Changing the culture at Fonterra

[This post was first published in the New Zealand Sunday Star Times on 10 November 2013]

The key message from the report to the Fonterra Board on the botulism scare is the need for a change of culture.  The recommendations refer to ‘Fortress Fonterra’ and the need for a ‘one company’ culture.

Sir Ralph Norris, who is the independent director who chaired the Board Sub Committee which both commissioned and received the report, has shown a keen awareness in his statements of the extent to which company culture will have to change. Whether other members of the Board have grasped the extent of the cultural change that will be needed is not so clear.

The Chairman of Fonterra, John Wilson, has said that most of the changes are already underway. That suggests that the complexity of creating a unified ‘one company’ approach within a huge organisation may not have been fully recognised.

Company structure can be rapidly changed. Underlying culture is a lot more difficult to change. It requires lots of training and staff development.

Fonterra has taken a long time to embed food safety as the key element of its company culture. Back in 2005 and 2006, when Fonterra first invested in San Lu in China, they placed their emphasis on embedding financial disciplines into that company when the first priority should have been food safety systems. The consequence was the melamine disaster.

It was only following this latest scare that Fonterra appointed a Group Director of Food Safety and Quality reporting directly to the CEO.   Clearly that position should have been created many years ago.

The most challenging issue in food safety is how to deal with low probability high impact events.  Yet the answer is very simple. As soon as there is a hint of a problem then all product that has even a small chance of being contaminated has to be removed from the supply chain.

With the botulism scare, there were lots of opportunities to isolate the problem. When the torch was first dropped into the dryer, there was only one tonne of product that was possibly contaminated. By the next morning, because nothing was done immediately, there was potential for nearly 40 tonnes to have been contaminated.

Over the following 18 months, a series of inappropriate decisions was then made, all as a consequence of not thinking through the implications of low probability high impact events. The focus throughout was on minimising losses involving a few thousand dollars. There was a total loss of sight of the big picture.

At one stage, two different business divisions of Fonterra were bickering over who would pay for the losses from product that had high Clostridia levels. The focus should have been on isolating all the potentially contaminated products in the supply chain before they got anywhere near consumers, not on who within Fonterra was going to pay. It was many months later before outside companies received any notification that there could be a problem!

There have been suggestions by some commentators that Fonterra needs more scientists at Board level. But that would not necessarily solve anything. Much more important is that throughout the whole organisation there is an understanding that everyone is part of an overall system.   The food scientists need to understand that consumer attitudes are fundamentally important, and the business executives need to have an understanding of the technical issues associated with food safety.

One of the key staff development strategies in a global food company is to undertake simulations of how the organisation should respond to all sorts of different events.  Everyone in the organisation who has responsibility for any type of decision needs this training.

There have also been suggestions that ‘heads should roll’, but making scapegoats of people achieves nothing unless those people have been derelict in their duty. It is much better to focus on the creation of a ‘learning organisation’ that can develop the systems that will prevent such human failures in future. This time, Fonterra has to get it right.

For an earlier post describing the botulism scare click here.

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About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Agribusiness, Dairy, Fonterra, The Fairfax SST Articles. Bookmark the permalink.

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