Farm business strategy is not a race, it’s a process
Organizations need strategy to guide them in achieving objectives that fulfill their vision and mission. For producers, the purpose of strategizing is to determine how the farm business will reach its performance targets, outperform rivals, find and maintain competitive advantages and build a long-term competitive position.
Purdue University economists have developed a process for strategy formulation that is geared to the farm environment. Systematic strategic planning requires a series of steps that farmers must work through in order to conceive a strategic business plan.
"The order of the steps is somewhat arbitrary because information considered at each point in the process may lead the farm business manager to go back and rethink previous steps of the process," notes Craig Dobbins, an economist with the Center for Food and Agricultural Business at Purdue University.
The basic steps of the process are as follows:
- Develop a clear understanding of what should be accomplished in the business and why.
- Look outside the farm at the environment in which the business operates in order to identify potential opportunities and threats.
- Evaluate the farm business to identify its strengths and weaknesses in terms of being able to compete in its business environment now and in the future.
- Review current strategies and evaluate new strategies that appear to fit the situation.
- Develop a plan of action for implementing selected strategies.
- Identify the factors that are critical to the successful implementation of strategies and methods for frequent monitoring.
- Recognize the assumptions underlying the selection of strategies.
Parts of a Whole. Each step in strategic planning involves information gathering, reflective thinking and communication.
"Obviously, most farmers gather information, think and communicate with others on a continuing basis," Dobbins notes. "An advantage of systematic strategic planning, as opposed to a more piecemeal approach, is the balance struck among the different steps. Systematic strategic planning emphasizes the connection of the steps in the process."
SWOT Works. SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. Using SWOT, the farm business manager can develop strategies that will allow the farm business to use its strengths to capitalize on opportunities and deflect threats while minimizing the weaknesses of the business.
To begin this internal scanning, the business needs to be broken down into comprehensible chunks. It is useful to group similar parts of the business together into units. A strategic business unit is based on important strategic elements common to each of the parts being grouped. Essentially, the farm business manager assesses what the business offers to its customers.
The manager can answer this in a number of different ways. One way is to answer in terms of available resources. Another way is to answer in terms of what markets the business serves or what products the business produces.
For instance, the manager of a crop farm might want to think of its commodity crops as one unit and its crops produced on contract as another unit. The same manager might think of corn as one unit and soybeans as another.
The first half of SWOT concerns the business itself, its internal strengths and weaknesses. These are things that the business can control, such as employees or machinery.
Identifying the internal strengths and weaknesses of the business is a two-stage process. The first part is to identify what the business does better than the competition. The second part is to consider how the business does it better.
An internal analysis also lists the resources and capabilities that lie behind the strengths and weaknesses. Resources are the physical assets used in the business. While they are important, they are seldom the source of a competitive advantage.
Capabilities are the skills and attitudes of the people in the business. Skills and attitudes are more difficult for competitors to match.
If capabilities are the source of a farm’s strength, it will be easier to maintain that strength to maintain a competitive advantage. On the other hand, if capabilities are a source of weakness, it might be more difficult to improve.