Systems Thinking in Farm Business Management

 
 
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Plan for Emerging Possibilities in Farm Business Management
Judge a man by his questions rather than his answers 1
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Business planning is about making choices to determine a path for going forward. These include how the business will position itself both in the industry and the market. As well, choosing which action best allows the business to progress toward goals and objectives.

In turbulent business environments, decision makers are not able to think through all possible outcomes to make choices with certainty. Deliberate planning focused on most likely scenarios and guided by check lists will not prepare a farm business for the uncertainty of a business environment with many moving parts. Similarly, planning based on reacting to problems and opportunities as they emerge can prevent decision makers from addressing the right issue at the right time in the right manner. A decision to finance a major capital purchase in order to gain operating efficiencies in a period of strong market prices may not be beneficial when the most significant issue for the business is an existing vulnerability to declining cash flows.

When facing uncertainty business planning can best be served by balancing the deliberate pursuit of likely outcomes and the flexibility needed to realize unexpected possibilities. The “Plan for Emerging Possibilities in Farm Business Management” series of documents will assist modern farm managers consider new perspectives and new possibilities in the context of business planning and decision making. Thinking ahead with different perspectives and different guiding questions can ensure planning and decision making processes address the right issue at the right time in the right manner.

Systems Thinking in Farm Business Management
Farm businesses operate in a complex system that is shaped by economic forces, ecological forces, institutional forces and social/political forces. The interrelationships between the farming system and these forces lead to diverse sources of change occurring at a faster pace. The desired outcomes (goals and objectives) of a farm business are affected by ecological, economic and social forces and the dynamics of the interrelationships between them. Figure 1 illustrates how the forces in the business environment might interact and influence farm business outcomes. The purpose of the framework is to embrace the complexity surrounding the farm business rather than avoid it.

Figure 1: Framework to Support Systems Thinking for a Farm Business

System thinking recognizes the interactions and feedback effects that shape the behaviour of the business environment and the impact on business outcomes. The essence of systems thinking is that in order to understand the behavior of the system requires studying the system as a whole not the individual parts. The whole system becomes the framework for identifying and managing forces impacting on the farming system. By understanding the critical interrelationships occurring in the business environment, decision makers can better understand how the behavior of the whole system might emerge to impact on business outcomes.

Feedback effects or loops (dashed lines) are the effects that business outcomes have on the farming system and the management/ownership factors. These feedback loops can strengthen or weaken the farming system as well as impact on the management/ownership factors.

  • Strong business performance outcomes generate funds to be re-invested in the farming production system which can impact on natural resource use as well as family dynamics and ownership expectations.
  • Poor business outcomes reduce funds available to be invested in the farming system which could have cascading impacts on resource use, economic forces and the willingness of management/ownership to make further investments in the farming system.
  • The interrelationships between various forces in a system can shape the overall behaviour of the business environment.
  • Farming systems interact with natural resources to affect the quality and availability of resources needed to sustain farming operations. These interrelationships can require adjustments in the farming system along with an impact on farm business outcomes.
  • Changing regulatory requirements can impact on the availability of natural resources such as water or public lands. The cumulative effect of these interrelationships will impact on farming systems and farm business outcomes.
  • Family dynamics and the ownership of farm resources interact with changing economic forces to impact on and be affected by farm business outcomes through forces like expectations for living requirements.
  • Social forces such as changing consumer attitudes toward food production continuously interact with changing economic forces such as volatile currency markets to impact on farm production systems (cost of inputs) and farm business outcomes.
There is no certainty as to how one part of a system might respond to a change in another part of the whole system. System thinking that seeks to understand the critical feedback effects and behaviour of the business environment can guide farm managers to considering how to prepare the farm business for a wide range of possible future outcomes. Flexibility is the ability to change the resources, capabilities and strategies of the farm business in response to or in anticipation of changes in the business environment. These could include:
  • Developing and maintaining strong working capital and equity positions. Businesses that operate in extremely dynamic environments with a wide range of possible outcomes often choose to maintain a position of financial strength and good relationships with lenders in order to withstand downturns in business performance and take advantage of opportunities that emerge.
  • Maintaining assets that provide the ability to adjust to changing conditions. Forage producers often maintain a small herd of cattle to consume product that is not suitable for sale in their domestic or international markets.
  • Networking with other producers in order to develop a diversity of information sources and insights on changes occurring in the business environment. This strategy enables managers to overcome limited perspectives of the alternatives available to their farm business.
  • Making incremental changes in key systems (production, marketing, finance) that can be reversed if they are not appropriate for changing conditions. This strategy combines experimenting to explore new possibilities, maintaining financial strength and maintaining the flexibility to move resources.
  • Avoiding investments in assets that have high fixed costs. A volatile business environment can lead to abrupt changes in economic performance for certain enterprises. Rather than be exposed to the risk of shutting down a facility with high overhead costs, producers can implement a strategy of maintaining flexible business arrangements such as facilities rental arrangements.
  • Avoiding investments in assets that have the risk of being replaced by new technology. By paying attention to the evolution of new technologies, producers can avoid the costs of owning assets that the market has no interest in since it has been replaced by newer more desirable technology.
  • Practice on-going experimentation to develop new capabilities as well as learn what changes might work or not work as conditions change.
Asking the Right Questions
Managing a farm business can be like travelling down an unknown path in a fog that obscures any view of what elements lay ahead and how they might combine to affect goals and objectives. With less than full information farm managers are required to make choices that achieve forward progress as well as ensure sufficient flexibility to adjust to changing conditions.

A systems perspective can strengthen planning and decision making processes by investigating the interactions that shape the behaviour of the business environment. A systems perspective ensures farm managers challenge assumptions with awareness, skepticism and probing questions that reveal alternative ways in which future events might unfold to impact on farm business outcomes. The following questions are a guide to action in systems thinking:
  • What are the key factors and interrelationships in the business environment that can impact on farm business outcomes?
  • What past outcomes have occurred, what interactions contributed to them and how might the farm take advantage of these outcomes?
  • What implicit assumptions are currently being made about how future events might unfold?
  • What are the alternative perspectives that could be applied to the unfolding of future events?
  • What are the possible paths that future events might follow and what are their effects on future outcomes for the farm business?
  • Is the farm business prepared for a wide range of alternative future business outcomes?
  • Does the farm have sufficient flexibility to deal with this wider range of possible outcomes?
  • What elements of flexibility can the farm business implement to deal with this wider range of possible outcomes?Peter Drucker, the preeminent management thinker of our time, has this to say about managing change: "There are no solutions with respect to the future. There are only choices between courses of action, each imperfect, each risky, each uncertain and each requiring different efforts and involving different costs. But nothing can help the managing more than to realize what alternatives are available to him and what they imply."
Developed by Dennis Dey and Joel Bokenfohr 1 Cadsby,T.(2014). Closing the Mind Gap; BPS Books. Original Source: Voltaire.(1994). Letters Concerning the English Nation; Oxford University Press.
 
 
 
 
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For more information about the content of this document, contact Joel Bokenfohr.
This document is maintained by Nicole Halvorson.
This information published to the web on July 14, 2015.
Last Reviewed/Revised on July 25, 2017.