Understanding Management in an Agribusiness Context Chapter 2

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UnderstandingManagement in an Agri-business
Context(Chapter 2)
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Objectives

• Understand management and the role that managers
  play.
• Understand the relationship between strategic
  planning and tactical decision-making.
• Identify common goals of farm and ranch managers
  and show how they affect decision- making.
• Review the steps in the decision-making process.
• Discuss some unique characteristics of the
  decision-making environment for agribusiness.

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1. AgBus. Managers are faced with rapidly
changing circumstances that cannot be controlled

• Weather
• Prices
• Technology
• Pests
• People

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2. Changing circumstances affect decisions

• What to produce?
• How to produce?
• What inputs to use?
• How much of each input to use?
• How to finance the business?
• Where and when to market products?

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Classic Functions of Management

• Planning
• Implementation
• - organizing directing in some books!
• Control
• Adjustment

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Planning

• Likely the most important since often overlooked.
• Choosing a course of action, policy, or
  procedure.
• Not much will happen without a plan
• - Can you take a trip without knowing where
  you are starting from, where you are going, or
  what alternatives methods of transportation exist
  for getting there?

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Planning (cont.)

• Steps to planning
• Establish goals.
• Identify the quantity and quality of resources
  available
• - land, water, machinery, livestock, capital, and
  labor
• Allocate resources to the uses that will come
  closest to accomplishing the goals of the
  business.
• Where you want to go, what is available to get
  there, and best way to take the trip.

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Implementation

• Once the plan is developed, it has to be
  implemented.
• Acquiring resources and materials.
• Overseeing the entire process.
• Coordinating.
• Staffing.
• Purchasing.
• Supervising.
• This is the on-the-ground stuff that most
  people think of as management.

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Control

• Monitoring the results.
• Recording information.
• Comparing results to a standard
• May be a recognized standard or your standard!
• Taking corrective action.

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Adjustment

• Necessary if not meeting objectives.
• May be minor or fairly major.
• May require more information.
• Suggests need for flexibility.

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Management Flow Chart(based on four functions of
management)
Planning
Implementation
Control
New Information
Adjustment
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Two Categories of Management

• Strategic Management charting the overall
  long-term path of the business.
• 2. Tactical Management taking short-run actions
  that keep the business moving along the chosen
  path until the destination is reached.

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Strategic Management

• Doing things right in agribusiness is not
  enough to ensure success. Agribusiness managers
  must also do the right things.
• Strategic management is trying to discover what
  the right things are for the business at a
  particular time.

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6 Steps of Strategic Management

• Define the mission of the business.
• Formulate the goals for the business and family
  (family often part of the business).
• Assess the resources available to the business.
• Survey the world surrounding the business.
• Identify and select appropriate strategies.
• Implement and maintain the selected strategies.

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Defining the Mission of the Business

• Mission statement - a short description of why
  the business exists (see text, page 22 for an
  example mission statement).
• May include
• Business focus.
• Family mission
• Social, religious, and cultural values.

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Formulating the Goals of the Business

• Goals provide a reference point for making
  decisions and measuring progress
• Values also influence goals.

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Points to Remember When Establishing Goals

• Goals should be written.
• Goals should be specific.
• Goals should be measurable.
• Goals should have a timetable.

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Common Ideas for Farm and Ranch Goals from Surveys

• Survive, stay in business, dont go broke, avoid
  foreclosure.
• Maximize profits, get the best return on
  investment.
• Maintain or increase standard of living, attain a
  desirable family income.
• Increase equity, accumulate assets.
• Reduce debt, become free of debt.
• Avoid years of low profit, maintain a stable
  income.
• Pass the entire farm on to the next generation.
• Increase leisure, free time.
• Increase farm size, expand, add acres.
• Maintain or improve the quality of soil, water,
  and air resources.

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Internal Scanning

• Assessing the resources of the business
• An honest and thorough assessment of resources
  will help the manager choose realistic strategies
  for achieving the goals of the business
• Physical resources
• Land, breeding livestock, irrigation systems,
  buildings, machinery equipment.
• Human resources
• Skills of operator/employees.
• Do not overlook as an important competitive
  issue.
• Financial resources
• Complete financial statements to explore
  alternative sources of capital.

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External Scanning

• Surveying the Business Environment
• Critically analyzing the business environment
  surrounding the agribusiness firm
• Changing consumer tastes and preferences.
• International markets.
• Availability of new resources.
• Changes in government regulations.

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Internal and External Scanning

• Sometimes called a SWOT analysis
• Strengths
• Weaknesses
• Opportunities
• Threats

Internal
External
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Selecting a Strategy

• Brainstorm about possible plans for the future.
• Match-up the best opportunities with the strong
  points of the business.

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Implementing the Selected Strategy

• Formulate action steps.
• Place steps in a timetable (PERT analysis).
• Execute steps promptly.
• Decide what information is needed to evaluate the
  success or failure of the strategy.
• Remember, it is an ongoing activity
• Be alert for new threats and opportunities.
• Take advantage of new resources.
• Adapt the farms strategies to changes in values
  and goals.

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Tactical Decision-Making Steps

• Identify the problem.
• Identify alternatives.
• Collect information.
• Analyze the alternatives and choose one.
• Implement the decision.
• Monitor the results.
• Accept responsibility for the results.

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Identifying and Defining the Problem

• Managers must constantly be on alert to identify
  problems as quickly as possible.
• Most problems dont go away if you ignore them.
• Define the problem as specifically as possible
• What appears to be a problem is often just a
  symptom of a deeper problem.

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Identifying Alternative Solutions

• Brainstorm and list any idea that comes to mind.
• List potential solutions to the problem.
• Some are obvious once the problem is defined.
• Others require time and research.
• Some may become apparent during the process of
  collecting data and information.
• Dont be restricted by custom, tradition, habit.

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Collecting Data and Information

• Data may be obtained from many sources
• University extension services
• Bulletins and pamphlets from ag. experiment
  stations
• Electronic data services
• Farm input dealers
• Salespeople for agricultural inputs
• Radio and television
• Computer networks
• Farm magazines and newsletters
• Neighbors
• Past records

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Analyzing the Alternatives and Making a Decision

• You may not have all of the information
• Use your best judgment
• Choosing the best solution isnt always easy or
  obvious
• Change nothing
• Go back
• Redefine the problem
• Go through the steps again
• Making decisions isnt easy but its what
  managers do.
• Just because a decision is difficult is no
  reason to postpone making it, though. Many
  opportunities have been lost from delay and
  hesitation.

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Carrying out the Decision

• No goals will be met by simply making the
  decision.
• You have to take some action
• Acquire resources
• Develop budgets
• Construct a timetable
• Talk with partners, investors, employers
• Not implementing a decision is the same as not
  making a decision at all.

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Monitoring and Evaluating the Results

• Monitor the results of the decision so you can
  modify it.
• Set up a way to assess the results of a decision
• Profit and loss statements
• Yield records
• Milk or feed efficiency records
• Learn from your mistakes

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Accepting Responsibility

• The manager is responsible for the outcome of the
  decision.
• You cant improve the results by blaming others
• Weather
• Government
• Lenders
• Suppliers
• Processors
• Try to control the damage and then turn your
  attention to the future.

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Tactical Decision Making(An Example)

• See example related to soil erosion on page 28 of
  text.
• - note steps and actions.

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Characteristics of Decisions That May Influence
Effort

• Importance
• Frequency
• Imminence
• Revocability
• Number of alternatives

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Importance

• Importance can be measured in several ways
• Amount of involved in the investment.
• Potential size of gain or loss.
• Impact on business/family goals.
• Examples
• Sorting cattle.
• Buying small tools.
• Purchasing land.
• Installing an irrigation system.
• Constructing a new building.

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Frequency

• Some decisions are made infrequently
• Choosing farming or ranching as an occupation.
• Buying a farm.
• Other decisions are made daily
• Scheduling daily work activities.
• Balancing livestock rations.
• Setting breeding schedules.
• Small errors in frequent decisions can
  accumulate into a substantial problem over a
  period of time.

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Imminence

• Some decisions need to be made very quickly
• Selling grain.
• Other decisions may have no clear deadline
• Time to gather more information.
• More time to analyze alternatives.

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Revocability

• Some decisions can be easily reversed or changed
  if you decide the first decision wasnt the best
• Calibrating a seeder
• Adjusting a feeder
• Changes can be made quickly and at little cost.
• Other decisions are less reversible
• Drilling a well.
• Constructing a building.
• It may be impossible to recover investment.
• Spend more time on these decisions.

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Number of Alternatives

• Some decisions have only two alternatives
• Yes or no
• Sell or dont sell
• Decisions that have many alternatives require
  more time to analyze
• Selecting seed varieties
• Choosing the appropriate sire

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The Unique Decision-Making Environment in
Agriculture

• Biological Processes
• Fixed Supply of Land
• Small size
• Perfect Competition

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Biological Processes

• Limited because of the biological and physical
  laws of nature
• Gestation length
• Feed intake
• Crop maturity time
• Risks that many non-farm businesses dont face
• Rainfall
• Temperature
• Disease
• Genetic complexity

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Fixed Supply of Land

• The supply of a critical resource in agricultural
  production is fixed
• Farmers try to increase productivity on existing
  land.
• Outbid other uses for land available for sale or
  rent.
• Land prices are very sensitive to changes in
  prices of commodities and inputs.

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Small Size

• Large corporations have distinct groups
• Owners
• Managers
• Labor
• Farm, ranch, or small agribusiness
• An individual or small group provides management
  and contributes most or all of the labor.
• Personal and business goals and activities become
  intertwined.
• Less opportunity for specialization.

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Perfect Competition

• Each individual farm or ranch is only a small
  part of the total industry.
• Usually cannot influence the prices paid for
  resources or the prices received for products
  sold.
• Ways to overcome perfect competition?

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Summary

• Good management often determines if a profit or
  loss is made.
• Managers must make plans, implement the plans,
  and monitor their success.
• A strategic plan starts with a vision statement
  of why the business exists.
• Goals provide the direction and focus for the
  process.
• Strategies can be identified and selected after
  assessing the internal resources and the external
  environment (SWOT).
• Strategies must be implemented and carried out.

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Summary

• The strategic plan is carried out by making a
  large number of short-run tactical decisions.
• Tactical decisions are made by defining the
  problem, gathering information to analyze
  alternative solutions, choosing and implementing
  an alternative, and evaluating the results.
• Ag-Bus firms exists in a unique environment
• Agriculture relies heavily on biological
  processes.
• The supply of farmland is essentially fixed.
• Many of the same people combine ownership, labor,
  and management.
• Firms usually operate in a perfectly competitive
  economic environment.