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INNO-FOREST
Case study
Final report
BOŠTJAN OSVALD, S.p.
(Company for wooden package production)
By Matija Stergar, Slovenia
Ljubljana, 30. 9. 2007
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TABLE OF CONTENTS
THEORETICAL BACKGROUND 2
CASE SELECTION BACKGROUND 2
Forest ownership and estate circumstances 2
Slovenia Forest Service 3
CASE ENTERPRISE 3
Short history 3
Main ratios 4
Main products, markets and customers 4
Main trends in the business area 4
Present situation regarding innovation aspects 4
Business goals and future innovation plans 5
Market and resource circumstances, possibilities of enhancing the innovations 5
A′WOT – analysis about enterprise’s innovation ability 6
INNOVATION CASE 6
Chronology and subject of the innovation 6
Actors network analysis 7
Analysis of the innovation process 7
Evaluation 7
Recommendations 8
CONCLUSION 8
SOURCES 9
1
THEORETICAL BACKGROUND
There are several definitions of the term innovation existing. J. Schumpeter (1947) wrote that "innovation is the doing of new things or the doing of things that are already being done in a new way… Innovation is a process by which new products and techniques are introduced into the economic system." Innovation is product, process, marketing method or organisational method that is new or significantly improved and must be implemented, that is introduced to the market. It doesn′t need to be new to the world or to a country, mostly is new just to the firm.
It is driving power of the firm′s progress and has many various positive effects, for example improving product quality, diversification of products, increasing production capacity, new markets or increasing market share, flexibilisation of production, lowering costs per production unit, lowering input of material and energy. Benefits of innovations can be recognised also on the national level: improving environment, health and safety aspects, employment increasment etc.
The process of the introduction and implementation of innovation is unfluenced by several determining factors, which can be divided into six groups: economic factors, enterprise (internal) factors, market factors, institutional factors, societaal factors and natural factors. Those can have fostering or hindering influence in the process mentioned.
CASE SELECTION BACKGROUND
At the beginning of a case study report I would like to explain why I have chosen case enterprise described in following chapters.
Forest ownership and estate circumstances
Although Slovenia has a rich forest management tradition and although 60% of the country is covered with forests, forestry as an economical branch contributes relatively little to states economy. One of the main reasons for that is that 71% of forests is in private ownership with an average area of forest estate of 2,6 ha which is further fragmented into several separate plots, what makes forest management and exploitation of forests difficult.
Under those circumstances a forest property for most of the owners presents at the most financial reserve rather than source of living. There are some 314.000 forest owners in Slovenia and most of them are non-farmers whose interest in exploitation of forests is even smaller. On the other hand there are few owners, mostly farmers, which are traditionally and economically significantly attached to their forest property. For those forest is important component part of a farm. It is a source of wood which is used for renovation of their buildings, for heating and often also for sale. However, regarding to specific, small forest-property structure in Slovenia, there is a very small portion of forest owners, who can afford living only on account of their forest simply by selling wood. Forest becomes especially important source of incomes on a farm, when wood or other products are being refined and their economical values are increased. According to official data in the year 2000 there were 20,4% of farms in Slovenia that were concerned with wood processing in order to create added value.
Slovenia Forest Service
The Slovenia Forest Service (SFS) is a public institution established by the Republic of Slovenia (The act on Forests, 1993), which performs public forestry service in all Slovenian forests, irrespective of the ownership. Main working fields of the SFS are: forest management planning, silviculture and forest protection, forestry technique, wildlife and hunting, public relations and education of forest owners, and other fields.
I am employed at SFS as a district forester in the district where 90% of forests private-owned. Some of my most important duties are education and counselling to forest owners. Besides environmental and social aspects our counselling concerns also economic aspects of forest management. When the forest owner has an interest for efficient and sustainable trade of his forest property, especially forest products, he is forced to have knowledge in the field of forest treatment and management, which benefits also to the nature. This is what every district forester must try to achieve. To be an efficient counsellor to forest owners forester must have a broad knowledge of the field. This knowledge must be gain also on the basis of forest owners who have already succeeded in trading their forest by adding value to forest products. Among others such an example presents the Osvald′s family farm, which I choose for my case study. For decades it was an average family farm in the surroundings where farmers are traditionally dependent on their forest estate, but nowadays it is one of the most successful farms. Because of Osvald′s innovation-oriented behaviour they are interesting example to research.
CASE ENTERPRISE
According to the circumstances described in the introduction we can consider a family farm with 60 ha of forest and with other supplementary activities as an enterprise, though legally is not one. Genuine enterprise was on Osvald’s family farm registered no sooner than in the year 2003, however this enterprise is basically additional part of family farm and its activities. This is the reason why in our case study Osvald’s family farm is considered as enterprise and company established in 2003 as innovation case.
Short history
Mr. Zdenko Osvald inherited farm from his father in the middle 1970¢s. With 40 ha of forests and a cattle of 35 cows his family's farm was an average farm in the district. Soon they began to think how to make a progress and create a profit. They established a smaller chicken farm. Their next investment was a purchase of another 20 ha of forests. Shortly after that they built a small sawmill and bought a tractor with a skidding equipment. Their new supplement jobs became providing services of wood sawing and wood skidding to other farmers. In the 90¢s they decided to make another investment. The chicken farm was rebuild into a place for growing and saving mushrooms. After 5 years they realized that mushroom business was not profitable enough and they returned to chicken farm. On the other side wood felling, skidding and sawing job was doing quite well.
In the year 2003 Mr. Boštjan Osvald (a son of Mr. Zdenko) registered company for wooden pallets production and sawing of wood. He built a new, bigger saw, a drying room for wood and some other machines for making wooden pallets. Shortly after that he signed a contract with an Austrian company Palfinger and started to make special wooden pallets for truck-loading crane transport. Besides the package production, the saw and the drying room are used for providing services to other farmers. Although registered as separate company, wooden pallets business is basically still a part of Osvald’s family farm.
Main ratios
An annual turnover of Osvald’s family farm with all its activities (cattle breeding: cows and chickens, wood felling and skidding, wooden pallets production, sawing and drying of wood) is aprox. 350.000 €, from which registered company itself contributes aprox. 250.000 €. 70% of the company's turnover is obtained by wooden pallets production, whilst 30% is earned by providing services of wood sawing and drying.
At the moment Mr. Boštjan Osvald as the holder of the enterprise is the only person employed. However, he regularly hires two or three workers, depending on amount of the work. As the enterprise operates as constituent of a family farm, Mr. Osvald′s mother and father are also helping with the job.
Main products, markets and customers
Central products of the enterprise are 40 different types of wooden pallets for Palfinger loading cranes and other machines. Additional and from the aspect of incomes much less important product are wood remains and sawdust. Those are partly used as a fuel for drying furnace and partly for sale to other company, which makes pellets. Wood drying and sawing services are only occasional source of incomes, depending on the needs of the other farmers from surroundings. Wood sawing and skidding services are also not negligible, but regarding to their seasonal nature and unsettled demands of the job, they are less reliable source of incomes.
Wooden pallets production business is momentarily strictly related to specific enterprise and that is Palfinger. An entire method of production is oriented on Palfinger′s demands. All the other services and products of the farm and of the enterprise are linked mostly with farmers and smaller enterprises from broader surroundings of Osvald’s family farm. This is therefore much more heterogeneous, but on the other hand also less reliable market, because businesses are mainly not verified with contracts.
Main trends in the business area
Mr. Osvald and Palfinger have signed the contract for 5 years lasting cooperation. Palfinger is a big and successful company and in the future it will most certainly have further needs for wooden pallets delivery. Yet it is probably a bit of risk for Mr. Osvald to be dependent on just one single co-operator. With an increased range and an adapted mode of production there is, according to Mr. Osvald, enough space to expand the market. What concerns wood felling and skidding business, there is a lot of rivalry on the market and it doesn’t seem to be much growth potential on that field.
Present situation regarding innovation aspects
As already explained the establishment of the enterprise in the year 2003 was the most obvious and successful innovation of Osvald’s family farm in the last decades. In connection with the company many innovative strokes were taken such as signing the contract with Palfinger, a purchase of new machines (the drying chamber, different saws, transport vehicles, wood transporting machines, a compressor, an elevator, boring machines, a hammer pistol, a stove for biomass, etc.)... Mr. Osvald is constantly buying new machines in order to modernize his production line. A noticeable innovation was also the acquisition of IPPC (Integrated Pollution Prevention Control) certificate, which contributed to an added value of products. This paper obligates the company for using the best available technologies and it is also some sort of recognition to the company.
In spite of Mr. Osvald′s innovative business behaviour, he does not have any strategy for further innovations. He has a skeleton plan for future development of the company including some innovations, but it seems that his business decisions are often taken when suitable opportunity appears. According to his own words the decision for establishing the firm came practically over the night as some other Palfinger′s supplier stopped producing wooden pallets.
Business goals and future innovation plans
An extensive business goal of the enterprise is to expand production. There are some negotiations with various companies going on. Mr. Osvald is planning to purchase CNC machine and start producing ordinary and EUR pallets. A production of those is less profitable than the production of the special pallets he is producing for the present, but offers a lot of new opportunities for presence on the market. With the expansion of the production he intends to employ 3 full time workers.
Market and resource circumstances, possibilities of enhancing the innovations
Mr. Osvald has taken an advantage of a relatively small niche in the market space. 70% of the enterprises turnover is depended on company Palfinger and the entire pallets production method is adjusted to Palfinger′s needs. Cooperating with one single customer is not a long-term reliable business solution. The enterprise is aware of that and they are searching for new market potentials. With the present capacity and the present specific manufacture line their possibilities of finding new customers are very limited. After purchasing new machines and employing new workers they will have far more chances of conquering a new market, but they will also be facing bigger competition. A composition of concrete business plans and strategies will than be necessity.
Wood processing business was part of Mr. Osvald's every days life since he was a child. He was gaining knowledge of this business not to be aware of. Later on he started acquiring new knowledge by reading specialized magazines, by visiting fairs in Slovenia and neighbouring countries and finally by cooperating with new business partners. On my opinion there is some unused potential in knowledge acquirement in cooperation with institutes and counselling organisations. There is no doubt that with expanded and adapted production new knowledge will be required.
What concerns the finances of the enterprise, there are three major sources of financing new investments. As every young enterprise in development also Mr. Osvald′s company must invest most of the profit into the investments. Mr. Osvald is still repaying a credit from a bank, which he has loaned when buying the stove for the drying room. To be able to take new credit he will have to wait a few more years. The third source of finances is the forest. As every forest owner Mr. Osvald also makes some major tree harvests when money for investments is needed.
A′WOT – analysis about enterprise’s innovation ability
The most important strengths, weaknesses, opportunities and threats of the enterprise were identified and analysed using SWOT method. By giving numerical rates for the SWOT factors as well as for the four SWOT groups, A′WOT method was taken.
Following factors of SWOT groups were selected:
1. Strengths:
· quality of products
· control over the production
· broad supply background
· fast production line
· good technical equipment
2. Weaknesses:
· one single major customer
· no concrete business strategies