VALUE CREATION, CAPTURE AND SHARING MODEL FOR FOOD COMPANIES, CHAINS AND NETWORKS (VCCS MODEL)

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1 Marcos Fava Neves & Marcia Dutra de Barcellos Symposium honouring Klaus Grunert, AU, Arhus, 17th January 2013 VALUE CREATION, CAPTURE AND SHARING MODEL FOR FOOD COMPANIES, CHAINS AND NETWORKS (VCCS MODEL)

2 Outline of the Presentation Introduction Creating and sharing value in companies and food chains: the cases of Nestlé, Nutreco and McDonald s The Value Creation, Capture and Sharing model (VCCS model) Conclusions

3 Introduction The creation of value is of the utmost importance to any company s survival, especially in agricultural markets (Lindgreen & Hingley, 2008, Kotler & Keller, Vieira at al. 2011). Real value creation and long-term growth and profitability can be achieved when the company offers unique benefits to customers and more recently, to society. (Doyle, 2000; Lindgreen & Wynstra, 2005, O'Malley, 1998) Value creation, capture and sharing imply the complete understanding of the company s network.

4 Basically, our VCCS Model involves a trilogy: Introduction A redesign of activities towards an attempt to increase its margins A differentiation of its products and The ability to strategically collaborate with other agents, adding more value to the entire structure.

5 Introduction From a systemic point of view, this trilogy relates to the concept of shared value (Porter & Kramer, 2011). The idea behind the concept is to generate greater innovation and growth for companies and also greater benefits for society. It means that companies will benefit not only by creating and capturing value, but also by sharing it with the other food chain stakeholders. Three stories (cases) illustrate this systemic view

6 The world's largest food and nutrition company Nestlé More than 280,000 employees and factories or operations in almost every country in the world Nestlé Corporate Business Principles it is only possible to create long-term sustainable value for shareholders if the company s behaviour, strategies and operations also create value for the communities where they operate, for their business partners and of course, for their consumers. This strategy is called Creating Shared Value (CSV)

7 Nestlé To operationalize the CSV concept, Nestlé has analysed its value chain and determined three areas of top potential for joint value optimisation with society. These activities are now core to its business strategy and operations, and Nestlé joint programmes with over 100 organisations around the world in these three areas: Water: because the quality and availability is critical to life, the production of food and to Nestlé s operations. Rural development: because the overall wellbeing of farmers, rural communities, workers, small entrepreneurs and suppliers are intrinsic to their ability to do business in future. Nutrition: because food and nutrition are the basis of health and of its business it s the reason why Nestlé exist.

8 Prize Winner CSV Nestlé 2012 The 2012 Nestlé Prize in Creating Shared Value was awarded to Fundación Paragaya de Desarrollo y Cooperación for its 'Self Sufficient Agricultural School' model, which ensures students receive technical and business training on top of their normal academic curriculum. The project has already reached more than 500 students in Paraguay. The school has been financially self-sufficient for more than five years, selling the agricultural products they produce.

9 Nutreco Nutreco is a Dutch based multinational company operating in the feed industry. In 2012 it published the report Nutreco Feeding the Future: How we can contribute to feeding 9 billion people in a sustainable way: Vision The company aims to create, capture and share value in several different activities via INTEGRATED CHAIN APPROACH. Nutreco splits its 2020 vision into four major areas: ingredients, operations, commitment and nutritional solutions.

10 Nutritional solutions via animal and human health: Providing alternative technologies that improve animal health and performance supporting customers needs to reduce the use of antibiotics. Nutreco

11 Sustainable sourcing of ingredients Via round table initiatives, auditing supplier engagement, extended supply chain coordination, promotion of the demand for responsible ingredients, communication with suppliers and measurement of the results. Nutreco

12 McDonald s McDonald s launched a competition Best of Sustainable Supply The aim was to stimulate suppliers to submit their best practices. 400 best practices were sent by suppliers; 51 of these were selected by six experts from the company and NGO s based on criteria of measurable results and innovation. The areas where value was created and shared were: employee welfare, waste, climate/energy, animal welfare, water, raw materials and community impact.

13 Cargill Reducing water footprint project McDonald s Cargill produces dressings and sauces for retail at a facility in São Paulo, Brazil, that requires a large amount of water. The production of mayonese & alike products also generate too much wastewater. Actions: to raise employees awareness & set goals to reduce the use of water Results: In 2 years project the facility was reusing 10% of its water (by June 2010) and had a reduction of 20% of its oxygen demand

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15 Conclusions We have presented three illustrative cases and proposed a model for leaders and managers involved in food chains, networks and companies to achieve long-term, better business results. We call it the Value Creation, Capture and Sharing Model, where food companies, chains and networks can create, capture and share value by reducing its costs, applying differentiation strategies and finally, engaging in collective action. Ideally, companies that could master the three strategies simultaneously would benefit from the advantages provided.

16 Conclusions The examples provided in this chapter were based on largesize companies. GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart have already embarked on important efforts to create shared value by reconceiving the intersection between society and corporate performance. Yet the authors argue that the transformative power of shared value is still in its genesis. Leaders and managers are urged to develop new skills and knowledge - such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company or food chain productivity, and the ability to collaborate across profit/nonprofit boundaries.

17 Conclusions It is time to expand the scope of the concept value creation to include other stakeholders, with returns potentially captured and shared by employees, suppliers and society overall as well. Small and medium-sized enterprises (SMEs) should also be encouraged to apply value creation, capture and sharing strategies, as they contribute greatly and increasingly to the economic development of nations. Finally, food companies and chains from all over the world (with special attention to developing countries) are stimulated to add value to their products and processes, increasing their competitiveness in global terms. The Value Creation, Capture and Sharing Model was designed to be a suitable framework for doing so.

18 Marcos Fava Neves & Marcia Dutra de Barcellos TAK!! Marcia Dutra de Barcellos, Prof. Dr. Federal University of Rio Grande do Sul, Brazil