An Example of Extraordinary Competitive Strength

Last week (24 August 2007) the following article appeared in the Times:

Problem of global warming is at heart of currant affairs
by James Harding, Business Editor

It is not only Bangladesh that is threatened by global warming. It is the British blackcurrant: warmer, wetter winters have led to a gradual deterioration in the quality of the blackcurrant crop. Without a heavy frost, blackcurrant buds do not break properly and the result is a decline both in the quantity and quality of the fruit. Climate change could make it impossible to grow two kinds of blackcurrant – Baldwin and Ben Lomond – in many parts of southern England within a decade.

The plight of the blackcurrant is just one example of how rising temperatures promise to transform the face of the English countryside and challenge the business of British horticulture. If by 2050 summer temperatures in the South East of England are 1.5C to 3C warmer than they are on average this decade, the apple orchards and hop gardens of Kent could find themselves eased out by grape vines and apricot trees. It will take only a slight increase in the temperature – and a small leap of imagination – for Maidstone to be encircled by olive groves.

But climate change is not an exercise in futurology. Hotter and more unpredictable weather is already presenting businesses with a disruption to production, an expensive requirement for new R&D and a fresh set of difficult choices.

GlaxoSmithKline, which buys 95 per cent of the British blackcurrant crop to make Ribena, has created a new variety of the berry – the Ben Vane – which is more likely to thrive in warmer, more variable weather conditions. The pharmaceuticals giant, together with the Scottish Crop Research Institute, is in fact developing 40 to 50 new varieties at its farms in Herefordshire and Norfolk. Some of them are designed to be more resistant to new kinds of pests and weeds, which are also expected to be a byproduct of global warming. Others are simply being developed for enhanced flavour. Each new cultivar takes money and time (roughly 16 years) to develop.

Glaxo says it does not do genetically modified crops. So its new blackcurrant breeds are all engineered and propagated using conventional breeding methods. But other producers will, no doubt, seize on GM applications to deal with global warming: conflicts within green farming have only just begun.

In the bleak British summer of 2007, it is, perhaps, hard to believe that sunshine could be a problem. In fact, it is not the only one. In farming as in financial markets, the real headache is uncertainty. Fortunately for the makers of Ribena, it is easier to redesign fruit than reprogramme investors: GSK has developed a new breed of blackcurrant that has greater “hangability” – ie a blackcurrant that is is more able to cling on in stormy weather.

What we Say...
What Glaxo is demonstrating here is not so much the "hangability" of its new variety of blackcurrant but Glaxo's own "Changeability" as a company.

James Harding is right to say that climate change is not an exercise in futurology, neither are any of the other many uncertainties that business and society are faced with. Just trying to be a better guesser is not going to help much.

However when J-P Garnier restructured the whole approach to GSK's R&D he injected massive "Changeability" into the business in order to build extraordinary Competitive Strength. New varieties of blackcurrant aligned with climate change is just one example of the competitive advantage GSK is achieving from this.

For more on "Changeability" and using this perspective together with conventional financial and business analysis can help spot the real long term winners from uncertainty click here for more information.