect supply management for the industry.
The second part discusses the Tart Cherry Federal Marketing Order Board (Board) and different
choices the Board has in implementing the FMO. The third part uses and develops equations
estimating the effect of supply on price. These equations are subsequently used to analyze the
effect on grower prices and income of the various choices the Board has in implementing the
FMO under several industry scenarios.

5.4.1 Mechanics of the FMO

One essential part of developing a relevant impact analysis for the FMO is to consider
the specific mechanics of the FMO that relate to when and how supply would be regulated under
the program. The FMO has specific provisions for use of formulas that to some extent
determine when and to what extent supply provided by growers can be balanced with demand
and how optimum market supplies can be calculated for a particular marketing year.

One key calculation described in the FMO is to determine the Optimum Supply (OS).
The optimum supply according to the FMO is the average aggregate U.S. tart cherry industry
movement (M) in the last three marketing years combined with " desired carryout" (DCO).

Desired carryout is also defined in the FMO to not exceed 20 million pounds and within the

 

 

 

234
range of 0 to 20 million pounds is determined by the FMO Board 4°. This results in the

following equation for the optimum supply:

0S=M +DCO

A second key calculation builds on this optimum supply calculation to determine the maximum
amount of marketable production from the new crop or "free tonnage" (FT) that is allowed on
the market in that year according to the FMO. The FMO includes a provision that the optimum
supply must be adjusted upward for potential market growth and carryover from the previous
year. Thus, "free tonnage" is equal to the optimum supply less the actual carryover from the
previous marketing year (CO) and adjusted for a potential market growth of 10% of the 3
previous years. The provision for market growth supply seems to indicate in a simplified form
to add 10% of the three year average movement (M) for an available supply adjustment for
potential market growth. Putting this in an equation form results in the following equation for

free tonnage:

FT=OS-C0 +0.1M

As an example, Table 5-1 shows the optimum supply and free tonnage calculations for
the 1995 marketing year. The targeted optimum supply and free tonnage shown in the Table are
based upon the formulas for these two items in the FMO described above. With the 1995
example in Table 5-1, this yields an optimum supply of 291 mil. lbs. and a free tonnage of 238

mill. lbs if the FMO had been in place in 1995.

 

 

 

4" In a particular market year, the usual level of carryover is 20 million pounds and it would

be an unusually short, i.e. , low supply year, for carryover to be much less then 20 million
pounds. Further, it seems likely that the Board would often designate DCO as 20 million
pounds. Hence, it is assumed for the purposes of this analysis that DCO equals 20 million
pounds.

 

 

235

Table 5-1. An Example of Optimum Supply and Free Tonnage Based on the
Situations in the 1995 Marketing Year

(mil. lbs.)
Average Movement 3 Previous Years (M) . 271
+ Target Carryout (DCO) 20
= Optimum Supply (OS) 291
+ 10% for Market Growth (0.1*M) 27
- Carryover from Previous Year (CO) 80
= Free Tonnage from Current Crop (FT) 238
Total U.S. Processed Tonnage 309
+ Non-harvest Diversion Credit 59
= "Harvestable" U.S. Crop 359
- Free Tonnage from Current Crop (FT) 238

= Regulated Tonnage (RT) 121

 

 

 

236

One provision in the FMO is that if "harvestable" new crop production is less than the
calculated free tonnage, then the FMO will not be used that year to temporarily balance supply
with demand. However, if "harvestable" new crop production (S) does exceed free tonnage,
then the market supply can be regulated by the Board to balance more closely with demand by
regulating the excess over free tonnage that will be available for the market in that year.
Regulated or surplus tonnage (RT) is only relevant when the new crop production exceeds the
calculated free tonnage. Regulated tonnage is the surplus amount of production in the regulated
states 4‘. The amount of regulated tonnage is determined by subtracting the free tonnage from

that year's "harvestable" production as described in the following equation:

RT=S-FT

Regulated tonnage can also be expressed as a percentage of new crop production in the regulated
states. For example, if total production in regulated states was 400 million pounds and 100
million pounds were restricted tonnage, then 25 % of production would be regulated under the
FMO that year.
According to the FMO, processors and growers could choose among at least three main
options for their regulated production. These options are:
1) Non-harvest diversion: In this case a grower chooses to leave unharvested
a portion of the farm's surplus production and to receive certified non-
harvest diversion credit in some fashion determined by the Board.
2) Primary inventory reserve: A second possible alternative is for some

portion of the regulated production to be processed and stored in what is

 

4‘ According to the FMO, production in the states of Michigan, New York, and Utah can be
regulated or restricted under the marketing order. Production in Washington state or other states
would be regulated if and when their state's production exceeds a three year average of 15
million pounds. Washington state is currently very near to that 3 year average threshold.

 

 

 

 

237
called by the FMO as the "primary inventory reserve". The intent of this
inventory reserve it to remove from the supplies in a surplus years and to
market this inventory reserve at a later time when market supplies are
short.

3) Secondary Markets: A third possible option may be for the regulated
cherries to be marketed to designated secondary markets, such as dried,
school lunch, export markets or new products - but only if the Board
decides to approve diversion credits for certain of those developing
markets.

These provide various alternatives for dealing with regulated tonnage and to some extent may be
influenced by Board policy - especially regarding the secondary market Options.

Table 5-1 shows the calculation for regulated tonnage if the marketing order had been in
place in the 1995 marketing year. Of the total 1995 new cr0p production of 393 million pounds,
it was estimated by the USDA that 84 million pounds was abandoned and 309 million pounds
were utilized for processing. 81 million pounds of the abandoned production was in regulated
states. It would be expected that perhaps about 50 million pounds in the regulated states would
qualify for non-harvest diversion credit. This leads to a 359 million pound "harvestable"
production based upon FMO calculations. Regulated tonnage would then be 121 million pounds
based upon subtracting free tonnage from the "harvestable" U.S. crop.

What could be done with regulated tonnage will, to some extent, be determined by the
policies of the FMO Board. This means that there is some possible variation in the effect of the
FMO based upon Board policy and that, at this point in time, actual Board policy is evolving. It

is important to consider the possible effect of various Board policies in analyzing the effect of the

FMO. The next section discusses various possible Board policies.

 

 

238
5.4.2 Effects of Board Policy on Secondary Market Diversion Credits
In the event that, in a given year, there is restricted tonnage under the FMO, then the

FMO Board has considerable flexibility in some options for secondary market diversion credit
for the restricted tonnage. Non-harvest diversion credit is expected to be a common option for
growers if documentation procedures for the tonnage are followed. In addition, the Board has
the authority to grant diversion credits for tart cherries utilized in several different " secondary
market" uses 4". These uses may be generally for dried, export, school lunch, new uses, new

markets, experimental uses, etc.

The effect of allowing these secondary diversion credits is to increase supply available to

 

the market by the amount of the approved secondary market diversion credits. In general, the
use of Board discretionary diversion credits would be expected to reduce the magnitude of

supply management and hence to a degree the effect on market prices.

 

In analyzing potential effects of the FMO, three different scenarios were developed. In
one scenario, the average of the last three year's industry total cherry movement in the optimum
supply formula is adjusted for average of the 3 year's movement for secondary markets that
receive diversion credit. Another scenario is based upon the Board approving diversion credits
for those secondary markets - but without adjusting the average of the previous 3 year's
movement for these secondary market uses. A third scenario is based upon a Board adopting a
policy of no secondary diversion credits (outside of non-harvest diversion).

Which of these scenarios might actually be approved by of the Board in granting
diversion credit and adjusting the formula is not clear at this time. The use of scenarios provides

some range of expectations for the possible impact of the FMO as well as providing information

that may be of use to the Board in making choices.

 

‘2 Tart cherries processed into juice are, however, not eligible for diversion credits.

 

239

5.4.3 The Grower Price Equations

Another part of this example impact analysis of the FMO is to analyze the effect of
supply management on tart cherry grower prices. This is important because the main goal of the
impact analysis is to evaluate the potential impacts of the FMO on growers. While supply on the
market can, to some extent, be determined by the FMO provisions and Board policies, the effect
of the supply on prices is determined by market demand and the supply-price relationships. This
section explains, based upon historical price-supply relationships, estimates the effect of supply
on price. Since under the marketing order the supply of tart cherries could be restricted in
certain surplus marketing years, then the equation can be used to simulate the FMO's likely
effect.

Graphically looking at the effect of supply on prices provides some useful information in

estimating price-supply relationships because annual supply is usually the dominant factor in

 

 

impacting cherry prices. Figure 5-3 shows U.S. season average tart cherry grower prices3 and
total supply ‘4 for the most recent 15 years, 1980-1994.

In Figure 53 an interesting feature is apparent regarding the relationship of cherry
supplies and prices. When the industry has more than 250 million pounds of total supply“, it
seems that prices gradually decline as supply increases and prices are less than 20 C/lb.
However, when supply is less then 250 million pounds (as shown by three observations), then

the grower price is dramatically higher, in the 45-50 C/lb, range and additional amounts of

 

‘3 In later discussions in this section, U.S. season average grower prices are referred to as
prices unless otherwise indicated.

4“ Total supply is the total supply of raw product equivalent tart cherries at the beginning of
the marketing year. Sources of supply include the July 1st USDA production estimate,
carryover stocks, and production from Washington state, all converted to their raw product
equivalent.

‘5 Supply henceforth will refer to total supply.

 

240

 

 

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supply in this range have had relatively little effect on prices until supplies reach about 250 mil.
lbs. The cause of this may be the result of a "short market" mentality where, because of
inelastic demand markets, food manufacturer customers and hence processors pay exceptionally
high prices to receive all supplies possible to obtain as much a share of the short market supples
as possible to achieve an acceptable level of product flow for their product lines. It is also
possible that other variables such as the prices of substitute products might explain this, but
analysis using the consumer price index, the price of frozen blueberries (an important substitute
product for processed tart cherries), and disposable income did not explain the difference. This
raises the real possibility that two different price-supply segments might best explain the
relationship between cherry prices and supply. These two segments seem to be:

1) when supplies are "short" or below 250 mil. lbs (based upon the three

observations);

2) when supplies are relatively " normal" , i.e. , when supply is more than 250 mil. lbs.
In modeling the price relationship between prices and supply, these different segments can taken
into consideration in selecting functional form for the relationship. Given this, two separate
functional forms were estimated in analyzing the effect of supply on price at the grower level.

The first equation estimated used a linear functional form and explicitly recognized the
two different segments of the price-supply relationship discussed above. Two individual price
segments were separately estimated with the observations from each segment. These two
equations define one continuous piece-wise linear price-supply model over the total range of
possible supply.

Another equation was estimated using a semi-log functional form and included all
observations in the estimation from the 15 year period. This flexible functional form had
sufficient curvature to provide a reasonable estimate of the relationship without using two

equations.

 

 

 

 

242

In choosing the most appropriate functional form it is important to consider the purpose
of the estimation. This purpose is to evaluate the effect of FMO supply management upon
prices. Considering that, based in provisions of the FMO, it is extremely unlikely that supply
will be restricted when supply is less then 250 mil. lbs., then there is some question as to what
extent the high price observations (i.e. , with supply less than 250 mil. lbs.) should have upon
coefficients explaining supply-price relationships that are greater than 450 mil. lbs. Hence, the
linear piece-wise grower price model was used in evaluating the possible effect of the FMO.
However, it is recognized that other researchers focusing on other goals may want to use the
price equations estimated here. Hence, a description of estimates using the semi-log functional
form is provided as well.

A visual depiction of the linear piece-wise and semi-log equations along with the actual
price-supply observations is provided in Figure 5-4. As can be seen, the overall effect of both
equations is quite similar. However, for possible situations where supply is out of range of the
data, i.e., when supply is greater then 250 mil. lbs., the linear equation is probably more
appropriate because the it does not contain curvature caused by the three high price observations
as the semi-log equation does. This reinforces the use of the linear equation, especially since the
1995 marketing year had record supplies that were much greater then previous marketing years,
i.e., the situation to be simulated and assessed was out of range of previous observations upon
which the equations were based.
5.4.3.1 A Piece-Wise Linear Grower Price Equation

The following is a summary of a piece-wise linear price model for marketing year
average tart cherry grower prices. The equation was estimated in two pieces because the three
high price observations with total supply less than 250 mil. lbs. are quite different from price
observations with more than 250 mil. lbs. as discussed in the last section. The first piece of the

equation is for situations when total supply is greater than 250 mil. lbs. and describes situations

 

 

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where the FMO supply management provisions are likely to be operational. The first piece of

the estimated equation to determine the effect of total supply on average grower prices is:

(1a) PG =40.93 - 0.0704 TS
(6.97) (-4.16)

where:
PG = Marketing year average grower price for raw cherries (C/lb.);
TS = Total supply of tart cherries46 (mil. lbs. of raw product equivalent).
The equation uses data from 1980 to 1994 where total supply exceeded 250 mil. lbs. The values

in parenthesis are t-statistics, and the R2 value of the estimated equation is 0.63. This equation

 

can be used to look at departures or changes from actual conditions in a time period when total
supply exceeds 250 mil. lbs.

If the supply of new crop and carryover is less than 250 mil. lbs., then the above

 

estimated equation would not be most appropriate. For the purposes of analyzing the effect of
the FMO, this is of less interest, but for other purposes a linear line was developed for this range
based upon on the three observations. The equation for the range where total supply is less than

250 mil. lbs. is:

(1b) PG=117.08 -0.375 TS

Relevant statistical measures are not possible for equation (1b) because of degrees of freedom
issues.

The two equations (1a) and (1b) together develop a continuous, piece-wise linear grower
price equation. If supply is greater than or equal to 250 mil. lbs. then equation (1a) is relevant

and if supply is less than 250 mil. lbs. then equation (1b) is relevant.

 

4‘ Total supply is based upon the mid-June USDA supply estimate, Washington state
processed production, and July 1 carryover stocks all converted to raw product equivalent.

 

 

 

245

5.4.3.2 A Logarithmic Grower Price Equation

Another alternative for the price model is to estimate the effect of total supply on price
using a flexible functional form that does not have two pieces as the earlier equation does. The

following equation estimates the natural logarithm of grower prices as a function of total supply:

(2) LNGR =4.99 - 0.00635 TS
(21.79) (-8.96)

where:

LNGR = The natural logarithm of marketing year average grower

price for raw cherries (C/lb.)

 

TS = Total supply of tart cherries 4" (mil. lbs. of raw product equivalent)
This equation uses data from 1980 to 1994. The values in parenthesis are t-statistics, and the R2
value of the estimated equation is 0.86. This equation can be used to look at departures or
changes from actual conditions in supply.

5.4.4 Estimated Economics of the Federal Marketing Order

The overall analysis of the potential economic returns of the FMO focused on how the
FMO would effect growers. To the extent the FMO restricted quantities on the market in a
given year, it would likely increase prices and grower incomes. The key overall comparison is
how the effect of the FMO compares to a situation without the FMO. However, this overall
comparison is complicated because the FMO's effect is variable due to the effect of Board
policy.

The FMO Board has some flexibility in managing the effect of the FMO's supply
restriction due to Board options regarding diversion credits, even though there is a formula for

"optimum supply" specified in the FMO as discussed earlier. The means that the functioning of

 

‘7 Total supply is based upon the mid-June USDA supply estimate, Washington state
processed production, and July 1 carryover stocks all converted to raw product equivalent.

 

 

 

 

 

246
supply management in the FMO is not completely determined by the formula, but depends to
some extent upon the Board policies. Given this fact, three FMO scenarios were developed in
the analysis to consider the possible effect of the FMO under various scenarios describing
several possible Board policies. Two main choices of the Board in supply management are to
what extent the Board will grant diversion credits for secondary markets and whether the
average of the last 3 year's movement will be adjusted for secondary or developing markets.
These choices underlie the three FMO scenarios that are developed in the analysis.

One fundamental alternative to the FMO scenarios to not have the FMO. This would
mean that other market forces would determine the quantities available to the market as well as
market prices. The grower price equation (1a) provides a schedule of projected prices for
various quantities available to the market. Table 5-2 summarizes these for a number of relevant

quantities.
Table 5-2. Estimated Grower Prices for Selected Quantities of New U.S. Crop

[1,5, Qmp MEIR: Wm
(mil. lbs.) (C/lb.) (million $)

265 16.8 44.5

290 15.0 43.6

315 13.3 41.8

340 11.5 39.2

365 9.8 35.6
—

The following three subsections evaluate the possible effects of the scenarios based upon
the analysis with different Board policies for possible 1996 scenarios and a 1995 example. This
provides an overall range of possible variation given the currently uncertainty about policies

from the Board. A final subsection provides an overall comparison of the analysis results with

 

 

 

 

 

247

the various scenarios and the no FMO situation in an example based upon the 1995 marketing
year.
5.4.4.1 Scenario #1 - Movement Adjusted for Developing Markets

This scenario reflects a possible Board policy that would reduce the average of the last
three year's tart cherry movement by the volume marketed to dried and export markets. This is
also based on the assumption for these scenario that these two markets would be approved for
diversion credit for surplus cherries. In effect, the average industry movement is adjusted to
reflect only movement in the main, well-developed tart cherry markets (not including dried and
exports). Movement in dried and export markets are not used in determining the optimum
supply. However, dried and export markets are assumed to be granted diversion credits.

An example of the effect on the grower segment of the industry for scenario #1 in the
1996 marketing year is shown in Table 5-3. The recent average 3 year total movement of 291
mil. lbs. is adjusted by the 31 mil. lbs. recent movement from dried and export markets so that
the adjusted 3 year movement for the FMO calculations is 260 mil. lbs. According to the
marketing order's optimum supply formula calculations, this adjusted 3 year movement of 260
mil. lbs. is added to the 20 mil. lbs. desired carryout and 26 mil. lbs. from 10% market growth
for an optimum supply of 306 mil. lbs. Then a needed substraction of the 70 mil. lbs. carryover
from the 1995 marketing year, indicates 236 mil. lbs. of free tonnage for main markets for the
1996 cr0p.

About 36 mil. lbs. are estimated for the analysis to be marketed to dried and export
markets, and these are assumed to be granted diversion credits with this analysis scenario. This
results in an overall maximum market supply for 1996 of 272 mil. lbs. - that according to the

price formula would result in an average grower price of 16.3 C/lb. with a calculated aggregate

gross grower return of $ 44.4 million.

 

 

 

 

 

 

 

 

248

 

Table 5-3. Scenario # 1: Marketing Order Formula Adjusted for Export and Dried —
and These Approved for Diversion Credit for the 1996 Marketing Year
(mil. lbs.)

Adjusted 3 Previous Years Movement (M) 260

+ Target Carryout (DCO) 20

= Optimum Supply (OS) 280

+ 10% for Market Growth (0.1*M) 26

- Carryover from Previous Year (CO) 19

= Free Tonnage from Current Crop (FT) 236

+ Export and Dried Granted Diversion Credit 36

Maximum Available Tonnage from 1996 Crop 272

 

 

Tonnage off Average Industry
W the Market Grower Grower
mm % Restriction Price Income
(mil. lbs.) (mil. lbs.) With Secondary (C/lb.) (mil. $)
I . . l 11' . 2 l'

265 0 12% 0% 16.8 44.5

290 ’ 18 20 % 7 % 16.3 44.4

315 43 27% 15% 16.3 44.4

340 68 33% 22% 16.3 44.4

365 93 38% 28% 16.3 44.4

 

 

 

249
5.4.4.2 Scenario #2 - Unadjusted Movement and Diversion Credits
for Developing Markets

Scenario #2 reflects a Board policy if total industry movement is not adjusted for
selected developing markets such as export and dried. However, the Board is assumed to grant
diversion credits for dried and export markets. Overall, this would result in more supply being
in the market than in either scenarios #1 and #3 as the following example for the 1996 marketing
year shows.

The analysis of scenario # 2 for the 1996 marketing year starts with a determination of
the optimum supply as shown in Table 5-4. The average of the last 3 year's movement is 291
mil. lbs. to which is added with 20 mil. lbs. desired carryout and 29 mil. lbs. for the 10%
market growth. This results in a 340 mil. lbs. "optimum supply". With 70 mil. lbs. carryover
from the 1995 marketing year, this results in 270 mil. lbs. for main markets with this scenario.
In addition, 36 mil. lbs., as in scenario #1, are provided to dried and export markets through
diversion credits, causing an overall market supply for the new crop of 306 mil. lbs. This
results in a predicted average grower price of 13.9 C/lb. and an overall gross grower income of
$ 42.6 million which is $1.8 million or 4 percent lower than Scenario # 1.
5.4.4.3 Scenario # 3 - Unadjusted Movement with No Diversion Credits

Another possible policy choice that is advocated by some could be for the Board to not
adjust the 3 year movement calculations as well as not providing any secondary market diversion
credits. An example of the possible application of this board policy scenario is provided in
Table 5-5 for the 1996 marketing year. As the table indicates, the average movement for all
markets is 291 mil. lbs. with 20 mil. lbs. desired carryout and 29 mil. lbs. for 10% market
growth, this results in 340 mil. lbs. "optimum supply" as it was in scenario #2. Adjusting for
the 70 mil. lbs. carryover from the 1995 marketing year, this results in 270 mil. lbs in free

tonnage to use for all markets for the 1996 marketing year. This means that the FMO in this

 

 

 

250

Table 5-4. Scenario # 2: Unadjusted Supply Formula for the 1996 Marketing Year -
with Diversion Credit for Export and Dried

 

(mil. lbs.)
Average 3 Year Movement (M) 291
+ Target Carryout (DCO) 2_Q
= Optimum Supply (OS) 311
+ 10% for Market Growth (0.1*M) 29
- Carryover from Previous Year (CO) 10
= Free Tonnage from Current Crop (FT) 270
+ Export and Dried Granted Diversion Credit 36
Maximum Available Tonnage from 1996 Crop 306
Tonnage off Average Industry
W the Market Grower Grower
froijQ % Restriction Price Income
(mil. lbs.) (mil. lbs.) With Secondary (C/lb.) (mil. 3)
m l; ‘v . E l'
265 0 0% 0% 16.8 44.5
290 0 7% 0% 15.0 43.6
315 9 15% 3% 13.9 42.6
340 34 22% 11% 13.9 42.6

365 59 28% 18% 13.9 42.6

 

 

251

Table 5-5. Scenario # 3: No Diversion Credit for Secondary Markets

 

 

for the 1996 Marketing Year
(mil. lbs.)
Adjusted 3 Previous Years Movement (M) 291
+ Target Carryout (DCO) A)
= Optimum Supply (OS) 311
+ 10% for Market Growth (0.1*M) 29 .
- Carryover from Previous Year (CO) 10
= Free Tonnage from Current Crop (FT) 270
+ Export and Dried Granted Diversion Credit 0
Maximum Available Tonnage from 1996 Crop 270
Tonnage off Average Industry
the Market % Grower Grower
(mil. lbs.) (mil. lbs.) (C/lb.) (mil. $)
265 0 0% 16.8 44.5
290 20 7% 16.5 44.4
315 45 15 % 16.5 44.4
340 70 22% 16.5 44.4

365 95 28% 16.5 44.4

 

 

 

 

 

 

252
scenario would be estimated to result in an average grower price of 16.5 C/lb. and result in a
calculated overall gross grower return of $ 44.4 million. This is roughly equivalent to the
overall estimated grower income and price effect of Scenario # 1. However, there are clearly
substantial differences in overall supply calculation and diversion credits.

5.4.4.4 A Comparison of Potential from Marketing Order Options - Using the
1995 Crop as an Example

The overall evaluation was done to consider the potential effect of the FMO compared to
a situation without a FMO. For this evaluation, it is useful to compare the three FMO
scenarios, discussed in the previous sections, with the no FMO situation for a relevant year.
The 1995 crop was particularly relevant as an example because the FMO, if in place, would
surely have reduced market supplies, since the 1995 crop was exceptionally large and carryover
stocks were unusually high. Furthermore, the 1995 crop represented the most recent year
during the period in which this analysis was used with the industry.

Table 5-6 is a comparison of the FMO scenarios of the analysis with the no FMO
scenario using the 1995 crop as an example situation. The Table indicates that there would have
been substantial price and income benefits from the FMO to growers if the FMO had been in
place in 1995. Grower prices with an FMO ranged from 15.2 C/lb. to 17.9 C/lb. which were
substantially greater than the 4.7 C/lb. that was projected as an estimate for the crop without an
FMO. This would at minimum be expected to result in grower prices 11.5 C/lb. higher than
with the worst FMO scenario. The higher prices with an FMO were projected to result in
substantially greater aggregate grower income of at least 3 42 million as compared to $ 21.7
million without the FMO. Overall, this illustrates some of the potential short-run benefits from

the FMO towards increasing grower prices and incomes, especially with crop sizes like 1995 in

which supplies are exceptionally high.

 

 

 

 

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5.4.5 Summary of the Impact Analysis

The impact analysis described and analyzed the possible effect of a supply management
program through the FMO in the U.S. tart cherry industry. In doing this, the impact analysis
was based upon key features of the FMO as it applies to supply management and upon
measuring the effect of different resulting supply scenarios on price. This provided a method to
calculate the possible FMO effects on growers. An example was also provided if the FMO had
been in place to improve industry performance for the 1995 marketing year. Different scenarios
were developed in this analysis to evaluate to some extent the possible effects of the FMO
Board's policies in managing supply.

This analysis provided important information to aid industry decisionmaking. It helped
to indicate to the industry the possible benefits and limitations of the then proposed FMO. Based
upon industry reaction, this impact analysis was very useful and helped the industry properly
evaluate and eventually achieve implementation of the FMO. This type of impact analysis could
be useful as part of a comprehensive ISPC process as an aid in selecting specific strategies as

well as in the implementation and coordination phases of the ISPC framework.

5 .5 Synopsis

This chapter has discussed and described some aspects of the ISPC process in a case
study of the U.S./Michigan tart cherry industry. Some emphasis was also given to a new
industry program and strategic directions regarding an FMO for that industry. Some relevant
parts of the ISPC framework developed in Chapter 3 were applied in the context of experiences
of the U.S./Michigan tart cherry industry as a case study. This case study concentrated on
aspects related to the process initiation and implementation and coordination phases of the

framework because this industry recently has emphasized these phase for a comprehensive ISPC

process.

 

 

 

255

An effort focused on assessing the validity of the ISPC framework deve10ped in Chapter
3. It was found that the ISPC framework identified key tasks in starting the U.S./Michigan tart
cherry ISPC process and some approaches to addressing these tasks in the tart cherry industry.
Furthermore, when some key activities in process initiation were not completed, the
comprehensive process in the U.S./Michigan tart cherry industry was narrowed in focus to
concentrate on two main strategic directions of the FMO and an innovative new cooperative.

An impact analysis for the FMO in the tart cherry industry was developed by the author
working with a tart cherry marketing expert. This provides an illustration of a " impact analysis"
as discussed in the ISPC framework developed in Chapter 3. This is a useful example because
impact analysis is an important aspect in the framework, and the FMO impact analysis example
seemed to be an effective application.

In summary, the U.S./Michigan tart cherry industry provides another, although limited
case, study of an ISPC process. The ISPC framework seemed to provide a useful to model for
the ISPC process in the U.S./Michigan tart cherry industry through the "process initiation“
phase of the framework developed in Chapter 3. As time progresses, this industry's

comprehensive ISPC process should offer additional insights into how an industry can go about

planning and developing coordinated actions to improve industry performance.

 

 

 

 

CHAPTER 6

ISPC: FINDINGS AND FUTURE NEEDS

Industry strategic planning and coordination (ISPC) is a relatively new, innovative
approach that has substantial potential to improve the performance of commodity industries. In
this approach, firms and industry organizations within an industry strategically plan together to
take selected coordinated actions to improve the industry's competitiveness and economic
viability. The overall purpose of this dissertation has been to further develop effective
approaches for accomplishing ISPC as well as to develop and analyze the overall ISPC concept.

One objective of this chapter is to revisit the ISPC framework developed in this
dissertation based on the case observations. A key goal in this dissertation has been to contribute
to the development of a pragmatic, broad-based analysis framework for accomplishing ISPC.
To meet this goal, a review of theoretical concepts and ideas from relevant disciplines was
developed. These concepts and ideas were subsequently used to develop an ISPC framework as
an effective guide for practitioners of ISPC. This ISPC framework was then related to the
empirical setting of two industry case studies. These provide observations of the ISPC
framework's use in practice and are used to revisit and assess the overall usefulness of the
framework later in this chapter.

A second objective of this chapter is to consider current knowledge about the potential
and actual benefits of ISPC. The benefits of ISPC are considered from the industry and public's
perspective based upon the experiences in mainly the Michigan apple industry case. These

indicate in an overall way that the potentials of ISPC in improving industry performance are

being achieved in a number of ways.

256

 

 

 

 

 

257
This chapter has two other objectives which are to consider the overall external validity
of the ISPC framework and provide suggestions for future research. The validity aspect
indicates how generalizable the framework may be. The discussion on future research indicates
where future research into ISPC may be most beneficial. The following sections address the
objectives for this chapter as it summarizes the knowledge from the dissertation and draws the

dissertation to a close.

6.1 The Framework Revisited

A key contribution of this dissertation has been to build a pragmatic, broad-based
framework that integrates and synthesizes knowledge about approaches for effectively
accomplishing ISPC. Such a framework was developed in Chapter 3 based upon established
theory from the business school (e. g. firm-level strategic management), agricultural economics
(e. g. existing ISPC theory, subsector analysis), and economics (e. g. group theory, public good
theory). This framework was then tested in the practical ISPC experiences of the Michigan
apple and U.S./Michigan tart cherry industries (Chapters 4 and 5). The case evidence supports
that the framework provides a useful model and would appear to be useful for application in
other industry circumstances. This section provides an overview of the ISPC framework
developed in Chapter 3 and then goes on to revisit the framework for potential improvements
based on the industry case studies.
6.1.1 An Overview of the ISPC Framework ‘8

The framework, as portrayed by Figure 6-1, is a series of phases that involve key
analyses and related activities for an industry to accomplish as part of an effective ISPC process.

The "boxes" in the framework, shown in Figure 6-1, represent overall flow activities (i.e., ( 1)

 

‘8 More detailed coverage of the framework can be found in Chapter 3.

 

 

 

 

 

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process initiation, (2) strategic planning, (3) implementation and coordination of strategy, and (4)
strategy review and re-evaluation) or phases that need to be accomplished and are usually done
in order. The logic behind this flow is that an ISPC process has some unique start-up
characteristics that are described in process initiation as a meaningful first phase. Then, the
strategic planning phase involves selection of industry strategies which are the ones that are most
likely to result in improved industry performance. To be effective the strategies selected must
be implemented and proper coordination among industry participants assured through the
implementation and coordination phase. Strategy review and re-evaluation, the fourth phase,
represents the reconsideration of earlier phases in light of changing circumstances.

The four “ovals" of Phase 2, illustrated in Figure 6-1, represent major steps in the
strategic planning phase of the ISPC framework. The strategic planning phase is broken down
into these major steps in order to focus on several different aspects which are important in
selecting strategies that are most likely to improve industry performance. Each of these steps
commonly involves a number of activities that indicate important actions, considerations, or
approaches that the industry can use to contributes to effective strategic planning.

Another important element in the framework includes the feedback loops from
implementation and coordination of strategies as well as strategy review and re-evaluation.
These represent the iterative nature of ISPC planning efforts. Strategies will be implemented
and coordinated in the industry with varying degrees of success and need to be periodically
reexamined based on experiences and results. This reexamination provides feedback into
possible changes in later strategic planning efforts. Strategy review and re-evaluation represents
an overall reconsideration of earlier phases in the strategic planning activity framework and

serve as overall feedback on their effectiveness and for possible modifications to ISPC strategy

as circumstances change overtime.

 

 

 

 

 

260
6.1.2 Effectiveness of the Framework and Improvements Based on the Cases

At this point in the dissertation, a meaningful contribution to framework development
and assessment is to review the ISPC framework in light of the industry case study experiences.
The case study review serves as a basis to assess, revise, improve, and further develop the ISPC
framework based upon the case study experiences. The case study experiences especially
provide empirical information on how to practically address a number of issues that were
identified in a general way in the framework through empirical knowledge based upon the case
study experiences. Future ISPC efforts should incorporate the relevant improvements indicated
by the case experiences.

As a review of key concepts in the framework, two tables were developed. The phases
of the framework are shown in Table 6-1. This indicates the detailed, comprehensive nature of
the ISPC framework. One key feature of the framework is the strategic planning phase, which is
comprised of a number of steps. As portrayed by Table 6-2, each of these steps commonly
involves a number of activities that indicate important actions, considerations, or approaches that
the industry can use to contribute to effective strategic planning. The following subsections
review each phase and step of the ISPC framework with the goal of exploring improvements in
the framework based upon the industry case studies.49

6.1.2.1 Process Initiation

The first phase in the ISPC framework indicates that effective ISPC process initiation
requires careful consideration of a number of important factors. This initiation aspect is
especially important in the ISPC context because effective initiation in an industry context, in

contrast to firm strategic management, involves the industry's many and varied firms and

 

‘9 The strategy review and re-evaluation phase is not reviewed in the following

subsections because that phase has not been done extensively up tothis point in the cases.
Hence, "revisiting" that phase would have little empirical information Wthh could be used.

 

 

 

 

261

Table 6-1. A List of the Various Phases of the Framework and Their General Purpose

PHASE PULPQSE
Phase 1: Process Initiation Begin an ISPC Process in an
Industry

* Articulation of an Industry Need for ISPC
* Formation of an ISPC Leadership Group
* Selection of a Set of Common Objectives

* Method to Pay the Costs of the ISPC Group

 

* Provision of Staff Support for the Process

 

Phase 2: Strategic Planning Go Through a Process
_ . . Where the Strategies Which
Step 12 Situational Analysrs m” Most Likely Improve
Step 2: Vision Statement and Guiding Strategies Industry Performance are
Selected
Step 3: Major Improvement Objectives
Step 4: Development of Specific Strategies
Phase 3: Implementation and Coordination of Strategies Develop the Necessary
* . Method to Implement
Develop Implementation Plans Industry Strategies Including
* Communicate the Strategy to Industry Participants coordinating Actions Within
the Industry
* Provide Needed Resources for the Strategy
- Voluntary Contributions
- Mandatory Assessments
* Measure Progress Within the Industry
* Where Appropriate, Enforce the Strategy
Phase 4: Strategy Review and Re-Evaluation Change Strategy in Light of
Changing Circumstances

 

 

 

 

 

262

Table 6-2. The Steps of the Strategic Planning Phase and Their General Purpose

W

Step 1: Situational Analysis
* Shift-Share Analysis
* SWOT Analysis
* Analysis of Major Driving Forces
* Identification of Key Success Factors
* Value Chain Analysis
* Competitor Analysis

* Transactions Cost Analysis

Step 2: Vision Statement and Guiding Strategies
* Generation of a Vision Statement
* Guiding Strategies
- Growth Positioning
- Focus on Developing Core Competencies
- Value Based Actions

- Mix of Differentiation versus Low Price

Step 3: Major Improvement Objectives
* Is Industry Action Necessary?

* Does the Objective Address a Critical Gap?

Step 4: Specific Strategies

* Strategies for Each Major Improvement Objective

* Impact Analysis

 

 

PLJQOSE

Develop Relevant Analytical
Insights, Shared Understandings of
the Industry, Its Environment, and

Relevant Factors for ISPC

Define the Overall Industry 's
Strategic Intent in a Vision
Statement and Overall Core

Strategies

Determine and Prioritize Key Areas
Mere Industry Attention Should
Best be Focused

Select Specific Strategies that are
Viewed as the Most Likely to
Facilitate Needed Industry
Improvement

 

 

 

 

 

263

industry organizations which need to develop a sufficient consensus to decide to effectively
pursue such a ISPC process. In forming a group to guide an ISPC process, group theory
indicates that the group needs to agree on a (a) common set of objectives and (b) some way to
pay the costs of the process. These theoretical concepts were incorporated in the framework and
are substantiated by the case studies as important and appropriate considerations in the actual
ISPC context.

The ISPC framework developed in Chapter 3 indicates several tasks as important
components of the process initiation phase:

0 Articulation and agreement of the need for an ISPC process

0 Formation of an ISPC leadership group

Selection of a common set of objectives

0 Development of a method to pay the costs of the ISPC group

Provision of staff support for the process
Both the apple and tart cherry case studies substantiated that these tasks are important and
relevant in accomplishing ISPC. Furthermore, the decisionmakers in the two industry cases
seemed to consider most of the main issues that were identified in the ISPC framework as
needing to be addressed in initiating an ISPC process. In addition, there were two important
observations based upon the apple and tart cherry cases that have important implications for
improving the framework. These will be discussed in the next two subsections.
The Importance of Existing Industry Organizations to the Process Initiation Phase

One consistent observation throughout both industry cases was the apparent importance
of existing industry organizations for the ISPC process initiation phase. In the Michigan apple
industry the Michigan Apple Committee, the Michigan Apple Research Committee, and
Michigan State University together provided the main original impetus for the ISPC process. In

the U.S./Michigan tart cherry industry, the Cherry Marketing Institute, the Michigan

 

 

 

 

 

 

 

 

264
Agricultural Cooperative Marketing Association, and Michigan State University jointly initiated
the ISPC process. Through both industry cases, this illustrates that industry organizations were
key initiators.

The initiating actions by the existing industry organizations helped to overcome the
public good issue of starting an ISPC process. The established goals of these industry
organizations included as a major part of their established programs the provision of certain
kinds of industry public goods, such as, research and generic demand expansion. Thus, they

were able to see the direct extension of their own activities into and the potential benefits from

 

ISPC.

These industry organizations were able to allocate a small amount of start-up resources
for helping to get the ISPC group going. These also included some supplemental staff resources
and well-established networking relationships within the industry. Furthermore, the industry
organizations through their active support of ISPC provided substantial communication and
articulation of the potentials from ISPC to the broader industry as a whole in both cases.

In an overall way, the importance of existing industry organizations actively initiating
and supporting an ISPC process seems to indicate that without strong support from such key
industry organizations it would be considerably more difficult to initiate an effective ISPC

process. Therefore, one main improvement in the ISPC framework developed in Chapter 3 is

 

that the importance of existing industry organizations should be explicitly recognized throughout
the process initiation phase. This would emphasize the very important, perhaps essential, nature
of key industry organizations in initiating an ISPC process.

This explicit awareness of the importance of industry organizations to an effective ISPC
effort further generates a testable hypothesis for ISPC. This testable hypothesis is that:

An industry without already existing broad-based industry organizations will

have considerably greater difi‘iculty in efi’ectively initiating an ISPC process.

 

 

 

 

 

265
Future research should be able to verify if this hypothesis is true.
Considering the Cost of an ISPC Group Related to Its Size and Structure

Another. observation from the tart cherry case focuses on issues related to the costs of
the ISPC group along with the structure and representation in this ISPC group. In the tart
cherry case study, the industry initially decided to have a rather large group with representatives
from industry segments that were quite geographically dispersed. With this large group, almost
all major tart cherry industry organizations were represented from throughout the U.S. This
contributed to participant costs in terms of time (i.e. sending representatives) and travel expenses
due to the necessity of traveling long distances to the meetings. This has posed some obstacles
and to date one obstacle or limitation to the ISPC process in this industry.

The case information from the tart cherry case indicates that, in determining the size and
structure for the ISPC group, these costs are a key consideration. This process clarification of
the ISPC framework addresses more fully a practicality of having an ISPC group.
6.1.2.2 Strategic Planning

The second phase of the ISPC framework focuses on strategic planning. In this phase,
four steps are identified and emphasized. These four steps result in a comprehensive analysis of
the industry’s situation and its driving forces, a shared understanding of the industry and its
competitive environment, a vision statement and guiding strategies, prioritized major
improvement objectives, and specific strategies. These steps were effectively involved in the
apple industry case as the following subsections relate.

Situational Analysis

Situational analysis is a major early step in the strategic planning phase of the ISPC
framework. In this step, the ISPC group develops a comprehensive and up to date analysis of
the major relevant factors which are impacting the industry including its competitive

environment. The ISPC framework incorporates a number of analysis tools that can be used in

 

 

 

 

266
accomplishing a situational analysis, depending on the needs of the industry. These situational
analysis tools were selected from a number of relevant disciplines and adapted to the industry
context.

Most of the analysis tools suggested for the framework were used to some extent in the
Michigan apple industry case. These tools seemed to be effective in developing an industry
situational analysis. Hence, no change in the framework would appear necessary based on the
industry case study.

Determination of the Industry's Vision Statement and Guiding Strategies

An industry's vision statement and guiding strategies encompass the main overarching
planned strategy for the industry related to its improved performance. This is identified as a
second step in the strategic planning phase of the ISPC framework. It contains tools and
concepts from firm strategic management that have been adapted to the ISPC context. This step
suggests that an industry can develop an industry vision statement and consider guiding strategies
as discussed below.

In the Michigan apple industry case study, issues related to a vision statement have been
discussed, but to this point have not received finalization in a specific vision statement. Part of
this is because the industry has tended to focus on specific issues or strategies which they
consider higher priority. As discussed in the ISPC framework, there is some question as to the
usefulness of developing an industry vision statement depending on the needs of the industry.
Nonetheless, at this point the idea of using a vision statement is still an important possible
consideration for an ISPC group and overall industry. Not fully developing a vision statement
has not apparently hindered the ISPC process in the Michigan apple industry.

As outlined in Chapter 3, four guiding strategies may be useful as discussed in this step.
These guiding strategies are (1) growth positioning, (2) a focus on developing core

competencies, (3) determination of value-based actions to meet customer needs, and (4) selection

 

 

 

 

 

 

 

267

of the overall mix of differentiation and low price for the industry. These guiding strategies
were all considered to some extent in the Michigan apple industry case. No alterations in the
framework would thus seem to be indicated by this case study experience.

Determination and Prioritization of Major Improvement Objectives

A third step in the framework’s strategic planning phase, as discussed in Chapter 3, is
the determination and prioritization of major industry improvement objectives. In this step, the
ISPC group and overall industry develop a list of major improvement objectives for the industry
to focus upon over the next few years. Using this tool in ISPC is similar to the use of long-
range performance objectives in firm strategic management.

The ISPC framework suggests that the ISPC group working with the overall industry
should develop a list of possible major improvement objectives. From this list, some major
improvement objectives are then selected for priority industry attention. In the Michigan apple
industry case, this seemed to be a very useful and effective approach in strategic planning at this
point in their ISPC process. This case study experience supports the use of this step in the ISPC
framework.

Development of Specific Strategies for Facilitating Needed Improvement

Specific strategies are the particular actions by particular firm(s) and/or industry
organization(s) that the ISPC group decides would be effective and priority to facilitate industry
improvement or to deal with major problems or threats for the industry. As outlined in Chapter
3, this was identified as a fourth step in the strategic planning phase. The ISPC framework
discusses an approach in which strategies for each major improvement objective are developed.
Developing an impact analysis for a strategy is also an option.

In the Michigan apple industry ISPC case, specific strategies were selected for each

major improvement objective and impact analyses of varying degrees were an important part of

 

 

268
the selection process. Overall, the current coverage of this step by the framework was thus
supported.

In the apple industry case, an important framework clarification aspect was developed
for selecting specific strategies. This clarification identified some general questions as criteria to
use in considering specific ISPC strategies. Specific strategies for which these questions are not
answered affirmatively probably deserve lower priority, and hence these questions can be used to
screen various possible strategies. These questions about each strategy are:

0 Can it be readily accomplished?

0 Will it have positive benefits?

0 Will it make a significant difference?

0 Is it adequately supported by the appropriate industry segment?

Further consideration of the use of these screening questions for ISPC strategies as part of the
framework is supported by the case study experience because these questions were helpful in the
practice of selecting ISPC strategies with the case studies.

6.1.2.3 Implementation and Coordination of Specific Strategies

The third phase of the ISPC framework developed in Chapter 3 is the implementation
and coordination of specific strategies. In this phase, the strategies deve10ped are transformed
into practice. A key role of an ISPC group, as recognized in the framework, is to provide
coordination for implementing strategies with the industry's various firms and industry
organizations. This coordination takes on special importance if the industry is seeking to achieve
broad-based industry strategies (e.g. marketing orders, new industry organizations, etc.).

The ISPC framework described several tasks that needed to be completed in some
fashion for each strategy. These tasks are to:

0 develop an implementation plan

0 communicate the strategy to the industry

 

269

0 provide needed resources for the strategy

0 measure progress

0 where appropriate, enforce the strategy
Within the Michigan apple industry case study, each of these tasks were accomplished to some
extent for each strategy. Thus, the apple industry case tends to confirm that these tasks are
relevant.

Two important clarifications of the ISPC framework were suggested in the case study
example of implementation and coordination of broad-based strategies. These include expanded
methods for achieving broad-based industry strategies and the importance of time in broad-based
strategies. The following two subsections discuss these issues.

Expanded Methods for Achieving Broad-Based Industry Strategies

The ISPC framework, developed in Chapter 3, suggests that it is important to develop a
detailed implementation plan for each broad-based industry strategy that require substantial
industry consensus. This is because (a) broad-based strategies require joint industry decisions
and (b) for some strategies, all in the industry or industry segment must respond accordingly in
order for the strategy (e. g. a marketing order) to be implemented. This is especially important
due to the need to consider for some ISPC strategies to focus on how to overcome public good
and free rider issues in implementation. The implementation plans need to include key steps
necessary to get the strategy implemented that would (1) identify who would accomplish the
strategy, (2) discuss key obstacles and how they will be overcome, (3) outline how resources
will be provided for the strategy, etc. as already discussed in the framework. However, the
framework developed in Chapter 3 lacked explicit detail as to methods and approaches to achieve
the implementation of such broad—based industry strategy. Incorporating empirical information

based upon experience and methods from the Michigan apple industry case is now possible.

 

270
In the Michigan apple industry case study, a comparison of the factors affecting
implementation success was developed based on three broad-based industry strategies that
required substantial majority industry consensus to be implemented. These three examples were
mandatory minimum quality standards, premium grade, and the Michigan Apple Committee
assessment increase. 5° Of these three example strategies, only one strategy has actually been
implemented to date. A comparison of the implemented and non-implemented broad-based
industry strategies in Chapter 4 was developed that yielded some interesting observations. The
implementation plan for the broad-based industry strategy that was implemented had a number of
characteristics that are different from the non-implemented broad-based strategies. These
characteristics are:
0 An identified leader, group of leaders, or organizational sponsor within
the industry
0 Organizational staff to develop the strategy, rationale, and explain the
potential benefits of the strategy
0 Materials developed (reports, videos, etc.) that explained the benefits of
the proposed action
0 Leadership that spent a large amount time and resources explaining the
rationale for the proposed action
These various characteristics seemed to be very effective at achieving industry consensus in
support of needed broad-based industry strategy. They should be listed and discussed in the
framework as possible effective methods for a well-developed implementation plan for broad-

based industry strategy that require participation by all or most in the industry.

 

5° These strategies were discussed thoroughly in Chapter 4.

 

 

 

271
The Importance of Time for Broad-Based Industry Strategies

Another important process clarification for implementation of certain types of broad-
based strategies is that it may and often does take a substantial amount of time to build adequate
industry consensus and support for a particular broad-based industry action, such as, developing
a new marketing order or a new industry organization supplying a public good. This time is
usually necessary because there may be difficulty in achieving sufficient consensus on broad-
based strategies and/or on the desirable method(s) to achieve the broad—based strategy.
Knowledge of this time factor might help the group to be realistic in their expectations about
change as well as planning for methods to speed up that change, such as, deve10ping a detailed
action plan.
6.1.2.4 Overall Conclusions on the Effectiveness of the Framework

This section concentrated on the ISPC framework that was developed in Chapter 3 and
was subsequently related to ISPC experiences in two industry cases. The framework includes a
structured organization of interrelated aspects and activities that are relevant for ISPC and were
posited as an effective framework to aid in accomplishing ISPC -- with emphasis on the industry
context.

One purpose of this review is to assess the framework and its usefulness for ISPC. Each
phase and step of the ISPC framework was reviewed and evaluated to what extent the ISPC
framework provides a useful guide. Overall, the experiences in the case studies supports the
concepts and aspects incorporated into the ISPC framework. Therefore, the case study empirical
information tends to substantiate this ISPC framework as a useful model and guide for ISPC

processes.

 

 

 

272
6.2 The External Validity of the ISPC Framework

External validity, as discussed here, is the overall issue of how widely applicable or
generalizable are the results of a study, i.e. , over what range of situations are the results
applicable (Yin, 1994). In this dissertation, the focus has been on developing a framework of
interrelated concepts and aspects to accomplish ISPC with the overall goal of improved industry
performance. The ISPC framework thus developed was applied in two industry cases. One of
these cases is extensive enough to provide some initial indication that an ISPC process can result
in improved industry performance. The question to be addressed in this section is how
generalizable are these results, i.e., how generalizable is the proposed framework as a model for
ISPC?

On one level, the ISPC framework was substantively developed from well established
theory as discussed earlier, such as, firm strategic management theory. This well established
theory is generally viewed as having wide applicability to many situations and economic
activities. As such, the ISPC framework developed in this dissertation has some level of face
validity, i.e. , it would be expected to have external validity because it is based on theory with
external validity. However, the external validity of the framework would be more well
established if it is shown to be valid in a wide variety of situations.

At this point, the ISPC framework has been applied in two industry case studies in which
all indications are that the framework is useful. In the one case where extensive evaluation is
possible, industry performance has improved. The two cases are, however, based on industries
with somewhat unique characteristics.

The Michigan apple and U.S./Michigan tart cherry industry are fruit industries that are
predominately focused in Michigan with strong industry organizations. Furthermore, both these
industries are comprised of numerous small firms with several distinct vertical stages of

production that are not fully vertically integrated by ownership, and the products of both

 

 

 

273
industries are marketed primarily as commodities. It can be hypothesized that the ISPC
framework developed herein is more likely to be useful in industries with these similar
characteristics, e.g., limited geographic scope, fragmented vertical sectors, and commodity
based. Further research would be useful to establish more definitively the true extent of the

external validity for the framework.

6.3 Potential Benefits of ISPC from the Industry and Public Policy Perspectives

Another key objective of this chapter is to consider the possible benefits of ISPC from
the perspectives of (a) the industry and (b) public policy. It would be desirable for there to be
benefits at both levels. If there are benefits at the industry level, then the benefits will provide
motivations for an industry to work together in an ISPC process. Benefits from the public policy
perspective are similarly important because without benefits from the public policy perspective
then ISPC may be viewed with skepticism or as promoting certain kinds of undesirable results,
such as, collusion that could be harmful rather than helpful to the public. At this point, the
industry case studies provide some indications of the benefits, or likely future benefits of ISPC,
from each perspective. The following two sections discuss potential ISPC benefits from the
industry and public policy perspectives.
6.3.1 Benefits from the Industry Perspective

If industries are to continue to pursue ISPC, it is essential that an ISPC process provide
benefits to the industry. These benefits provide the overall motivation for the industry‘s firms
and industry organizations to engage in an ISPC process. This section considers the potential
and some observed benefits of ISPC, given current knowledge of the benefits to the industry.

An ISPC process involves a complex set of firms and industry organizations planning
and coordinating together on selected strategies for improved industry performance. The

potential benefits from ISPC would likely focus on areas where planning efforts by individual

 

 

 

274
firms or industry organizations would not be most effective by themselves and for which an
ISPC approach would enhance the industry results. The improved industry planning efforts
would be expected to provide benefits to firms within the industry.

Benefits of ISPC can be achieved in a number of areas. ISPC is potentially effective in
developing industry public goods and overcoming associated free rider problems. An ISPC
process can also be a catalyst for positive change in the industry with implementation by
individual firms. ISPC can potentially improve the industry’s ability to act as a group because
the focus, which can be provided by an ISPC process, may unify efforts in the industry towards
common goals. Furthermore, cooperative research projects in key areas supported by ISPC can
mobilize industry efforts in critical areas for needed performance and improvements.

One measure of success for an ISPC process would be whether the ISPC process
actually contributes to improved industry performance. In the Michigan apple industry case, as
extensively discussed in Chapter 4, the ISPC process was able to influence the industry's course
in ways that can be expected to improve performance. This was accomplished through the ISPC
group going through an ISPC process in which several major improvement objectives were
identified based on a situational analysis, Visioning, and selecting guiding strategies. In each of
these major improvement objectives, several strategies were developed and implemented that
were viewed by industry leaders as the most likely to improve industry performance.
Furthermore, preliminary indications from this case experience indicate that the Michigan apple
industry's performance in a number of key areas such as market volumes and value of
production are improving. These measure indicate that the ISPC has provided some benefits to
an industry.

Another facet in considering the benefits of an ISPC process relates to key types of
public goods that an ISPC process can help develop. Some of these were identified and

discussed in Chapter 2 including:

 

275
0 improving generic demand expansion activities,

0 addressing extemalities for industry firms,

deve10ping a critical mass or volume,

achieving first mover advantages,

0 facilitating improvements in cost, technological, and managerial capabilities,

0 developing information in critical areas.

The following subsections consider if the ISPC process has actually provided some of
these public good benefits based on the Michigan apple industry case study. This further shows
that the some of the promised industry benefits from ISPC are being achieved.

Improving Generic Demand Expansion Activities

Generic demand expansion is a set of activities undertaken within an industry to increase
the demand for the industry's products. This can have important benefits for an industry's firms
because the firms may be able to increase their volume of business, prices, and/or net returns to
meet the expanding demand. Many industries have generic demand expansion organizations,
paid for by producers, with the goal of generic demand expansion through advertising,
marketing, developing new products, etc. Hence, if an ISPC process is able to improve generic
demand expansion activities, it would be relevant and an important aspect of an ISPC process
towards improved industry performance. In the Michigan apple industry case, two of the major
improvement objectives from the ISPC process have focused directly upon generic demand
expansion: domestic demand expansion and export expansion.

In domestic demand expansion, the ISPC group provided strong support and direction
for an increased assessment for the industry's generic marketing organization. The ISPC
group's direction and strategic choices were used by industry's generic demand eXpansion
organization to facilitate reorientation to some extent in its marketing and research efforts, more

towards areas that the ISPC group identified as crucial to industry success. The increased

 

276
assessment helped enable the generic marketing organization to expand consumer market
research and reorient more extensively towards other areas that were identified as priority by the
ISPC group.

For export expansion, the ISPC group identified that developing export markets for
Michigan apples was a major and priority improvement objective. A ntunber of industry
organizations participated in various strategies to develop Brazil as a large export market. These
included a sponsored trade visit to Brazil and research to enable access to the Brazilian market,
such as, through establishing appropriate protocols to meet Brazilian phytosanitary regulations.
Subsequently, the Brazilian market has grown from zero to became a major Michigan export
market destination.

In both domestic and export demand expansion, the ISPC process seems to have
provided important benefits for improved performance. The ISPC process seems to have helped
enable important changes for domestic and export demand expansion. These changes seem to
have played an important role in the 1995 marketing year when the Michigan apple industry was
able to market a record crop size with relatively high prices. These aspects indicate strong
performance from the industry perspective.

Addressing Externalities for Industry Firms

In the industry context, extemalities occur when a firm takes an action that not only
impacts itself but has an external or spillover effect on other firms in the industry. An ISPC
process could in general seek to increase positive extemalities or decrease negative extemalities.
An important extemality issue in the Michigan apple industry, that has been discussed earlier, is
the industry’s quality reputation in the fresh market. To some extent, the Michigan apple

industry has a shared reputation as an industry in the minds of buyers that affects their

 

 

 

 

277
willingness to purchase Michigan apples.51 If a Michigan firm markets poor quality apples, an
external effect is generated negatively impacting the entire industry's reputation.

The Michigan apple industry ISPC process developed a number of strategies to address
this quality reputation extemality and to facilitate improved industry quality performance. Two
of these strategies, which were supported by the ISPC group, were: (1) establishment of a
premium grade and (2) minimum mandatory quality standards, especially for condition, for fresh
apples. The premium grade strategy was intended to provide enhanced incentives for marketing
high quality apples. The minimum mandatory quality standards strategy would have prohibited
the marketing of apples below a certain condition level. Neither of these strategies have yet been
implemented. On the other hand, their active consideration and potential future application in
the Michigan apple industry illustrates with these examples the possibilities of ISPC in
addressing extemalities to improve industry performance. To date though, the case experience
illustrates that effectively addressing extemalities through ISPC is difficult.

Developing a Critical Mass

As discussed in Chapter 2, it may be useful for an industry to develop as a group a
critical mass of volume to achieve certain benefits. For example, for an industry to gain access
to a particular market, it might require a critical mass of a particular product, such as, a variety.
An ISPC process might facilitate achieving a critical mass within an industry by identifying the
opportunity and communicating this throughout the industry.

In the Michigan apple industry case, there has been some focus on seeking to identify
varieties for the fresh and processing markets that offer the best opportunities for growers and
the industry. In this, developing a critical mass has been an explicit consideration for new

varieties because it is often beyond the capabilities of individual apple industry firms.

 

5' Quality reputation is especially important for the condition aspect of apples and to a
less extent other quality factors such as bruising, internal breakdown, etc.

 

 

 

278

Developing this critical mass is important because the industry needs to have a sufficient volume
of supply of a particular variety for important customers, such as, chain store customers, to view
the industry as an effective supplier. The concern is that if the industry is not able achieve a
critical mass of new varieties which are coming into strong demand and hence are offering good
market opportunities, then it will not be able to take advantage of certain opportunities to
generate improved industry performance and profitability in effectively serving customer needs.
The overall effort by the ISPC process has had the goal of facilitating the development of a
critical mass of supply for customers to recognize the Michigan industry as an effective supplier
of new varieties.

Achieving First Mover Advantages

 

One possible benefit of ISPC would be for an ISPC process to enable the industry to

achieve certain kinds of first mover advantages. In this, an ISPC group may be able to identify

 

key strategic opportunities before competitor industries can do so and work, as an industry, to
quickly achieve the strategic opportunities. This could result in improved industry performance
if the industry is able to capture privileged positions in key market segments.

The Michigan apple industry ISPC process did identify certain strategies that have
enabled it in some situations to be a first mover in some new or established markets. The
Michigan apple industry's pro-active efforts in export demand expansion towards the Brazilian
market are an example of this. The ISPC group helped to motivate and supported visits by
leading shippers to the Brazilian market and helped to work towards ensuring access to the
Brazilian market. This enabled the Michigan apple industry to dramatically expand exports to
Brazil. This may in the longer term provide the Michigan apple industry with a strong,

somewhat privileged position in this market.

 

 

 

279
Improving Cost, Technological, and Managerial Capabilities

One common feature of commodity industries is that such industries are commonly based
in a particular region or area in which within the industry are influenced by a number of -
common production and marketing related issues. These issues can include production aSpects
(e.g. weather conditions, pests, varieties) as well as regional external conditions (e.g. taxes,
labor availability). An ISPC process can work to improve region-specific infrastructure, cost,
technological, and managerial capabilities.

In the Michigan apple industry case, several strategies have emphasized improving cost,
technology, and managerial capabilities tailored or well suited to the needs of the Michigan apple
industry. Efforts to improve Michigan's capabilities have included strategies to improve quality
management capabilities (e.g. pre-harvest workshops, maturity information program), pest
management capabilities (e.g. landmark study on pest management and environmental
stewardship, efforts of obtain funding for pest research), and variety evaluation and strategies
(e. g. information on variety demand by the trade, shippers, and processors). These efforts
indicate the ability of an ISPC process to develop region-specific strategies to improve an
industry's capabilities in key competitive areas.

Improving Information

An ISPC group may identify and facilitate the provision of information in a number of
areas which would improve industry performance. The information may improve market signals
and vertical coordination between various stages in the production-marketing system and enable
more effective firm responses. Government agencies at a number of levels recognize the
importance of this kind of information through developing market information.

The Michigan apple industry ISPC process identified and facilitated the provision of a
number of informational analyses. These included information on varieties by shippers,

processors, and consumers, modernization of growers and packing houses, consumer

 

 

 

 

 

280

preferences for quality, trade requirements, and export needs. This provided important sets of
information for Michigan apple producers, storage operators, packing houses, and shippers that
the ISPC group considered would improve the Michigan industry's performance. Furthermore,
the ISPC group developed priorities for university research and extension as information on
critical industry needs. This highlights the types of potential benefits that an ISPC process can
provide to an industry through improving information.
Summary of Benefits from the Industry Perspective

This section has considered many of the potential benefits of ISPC from an industry
perspective and some actual benefits achieved in the Michigan apple industry case. The apple
industry through ISPC has exhibited some increased ability to develop and implement strategies
that are most likely to lead to improved industry performance. Industry performance has seemed
to improve in some respects. Furthermore, the ability of the Michigan apple industry ISPC
process to achieve a number of public good related benefits was also assessed, and examples
were provided about how the industry is achieving some public good related benefits. Overall,
the apple industry experience with ISPC indicates that the industry is now more effective in
serving their customers, and the focus provided by ISPC serves as a catalyst for improved
industry performance. This indicates that the potential of ISPC of improving industry
performance is being achieved to some degree in the Michigan apple industry case. This is
indicative of the kinds of benefits that can be expected to potentially be achieved in other
industries from an ISPC process.
6.3.2 From the Public Policy Perspective

Another important perspective in evaluating ISPC is from the public policy perspective.
The public policy perspective arises from the general public and public policymakers, such as,
government officials and administrators. It would be useful if ISPC provides benefits at the

public policy level because this would indicate that ISPC improves the overall welfare of society.

 

 

281
Public policymakers could also be more willing to provide resources and support for ISPC
strategies if these strategies are seen as improving overall welfare. Without knowledge of the
benefits of ISPC, public policymakers may view an ISPC process with suspicion or perhaps even
move to suppress it because they might fear that the goal of an ISPC process would be to achieve
excessive market power.

Public welfare will likely be improved by an ISPC process if an industry becomes more
effective and pro-active or responsive in meeting society's needs. There are numerous public
policy needs at a given time and those needs generally change over time (Knutson et al, 1998).
If an ISPC process enables an industry to achieve more effective responses to public policy
needs, then it can be considered to have improved public welfare. Among the current public
policy needs, there are several areas in which there is some public policy interest in which ISPC
has had some impact:

0 More Effectively Meeting Customer Needs,

0 Improving Industry Economic Health,

0 Reducing Harm to the Environment,

0 Communicating Industry's Needs to Government Organizations.

If an ISPC process helps facilitate improved performance in these areas without using
monopolistic practices, then it would provide benefits from the public policy perspective. The
following subsections consider why these areas are viewed as important to society’s needs at the
current time and considers evidence that the ISPC process has actually improved performance in
this public policy sense, based on the Michigan apple industry case. Results are necessarily

tentative because the limited time period in this case study.

 

 

282
More Effectively Meeting Customer Needs

A key benefit that an industry provides to society is through its products. The purchase,
price, satisfaction, and value that these products provide to various industry customers and
consumers indicate this importance. Public welfare would be improved, for example, if an ISPC
process enabled a faster, more accurate response by the industry to changing customer needs
and/or led to increases in the overall value from the industry's products (Knutson et al, 1998;
Spitze, 1992).

In the Michigan apple industry case, the ISPC process has focused substantial efforts in
regards to improving performance for meeting customer needs. The ISPC process deve10ped a
number of informational surveys and pro-active industry responses that have and will likely
continue to improve industry performance in meeting customer needs. These included surveys
of processors, shippers, and consumers on such demand related issues as desired varieties, type
of packs, and quality factors. Furthermore, informational efforts through pre-harvest
workshops, industry publications, and other efforts have focused upon irnproving how firms can
effectively respond to the identified changing customer needs in cost effective ways.

Improving Industry Economic Health

The overall economic health of an industry can contribute to society through such means
as farm income, employment, and tax base provided by an industry. Often improved
employment, income, and cash flow are viewed as desirable from a public policy perspective,
especially in rural areas (Tweeten, 1989; NCFAP, 1983). An industry could be viewed as
economically healthy if it has long term ability to effectively compete in domestic and world
markets and is economically viable. This means if an ISPC process improves the industry's
performance in these areas, then it provides social benefits.

In the Michigan apple industry case, there are several indications that the ISPC process

has improved industry competitiveness and is therefor aiding in improved industry economic

 

283

health. As discussed earlier in this chapter, the ISPC process has provided a method by which
an industry can identify and implement strategies that are most likely to improve performance.
This has altered the industry's evolving path in ways as it adjusts to its dynamic market
environment that would be expected to improve long term performance. Furthermore, there are
some preliminary indications that industry competitiveness has improved as shown by such
measures as improving industry market volume and value of production.
Reducing Harm to the Environment

An important public policy concern in recent years is improving environmental
protection (Tweeten, 1989; Poe, 1997). One focus on industry performance in this regard has
been public policy interest in reducing the use of chemical pesticides (Klassen,l988). This is
because chemical pesticides are viewed as contributing negative environmental effects and other
less than desirable public policy effects. On the other hand, chemical pesticides are standard
technology as important tools to reduce or eliminate the harmful effects of various pests on the
quality and quantity of an industry's products for consumer satisfaction. However, some
pesticides if not handled carefully can harm workers in the industry as well as other non-intended
animals or insects in the environment. Further, there has been increasing concern about how
some pesticide residues may negatively effect food safety. This has led some to advocate that
reducing pesticide use would be a desirable public policy goal for a commodity industry.

Facilitated in some respects by the Michigan apple ISPC process, the Michigan industry
has become more pro-active in this area. The Michigan apple industry decided to develop an
industry response through developing a landmark comprehensive apple industry stewardship plan
on pest management and pesticide issues. This plan is considered by some at the national level
as an effective model or approach for environmental stewardship by a fruit industry. It is one

key step toward a pro-active industry response towards public policy needs. The industry

 

 

 

 

 

284
through its ISPC process has also worked to achieve more research focused on effective pesticide
use and alternative pest management systems, such as, Integrated Pest Management.
Communicating Industry's Needs to Governmental Organizations

Commonly there are many governmental organizations that have a strong interest and a
goal of improving the performance of the industry in a number of ways. For an agricultural
industry, these organizations include the USDA, state agricultural departments, and agricultural
research centers. As the real needs of the industry change overtime, the methods and actions of
these agencies need to evolve with the changing times to be most effective in improving industry
performance and meeting the public's needs (Sims and Crandall, 1986; Lacy, 1996). An ISPC
process may be effective at communicating the latest industry needs and circumstances to these
organizations for their effective responses.

The ISPC process in the Michigan apple industry case has communicated with
governmental organizations for effective response to changing needs. The industry deve10ped
priorities for university research and extension that can help facilitate effective university
programs for improved industry performance. Research funds have also been requested from
government agencies for several high priority industry research areas that the ISPC group
identified as priority, and some success in improved funding for such research has been
achieved.

Absence of Seeking Monopolistic Benefits

One important public policy consideration about an ISPC process is whether it is seeking
to achieve some level of monopolistic benefits for the industry, as was discussed in Chapter 2.
This is a logical aspect to consider because monopolistic actions may have negative public policy
implications. In the earlier discussion in Chapter 2 based upon theory, reasons why a
commodity industry would likely not seek to achieve monopolistic benefits through ISPC were

summarized. This conclusion was reached from a theoretical perspective because the industry,

 

 

 

 

 

285
due to competition from other industries as well as other factors, would likely not benefit from
mon0polistic efforts.

Based on the Michigan apple case, monopolistic practices, i.e., the goal of reducing
quantity to increase prices, has not been present. The strategies that have been accomplished in
the industry case, as well as the overall discussion, have not indicated any effort to achieve
monopolistic benefits. The ISPC process has concentrated on other aspects to better serve
customer needs, etc. From this, it is clear that ISPC can be pursued with substantial benefits
though improved industry performance in a number of areas without seeking monopolistic
market power. This means that, for now, from experience as well as theory, risks of
monopolistic practices from ISPC seem to be relatively negligible.

Overall Summary on Benefits to the Public

The focus of this section has been on the performance of the ISPC process in the
Michigan apple industry in providing benefits from the public policy perspective. The ISPC
process seems to have provided a number of public policy benefits. These benefits include not
only improving the industry's economic health and responsiveness to changing market and
consumer needs, but a more pro-active industry response to society's needs in protecting the
environment. Furthermore, experiences indicate that ISPC does not seem to result in
monopolistic practices. However, these results are necessarily tentative at this point due to the
limited time period of the case studies. Overall, the industry through the ISPC process seems to

be becoming more pro-active and effective in meeting society's needs, but future research is

warranted.

 

 

 

 

 

 

 

 

286
6.4 Summary and Suggestions for Future Research

In this dissertation, substantial progress has been made in understanding the ISPC
approach as an approach to improve industry competitiveness and economic viability. A key
effort has focused on integrating a number of important aspects, phases, approaches and methods
into a comprehensive analytical framework for ISPC. This framework is designed to provide a
useful guide to effectively accomplishing ISPC.

The ISPC framework developed in this dissertation was analyzed in the context of two
industry cases: the Michigan apple industry and U.S./Michigan tart cherry industries. These
case studies indicated that the ISPC framework can indeed provide a useful guide to
accomplishing ISPC. Further, the case study of the Michigan apple industry ISPC process
indicates some substantial benefits and promise of future benefits in improving industry
performance. The case studies indicate that ISPC is a useful approach that can be potentially
applied in a number of industry contexts to improve industry performance.

As this dissertation comes to a close, there are a number of possible research directions
that could be pursued to further expand knowledge about ISPC. One main direction for such
research could include expanding the experience with the ISPC processes with a number of
different industries. Applying the ISPC framework in more industry contexts would further
improve the external validity of the framework, i.e., show how generalizable the ISPC
framework is. Such analysis would also likely lead to further refinements and improvements in
the ISPC framework. As ISPC is used further in various industries, a more comprehensive
understanding of the benefits to ISPC can be developed.

Another approach to additional research could include further study of ISPC processes
through studying continuing experiences and evolution within the Michigan apple and
U.S./Michigan tart cherry industries. This could include further empirical information on these

industries’ ISPC processes and impacts on performance. Econometric time series approaches

 

 

 

 

287
could be used over this longer time period for a quantitative assessment, perhaps with certain
performance measures discussed in this dissertation. Such a quantitative assessment could
measure the impact of an ISPC process on the competitiveness and economic viability of
particular industries.

In conclusion, the research in this dissertation supports the idea of ISPC as a useful,
effective method to improve industry performance. This means that ISPC could probably be
used in other industries with the goal of improved industry performance. Future research may
be fruitfully pursued to expand the knowledge base about ISPC and effective methods for
accomplishing it - with expectation that this research will provide important, practical

knowledge about improving industry performance.

 

 

 

 

 

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