A cautionary tale

In the early 1970s two commercial forestry companies, both located in Oregon, made different strategic decisions when deciding on the future direction of their businesses. While this is a story based on fact, to protect the companies’ identities, let’s call them Future-forestry Inc and The Woodlands Corporation.

At that time, both companies produced lumber and plywood purchased from the United States national forests.

The Woodlands Corporation, in their annual strategic workshop, decided to proceed with business as usual, and continued to purchase timber from the national forests as they had always done.

Future-forestry Inc made a different strategic decision – they would initially continue to purchase timber from the national forests, but with the intent to become completely self-sufficient in a 10-year time frame. This decision meant they had to commence with a difficult and expensive program of timberland acquisition, the costs of which resulted in the company initially realizing much lower profits than The Woodlands Corporation was enjoying.

Then in 1991, a court suspended nearly all timber harvesting from national forests in the Pacific Northwest until the Forest Service could prepare a workable plan for protecting the northern spotted owl and other old-growth-dependent wildlife and plant species. The result was that The Woodlands Corporation, unable to purchase the timber they required from the national forests, entirely collapsed and filed for bankruptcy.

Future-forestry Inc is more profitable than ever, and its timberlands have increased in value enormously.

The major difference between these two companies was their attitude towards using information to make strategic decisions. The Woodlands Corporation relied on its board of directors to make strategic decisions, without any other formal inputs apart from balance sheets and income statements. Future-forestry Inc created a full-time planning team to create simulation models that applied all possible risks and opportunities to build a series of short and long-term business plans. This gave Future-forestry’s board of directors a bird’s eye view of the future, resulting in their difficult but successful decision to become self-sufficient.

Information has always been at the heart of a forest managers job – knowledge of stand age, tree species, fire and storm damage, pest and disease and logging costs have all been essential for profitable forest management for decades. What is different now is the technology available for collecting, analyzing and presenting this information, with particular emphasis on the frequency at which this information can be gathered. Most commercial forestry organizations need three types of information – information for strategic planning and analysis, information for short and medium-term planning and information for operational management and control. A forestry agency that does not have up-to-date data – accurate information about its forests cannot make effective strategic decisions. This includes detailed information on forest boundaries, species, mensuration and the location and condition of infrastructure. Increasingly non-timber information such as recreation potential and the condition of wildlife habitat is also becoming important for strategic planning. Climate change is also a headline priority with issues such as carbon loss becoming an important consideration.  From a strategic perspective, forestry organizations also require information not only for their own forests but also for the forests of competing and client organizations, or those on which they depend for raw materials.

The management of information technologies is now firmly and irreversibly part of forest management. Finding innovative approaches to forest management and distilling these into competitive business models are fast becoming business advantages. Forest managers must at least understand the strategic and tactical implications of technologies such as geospatial analytics – satellite-derived landscape intelligence that provides essential data for business imperatives such as species mapping, mensuration, accessing the severity of fire damage, identifying the prevalence of pest and disease, as well as mill logistics optimization. This kind of information changes the game. How do you think this kind of knowledge would contribute to increased profitability in your agency? No longer having to rely on 5 or 10-year-old data, but instead having access to up-to-date data from the current season, would introduce more immediate information into the decision-making process, allowing for increased agility and more opportunities for tactical planning.

Due to the long-term nature of forest management, the risk of investment can be a major deterrent to potential investors, making the challenge of producing a profit from forest management a daunting task.

The impact of globalization has forced forest owners to seek new forms of competitive advantage. This has resulted in expanded business opportunities, resulting in never before seen competitive advantages and improved business performance. This has largely come from increased access to up-to-date information. In forestry the stakes are high. Apart from a few exceptions, trees grow relatively slowly compared with other crops, timber harvests are infrequent and forest product prices face global competition. Added to this, due to the long-term nature of forest management, the risk of investment can be a major deterrent to potential investors, making the challenge of producing a profit from forest management a daunting task. New technologies, delivering invaluable information will decide which forestry companies prosper in a world that is now demanding up-to-the-minute information. As China threatens the United States forestry industry with competition in sectors like the domestic furniture industry which is seeing local players lose market share to low-cost Chinese production, relevant and immediate information can change the game. They say money doesn’t grow on trees, but new technologies could change that for those pioneers’ brave enough to embrace the coming technological advances.

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