Fundamentals of Business: Fonterra's Functions and Challenges

This case study examines Fonterra, a global dairy company, focusing on its key functional units such as operations, marketing, accounting, sales, human resources, and risk management. It explores the application of various decision-making and problem-solving techniques employed by the company, including rational, intuitive, creative, and bounded rationality models, to address challenges like competition and technological advancements. The report also analyzes the impact of internal environmental factors, such as financial performance and employee relations, and external factors, including economic conditions and political changes, on Fonterra's operations. Furthermore, it touches upon the significance of bi-cultural partnerships. The study concludes with recommendations for Fonterra to strengthen its supply chain, adopt sustainable business practices, and improve its decision-making processes for long-term success in the dynamic global market. Desklib provides access to similar case studies and solved assignments for students.

FUNDAMENTALS
OF
BUSINESS

1
EXECUTIVE SUMMARY
In all across the globe, business environment has changed drastically and it has affected the
operations of all the countries irrespective of the industry they are operational in. This report
analyse about various functional units working under Fonterra which is one of the biggest
diary company in the whole world. Company is also facing several types of challenges in
their business and hence they need to have an effective decision making process and problem
solving techniques for confronting these problems. Different types of problems need different
types of decision making approach for solving it. This report also presents the impact of
internal environmental factors on the business as well as the impact of external environmental
factors on their operations. In the last part of the report the recommendation about the whole
scenario and the things that company must do for making its success in the long term has
been provided. Economic and political conditions all across the globe has changed hence
sustainable approach to business needs to be adopted. It is essential that supply chain is
strengthened for reducing the cost of delivery and maintain a balance between demand and
supply.

2
ontentC
s
INTRODUCTION.................................................................................................................................2
Discussion.............................................................................................................................................3
Key functions of Fonterra..................................................................................................................3
Applications of decision making and problem solving technique......................................................4
Impact on internal environment factors.............................................................................................7
mpact o e ternal actorI f x f s.................................................................................................................8
i c lt ral nat re partner ip on onterra Acti itie and relation ipB - u u u sh F v s sh ...............................................10
Recommendations...............................................................................................................................10
CONCLUSION...................................................................................................................................11
REFERENCES....................................................................................................................................11

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INTRODUCTION
In the modern day business environment, it has become essential for the organisations to
understand all the aspects related to their business. Every company has different set of
functions in it and it is essential that organisation manages these functions so as to improve
the business quality. Issues in the business have also raise at very fast levels. Decision
making is very essential in the modern day business so as to resolve the issues. Apart from
this there are various problem solving techniques that can be used by the organisations so as
to resolve the issues that are present in the organisation. It is also crucial that company
understands its internal and external impact. It is also crucial for analysing the impact of these
environmental factors on their business.
Fonterra Co-operative Group Limited is a dairy company that is operational in many parts of
the world. It is owned by around 13,000 New Zealand dairy farmers. This report analyses the
key functions of Fonterra as well as provides application of decision making and problem
solving techniques. It also highlights internal and external environment factors on Fonterra.
At last it also gives application of Bi-cultural nature partnership on Fonterra Activities and
Relationship.
Discussion
Key functions of Fonterra
Fonterra being the largest dairy farm products company has numbers of functions in it. This
is because they want to have smoothness in their various operations. Some of the major key
functions of Fonterra include accounting, risk management, marketing, operations, sales and
human resource (Hawking, 2010). It is essential that all these functions work in collaboration
with each other so that efficiency and effectiveness can be achieved in the business process.
Detailed analysis of these function are as follows:
 Operations: It is the most basic functional unit within the organisation which has the
role of collecting milk from 13,000 farmers in New Zealand (Fonterra, 2018). It also

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has the role to ensure the production of the milk products is as per the requirements of
their global market. Since it is having its sale in more than 140 nations hence
managing balance between production and supply is necessary. They also have the
role to ensure the quality of the products so that they achieve the standards they have
promised to their customers (Barboza, Myers & Gardner, 2011). Fonterra has a
history of having an efficient manufacturing system. Procurement, processing and
management are three basic process that operations team has to perform.
 Marketing: This functional unit has the role of expanding the market base of the
company at the same time ensure that there is proper understanding about the
demands of the market. Since this company wants to grow its business in other parts
of the world hence marketing plays a very essential role in this. In modern day
business, since the number of competitors in the market is increasing hence it is
essential that the Fonterra’s markets its more than 1000 products in an effective
manner (McGiven, 2016). In providing competitive advantage to the company,
marketing plays a very essential role. The effect of marketing is that it helps the
company in making the name in the market. It also affects the brand presence of the
company in any country. The better the marketing, the better the chances that it can
achieve success in market.
 Accounting: In any organisation it is crucial that company has proper management of
finance. Since company plans to invest in new areas hence they need to have proper
accounts management team. The financial condition of the world is changing and
hence their role becomes further essential. From 2010 to 2015, Fonterra noticed an
increase in the stocking rates, cost structures, feed inputs etc. There is increase in the
milk prices and at the same time company has to invest in improving farm assets
especially the ones that are related with sustainability programs (Ragued,
Wotherspoon & Ingham, 2011). They have the role of managing the overall
investment and expenditures of the organisation so as to improve the growth rate of
the company. Accounting effects the future business investments of the company in
different fields as well as it will also shape the growth of the company. If the
accounting is done properly then it will help in stopping the unnecessary expenditure
of the business operations. This will have direct effect on the profits of the
organisation.
 Sales: This company sells its products in 140 nations of the world hence the role of
this functional unit becomes more essential (Fonterra, 2017). In order to increase the

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sales of the products, Fonterra is having an excellent sales team that manages
effective relationship with its suppliers and distributors so as to ensure that supply and
demand remains on balance (Stojkov, Noy & Sağlam, 2016). An effective sales team
always enhances the numbers of sales at the same time it also increases the customer’s
retention power of the company. Sales also increase the capacity of the company to
improve the relationship with the customers.
 Human Resource: Fonterra being a multinational company has large number of
people working with it. Since it is a cooperative type of business the number of people
associated with it increase automatically. In order to improve the quality of the team
working in the firm, it is crucial that a proper training must be given to the employees.
It is the role of the human resource team to manage the conflict between different
stakeholders (Rao, 2013). The increasing demands of the farmers have been a
problem for the company but they need to manage it so as to ensure that company
achieves success in the long term. A highly skilled workforce always tends to increase
the productivity of the firm at the same time it reduces the number of errors in the
business operations.
 Risk management: There is considerable increase in the number of issues in the
business. All these issues pose a threat to the business operations. In this environment,
risk management has a very crucial role as they need to check each and every element
of the business and business environment (Robb, Smith & Webb, 2013). Any mistake
in the management of issues may lead to long term image failure for the company. It
can be done with the help of data that is gathered in the business in the past. This risk
management helps the firm in the time of any incidents, accidents or disastor. An
effective risk management team must consist of members from every department so
that proper understanding about the situation and the way it can be controlled can be
found out. It will affect the long term sustainability of the organisation and avoid the
chances of business failure.
Applications of decision making and problem solving technique
Fonterra being a global firm has its operations in various parts of the world hence decisions
needs to be made checking all the requirements of global market. In the modern day business,
since the data is available through various sources hence making of effective decisions is
based on the fact that how effectively the data has been evaluated (Burton & Wilson, 2012).
In the past few decades the nature of the problem has become more complex. There are four

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techniques or models of decision making namely rational decision making model, bounded
rationality decision making model, Creative decision making model and at last intuitive
decision making model.
 Rational decision making model: It helps in the situation when the organisations goal
is to increase the quality of their final products. Fonterra facing business challenges
needs to make the best choice in terms of selection of resources (Lee, 2010). In such
situations rational decision making is very effective.
 Intuitive Decisions: Fonterra faces many kinds of challenges related to the business
and many of these decisions are taken on the immediate basis. Managers makes the
decision under certain time pressure, changing conditions, high stake and highly
visible outcomes, challenging circumstances as well as uncertainty in the business
(Tipples, 2011). In such situations intuitive decision making is highly essential.
 Creative Decisions: With the nature of problems getting more complex, it has become
essential for the organisations like Fonterra to make decisions that are creative. In the
increasing cost structure, decisions related to cutting cost are very crucial and needs to
be made with proper analysis. In this time organisations can take use of the creative
decision making model (Sandhu, Smallman, Ozanne & Cullen, 2014).
 Bounded rationality: when the decisions need to be made recognising limitations of
our decision making process then this model is used. Organisations choose the first
option without conducting an exhaustive search for choices. This model has the
tendency to satisfice, which indicates to choosing the first choice that meets the most
basic criteria.
Fonterra is facing problems such as:
 Competition: In the dairy farm industry, there are many new firms that are emerging
that too in various parts of the world. This has made the competition intense. In order
to overcome this competition, Fonterra needs to work on its competencies. In order to
resolve this issues rational decision making is required by the firm. An alternative for
this problem is that company must find new markets so as to gain financial resources
and market share (Marshall, Akoorie, Hamann & Sinha, 2010). Under this approach
company can make the list of countries where they could actually go in. After the
research company must find the market that is having less competition. With the help
of accounting department, company can make the investments with the help of

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subsidiaries. The investment must be also be made in the new product development
needs a long term decisions to be applied.
 Technology: The amount of technology and the advancement that are going on in the
industry is increasing at much faster rate. The decisions that are related with
technology needs to made for staying ahead of the rivals. In this regards creative
decision making plays a very effective role. Alternative for this is that a proper
industry analysis needs to be conducted so as to implement best of technologies in
their working mechanism (Menguc, Auh & Ozanne, 2010). There are people that are
from the For example upgrading of the data management tools need to be done based
on the requirement of the firm as well as the amount of data sources present with the
firm. For making of the creative decisions there are five steps that need to be applied.
First is to find the problems that exist in the technology, and then gather information
with the help of internal research. Then follows the incubation stage where actually no
solution is found yet an effort is made to find the technology that actually works. In
Illumination stage the technology that can actually make the change is found. At last
continuous verification is done about the way any technology will work in the
organisation hence the decision is made.
 Risk management: There are various types of risk posing the business of Fonterra.
Since many of these risks are generated on the long run while some are generated on
the short run hence different types of decision making is required. For the risk that is
generated at the real time needs intuitive decision making process to be followed.
Alternative for this is that the risk management system must be adopted within the
organisation that works on the data that is gathered through various sources (Le
Heron, 2011). The outcome predicting systems helps in predicting future needs of the
company as well as the risks that can come to the business. For making intuitive
decisions managers must scan the environment for finding the solution to the risk that
may arise in the future. It must find the challenges that are actually confronting the
company and may enhance in future so that plans related to risk management can be
made.
 Customer satisfaction: In the increasing competition, customer satisfaction has
become very essential for the firms. In this regards rational decision making can be
very beneficial. This is because it will implement a series of steps for improving the
effectiveness and efficiency of the operations which in turn will improve the chances
of achieving higher customer satisfaction. Alternative for this is to improve the

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quality of the food products (Yang, Hong & Modi, 2011). By this approach a
company must identify the areas which are reducing the chances of customer
retention. New things that can add to customer satisfaction is found out and hence
changes needs to be implemented that may enhance satisfaction of customers.
Force field analysis of Fonterra
Driving forces Proposed changes Restraining forces
New Zealand Business Context
 Business responsibilities in relation to bicultural partnership
The businesses operating in New Zealand have to consider the cultural factors relating to
Maori to ensure that they respect their cultural differences. They have to implement policies
to eliminate discrimination at the workplace (Firth, 2012). The companies also have to
respect the connection with Maori have with their lands.
 Two examples of business relationships
The corporations in New Zealand establish diversity committee to ensure that people who
belong to different cultures are not discriminated. A good example is Deloittle who has won
an award for recognising Maori organisations and supporting their economic growth
(Hitchcock, 2017). Another good example is Tawapata South Inc. which is a Maori owned
business which contributes to the growth of their economy by building relationships.
 Two examples of business activities
ompetitionC
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i mana ementR sk g
tomer ati actionCus S sf

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There are many corporations operating in New Zealand which provide services of translating
the documents of companies in Maori to encourage diversity such as Straker Translations
(Strakertranslations, 2018). Another example is the financial support given by Ministry of
Business, Innovation and Employment (MBIE) for Maori businesses to promote their growth
in the country.
Impact on internal environment factors
In any organisation, there are various internal factors that are affecting the business of the
firm. All the business units have to make sure that they have an effective mechanism for
managing the impacts of these internal factors. Some of these factors are:
 Structure: There are huge numbers of employees working in Fonterra. They have
made the structure as per the requirement of the firm. They have a governance team
that works in favour of the interests of the shareholders and at the same time they
need to ensure transparency and efficient risk management. A better human resource
management can help in bringing the smoothness to the work process (Collins, Roper
& Lawrence, 2010). Since 9 members of the 13 board members are elected by the
shareholders hence they need to be more transparent towards decision making
process. This kind of decision making process would help the company in reaching to
the top of the industry. Structure has a direct effect on the communication that is
being used within the organisation. Sorted structure makes the communication
process easier and the goals can also be achieved with better team work.
 Systems: In any organisation, it is essential that best of systems is used in the firm.
The systems like Supply chain management system helps in improving the quality of
the products as well as improves the delivery of the products and services to the
clients. Other IT systems are helpful in improving the smoothness in the work process
at the same time it also ensures that fewer mistakes are generated in doing activities.
These systems need to be updated as per the requirement so as to make sure that they
are valuable to the company. If the system quality is poor or it is underperforming
then there is a chance that company may lose its market to other competitors (Khan,
Grigor, Winger & Win, 2013).
 Resource: With such an extensive resource capacity of Fonterra, it can outperform
any other company in the world. Its major competency is the human resource it has as
they work in cooperation so as to bring the best quality milk from farms to process it
and make it the best in the business. An effective decision making will be required for

10
making the investment plans which would further require financial resources.
Sustainability is very important in the modern day business especially in the
companies that are dependent on the raw materials from the farming sector (Collins,
Dickie & Weber, 2014). This is a big challenge for Fonterra as effective technology
and system needs to be used in the company so as to use it in an effective manner.
Resources need to be of higher quality or otherwise it might affect the quality of the
product that is delivered to the customers. Resource also effect the sustainability of
the organisation as the better quality resources always helps the company to use it for
longer period of time.
 Organisational culture: Fonterra is having an organisational culture that is more
collaborative. They believe in teamwork for completing any task. Since they have
people working from different kinds of cultural background hence they need to
manage diversity at the first priority. They believe in maintaining a suitable balance
between board member functions and the interest of the stakeholders. The leadership
style is also democratic that helps the company in gaining new kind of ideas in the
business process (Kelsey, 2015).
Impact of external factors
External factors are those on which company has less control but produces a higher impact on
the business performance. It is also to be noted that there are many stakeholders linked with
the organisation and it is crucial that company does an analysis over all these factors so as to
understand the impact on their business. Some of the external factors that have impact on the
business of Fonterra are:
 Political: The rules and regulation made by the government of New Zealand and other
governments in various parts of the world had a greater impact on the business
performance. Even when the government of New Zealand support the organisation
having a cooperative structure there is a negative impact of the taxes that was
enforced on diary industry (Buerkler, 2013). Increased tax barrier and changing
political conditions in many parts of the world has also affected the global trade.
Since Fonterra works in so many countries hence the impact is much wider especially
on the supply chain and distribution system. Political environment has affected on the
supply chain of the company as it operates in so many countries.
 Economic: A huge economic breakdowns can be noticed in various parts of the world.
The slowdown in the economic growth of European and American region is a matter

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of challenge for the company of the scale of Fonterra. With the amount financial
resources that company has it will not be problem for the company. There is a
considerable increase in the costing of the overall process and especially related to the
farmers. This must be maintained by the company so as to achieve highest of profits
from their operations. The impact of economic crisis will be on its business in
European region.
 Social trends: Demands in the society has increased considerably especially related to
the milk based products. Other industries like chocolate, cakes and confectionary
industries have also raise the demand of milk products. The taste of the society has
changed and hence a change can be noticed in the type of milk products that is needed
by the society (Forney & STOCK, 2014). The demand of milk product that stays for
longer time has also increased. It is essential that Fonterra responds to this demand
and develop products accordingly or it might affect the business process of the
company.
 Technology: In the past few decades technology has changed to greater extent and
this advancement needs to be made as per the requirement of the industry. In the
coming years this is going be a much bigger issue for the dairy industry as the
processing technology is advancing and moving towards automation. It is crucial that
Fonterra moves towards automation but at the same time it also need to ensure that
interest of employees are taken care of. Company also need to invest on the data
management systems that are capable of storing, processing and generating data
results as per the demand of the company.
 Legal: The common laws related to diary industry have also changed which is having
greater impact on their business. The consumer laws have strengthened which
Fonterra needs to comply with so as to avoid any legal consequences. The legalities
have also changed in terms of product quality and hence Fonterra needs to improve
the quality of their food products (Gray & Le Heron, 2010).
 Sustainable management or environment issues: Governments have become very
strict towards unsustainable use of resources and at the same time they are highly
concerned towards the effect of business operations on the environment (Scott-
Kennel, 2013). Finding alternatives for plastics is a major challenge for Fonterra as
government has been very strict towards the plastic use in various parts of the world.

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Bi-cultural nature partnership on Fonterra Activities and relationship
Fonterra being a part of New Zealand’s business community follows the Treaty of Waitangi
and making the bi-cultural partnership as the part of their business. This treaty was signed
between the Maori and the British crown so as to ensure equal rights to all the people. All the
three core principles of the treaty namely protection, partnership and participation are
included in its business. All three is used in Fonterra as people from both the cultures work
inside the company at equal wages, equal opportunities is provided to them in case any
vacancies gets generated within the organisation. Among the 13000 farmers, most of them
are from Maori community. Everyone is paid equal amount money for their milk. Their rights
and interests are protected irrespective of their culture. They work in collaboration with each
other hence ensuring partnership and participation.
Two organisational policy of Fonterra that complies with Treaty of Waitangi is equal pay
policy and diversity management policy. They pay equal amount of money to people that are
doing same work irrespective of the cultural background they are from. They have the policy
to manage diversity at the workplace which is also an integral part of the Treaty.
Apart from this company should also include equal employment opportunity to people from
both the culture. It must also take use of Maori language and culture at their workplace which
will encourage the employees from the Maori community to adjust easily. They must also set
tribunal courts that create awareness about the settlements about the issues that are generated
at the workplace. These courts must be set-up for checking the differences among the
employees. Such tribunals will help in managing the employee relations.
Recommendations
In the coming years since the milk product demand is growing to increase hence company
needs to be ready with their sustainable development plan for achieving long term success.
This can be done with the help of best of technologies. It is also essential that Fonterra
manages its operations through a series of plans. In the coming years, firm needs to focus on
the quality of their products. This problem can be solved with the help of quality management
tools like TQM. Fonterra also need to ensure that they have placed best of people at different
positions in the organisational structures. This will help the company in making best of
decisions which will help them in facing the challenges that are present in the industry and
their operations (Schewe, 2011). It will be beneficial for the company to manage the supply

13
chain in a better way so as to reduce the overall cost of delivery and ensuring that there is
balance between demand and supply of the products.
The external factors are also changing at much faster rate hence the cited company needs to
be ready with the long term plan for reducing their impact on their business. Fonterra needs
to be ready with an economic policy so as to ensure higher profit growth in the coming years.
Company also need to have an extensive research about society demands so that they can be
fulfilled on time. Fonterra also need to be aware about the increasing competition so that they
can make strategic plans accordingly.
According to the treaty of Waitangi, they must bring more people from different communities
in their business. In the process of decision making company can take the help of all the
members from different community. This will help in bringing creative ideas in the business.
In the planning and development of the organisational process also a partnership approach
could be used.
CONCLUSION
From the above based report it can be concluded that Fonterra is the biggest diary company in
the whole world. With the increasing demand of the milk products Fonterra also have to be
ready with their plans so as to compete in the global market as well as fulfil the demands of
the consumers. There are different functions in the organisation and their roles have been
divided uniformly so as to bring smoothness to the work. The decision making and problem
solving techniques are used wisely so as to face all the challenges present in the business. The
internal environment of the company favours the company as it has huge amount of resources
to tackle the problems. It is crucial that Fonterra has a close watch over the external factors so
as to make policies accordingly. Political and economic conditions all over the world is
changing dramatically and hence a sustainable approach to the business needs to be ensured
for achieving long term success in the business.
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