When timing is everything, a contingency plan will keep you on track
Strategic management is largely a matter of anticipating the future, recognizing problems before they occur, and taking corrective action while the window of opportunity for effective response is still open. In fact, the definition of strategic management is the ability to anticipate, adapt to, drive and capitalize on change.
Successors need both experience and mentoring in the strategic planning process to fully develop the vision and evaluative skills they will need to strategically manage the business.
Unfortunately, very few family farms have a strategic plan for their business. There are three reasons why most do not have a plan. The strategic planning process requires 1) sharing information, 2) the CEO responding to ideas and others defending their own ideas, and 3) spending a lot of effort on things traditional managers don’t like to do or feel they have the time to do, but which are necessary to do it right.
In contrast, many successful family businesses have three plans, not just one. These include a
long-term strategic plan for the business, a detailed business plan, and a short-term contingency plan for dealing with the unexpected.
While most farmers are good at tactics and operations, the top executives recognize that to be successful, they first have to determine what they want to accomplish and then let that determine how they get there. It boils down to recognizing the difference between doing things right and doing the right things. Failures happen because businesses who were doing something very well were no longer relevant or what the market wanted.
Success emanates from first doing the right things and then doing them well. Hockey great Wayne Gretzky said, "What separates me from the average player isn’t that I’m stronger or faster, but that they go where the puck is while I try to go where it’s going to be."
What really matters. It is important to know that it is the planning process, not the actual document, that matters most. The strategic planning process involves both internal and external environmental scanning, called a "SWOT" analysis, that identifies strengths, weaknesses, opportunities and threats. This process can be threatening and frustrating to action-oriented managers, who often view the necessary brainstorming as a waste of time. However, it takes a process like this to flesh out the following: a clear vision of where the business needs to go, what it will take to get there, what could go wrong, and the implementation and exit strategies.
Top managers spend time thinking about "what-if" scenarios and developing contingency plans. They don’t dwell on the negative, but they consider what could go wrong and what they’ll do if it does. It is no different than what coaches do when they develop a game plan.
The average manager may plan, but he limits himself to the most likely outcomes and doesn’t spend enough time on contingency planning. He treats planning and analysis as a beginning and end of the year exercise. Even then, it is more of a chore than an opportunity.
A short-term contingency plan involves analyzing different scenarios and creating specific plans for dealing with issues before they become problems. These include death, divorce, disability or a decision by one of the owners to sell his or her interest. Doing it at a time when things are going well helps make discussions less threatening and emotional. Crisis plans can be developed to address issues such as:
- What if we sold the farm?
- What if we had a major disease outbreak?
- What if a key nonfamily manager or employee decides to suddenly quit?
- What if output prices suddenly fell by 50% or input prices doubled? (Sound familiar?)
- What if we lost a major contract or our biggest land lease?
- What if our lender discontinued financing us?
In each case, the objective is to discuss the issues and actions needed. The major issues should be readdressed on a regular basis.
"Don’t be afraid to ask dumb questions; they’re more easily handled than dumb mistakes," says John Baker, director of the Iowa State University Beginning Farmer Center and the Iowa Concern Hotline.
Take the opportunity. Strategic managers are more opportunistic because they know timing is everything. Timing isn’t just knowing when to get in, it also deals with knowing when to pull back, when to expand and when to get out.
One of the key points in the book Good to Great by Jim Collins is that the best companies spend as much time analyzing what to stop doing as they do analyzing new opportunities. Unfortunately, the average manager jumps on the bandwagon after the early adopters have already made all of their profits and then doesn’t decide to get out until he is forced to.
The success of a family business requires not only a shared vision but also a strong set of common values. As families expand and grow older, goals and values become more diverse. In order for a business to continue to be successful, each generation needs to bring in new strategic ideas that build on the operation’s core competencies.
Identify the strengths and weaknesses of your farm business plan with the Business Plan Self-Assessment tool.
Danny Klinefelter is a professor and Extension economist at Texas A&M University specializing in agricultural finance and management. He is the director of The Executive Program for Agricultural Producers (TEPAP) and the executive secretary of the Association of Agricultural Production Executives (AAPEX). Contact him at (979) 845-7171 or email@example.com.