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Sustainability Issues in Fonterra and Solutions to Overcome Them

3164 words (13 pages) Essay in Business Strategy

08/02/20 Business Strategy Reference this

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Table of Contents

1.0 Introduction:

2.0 Key Drivers for Change:

2.1 Overcoming the internal issue in Fonterra by the application of the Kurt Lewin’s model:

Unfreeze:

Change:

Refreeze:

2.2 Method of measuring progress and success of change in Fonterra:

3.0 Measuring the effectiveness of the change management program in Fonterra:

3.1 Measuring individual performances in Fonterra:

3.2 Measuring the change management performance:

3.3 Measuring organizational change in Fonterra:

4.0 Current leadership style in Fonterra:

4.1 Leadership challenges and effectiveness:

4.2 Implementation of two leadership styles in Fonterra:

Democratic leadership:

Transactional leadership:

5.0 Recommendations and Conclusion:

References:

1.0 Introduction:

Sustainability refers to a set of activities that need to be undertaken for the avoidance of the depletion of the natural resources for maintaining the ecological balance. The sustainability issues are the social and environmental issues that generally stem from the energy use and conservation, wastewater and quality, biodiversity, land contamination and air control and more. Fonterra is a New Zealand multinational dairy company that exceeds more than 30% of the international dairy exports and has garnered revenue of the more than NZ$ 20 billion in 2018. This assignment intends to identify the key drivers for sustainable change, application of the Kurt Lewin’s model, discuss the leadership management and application of two different leadership models for the change to happen. The learner also formulates a number of recommendations for the change to proceed in the right direction.

2.0 Key Drivers for Change:

Energy consumption: From the viewpoint of Zonderland-Thomassen, Lieffering & Ledgard (2014), the energy consumption is a huge driver for change as the firm operates third of the manufacturing sites with coal. Although Fonterra has been increasingly using the scopes of natural gas, some of the areas of New Zealand are still inaccessible to get natural gas such as South Island.

Growing population: The growing population in New Zealand is another driver for the change to occur as the new population of the country has reached the 5 million headcounts comparison to 4 million in 2006. Therefore, the responsibility of Fonterra to feed more mouth is a huge question that calls for change.

Water supply and pollution: The water supply is abundant in New Zealand, but the water quality in the country is degrading due to the urban development, industrial use and rural land use. This is an alarming factor for the company to consider it as one of the key drivers for change. 

Raw material prices: Foote, Joy & Death (2015) commented that the supply chain of the raw material is great in New Zealand. However, due to the fluctuation demand of the raw materials in the international market, the prices of the raw materials are in ever changing mode that emerges as one of the key drivers for change for Fonterra.

Figure 1: Key drivers for change in Fonterra

(Source: Marsden & Morley, 2014)

Waste management: The waste management in New Zealand seems to be a problem as instead of the reinforcement of the waste minimization act 2008, the industries do violate the rules. For example, Fonterra also violated the rule in 2017 and was punished with a penalty of NZ$ 192,000.

Biodiversity: Although New Zealand is way ahead of other countries in terms of conserving the bio diversity, it is still in a nascent phase. This makes Fonterra suffer from extreme legislation from the New Zealand government, which makes it a complicated choice of make necessary sustainable business decisions.

2.1 Overcoming the internal issue in Fonterra by the application of the Kurt Lewin’s model:

Unfreeze:

The unfreeze phase refers to the part of the change process that revolves around the cause of the change that is expected to happen in Fonterra after the evaluation of the fines by the New Zealand government. In this phase, the management of Fonterra needs to make sure the change affects everyone and it needs to deal with the employees’ concerns and doubts.

Figure 2: Kurt Lewin’s Change model

(Source: Morris & Kenyon, 2014)

Change:

The next phase is the change itself that revolves around the impact of the ideas of the change. In this phase, the management of Fonterra needs to keep communicating with the employees regarding the benefits of the change and motivate them to support the change. As the change in sustainability does not happen overnight, the employees need the time to adjust to it.

Refreeze:

The refreeze phase refers to the change that is already in place and it is gradually becoming a part of the organizational process in Fonterra. The last state is very crucial for the company for the sustainable change, as it needs to make sure the employees’ training and monitoring of the personal development for the accomplishment of the sustainable activities in the workplace (Botha et al. 2014).

2.2 Method of measuring progress and success of change in Fonterra:

The best method for the measurement of the progress and success of change in Fonterra refers to the balance scorecard method as shown below.


Figure 3: Balanced Scorecard for Fonterra Sustainability issue measurement

(Source:  Reynolds et al. 2014)

Four parameters are considered for the measurement of the sustainability performance such as finances, customers, internal processes and learning and development.

Major parameters

Major areas

Scores required for sustainability

Finances

Operating loss

35%

Turnover for the returnable products

25%

Increased sustainable market value

20%

Value creating investments

15%

Cost reduction and cost efficiency

5%

Customers

Increased market share

23%

Customer profitability

21%

New customer winning

16%

Customer satisfaction

16%

Delivering quality and reliability

14%

Presentation of image and reputation

10%

Internal processes

Reduction of production costs

35%

Product and process innovation

25%

Process efficiency and environmental performance

20%

Product quality and security

15%

Provision of sustainable products

5%

Learning and development

Team spirit and collaboration

37%

Employee qualification

23%

Identification with the corporate vision

21%

Use of the electronic information system

14%

Employee satisfaction

5%

3.0 Measuring the effectiveness of the change management program in Fonterra:

As the Fonterra management embraced the change using the Kurt Lewin’s model, the change needs to measure for the further evaluation to see if there is necessary improvement in the business process related to the sustainability aspects.

Figure 4: Sustainability change management strategy in Fonterra

(Source: Dominati et al. 2014)

3.1 Measuring individual performances in Fonterra:

From the viewpoint of Barkema et al. (2015), Fonterra needs to use the individual metrics for the evaluation of the performance of the employees individually. During the change, the measurement tools are already designed for Fonterra. After the change, it uses the tools for the measurement of the performances such as observation, surveys and more. The manager of Fonterra needs to read the differences of the employees when they interact with each other or other stakeholders such as customers. The sustainability change needs to reciprocate to the employees’ moral vision and it should be apparent from the current observation and communication process in the workplace of Fonterra. In order to accomplish that, the feedback needs to be gathered from the employees in order to know their perception of the change that has enabled the sustainability in the organization.

3.2 Measuring the change management performance:

Fonterra management needs to foster the effective deliveries and communication in the change Management performance measurement. The successful initiation of the change activity is very important as it also includes the scope key performance indicators. The key performance indicators are also necessary for the Fonterra management to identify and perceive the performance level of the change management program for the sustainable operation of the business. It is also necessary to track the presence and activity of the employees in the training and development programs. Their participation is the core aspect that makes the company achieves the objectives of sustainability for the company operations (McDowell & Nash, 2012).

3.3 Measuring organizational change in Fonterra:

Outsourcing: Fonterra needs to outsource the dairy products from the third party sources for having competitive advantage and achieve sustainability in the business operations.

Communication: The effective communication plan needs to formulate so that the message becomes clear for the receiver or the employees in the retail stores and workstations.

Figure 5: Organizational change in Fonterra

(Source: Müller et al. 2015)

Change management training: The training for change management needs to be in a chained process in Fonterra that starts from the top management in the company, passes through the retail store managers, and reaches the employees in the stores.

Resistance to change: The resistance to change in the sustainable change management process in Fonterra refers to the employees that are not satisfied with the change. This phase takes care of the motivation of the employees using various tools such as reward management and more.

4.0 Current leadership style in Fonterra:

Scarsbrook & Melland (2015) commented that currently Fonterra maintains the authoritarian leadership, which refers to a top down approach for the organizational chain of command. This is a central approach of making decision in the company that does not entertain the interferences or the inputs from the employees. The gap between the management and the employees remain a matter of concern for Fonterra. In all the provinces such as Marlborough, Auckland, Westland and more, authoritarian leadership makes the operation centralized that hampers the sustainable integration of the culture in the areas. This leadership can be the root of various conflicts in the organization.

4.1 Leadership challenges and effectiveness:

The authoritarian leadership happens to have various advantages such as the increased productivity, which tends to accelerate if the leader has the subsequent knowledge of sustainability and change management. The authoritarian leadership also increases the turnover rates and aggression levels for the employees that appear to be successful when the change management project is urgent. On the other hand, this kind of leadership is very challenging as this can be harmful in the end and can cause resentment for the employees. This kind of leadership also lacks the creativity in the sustainable decision making process and with the absence of the down to top communication, the confusion between the employees and the management can arise.

4.2 Implementation of two leadership styles in Fonterra:

Democratic leadership:

The democratic leadership style is all about the collaboration among the employees and the leader in Fonterra. The employees are provided significant chances to participate in the decision making process of the organizational activities. This kind of leadership pertains to bi-directional chain of command and therefore this can be one of the most effective leadership styles for the Fonterra. This also increases the productivity in sustainable measures of the business process that increases the overall employee morale (Pembleton et al. 2015).

Transactional leadership:

The transactional leadership refers to the employment and motivation of the people through rewards and punishment management. The transactional leaders use two factors such as contingent reward and management by exception. The contingent reward tends to reward the employees for their good performance in terms of the psychological and materialistic affections. The management by exception refers to engagement of the managers when the employees’ performance goes awry from the standards. This tends to the interferences of the managers for the accomplishment of the work by the deadline in Fonterra.

5.0 Recommendations and Conclusion:

People engagement: Fonterra is recommended to employ more experienced people from industry as they can subsequently raise the alarming issues related to sustainability in operation. The top management recruitment needs to focus on the sustainable approach in the employee management as to avoid the injury in the workplace.

Sustainable consumption: In terms of sustainable consumption, the company can improve the nutritional benefits of the products through ruling out the added sugars and other ingredients for better sustainability. The company can also focus on health-based products such as diabetes, cholesterol and more. In addition, the products for the school kids and teenagers will also bring more sustainable measures for the business.

Sustainable operations: In terms of sustainable operation, Fonterra can consider reducing the manufacturing emission, increases the water efficiency and invest in the wastewater treatment for better sustainability of the business processes.

Figure 6: Recommendations to Fonterra

(Source: Zonderland-Thomassen, Lieffering & Ledgard, 2014)

Sustainable dairying: In terms of sustainable dairying, the company needs to consider keeping the cows out of the waterways, participate in the nutrient management reporting and benchmarking programs and more for promoting more sustainability in the business operations.

The development and implementation of the people engagement, sustainable consumption, operation and dairying will help the management of Fonterra to bring the company on the track of sustainability. The customers and the local governments are more focused on the sustainable business operations and quality. The proposed balanced score card can help the business to understand the key metrics to focus on for the better achievement of the sustainable objectives. The change management program and the new leadership styles as recommended can change the dynamics of the Fonterra management process regarding the approach towards sustainability.

References:

  • Barkema, H. W., Von Keyserlingk, M. A. G., Kastelic, J. P., Lam, T. J. G. M., Luby, C., Roy, J. P., … & Kelton, D. F. (2015). Invited review: Changes in the dairy industry affecting dairy cattle health and welfare. Journal of Dairy Science, 98(11), 7426-7445.
  • Botha, N., Klerkx, L., Small, B., & Turner, J. A. (2014). Lessons on transdisciplinary research in a co-innovation programme in the New Zealand agricultural sector. Outlook on AGRICUsLTURE, 43(3), 219-223.
  • Dominati, E., Mackay, A., Green, S., & Patterson, M. (2014). A soil change-based methodology for the quantification and valuation of ecosystem services from agro-ecosystems: a case study of pastoral agriculture in New Zealand. Ecological Economics, 100, 119-129.
  • Foote, K. J., Joy, M. K., & Death, R. G. (2015). New Zealand dairy farming: milking our environment for all its worth. Environmental management, 56(3), 709-720.
  • Marsden, T., & Morley, A. (Eds.). (2014). Sustainable food systems: building a new paradigm. Routledge.
  • McDowell, R. W., & Nash, D. (2012). A review of the cost-effectiveness and suitability of mitigation strategies to prevent phosphorus loss from dairy farms in New Zealand and Australia. Journal of Environmental Quality, 41(3), 680-693.
  • Morris, S. T., & Kenyon, P. R. (2014). Intensive sheep and beef production from pasture—A New Zealand perspective of concerns, opportunities and challenges. Meat science, 98(3), 330-335.
  • Müller, K., Holmes, A., Deurer, M., & Clothier, B. E. (2015). Eco-efficiency as a sustainability measure for kiwifruit production in New Zealand. Journal of Cleaner Production, 106, 333-342.
  • Pembleton, K. G., Tozer, K. N., Edwards, G. R., Jacobs, J. L., & Turner, L. R. (2015). Simple versus diverse pastures: opportunities and challenges in dairy systems. Animal Production Science, 55(7), 893-901.
  • Reynolds, C. J., Buckley, J. D., Weinstein, P., & Boland, J. (2014). Are the dietary guidelines for meat, fat, fruit and vegetable consumption appropriate for environmental sustainability? A review of the literature. Nutrients, 6(6), 2251-2265.
  • Scarsbrook, M. R., & Melland, A. R. (2015). Dairying and water-quality issues in Australia and New Zealand. Animal Production Science, 55(7), 856-868.
  • Zonderland-Thomassen, M. A., Lieffering, M., & Ledgard, S. F. (2014). Water footprint of beef cattle and sheep produced in New Zealand: water scarcity and eutrophication impacts. Journal of Cleaner Production, 73, 253-262.
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