Chr. Hansen
Intel of Ingredients
Last week I met with Lars Frederiksen, President and CEO of Chr. Hansen, to discuss his company’s strategic differentiation.
When I think back to the first time I came across Chr. Hansen in my research of industry leaders, I had a hard time getting excited about the company. I felt it would be a good case, a useful example in my courses and consulting, but I needed to know more.
I should, however, say that we didn’t have time to talk a lot about the future, nor did I do much further research, so my opinion expressed here is speculative at best.
What makes Chr. Hansen different?
From an outside perspective, it looks like all the pieces are in place to make it a great company: strong competence linked to over a century of focused organic growth, clear values and management principles, impressive customer cases, the list goes on and on. The company’s exclusive focus on natural ingredients is also admirable, its technology is clean and its products contribute directly to improving nutrition and health. However, you could say similar things about many of their competitors.
So, what makes Chr. Hansen different? They have built a platform from which new functional foods, beverages and health products will emerge at an increasing rate. But, a platform in itself is not a differentiator.
What makes Chr. Hansen different is the trust built on their platform. Trust built by focusing on “working partnerships” with customers.
Like many good positioning strategies, this sounds generic at first but I believe their brand of partnerships is unique. I also believe Chr. Hansen has the potential to build on its partnerships in new ways, leveraging the past while building strategic differentiation for the future. Below is one of many ideas for how they could do it.
A humble leader
Since it is privately held, Chr. Hansen’s performance is not so transparent. However, it is safe to say that they are a leader within microbial cultures for food products. Last year’s sales were in the range of EUR 500m. In its historically core dairy products business (cultures for yoghurts and cheeses), its global market share is in the range of 30 - 40 % putting it in the top three without a doubt. Yet, unlike many of its competitors, Chr. Hansen hasn’t put a lot of effort into telling the world about itself. From a corporate branding perspective, it doesn’t act like many industry leaders do.
Before the interview I spent a little more time exploring the company on the net. Their presence is professional, but there doesn’t appear to be any story they are dying to tell. There is a lot of information, but there is no corporate tagline or high-level statement of ambition or purpose. There’s no corporate brochure and the corporate film, although informative, doesn’t get your blood flowing.
On the contrary, the Vision is much more about “how” they do things than “what” they are trying to do. “Ambition” is a corporate value, and after meeting Lars I have no doubt that he and his team have high ambition, but they don’t express it in an outward way. They remind me of some of the Finnish companies I’ve worked closely with. Like UPM-Kymmene, F-Secure and Nokia, Chr. Hansen is humble.
Chr. Hansen is also a stark contrast to ALK-Abelló, a company with a singular focus, championing the cause of “Curing Allergy.” Chr. Hansen and ALK-Abelló were in fact under common ownership until July 2005. Lars admits that the clarity of ALK-Abelló’s focus was motivating, but confidently explains that Chr. Hansen’s role in the world is no less ambitious. It is, at least for now, much broader though.
If you spend enough time looking around chr-hansen.com and their probiotics site you get a strong sense that their focus truly is on building partnerships with customers. And, everyone would agree, shouting about it doesn’t build partnerships. Chr. Hansen is a humble leader, building partnerships with customers and thus building a solid business.
The platform strategy
There is plenty of evidence that Chr. Hansen enables customers to increase their efficiency and improve their products. However, what was most interesting was how clearly Lars described how Chr. Hansen is able to do what they do.
Lars describes Chr. Hansen as a “platform on which customers can rely.” Like many companies with platform strategies, the story begins with focused core competences, proven technology, financial stability and talented people who share a culture of collaboration.
A platform strategy delivers sustainable, profitable growth if customers trust it enough to build their businesses on top of it. Customer roadmaps become aligned with platform roadmaps and switching costs increase year by year.
Lars explained how their platform is evolving to add more and more value to their customers’ businesses. It is a strong story. But, I can’t help wondering if Chr. Hansen is limiting itself by relying too heavily on its customers for future success.
The platform strategy - phase 2?
I’m not suggesting that they move forward in their value chain, or threaten customers in any way. Rather, I wonder if they could be better partners, and a more differentiated company, by actively trying to accelerate the behavioral change on which their customers’ growth depends.
For example, if consumers understood the benefits of “probiotics” (definition) the term used to refer to a category of products with good bacteria in them, demand would grow faster. If consumers knew that they should try to eat or drink probiotics with some frequency, demand would become predictable. And, more importantly, health benefits would be gained faster. However, today the task is left to the fragmented efforts of food and beverage companies who are trying to differentiate their offerings from each other.
The other side of this challenge is equally threatening. Chr. Hansen doesn’t want a generic category of probiotics to take hold either. Differentiation is essential for everyone in their ecosystem. All microbial cultures are not created equal.
Intel accelerated behavioral change
There’s nothing new about comparing producers of ingredients and components to Intel. I’m sure people at Chr. Hansen and their competitors have discussed the comparison at different points in their development. There are many examples of branded ingredients, successful and not. And, for European suppliers to the food industry, Swedish TetraPak is a common platform reference. Nonetheless, I can’t get the Intel comparison out of my head.
Maybe not so coincidently both emerge from something “micro,” a place inherently unknown to most people. Let’s take a step back and look more seriously at the similarities.
Twenty-five years ago Intel had strong core competence in microprocessors, but by many accounts, they did not have a significant technical advantage. The engineers realized that with enough R&D investment, they could increase processor speed at a predictable rate. This rate was articulated as “Moore’s Law,” a marketing concept rather than a physics law and one of the first examples of a “branded commitment.” This was smart, but without the demand side it was irrelevant.
They realized that adoption of a steady flow of faster and faster processors would be made easier by promoting a broader technical platform. Then, they expanded collaboration with their customers; PC manufactures and software developers willing to build on their platform. In fact, Intel could have just kept growing by being a good partner, passing innovations on to its customers, helping them increase efficiency and differentiate their products. With my limited knowledge, this sounds a lot like Chr. Hansen today.
What I think Chr. Hansen could be capable of is what Intel did next. Intel realized that their growth depended on accelerating behavioral change. Twenty-five years ago, consumers and businesses had no recognition of the benefits of replacing computers with any frequency. People had no intuitive sense of the value of greater processor performance or the link between processor performance and their own performance.
Intel realized that growing at the rate their R&D investments justified required them to take an active role in educating the public and driving demand. Thus, they put the “Intel Inside” program in place to do it. Most importantly, the program allowed them to invest gradually and to do so in a way that created even stronger symbiotic relationships with their direct customers. Intel Inside was quite an achievement, and many companies wish they could do something like it. At this stage in Chr. Hansen’s development, I think it is extremely relevant.
Managing a value chain, not just a company
Intel chose a positioning strategy with “performance” in the center and focal points at two places in their value chain. It allowed them to remain far back in their value chain, partnering with customers to implement the latest processor, while reaching forward in their value chain to influence consumer behavior. PC manufacturers participating in the program received a credit, in the range of 6% of sales, which could be used for up to 50% of any campaign budget. Partners used the Intel Inside logo on products and advertising in a specified way, and benefited from growing consumer recognition of the need to upgrade.
Over time, Intel Inside became associated with the next generation of every PC manufacturer’s products. Gradually, Intel’s own communication budget grew to reinforce the benefits of increasing performance, delivering more value back to their partners.
The strategy never would have worked if Intel’s new processors hadn’t added real value to their partners’ products. On the other hand, Intel never would have achieved the dominance it did by waiting around for a fragmented, competitive group of PC manufacturers to change consumer behavior.
Got probiotics?
I believe Chr. Hansen could drive wider adoption of products based on microbial cultures by helping partners not just develop products but also drive demand.
I don’t know the exact solution, but I think Chr. Hansen has the potential to establish a trusted, influential brand within this growing category of food and health products. Its role would likely be as a “branded differentiator” or endorser, adding value to its customers’ products. Nonetheless, it is a daunting challenge for a company the size of Chr. Hansen. But then, Intel was a small company with a strong platform and no brand awareness when it took the initiative.
It’s not as simple as saying Chr. Hansen’s “trust” is to food as Intel’s “performance” is to computers. Trust may be at the center of a positioning strategy that would work. It is true, relevant and high value in a business-to-business context today and could likely be a driver of consumer value in the future. But, other positioning scenarios should be considered.
Should it be closer to the benefit of improved health, tied to the natural origin or linked to increasing our potential in our modern, busy lives? Should the initiative be linked to Chr. Hansen or to a broader interest?
Starting with their role as a trusted partner, I’m sure Chr. Hansen could develop scenarios and work across its value chain to find the approach that would add the most value.
The Intel of ingredients
The general public has no understanding of the value of eating foods with beneficial microbial cultures. But clearly, the range of foods with them could be much broader and the availability of them improved if demand was there. And, although more clinical research is needed, it appears that our health would benefit from it.
Behind the scenes, Chr. Hansen is already a company with the integrity and capability to lead the industry. With the right strategy, they could extend their role in their value chain for the benefit of all.