Rob's Thoughts

The Relationship Economy - UPEI Jan - March 2003

The Customer Revolution - The Relationship Based Business Model - Turning Our World Inside Out

We are so encultured by the traditional model for organization that we no longer think about it. It is just how things are. When anyone becomes unconsciously captured by an idea, they are vulnerable to a new and better one. The Ford production model was invented a 100 years ago this year. It has been so successful that it has taken over every aspect of how we organize to do work – not only in business but in government, education and healthcare.

But, in the last 5 years, many leading firms that use this model are being threatened with extinction. The discounters have overwhelmed the full service airlines. In retailing, Kmart is bankrupt and many of the past retail leaders such as Home Depot and the Gap are really struggling. In bookselling, Amazon has shaken the industry to the core. In PC’s there is only HP left to confront Dell. In food, McDonalds seems mortally wounded and cannot appear to help itself.

We are also seeing the public sector struggle. Our K/12 education system is not delivering. Drop out rates are close to 30%. Boys are seriously underachieving. Our healthcare system is becoming too expensive and risks being overwhelmed by the advent of the seniors’ demographic bulge. Those that try and improve things by applying the old model harder and faster seem to get even further behind. So what is going on? This course will help shed light on this turning point.

A new model for organizing for work both in business and in the public sector has arrived.

When applied well, it destroys those that still use the traditional model. It has enough practioners now that we can see how it works and we can extract the lessons so that we can apply it ourselves. Understanding both the old and the new model will become a survival issue. This course will look below the surface of the Ford Model and reveal how it really works. Why? Because we have taken it for granted and we no longer question it or even see its rules and how they work. We will put the traditional organization into the MRI and see why using the Ford model is a fatal condition. .

We will look at eBay, at Amazon, at Dell, at the Discount Airlines, at Wal*Mart and we will discern from their activities, a new model emerging that has a radical approach to costs and a radical approach to value. We will see that at its heart the new model has a radically different set of assumptions about power and about relationships. We will see what it means to make the shift from a transaction economy to a relationship economy. We will see how these firms have revolutionized costs. We will see how they have found value in emphasizing community. We will see why in most cases it is much more personally rewarding to work in this type of organization.

We will look at the demographic and cultural forces that underpin this new model and we will look at some of the new Social Software that is transforming the customer and workplace interface.

We will speculate what this new model means for business and all institutions in Atlantic Canada. We will explore the “Hick” effect – many of the new leading organizations have been born in small town cultures. We will also explore what this model means for education and healthcare delivery. Finally we will explore what this means for your personal choices and for your work life.

Context for the Course – The Core ideas
When Henry Ford introduced mass production at the beginning of the 20th century, he not only changed how things were made, he changed the culture of the workplace. In this production culture, head office was the organization’s brain and it decided everything. Products were conceived, designed, produced and then marketed and sold. The enterprise pushed out from the centre. This model has taken over all aspects of organized life today. At its heart is a need to control the core process. Everything and everyone had to be “managed”. It was successful during a long period of relative stability.

We are so imbued with this model that we mainly fail to see it for what it is – only a model which has had a life of about 100 years. Today, we have reached the design limits of this model. More efficiency cannot be squeezed out of it and the business, social and technology environments are now changing so fast that such a model cannot react fast enough.

A new model is emerging. It is the reverse of the production model. In this new model, which we can see in the actions of new adopters such as Wal*Mart, Amazon or Dell, the flow is reversed. The customer sets the product agenda. It is the customer who decides what they want and who drives the production process back into, not simply one organization, but into a network of suppliers organized by the host company. The new model works deliberately to eliminate, or significantly reduce, inventory, such as eBay, Dell or Southwest, or to carry inventory in a distributed form in the supporting federated system such as Wal*Mart and its suppliers. With very low or no inventory, they have a compelling cost advantage.

All have remarkably sensitive customer interfaces where, at best, individual customer profiles, preferences and accrued activity and trust are maintained in real time such as by Amazon, eBay and Dell. Or, profiles are held in aggregate, where community profiles are maintained such as at Wal*Mart.

This is not simply a re-engineering of the process but a shift in culture. It involves the giving up of the idea that the market can be controlled by head office. Head office in these organizations does not pretend to be able to predict customer behaviour, instead it works to have the best sensory system possible. It uses this acutely sensitive information system to track trends and to react immediately.

As a result, the customer experience has been transformed from an outward push to an inward acceptance. It is fun to fly Southwest as well as being inexpensive. Amazon provides a community of book reviewers that pulls the customer into the primary sales position in the firm. Wal*Mart greats each customer and so on. The customer gets what they want rather than only what the firm will give them.

In a world where most of have all that we need, in terms of things, this putting the customer into the driver’s seat give them the potential for the experience of control and participation that the old system prohibits.

This is the key to understanding the new model. Its value is in the experience of control and participation given to the customer. For the first time, the customer is in control and not the corporation. Once customers have experienced this, they do not go back! Conversely, in the new organization, to give the customer control and participation, head office has had to give the front line control, and participation as well. Once employees have had a taste of this they too do not want to go back.

To pull this off, these organizations have pushed a remarkable amount of decision making power out to the front line. Floor clerks in Wal*Mart can move material around the store and each store has a computer assisted re-order model that enables the store to track orders to the unique preferences of its own community. At Dell you speak to a real person who then tracks your order all the way to set up. At eBay the buyers and sellers deal direct.

If you are a competitor of one of these new model firms and you are still using the old model, you will fail. You cannot deliver the costs and you cannot deliver the customer experience.

So we see the icons of the old model struggling or even moving into bankruptcy. United Airlines, AMR Air Canada; Kmart, Home Depot; and most small booksellers and Indigo and Chapters. eBay is on track to dominate the second hand car market. Dell can take on any competition and is moving into other sectors beyond PC’s.

In the old model, you could compete by applying a simple concept – more money. By gaining access to more resources, you could use increased scale to push prices and costs down and use your increased hegemony to have power over the consumer. This is why the trend in the old model is for more scale. But now scale will not help United Airlines or Home Depot. The new model demands that you kill off your old culture, the culture that made you successful and which you know so well.

This is what competing by using culture really means. It means that an old model restaurant chain has to give up its identity to compete. McDonalds cannot stop itself from being a production based culture that drives from the centre out. It is so invested in the old model that it cannot change. This is what makes it and many like it so vulnerable to a new model competitor who competes by culture.

All new models supplant their predecessors. Henry Ford destroyed the idea of the automobile as a luxury item and invented a model that could be applied to any organization. This is the story of McDonalds and why it was successful and will now fail. For Ray Kroc was the “Henry Ford of Food”. He introduced a new production model to the diner. In the early years, if you were a family diner and were faced with a Production Model competitor, you inevitably failed. This is even the story for government services and for education and health care. They have become production line organizations.

Just as all the benefits in the 20th century accrued to those organizations that adopted the Ford model well and early, so in our time, the advantages will accrue to those that understand and apply the new relationship model.

Course Objectives
• To use a series of case studies on eBay, Amazon, Dell, Wal*Mart and Southwest & Ryan Air to develop an explicit understanding of the key features of the new model
• To understand the origin and the application of the Ford model in all sectors of organization
• To explore the new Darwinian process of how the small and the nimble destroy the large and the powerful
• To understand the cultural aspects of this shift and how they connect to a major cultural shift in society
• To speculate on how this model can be applied to business in Atlantic Canada
• To understand how the new model may be applied to parts of the public sector such as education and health
• To explore what this model means for each of us as individuals

Required text & Recommended Reading
We will be using three texts this semester. None of them are text books – all of them are leading works on various aspects of this issues. All are fun to read as well.

• Our core text is called “The Support Economy – Why Corporations are failing individuals and the next episode of capitalism” by Shoshana Zuboff and James Maxmin. Published by Viking Penguin ISBN 0-670-88736-6. ($39.99 Cdn)The book explores the reasons for the failure of the Ford model and presents a clear vision of how a model based on capturing the value in the relationship will work

• Our case book text is called “The Perfect Store – Inside eBay” by Adam Cohen. Published by Little Brown ISBN 0-316-15048-7. ($36.95 Cdn) This book explores the founding of eBay and picks up many of the ideas in the Support Economy and puts a human face on them. If there is a “How to Book” for the relationship economy this is it.

• Our process book is called “The Innovator’s Dilemma – When new technologies cause great firms to fail” by Clayton Christensen. Published by Harvard Business School Press ISBN 0-87584-585-1. This clever book reveals how good firms risk their future by ironically upgrading their service and hence costs to meet the needs of their existing clients – risking that they open up pools of opportunity for low cost innovators to come in below. Southwest Airlines’ rout of the conventional full service airlines or the Mini Steel Mill’s triumph over big steel come to mind as examples. Here we see how the application of new technology can be so disruptive.

Other Course Resources
My weblog, which is updated daily, has a great deal of other supporting material and links. It is an interactive site and allows for your comments. I would like you to start your own weblog as part of the experiential aspect of the course. Weblogs are part of the new very inexpensive tool kit that is reconnecting the world.

Have a look at “The Cultural Creatives- How 50 million people are changing the world” by Paul Ray and Sherry Anderson. This will give you a sense of the powerful cultural forces of individualism that are driving the shift in organizational model.

Have a look at “The Hidden Connections – Integrating the biological, cognitive and social dimensions of life into a science of sustainability” by Fritjof Capra. The first half of the book is a challenge but his second part where he takes the theories of living systems and applies them to organizational life is breathtaking and simple.

Have a look at “Free Agent Nation – the future of working for you self” by Daniel Pink to see how many individuals, millions of them in fact, are now working in the new model for themselves

Course requirements and structure
The course will be offered online using the webct platform at UPEI. The course will last for 12 weeks and will have 4 assignments – i.e. specific written papers. The key to the course is a “Learning Conversation” which takes place in the Bulletin Board. 40% of the marks will be for regular participation in the bulletin board. It is mandatory that you participate regularly in the bulletin board.

The assignments will be valued at 10% for the first 3 and 30% for the final paper. The assignments will be set from a menu of topics – the course is very broad. I want to offer you enough choice to enable you to find topics that especially interest you.

Evaluation plan

• Participation 40% of the total mark
o The bulletin board is at the heart of the course. Dive in and have fun.
o I am looking for Quality and Quantity.

 Quality is defined by introducing novel insights and by building well on the ideas of other.
 Quantity is defined by participating 3-6 times a week
 If you participate less than 3 times a week without just cause, you will fail the course immediately

• Assignments 60% of the total mark.

o Papers that simply deal with the question and repeat the class thinking will be marked in the 60-75% range
o Papers that show original thought as well as having the covered the material will be marked in the 75-85% range
o Exceptional Papers that should be published will be marked in the 85-95% range

Course Schedule

Please note that some of the schedule may change. Please see this as an outline. Check my weblog under UPEI for the current schedule and for supporting material for all the key points of the course.

It is important to have read the set books early.
Week Topic Assignment

Part 1 – Conceptual Overview – What is the new Model in action

1. Jan 8 Intro - EBay and Amazon The Perfect Store by Jan 18

2. Jan 17 Dell, Southwest and Wal*Mart

3. Jan 22 What are the new lessons? Assignment 1 due Jan 22

Part 2 – What is the Ford Model? What is the new model as a theory? Why Culture?

4. Jan 29 Explore the Ford Model Support Economy by Feb 12

5. Feb 5 What is the new model?

6. Feb 12 What are the cultural issues ? Assignment 2 due Feb 12
Part 3 – The power of disruptive technology – Why great companies are failing

7. Feb 19 The Innovator’s Dilemma Dilemma by Feb 26

8. Feb 26 Social Software and Community

9. March 3 Costs and Inventory Assignment 3 due March 3

Part 4 – the power of experience and competing by culture

10. March 5 Applying the “Experience” concept

11. March 17 The internal changes to culture

12. March 19 The public sector – Education and Health?

13. March 24 What it means for you? Assignment 4 due March 26

Robs Courses - My Home as a system

“Rob’s Home” - An Example of the approach that I am looking for in the first assignment of Business and the Natural Step

Introduction - Most of us take our home for granted. It’s a place that we eat and sleep in. But our home is also the most important system that we can control. What do I mean by the term system? Systems have flows - things come in – we do stuff with it - and then they go out. There are costs attached to the inputs, the internal processes and the waste. We go out to earn money to pay for many of these aspects of out home process. If we can reduce these costs and prevent new costs from hitting us in the future, we will have more freedom about how we earn a living. Maybe even more time to do other things like have a good marriage, raise our kids well and have fun. What a concept! Being the centre of most of our spending it is also the place where we can allocate our money to change how our suppliers work and hence maybe change the world of business.

So this is why we are doing this exercise – to see in our own lives how thinking in a system way and using the tools of the Natural Step, we can have a better life ourselves and change business.

Transportation – We live in the country and this is where I am the least happy about how I live. When we lived in town we had one car and did about 12,000 km a year. Now we have two cars and drive about 60,000 km a year. I have to admit to being a bit stumped. My real choice is to get out my bike for runs into town. I would get fit as a by product as well. We could have one car at a pinch which would be a huge savings. But at the moment the give up in convenience is too great for me. I bet many of you feel the same. I have thought about cabs as an alternative to a second car. It costs about $11.00 each way by Cab into town or say $25 return. Say 250 trips a year this is $6,250 and is much more than running the second car that I own clear and which costs me directly about $2,000 a year (gas about $500, insurance about $800, repairs about $500) So cabs are out. So I will hang onto my bike or consider a small motor bike a plan B. I would save about $2000 with my bike and over time close to that on a small motor bike.

Both our cars are small a 97 Civic and a 03 CRV. They use regular gas and get good mileage compared to larger cars. I can get to Moncton and back on one tank easily. Our next car will likely be a hybrid – especially if there is tax credit that gets the price down to the same as a conventional car. It is a big premium right now that does not pay at current gas process. But will if they go much higher. Running a car with very low mileage is perhaps the best strategy for PEI rural residents. In the end, biking over distance in February is a desperate measure. But if I can get 60 km to the litre then this makes more sense. We can lobby the government to incent high performance cars.

Are there wasteful trips? Yes – Maybe if I logged them and planed my day better with my wife we might cut 20% of our trips out. This then looks like a good avenue to approach.

Energy – Our most important flow in our house is energy for heat. We have the main house, a guest house and a granny flat. In all we have nearly 5,000 square feet to heat. Our monthly oil bill is $490 a month or $5,880 a year. This is our largest expense by far. We heat by oil. My objective is to cut this bill by 50% by the end of next year. My main strategy will be to replace much of the heat source from oil to wood from our own property. The direct cost to me is small consisting of my chain saw, some gas and the rental of a wood splitter. Most the effort is in labour which I provide. I plan to put the fire on in the afternoon and leave it until we go to bed. The stoves will have self turning fans which helps to spread the heat around the house. This I hope will cover the really cold part of the time and reduce then need for the furnace to go on at night. During the day the house is situated to get most of the sun. All the main windows face south. We tend to get up to about 65 without any heat just from the sun on a bright day.

Since I first wrote this I have installed a wood boiler - here is the business case

In addition we are changing our internal processes. We have put in a digital thermostat for the downstairs. We have a separate system upstairs. I find this a huge help. It automatically turns down the heat to about 60 downstairs at night when we are not there and turns it up to 67 in the day. We have got used to living in the mid 60’s which also reduces the load. Wearing a sweater helps as well.

We have worked hard to reduce waste. We have insulated the roof and put in new windows upstairs. We will be sealing the open electric plugs – you can get cheap plug blockers for cents. Next year we will replace the downstairs windows. Our old windows are 30 years old and leak a lot. We will have to pay for all of this. Again this is where the government can help by setting up incentives to reduce waste by supporting more insulation, better windows, better light bulbs etc.

On the electricity front we buy the wind power electricity from Maritime Electric. This is our best way to have a better source of electricity. The more of us that do this, the more we attract more wind to PEI. This I think is the big community goal for us all. If we can raise the acceptance of wind, then we have a chance of breaking free from oil and nuclear based electricity on PEI. In effect we will break free from the inevitable rise in cost of carbon based energy. The stakes for us all especially you who are younger are huge.

Our main house bill is about $80 a month. Our concessions to better internal process has been in the laundry area. We have front loading low water, low energy use washing machine and I the summer we mainly dry on the line. Our biggest drain is our computer network and our deep freeze Waste is a big issue that I am only just beginning to understand. I have not replaced many conventional bulbs with long life low wattage bulbs. I have not explored yet how best to run my PC network at night on a lower usage. Any advice for you? Having a good measurement system that would enable me to see where my biggest usage and loss would be best. All the good writers say that the key is to reduce consumption in this area.

Food – We spend a lot on food, household supplies and wine. I hesitate to reveal how much. Let’s just say it is much more than we should. What we don’t do much anymore though is to buy much prepared or packaged food. Most food in a supermarket has traveled at least 1,000 miles. Think of the energy costs!

We cook most of our meals from scratch. I think that we therefore avoid many of the potential health risks and we avoid supporting much of the factory food system. We eat better in both ways. Importantly, I think, we make a point of buying as much as we can from local sources. My plan is to buy everything that is possible locally. Like wind power, creating local markets for food is I think a key to a new future for agriculture. Our farmers who grow one crop for sale to the big processors or the supermarkets are having a terrible time. They are part of a process that is damaging our land and our natural systems. I now believe that the answer is not to attack our farmers but to change our buying habits. When we create a new market, they can switch.

This is an important insight. We can feel powerless. But as consumers we have the power of choice. When we choose wind and local food we create change.

What we buy drives a huge waste stream. We go through our 5-9 blue bags a month. We have two filled waste watch bins as well. I think that the next step is to push back at the packaging as consumers. Until now I was not very aware. But now pulling the bins up the 100 yard long drive way and loading the car with all our blue bags has made me very aware of how much waste we create. The state will have to help. One way will be to tax bad packaging and incent good packaging. I get so annoyed over the can ban debate – we do not need cans. We won’t get them anyway. We will get big plastic bottles that have been packed in Ontario and will end up not being recycled because we don’t have enough volume.

Companies that pack well will get my consumer dollar.

Business is the most powerful process in our world toady. As consumers, we have the power, if we get together, to change how business affects us. Note how the food companies are reacting to get transfats out of their food. On our own we are powerless – we take what they offer. But as an informed group, we have the purchasing power to help them change. We will see how this process helped many of the early adopters of the Natural Step change.

Real power is authentic. It must come from us. It is not a powerful position to rage about how bad business is without changing what we do at home in our own lives. Hence this exercise.

Robs Courses - The Real Cost of Going to Work

Here is the back-grounder for the 2nd assignment for The Natural Step and Business

The Real Costs of Going to Work 
When we say "I am off to work" what we usually mean is that we are off to work in a place. This place is a distance from where I live and my community. We go to work not when we feel like it or when we have to but when the custom dictates it. As employers we also often fee that we need is a prestige place that will impress visitors and clients. 

An enormous amount of the direct and indirect cost of work is built into this paradigm.
What are the costs for you the employee? 
Ron is a manager in Private Banking at the Royal Bank Plaza, one of the most expensive business addresses in Canada. He commutes from the suburbs averaging three hours a day. He has a large office with rosewood furniture. His office is connected to many meeting rooms, most of which are empty. There is a large support staff on call throughout the day. He spends about 10-20 hours a week in internal meetings.
This all looks quite normal. Until you ask him how many clients visit him in a week and how they really want to do business with him.
Ron see 2-3 clients a week in this office. Most of his business is conducted over the phone. Most of his clients would like to connect their computers to Ron's. But this is not allowed. Most of his clients would prefer Ron to come and see them but he does not have the time because he has to spend so much of it at the office. His time at home, he has three children, is very limited because he leaves home at 6:30 am and usually is not back before 7:30 pm. He has a full briefcase which eats into his home life even further. He is not in control of his life. He has run out of time. Here is how the numbers play out for Ron:
Gross Salary - $80,000
Bonus Opportunity - $15,000
So far it looks good Ron can make up to $95,000 a year or $60 an hour (working 200 days a year for 8 hours a day)
But remember the tax man takes 45% of his gross leaving him with $52,250 in his pocket or $32 an hour net.
Because Ron has a family he lives in a suburb and drives to work each day. His wife with 3 children also needs a car. Lease car payments, on one car and depreciation on the second car, insurance, maintenance and gas total $33,000. $27,000 of this expenses is directly related to getting to work. As a banker, Ron has to look the part, so he has to buy no less than 2 suits a year and all the right accessories $1,500 for office clothes.
Ron's direct costs of simply getting to work are - $28,500
Net real take home pay - $23,750 or $15 an hour net.
His commute takes 3 hours a day. This is lost time when he is not with either his colleagues, at work or with his family. Time commuting means that he loses 600 hours a year or the equivalent of 75 eight hour working days. If you costed this out on an hourly basis the indirect costs would be $19,200. The largest real cost to Ron is in having time and energy with his family.
The direct and indirect costs of Ron getting to work are about $42,000 or most of his net pay after tax.
Real Cost for the Employer
Prestige office space that gives the right impression - 1,000 square feet plus use of meeting rooms - $48,000
Time taken in meetings to talk about minutiae (15 hours a week for 40 min. for 40 weeks at $60 an hour gross). Time in meetings on a day basis is the equivalent of another 75 working eight hour days. No wonder Ron has not time either to serve his clients properly or meet his family needs, $36,000.
Support staff to Ron, salary and benefits - $55,000.
It costs the Royal Bank an additional $139,000 to have Ron come to work in the traditional manner.
Think of how you work. Think about the people that work for you. Does your picture look as odd as Ron's? Wheat can you do structurally to change this. What would working at home most of the time do for you and your family and your productivity?
The technology is available now to enable Ron and you to live a very different life!

Robs Course - Roles for Food

Food Project - Roles

Food and Agriculture as a System – What is the trajectory of the current system and what are the drivers? What are the levers that could shift the system to sustainability?

In this project we will divide you all into roles. It is one thing to think in an abstract way about this issue. It is another to se the issue through the eyes of those that are directly affected.

Your roles will be:

Farmers
You are an average potato grower. You bought you father’s farm from him 30 years ago. It was then a hundred acre mixed farm. You have since specialized in potatoes and have expanded the scale and capital investment of the old family farm which has been in the family for over 100 years. Your cousin did the same with your uncle’s farm but he chose to specialize in dairy. You now own a 450 acre potato farm, growing 150 acres of potatoes on a three year rotation. The land is valued by the bank at $900,000. You have spent at least $450,000 on warehousing and grading. You have at least two tractors that cost you in total about $200,000. You have a harvester that cost about $65,000 and you have a barn full of other equipment such as a sprayer, trucks, a planter, a set cutter and so on. On top of carrying these capital costs, each year you buy inputs such as sprays, fertilizer and seed. ($1,700 a potato acre or $255,000 a year before packing and storage costs ). Most of what you grow is under contract to a processor. You have been averaging about $7 a cwt. on the contract and you hope to sell some table stock for more than this in the spot market through a broker. You grow on average about 250 cwt. of potatoes an acre. In Idaho the yield is between 600-900cwt an acre. You average an income of about $260,000 – $350,000 a year on this type of operation. You are on a three year rotation but your cash flow is under such pressure that you may have to go to a two year rotation.

You are an organic dairy farmer. You have a herd of 50 and you are growing all your forage crops without using chemicals. The main source of fertilizer is composted manure of which you make about 600-800 tons a year. Your fields are on an eight year rotation – three years cereal and five years forage. You own your quota and you sell all your milk to the coop in an undifferentiated way – there is no premium for organic and no separate storage. You started as an organic farmer because your financial position 18 years ago would not allow you to go down the more conventional route. So, for you, going organic was initially an economic issue. Today you are solidly profitable. The Milk system provides you with a predictable price and you have stabilized your costs by going organic and have a relatively small exposure to external cost factors outside your control.

You are an organic grower of 25 acres of vegetables. You have come from Germany where organic food is now mainstream. Organic meals are offered as a matter of routine on the railway system and on flights. You are able to make this small holding support you and your family – you have not needed another source of income. You focus on high end vegetables. You use a four year rotation and you use “green manure” or annual ryegrass and crimson clover followed by a heavy feeder such as broccoli or early potatoes. In the third year you grow greens, onions or carrots and in year four you grow beans and peas. If there is time before and after the cash crop you plant cover crops You sell directly to a number of restaurants and to a supermarket. You have noticed that the demand for organic has gone up, your restaurant trade values your product. Good restaurants have trouble finding quality supply in the traditional system. Your direct prices are competitive. You spend a great deal of time on your relationships with your customers. You also connect closely with other producers such as your self and have links to the larger organic movement. You have started to teach others some of your techniques. You have however experienced a challenge with the supermarket who sells your product at a very high premium but only pays a small margin over the non-organic price to you. You have seen the space available to organics increase substantially on the supermarket shelves but the produce is very expensive. You have been able to be competitive with your direct customers by not having a middle man.

You are the Executive Director of the Potato Board on PEI. The industry is at a turning point. Will it continue to be splintered or will it find better ways of working together? You are in the hot seat either way. You are accountable to the board and to the potato growing community at large. Your task is to represent their interests. “Herding cats” would be an easier job than trying to do the right thing for a diverse and independent minded group of growers. You work between the growers and the market, including the processors, and government. Many times you feel that you are doing the splits as you do your best to find the best pathway between these different areas of interest. The complexity of your role is increased by the fact that there are a wide range of opinions in the industry itself ranging from progressive types who see the need to change practice and to cooperate to die-hards who feel that they own their own land and no one will tell them what to do. Quality is an issue that you have pressed for. You know that if PEI loses its reputation for quality, that the entire industry will suffer. Again some growers agree but others just keep doing or not doing things that damage quality. Attempts to put in testing and quality control for the industry have been hotly debated. Holding the line on price is another issue. You have tried to get agreement form the industry not to sell itself short. The brokerage system for table stock makes it easy for growers who have to realize cash to break price and weaken the entire value of the PEI offering. Encouragingly, there is a movement to bring growers together from all over North America to make improvements in the processing contracts which include more than 60% of the crop. There has been a recent meeting with representatives from Canada and the US and the major processors. The point of the meeting was to recognize that the growers were not getting an economic return on the processing contracts. The processors agreed but made the point that they too were under pressure from the end buyers such as McDonalds and Wendys. It seems that some type of collective action is being contemplated. It is not clear where this is going yet but it is a milestone of cooperation and mutual understanding that has not been seen before. Recently disease has been at the top of the agenda. Rapidly increased acreage and a focus on processing are factors that have contributed to a rise in virus which has affected seed quality. Hotter summers have lead to more Colorado Potato Beetle predation which in turn has required more applications of insecticide. While this has kept the beetle under control, the beneficial insects have been reduced in numbers opening the way for aphids which carry the virus. 20 years ago, nearly all PEI production was of seed quality. Now there is insufficient seed to restock the system. The one good thing that is coming out of all this is the changing attitude of the growers. They are beginning to take collective ownership of their problems and are looking increasingly to their own actions to find solutions.

Agri-Business Supplier and Potato Processor - You are a major supplier of agri-business chemicals. You run an integrated operation and supply fertilizer and pesticides and herbicides. You also are a major potato processor. You try your best to optimize your business by linking all aspects of what you do with your customer/suppliers. As a service to your customers you run a crop scouting operation that has in effect replaced the more traditional government extension service. The crop scouting business and your contract potato buying provides you with the most comprehensive and accurate pool of information of what is really going on with specific farmers and the potato industry. You supply major fry consumers such as McDonalds and Wendy’s. These global contracts are very competitive. You have to meet strict quality and price conditions. These contracts are globally tendered requiring you to push back on your costs and to reach for the largest economies of scale possible. Only two varieties really work in your system, the Russet Burbank and the Shepody. The Russet has an exceptionally long growing season exposing the potato to the maximum disease and pest risk and hence to the maximum requirement to protect the crop from pests and disease. The requirement to harvest all the crop at the end of October also exposes the grower to weather risk. The crop has to come out. This requirement drives a heavy capital expenditure in equipment. Your contract with the growers is designed to drive frying quality. The full price of the contract is only available to growers who meet size and quality specifications. The grower will only get the full price if everything goes right for him. Because PEI growers can only average 250-350 cwt per care, you are starting to look at other areas, such as Manitoba, where there is more yield to draw from. Your corporate headquarters are in Atlantic Canada but you have processing operations all over the world. You have a global perspective.

Agri-equipment supplier - You are the main local dealer for a global farm equipment dealer. Yours is the world’s leading brand and is the standard for excellence. Farmers are proud to own your equipment. Many of your tractors cost over $200,000. In spite of a series of difficult market years for potatoes, sales have been good because it is increasingly important for growers to have the power and scale of equipment that will put the crop in and dig it out in ever shorter weather windows. The relative cost of your equipment has outpaced the relative value of the crop by a multiple over the last 20 years. Only leasing and innovative financing has enabled farmers to continue to invest in your equipment. You rely a great deal on re selling lease backs to the US where second hand prices are higher.

Banker - You are the Atlantic region VP for a major Canadian bank. Over the last twenty years the number of farming clients has been reduced considerably but the overall size of the loan portfolio has increased. Your clients are larger and are more sophisticated. 20 years ago you mainly financed capital equipment and land. Occasionally you would finance operating requirements. However in the last 10 years all your customers have had insufficient cash flow to finance their operating requirements. Recently you have begun to notice that a growing number cannot pay off their annual operating line. You and they have been waiting for that cyclical great year that will clear these lines. You have been a strong advocate of contract growing with the processors. You would rather see the contract as collateral than to speculate with the grower on the seed or spot market. As a result, over the last 10 years, the bulk of large growers have become dependent on contract growing and the overall potato acreage has increased substantially. Seed and table production has declined. There has been a focus on two main varieties the Russet and Shepody. Fortunate for you, while total debt and debt per farm has increased so has your underlying security, land values. On the surface your portfolio therefore looks sound. But there are worrying signs. While some of your customers are still profitable an increasing number are not. You would know that in a good year a good farmer may make a return on capital of 3%. If you were to step back and reflect, you would know that this is insufficient over the medium term. Something has to give. In the interim you have to ask for more cash flow. With no more land available, growers can only deliver the cash flow by shortening rotation and by squeezing their primary capital, the land. With the portfolio to protect you feel that you have no choice but to push.

Major food broker - You are one of the leading Canadian food brokers and are based in Toronto. Potatoes are a large piece of your portfolio. In essence all producers on the Island sell most of their table production to you or another broker. Few growers have the scale to sell direct to a major end buyer. You make your money on volume. Most of your end buyers use the brokerage system to drive down the price of the potato which is often used as a loss leader in the stores. The result is that the consumer sees an undifferentiated product with uncertain quality on the store shelves. The paradox is that the potato is at the heart of most meals in Canada but is treated with little respect by the industry. In Europe, potatoes are clearly identified like wine as to their cooking characteristics, varieties and there is a range of pricing based on quality. The customer group who seem to see the potato most as a commodity are Islanders who cannot bring themselves to stop looking for a potato bargain.

Major food retailer - You are the strategist for a major Canadian supermarket chain. You and your next competitor have 55% of the Canadian market. Canada is the most concentrated food market in the world. In spite of your commanding position you are concerned that Wal Mart and companies like Costco are a major threat. You have responded by dramatically increasing the scale and entertainment value of your local sites. Your anchor PEI site is 84,000 square feet. You offer not only cheap prices, Canadian food is amongst the cheapest in the world, but you offer entertainment. You are recreating the feeling of a traditional market. But while the food and stuff is piled high, you actually don’t offer much choice. Because you have control over so much of the market you only allow a limited number of suppliers access to shelf space. Most have to pay a fee to have space. You are trending to only stocking the 2 leading brands and your own 2 house brands, the premium and the no name brand. While this strategy of scale has been successful so far, you are concerned. Can you continue to expand scale? Will shoppers balk at 160,000 square feet? You can see that there is a trend to organic and “natural” and you are now opening up more space to this market. You are aware of trends of concern about food safety. In England the Supermarkets have reacted and are labeling. Another trend that is clear in Europe that you have not addressed yet is selling food on the internet. Perhaps because of the compact structure of the UK market, this trend has passed the experiment threshold and will become a very large part of the business model. Home Meal Replacement and Fresh Pack meals are also a new trend. This has become the bulk of the market in England and is trending this direction in Canada. You have a culture and style based on your power. You can’t help your self but push hard at your suppliers

Environmental Groups

You are a long-time, long-term, committed environmental activist. You believe that big business is destroying the world. You sense that this is a war and that the future of the planet is at stake. For many years you have been a lonely voice in the wilderness but now more and more people support your point of view. Chemicals must be banned and so must GMO’s. You know that the corporate world will not listen to you and that it has to be destroyed. You have just returned from Seattle where you have found that from being on the fringe that you now have power and you will use it.

You are an environmentalist. You see yourself as a concerned citizen not as marcher. You know that our current system is wrong but you know that this is not essentially because the world is divided between evil and good people but that what used to work well no longer does. You are looking for a new set of solutions and assumptions. You recognize that time is not on our side and that the current system may well collapse. You are increasingly concerned about the quality of the food that you eat and the water that you drink. Your son has ADD and asthma. You are suspicious that his problems may have an environmental origin. You have started to buy more of your food at the farmer’s market and are plugged into an increasing body of knowledge on the Internet and in print about food and a healthier lifestyle. You are 45 and you are a woman. Your husband has been slow to pick up your concerns but you now have his attention. The fish kills were his wake up call. He is a keen fisherman and has seen he silting of the rivers first hand and has experienced the decline in fish stocks. Your children are remarkably aware. They have picked up their concerns from you and from school. The environment is to them what the bomb was to you. You want more choice in what food you buy. You are growing a small vegetable garden but it is very small. It is your token. You don’t have the time – you both have full time jobs.

Alternative food retailer - You are a woman in your late twenties. You have just purchased an Island institution, the leading health food shop. You wanted a business that would express the real you. The store has grown from being like a club serving a small group of early movers to being one of the few places where a growing number of people who wanted natural food could shop regularly. Many of your customers also shop at the market but it is only effectively open 1 day a week and is more a symbol than a real alternative. You paid a premium for the store because your market research showed you that the market for organic and natural products is the fastest growing market in North America. Surprising to you even your banker agreed with this assessment. Access to product is a major challenge for you. At the moment you have to go out to those few growers directly. Both sides are feeling their way. This process takes up a lot more of your time than you thought it would. Local restaurant owners are increasingly seeing you as a broker for natural produce. They don’t have the time to go into the field and find suppliers. On the other hand they are increasingly dissatisfied with the traditional offering from conventional suppliers. Your wholesale prices are competitive. However, you are concerned that the major supermarket is developing an organic and natural section and may become a threat. Their small space is already 3 times your own space. Their prices are lower. How will you hold onto your client base which is vulnerable because you do not yet have the relationship with them yet that the previous owner had?

Consumers

Your husband is a seasonal worker and you have a part time job. You have 4 children. There is not much room after the necessities in your family budget. You have to watch the pennies carefully and you pride yourself in how you can stretch the food dollar. You can’t afford much fresh meat. What meat you buy tends to be meat that is easy to cook such as hot dogs, the children love them and you get no fuss at the table, and frozen hamburgers – everyone can cook them and they are also popular. Sometimes you buy wings or nuggets. To keep everyone feeling full, you buy a great deal of bread and potatoes. You don’t have a lot of time and your husband does not cook. So you also buy a lot of ready to use foods such a Kraft Dinner. The children love cereals: especially the sweet ones. The children drink lots of milk and pop. Both you and your husband smoke two packs each a day. You are 35 and your husband is 36. You are both overweight and so are your children. You find all this talk about organics and natural food is something for the rich – your job is to find enough food to feed you and your family on your budget. It is a huge struggle and you often wake up at night and worry how you are going to do it. You wish your husband was more help. The price of food is very important to you. You can’t afford to have it go up.

You work at DVA and you wife is a teacher. Health is very important to both of you. You work out 3 times a week at the gym and you both bicycle. You have 2 children. You pride yourself in how well you eat as a family. You go to the farmers market every Saturday – it is like a club – and you eat a lot of fresh vegetables. You have enjoyed the choice of food available in the new supermarket and think that the supermarket has done a good job in expanding the choice and taste of food on the Island. You go out to dinner twice a month and like Italian food – it is so healthy. Neither of you smoke. Your teen daughter is a vegetarian so the family does not eat a lot of meat. But you and your son still really like it and a barbecued steak is your ideal meal. None of you eat fried food. Both you and your wife have become concerned about the inherent quality of food. The whole GMO issue has concerted you. You don’t know much about the science but you are concerned. The Milk BST thing is a concern –you are thankful that Canada banned it. You have a cousin in England and the “mad cow” thing has caused you to lose trust in government regulation. You applaud a major fry processor for banning th use of GM potatoes. You subscribe to Green Peace.

You are 80 years old , a widow and live in an apartment downtown in Charlottetown. Preserving your independence is very important to you. Your daughter lives in Toronto and your grandchildren are all over Canada. You have an older sister still living in a manor and you have a rich network of friends and cousins. You are always out and about visiting in the summer. The key independence issue for you is doing your own shopping and cooking. You are not allowed to drive any more and the downtown Coop is your independence lifeline. If you had to take a taxi to the mall, you would not be able to afford it. Even in winter, you can get out to the Coop. You are frightened about what would happen without it. You have started to shop at the Root Cellar as well. That new young girl is so nice. Maybe this would be the alternative? You live on a fixed income. You shop very carefully. You focus on fresh vegetables and a little fresh meat. You bake for friends. You love to cook even for your self. Caring for your self in this way keeps you going. Food is but you have found that by buying quality produce and spending the time on cooking, that you eat well and within your means. You have always somehow known that eating well was the key to a long and active life.

Agriculture Canada - You are the director of the local Ag Canada Research Station. The traditional mission has been to support the conventional growing of cash or commodity crops. The underlying focus of much of Ag Canada’s work has been to support the export of commodities and to support the industrial approach to Agriculture. You are beginning to have some doubts about this type of direction. While the word “sustainable” has entered widespread use, you are not sure that only developing some new techniques will be enough. You are beginning to consider that a completely new perspective is required. But science and government policy is conservative and change is challenging. Many of your scientists have great knowledge but traditionally work in their own distinct fields of study. Collaborative work has not been the pathway to scientific recognition in the past. You recall that it was a revolution in agriculture in the 18th century that set the stage for the Industrial revolution in the 19th century. Might not such a new way of approaching food growing be available now. You wonder if we now know enough about how nature works to stop working against it and start working with it. Such a path would truly be a revolution. You suspect that really looking for a new model would be the right thing to do but know that this might offend the status quo. How could you obtain support to investigate looking in a new way?

The Provincial Department of Agriculture - You are the minister. You live in the heart of the potato growing area of the Island. While your background is teaching, you can’t live where you do and not have a good feel for what is going on. You have been listening for years to the main debate about agriculture. Most of the government talk has been about supporting the current system. Each province seeks more support for their farmers from the Feds. Each country accuses the other of unfairly supporting their farmers. Most of your budget is allocated to supporting the traditional system in one way or another. You are having doubts about the wisdom of this focus. There is no doubt in your mind that the industry is in trouble and that farmers need to be supported right now. But where is the new system that does not have to be supported? It is becoming clear to you that farming, as it is practiced now, is not only not sustainable from a natural resource point of view but is no longer financially viable. The risks for the province are relatively greater than for many other because of the relative importance of agriculture and the dependency in particular on growing processing potatoes at scale. A major failure in the potato could affect PEI’s society like the failure of the cod fishery on Newfoundland. You understand that the focus on processing is one of the problems. This has pushed the trend of overcapitalization, increased acreage, monoculture and the use of chemicals. The problems of the seed industry are directly related to the increased acreage and the rise in the population of aphids which is in turn connected to spraying for beetle which kills off the beneficials that feeds on the aphid. PEI once had an unparalleled quality seed industry and now no longer is self sufficient. You are aware that PEI has also lost its position as the quality table stock producer. More reports of fish kills will begin to affect tourism and damage the idea of PEI being an idyllic pastoral landscape – its primary tourism image. The risks are huge and the time is short. How will you act to encourage a new alternative model? If PEI can find one, it will not only help the Island but also be a model for the world. So the upside is huge as well! You sense that the right approach is to encourage the building of a parallel track alongside the traditional system so that those who are embedded in the current system can step off safely onto the new. You sense that the battle is not just to be won in the field but in the system of how food is distributed and sold. You estimate that islanders spend about $150,000,000 a year on food. You sense that most of this leaves the Island. How could we divert a good proportion of this to Island producers so that it stuck here? You know that there is a huge momentum behind organic and quality food. How could the Island tap into this? You know that most of your growers are trapped in the old system and have large debt loads, how can you help them find a way out of their trap? Most people think that the 2 big issues for Government to solve are healthcare and education. How can you show them that if we don’t get the food issue right that we will not have the resources to deal with health and education?