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