Eight lessons from fifty years in business

Take home messages

• Understand the role of management (and your part in it!)
• Operate productively within the resource bases – or else!
• If you keep on doing what you do now you will keep on getting what you get now.
• Taking a risk you can avoid is taking a risk you cannot afford.
• Always choose and use qualified people.
• Only do the important stuff in all three parts of your life.
• Don’t get emotional! Always act on facts and plausible assumptions.
• Value is the key to success.

Eight lessons of business and how they apply to agriculture

1. Understand the role of management (and your part in it!)

To manage is to:

• Develop longer term strategies supported by shorter term business plans.
• Assemble and allocate the resources to achieve those plans.
• Organise the team and activities to implement the plan in detail.
• Lead and direct the human resources.
• Control the outcome through Key Performance Indicators (KPIs) and reports focussing on the issues which are not going according to plan, so that the agreed objectives are met.

To lead is defined as:

‘A process of influence in which one person can enlist the aid and support of others in the accomplishment of a common objective’.

Leadership involves:

• Establishing a clear vision.
• Sharing that vision with others so that they will follow willingly.
• Providing the information, knowledge and methods to realise that vision.
• Coordinating and balancing the conflicting interests of all members and stakeholders.

A leader steps up in times of crisis and can think and act creatively in difficult situations. Unlike management, leadership cannot be taught, although it may be learned and enhanced through coaching or mentoring.

The best farming businesses exhibit common and repeatable characteristics:

• Strong family or corporate leadership.
• Communication of a clear vision
• An identified strategic pathway (not always written down, it should be!).
• Commitment from the family or team.
• Best use of resources to implement the plans at hand.
• Recruitment of highly capable people, from within or outside of the family.

Picture the example of the Bell Cow compared to a Blue Heeler dog. The Bell Cow leads, the Blue Heeler manages. How do you operate within your farm business team (employees, contractors, agribusiness professionals) – as a ‘manager’ or as a ‘leader’?

2. Operate productively within the resource bases – or else!

The five resource bases:

1. Physical resources – land, buildings, plant, machinery, technology, etc.
2. Financial resources – capital and the capacity to borrow and service borrowings.
3. Human resources – people, corporate knowledge, expertise, labour.
4. Intangible resources – intellectual property, systems, know how, networks, brand.
5. Time – the same amount is available to everyone.

Productivity

There is nothing complex or magic about productivity. Productivity is simply doing more with the same resources or the same with fewer resources. Therefore, good management requires us to thoroughly examine each of our resources to establish how it would be possible to make them work harder. It is essential to be very disciplined and identify a sound business case (not an instinct of a vague hope) prior to investing further in resources.

When considering the causes of business failure, it is rare that it is the financial resource which is the real cause of the failure, it is more often a result of one or more of the other four.

The need to improve productivity is a regularly repeated mantra. How to increase productivity is a regular discussion point within agriculture. We use benchmarking extensively to help us diagnose where in a business there is either a weakness or the capacity to improve the performance of the business.

The aim of improving productivity is to alter the relationship between revenue and costs. The obvious is to operate with more revenue and less cost, but there is also a consideration of producing more on a finer margin with an overall greater result.

The value of comparative benchmarking is in an understanding of what is being achieved and what the best producers achieve. We acknowledge that not all benchmarks are useful, but it is certain that measuring business performance forms part of business best practice.

The statement above which implores people to identify a sound business case warrants further discussion. It is a generalisation however, that many operators consider farm expansion without adequately identifying and justifying the business case. Vague hopes rarely produce financial results!

We do see examples of farm businesses suffering growing pains because of expansion. Often, the chance to buy the neighbour’s farm occurs at a time which is not financially convenient. But the purchase occurs, thus pushing the boundaries of at least one of the five resource bases.

3. If you keep on doing what you do now you will keep on getting what you get now

Get the strategy right!

Strategy is different from vision, mission, goals, priorities and plans. It is the result of the choices the executives make, on where to play and how to win, to maximise long term value.

In any business, to win you need to be better, different, or cheaper than those with whom you compete. Today in our global environment, it is very difficult to be ‘cheaper’ – there are limits to being cheap (or cheapest) producer of beef, wool or sheep meat. There is always someone ‘cheaper’ in the world than you!

Consider these five basic strategic questions:

1. What business are you really in?
2. Who, specifically, are your potential customers and how are they segmented?
3. What do they perceive their needs to be in relation to the products or services we can presently or potentially provide?
4. How can we meet those perceived needs?
5. How can we communicate effectively with these identified target groups?

When Black & Decker considered these five basic strategic questions, they decided that they were in the business of ‘removing unwanted materials using electric power’. This provides a good example of strategy ……. and from the answers to these five basic strategic questions, Black & Decker arrived at a new product; the Whipper Snipper.

While the questions above appear to have a closer relationship to an urban business, the area of strategy is the most challenging area for most farm businesses. How do the best farm business managers get strategy right? Most will answer that they do not always get it right, but there are consistent factors which apply to their approach:

• Clear understanding of the position they want to achieve. This relates to how they define success for themselves. For example, a client may wish to manage a farming enterprise which allows the business to crop 12,000 acres. Similarly, a client may wish to reach a position of running a business which is based on 5,000 beef cows. The strategy will address how these ‘wishes’ are going to be achieved, and whether the targets are realistic.
• Reference to a simple strategic plan. The best strategic plans are the simple ones, easy to report against and easily understood. Forget the 100-page strategic plan prepared at Master of Business Admin (MBA) business school. Keep it simple, and people will stay involved. One or two-page strategic plans can and do work. They include key goals/outcomes, performance indicators, scorecards and strategic pathways which build the required action plans.
• Understanding of the business they are in, and a strong focus on working in this business without distractions. Benchmarking results often indicate that it is not the enterprise choice which is critical to profitability, it is how the management occurs within that enterprise which is the major determinant of profitability.
• Understanding the difference between strategic management and tactical management. Often people spend a lot of energy focussing on shorter term tactical management that may improve management yet will not significantly impact the overall strategic position.
• Commitment from the team, often a family, to the strategies at hand. Strategies and strategic planning operate at different levels and hence there are multiple dimensions. A strategy for succession planning may have a ten or fifteen-year timeline, or even longer. In contrast, a plan to buy another property may have a five-year timeline.
• Utilising a trusted adviser to help retain the focus on strategy on a regular basis.

It is worth reflecting on experience and observing the common mistakes that are made in the approach to strategy:

• Decision making: the statement, ‘if you keep doing what you are doing now, you will get the results of what you are doing now’ holds true. To change, decisions of magnitude are required. Focus on the difference between strategy and tactics.
• Family tradition: people are often constrained by their close relatives, even when they are dead! The strategic process can be poisoned before the start.
• Emotional attachment: this can be difficult to shed, but the most effective strategic thinking is not constrained by emotional attachment to assets.
• Diversification: chasing the rainbow often ends in tears. Usually, a change in enterprise takes about two years to reach a point of enterprise stability.
• Distractions: you can name them!

It is also most important to emphasise that a perfectly good strategy can be destroyed by poor implementation. This is better described as poor management. There are numerous corporate examples, within and outside of agriculture.

4. Taking a risk you can avoid is taking a risk you cannot afford

Do you have a risk management plan? Australian Standards AS/NZS 430:1777 defines risk as ’the chance of something happening that will have an impact upon the objectives’ which can be ‘measured in terms of consequences and likelihood’.

These risks may be classified under the following headings:

• Governance risk
• Investment risk
• Operational risk
• Outsourcing risks
• Market risks
• Reputational risk
• Inadequate policies and procedures risk
• Competition risk
• Sovereign risk
• Third party risk
• Other risks

So, what is to be done?

The business should apply the following options for risk management strategies applicable to the material risks identified:

• Accepting the risk, because controls would not be cost effective.
• Reducing the likelihood of the risk being realised, through preventative actions such as reconciliations, documented authorities, manuals, rules and policies supported by a culture of risk awareness and appropriate compliance processes.
• Reducing the consequences or impact of realised risk to the company, e.g. business continuity or disaster recovery planning.
• Transferring the risk to other parties, e.g., through insurance arrangements or outsourcing contracts with appropriate indemnities.
• Avoiding the risk, e.g. avoiding certain activities or projects altogether (while this will remove the immediate risk, it may introduce other risks consequently).
• Modifying the risky activity to reduce or remove the risk.
• Remember to always consider the secondary or consequential risks arising from the transfer of risks to outsourced service providers.

Once the options are considered, a written and regularly reviewed risk management plan should be developed.

Conversations around risk management are often met with a less than enthusiastic response. Yet, good operators establish and maintain a sound risk management plan. When thinking about risk management and the occurrence of certain events, think about firstly impact, and then response. Consider the impact on individuals, or the business, and then consider the range of responses which could apply.

The templates for the preparation of risk management policies are reasonably standard. A more innovative approach turns the risk management policy into the policy of management, combining the two areas thus streamlining administration.

For example, consider the different risks of the cost of finance, lack of training and education of the business principals and the need to manage the liquidity of the balance sheet. These categories can be turned into policies for interest rates, training and education and investment off farm. Of course, the list of policies for management is much longer than this. A regular review of a small number of the relevant policies ensures a regular focus on an important administrative aspect of the business.

Even for the most optimistic in agriculture, things do not always go to plan. What needs to be done with your business to ‘control the controllable risks’ and ‘manage the uncontrollable risks’ so that resilience can be a part of your business?

5. Always choose and use qualified people – it is easier

The characteristics which make people qualified are:

• Capability – physical and intellectual
• Aptitude
• Motivation
• Skills – education, training, experience

Most managers hire people for their skills, but this does not always get the best result. Skilled people can be the wrong people in the workplace if they have an indifferent attitude or lack motivation. It can be argued that if people can do it, comprehend it and want to do it then they can learn any skill.

Service providers like lawyers, accountants, agents and advisers are just outsourced staff and the same level of care should be used in choosing them as is used in choosing staff within the workplace.

Unqualified people can damage or even ruin your business.

‘Montgomery’s dictum’ “Everyone has a ceiling beyond which they should not be permitted to go” versus the ‘Peter Principle’ “Everyone is promoted to their level of incompetence”, both have application.

Never take the best of a bad lot.

In rural businesses, the principles of human resource management cannot be different from any other business. There are stories of the good and the bad. We often hear conversations such as ‘they have been lucky with their manager’, or ‘he has a very good agent’. Good operators look after their people well and people are attracted to those who can demonstrate good leadership skills. There is a wealth of information and training programs directed towards how to manage the team, look after labour and other human resource-based initiatives. What is often missing though, is a focus on oneself and an understanding of how the individual impacts on others.

As advisers, we have been asked to mediate between employees and employers on many occasions. What often emerges is the need for every team member to undertake some form of personality profiling. The best place to start in developing teams is to discover the best talents of each individual and this can then help with relationships such as that existing between employer and employee.

Personality profiling can be used and has the following benefits:

• It allows people to communicate to other peoples’ strengths.
• People understand the different approaches to decision making.
• Attitudes towards risk and change are identified.
• Individual team members strengths can be better used.
• Potential conflict can be avoided between two individuals of significantly different personality.
• The process helps prepare people for best performance.
• Ultimately more effective working relationships are established.

A further benefit is that a team profile can be established. It is beneficial to consider whether the team profile is the one which is applicable to the business at hand.

If you’re finding it difficult to manage and keep staff in your farm business perhaps the problem is you! What is it with your management style and communication that might need changing to create better work outcomes for all? After all, the easiest person to change first is yourself!

6. Only do the important stuff in all three parts of your life

Much is made of ‘time management’ but the truth is that we cannot manage time which continues to tick away at the same pace no matter what we might do – what we can do is to manage our activities within the time frame we have allotted to our activities.

For most people, this is difficult until we learn that we should do the important things and then only do the urgent things if they still exist and we have the time left to do them, most urgent things disappear if we leave them for a while.

So, what are the important things? We will only know this when we have set specific objectives for the three different parts of our lives:

• Our family and community life.
• Our personal and private life.
• Our work life.

To be useful, the specific objectives must meet four criteria:

• They must be credible in the circumstances and achievable given the resources which are presently or potentially available.
• They must be clear and definite, having a time limit and being specifically measurable – not vague or all embracing.
• They must be understandable to and understood by all the people who can contribute to their achievement.
• They must be capable of being changed if the circumstances against which they were set have changed.

Once your objectives are established, then it is a matter of establishing which priorities are important:

Priorities can be set using the points outlined in Figure 1.

Figure 1. Matrix for determining priorities.

Delegation – delegation is not telling someone else what to do, it is making sure that what you want done gets done using other people. Once your objectives and priorities are established, you then have the pathway to good delegation Too many ‘good ideas’ are highly distractive – focus on the few things which are important, always work on your TOP 5 priorities, apply discipline, refuse to be distracted and FOCUS.

7. Don’t get emotional! In business always act on facts and plausible assumptions

In section 6 the three lives each of us leads was discussed. In this section, let’s divorce the business section of life from the other two. This is not an easy task because a person without emotion in both their personal life and their family and community life is an incomplete human being.

Some will argue that it is not possible to compartmentalise but failure to do so has led to many catastrophes particularly, but of course not exclusively, in family businesses.

One could cite example after example of families finding places for family members who were not qualified and then promoting them way beyond their ceiling to the point that the company failed and usually consumed most of the family capital at the same time. To what end? The fact is that not all are suited to business, putting square pegs in round holes does nobody any favours. Be sure that when considering a family members involvement in the family business you go carefully through the CAMS principle (Culture, Automation, Measurement and Sharing) and don’t allow emotion to overcome judgement. If you do, then the outcome is frighteningly predictable.

But it is not only family companies which suffer from emotional management, some of the great traps include an emotional attachment to a product which has passed its time, or loyalty to a staff member who has proved to be incompetent in a role, or sticking with a distribution chain which is no longer viable or ignoring new technologies because ‘we have always done it this way’.

Accepted ‘common knowledge’ can be one of the biggest blockers to innovation and productivity growth in any business, and agriculture is no exception. Positive change is generated in part by attitude and breaking the mindset that ‘because it has not been done before, it cannot be done now or in the future’.

At a farm level, it can be most frustrating when we see emotion standing in the way of effective decision making, in areas such as:

• Assessing the lack of profitability within a cattle or sheep stud. ‘Our stud has superior genetics’, usually heard during a conversation about why rams or bulls cannot be sold.
• Over estimating the genetic value of a commercial herd of cattle or sheep (‘We have been breeding the same line for 35 years’).
• The farm being used as a career backup by family offspring and Mum and Dad allow it.
• Precluding consideration of a sale of the family farm, because it has been a family farm.
• Precluding the purchase of an asset because of an abject aversion to borrowing.
• Retaining engagement of third parties who do not add value – agents, accountants, consultants.
• Accepting sub-standard performance from employees, including farm managers.
• Conversely, not considering that sub-standard performance may arise from the performance of the business principal.

8. Value is the key to success

Value = benefits and performance/price asked

We need to offer value to:

• Our customers so that they have a reason to buy from us at our price.
• Our staff so that they have reasons to stay with us and increase our mutual prosperity.
• Our owners so that they get the best long term and sustainable return on their investment.
• Our suppliers so that they give us the best available deal.
• Our community so that we fulfil our social responsibility.
• Ourselves so that there is meaning in what we do.

Consider the points above from a farm production point of view. What does a farm business need to do in order to provide value?

• Produce a product which meets certain quality specifications, allowing for the measurement of quality.
• Challenge staff to grow their competencies, motivate staff through appropriate remuneration and/or incentives.
• Generate enough revenue, in order to meet financial commitments and provide the owners with an acceptable return to capital.
• Act as a community and global citizen by managing resources in a way which does not degenerate the resource base, or negatively impact on others.
• Provide a work place which is not only safe to all but satisfying to those who earn their living from within.

Contact details

Lachlan Polkinghorne
ProAdvice Pty Ltd
lpolkinghorne@proadvice.com.au