The Future:

Challenges Facing Farm Managers

Decisionmaking has always challenged farm managers. They have never had all the resources they needed; nature's bounty has never come easily, nor regularly; and consumers' incomes have ebbed and flowed, making markets volatile.

These circumstances are not likely to change in the future. Commodity markets will be more sensitive to food fads, and competition for U.S. and international markets will be more global. Production technology may be even more dynamic, so continued heavy investment will be necessary to remain competitive and to provide business growth. Interest rates will be as important as ever, and agricultural lenders may be more conservative. Along with these traditional concerns is a relatively new one society is becoming increasingly vocal, especially about environmental concerns.

In short, future management challenges will be complex. Farm managers are asking, "What must I do today to be ready for tomorrow?"

Objectives, Goals, and Priorities

Nothing is more important to business success than having general longterm business and personal objectives. Once these long-term objectives are set, every major task should have an objective, a time deadline, and performance standards set jointly with the person responsible for results. Specific goals should guide strategies based on management priorities. (See Part II, Chapters 2 and 3 on setting goals and resolving conflicts.)

In agriculture, where families may be closely intertwined with the business, it can be critical that individual and family objectives and goals mesh with business goals and objectives. It is especially important to be sure that all involved family members agree on objectives for the business, and that their personal objectives can be met. This activates the talents and creativity of people, which make the business perform.

A business growth goal is most frequently overlooked. Its importance lies in pointing management attention toward changes that might offer opportunities for the business. Growth is necessary to reward people who make the productivity possible, be they family members or key employees. However, financial events in the early 1980's showed clearly the danger of overly ambitious growth goals and the need for attention to a defensive posture in financial management.

Financial objectives usually involve (1) growth in equity, constrained by investment limits, (2) profitability for the farm overall and for individual enterprises, and (3) spending goals controlled by discipline and cash-flow plans. Adhering to an overall profitability goal would have allowed more farmers to leave the economic turmoil of the 1980's with some equity.

When making decisions about whether to maintain or close a business enterprise, a key question is: "Knowing what I know now, would I enter this business or enterprise?" If the answer is no, then evaluate exit strategies. If the answer is yes, activate plans for growth as finances permit.

Analyzing Successes. "Companies don't get in trouble during recessions, they get in trouble during prosperity," according to Thomas Watson, founder of IBM. Success breeds excess internally by causing a lack of attention to efficiency, and externally by encouraging competition for strong markets. Finding out what made things work well is followed by asking, "How long will the good times last?" The management search is for changes taking place that could create opportunity, as well as cause problems.

Correcting Course

Course correction is vital: no plan is useful for very long. Since the future cannot be accurately predicted, a course is set toward objectives; progress is monitored and strategies are reexamined regularly.

When financial conditions constricted in the 1980's, some family operations dissolved because differences in individuals' goals and objectives created irreconcilable differences about strategies for enduring the adverse economic times. Prosperous times can cause serious disagreement about reinvesting, or spending, profits.

A trusted employee dies; the local bank is bought out by a chain and fires its agricultural lenders; the neighbor with whom you share equipment moves to Florida; your health turns bad; you find out your child wants to be a rock star. All of these things have happened to others, could happen to you, and might have serious consequences.

The basic strategy for dealing with possible risks is to think through their consequences; for the ones that are vital, be sure that things are still the same as you thought they were. An annual update might not be a bad idea.

"Management by exception" can guide changes in a basic plan. This technique is effective if performance yardsticks are set and progress is monitored. In financial management, there should be a monthly cash-flow plan, and changes in operating plans would be signaled if expenditures were more than 10 percent over budget. Considerable management skill is needed in setting the "warning flags" or exceptions correctly, so that they signal management attention to a problem in time for course correction.

Decisionmaking, like any other difficult activity, takes practice. Computerized spread sheets can help managers analyze the consequences of important "what if' options. However, the use of computers can be disastrous if generating numbers is substituted for serious thought about opportunities and problems.

Adjusting to Regulatory Constraints

Few regulations increase farm income. Learning about, and complying with, the rapidly changing regulations affecting farming takes quantum chunks of the most valuable resource of all management time. In addition, complying with regulations sometimes changes the character of the farm, or takes substantial investment. Regulatory costs are especially onerous on small farms, where the manager is also the labor force and has no office staff to help with the learning and paperwork problems.

Manage for the Future

Actively seeking information about an unfolding future is critical in evaluation and planning. As future information becomes available, managers screen it by asking: "Is it so?", "Why is it so?", and "How long will it be so?" The final question "So what?" tests its impact on people, on marketing, on production, on finance, and on both the long- and short-term business goals.

The better managers make time, at least annually, to be sure their longterm objectives are still valid, and that important people in the business share them. They review the profitability of the overall business and individual enterprise, eliminate the unprofitable enterprises, and spend considerable time trying to improve the successful ones. These managers measure business financial strength and continually assess the level of risk they are willing to tolerate as they develop marketing strategies and borrowing plans. Exceptional managers study outlooks for inputs and commodities, and make preliminary plans for how much of what crops to plant. Skillful farm managers obtain competitive bids on major expense items, and tailor tax management strategies to long-term objectives.

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 manager more than to realize what alternatives are available to him and what they imply."

John Holt, Professor and Extension Economist-Management, University of Florida, Gainesville, FL.