Perdue Farm

Perdue Farms was founded by Arthur Perdue in 1920, when he purchased five dollars worth of laying hens and originally went into business selling eggs. Perdue Farms remains a family owned business, however has expanded to 20,000 employees and a multi-billion dollar international venture. The company remained extremely small because of Arthur’s unwillingness to finance any business expenses. He was unable to feel successful owing money, so Perdue’s expansion did not happen until much later. Perdue Farms grew exponentially after The Great Depression, which lead to a high demand of eggs. During the 1940’s, they began to expand their product base and began selling chicken. By 1952, they were putting out over 2.6 million birds each year.
Frank Perdue, Arthur’s son, was named president of the company and was determined to expand despite his father’s ultra-conservative business mentality. Under Frank’s direction, Perdue Farm’s expanded to the largest grain storage and poultry feed milling operation on the East Coast. The company had over 600 farmers breeding chickens. In 1968, Perdue Farm’s meat was offered at meat counters for the first time. They had faced a large amount of competition during economic hard times because many people were cutting out the middleman and going straight to the source of the chickens to purchase their meat. From 1950 until 1991, Frank Perdue was the President of Perdue Farms and was the sole reason for their increased growth and successes.
He used a centralized management style that allowed him to keep control of the company’s decision making processes. He hired executives that had been with the company for most of their careers and have worked their way up from the bottom. They were able to keep complete control of their vision and mission statement during the crucial start-up years of his company. “Centralized management keeps all major decisions with one specific executive group, while decentralized management allows company employees to have more say in the decision-making process.” (chron.com) This type of management structure is especially effective in an organization that manufactures similar products. Perdue Farms, as they began to expand, had several different products with multiple divisions that needed a change in management style in order to be most effective. Centralized management is often times less time consuming and can be very efficient, however, with a company as large as Perdue, Frank realized the benefits of reaching out to his employees. Frank also realized that he was missing out on extremely high levels of creativity and problem solving skills that would help his company be more effective and
successful. There was an increase in employee involvement in the later years of Frank’s management. He reached out to current employees for many of his operational decisions, as well as his quality issues. The employees are a valuable resource in this respect because of their daily involvement with the products. Management executives rarely get hands-on time with the products they are manufacturing so it is extremely beneficial to reach out to the employees. This change in management style reflected a shift to a decentralized management structure. “Decentralized organizations are becoming more popular as the ability for organizations to decentralize increases. Decentralization allows organizations to take advantage of division of labor by sharing decision-making across the organization. It also empowers employees and allows them to improve their performance by being able to act to improve deficient or inefficient areas immediately without approval from the top of the organization. Another advantage of decentralization is allowing for the managers of business areas to actually use their first hand knowledge and experience to improve their areas.”

Earlier, chicken was sold directly to a butcher shop, who would sell a mixture of different farm’s chicken with no designation as to which kind of chicken the customer was purchasing. Under Frank’s guidance, Perdue sought to become a brand that was recognized by their ultimate quality, with hope to be the brand customer’s asked for by name. This was a driving factor in the structure and design change of Perdue’s business plan. Their entire business model surrounds their quality policy: “We shall produce products and provide services at all times which meet or exceed the expectations of our customers. We shall not be content to be of equal quality to our competitors. Our commitment is to be increasingly superior. Contribution to quality is a responsibility shared by everyone in the Perdue organization.” They continue to provide a product that is free of chemicals and sterorids. All of their young chickens are are vaccinated against disease to ensure the safety of their customers. Perdue started research and development efforts to produce the most quality product than anyone of their competitors. During the 1970s, Perdue bred a chicken with more white meat than the average bird using a process called selective breeding. They began heavy marketing efforts and expanded their business to the North Eastern region of the United States. Their marketing efforts allowed Perdue to become the first commodity product to be represented by a specific brand name. With the industry average growth at a staggering 1%, Perdue’s updated efforts boosted sales to a record breaking 17% growth in 1977. Frank continued his dream of national expansion, until his son Jim took over as chairman of the board in 1989. With more education, having attended college focusing in agriculture and working lower management positions within Perdue, Jim brought Perdue Farms to an entirely new level. He focused on the strategic planning aspect of the company before heading the western expansion and international markets. Under Jim’s management, Perdue became an astonishing $180 million dollar a year company. The use of technology greatly expanded Perdue’s ability to provide the highest quality product to their customers. All of their delivery trucks were given two-way communication, GPS, and real-time tracking to customers to provide them with a greater experience from Perdue Farm’s. Jim at Purdue is now leading a company with over 20,000 employees and bringing in over $2.5 billion dollars each year in revenue. Perdue’s change in management style, allowing them to brainstorm with employees for best practices, and their on-going focus on product quality has made them a leader in their industry. Their commitment to their employees has raised moral and ultimately increased production and quality standards. With many of their employees of hispanic origin or low educational background, Perdue has dedicated much of their time to help their employees obtain a GED equivalent, as well as providing them with English classes. Transforming to a decentralized management style has greatly contributed to the success of Perdue Farms. Perdue faced many issues with worker’s compensation claims. Many of their workers were in danger of repetitive stress injuries. Perdue Farms worked with the local authorities to began testing the activities their workers were completing on a daily basis. This research allowed the company to lower their claims by over 44%. This change in design was of significant cost to Perdue during the research and development efforts, however yielded positive results as they were keeping their employees safe and healthy. In manufacturing, Perdue uses an extremely vertical integration where they are able to control every aspect of their manufacturing process.
“It breeds and hatches its own eggs (19 hatcheries), selects its contract growers, builds Perdue-engineered chicken houses, formulates and manufactures its own feed (12 poultry feed mills, 1 specialty feed mill, 2 ingredient-blending operations), oversees the care and feeding of the chicks, operates its own processing plants, distributes via its own trucking fleet, and markets the products.” (ORG THEORY BOOK) Their company design had shifted from being the “middleman” to having total process control where they are able to be more successful in reaching to their targeted customers who are only looking for the freshest poultry available. In order to keep their product at the top of the market, Perdue Farms regularly compares their product with their
competitors. Many environmental changes affected the way Perdue Farm’s does business. To grow, slaughter, and process poultry, it is extremely expensive and a very tedious process. “In 1993, the company created an Environmental Steering Committee. Its mission is ‘....to provide all Perdue Farms work sites with vision, direction, and leadership so that they can be good corporate citizens from an environmental perspective today and in the future.” In order to combat the problem of disposing birds, Perdue Farms developed a composter for turning their unused chicken into a material similar to soil that they are able to reuse. In their hatchery division, disposing of eggs created a difficulty because they were being transported to a landfill. However, Purdue began selling the liquid components of the eggs to pet-food companies who are able to use the liquid from the eggs to provide their pet food with protein. As customer’s needs shifted to ease and convenience, Perdue struggled with keeping their Marketing image of “fresh young chicken” as they dove into the frozen food market. They soon realized that most of their customers were freezing their chicken as soon as they got home from the butcher to preserve it’s freshness. This allowed Perdue to start producing frozen chicken products and keep their reputation of only serving the freshest products on the market. Consumers are strongly relating “freshness” with quality -- and Perdue Farms was based on quality. Perdue has designed their company to be successful in the future by placing strong efforts on the customer service side of their business. Currently, high quality is expected and is not enough to set Perdue apart from their competitors. They are having to explore other options in order to keep them at the top of their market. This could potentially mean an additional switch in their organizational structure to continue to be as innovative as possible.

QUESTION #2

Porter’s Competitive Forces and Strategies: Based on five main forces that managers can develop and analyze strategies of the organization. The five forces are as follows (New entrance, Power of Suppliers, Power of Buyers, Substitutes and Rivalry). These Five criteria than formulate an understanding of three subgroups that can define a company (Differentiation, Low-cost and Focus). We will use this model and take a deep look into the Perdue Farms organization to see how the organization is implementing its recourses.
Threat of New Entrants The Poultry market at one time had very little barriers to entrance. Startup cost was minimal. A farmer with some land could purchase a small flock of birds and begin raising them for the local markets in the area. Today, the industry is much different. In today’s market a grower is no longer selling to the local merchant rather to a large chain of stores covering a vast geographical region. With the size of demand and structure of the food market, a vendor needs to be equal in size and ability to satisfy the needs of the customer. Purdue originates back to small buyer- seller relationships and has developed with the times into one of the main players. In today’s market a new entry would face many barriers that would threaten its success. The market consists of general commodity products. Where profit margins are small and companies make their gains on volume and the ability to sell bye products of the animals. A new company would require a great amount of capital to sustain the initial losses at startup due to an onslaught of price wars that would ensue.

Regulation would also play a big role for a new entrance into the market. In the 1920’s there was less regulation than today. Today a new company would face stringent regulatory requirements. Through onsets of the avian flu, salmonella and a greater awareness of effects on the environment this industry has come under great scrutiny. New organizations would not have a long standing reputation in the market place required by vendors in today’s market. Today a buyer requires extensive assurance that products sold are not only safe for consumption but that the animal was raised and even killed in an accepted manor.

The majority of new operations would have to enter the market as a contracted farm by a company like Purdue. Lacking in market strength and vertical structure, a new entity would have to create an alliance with an existing much larger entity. Utilizing the full supply chain cycle and existing customer base, along with the reputation and financial stability of that organization.
Power of Suppliers Suppliers play a significant role in the profitability of the poultry industry. Feed if outsources comes from one or two local feed mills that control the pricing of the local area. By Purdue choosing to develop their own milling system cut out costs associated with the middle men. By operating their own mill Purdue could directly deal with the growers of the soy, corn and other needed nutrients needed to develop it’s sought after formula. This would also offer a more structured cost basis and the ability to generate revenue of selling to local contracted farms in the area. This also allowed the organization to moderate the quality of feed used to raise their broilers. Do to the nature of the business labor force is hard to come by. Long working days in unpleasant environmental conditions deters most prospective employees. The immigrant labor force associated with Purdue’s operation is not uncommon in this industry. Most of the aggregate commodities labor force comes from Mexico. This association is due to cheap willing labor. By hiring the personnel that have been rejected from the social norm the company can reap substantial cost savings. While at the same time offers opportunity to a people who otherwise would not have one.

Power of Buyers In the beginning Purdue would take their broilers to a local processing facility to be sold. Perdue’s organization had only one buyer who would offer a set price per pound. With little option for the grower a buyer had the ability to control the local market. By Frank processing his own chickens, he cut out the middle man and could directly interact with a wider band of customer. Making for a much healthier bottom line and changing the industry forever. Today many of the larger organizations process and sell their own products on the open market.
Frank Purdue through quality, customer service and the development of a processing network was able to develop his generic product into a successful branded name. The general market, inundated with competition of a general commodity has fixed pricing structures that yield low profit margins in this industry. With Purdue having the ability to control cost and quality from everything that influenced their business the company was able to have a continuous growth of 17% where the average rate was only 1%.

Threat of Substitutes A threat of substitute is high. Not only are there multiple suppliers of chicken in the market. There are different types of meat in the market and today due to health concern tofu and soy products need to be considered substitutes as well. Today’s domestic market allows the customer more choice than ever before. The 21st century is led by health and environmental concerns. Chicken for the most part has prospered in this time. Considered healthier than beef or pork, the domestic consumer chooses it 60% more of the time than any other meat. Purdue in its strategic success has developed a good name for itself. Depicted as a conscience market lead, the policy of the Purdue family to meet or exceed government regulation separates them from competition. A grocery store or even consumer chooses Purdue over the competition not because it is the cheapest but because of the company’s long standing reputation of superior quality.
Rivalry Amongst Existing Competitors Competition among rivals in the poultry industry is intense. To the point it drove the Purdue Family to incorporate a complete supply chain and out of the egg business as the main source of income. Due to high costs and low earnings convinced Frank Purdue to create his own processing plant so that he would be able to turn a profit. Competition also drove innovation to use all that was produced by raising a flock. The manure is sold to farmers, feathers and fat to pet food companies. Today in 2010, bio engineers have even developed ways to use manure as an alternative energy source. In this highly competitive and generic product the Purdue family has found a niche in the market. The reputation of quality started at the very beginning of the company with Mr. Arthur and has continued with his legacy. This idea has served them quite well in today’s market. With an ever growing government influence through regulation, Perdue’s policies of implementing practices that stay ahead of the curve made them an exemplary model in comparison to the competition. This may have raised the cost of doing business but, due to a competent marketing scheme the customer is well aware of why and is willing to pay for this service.
The Differentiation Strategy of Purdue “The number one brand of the eastern U.S. Perdue is also a leading food and agricultural company recognized globally for quality, service and reliability”. Stated by Jim on the home page of Perdue’s web site The Purdue organization defines Porter’s definition of a “Differentiation Strategy”. Through leadership, the Perdue organization successfully implemented a strategy that distinguished itself from the competition. In focusing its strength on quality standards and not on price, Frank is credited with “being the first to brand what had been a commodity product”. Frank went on to expand operations geographically and vertically. Growing annually by 17% and encompassing a full supply chain lineage. This would not only help the bottom line but at the same time ensure the highest quality for the consumer. In 1991 Jim Purdue took over operations. Before taking over Purdue spent 15 years studying and earning multiple degrees to hone in on the needed educational background to lead a company into the 21st century. With an undergraduate degree in biology a masters in marine biology and an EMBA from Salisbury equipped himself with the knowledge to lead an international company. Jim’s strong background in science and innovation has further distinguished the Purdue line and made it an elite brand name in the market place.
Purdue strives to excel in innovation both with respect to the sciences and in its operation. The constant work to develop better feed and faster growth in its broilers is testimony to its strength as a market lead. Further the company does countless things on the inside. By contracting physicians and creating small groups to help with the ergonomics of the jobs to ensure a healthy and dedicated work force. Creating classes for their employees to learn English and better understand organizational goals. Perdue is the elite that other companies try to emulate but cannot achieve. The company’s lineage is comprised of leaders with the ability to change the market and mold the company into a brand associated with quality and service to the consumer. Perdue’s organizational history closely resembles Stephen R. Covey’s “7 Habits of Highly Effective People”. In that the basic 7 habits (Proactive, Begin with the end in mind, Put first things first, Think Win/Win, seek first to understand than to be understood, synergize and sharpen the saw) moves and individual or organization through 3 phases of transition.
Dependence: “paradigm under which we are born, relying upon others to take care of us”. In the beginning Mr. Arthur was dependent on other institutions to supply feed and processing of the flock. Through transition the company formulated a feed supply line by growing and mixing their own. Then further implementing a processing plant to eliminate the dependency of the middle man.
Independence:” paradigm under which we can make our own decisions and take care of ourselves”. By freeing the organization of its suppliers and the processing middle men, the Perdue organization was able to make direct decisions that would help them grow. This also freed the organization to make important decisions as far as quality and marketing.
Interdependence: “paradigm under which we cooperate to achieve something that cannot be achieved independently”. Today under Jim Perdue the organization is becoming more decentralized and has further developed as a learning organization. Between their teams that concentrate on the ergonomics of the job and classes that are taught to employees strengthens the organization and brings about a varied array of involvement. Perdue also works with other organizations and collaborates with buyers to feed thoughts of future services that may be needed in the market. All three leaders of Perdue show the 7 traits needed to become successful. Although they may have experiences of developing the organization at different points of its life cycle, all had the abilities of the seven traits. At the start Arthur was able to employ a proactive thought process that began to develop the business as its own entity. By putting “first things first” was able to lay the ground work for Frank to successfully implement Perdue as a marketed brand known for quality and services. Further Frank sought to incorporate the processing of the broilers into the business where by improving the bottom line and assurance of quality to the customers. At the end Frank started to synergize the organization by developing groups to better incorporate safety into the organization and make improvements. By the time Jim took over in 1991, the organization was fully developed. Through ideals instilled by his predecessors, Jim had already sought to “understand before being understood” working in the environment for a good portion of his life under his father and furthering his structured educational background. Not all company’s in industry follow this same model some feel that the quality standards and regulations in place are set as a burden, only following the rules when others may be watching. It is refreshing to see an organization that has worked hard to improve on quality and services. Their constant effort toward organization, employee and environment show why Perdue is a market lead that others try to follow. They have differentiated themselves through a long history of quality and service in the market place. Perdue is developing an intricate system that starts with the planting season and ends with a direct store distribution based on quality of product and berth of services.