Qiio-* United States4 1 tj$g;~;~of A Strategic Planning

Rural Business-Cooperative Service

RBS Research Study of the Dairy HerdReport 150 Improvement System

Abstract A Strategic Planning Study of the Dairy Herd Improvement System

James J. Wadsworth

Agricultural Economist

This report provides an overview and strategic planning study of the dairy herdimprovement (DHI) system, concentrating on assessing current trends and conditionsof the industry and how DHI organizations are structured within it. Information is pro-vided for the principal DHI organizations to carry out strategic planning. Opinions fromDHI managers provide an internal assessment of where the industry is headed and inwhat areas leaders need to plan to better position their organizations for the future. Astrategic planning model is developed to analyze industry trends, define availablestrategies, and evaluate alternative directions DHI organizations can take as theystrive to achieve organizational and systemwide goals.

Keywords: dairy herd improvement, goals, strategic direction, planning

Cooperative Services Research Report 150

September 1996

Preface The dairy herd improvement (DHI) system has a played a critical role in the advance ofthe U.S. dairy industry. Even today, it remains an important link in the industry.However, dairy industry changes--cow number decreases and shifts, dairy manage-ment advances, and on-farm economics-pose significant challenges to DHI. Thenature of the dairy market, changing technology, and competitive pressures indicatethe need for strategic planning among DHI participant organizations.

This report describes the current status of the system and provides informationobtained from DHI managers on where they see the industry heading and how theirorganizations will fit into that industry in the future. It develops a planning model toassess possible strategies and directions for system participants, mainly the dairy herdimprovement associations (DHIAs).

This study is intended to promote positive debate and thought on the current structureof the DHI system and what future system will be needed to best serve U.S. dairy pro-ducers. The intent is to spark strategic planning in DHI organizations by providinginformation sourced from statistics, from 27 DHI managers (more than two-thirds of themanagers in the system, i.e., DHIA and DRPC managers), and by developing a strate-gic planning model to assess alternative strategies and directions.

The author thanks the dairy herd improvement association/cooperative and dairyrecord processing center managers, other leaders, and Phil Dukas of National DHIAfor their valuable contributions. However, not all DHIA managers’ and other DHI lead-ers’ opinions were obtained, so this report should be viewed as an initial step towardfurther dialogue and planning.

i

Contents HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General Background and Status of the DHI System ....................... .3

Participation in NCDHIP Testing Plans .................................... .4Most Commonly Used Plans ...........................................5PlanChanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DHI Boundary Restructuring ............................................ .6

DHlAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Affiliate Manager Opinions ............................................6

Affiliate Strengths and Weaknesses ...................................7Financial Strength .................................................7Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Satisfaction with DRPCs ........................................... .8Members’ Rating of DHlAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Progressiveness of Board Members and Members . . . . . . . . . . . . . . . . . . . . . . .9Optimism for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

DRPCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..gDRPCManagerOpinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l l

DRPC Strengths and Weaknesses ...................................llMembers’ Rating of DRPCs ........................................llRatingofDHlAs..................................................l 1Rating of Affiliate Field Staff ........................................llMilkTestingLabs.................................................l 1Competition.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..llFuture Service Expectations ........................................llOptimism.......................................................l 2Progressiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..12

Status of DHI-Summary ............................................. .12

Strategic Planning: Heading Into the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

DHIGoals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..14

Industry Trends and Conditions ......................................... .14How Managers See the Industry ...................................... .14Dairy Cow Population Changes ...................................... .15DHIA Location and Cow Populations ...................................16Trend of Dairy Producer Income ...................................... .17Assessment of Overall Market Conditions ...............................18

Market Strategies ................................................19

Alternative Strategic Directions ......................................... .20Status Quo With Modifications and Improvements ........................ .20

DHI Strategy Ideas.. ............................................. .21Structural Change Strategies ........................................ .22

Manager Opinions on Further Restructuring Possibilities ..................22

GoalEvaluation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2 3DHIA Goal Evaluation .............................................. .24DRPC Goal Evaluation ............................................. .24

Strategic Planning Summary and lmpllcatlons . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2 6

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

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The DHI system consists of 33 affiliate DHIAs, seven dairy record processing centers(DRPCs), and numerous local DHlAs and milk laboratories. National DHIA is the cen-terpiece of the system and several government bodies are also intricately involved.DHI is largely responsible for the significant gains made in U.S. dairy production, butthe system faces a challenging future.

The 21 DHIA managers (64 percent) contacted indicated their organizations had manystrengths and few weaknesses. Financial stability, headquarter employees, the boardof directors, member service, progressiveness and equipment were most often identi-fied as major strengths. Member involvement was identified as a major weakness.Most managers said that competition was not strong; members would rate their DHIAat just above average; boards and members are progressive; and they are optimisticfor the future.

Six DRPC of the seven managers identified their major strengths as efficiency, qualityrecords, and innovation. Only a few weaknesses were identified such as cost efficien-cy and equipment. DRPC managers said that members would rate their operationshigh, but the managers themselves rated the DHIAs, whose records they process, onlyslightly above average.

DHI leaders understand the challenges of remaining competitive in a mature, but con-tinually changing dairy market. The market is characterized by declining but shiftingcow numbers, larger herds, and strong competition for dairy producer dollars. DHIorganizations have responded to their environment by employing leadership and nichestrategies and in a number of cases by exercising structural change strategies. DHlAsand DRPCs have consolidated, closed, streamlined, developed new products and ser-vices, become more competitive with their industry counterparts, and in some casesopened new markets with new clients. For the most part, the DHlAs and DRPCs in thesystem have been dynamic in their pursuit of a strong and continued market position.

The contacted managers advocated several themes on where DHI leaders need tofocus further strategy development:

l Progressive programs and services.

l Efficiency.

l Flexibility for meeting the needs of individual dairy producers.

l Coordination between DHIAs, DRPCs, regulations, etc.

l Technological capabilities.

l Marketing, training, and DHI promotion.

l Consolidation opportunities.

l Nontraditional methods for improving system.

The DHlAs operating today, taking into account recent DHI system structural changes,follow a status quo with modifications and improvements strategic direction. Thosewith the ability to defend leadership strategies in traditional and new services (i.e.,

. . .111

Highlights prominent industry position) and develop niche strategies (i.e., unique opportunities)will likely continue with the status quo for some time. However, it will require a solidbase of member cows, operational efficiencies, and considerable human and capitalresources. Those without such attributes will find it necessary to explore and deter-mine other directions.

Two directions likely to be considered in DHI strategic planning include consolidationand joint ventures within or outside the DHI system. How those directions are furtherdefined and when they are explored will depend on the circumstances surroundingeach DHIA and its market position. Inevitably, all DHlAs need to examine their struc-ture and direction and determine the best path for achieving goals. In the final analysis,the future structure of the organizations in the DHI system will depend on the achieve-ment of goals.

Eleven core and performance goals are identified for evaluating strategic direction inDHI planning. Core goals are continued member control, provision of quality memberservices and products, supervision of dairy records, retention of member loyalty, andcompetitiveness and viability. Performance goals include maintaining and expandingmembership, gaining efficiencies, maintaining financial strength, developing newopportunities, being technologically innovative, and being an industry leader. If othergoals can be defined, DHI leaders need to identify and evaluate them.

Changes in the DHI system will eventually reduce the structures. Several directions ofchange are likely. These will probably be fewer DHIAs, DRPCs, and milk labs, morestreamlined regulations, more direct information flows, and more outside working rela-tionships. Surviving DHI organizations will be able to position themselves in the marketin a way that allows them to be flexible enough to deliver the varying types of pro-grams producers demand, efficient enough to be affordable, and resource-strongenough to be progressive and viable.

This report voices some opinions and ideas from DHI leaders. They can provide focusand stimulation for further discussions by DHI managers, directors, and members whomust collectively brainstorm and listen to each other and the marketplace. A continuingdialogue requires progressive steps for planning and action. Sound strategic planningby DHI organizations will help determine avenues for future success. Alternativestrategies and directions must be explored in light of industry conditions and with akeen eye on crucial organizational and systemwide goals.

iv

A Strategic Planning Studyof the Dairy Herd ImprovementJames J. WadsworthAgricultural Economist

The DI-II system has played a critical role inadvancing the U.S. dairy industry Its provi-sion of production and management

records, services to dairy farmers, and contribution ofinformation to industry organizations, universities,and Government agencies, has been one of the vehiclesdirectly responsible for gains in milk production anddairy farm herd management efficiencies.

Milk production per cow (figure 1) has markedlyincreased during the latter half of this century.Production per cow increased 259 percent from 4,600pounds in 1940 to 16,500 pounds in 1995. Total milkproduction increased from 109 billion pounds in 1940to 156 billion pounds in 1995, up 43 percent (figure 2),even though cow numbers decreased 60 percent dur-ing the same period from 23.7 million to 9.5 million(figure 3).

While these changes are partially the result of DHIsystem success, they aIso create a diIemma for the cur-

Figure 1- Milk Production per Cow, 1940-95

P o u n d s ( 1 , 0 0 0 )18

16

14

12

10

8

6

4

2

01940 44 48 52 56 60 64 68 72 76 80 84 88 92 95 1940 44 48 52 56 60 64 68 72 76 80 84 88 92 95

Source: NASS, USDA Source: NASS, USDA

System

Figure 2- Milk Production, 1940-95

P o u n d s (7,000,000,000)160,

1940 44 48 52 56 60 64 68 72 76 80 84 88 92 95

Source: NASS, USDA

Figure I% U.S. Dairy Cow Numbers, 1940-95

P o u n d s (7,000,OOO)

1

rent structure. On-farm economics pose significantchallenges to DHI organizations because the system’straditional source of revenue is based on the dairycow. Changes in cow numbers, where they are located,and how they are managed all have an impact.

Complicating the situation are the multiple roles,given recent technological gains, that DHIAs are beingpressured to accept. DHIAs must be technologicalinnovators, facilitators, and providers, in addition tocarrying out their traditional roles of testing, collectingdata, and providing reports. With such pressures,many DHIAs face an increasingly arduous future.Given the circumstances of the current environment,DHI organizations need to look closely at how wellthey are positioned in their industry today and will bein the future. What will DHIAs need to look like toremain active players in the industry; what strategiesand direction would be best to pursue?

DHI organizations need strategic planning to focuson the future. It must be continuous and holistic.Every DHI organization needs to regularly examineand define its mission, goals, strategies, and direction.Each must envision how it will continue to fit into thedairy services sector and what it needs to do in strate-

gy and structural terms to do that.This report provides an overview’ and strategic

planning account of the DHI system, concentrating onthe structure and operations of the organizations thatcarry out the specific functions. These include collect-ing dairy records, processing them, and providing ser-vices to farmers, specifically DHIAs and Dairy RecordProcessing Centers (DRPCs). The focus is on their sta-tus and future. DHI managers were asked about theirorganizations and where the industry is headed. Thosewho responded provided significant information.

DHI system leaders have been discussing changes,voicing needs for the future, modifying and adaptingtheir organizations, and providing ideas on what DHIneeds to be over time. This report consolidates DHImanager thoughts and offers an outside perspective onthe status and strategic direction of the major playersin the system. More than two-thirds of the DHIA affili-ate and DRPC managers in the system were contacted,

1 For an extensive history and more detailed description of the DHIsystem, please see “Dairy Herd Improvement Letter,” ARS, USDA,Vol. 49, No. 4, July-August-September, 1973.

Figure 4- Flow of NCDHIP Information

NCDHIP HerdI

componentpercentage

Processing Center

AIPL-USDA Al Organization

Source: G.R. Wiggins, “National Genetic Improvement Programs for Dairy Cattle,” Journal of Animal Science, no. 69, 1991.

2

providing a significant body of thought. With theirinput, this report provides an initial step toward fur-ther dialogue and planning.

General Background and Statusof DHI System

The DHI system is composed of a rather complexcombination of organizations working together toserve dairy producers and other aspects of the dairyindustry with dairy herd records and managementinformation systems. This system combines organiza-tions that work in conjunction and in competition withone another to carry out the National CooperativeDairy Herd Improvement Program (NCDHIP). Thesystem is decentralized, reflecting the highly informa-tion-intensive nature of the genetic improvement dairyrecord system. Much of the data collected by DHIflows among a number of institutional entities (figure4), including DHI organizations, artificial insemination(AI) businesses, pedigree associations, USDA, univer-sities, extension personnel, and, of course, dairy pro-

ducers. The complexity involved with testing, collect-ing, analyzing, and sharing of data is managed bydividing the system into separate functions and dele-gating these to different organizational entities, one ofwhich is the NCDHIl?

Figure 5 provides a truncated organizational chartof the DHI system. The left side shows the linkagefrom dairy producers as DHIA members to other sys-tem participants, such as National DHIA, the DRl’Cs,USDA, and Extension.

The foundation of the NCDHIP is the collection ofdairy cow records from farms. Records are collected byweighing each cow’s milk on a monthly basis. A milksample is taken to determine milk fat, protein, somaticcell count, and other attributes. DRPCs process collect-ed data and return the results (i.e., records) to herdowners. These records are the sole property of the herdowner and are used to provide a comprehensive herdrecordkeeping system and assist in dairy herd man-agement decisions (e.g., feeding and breeding). Whileprivate property, dairy cow records are also used forresearch and industry-related purposes such as USDA

Figure 5- Snapshot of the DHI System

Information Distribution fromDairy Records Processing Centers*

DHIA Members /‘/ DHIA *.,.

Members “, “84/’

/Dairy Herd Milk

Improvement ’ L a b o r a t o r i e s

A s s o c i a t i o n s\ /

I/Dairy RecordProcessing

CentersNational DHIA

?

\ /Performance Data /

,&##7”‘11 2 * ‘,/_ 3 ,I,National Memorandum

NCDHIP

of Understanding ,, ,i,j Policy Board

‘. . *-_ I

ES

I I I /’/,

‘,,, Associations ,*,, ‘N”3, ’ -,-+ _,., .-. f

‘. %.IY,“_j;; 3’Source: Fact Sheet A-7,1985, Page 3, NCDHIP Handbook

3

sire summaries with the requirement that individualherd-owners’ data be kept confidential.

The centerpiece of the DHI system is NationalDHIA, a federation of affiliate DHIAs started in 11965.It provides farmers with a national vehicle for settingpolicy and developing and enforcing rules associatedwith the NCDHII? Its mission statement says it “is aliaison between DHIAs and supporting institutions fordelivering dairy management information systems tothe industry which aids dairymen’s profitability.”National DHIA, headquartered in Columbus, Ohio, isgoverned by a 12-member board of directors electedfrom dairy producers from four U.S. regions(Northeastern, North Central, Western, and Southern).

Affiliated DHI associa lions are organized at Stateand regional levels. These membership organizationsconduct the business of the NCDHIP and collect cowmilk samples. The resulting records are analyzed,processed, and returned to their members. DHIAs alsoprovide a range of services such as distribution of farmmanagement systems (e.g., computer software pro-grams).

Seven DRPCs process records. Some are ownedand operated by DHIAs and merely are an operationalfunction of the organization. Others are stand-alone.These processing centers analyze the numbers associ-ated with the dairy record data collected.

A National Memorandum of Understanding(MOU) 2 provides the framework for carrying out the

2 General information on National DHIA, sponsoring groups, andthe MOU was obtained from NCDHIP Handbook, B and C seriesFact Sheets.

functions of NCDHIP. The MOU among NCDHIPsponsoring groups outlines the responsibilities of eachparty and the general manner in which the programwill be conducted.

Sponsoring groups include National DHIA,Agricultural Research Service (ARS), and theCooperative Extension System (CES). Their functionsare:

National DHIA-enforces the rules, policies, andquality certification standards of the NCDHIP.ES-provides national coordination and leadershipof Extension education programs in record collec-tion, evaluation, and use.ARS-conducts the national genetic evaluationresearch program using NCDHIP data.CES and the state DHIA-guide how the NCDHIPis conducted and have responsibility for record cer-tification within that State via the MOU.

Authority for NCDHIP rules, policies, and qualitycertification standards is vested in the NCDHIP PolicyBoard. Representatives on the 12-member policy boardcome from National DHIA, CES, ARS, the NationalAssociation of Animal Breeders (NAAB), and thePurebred Cattle Association.

Participation in NCDHIP Testing PlansMore than 30 DHI testing plans are presently rec-

ognized by NCDHIP. Improvements have been devel-oped in line with the demand for plan flexibility bydairy producers. Plans are designated as official andnonofficial. Official testing plans comply with OfficialRules and the combined rules for Official Dairy HerdImprovement Registry (DHIR) as established by the

Table I-COW and herd participation In NCDHIP plans.

1989 1990 1991 1992 1993 1994

cows 4,576,521 4,722,222 4,626,961 4,695.775 4,763,026 4,693,457Percent of total cows 45 47 48 48 49 49

Herds 56,798 56,837 56,711 53,945 52,724 50,649

Average herd size 81 83 85 87 91 93

Total cows in U.S. 10.126,OOO 10,127,OOO 9,992,ooo 9,839,OOO 9,705.ooo 9,532,oOO

Plan Changes 1989-90 1990-1991 1991-92 1992-93 1993-94 1989-1994Cows (percent) 3.18 2.22 -2.72 1.86 -1.87 2.56

Herds (percent) 0.07 -0.22 -4.88 -2.26 -3.94 -10.83

Source: NCDHIP Handbook.

4

NCDHIP policy board.3 Records from these plans areaccepted by the dairy industry for many purposessuch as management, research, and genetic evaluation,for example. Nonofficial testing plans do not have tomeet all the rules and thus, are not certified. Recordsfrom these plans are referred to as managementrecords. In several management plans some officialrules apply. DHI testing plans are regulated by stan-dards from National DHIA quality certification pro-grams to certify uniformity.

About 49 percent of the nation’s milk cows are onsome form of DHI test, up from 45 percent in 1989(table 1). In 1994, this reflected about 4.7 million dairycows and 50,000 herds (table 1 and appendix figure 1).The bottom part of table 1 shows the changes in planparticipation. From 1989 to 1994, the number of cowsparticipating in all NCDHIP plans increased 2.6 per-cent, reaching a peak in 1991. The average herd size ofDHI participators increased from 81 in 1989 to 93 cowsin 1994.

The number of cows enrolled in official plansincreased by 14 percent from 1989 to 1994, while thenumber enrolled in nonofficial or management plansdecreased by 24 percent. In 1994,77 percent of all cowsenrolled in NCDHIP plans were in official plans. Theaverage herd size of those in official plans was 102cows in 1994 while that of management plans was 70cows, suggesting that more small herds tend to go thenonofficial route.

Most Commonly Used PlansTwenty-four percent of DHI participating produc-

ers used the DHI plan4 in January 1994, down from 36percent in 1989 (table 2). AP-based5 plans are gainingin popularity. In 1994, the DHI-AP-T (T refers to an on-farm DHIA-approved timing device) plan was usedwith 18 percent of DHI participating cows, up from 13percent in 1989. With AP-based plans, a DHI supervi-sor records milk weights and collects milk samples forone milking each month (the specific milking time-a.m. and p.m.-is alternated). AP-based plans (severaltypes) were used with more than 40 percent of thecows signed up for DHI participation. All otherplans-with variations of milkings, weighing, sam-pling, and testing-have more limited participation (2to 10 percent).

Producers participate in DHI testing plans throughdirect contact with a DHIA. While there are subtle, andin some cases not so subtle, differences between theDHIAs, each organization tailors its operations to suitits members.

Plan ChangesMember needs continue to change. Some produc-

ers are purchasing on-farm electronic metering sys-tems and using them in conjunction with their dairymanagement software programs. This technology has

3 For more information on NCDHIP Rules see the NCDHIPHandbook, Fact Sheet series E.

4 In the DHI plan milk weights are recorded and milk samples arecollected by a supervisor for all milkings in a 24-hour period eachmonth.s AP-abbreviation used to describe alternate morning/eveningmonthly types of testing plans (NCDHIP Fact Sheet A-6).

1989 Percent 1992 Percent 1994 Percent

DHI 1,660,327 36.28 1,337,574 28.48 1 ,115,849 23.77

DHI-AP-T 569,093 12.87 866,035 18.44 843,613 17.97

DHI-APCS 367,632 8.03 375,991 8.42 378,784 8.07

DHIR 438,432 9.58 395,355 8.42 329,128 7.01

DHIR-AP-T 61,104 1.34 109,323 2.33 137,404 2.93

DHI-AP 338,094 7.39 375,202 7.99 640,777 13.63

DHI-OS 467,548 10.22 343,251 7.31 274,547 5.85

DHI-OS-AP 242,156 5.29 274,227 5.84 277,3577 5.91

Total 4,576,521

Source: NCDHIP Handbook.

4,695,775 4,693,457

5

encouraged some producers to voice opposition toDHIA procedures (i.e., use of on-farm testers (techni-cians) for record surveillance and record processing)and the fees charged for records.

National DHIA is developing herd and cowprofiles6 to meet the challenges posed by legal issues(e.g., law suits from dairy producers charged withrecord fraud), changes in farm management practices,and computer technologies. Descriptions of herd andcow profiles will replace traditional DHI record labels.Profiles will define a herd’s records using graphs ofherd averages, lactation curves, and comparisons ofmilk shipped and test-day milk totals, etc. These pro-files are intended to get DHIAs out of the increasinglydifficult practice of enforcing NCDHIP rules and polic-ing members to ensure that records are valid. Herdprofiles, and in some cases cow profiles, will be avail-able to end users such as breed associations, AI organi-zations, and cattle buyers to determine record integri-ty. Under this concept, policing will occur through asystem of open disclosure of dairy profiles. Broadaccess to these profiles would work as a form of peerpressure to reduce the possibility of fraudulent acts(e.g., falsifying cow data) by dairy producers.

DHI Boundary RestructuringFor nearly 90 years, DHIAs operated within fairly

strict State and county boundaries. However, in 1993,delegates to National DHIA approved a restructuringplan that eliminated county, State, and regional bound-aries. Dairy producers can freely choose from whomthey get their DHI field and lab service and wheretheir records are processed. Under the restructuringplan, the organizations in the National DHIA federa-tion are now called service affiliates rather than Stateand regional DHIAs.~

The absence of boundaries gives DHIAs the oppor-tunity to court producers outside their traditionaljurisdictions. One result has been increased competi-tive pressure on many of the local/regional DHIAs.Because of this pressure, as well as other influencessuch as fewer dairy cows and changing dairy-cow-population demographics, some DHIAs consolidatedin recent years. Iowa and Illinois formed Dairy LabServices; North Carolina and Virginia formed United

6 Information obtained from the DHIA Communicator newsletter,November-December, 1994.7 While the name change is recognized, this report will continue touse the terminology DHIA rather than Service Affiliate.

Federation of DHIAs; and six Plains States-NorthDakota, South Dakota, Nebraska, Kansas, Oklahoma,and Arkansas-created Heart of America DHIA.DHIAs also have consolidated internally-some feder-ated structures have centralized by unifying local asso-ciations. For example, PA DHIA, once a federatedstructure, is now centralized. Most former county(local) DHIAs consolidated into a single statewideorganization.

DHlAsSome DHIAs are organized as cooperatives while

others are not-for-profit associations. DHIA activitiesrange from only collecting milk samples to operatinglaboratories to analyze the samples of only their mem-bers. Others check samples of other DHIAs and a fewanalyze samples for non-DHI organizations such asdairy plants (Gray and Butler). The laboratories varyin their technical sophistication. Some have simplemachines that only measure butterfat. Others measureprotein, somatic cell count, butterfat, and other attrib-utes such as milk urea nitrogen. A number of DHIAsuse several laboratories to test their milk samples.

Some DHIAs process their own records in house(e.g., PA DHIA, AgSource Cooperative Services, andMI DHIA). Others “farm out” their processing to otherDRPCs and some affiliates use more than one DRPC.

Presently, National DHIA has 33 affiliate DHIAs,down about 20 percent from more than 40 in 1989 dueto mergers and consolidations among States and orga-nizations. Recently, two new DHIAs affiliated withNational DHIA-Tulare DHIA in California andLancaster DHIA in Pennsylvania.

A number of affiliate DHIAs operate under a fed-erated structure that has numerous local (county) asso-ciation members. (Some have a modified federatedstructure where some locals have been merged or cen-tralized into the State or regional affiliate while otherscontinue to be members with federated characteris-tics.)

The 33 DHIAs and the States with whom they areassociated are identified in table 3 and figure 6. TheMississippi River evenly divides the number ofDHIAs, although western associations are larger andmore dispersed than their eastern counterparts. SomeDHIAs operate primarily in one State while othersserve multi-State regions.

Affiliate Manager OpinionsTwenty-one affiliate managers were contacted for

their opinions and information about their organiza-tions and operations. They represented 3.9 million

6

cows (83 percent of total cow participation in NCD-

Affiliate strengths and weaknesses . DHIA managerswere asked to indicate their organization’s majorstrengths and weaknesses from a given list8 (table 4).More than 50 percent identified financial stability,headquarter employees, the board of directors,member service, progressiveness, and equipment asmajor strengths. Other strong points were fieldpersonnel, innovation, operational efficiency, productconsistency, and service quality.

Although fewer weaknesses were identified, mostmanagers saw member involvement as their primaryweakness. Some managers felt DHIAs were overly tiedto DRPCs, and, there was too much reliance on thelocal structure.

8 The list was developed to contain attributes commonly associatedwith well-governed, well-organized, and well-operated memberassociations or cooperatives.

Financial strength . Fifty-seven percent of themanagers said their organization’s balance sheet wasstrong with sound financial ratios, 24 percent calledtheir balance sheets fairly strong but needing someimprovement, 10 percent called their’s passable butneeding improvement in a number of areas, while 10percent felt their balance sheet was fairly weak.

Table 4--Strengths and weaknesses of 21 SffiliStSS.

Financial stability 15

Member service 12

Member loyalty 5

Member involvement 3

Member representation structure 3

Board of directors 14

Headquarters employees 15

Field personnel 10

Progressive 12

Innovative 10

Equipment 11

Facilities 3

Operational efficiency 9

Strength Weakness

3

5

4

10

4

2

0

2

4

2

1

2

1

Managers identified the given strength or weakness traits in thesecategories.

Table 3-DHIA affiliates and associated States, 1995.

(1) Alabama DHIA AL(2) Arizona DHIA AZ(3) California DHIA CA(4) Tulare DHIA CA(5) Colorado DHIA c o(6) DHI, Inc. OH(7) Dairy Lab Services IA, IL(6) Florida DHIA IL(9) Georgia DHIA GA(10) Heart of Am DHIA KS, SD, ND, NE, OK, AR(11) Idaho DHIA ID(12) Indiana DHIA IN(13) Kentucky DHIA KY(14) Louisiana DHIA LA(15) Michigan DHIA Ml(16) Mid-East DHIA MD, WV(17) Minnesota DHIA MN

(16) Mississippi DHIA MS(19) Missouri DHIA MO(20) New Mexico NM(21) Northeast DHIA NY, CT, MA, RI, ME, NH, NJ(22) Oregon DHIA OR(23) Pennsylvania DHIA PA(24) Lancaster DHIA PA(25) Puerto Rico DHIA PR(26) Rocky Mountain DHIA MT, UT(27) South Carolina DHIA SC(26) Tennessee DHIA TN(29) Texas DHIA TX(30) United Fed. of DHlAs NC, VA(31) Vermont DHIA VT(32) Washington DHIA W A(33) AgSource Coop. Serv. WI (formerly Wisconsin DHIC)

Associated States are the primary States covered by the affiliate.Source: NCDHIP Handbook.

7

Figure 6- DHI Affiliate and DRPC Locations

x Denotes DHI affiliateCI Denotes affiliate that has a DRPCl Denotes DRPC

1 WA DHIA 10 CO DHIA2 OR DHIA 11 NM DHIA3 ID DHIA 12 Heart of America4 CA DHIA 13 TX DHIA5 Tulare DHIA 14 MN DHIA6 Agri-Tech Analytics 15 Dairy Lab Svs7 Rocky Mtn. DHIA 16 Mid-States DRPC6 DHI Computing Service 17 MO DHIA9 AZ DHIA 18 LA DHIA

19 WI DHIC20 MS DHIA21 IN DHIA22 Ml DHIA23 DHI Co-op Inc.24 KY DHIC25 TN DHIA26 AL DHIA27 FL DHIA

28 GA DHIA29 SC DHIA30 DRPC @ Raleigh31 United Federation of DHlAs32 Mid-East DHIC33 Lancaster DHIA34 PA DHIA35 Ne DHIA36 VT DHIA

Competition g . Only 27 percent of those contactedcalled competition from other DHI organizations “verystrong” or “strong,” while 73 percent said it was“moderate, fl “weak,“ or “non-existent.” However, 14managers (67 percent) said their organizations areworking on strategies to be more competitive.

Thirty-three percent of the managers said they expect

9 Competition for a DHIA implies that the organization is workingto increase the number of cows enrolled in its testing plans by“going after” additional business in other territories traditionallyheld by other DHIAs.

8

the number of herds and cows they serve to increase inthe next 3-to-5 years, 14 percent anticipate serving thesame number, and 29 percent expect a decrease. Two rea-sons were given by those seeing an increase-_(l) theirorganization was in a region where cow numbers areincreasing and (2) their organization was developing andemploying competitive strategies to gain market share.

Satisfaction with DRPCs . Ten managers (48 percent)were “very” satisfied with the level of DRPC servicethey receive, five (24 percent) were satisfied, and fivewere not satisfied.

Members’ rating of DHIAs . When asked howmembers would rate their organizations overall (e.g.,services, operations, member representation) on a scaleof 1 (poor) to 7 (excellent), managers ratings rangedfrom a low of 3 to a high of 7. Most felt memberswould rate their organization just above average.

ProgressivenesszO of board members and members .Eighteen (86 percent) of the 21 managers said theirorganization’s board of directors was progressive inaccepting and adopting new technology on theirfarms. Only 3 managers (14 percent) said their boardswere not progressive.

Managers said about a quarter (26 percent) of theirmembers are “very” progressive, half (48 percent) areprogressive, and the rest not amenable in acceptingand adopting new technology on their farms.

Optimism for the future . A healthy 95 percent of themanagers are either very optimistic or optimistic abouttheir organization’s ability to adjust to dairy industrychanges and pressures and succeed in the future asindicated by their comments:

optimistic-but DHI is not moving structure fastenough to use technology and gain efficiencies,optimistic-because of available people and financeresources,very optimistic-because our organization is strongand progressive without being radical,optimistic-because we’ve had planning sessions onhow to adapt,

10 Progressiveness, in this context, implies that an individual ororganization is assertive in learning about new technology andtaking an active role in employing it.

optimistic-our role will change but the need formilk recording will continue,very optimistic-because we believe we have aunique product to market,optimistic-you have to adjust to change or bepassed by,optimistic-we’re making headway (service orienta-tion),very optimistic-our only concern is individualdairymen and we deliver,very optimistic-excellent personnel and equipment,optimistic-but local milk market is unstable.

One manager felt changes were coming too fast forthe leaders (board of directors) to handle.

DRPCsIn recent years, DRPCs have become more compet-

itive, with performance a major focus. The centershave pared down record turnaround time and provid-ed more flexibility in designing custom records pro-cessing. Conversion to electronic input and new print-ing technology have cut the time from when data isgathered by a DHIA, received by the DRPC, analyzed,and returned to dairy producers in processed form.

Seven DRPCs within the DHI system process dataand mail reports to dairy producers for the local andaffiliate DHIAs:

Agri-Tech Analytics, Tulare, CA,Mid-States DRPC, Ames, IA,Michigan DHIA, Inc., Lansing, MI,DRPC at Raleigh, Raleigh, NC,Pennsylvania DHIA Service Center,State College, PA,DHI Computing Service, Inc., Provo, UT, and

Table-Number of cows handled by each DRPC, 1989 and 1994.

1989 Percent 1994 Percent Percent Change

Agri Tech Analytics 414,474 9.05 561,144 12.38 35.46Mid-States DRPC 450,876 9.64 363,893 8.02 -19.29Michigan DRPC 154,596 3.38 156.157 3.44 1 .OlMinnesota DRPC 339,127 7.4 331.239 7.3 -2.33Cornell Dairy Records 493,562 10.78 457,717 10.09 -7.26DRPC @ Raleigh 773,274 16.88 914,705 20.16 18.29Pennsylvania DHIA 350,546 7.65 276,250 6.09 -21 .I9DHI Computing Service 795,524 16.37 757,880 16.71 -4.73AgSource Coop. Serv. 808,313 17.65 716,924 15.8 -11.31

Total 4,580,292 4,536,207

Source: NCDHIP Handbook.

9

. AgSource Cooperative Services (formerly WisconsinDHIC), Madison, WI.

The figure 7 map shows the location of these cen-ters. Two processing centers recently closed-Minnesota DHIA and Cornell Dairy Records (formerlyassociated with Northeast DHIA).

Table 5 shows the number of NCDHIP cows han-dled by each processing center for 1989 and 1994. In1989, AgSource Cooperative Services (Wisconsin DHIC),DHI Computing Service (UT), and Cornell DairyRecords (NY) were the top three processing centers,respectively, in terms of number of cows handled. By1994, the top three in order were DRI’C at Raleigh (NC),DHI Computing Service, and AgSource CooperativeServices (WI). (Appendix table 4 shows the number ofcows handled by each DRPC by State for 1994.)

In 1994, four DRPCs-Michigan, Minnesota,Pennsylvania, and Wisconsin’s AgSource Cooperative

Services-handled records primarily for their respec-tive States. The other five DRPCs had multi-State busi-ness. DRPC at Raleigh and DHI Computing Serviceprovided records on cows from 21 States, CornellDairy Records served 10 States, and Agri-TechAnalytics (CA) and Mid-States DRPC (IA) each pro-vided records on cows in 9 States.From 1989 to 1994, many changes occurred in the num-ber of cow records processed by the centers. TwoDRPCs had double-digit increases in cow recordsprocessed and three had double-digit decreases (table5; see appendix table 5 for changes in herds served).DRPC @ Raleigh had an 18 percent increase and Agri-Tech Analytics increased 35 percent. PennsylvaniaDHIA records declined 21 percent; Mid-States DRI’C,19 percent; and AgSource Cooperative Services, 11 per-cent. The four others had more moderate changes:Michigan DHIA was up 1 percent, DHI Computing

Figure 7- DRPC Locations and Records Handled

Agri-Tech Analytics (893,000)

DHI Computing Service (758,000)

Mid-States DRPC (364,000)

AgSource Cooperative Services (717,000)

MI DHIA (155,000)

PA DHIA (276,000)

DRPC @ Raleigh (1,372,OOO)

Number in parenthesis indicates estimated number of cow records handled by DRPC,

using 1994 statistics and recent changes.

10

was down 5 percent, Cornell Dairy Records was down7 percent, and Minnesota DHIA was down 2 percent.(Appendix table 6 shows the States where numbers ofcow records either increased or declined between 1989and 1994 for each processing center.)

Because of the DRPC closings in Minnesota and atCornell, record processing has shifted to Agri-TechAnalytics for Minnesota DHIA and DRPC at Raleighfor Northeast DHIA. Figure 7 indicates that DRPC atRaleigh will handle about 1.4 million records (estimat-ed using 1994 data and the recent change), making itthe largest of the remaining seven DRPCs. Michigan isthe smallest with about 155,000 records.

DRPC Manager OpinionsSix of the seven DRPC managers were asked about

their operations, DHIAs, general industry conditions,and future needs. This section summarizes their views.

DRPC strengths and weaknesses . Table 6 shows thestrengths and weaknesses of the six DRPCs asindicated by the managers. They indicated that theiroperations had many strengths and few weaknesses.Employees, records quality, efficiency (both cost andturn-around time), progressiveness, and innovationwere cited as major strengths. One manager felt thatflexibility was a major strength.

Two managers identified cost efficiency and facili-ties as weaknesses and in citing a weakness, one man-ager said software development time was too slow.

Members’ rating of DRPCs . Based on a scale of 1(poor) to 7 (excellent), managers said their memberswould give their processing operations high ratings.Four managers said that members would rate them at6, one said 7, and one said 5.

Rating of DHZAs . Figure 8 shows how DRPCmanagers rated the DHIAs-whose records they

Table s--Strengths and weaknesses of DRPCs.

Trait Strength Weakness

Cost efficiency 4 2Employees 6 0Efficiency of turn-around time 5 0Progressive 5 1innovative 4 0Quality of records (consistency) 6 0Equipment 3 1Facilities 3 2

Numbers indicate strength and weakness traits as identified by themanagers.

process-overall and according to progressiveness,member service, and leadership. Ratings were aboveaverage for all four categories with progressivenessrated slightly higher than the other areas.

Rating of affiliate field staff. Three jobcharacteristics of technicians or supervisors were ratedby DRPC managers (figure 9). Accuracy of datacollection received a relatively high rating of 5.5followed by quality of data collection rated at 5.3.Knowledge of record features received a rating of 4.2.

Milk Testing Labs. The six DRPCs receive data forprocessing from a total of 56 milk labs. The averagewas 9 and numbers ranged from 1 to 18. Managerswere satisfied with the quality and performance of thelabs. Five were “very” satisfied and one felt overallsatisfaction but said a number of things could beimproved.

Competition . Two managers said that competitionwas “strong” from other DRPCs and three indicatedthat it was “moderate.” Only one manager indicatedthat competition was “weak.” While competition wasnot felt to be strong overall, five managers indicatedthey are employing strategies to be more competitive.

Future service expectations . Four of the six managerssaid they expect to process more cow records in thenext 3 to 5 years. One manager felt that cow recordprocessing would decrease greatly.

Figure 6- Rating of DHIA’s by 6 DRPC Managers

Overall

Progressiveness

Member Service

Leadership

1 2 3 4 5 6 7

Scale of 1 (poor) to 7 (excellent)

11

Figure 9- Rating of DHIA Supervisors/Technicians by 6 DRPC Managers

Knowledge ofRecord Features

Quality ofData Collection

Accuracy ofData Collection

I I I I I I 1

1 2 3 4 5 6 7

Scale of 1 (poor) to 7 (excellent)

Optimism. All the DRPC managers were optimisticto very optimistic about the ability of DHIorganizations to adjust to industry changes andpressures and succeed in the future. Degree ofoptimism and comments included:

very optimistic-DHIA managers are enthusiasticand have good leadership skills,very optimistic-organizations have shown abilityto adapt in the past,optimistic-the quality of technical and supportpeople makes me optimistic,optimistic-they can look ahead to meet futuredemands,very optimistic-DHI organizations have shown theability to succeed, andoptimistic-DHI organizations are making changesnow.

Progressiveness . DRPC managers believe that theDHIAs using their service are “somewhat” to “very”progressive in adopting new technology andresponding to change.

Status of DHI-SummaryThe number of DHIAs and DRPCs have declined

in recent years largely due to consolidations and clos-ings. The number of cows participating in NCDHIPplans increased from 1989 to 1994, while the number ofherds decreased to a larger extent, indicating anincrease in producer-participant herd size. NCDHIPtesting plans are being customized and managementinformation systems developed to better meet produc-ers varying needs.

The DHIA managers said their organizations havemany strengths, although some areas could beimproved. Overall, affiliate financial strength wasfound to be adequate (most were fairly strong,

.although about 20 percent indicated significantimprovement was needed). Three-fourths of the man-agers said competition was “weak” but indicated thatthey were working at being more competitive. Most ofthe managers were optimistic about the future andindicated that their board and members are progres-sive. At the same time, interestingly, the managersindicated that members would probably rate theirorganizations only slightly higher than average.

In 1995, the field of DRPCs decreased. Three of theremaining seven increased records processed between1989 and 1994, and the other four decreased in varyingamounts. In 1996, the largest DRPC will be at Raleighand the smallest will be Michigan DHIA.

Similar to their DHIA counterparts, DRI’C man-agers identified numerous organizational strengthsand few weaknesses. The managers also said theirmembers would rate them high. On the other hand,managers rated the DHIAs and their associated fieldstaff at just above average, although they think theDHIAs are progressive. Milk testing labs were givenhigh satisfaction ratings. While only two managers feltthat competition among DRPCs was strong, most indi-cated they are working at being more competitive (i.e.,working to increase records processed through cheap-er fees, greater efficiency, and flexibility). Four of thesix managers expect service (cow records handled) toincrease in the next 3 to 5 years and all six were opti-mistic about the future.

Strategic Planning:Heading into the Future

The information provided through industry leadercontact indicates DHI leaders have a positive view oftheir organizations and are optimistic about the future.All managers expect that changes will continue tooccur in the dairy industry and additional adjustmentswill be needed to better position their organizations. Inaddition to providing information on the status of DHIand their organizations, the managers provided sub-stantial ideas and opinions on the future of theirindustry and what changes need to occur for DHI toremain a viable system.

This section uses those ideas and opinions in con-junction with a strategic planning model to provide aframework for discussing goals, industry trends andconditions, strategies, and possible strategic direction.

Strategic planning helps guide organizationaladjustment and positioning in an industry. The proce-

12

Figure ICI- Industry Dictated Strategic Positioning

Organization Adjustment,Planning, and Positioning

0 External conditions

0 Decision nodesGoal Accomplishments

dures to this approach are intended to explicitly identi-fy goals, review the current operating environment,and evaluate strategies and alternative directions.

Figure 10 presents a general view of the strategicpositioning that firms must evaluate because of indus-try trends and change. The figure shows the emergenceof trends and conditions that cause an industry tochange or consider change. The movement from trendsand conditions to industry change creates situationsthat require organizations to adjust, plan, and positionthemselves in the changing environment. Certain strate-gic directions will be more effective than others inresponding to industry change. They will also vary infacilitating the achievement of goals. The process ofdecisionmaking converges to evaluation of alternativestrategies and directions. Figure 10 demonstrates activi-ties taking place in the DHI industry quite well.

Figure 11 provides a detailed view of strategicplanning as it specifically relates to DHI organizations.The left side of the diagram shows some of the goals ofa DHI participant organization. Goals can be distin-guished between core and performance. Core goals

Figure I I- Strategic Planning: Evaluating the Future

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

iGoals of a DHI Organization Alternative Strategic Directions

Core Goals- Retain member controll Provide quality member ser-

Merge, or Unify Wlthln

vices and products (and new)Leadership and or Outside System

l Supervise dairy records EnvironmentNiche Strategies

(embrace rules, regulations, Dairy Industryetc.) and DHI System

. Retain member lovaltv )l Remain competitive and viablePerformance Goalsl Maintain/expand membership0 Gain efficienciesn Maintain financial strengthB Develop new opportunitiesB Be technologically innovative

and progressive9 Be an industry leader (keep up)

Improve dairy cattle and benefitthe dairy industry.

Trends andConditions

[ and Improvements 1 -N,,,end N i c h e S t r a t e g i e s

-‘\‘$

Relationships or JointVentures Within or

Outside System

MISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..~ VISIONAttain the goals of NCDHIP Planning Directon-Bidging the Gap Over Time vMake the DHI System more effect&e What does DHI need to be?

What should the system look like?

13

represent a standard rationale for an organization thatare less likely to be revised over time. In contrast, per-formance goals are continuously reviewed for accom-plishments and revisions in light of emerging industrytrends. Effectiveness in accomplishing goals establish-es important criteria for guiding decisions aboutstrategies and direction. Using this approach helpsindustry participants identify potential tradeoffsbetween one direction and another.

Emerging trends and conditions of the dairyindustry and DHI system are causing DHIAs andDRPCs to adjust their operations, creating the need forevaluating alternative strategic directions. From theinformation collected from DHI managers, threepotential directions emerged: (1) status quo with modi-fications and improvement, (2) consolidate, merge, orunify within or outside the system and (3) developworking relationships or joint ventures within or out-side the system.

How well DHIAs and DRPCs survive will depend onthe strategies employed and what direction they choose.These will be contingent on whether they are accomplish-ing expected goals in the face of industry changes.

The major theme in strategic planning is to bridgethe gap between the mission of participating organiza-tions and the DHI system and the vision of what a DHIAand the DHI system needs to be in the future. In general,the DHI mission is to attain the goals of the NCDHIPand to make the DHI system as effective for dairy pro-ducers as possible. To attain the vision, DHI leaders needto clearly define what the system should look like toremain a viable and involved player in the dairy indus-try Once that is specified, leaders will be better able torefine their goals and determine the strategies and direc-tion necessary to close the gap from mission to vision.

DHI GoalsPotential core and performance goals are listed in

figure 11. The core goals are a synthesis of the goals ormissions of DHIAs, while performance goals reflectDHIA intentions for operating, progressing, and posi-tioning in their industry. The ultimate goal of a DHIA(DRPC) is to “improve dairy cattle and benefit thedairy industry” Core and performance goals worktoward that common end.

Core Goalsl Retain member control.l Provide quality member services and products (and

new ones).l Supervise dairy records (embrace NCDHIP rules,

regulations, etc.).

l Retain member loyalty.l Remain competitive and viable.

Performance Goalsl Maintain/expand membership.l Gain efficiencies.l Maintain financial strength.l Develop new opportunities.l Be technologically innovative and progressive.l Be an industry leader by keeping up with industry

counterparts.For a DRPC, these goals could be narrowed and

revised. For core goals, a DRPC needs to provide qual-ity service and record processing and work withDHIAs in meeting their, and NCDHIP, goals. For per-formance goals, DRPCs need to expand services (e.g.,be flexible to their customers), maintain or increase thenumber of cow records processed, gain efficiencies(e.g., be cost efficient and competitive in turn-aroundtime), remain price-competitive and financially sound,and be technologically innovative and progressive.

These goals will be discussed later in assessing thestrategies and strategic directions available to DHIorganizations. But first, further review of the dairyindustry and DHI system is provided.

Industry Trends and ConditionsThis review further explores the dairy and DHI

industry by providing the opinions of DHI managers,reviewing the dairy cow population and where DHIAsare in relation to cows, examining trends of dairy produc-er income and assessing the system’s market life cycle.

How Managers See the IndustryThe DHIA and DRPC managers contacted provid-

ed these opinions on the trends and conditions of thedairy and DHI industry:

Structural Changesl Fewer but larger dairy herds.l Declining overall cow numbers.l Greater milk productivity.0 Continued tough economics on dairy farms (e.g.,

low milk prices, financial stress).l Changing demographics of the cow population.l Increasing DHI competition on a national level.l DHIA consolidation and/or forming alliances or

special relationships.

Processing and Management Toolsl More technology on farms (e.g., computers, elec-

tronic meters, bST, etc.).

14

Processing and report generation will continue toget closer to the farm while data retention and stor-age will be further centralized.Continued development of dairy management soft-ware for use by producers, DHI technicians, andindustry consultants.Distribution and processing systems will get betterand better.More processing on farms.Better computers.Laser printing and on-line services.More on-farm computers.

Member Needsl Farmers closely watching the dollars they spend on

supplies.l Increased demand for specialized services.l Increasing need for member loyalty.l Less intrusive procedures on test day.l Cow-side testing and new types of testing plans.

l Better trained and educated field technicians.DHI managers have definite opinions about where

they think the industry is headed. I%ese observationsprovide part of the foundation on which to developstrategies. A closer look at U.S. cow populations willadd to that foundation. a

Dahy Cow Population ChangesRecent movements of the U.S. dairy cow popula-

tion provide insight on emerging trends in the DHIindustry. U.S. dairy cow numbers have declined signif-icantly during the past 55 years to the current standingof less than 10 million dairy cows (9.5 million as ofJanuary 1,1995). The U.S. maps depicted in figures 12and 13 show that certain areas of the country continueto be strong dairy areas. The top five States in cownumbers are Wisconsin, 1,500,OOO cows; California,1,250,OOO; New York, 710,000; Pennsylvania, 639,000;and Minnesota, 600,000 (appendix table 3). Figure 12shows the ranges of the percent of cows enrolled in

Figure 12- Percentage of Dairy Cows in NCDHIP, by State, 1995

15

NCDHIP for each State. The percents vary widelyamong the States, ranging from a high of 77 percent inSouth Carolina to a low of 18 percent in North Dakota.

Figure 13 shows ranges of dairy cow numbers byState, but there is no clear pattern across the nation.For precise cow population data, see appendix table 1.The table shows the number of cows in each State for1985,1990, and 1995. It also indicates lo- and 5-yearchanges, and the relative proportion of cow numbersin each State to the total number of cow numbers inthe U.S. In 1995, the total number of cows was down13 percent from 1985, and down 5 percent from 1990.

Figure 14 illustrates cow changes from 1990 to1995. The map shows the States that increased in cownumbers, had cow numbers decrease slower or fasterthan the average of 4.95 percent from 1990 to 1995(appendix table 2). Cow numbers in 1lStates increasedwhile the rest declined. Numbers increased in thewestern and southwestern regions of the countrywhile decreasing over the rest of the U.S. The largest

increases (in numbers not percents) from 1990 to 1995were in California, New Mexico, Idaho, Washington,and Arizona, while the largest decreases were in.Wisconsin, Minnesota, New York, Ohio, andPennsylvania. While total cow numbers are not expect-ed to decline much in the near future, the location ofdairy cows in the U.S. will likely continue to change.

DHIA Location and Cow PopulationsIn assessing how the present DHIAs will fit into

the future DHI system, it is important to examineDHIA locations in relation to the cow populations.

Figure 15 outlines the four regions identified byNational DHIA. The Western region has 2.3 million or25 percent of the nation’s cows and 9 affiliates, theNorth Central region has 3.8 million or 40 percent of thecows and 8 affiliates, the Northeastern region has 1.8million or 19 percent of the cows and 5 affiliates, andthe Southern region has 1.6 million or 16 percent of thecows and 11 affiliates. Interestingly, the Southern region

Figure 13- U.S. Dairy Cow Population, by State, 1995

n 250,001 to 500,000 COWS

q 100,001 to 250,000 cows

100,000 cows or less

16

has the most affiliates even though it has the lowestnumber of cows and the lowest percent (42 percent) ofits cows enrolled in NCDHII? The Western region hasthe highest percent of cows enrolled in NCDHII?

This analysis is not meant to suggest that the cowsin the various regions are linked to the DHIAs of thesame region. Some enrollment crosses over the depict-ed regional boundaries to other regions. However, thismap does suggest considerable disparity in the num-ber of cows available geographically for handling byDHIAs. For example, some DHIAs, such as those inthe Southwest have a much greater population of cowsfor potential enrollment than other DHIAs such asthose in the Southeast.

Trend of Dairy Producer IncomeWhile studying cow numbers is necessary, it is also

important to examine the income available to dairyproducers to fund the many needed operational sup-plies. As service providers to a specific sector of the

farm economy, DHI organizations must be concernedwith how receptive dairy producers will be to payingfor dairy management records and the other servicesthat DHI organizations can provide.

Figure 16 illustrates the trend in dairy producergross income. In real terms, using cash receipts fromdairy products as a proxy, gross farm income of U.S.dairy producers decreased from 1984 to 1992, from $18billion to $14.4 billion. Unfortunately, this suggestsdairy producers face increasing pressure related to thequantity and type of operational supplies and servicesthey can afford. As these costs increase without com-plimentary increases in income, those experiencingany economic hardship will find it necessary to pickand choose what they can afford. While DHIAs andmany dairy producers fully understand the value offarm records and management information for the suc-cessful operation of a dairy farm, other producers,including some presently using DHI, may becomeincreasingly reluctant to pay for DHI services if the

Figure 16 Dairy Cow Number Changes, 1990-1995

* Decreased faster and slower refer to changes in cow numbers relative to the average decrease of 4.95 percent.

17

trend shown in figure 16 continues and they can’t find what dairy legislation is enacted. Conversely, largerways to shave other operational expenses. dairies will be better equipped to thrive in future years.

In addition, some question the ability of small- andmoderate-size dairy farms to survive in the future. Astudy reported in Feedstuffs” (carried out by Knutson,et al.) of dairy farm performance relative to the statusquo and alternative potential government dairy legisla-tion indicated that many smaller dairies (55~0~ herdsize) will continue to struggle into the future no matter

These findings and general concern for the fate ofsmall dairy farms given current trends toward largeroperations suggest that DHIAs need to be aware ofhow well the smaller dairy farms are fairing. Thosewith a proportionately large population of smallerfarms in their total member base must consider this infuture planning.

11 Article by House, Charles. “Congress Can’t Stop Trend TowardLarge Dairy Farms, Economist Says,” Feedstuffs, Volume 68,Number 11, March 11,1996, p.10.

Assessment of Overall Market ConditionsThe information outlined throughout this report

strongly suggests that the DHI system is confronted

Figure iti- 1995 Dairy Cow Numbers and Those in NCDHIP, by Region

North Central North Eastern3,837,OOO dairy cows (40% of U.S.)

1,799,038 cows in NCDHIP (47% of region’s cows)

8 affiliates

1,772,100 dairy cows (19% of U.S.)

891,870 cows in NCDHIP (50% of region’s cows)

5 affiliates

WesterIn2,348,700 dairy cows (25%

1,320,567 cows in NCDHIP (56% of region’s cows)

9 affiliates

X Denotes DHI affiliate location.

1,574,OOO dairy cows (16% of U.S.)

659,944 cows in NCDHIP (42% of region’s cows)

11 affiliates (includes Puerto Rico)

18

with a mature market. While changes are continuing,the market in the traditional sense of DHI service, isstagnant. In the business world, a stagnant market isconsidered to be mature when characterized by suchfactors as choice among brands and competitors, little

Figure 16 Gross Farm Income from DairyProducts (cash receipts)

DO//~fS (1,000,000,000)25

20

10

5

0 ’ 1 I I I , I I I1984 85 88 87 88 89 90 91 92n Actual (nominal) m Adjusted CPI (1984=100)

product/firm differentiation, strong competition,broadening product lines, prevalent service and deals,fewer customers for traditional cash cows, price com-petition, and lower margins and profits. All of thesefactors are present in the current DHI industry. (Seeappendix figure 2 for an illustration of the four phasesof the industry/business/product life cycle.)

In the maturity phase, a number of strategies areavailable to firms. Which ones to pursue depend on afirm’s position compared with competitors and its out-look of the future.

Market strategies. Figure 17 indicates majorstrategies available in a mature market under threeorganizational positions. If a firm has strengthsrelative to competitors, the strategies to pursue areleadership and niche-position/scope (A). Leadershipis seeking a prominent or leading position in terms ofmarket share and working to increase and hold it. ForDHIAs, this clearly is the strategy being pursued incontinuing the service of providing dairy records andmanagement information. A niche strategy is creatingand employing a special opportunity in a particufarsegment of the market. DHIAs are also doing some ofthis. Examples include business activities outside oftraditional services, such as selling computer hardware

Figure 17- Strategies in a Mature Market Environment

(A) Have strengths relative to competitors; contin-ue on course

(B) Seeking new or renewed opportunities for syn-ergy and enhanced strength

(C) Lack strengths relative to competitors; makestructural change or get out

Strategies to Pursue

Leadership Seek a leadership position in terms ofmarket share.Niche Create and/or defend a strong position in aparticular segment (products/service) (Breakinginto or developing new markets).

Consolidation Seek partners for consolidation ormerger to develop or maintain leadershipJoint Ventures Seek partners for joint venture orpartnership activities to gain economies of size incertain areas.

Harvest or Divest Manage a controlled disinvest-ment taking advantage of strengths, or liquidate(Usually not a palatable option for any firm. It nor-mally comes about only as a last resort-when thingshave gone from bad to worse and no other strategy isfeasible.) If not an option, look again to (B).

Source: Porter, Michael. Competitive Strategy

19

and software or testing soil and forage samples. Overtime, successful niche strategies diverge to leadership.

Often, a firm in a mature market will seek new orrenewed opportunities for creating synergies orenhancing position and strength-position/scope (B).Consolidation or joint venture opportunities are twosuch strategies to pursue for firms looking in thatdirection.

(1) Consolidation. Combining operations with acompatible organization carrying out the same activi-ties in a nearby geographic region is a strategy formaximizing the probability of maintaining a leader-ship position. The individual DHIAs that combined toform the three recently unified DHIAs (Heart ofAmerica DHIA, Dairy Lab Services, and UnitedFederation of DHIAs) took this approach.

(2) Joint venture. Developing a joint-businessarrangement with other associations/firms to gain sizeeconomies is also a strategy to enhance strength andperhaps secure a brighter future (AgSourceCooperative Services is using this approach as a joint-function of Cooperative Resources International-theholding company that includes AgSource CooperativeServices and three artificial insemination cooperativesas subsidiaries).

Unification and/or joint-venture strategies oftencome into play through the sheer force of market pres-sures. In other words, not every organization operat-ing in a mature market can maintain a leadership posi-tion or be successful at developing niche markets.Eventually, some will be pressured into consolidationor joint-working relationships, or, will be forced totake other actions. Leadership and niche strategies arenot mutually exclusive from the structural changestrategies. In fact, they usually interlock-firms oftenpursue consolidation and joint-venture strategies togain a position that will enable them to better employleadership and niche strategies.

If an organization lacks strength relative to com-petitors-position/scope (C)-and lacks the resourcesor market presence to make leadership or niche strate-gies successful, it may need to either look at restructur-ing (i.e., consolidate or develop working relationshipsas in position/scope (B)), or, divest its assets.Divesting is not a very palatable option for any firm,and even less for a cooperative or member-orientedservice organization such as a DHIA formed by pro-ducers.

In sum, these strategies, given current market con-ditions, suggest that DHI organizations have limitedstrategic directions available. The next section outlinesthree primary directions.

Alternative Strategic DirectionsA necessary part of strategic planning is anticipat-

ing and evaluating alternative strategic directionswhere organizations in the industry are headed or maybe headed. Given industry conditions and the maturemarket DHIAs are facing for carrying out traditionalservices, three strategic directions are defined in figure11:

(1) continue status quo with modifications andimprovements,

(2) consolidate within or outside the system, and(3) develop working relationships or joint ventures

inside or outside the system.While these directions may be rather vague, a myr-

iad of choices or alternative sub-strategies fit withineach. This section describes these directions-whatthey entail and how they fit into the scope of opera-tions for DHI organizations.

status QuoWith Modifications and Improvements

Status quo in the DHI context using the terms“modifications and improvements” indicates thatunder existing conditions a framework is in place forpursuing change given the climate. Most DHI organi-zations are following this strategic direction-workingwith what they have and striving to be more memberresponsive, more efficient in carrying out their basicDHI functions, and in some cases, providing addition-al services beyond their traditional roles. Under statusquo, DHIAs use leadership and niche strategies tomodify and improve their organizations. They seek aleadership position in the area they serve by capitaliz-ing on their traditional strengths (e.g., laboratoryanalysis, dairy record provision, and informationresources). Many also work to identify and developniche markets for new products and/or services (e.g.,working to take advantage of new technology-i.e.,computer hardware and software-being achieved atthe farm level). An explicit example of a niche strategyis the water-testing outside service recently developedby AgSource Cooperative Services.

Also implicit in this strategic direction is the ongo-ing strategy of working to build additional businesswith dairy farm operators not using DHI. Althoughprogress has been made in increasing the percentage ofdairy cows enrolled in NCDHIP, a sizeable populationof cows are not enrolled (figure 12).

The status quo, as defined here, has worked wellfor many DHIAs for some time, but how long it cancontinue is questionable. In general, cooperatives tryto stretch out the maturity phase of their industry life

20

cycle to remain a strong entity for members. However,the maturity phase can not be stretched out indefinite-ly and eventually industry restructuring must occur.

The status quo will continue to work for DHIAs insome areas for a fairly long time, for some in otherareas for a short time, and for others it may not workmuch longer. The ability to remain viable taking thisdirection will depend on a number of factors-thepace of continuing technological change on dairyfarms, the economic health of dairy producers, thelocation relative to cow populations, the financialstrength, the willingness and propensity to makechanges, and how well the DHIA leaders define andimplement strategies for modification and improve-ment. The DHIA and DRPC managers contacted pro-vided strategy ideas.

DHI strategy ideas . Managers were asked whatadjustments their organizations have to make toincrease the number of dairy producers using DHIservices and to provide better service. Most said“educate and sell dairy producers on the benefits ofDHI services.” Others suggested (1) being moreaggressive in soliciting business from dairy producers;(2) providing services cheaper; (3) providing moreservices; (4) adopting new technology more quickly;(5) developing more programs tailored to individualproducer needs; (6) removing traditional DHIAblinders and recognize that DHIAs must be serviceorganizations in a larger industry; and (7) emphasizingDHI as a management tool-too many perceive it as abreed improvement program.

The managers also provided a number of strate-gies for making the DHI system and their organiza-tions more effective. Suggestions for improving opera-tions/service were:l Reduce the number of rules.l Develop a program to work with stand-alone systems.l Pursue lower prices for in-barn automation of data

collection.l Lessen National DHIA’s involvement in the busi-

ness.l Make functions faster, simpler, and less expensive.l Increase service value in mind of the dairy farmer.l Establish reasonable levels of quality and enforce

requirements.l Operate the organizations in a more businesslike

manner.l Meet dairy producers needs as they change.l Incorporate financial management into the system.l Continue to reduce many of the artificial lines (e.g.,

county and State) between DHIAs.

l End National DHIA’s role in mandating programswhich make DRPCs less competitive with privatesoftware developers.

l Develop more uniformity within DRPCs.l Have less top down direction and more reliance on

dairy producers themselves.l Make system less regimented; consider developing a

direct tie between the producer and the DRPC forthose producers not wanting lab component infor-mation.

l Continue to adapt the system to changes in technol-

ogy.l Progress quickly or DHI will find itself without any-

one to serve.l Use the wealth of data available, assume new direc-

tion, and get going-DHI was fostered throughExtension involvement which has and will continueto decline.

Here are their suggestions for improving educa-tion/promotion/training:l Develop marketing training for field forces.l Promote the benefits of the system and its functions

and de-emphasize competition among service affili-ates.

l End National DHIA assistance to competing affili-ates in training, marketing, or similar endeavors.Instead, National DHIA should set meaningful stan-dards and enforce them.

l Develop more cooperation between States.l Build more trust between DHIA affiliates and also

between DHIA and other industry farmer coopera-tives.

l Weed out traditional thinkers.l Compete with the private independent organiza-

tions carrying out record services and prove to thelarge commercial dairymen that DHI has somethingthey really need.

l Invest more money to push technology and informa-tion highway services related to the dairy industry.

There are many fitting strategies in this listing.However, some of the responses are general expres-sions of everyday DHI operations-“meet dairy pro-ducer needs as they change” and “continue movingtoward change.” Although these common sense con-cepts are well understood, they are not always wellfollowed and are worth discussing from time to time.Indeed, such phrases emphasize focus and leadersneed to take them to heart and evaluate their organiza-tions in their regard on a regular basis. Some of theother ideas or responses are rather fresh, however, and

21

should be given more thought and discussion. If fit-ting, they should be developed into concrete strategies.For example, “develop marketing training for fieldforces” and “develop more cooperation betweenStates” should be further defined and discussed.

A snapshot of the current DHI system wouldreveal its strategic direction amounting to the statusquo with modifications and improvements. To enhancethat direction further, DHI leaders should closelyexamine the strategies listed earlier (and even brain-storm for others) and decide which ones need moreattention relative to their organizations and/or theDHI system and incorporate them into plans. DHIleaders are saying that more work is needed on theefficiency and promotion ends of operations, and con-currently, that the relationships between DHIAs them-selves, and the DHIAs and National DHIA, need to bemore harmonious and further refined.

Structural Change StrategiesSome organizations in a mature market will find it

mandatory to look at structural change strategies.Figure 11 presents two strategies for DHIAs: (1) con-solidation or (2) greater coordination, including work-ing relationships or joint ventures. These directionscan occur inside or outside the DHI system. The threeDHIA consolidations previously mentioned are anexample of organizations taking the former direction.AgSource Cooperative Services implemented the latterdirection through the development-in conjunctionwith cooperatives in the artificial insemination indus-try-of the holding company, Cooperative ServicesInternational.

Attrition will likely reduce the number of DRPCsas evidenced by the closing of Cornell Dairy Recordsand the Minnesota DRPC in 1995/1996. However, thisdoes not preclude DRPCs from pursuing structuralchange strategies. Further opportunities should beexplored.

The structural changes (e.g., consolidations, clos-ings, boundary changes) that have taken place are sig-nificant, but may only be just the beginning of a longerprocess of change for the DHI system. The DHI man-agers contacted were asked whether their organizationshad merged or consolidated with other DHIAs in thepast 5 years. Five (24 percent) said yes. Those managerswere then asked to rate how well the consolidation wasworking in the areas of member acceptance and repre-sentation, operational efficiency, and financial perfor-mance. Three said that member acceptance and repre-sentation worked well, one said it was adequate, andthe other said that there were problems but progress

22

was being made. For operational efficiency, two said itwas working beyond expectations, two said it wasworking well, and one said there were problems butprogress was being made. One said financial perfor-mance was beyond expectations, three indicated thatfinancial performance was strong, and the other saidthat progress was being made despite some problems.

Those that have undergone structural changeappear to be satisfied. This finding begs the question,are further structural changes likely? Managersexpressed their opinions on that.

Manager opinions on further restructuringpossibilities . Twenty-nine percent of the managerssaid consolidation with other DHIAs is likely in thefuture, 62 percent said it may be likely, and 9 percentsaid it is not likely.

Most of the managers (62 percent) who expectedconsolidations said only a couple of DHIAs wouldmake compatible consolidation partners. Twenty-fourpercent felt that most DHIAs would make compatiblepartners.

DRPC managers were evenly split on whether theythought that consolidation or linkages with otherdairy-related organizations (e.g., AI or milk marketingcooperatives) are likely in the future. Two said consoli-dations are likely, two said maybe, and two said no.One of those who said no felt that outside linkageswould foster the idea that DHI is for genetic improve-ment rather than a dairy management system.

In reference to the number of DRPCs, 33 percent ofthe DHIA managers said there are just the right num-ber and 52 percent said there should be fewer. Whenasked, how many processing centers there should be, 4was the average number.

Similarly, four of the six DRPC managers indicatedthat they felt there are too many DRPCs. One said thatthere should be more and one said that there are justthe right number. Two felt that the name “dairy recordprocessing center” didn’t apply to their operation, thattheir processing is merely a function of their DHIAcoordinated with an entire process of carrying out DHIservices. Thus, these leaders may not view consolida-tion of their “DRPC” with another “DRPC” as anavailable option-i.e., any such consolidation wouldneed to entail the whole DHIA operation. Managersoffered these thoughts on restructuring:

Merge or federate AI, breed associations, andDHIAs.Reduce DRPC number to three.Merge with neighboring state DHIAs to reduceNational DHIA dues and annual fees.

Have fewer and larger direct-member DHI coopera-tives.Eliminate local association structure.Consolidate organizations.Maintain key elements in DHI that have helpedmake the U.S. dairy industry the best in the world.Management information, genetic evaluations, andall elements of industry that work in these areasmust seek new and non-traditional ways to worktogether (merge or federate) to maintain theadvancement of the U.S. dairy industry.

With 91 percent of the DHIA managers indicatingthat consolidation is likely or may be likely and manyof the managers saying there are too many DRPCs,along with the associated statements on restructuring,there is considerable agreement that structural changestrategies should be seriously examined.

Because of obvious similarities and potential com-patibility of fit, consolidations and/or working relation-ships among DHIAs should probably be given firstreview. However, that does not mean that reviews ofpotential outside consolidations or working relation-ships should not be made. In fact, the references aboutbreed associations and financial management firmsmade by managers may indicate that some potentialconsolidation outside the system is being contemplated.

Goal EvaluationDHIAs need to determine the strategic direction

that will best allow them to continue achieving their

goals. In other words, what direction is needed for thefuture? That will depend on the circumstances sur-rounding each DHIA and the time period being con-sidered. In the short run, many DHIAs will likely farewell enough to continue status quo operations. Somemay be able to continue this way even for the longerrun.

Those able to sustain longer-term success with thestatus quo will have stronger financial and humanresources, a prime location relative to cow numbers,and the ability to adapt quickly to change. However,even those that fit such criteria will likely find defenseof their market position increasingly difficult given thecompetitive pressures that steadily arise in a maturemarket environment. On the other hand, DHIAs in arelatively worse position in terms of resources, loca-tion, and ability to adapt, may be forced to pursuestructural change.

Comparing strategic directions and the ability theypresent an organization in the achievement of goals isan important aspect of strategic planning. In coopera-tives, as in all businesses, the ability to achieve goals isthe justification for existing. Because assessing goalsrelative to one strategic direction versus another can becomplex, planners often use a goal evaluation matrixto simplify the process.

Table 7 provides an example of a goal evaluationmatrix for DHI organizations to consider. The matrix isset up in conjunction with the DHI goals and strategicdirections identified in this report. Goals are listed in

Table 7-DHI goal evaluation matrix-example

Strategic Direction

Core Goals 1 status Quo Consolidation Joint Venture other

Member control

Quality services/products

DHI record supervision

Member lovaltv

Competitive/viable

other

Advantage

Advantage

Performance GoalsMaintain (expand) membership Advantage

Gain efficiencies

Financial soundness

Advantage

New opportunities I Advantage 1

Technolooical innovation I I I IIndustry leadership -I- ~ I I Iother

Some cells are filled in merely for the purpose of example.

23

the far left cells of the matrix and strategic directions(or strategies) are listed along the top. The next step isto identify whether a particular strategic direction hasan advantage relative to other strategic directions forachieving each specified goal. The cells would belabeled in that regard. Because of the differences in thelocation and operational characteristics of the DHIAs,completing a goal evaluation matrix for the entire sys-tem would be too complex an endeavor and would beambiguous at best. Therefore, in planning, each DHIAshould complete a matrix. The matrix would proveuseful when done on a regional basis also, whenpotential parties have mutual interest.

DHIA Goal EvaluationDHIAs completing a goal evaluation matrix rela-

tive to their goals and the strategic directions specifiedin this report will need to consider a number of ques-tions. Some include:l What is happening to the cow population in their

State/region of location?l How close are competitors?l How loyal are members?l How well are programs being implemented (by

itself and by competitors)?l How financially viable is the organization?

Questions such as these must be answered in thecontext of both the present and the future. This willhelp clarify whether a particular strategic direction hasadvantages over others for achieving given goals. Forexample, if a DHIA is in a region where the cow popu-lation is declining and there are competitors in sur-rounding States, consolidation may have an advantageover the status quo for achieving the goal of gainingefficiencies, because consolidation would generateeconomies of scale and provide greater resources.

In assessing the strategic directions, DHI leadersshould closely examine the strategy ideas and restruc-turing possibilities identified by the 27 managers (21DHIA and 6 DRPC managers). If possible, moreshould be defined. Then, leaders will need to deter-mine how well those identified can be implementedgiven their current structure and direction. Issues,opportunities, and strategies may need to be discussedon a regional, as well as independent, basis.

For most DHIAs, structural-change directions areworth closely evaluating now. Both DHI managers andthe mature market environment are saying so.Evaluation is especially needed by the weaker orsmaller DHIAs in low-cow population areas. At thesame time, structural-change directions do not fit someas well. For instance, the DHIAs that have recently

24

restructured may still be working out some relatedproblems, such as attaining the full impact ofeconomies of size. Indeed, some may need to continueworking toward realizing potential gains before look-ing to possible further restructuring. Furthermore,other DHIAs with established leadership positions instrong cow-population areas may not yet feel any needor pressure to consider consolidation or working rela-tionships. Some areas may still have room for develop-ing leadership and/or niche strategies and DHIAs inthose locations should pursue those efforts.

At the same time, market conditions suggest thatall DHIAs must have some concern given the overallmature market environment and technological andoperational innovations (e.g., on farm milk recordingsystems, lower cost services) that members expect.These conditions may eventually weaken even well-established and financially sound DHIAs as competi-tion heats up for both traditional DHI business andcertain developed niche markets (e.g., computer man-agement programs). These statements are associatedwith the likelihood that DHI organizations that do not,or can not, embrace change and better position them-selves in the industry will be forced to make changes(e.g., significantly downsize). That would decreasetheir strength and ability to employ and defend leader-ship strategies. It can be argued that in the longer run,only resource-superior organizations that possess abroad and solid member base, operational efficiencies,and the ability to develop and implement advancedtechnologies, will be able to effectively achieve thecore and performance goals of a DHIA.

Many factors (e.g., regional industry conditionsand association attributes) will alter how each DHIorganization assesses strategic direction and strategiesand the associated ability to achieve its goals. Thepoint of the goal-evaluation planning approach is thatstrategies and direction can be more readily and accu-rately determined when measured against an organi-zation’s explicit core and performance goals and howthe organization sees itself fitting within its industry.

DRPC Goal EvaluationEvaluating strategic direction is different for

DRPCs given that their strategies and direction aremost often simply developed in line with their cus-tomer needs and demands. However, DRPCs can usethe approach of table 7 to plan their future. Most cur-rently use leadership and niche strategies to remaintechnologically proficient and quality-service oriented.Given the high ratings and the number of strengthsDRPC managers identified about their operations, it’s

probably safe to assume that DRPCs are achievingdesired goals. However, since their two primary goalsare to maintain or increase the number of cow recordsprocessed and to deliver product efficiently, how longall seven DRPCs will remain satisfied in the currentenvironment is questionable. Those that are large andstill growing are probably well positioned, while thosethat have seen significant decreases in the number ofcow records handled may need to question their stay-ing power and whether it will be feasible to continueprocessing records in the future.

Managers indicated there are too many DRPCs,but information on if, when, or how, the number canbe narrowed was not ascertained. Given market andsystem conditions, the number will likely be reducedeither by attrition or consolidation. Those with univer-sity affiliation may have neither the opportunity northe incentive to pursue a structural-change direction(the two DRPCs that closed in 1995/1996 were associ-ated with universities). Thus, reduction most likelywill occur from closings.

Strategic Planning Summaryand Implications

Strategic planning permits DHI system partici-pants to systematically evaluate their future. Goalsmust be defined and refined; the associated local mar-ket and industry continually assessed; strategies mustbe developed, implemented and defended; and in lightof an organization’s ability to achieve its specifiedgoals, strategic direction must be explored and deter-mined.

The needs of the DHI system and the examinationof industry trends suggest many possible goals. Froman outside vantage point, 11 core and performancegoals were provided for evaluating different strategicdirections as part of a strategic planning process. Thesegoals can be modified and reworded and if other goalscan be defined, DHI leaders should identify and evalu-ate them.

The DHI managers contacted provided a soundassessment of their industry and espoused ideas onstrategies and strategic direction that DHIA leadersneed to independently, and in some cases, collectively,further discuss and define. In sum, strategies andstrategic direction ideas indicated that DHIAs shouldfocus on these areas:l Education and promotion of DHI benefits.l Aggressive solicitation of business.l Progressive programs and services.

l Flexibility for meeting the needs of individual dairyproducers.

l Efficiency.l Further coordination between DHIAs, DRPCs, regu-

lations, etc.l Continued development of technological (on-farm

and program related) capabilities.l Improved marketing, training, and promotion of

DHI.l Consolidation within and/or outside the system.l Seeking non-traditional ways to make system better.

The service provision role of DHI organizations isbecoming increasingly difficult. With a shrinking baserelated to traditional sources of revenue (i.e., per cowdues/fees), DHI organizations are being forced intodeveloping and providing other dairy-related servicesand products. They are feeling greater pressure to beboth more efficient and cheaper while providinggreater technical support and innovative programs.Flexibility, ingenuity, and extensive resources are fastbecoming imperative ingredients for working in thatdirection. Additionally, on-farm electronic meteringsystems and dairy management programs are gainingin popularity, although primarily by producers pro-gressive and/or large enough to afford them. Theseare increasing the pressure on DHI because this equip-ment challenges the traditional methods of DHI testing(i.e., technician surveillance and the “official” label ofrecords).

The technological arena will continue to changeand grow and become highly competitive. To effective-ly compete, DHIAs will need a broad and solid mem-ber-cow base, operational efficiencies, the ability todevelop and implement advanced technologies, andconsiderable resources. The prospect that DHIAs willcontinue to have a strong role in providing services isbased on the fact that most of the managers contactedidentified numerous strengths and few weaknesses.They are optimistic about the future and feel theirdirector leaders are progressive.

While many structural changes have occurred toDHI system participants over the years, this studydefines their current strategic direction. DHIAs areworking under existing conditions while continuouslymodifying and improving their operations in line withnew developments and member demands. It is fromthis direction that strategic planning for the futureneeds to continue. DHIAs need to build on theirstrengths (managers identified many) and improve ontheir weaknesses. DHIAs will either proceed with thestatus quo (with modifications and improvements) orexplore and determine other directions. Two strategic

25

directions likely to receive further exploration instrategic planning are consolidations and joint ven-tures within or outside the DHI system. How thosedirections are defined and whether they are furtherexplored will depend on the circumstances surround-ing each DHIA and its market position.

Leaders of one or more DHIAs in low-cow-popula-tion regions need to carefully analyze the current con-ditions of their respective market and thoroughlyassess their organization’s ability to achieve goalsrelated to available strategies and directions.

In a mature market, continuing with the status quowill require competitive advantage: the ability todefend leadership strategies and the resources todevelop niche strategies. Those who can do that maynot need to examine other directions for some time.Conversely, those that are competitively disadvan-taged-finding it increasingly difficult to defend lead-ership strategies and develop niches in their market-place-will be forced to examine structural-changedirections. It is important to note that those DHIAsthat have been structurally changed in recent yearshave found their new structure well accepted by mem-bers and enhancing operational efficiency and finan-cial performance.

Structural change within the DHI system willoccur, but what type of change is necessary and willdevelop remains to be seen. Several directions ofchange are likely-more streamlining in the form offewer DHIAs, fewer DRPCs, fewer milk labs, morestreamlined regulations, more direct informationflows, and more outside working relationships. MostDRPCs will struggle to maintain the number of recordsthey process. Closings are likely to happen. ForDHIAs, coming changes are likely to result from theirindividual initiatives. Some will be forced to restruc-ture. This will consist of consolidations between exist-ing DHIAs or outside relationships will be initiatedwith AI firms, holding cooperatives, dairy coopera-tives, or financial management service firms.

While it may have been somewhat difficult toimagine the DHI system with such a varying array ofpotential participants in the past, such possibilities aregaining acceptance. Many leaders have suggested thatthey can foresee joining forces with outside service-ori-ented firms to provide the types of specialized servicesdairy producers are demanding.

The surviving DHI organizations will employstrategies and position themselves in the market to beflexible enough to deliver the varying programs and

services producers demand, efficient enough to beaffordable, and resource-strong enough to be progres-sive.

This report voices some opinions, thoughts, andexpectations of DHI leaders. These can provide focusand stimulation for further discussions by DHI man-agers, directors, and members. A continuing dialoguerequires progressive steps for planning and action.Sound strategic planning by DHI organizations willhelp determine the correct avenue for future success.System leaders and members need to be progressive,open minded, and involved. They must collectivelybrainstorm and listen to each other and the market-place. Alternative strategies and directions must beexplored in light of industry conditions and with akeen eye on crucial organizational and systemwidegoals. Leadership must work and plan to properlyposition their organizations to continue their impor-tant contribution to the U.S. dairy industry.

References

Gray, Thomas W. and Gillian Butler, MembershipStructural Design: A Pilot Test On DHICooperatives, CS RR 131, USDA,RBS-Cooperative Services, Washington, D.C.,November, 1994.

House, Charles. “Congress Can’t Stop Trend TowardLarge Dairy Farms, Economist Says,” Feedstuffs,Volume 68, Number 11, March 11,1996, p.10.

Ring, Gerald J., The National Cooperative Dairy HerdImprovement Program, Dairy Herd ImprovementLetter, ARS, ARS-NE-29, USDA, Washington,DC., Vol. 49, No. 4., July-August-September 1973.

National DHIA, “DHIA Communicator,” November-December, 1994.

Porter, Michael E. Competitive Strategy, The FreePress, a division of Macmillan, Inc., New York,NY, 1980.

USDA, ES, ARS, et al. National Cooperative DairyHerd Improvement Program Handbook, FactSheets A through M of various years: 1985-1994.

Wiggins, G.R. “National Genetic ImprovementPrograms for Dairy Cattle,” Journal of AnimalScience, No. 69,199l.

26

AppendlxTabloI~ilk cows and heifers that have calved, United States 1985, 1990, 1995

1985Numbers

As of January 1,

1990Numbers

1995Numbers

10 year-change 5year change1985-95 1990-95Percent Percent

Relativeweight

Alabama 49,000 40,000 36,000 -26.53 -10.00Alaska 1,300 1,400 7 0 0 -46.15 -50.00Arizona 83,000 91,000 116,000 39.76 27.47Arkansas 79,000 69,000 61,000 -22.78 -11.59California 974,000 1 ,115,ooo 1,250,OOO 28.34 12.11Colorado 75,000 76,000 83,000 10.67 9.21Connecticut 48,000 34,000 32,000 -33.33 -5.88Delaware 10,000 9,000 10,000 0.00 11.11Florida 164,000 182,000 170,000 3.66 6 . 5 9Georgia 118,000 109,000 102,000 -13.56 -6.42Hawaii 12,000 11,000 11,000 -8.33 0.00Idaho 165,000 170,000 222,000 -33.33 -29.41Illinois 216,000 195,000 165,000 -23.61 -15.38Indiana 197,000 160,000 145,000 -26.40 -9.38Iowa 345,000 308,000 265,000 -23.19 -13.96Kansas 108,000 98,000 81,000 -25.00 -17.35Kentucky 232,000 210,000 165,000 -28.88 -21.43Louisiana 95,000 85,000 79,000 -16.84 -7.06Maine 56,000 43,000 39,000 -30.36 -9.30Maryland 121,000 106,000 91,000 -24.79 -14.15Massachusetts 47,000 31,000 28,000 -40.43 -9.68Michigan 390,000 344,000 333,000 -14.62 -3.20Minnesota 890,000 715,000 600,000 -32.58 -16.08Mississippi 84,000 63,000 57,000 -32.14 -9.52Missouri 225,000 226,000 195,000 -13.33 -13.72Montana 27,000 24,000 21,000 -22.22 -12.50

Nebraska 102,000 105,000 75,000 -26.47 -28.57Nevada 18,000 20,000 23,000 27.78 15.00New Hampshire 29,000 19,000 19,000 -34.48 0.00New Jersey 39,000 26,000 23,000 -41.03 -11.54New Mexico 65.000 71,000 170,000 161.54 139.44New York 942,000 790,000 710,000 -24.63 -10.13North Carolina 127,000 101,000 89,000 -29.92 -11.88North Dakota 97,000 88,000 65,000 -32.99 -26.14Ohio 380,000 354,000 293,000 -22.89 -17.23Oklahoma 107,000 100,000 98,000 -8.41 -2.00Oregon 96,000 98,000 100,000 4.17 2.04Pennsylvania 735,000 694,00 639,000 -13.06 -7.93Rhode Island 3,600 2,200 2,100 -41.67 -4.55South Carolina 47.000 36,000 28,000 -40.43 -22.22South Dakota 161,000 140,000 120,000 -25.47 -14.29Tennessee 210,000 195,000 160,000 -23.81 -17.95Texas 314,000 390,000 400,000 27.39 2.56Utah 80,000 80,000 85,000 6.25 6.25Vermont 186,000 167,000 157,000 -15.59 -5.99Virginia 162,000 141,000 129,000 -20.37 -8.51Washington 211,000 225,000 263,000 24.64 16.89West Virginia 33,000 25,000 22,000 -33.33 -12.00Wisconsin 1,837,OOO 1,760,OOO 1,500,000 -18.35 -14.77Wyoming 12,000 10,000 6.000 -50.00 -40.00T O T A L 10,804,900 10,152,600 9.531,800 -11.78 -6.11A V E R A G E 216,098 203,052 190,636 -12.81 -4.95

0.380.011.220.64

13.110.870.340.101.781.070.122.311.731.522.780.851.730.830.410.950.293.496.290.602.050.220.790.240.200.241.787.450.930.683.071.031.056.700.020.291.261.684.200.891.651.352.760.23

15.740.06

Source: National Agricultural Statistics Service, USDA.Relative weight = percent of total.

2 7

Appendix Table ^OW COW l’lUItlbe?‘S changed from1990-l 995 by State’

ArizonaCaliforniaColoradoDelawareIdahoNevadaNew MexicoOregonTexasUtahWashington

ased-HawaiiMichiganNew HampshireOklahomaRhode Island

AlabamaAlaskaArkansasConnecticutFloridaGeorgiaIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMinnesotaMississippiMissouriMontanaNebraskaNew JerseyNew YorkNorth CarolinaNorth IdakotaOhioPennsylvaniaSouth CarolinaSouth DakotaTennesseeVermontVirginiaWest VirginiaWisconsinWyoming

A-IX TW s-Top cow number States

State 1995 COWS

(1) Wisconsin 1,500,000(2) California 1,250,OOO(3) New York 710,000(4) Pennsylvania 639,000(5) Minnesota 600,000(6) Texas 400,000(7) Michigan 333,000(6) Ohio 293,000(9) Iowa 265,000(10) Washington 263,000

1 Milk cows and heifers that have calved, 1995.Source: NASS, USDA.

1 The decreased slower and decreased faster columns reflect Stateswhere cow numbers decreased slower and faster than the averagedecrease (4.95 percent), respectively.

28

Ap~ndixTsble*--Number of cow records handled by each DRPC by State, 1994

StateAgri-Tech Mid-States Michigan Minnesota Cornell DRPC@ Penn DHI AgSourceAnalytii DRPC DHIA DRPC Dairy Rec. Raleigh DHIA Provo CO-OP Totals

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiId&hoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaPuerto RicoRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

2,26514,387

492,373619

7,70574,300

124,047166 41,355

1,875

34,5991,458

8,479

13,017

22,78745.194

37,526

3,183

20,401

18,955

20618,9925.699

19,468

12,525156,157

331,239

84,72665.743

21129,084

279,68130.178

45,14934

59,124

37,42229,595

138205

48,595

185290

21,80161,428

8,662

7,87911,677 82011,983

1,945366,573

60,368

58,72338,782

79022,263

9,814

52,706138,769

59,81780,654

23,904

127,041

12,005276,250 166

2,692

43,146

95,920

920375 716,924

1,763

20,401211

50,30414,387

772,05431,00318,9925,699

84,72665,743

052,85474,33459,124

124,04741,52137,42229,59519,45848,73312,730

156,342331,529

21,80163,303

8,66234,599

9,33712,49711,98334,328

366,57360,36813,017

127,04122,78757,199

335,13938,782

79022,26337,52652,706

141,46143,14659,81780,65499,10310,734

717,2991,763

Total 561,442 363,893 156,157 331,239 457,717 914.385 276,250 757,880 716,924 4,535,887Source: NCDHIP Handbook.

29

Appendix Table Change in numbers of cow records handled by each DRPC by State, 1989 to 1994

StateAgri-Tech Mid-States Michigan Minnesota Cornell DRPC @ Penn DHI AgSourceAnalytics DRPC DHIA DRPC Dairy Rec. Raleigh DHIA Provo Coop Totals

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaPuerto RicoRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

1881,095

142,180619

5,247(8,721)

(W(276)

18,955 (18,251)

208(2,436)

18715,30110,103

(10.910)1,348

(9,108)3,322

34(4,357)

(10,059)166 (6,675)

(4,717)351

(2,640)

(2,833)1,561

(7,888)

(59,040)

(2,990)(553)

7,662 1,945 954

511

14(11,722)

(1,197)(2,818)

W235)

138 (4,729)205

185290

1,06961,428

(596)

(410)820

(9,183)

(12,823)

10,18858,723 (74,296) 166(3,719)

(22)(4,324)

(1,118)

3,183(1,057)

(6,991)18,375 (2,194)

4,688(5,551)(7,354)

(1,787)920

MY(276)890

1.095131,270

2.173(2.436)

18715,30110,103(9,108)8,569

(8,687)(4,357)

(10,059)(6,509)(4,717)

351(2,640)(4,591)(2,628)1,746

(7,598)1,0692,388

(596)(2,990)

(963)(377)

(2,818)10,561

(23,235)(9,183)

511(12,823)

14(1,534)

(15,407)(3,719)

(22)(4,324)(1,118)(6,991)16,1814,688

(5,551)(7,354)1,396(137)

375 (91,389) (91,014)970 970

Total 146,968 (86,983) 1,561 (7,888) (35,845) 141 ,111 .(74,296) (37,644) (91,389) (44,405)Source: NCDHIP Handbook.

30

Appendix Table s--Number of herds handled by DRPC, 1989 and 1994

DRPC 1989 Percent 1994 Percent Percent Change

Agri Tech AnalyticsMid-States DRPCMichigan DRPCMinnesota DRPCCornell Dairy RecordsDRPC @ RaleighPennsylvania DHIADHI ComputingServiceAgSource Coop. Serv

Total

7,2481,9546,5696,4966,6346,145

5,30715,45156,800

1.75 973 1.98 -2.3112.76 5,528 11.22 -23.733.44 1,794 3.64 -8.19

11.57 6,021 12.23 -8.3411.44 5,433 11.03 -16.3611.68 7,562 15.35 13.9910.82 4,584 9.31 -25.40

9.3427.20

4 ,69012,69549,250

9.5225.78

-11.63-17.84-13.29

Source: NCDHIP Handbook.

Appendix Table T-Gross farm income from dairy products, cash receipts’

Actual (nominal)$ Billion

Real (adjusted CPl)*$ Billion

1984 18.0 18.01985 18.1 17.21986 17.8 16.31987 17.8 15.71988 17.7 15.01989 19.5 15.61990 20.3 15.31991 18.2 13.31992 19.9 14.4

1 Cash receipts from marketings of milk and cream plus value of milk used for home consumption and producer-churned butter.2 Figures are adjusted by the CPI (Consumers’ Price Index), 1994=100.Source: NASS, USDA.

31

Appendix Figure I- U.S. Dairy Cow Enrollment inNCDHIP Plans

Number (l,OOO,OOO)

I27

2

0' I I I I I I

1989 90 91 92 93 94

H Cows Cows Enrolled

32

Appendix Figure 2- Industry Life Cycle for Cooperatives

Phases Introduction Growth Maturity

(As the industry goes through its lifecycle,the nature of the competition willshift.)

Choice among brands, competitorsLess product/firm differentiationStrong competitionBroadening linesService and deals more prevalentFewer customers for cash cowsPrice competitionLower margins and profits

Decline

Time

Penetrate and Grow Protect and Defend Opportunities Divest

& Efforts to Extend Life Cycle I

33

U.S. Department of AgricultureRural Business-Cooperative Service

Stop 3250Washington, D.C. 20250-3250

Rural Business/Cooperative Service (RBS) provides research, management, and

educational assistance to cooperatives to strengthen the economic position of farmers and

other rural residents. It works directly with cooperative leaders and Federal and State

agencies to improve organization, leadership, and operation of cooperatives and to give

guidance to further development.

LThe cooperative segment of RBS (1) helps farmers and other rural residents develop

cooperatives to obtain supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing existing resources through

cooperative action to enhance rural living; (3) helps cooperatives improve services and

operating efficiency; (4) informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their communities; and (5) encourages

international cooperative programs. RBS also publishes research and educational

materials and issues Farmer Cooperafives magazine.

The United States Department of Agriculture (USDA) prohibits discrimination in its

programs on the basis of race, color, national origin, sex, religion, age, disability, political

beliefs and marital or familial status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program

information (Braille, large print, audiotape, etc.) should contact the USDA Office of

Communications at (202) 720-2791.

To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture,

Washington, DC. 20250, or call (202) 720-7327 (voice) or (202) 720-l 127 (TDD). USDA is

an equal employment opportunity employer.