Unlocking Value Through Innovation

Innovation Change Unlocks Value March Blog

Make no mistake, despite some vocal minority voices that say otherwise–people want to eat beef.  The latest beef demand numbers say plenty, with the All Fresh Beef Demand Index having increased an astounding 13 percent year-on-year during the fourth quarter of 2014. 13 percent – that’s the largest year-over-year increase in any quarter since 1990 – 25 years. Of course, the beef checkoff can’t take credit for the entire growth in beef demand – but our community is realizing this growth despite our tight supply in recent years, which points to growing consumer preference for our product and, according to economist Glynn Tonsor, “strong consumer loyalty to beef.” In fact, demand for beef has increased in 18 of the last 19 quarters through December 2014. And for the full year in 2014, beef demand increased 7 percent – the best growth we’ve since 2004 and the second-best since 1990.

Looking at one area where the beef checkoff focuses on innovation, the NPD Group – a global information company – reported recently that a total of 9 billion servings of burgers landed in U.S. restaurant and foodservice tables in 2014 – up 3 percent from 2013. This was in sharp contrast to overall sandwich servings for the year, which dipped by 2 percent – or 201 million servings. Burgers lead the sandwich segment, and that’s no accident. The checkoff worked closely with restaurant personnel nationwide to help create many of the burger options you see on restaurant menus today. Because we have asked consumers what they want – with market and product research at the base of every checkoff program – we may assist chefs and restaurant owners in understanding and fulfilling beef community desires. Because of this, today’s burger is much more than a bun-wrapped patty. Instead, beef burgers are a discriminating and purely individual selection from hundreds of creative options, including burger bars where folks can put their sandwich together just as they like it. Some people (like me) still want a simple, perfectly grilled beef patty, topped with Wisconsin cheddar, lettuce, tomato, onion, ketchup and mustard. But given the high price of beef, you can understand why many folks feel like their burger experience is more valuable when they get the exact combination of flavors that delight their palate. And we aim to please.

As I mentioned earlier, research forms the base of virtually all beef checkoff programs. That includes market research to keep in touch with our consumers’ demands and product innovation research to keep making improvements and changes to meet those demands. Let me give you a couple of examples of the important connection between research, product innovation, and a blended beef community. Think about breakfast – a meal that in which beef has been largely absent. Our market research tells us that consumers want beef at breakfast, too. So the checkoff’s Beef Innovations Group and culinary team worked through a coordinated product development initiative to help chefs and restaurateurs bring beef products to the breakfast table, developing recipes for breakfast beef burritos, beef and egg breakfast mugs, basic country beef breakfast sausage, beef bacon, steak and eggs breakfast tacos, and beef breakfast pizza, to name a few. Once perfected, we also distribute recipe innovations to consumers through the digital platforms where they say they want to receive their beef information. We rely heavily on partnerships where restaurant of retail partners invest as much as $60 to every checkoff dollar. It’s a win-win-win for farmers and ranchers, restaurants and retailers, and the customers who love beef–a.k.a. the beef community.

So can we celebrate the win? Absolutely. But what we cannot do, is rest.

We need to take a very thoughtful, disciplined approach to the future of the beef community, too.  We are in a unique position to offer a certain experiential value to our customers that separates us from other proteins. We have unmatched equity in the area of creating food experiences to meet our customers’ search for those experiences, not simply chow or belly fill. Serving up these experiences will require that we continue to nurture and grow the trust we have gained in our beef and agriculture community by providing truth, transparency and value. By pleasantly surprising and delighting our customers constantly. By pushing beyond the status quo and reinventing the beef experience, even when we are experiencing tremendous success in demand. Especially when we are experiencing tremendous success.

“Coming together is a beginning; keeping together is progress; working together is success.”  ~Henry Ford

Metrics Matter

Deming theories

Sometimes, I’m asked what is going on at the Beef Board (as in “Heeeeey, whassup?” Not as in “What in the h-e-double toothpicks is up?!?!?”—although that happens too. That’s another rant…er, I  mean blog…though.) Despite some of my more touchy-feely blog shares, when it comes to management, I believe big-time in metrics and measurement. After all, you can’t manage what you don’t measure.

W. Edwards Deming (another one of those darned brilliant Iowans…what’s in the water in that state?), is the granddaddy of modern “measure-to-manage” strategies. Those of you not familiar with Deming might have fun first clicking back and reading some of my earlier blogs on Japan and then researching this great man and his impact on Japanese business systems (and world wide systems as well, but the Japanese were the first to listen and adapt). In 1960, the Prime Minister of Japan, acting on behalf of the Emperor, awarded Deming Japan’s Order of the Sacred Treasure, Second Class. The citation on the medal recognizes Deming’s contributions to Japan’s industrial rebirth and its worldwide success. Historians say Deming was known for his kindness, compassion and humor (Salsburg, 2002). This great man passed away in 1993, the same year he founded the Deming Institute in Washington, DC.  And today, his name and famous 14 points are eponymous with modern, metrics-based management. Many of you have heard me drone on about continuous improvement without giving the Deming Cycle or Deming himself credit—a miss on my part (I cannot even say I am even a very good student of Deming, although I try).

Deming-Cycle-Graphic

Perhaps, in the future, I’ll tell you about some cool new evaluation projects we have going on at the Board this year. But for now, let’s talk about performance.

Metric 1: Producer Awareness and Approval

This bi-annual survey asks checkoff investors if they aware of, and if they approve of, the management of the checkoff program. Many years of data allow us to trend line both awareness and approval of the program. The results of our latest survey, completed in January, show:

  • At 91%, name awareness among producers of the beef checkoff program is on the rise and rated by the independent research firm as “very high”;
  • At 78%, the research found the highest level of producer approval of the program in 21 years;
  • 80% of producers believe the checkoff contributes positively to consumer demand for beef; and
  • 79% say the checkoff does a good job of representing their interests

Metric 2: CBB Management

Each year, the Beef Board undergoes an external, independent financial audit.  The external audit determines if our financial statements are fairly stated in all material aspects. Since the inception of the program, all external audit reports have resulted in “unqualified” or, in laymen terms, “clean” opinions. In no case has the external audit found any evidence that CBB was not in compliance with the Act & Order or the AMS Investment Policy. In fact, for the last four years, the auditors have not only issued unqualified opinions, but also have not had a single recommendation for improvement – such as changes in policies or procedures.

Last December, we received the results of a USDA Agricultural Marketing Services, or AMS, Management Review of the Beef Board—the first ever in the history of the Beef Board. The objective of the AMS Management review was to ensure the Board was in compliance with the Act & Order, the AMS Guidelines, the AMS Investment Policy, the CBB Bylaws and CBB’s internal policies and procedures. The review had no findings. At the conclusion of the review, AMS commended excellence of management and operations at the Cattlemen’s Beef Board.

While we’re talking about audit metrics, I’d like to address the Office of Inspector General “peer review” of its own report issued early in 2013. This review confirmed the initial conclusion of the 2013 OIG eport that found no audit issues or lack of compliance by AMS, the Beef Board, or Beef Board contractors was found.

Personally, I don’t know of any organization that has been more painstakingly audited that the Beef Board and Beef Checkoff Program have been in the last couple of years – but the above findings (or lack thereof) certainly provide a validated body of assurance.

Metric 3: Consumer Willingness to Pay and Beef Demand

The latest Oklahoma State Food Demand Survey data indicate that, in March 2014, consumer willingness to pay more for hamburger increased by 5.42 percent. Remember, though, that if consumers are continually willing to pay the high prices that supply has helped dictate in the current marketplace — it’s a strong litmus test as to the value they see in the beef and beef products they are finding in the meat case and enjoying in restaurants.

Due to the Board’s 2013 Beef Demand Determinant Study  and the checkoff’s ongoing market research, we know that price – along with demand drivers including food safety, product quality, health, nutrition, and social aspects and sustainability, play roles in consumers’ decisions about purchasing your end product.

It’s so important to understand the role of these drivers. Willingness to pay is an absolutely critical factor in beef’s success in the marketplace – in  maintaining and growing beef demand in 2014 and 2015.

When consumers see value in a product, they have a higher willingness to pay for it. In fact, checkoff market research indicates that we have seen a cutback in at-home eatings of beef, particularly in roasts and some in steak. To put this in perspective, our loss of in-home servings per capita is somewhere in the range of 5 to 6 percent as of February.   Per person, that is a reduction of three to four beef servings per year; across the nation, that is close to a million fewer servings of beef eaten in-home. This coordinates closely to our low supply situation.

The number of meals in-home still exceeds the number of foodservice beef meals. It might be easy for us to forget, however, about the fact that people can really stretch beef in-home, especially ground beef, in spaghetti sauce, tacos, and other ingredient recipes.  Actual volume (as opposed to number of eatings or meals) remains more matched between in-home and foodservice. But the truth is, beef maintains such strength in foodservice that Technomic data indicate since 2009, beef represents the largest pound increase of any protein despite a shrinking supply.

You can start to see, then, that with reduced supply and record prices, a reduced number of in-home beef meals isn’t necessarily an issue. On the other hand (warning, a short trip down a garden path approaches), the shift toward foodservice itself is intriguing and invites further study. With higher prices, I had expected that consumers might shift meals away from foodservice and toward the in-home experience. But John Lundeen, the beef checkoff’s market research guru at NCBA, suggests that a few things are combining for our current situation:

  1. Consumers can still get relatively inexpensive but still very tasty burgers at foodservice.
  2. Millennials particularly like the quality guarantee they get at a restaurant. They may say to themselves, “Better to have a chef make that pricey steak than me.”
  3. The celebratory nature of beef fits the foodservice environment very nicely.
  4. Has to do with modern lifestyles and smaller households: Roasts often are not seen as a fit with a small household, for example. And we also see less steak consumption in single-person households.

So, we know lower available supplies mean declining consumption (please, please remember—consumption isn’t the same as demand). Recently in the media, I saw a story saying that chicken consumption had overtaken beef consumption for the first time in 100 years—of course, because these days we simply do not make as much beef as we have in the past. We cannot eat what we don’t make, so obviously we see beef consumption dropping. That said, the continued strength of beef demand throughout last year and until today surprised even the savviest of market analysts.

As Kansas State ag economist Glynn Tonsor pointed out recently in a Twitter discussion, the entire industry must continue to work together to align beef offerings closely with the desires of those consumers willing and able to buy them.  In the end, this is what supports continued demand strength. (Here’s a great blog on why internal food fights are senseless, which makes this point much better than I ever could.)

If you do not know how to ask the right question, you discover nothing. ~W. Edwards Deming

It is not necessary to change. Survival is not mandatory. ~W. Edwards Deming

Diversity of Ideas

Last evening, I made a few remarks about diversity on our Research & Promotion Boards in conjunction with a USDA session on diversity. (Dd you know that there are 21 programs that we affectionately call “checkoffs” wherein food producers pool their dollars to do research and promotion?) From raspberries to watermelon to honey to soft lumber to beef to pork–these boards consist of volunteer producer leaders who direct the investment of their peers’ contributions. USDA gathered several of the board leaders (and a couple of staff) together for last night’s session, which gave many volunteer leaders from different agriculture backgrounds the opportunity to come together and discuss the meaning, culture and atmosphere surrounding diversity. I’ve noticed that words have different meanings and implications to different people. IMO, the best way to understand what someone else means by a certain word like “diversity” is to gather, listen and share. In fact, that’s one meaning of the word “diversity,” isn’t it–welcoming discussions and solutions fueled by myriad ideas, cultures and backgrounds.

I truly believe that two heads are better than one when it comes to vision and strategy. And two heads filled with different ideas, coming from different backgrounds and life experiences, are surely better than even 10 heads filled with exactly the same (or even highly similar) ideas. I’ve heard: if you cannot get something done with a committee of 25, then reduce the committee to 10. I unconditionally agree that fewer people often make decisions faster. However, despite our society’s love affair with hurry (hurry, hurry…ouch, that fleeting memory of orange in early February smarted for a moment), hustle and haste (or what I ironically call the ‘glorification of busy’), I submit that quality of decision matters a bit more than speed of decision. (Disclaimer: My advice is not all-encompassing. If you’re about to be hit by a monorail, then the speed with which you exit the track matters more than the quality or grace of your leap. Get off the rail! Gak!) As Tim Fargo said, “Progress and motion are not synonymous.” If, in our example, if you reduce the size of the committee simply to eliminate all who might not agree with you, your outcome (especially longer term) won’t hold up as well as if you welcome, and work to include, a diversity of ideas.

In short, diversity means different ideas, from differing voices, coming together to make a more dynamic, flexible and stronger end result. Diversity doesn’t mean (as USDA Deputy Secretary Harden pointed out last night) tokens or quotas.

Now that I’ve brought up hurry, hurry, (ouch…that smarted again…hopefully the memory will fade before next season) let’s talk about the first challenge I see to diversity on our boards, and that is time.

Service on the checkoff board takes time–traveling, attending meetings, reading business materials, participating in calls–it all takes time. Some R&P board officers may be away from home and business up to 200 days a year. More than 97 percent of farms are family owned, most of these family operated. On most farms, something critical happens every single day. By critical, I don’t mean it would be nice to get it done. (Like, ‘Yeah, we need to finish those TPS reports and reload the Swingline.’) On a farm, if it doesn’t get done, on time, something–be it plant or animal–could die.

Leaving the farm for a couple of days is tough. Heck, for our farmers and ranchers, leaving daylight hours to come inside and fire up your computer to participate in a conference call is tough. Truth is, time is a major challenge to getting a diversity of voices and ideas on our boards. Folks who serve often must use hired help, grown children or parents on the farm to cover for them when they’re gone. This limits those who can serve. I can tell you stories of board members I’ve worked with over the years, who have an interest in running for leadership positions, but they simply cannot spend the time away from their farms because they have nobody to help them with those everyday chores. My experience says that women have particular challenges in this area, because they may hold down both on-farm responsibilities and off-farm jobs, as well as manage most of the housework and child care. This limits their time even more severely.

At the Beef Board, one way we’ve tried to address the time challenge is through technology. We’ve incorporated our board communications and information into an online toolkit and blog so members may access information whenever, wherever. We’ve incorporated mobile technology into our sites. We’ve tried webinars rather than in-person meetings (frankly, with varying success…more on that in a minute). But these solutions themselves lead to another challenge, and that is technology access in rural areas.

I mentioned that we try to use advancing communications technology to help board members participate and fulfill their duties. However, lack of high-speed Internet access, as well as cell coverage in many rural areas, limits us severely. Smaller or disadvantaged farmers, or those who ranch in particularly remote areas, may not have adequate access. (Some of those folks I know only get snail mail a time or two a week!) One specific example: Last month, we put together a video detailing important consumer information in advance of our annual meeting. We thought we were giving board members an easier alternative to downloading, printing and reading paper versions. But, limited high-speed download and/or streaming capabilities prevented some board members from accessing or viewing the video. We continue to try webinars with 103 board members (and heroically refrain from strangling ourselves with our earbud cord in frustration through the burps, hiccups and slow slide refreshes–or is that just me?).

I realize that limited technology access is not a revelation to those with an interest in US rural development–many experts acknowledge this as a primary challenge to rural community health and growth in America. But technology also presents both a solution and a challenge to diversity of voices on our boards. It’s a national, as well as a very local, issue, and one that deserves increased attention federally. (Makes me wonder…if the Internet went out in Washington, DC, how long would it take federal government to make certain it came back online? Yet the issue of rural access drags on, and on…I’m allowed to opine here, remember, this is my blog!)

(Ahem. Brain. Focus.)

I’ve discussed both time and technology, and I’ll also discuss money. While the board reimburses members for direct expenses incurred while engaging in board business, we do not pay for lost opportunity costs while serving–like extra help needed on farm while folks are away, or lost income (or opportunity for income) from off-farm jobs. Also, I’ve heard some leaders say it’s difficult to comply with the documentation guidelines we require for reimbursement (like itemized receipts for meals, instead of simply a credit card receipt.) Leadership and staff tries to ease this situation–for example, we book and pay for hotels and airfares directly with an organizational account or credit card. When I’m with board members, I do my best to pay expenses and then handle reimbursement. However, we must remember that board members sometimes run a very tight ship–often with both time and budget constraints–and the documentation and wait time for reimbursement may be too much of a burden to bear. (A very special thank you to some of our board members, you know who you are, who choose to give not only service but don’t request reimbursement for their expenses…going above and way beyond.) Particularly the critical younger voices, (USDA data consistently show, not surprisingly, significantly higher debt-to-asset ratio for our younger farmers), so important to the future of agriculture and our board, or our disadvantaged farmers and ranchers, may have difficulty with the resources required to front the costs and request reimbursement.

Given these very real challenges, I’d like to say a loud and proud THANK YOU to the volunteers who serve on the Beef Board, and other volunteer R&P boards. It’s clear that your significant dedication and passion makes a huge difference for agriculture. I’m amazed and humbled by your service. (And now that I’ve re-read my post, I suspect your sense of dedication may even override your better judgment sometimes. Thank you especially for those crazy, wonderful, moments.)

From the Podium

This post, and the potential for future posts, dedicated to Joan and Father Justin, who reminded me (repeatedly–I am slow sometimes) that when God gives you a gift, He intends for you to (at least attempt) to give it away. 

Since yesterday at 10:00, I’ve had several folks contact me and ask me to publish the remarks I gave at #CIC14. I’ve attempted to remember just what I said, and so here is a version that I’ve edited a bit for length. Of course, I reserve the right to have edited anything that caused my inner self to say “GAK@(*$)*!!” when it came out of my mouth yesterday. You may not know that this happens fairly regularly, although not as much as it used to three years ago. Perhaps you’ve had this experience–if so, please let me know that others do it too. I’ll feel so much better. 

Cooperation. Working together toward the same end–for common, mutual, benefit. Sam Walton said the secret to success was ‘working together.’ Apparently Mr. Walton was both a minimalist and a dreamer. Alexander Graham Bell said: “Great discovering and improvements invariably involve the cooperation of many minds.” Indeed, we can find one successful leader after another reminding us that the key to bringing any organization or undertaking to improvement is cooperation.

So, while it seems a frivolous or fluffy thing to say (and it is easy to SAY and much harder to DO), for the beef industry and the Beef Checkoff Program, it’s a necessity and one that requires each of us to take a breath, give up on being right every time, and roll up our sleeves for the greater good.

By working together with beef councils, contractors, beef trade organizations and by coordinating our efforts with the entire chain of those who touch an animal or animal product, we get the best beef we are capable of. (Or for that matter, the best ideas, the best of anything, really).

Further, I submit that through the power of cooperation, we get results that are measurable.

My focus of the Cattlemen’s Beef Board and the Beef Checkoff Program is on key metrics associated with management. Those key metrics are what I would like to share with you. Today, I’ve chosen three key measures, out of several we use on a regular basis. But this year, right now, these three stand out as some of the most important ones we have.

1. Producer Approval and Awareness of the Beef Checkoff Program

The first of those metrics is producer awareness and approval of the checkoff program, which we measure bi-annually. Results of our latest Producer Attitude Survey, completed just a few weeks ago, suggest that we are on the right track. For example:

  • At 91% name awareness among producers of the beef checkoff program is very high and on the rise
  • AT 78% the beef checkoff program has the highest level of producer support in 21 years
  • 80% of producers believe the checkoff contributes positively to consumer demand for beef
  • 79% say the checkoff does a good job of representing their interests
2. Financial and Management 
Each year, the Beef Board undergoes an external, independent, financial audit. Since the beginning of the Beef Checkoff Program, no external audit has found any evidence that CBB was not in compliance with the Act & Order or the AMS Investment Policy. In fact, during the last four years, the auditors have not only issued unqualified opinions, but also have not  recommended any changes in CBB policies or procedures. We have made substantive and important changes on our own, in the quest for continual improvement.
In December, we received the results of a USDA AMS management review of the Beef Board–the first ever in our history. That comprehensive management review, which covered not only financial performance but also many other areas of our management, had no findings. In fact, at the conclusion of the review, AMS commended us for excellence in operations.
In early 2013, the Office of Inspector General at USDA published an audit report of AMS and the Beef Board. That review (sorry, can’t link to the original report, they’ve replaced it now for reasons you’ll soon learn) found no evidence of the complaints that spawned it and affirmed that the Beef Board was in complete compliance with the governing legislation. Then (just as we had finished our sigh of relief that the two-year ordeal was over and we could get back to 100% promotion, research and education), OIG announced that additional complaints had caused it to initiate an additional review of the first review under the Data Quality Act. The revised report, issued about a week ago, reinforced the results of the original report.
(Still with me?!? Amazing!)
All this to say that producer investors (remember, no federal tax dollars are used in the Beef Checkoff Program, only monies invested directly by beef farmers and ranchers) can be reassured by key metrics over the past two years and longer, including: 1) the OIG audit 2) the audit of the OIG audit 3) the AMS management review 4) CBB’s “clean” external audits and 5) our continued commitment to continuous improvement.
I don’t really know of another beef industry org that has been more painstakingly audited over the past two years than the Beef Board, but these repeated examinations and investigations provide a body of independent and collaborated evidence.
3. Consumer Willingness to Pay for Beef

January’s OSU Food Demand Survey data indicate that consumer willingness to pay more for steak increased 7.6%, and willingness to pay for burger remained stable. While we do see static in these data from month-to-month, this made me scratch my head, and then cheer. If consumers continue to be willing to pay higher prices that our low supply situation and their own preference for our product dictate, this is a strong demonstration of the value they see in beef–both in home and at the restaurant. Checkoff market research indicate that the supply situation has caused a pullback in meals eaten at home. Remember, in a low supply situation, we have to see the pullback somewhere.
But beef remains strong in foodservice. So strong, in fact, that current data indicate beef represents the largest volume increase of any protein at foodservice–despite a shrinking supply.
Frankly, I expected to see more of a shift away from beef with higher prices. But, consider the following:
  • Consumers still get relatively inexpensive burgers at foodservice.
  • Consumers like the “quality guarantee” they get at restaurants. “Better to have a chef prepare that high-priced steak.”
  • Consumers love to celebrate with beef–and that often happens at a restaurant.
Recently, I saw a story in the media with a headline about chicken consumption passing beef consumption for the first time in 100 years. Then, the author went on to explain it with myriad reasons for reductions in beef consumption like nutrition and fat and production and…Now, don’t get me wrong, the beef people must continue to improve on all aspects important to consumers like nutrition and fat and production and…In fact, in a recent Twitter discussion, Glynn Tonsor from K-State may have said it best–the entire beef community must continue to work together to align beef offerings closely with the desires of our consumers. In the end, this is cooperation and success.
But the truth is, we simply could not be seeing an increase in consumer consumption right now. It is impossible. We don’t have enough beef in the market — due to those factors farmers and ranchers know so well–drought being perhaps the most heart-wrenching of them. So that author of this article, I fear, just didn’t understand the marketplace well enough, and like the Greeks of old, made up an explanation for something s/he didn’t understand.
All of this to tell you that demand for beef increased 2% in 2013. Despite a lot of folks trying to make it so, consumers aren’t ashamed to love beef. And have the intelligence to separate facts from hype.
It is with innovation and creativity that we may bring tremendous opportunity for our organization and our businesses to fruition in 2014. These opportunities ripen and prosper when we incorporate a diversity of ideas and work together–from consumer to beef farmer families. Ninety percent of innovation is timing. I believe this organization and this program is ripe for innovation this year. Decision we make will affect our business and our stewardship for years to come. Imagination plus innovation equals goal realization.