The case provides students with opportunities for assessing a market using aggregate market and industry data, appreciating the source of competitive advantage, seeing how a manager turn
Trang 1Case 1
ABS Global-Canada
Professor Kenneth Harling prepared this teaching note as an aid to instructors in the classroom use of the case ABS
Global-Canada, No 9B05M058 This teaching note should not be used in any way that would prejudice the future
use of the case
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Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario,
Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail: cases@ivey.uwo.ca
INTRODUCTORY COMMENTS
This case is suitable for a senior undergraduate-MBA course in strategic management The case
provides students with opportunities for assessing a market using aggregate market and industry
data, appreciating the source of competitive advantage, seeing how a manager turns a business
around, and how a manager works with the board It can be used as a summary case for the
course, given its broad coverage of management issues It can also be used to illustrate strategy
implementation and to examine competitive advantage
SYNOPSIS OF THE CASE
In March 2002, Stephen Fried became general manager of the Canadian division of ABS, a
company in the artificial insemination (AI) business He was charged with turning around the
division’s declining sales in part by introducing a reproductive management service (RMS)
program Taking charge of the division took longer than he had planned because staff morale was
low In the spring of 2003, just as Fried’s efforts started to show results, BSE was discovered in
the Canadian cattle herd This outbreak immediately stopped all shipments of beef and live
animals from Canada, which had a devastating impact on the Canadian beef and dairy industries
In August 2003, Fried was scheduled to host the board of directors of the parent company at his
Canadian headquarters
STUDY QUESTIONS
1 Does the RMS make sense in general? Does it make sense for Canada?
2 If you were Fried, would you have taken the job in Canada?
3 How well has Fried taken charge of ABS Canada?
4 As Fried, what would you tell the board of directors at the meeting in August 2003?
Trang 2Hint: Prior to class, you may want to hand the technical appendix to students unfamiliar with milk
production
ANALYSIS
1 Does the RMS make sense in general? Does it make sense for Canada?
Traditionally, competitors in the industry have traded on AI having superior genetics to those
available through using live bulls This competitive difference is disappearing First, superior
genetics are being diffused through the entire market through AI Second, the industry is
consolidating so diffusion will be faster as companies serve larger markets As a result, the
competitive advantage based on genetics will decline over time
RMS changes the basis of the competitive offer While genetics still matter, RMS redefines the
offer to the customer Now ABS is selling pregnancies instead of semen Providing pregnancies
differentiates the offer of ABS and, by giving the customer what is ultimately desired, better
meets customer needs This competitive advantage allows ABS to generate more income from its
customers Large dairy producers appear to want this service—it has a 45 percent market share in
California, where some of the largest dairy farms in North America are found At the same time,
providing this offer requires more capabilities Fortunately, ABS appears to have already
developed the capabilities to provide the offer, and competitors who have tried to offer the same
service seem to have had difficulty
An interesting but subtle point is the basis of competitive advantage of the Canadian AI industry
Canadian dairy farmers have developed animals with superior genetics, which has been facilitated
by the supply management policies of the Canadian dairy industry These policies restricted the
expansion of dairy farmers but ensured that they were able to make a reasonable, though still
relatively small return The result was that dairy farmers took a considerable interest in the cows
they were milking and sought to improve their genetics This effort improved milk production and
at the same time provided income from livestock sales Over time, the farmers created a dairy
herd with genes that were highly attractive to dairy producers elsewhere The danger to this
advantage is the change it implies to the dairy industry; large Canadian producers focus on milk
production alone and take less interest in the animals per se They are less willing to spend the
time on genetics because it takes time, and they are not interested in making money on livestock
sales Consequently, the institutional structure that created the source of a competitive advantage
will erode over time It also means that relying on a Canadian source of advantage will become
less advantageous over time By expanding its offer from semen to pregnancies, ABS is escaping
from being trapped in a mature business with a “me too” offer
Specific data in the case suggests that RMS is an attractive concept to Canadian dairy producers,
in particular in the provinces of Ontario and Quebec The Canadian dairy herd is found
Trang 3herds have grown slowly (see TN Exhibit 3) The decline in the small herds raises questions about
the ability of the Canadian dairy industry to sustain the source of genetics that has provided its
competitive advantage The growth of large dairies that are focused on milk production suggests a
growing potential market for RMS
2 If you were Fried, would you have taken the job in Canada?
What has been happening in the Canadian market?
Ontario was a major market for AI, and ABS opened this market to competition after challenging
restrictions that had limited the competition to cooperatives based in the province ABS got a
quick boost in sales because it was the first “foreign” competitor in 1998, but its sales volume
declined as other competitors started entering in 2000 ABS-C’s volume was quickly eroded to
half of what it was in 1998 This rapid decline suggested that growers wanted to work with
someone other than Semex but that they were not loyal to whom that someone was
Quebec is an important market, but the French-Canadian factor is a major obstacle to capturing
business in that province Canadian farmers in that province want to work with a
French-Canadian organization, and the cooperative in the province of Quebec (affiliated with Semex) will
likely dominate that market
The overall competitive situation is significant as the number of competitors has grown
considerably in Ontario
So would you take the job?
This question can be put to the students and is a revealing question about their risk aversion They
can then be asked why they took the position they did Those who say no may argue that RMS is
not proven in Canada and that the market is not likely to adopt it, given the smaller farms They
may also argue that the RMS program installation requirement demonstrates that corporate
management has “frozen” preferences These students can then be asked, “What does it take to get
ahead in an organization?” The point of the question is to get students to recognize that many
others would have sought out the position if it had been less demanding—possibly including
themselves The jobs that are available are usually more demanding Such situations allow top
management to test the skills and abilities of individuals Those unwilling to submit themselves to
such situations may well rule themselves out of further advancement
Those who say yes can be asked why they would take the position They may point out that taking
the job lets Fried move higher up the organization while showcasing his abilities and skills When
successful, he will have gained considerable personal experience These students can then be
asked, “Given the job, what is your agenda for action?” They may simply recite what Fried did
(demonstrating that they analysed the case), and some may say that they would do a few things
differently from Fried You can ask these individuals what they would do about the problematic
sales representatives
The manager preceding Fried appeared to be stabilizing sales but was resisting the introduction of
RMS (see TN Exhibit 4) Corporate management of ABS, however, wanted RMS introduced in
Trang 4Canada and doing so made sense given the earlier analysis of the changing nature of competitive
advantage in the industry
Fried’s willingness to install RMS, after having seen it work in the United States, was the attitude
that ABS was seeking, and it led to the job offer On taking the job, he will have to successfully
install RMS while increasing Canadian sales The challenge will be improving sales to traditional
customers, whose business has declined considerably From an overall perspective, ABS-C needs
to capture enough market share to make the business financially viable, which can only be
achieved by taking business away from competitors—both traditional and RMS business—since
RMS is insufficient to support ABS by itself
3 How well has Fried taken charge of ABS Canada?
The material in the case describes much of what Fried did Students can be asked to pass
judgment on his actions under his “three-year program.” The exception to Fried’s proactive
approach is his challenge with the two sales representatives The case has Fried dithering as he
decides what to do about them In fact, Fried fired these representatives because he felt they were
seriously damaging the company’s reputation The immediate impact was a 15 percent decline in
sales but the business was soon able to recover
In our opinion, Fried did a good job of getting hold of the situation after an initial misstep in
setting his early goals This misstep was due to his assumption that the organization could start
selling RMS right away Instead, he found that employee morale was so low that he had to spend
a year turning it around so ABS Canada could maintain its current sales Only after rebuilding the
organization was he able to introduce RMS Just as results started coming in, the bovine
spongiform encephalopathy (BSE) crisis hits It has major implications for the business, as it will
no longer have the profits needed to reinvest in developing RMS
Some may argue that Fried should have had a contingency plan for BSE in case it occurred
Determining the value of such a contingency plan is not easy The impact of BSE was
cataclysmic, and the effect went well beyond ABS Canada As a result, it was very hard to predict
what the situation would be, should it strike To the student who raises the lack of a contingency
plan, you might ask how the company could have prepared, given what we now know happened
in AI and the related industries
Fried commented to the author:
You would really like to fix everything but you can’t The result is that your tolerance gets tested And you have to provide a safety net when some things continue to be done the old way What I have found is that you have to get the key parts of the business turned around As you get these done, momentum builds for the new way and others flip around to the plan People go from being passive resisters to helpers
Trang 54 As Fried, what would you tell the board of directors at the meeting in August 2003?
In August 2003, the impact of BSE on company performance was limited Volume was only off
by four percent, through the end of July 2003, but there had been pressure on prices (see TN
Exhibit 5) If the decline in volume stabilized at August levels, then business unit volume would
only be 66 percent of normal in the next operating year—sales at 112 860 rather than 171 000
units, based on 2002 sales levels
Fried needs to let the board know where the business is going in the future so that it has realistic
expectations about what he can accomplish Otherwise, the board could be shocked at the
dramatic decline in business after the August meeting
A critical issue is what to do about the RMS program RMS still makes sense but the business is
no longer able to finance it The decline in business will produce negative cash flows If ABS-C is
to continue introducing the RMS program, it will need corporate financial support to fund the
necessary training and capability building If the parent holds back, a large competitor may move
ahead with a similar program On the other hand, the large competitor is a cooperative based in
Ontario It has likely suffered as much of a decline in the business as ABS-C and, given the
practice of competitors to compete on price, has likely damaged its own cash flow further Hence
one could argue that competition is not a serious threat
A good executive will be able to make a strong case for corporate support of the RMS program It
is a corporate program, and it is in the best interest of ABS not to have any competitors show that
others can provide RMS at the same level as ABS
LESSONS
Lesson 1: Industries evolve
Competitive advantage in the AI business has changed over time At first the genetic pool
available to farmers through local cooperatives providing AI was much superior to using real
bulls As the industry developed the ability to hold semen for longer, it could be transferred
further afield This ability facilitated the pursuit of economies of scale by AI companies
Meanwhile, the diffusion of improved genetics had made proving the superiority of new genetic
stock more difficult and more problematic, due to potential for inbreeding To deal with this new
situation, AI companies had to become more scientific, which increased their costs Again
economies of scale favoured larger companies The result is the continuing consolidation of the
AI industry into global players with some niches for much smaller local players
Lesson 2: Clever management is always looking for new ways to differentiate the company
from competition
ABS Global, through creative thinking, has found a way to deal with a business that has become
increasingly commodity-like, selling semen based on price Management recognized that farmers
interested in milk production would rather buy pregnancies than sperm It has developed a
program that will deliver what the consumers really want While the program will allow higher
Trang 6revenues, it also requires additional capabilities that are hard to develop, as demonstrated by the
inability, to date, of competitors to successfully and profitably duplicate its offer
Lesson 3: Taking charge of a business as the new general manager is a serious undertaking
Fried stepped in to turn the Canadian business unit around The sudden increase in competition a
few years earlier had seriously eroded ABS Canada’s market share, and morale fell apart When
Fried took over, he had to rebuild the human side of the organization even before he could pursue
his new agenda He started by finding out how people saw the current situation He then had
planning sessions with management in which he got them to buy into his vision of what ABS-C
would be Then he set about building an organization filled with responsible people who could do
the work needed to achieve the vision
Lesson 4: If you want to get ahead, you have to take some personal risks
Fried took a personal risk in accepting the job as general manager If it had been a less demanding
position, there would likely have been more individuals wanting the position and less need to
change the individual already in the position The moral is that the positions that allow you to
move ahead faster are also riskier If you are unwilling to expose yourself to risk, you will likely
limit your career potential as well
Lesson 5: Successful general managers need to know how to work well with their superiors
Fried heard what his bosses were saying They wanted the RMS program installed in Canada and,
because he was willing to do that, he got the job Once in the position, he did a good job keeping
his bosses informed about the evolving situation The result was that the bosses were never
surprised They knew that Fried was in control of the situation
Lesson 6: There is always something unexpected that will come along to create a crisis
Just as Fried was starting to make substantial performance improvement, BSE or mad cow disease
hit the Canadian industry BSE had the potential to happen but it seems that no one had
anticipated how to react once it became a problem It was very difficult for an individual company
to determine how it would respond There were simply too many uncertainties
ADDITIONAL MATERIALS
Charles Ames, “Straight Talk from the New CEO,” Harvard Business Review,
November/December 1989
This is a classic article on taking charge of a company
Trang 7FOLLOW UP
The impact of the BSE crisis on the Canadian cattle industry was tremendous Over the next few
years, the industry lost more than Cdn$5 billion
Corporate management had already experienced the impact of BSE earlier in Britain so it was
aware of the devastating impact it would have on the industry and hence the ability of ABS-C to
improve its results Rather than waste Fried’s talents in Canada, it sent him to Australia as general
manager of ABS Australia, starting June 1, 2004 He was given the job of turning around an
Australian operation Genus had bought in 2003 The website for ABS Australia is
http://www.absaust.com
While in Australia as general manager of ABS Australia, Fried took an active role in
consolidating their AI industry:
In December 2004, ABS Australia announced the acquisition of Heywood Artificial Breeders
in Heywood, Victoria This acquisition gave ABS Australia ownership at the retail level, putting it closer to the end users where it could provide a broader range of products and services to benefit farmer profitability
In July 2005, ABS Australia announced the acquisition of Consolidated Herd Improvement
Services (CHIS) in Kyabram, Victoria
In August 2005, ABS Australia announced the acquisition of Warnett AB and Associates, in
Byrnside, Victoria
Trang 8TN Exhibit 1 NUMBER OF COWS BY PROVINCE
2004
0 500 1000 1500 2000 2500
Province
Beef cows Milk cows
Source: Statistics Canada, Cattle Statistics 2004, Vol 3, No 1, Catalogue No 23-012-XIE, Table 1
Trang 9TN Exhibit 2 TOTAL CANADIAN MILK COW HERD
1981-2001
1,957,441
1,582,463
1,394,013
1,268,239
1,067,485
0 500,000 1,000,000 1,500,000 2,000,000 2,500,000
Census Year
Source: Statistics Canada, Census and Special Tabulations
Trang 10TN Exhibit 3
MILK COWS IN HERD 1981-2001
-100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000
Census Year
18 to 47
48 to 77
78 to 122
123 to 177
178 and over
Source: Statistics Canada, Census and Special Tabulations