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Roll out of bed thinking about the future of the farm business

Bob Milligan Published on 20 July 2012

Let’s begin by comparing owners/managers of two businesses. Our first business is a fast-food franchise that sells products specified by the parent firm to a largely unchanging clientele.

Our second business is an upscale independent restaurant in an ever-changing retail location. The businesses are similar in volume of sales and net income.

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Let’s now compare the roles of the two managers. The first manager works in the business and manages employee hiring, scheduling/performance management and develops, monitors and improves all of the processes required to produce a consistent quality food product. He is primarily a worker and manager.

The second owner has roles similar to the first manager with employees and processes. He, however, has an additional, perhaps even more important role.

Because his business does not have a specified menu and is in an ever-changing business environment, he must be continuously monitoring the changing menu item preferences of his customer, aware of changes with competitors and neighbouring businesses and searching for new opportunities for and potential threats to his business.

Note that the second owner’s additional responsibility is more strategic and is more focused on the external environment. This strategic leadership role is so crucial that a lapse here, for even a short time, could result in business failure.

The reason for comparing these two managers is that, until the last six to eight years, your role as a farm owner was very similar to the first manager. Hard work, excellent management and a periodic, perhaps annual, strategic review was needed for success.

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Today, however, your farm business is much more like the second business. At least one owner must be continuously aware of changes in the environment surrounding the farm – neighbours, regulations, labour markets, etc. – and searching for new opportunities for and potential threats to the business. Your new and likely most important role is strategic leadership of your dairy farm business.

To address this issue, we look at three topics: the required mindset change, the external business environment and addressing opportunities and threats.

The required mindset change
Think about the following:

Montgomery Ward, Kmart, J.C. Penney and Sears have disappeared or struggled because they did not see the changing world as clearly as did Wal-Mart and Target.

General Motors, Chrysler and Ford have struggled for decades because they lagged Toyota and Honda in changing strategy to meet the changing preferences of drivers and failed to adopt quality assurance techniques in their factories.

Polaroid disappeared and Kodak has struggled as they lagged in responding to the digital age.

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All three feature failures in strategic leadership. Wal-Mart, Target, Toyota, Honda and the new digital image companies did not have any knowledge that was not available to Montgomery Ward, Kmart, J.C. Penney, Sears, General Motors, Chrysler, Ford, Polaroid and Kodak.

Rather, they had superior strategic leadership to recognize changes in their environment and proactively develop strategies to capitalize on the changes.

The importance of strategic leadership is not limited to large corporations. In today’s turbulent world, it may be even more important to small businesses like your farm.

Successful strategic leadership means making strategic adjustment while you are successful in your current strategy. It is less likely to succeed when changes are implemented after the business is already financially stressed.

Successful strategic leadership is continuous and proactive. The speed and urgency of today’s agricultural and business environment requires that you make strategic leadership your number one priority. I like to say:

“At least one owner needs to roll out of bed in the morning thinking about the future of the farm business.” The cows and crops are crucial but they cannot always be top priority.

The external business environment
Successful strategic leaders of big companies – Wal-Mart, Target, Toyota, Honda – and of small businesses like yours continually observe and seek to understand the environment in which their business is operating.

Farmers like you have become much more proficient at monitoring one key external element – output and input prices.

Table 1
The external factors impacting your business, however, reach far beyond prices. Table 1 gives an incomplete list of the factors that may impact your farm in the next 10 to 20 years.

The table also provides you an opportunity to assess the importance to your farm business of these factors.

You should select the three that you think will be most important to your business and then, for each of the remaining factors, decide whether it will be important or unimportant to your farm.

Addressing opportunities and threats
Scenario planning is an incredibly valuable tool for addressing opportunities and threats.

It is a process of creating possible future plans for unlikely but major eventualities that can impact your farm business.

A scenario plan is not a detailed plan; it allows for initial thinking in a crisis-free setting and provides an initial starting point should the eventuality occur.

The following are some threats a scenario plan could better position you to address: a large workforce defection, an extreme weather event (tornado, hurricane, etc.), anything requiring quarantine of animals, death or disability of an owner, a manure spill endangering surrounding water/land/people, bankruptcy of a business supplier/partner (example: M F Global).

An example of a scenario plan for an opportunity is: The owner of a dairy farm in your area knocks on your door. He is nearly in tears and says: “My creditors have given me until tomorrow to commence serious negotiations for the sale of my dairy or liquidation will begin. Are you interested?”

A concluding question
How will you know when you have acquired the mindset of a strategic leader? Let me suggest two ways:

Your thinking will be different. When your mind is processing ideas – one of my clients calls it “noodling” – you will be thinking about more than cows and crops. You will be thinking about opportunities and threats to your farm business and how to prepare for and/or address them.

Your professional growth plan will include strategic leadership growth opportunities:

Joining a leadership organization: Chamber of Commerce or a local community service organization (Rotary, Lions, etc.) or a Baldrige- awarding quality organization.

Reading books on leadership or e-newsletters like those from Harvard Business or LearningEdge Monthly (my e-newsletter).  PD

Bob is also professor emeritus, Dyson School of Applied Economics and Management, Cornell University.

Dr. Bob Milligan

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