Strategic Management

Using Strategic Planning To Prepare for the Future

What separates a successful agribusiness firm from an unsuccessful one? Numerous factors--quality of the land, managerial skill, and sufficient equity capital are all important. And yet, some firms that seem to have these basics are less successful than other firms that are not so well endowed.

An important attribute of good management is to be able to step away from the trees and be able to see the forest. Strategic planning is analyzing the forest the business and the environment in which it operates in order to create a broad plan for the future. Strategic planning may bring to mind images of corporate executives meeting at luxurious retreats and staff members preparing multicolored visuals and reams of statistical and financial data. The result may be a 2-inch thick document on the chief executive's bookshelf.

For smaller agribusinesses and farms, the most effective planning may take place at the kitchen table. To establish an appropriate atmosphere for strategic planning, it is important to set aside time away from the day-to-day problems and interruptions so that the key participants owners, managers, family members can reach a common understanding about what they want to do in the next 3-5 years, and how they want to do it.

It is important that management takes a broad overview of the economy and the industry to determine the major opportunities and threats. Tactical planning is concerned with day-to-day and week-to-week decisions, such as what and how much pesticide to use, which cows to cull next, or whether to overhaul the old tractor or buy a new one. The results of strategic planning could lead to new enterprises, major capital investments, or perhaps even an exit from farming. This broader focus over a longer time distinguishes strategic planning from tactical planning.

Why Do Strategic Planning? Strategic planning permits you to make more profits, in the long run, by:

Establishing a clear direction for management and employees to follow;

Defining in measurable terms what is most important for the firm;

Anticipating problems and taking steps to eliminate them;

Allocating resources (labor, machinery and equipment, buildings, and capital) more efficiently;

Establishing a basis for evaluating the performance of management and key employees; and;

Providing a management framework which can be used to facilitate quick response to changed conditions, unplanned events, and deviations from plans.

Who Should Do Strategic Planning?

The planning should be initiated by the operator/manager of the agricultural business. In some cases, this process could involve a hired manager, but for most firms the operator/manager and other members of the family involved with management should be involved in the planning. In strategic planning, the process is as important as the final product. Getting the whole management team involved is critical. Strategic planning with typically close-knit farm families cannot be done in isolation from other family members, particularly when goals are set for the business. In such operations, business and family considerations are often so interwoven that it becomes artificial to try to separate the two. (See Part II, Chapter 3 on managing family and business conflicts.)

Steps in Strategic Planning

Strategic planning involves the first seven steps shown in figure 1; an eighth step implementation is strategic management. This chapter focuses on the seven steps in the planning process.

Step 1. Define the Firm's Mission. The mission statement defines the purposes of the firm and answers the question, "What business or businesses are we in?" Defining the firm's mission forces the operator/manager to carefully identify the products, enterprises, and/ or services toward which the firm's production is oriented. This statement answers the question, what is our current situation?

What markets are likely to produce the best opportunities?

What type of agricultural commodities or services can we produce to take advantage of these opportunities?

What, if any, other activities are we involved in, and what are the priorities of these activities?

Establishing strategic goals, however, is the key element of the mission statement.

Why are we in business?

For profits?

To provide employment/security for other family members?

To increase wealth?

To gain community status?

Answering these questions will suggest goals that will help to clarify objectives in the next step.

A mission statement is not necessarily a long document. In fact, it should contain fewer than 100 words, and two or three sentences may be sufficient.

Here is an example of a mission statement:

We operate a 70-cow dairy farm to support a modest level of living for two families. Our goals are to (1) build net worth, (2) stay in farming if at all possible, (3) gainfully employ two full-time family members (partners), (4) provide a good environment in which to raise our children, and (5) allow each partner suitable time off to enjoy family living, community activities, and hobbies. We would like to provide for the transfer of the farm to (partner) and to provide retirement income to (partner) within 5 years.

Step 2. Establish Objectives. Goals, which are the more general, long-term desires of operator/managers, clarify the firm's purpose. Objectives should translate the mission into concrete terms. Objectives should be quantifiable and straightforward statements such as the following: increase sales by 100 percent over the next 5 years, reduce labor costs by 25 percent in the next 3 years, increase production per acre of grapes by 30 percent in the next 5 years, and provide health insurance coverage and Social Security coverage for two family employees next year. These objectives should be chosen in such a way that they contribute to attainment of the goals identified in Step 1. Each objective has two characteristics: (1) it can be measured, and (2) there is a given time in which to accomplish it. This allows management to evaluate progress in implementing the plan.

Step 3. Assess the External Environment. Every agricultural firm faces uncertainties, threats, and opportunities that are beyond its control. Market forces may cause prices to plunge, either in the long-run or short-run. Large crops, declining consumer demand, a strong dollar, high interest rates, changing Government policies, and regulation of labor and pesticides are external threats that can cut profits or make business more difficult. New market opportunities are created by demographic changes, changing consumer lifestyles, population growth in selected regions, and technological breakthroughs.

It is important in this step that the operator/manager understand the economic, social, and technological forces that will affect the firm. Then reasonable expectations may be formulated about what will happen to product Prices, interest rates, the rate of inflation, labor markets, and input prices over the next 3-5 years.