| | Plan for Emerging Possibilities in Farm Business Management
Judge a man by his questions rather than his answers 1
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.
Strategic Thinking in Farm Business Management
Strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable competitive advantage and superior value relative to the competition. Martin, R. L. Martin and Lafley, A. G.; Playing to Win (2013)
Strategic planning and decision making is about allocating limited resources in a way that maximizes business potential. The process of strategic planning guides managers in:
- Clarifying personal and business goals so that they reflect values and principles as well as develop aspirations for the future.
- Assessing the strengths and limitations of the farm business in order to identify core capabilities that could be built on as well as weaknesses that need to be minimized.
- Assessing the business environment to develop an understanding of current as well as emerging opportunities and threats.
- Determining alternative ways that business resources can be organized to achieve a strategic fit that matches core capabilities with opportunities as well as aligns with goals and objectives.
- Making choices on how to position the business to achieve strategic fit that sustains a competitive advantage.
Farm businesses implement different strategies to gain a competitive edge through some combination of superior efficiency, superior quality, superior innovation and superior customer responsiveness. Olson, Kent; Economics of Farm management in a Global Setting; (2011) pg. 134.
Growth strategies are implemented to gain the competitive advantages of economies of scale, market power and being able to capture the benefits of new technologies that often require scale. These businesses are organized to pursue efficiency, be low cost producers and aggressively use debt.
- A strategy of financial stability seeks to achieve the advantage of being able to withstand extreme variability in markets and financial performance. These businesses expand slowly with a more conservative approach to using debt.
- A strategy of financial stability can also be implemented by having reliable off-farm income that will supplement cash flows, meet debt commitments and provide for living requirements.
- A retrenchment strategy takes steps to reduce the scale of operations or eliminate an enterprise in order to reduce debt. These businesses restructure their finances so they achieve stronger debt servicing capability relative to debt service requirements.
- A strategy of producing and marketing differentiated products takes steps to maintain a deep understanding of customer’s needs in order to deliver differentiated products that translate to higher prices.
- A family business strategy has the objective of keeping ownership of farm resources in the family along with the management and operation of the farm business. The business takes steps to realize the positives of family involvement while meeting the diverse expectations of family members.
- A niche market strategy is implemented when a farm business develops the unique ability to provide the right product, at the right time in the right form at the right price to a small but well defined market. This action steps in implementing this strategy are to continually pursue insights and knowledge of buyer requirements and their willingness to pay to higher prices for products that improve operating performance.
- A succession strategy seeks to transition the management of the farm business along with the ownership of farm resources to the next generation. The business strives to develop the financial capacity to meet the expectations of two generations as well as to develop the management capabilities of the next generation.
- An exit strategy enables farm owners to achieve the next phase of their life plans. This strategy is implemented through an orderly downsizing and eventual sale of farm assets.
While strategic planning occurs periodically, strategic thinking is ongoing. Strategic thinking continuously undertakes to gain new perspectives of how the business can achieve a strategic fit between core capabilities and business opportunities. By delving into personal experiences as well as the experiences of others strategic thinking can reveal insights and opportunities that might not be found through the formal planning process. These include:
- Understanding how committing resources to a particular strategy impacts on the agility required by the farm to deal with an unknown future.
- Exploring the forces that can significantly change the nature of profitability in the industry.
Strategic thinking looks ahead to consider what the future might bring and how key trade-offs impact on the goals, viability and sustainability of the farm business. Instead of trying to predict a single outcome strategic thinking considers multiple scenarios for the future.
- Aggressively expanding the farm business through debt, larger machinery and renting land involves a commitment of resources that can reduce the flexibility required to make adjustments as circumstances change. Strategic thinking gathers insights from multiple sources to consider adjustments and preparations that would be required for a wide range of possible future events.
- A family business requires managing the potential conflict between family expectations and business objectives. Strategic thinking seeks insights on how to capture the inherent strengths of family involvement while managing the weaknesses of weaving family relationships with business objectives.
Asking the Right Questions
Thinking strategically focuses management attention on positioning the farm business to achieve acceptable levels of efficiency, quality, innovation and flexibility to meet the goals of the business. Asking the right questions will be the key to gaining insights that can contribute to strategies that enable the farm business to gain a competitive advantage while maintaining flexibility.
The following questions are intended guide decision makers in strategic thinking and the pursuit of actions that can be taken to drive profitability and support competitive edge:
1.What is the current strategy for achieving strategic fit that matches core capabilities with opportunities?
2.What elements of the current strategy have worked well and what elements can be improved?
3.What are core capabilities and business opportunities driving the current farm business strategy?
4.What are the key assumptions concerning core capabilities and opportunities supporting this strategy?
5.How might future events unfold and what effects will these changes have on strategic fit and competitive edge?
6. How will the farm business achieve a balance between efficiency, quality, innovation and flexibility under different possible future outcomes?
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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