3 Steps to a winning strategy for your agribusiness

Strategic management of your agribusiness

Managing any business successfully requires a thorough action plan for conducting operations. It’s no different for farmers. To ensure everyone is working towards a common goal, cohesive, long-term strategies need to be put in place.

“Strategic management is more than a planning, implementation and control process. It is also a state of mind and an attitude. Strategic management forces you to be forward-thinking, proactive, and focused on where you are going and how you will get there," according to Don Hofstrand, President of Rural Development Partners.

Strategy is about using your business’s strengths to capitalise on opportunities and achieve its goals. Strategy is developed by first identifying two or more alternatives for your business. This is followed by the development of an action plan and establishing a system of evaluation and control.

While most management challenges faced by agribusinesses are similar, selecting the right strategy unique to your business needs and goals relies on three critical steps:

1. Conduct a comprehensive internal analysis of the business

Planning is a key element of management-driven farming. Experts argue that time dedicated to planning is a high-return investment. “Strategic planning of all farming activities clarifies thoughts, creates opportunities, reduces stress and changes reactive farming into proactive farming,” says DA Neal of the New Zealand Grassland Association.

Neal found that running his farming business was a structured and strategic activity and that it was important to take into account the personal and professional goals of his employees when determining business goals.

Share personal goals

Whether it’s completing a qualification, spending more time with family, investing for their children’s education or going on a long-awaited vacation home, each employee (including you) has a personal goal they want to achieve. These goals should form the basis of the business’s goals.

“The business goals must be designed to achieve the goals of the individuals and family involved in the business. If business goals are not designed for this purpose, they must be re-evaluated,” says Hofstrand.

Analyse internal abilities and flaws

Identifying your business’s strengths and weaknesses will help you discover what it is you do better than your competition, giving you the opportunity to gain a competitive advantage. When your weaknesses are detected, you can then start seeking ways to minimise the impact of these vulnerabilities.

“The strengths and weaknesses of a farm business are often related to the skills and talents of the people in the business,” says Hofstrand. “For example, if you are good at networking and working with others, you should try to take advantage of this talent. If record-keeping is not your thing, you may want to outsource this function so it doesn’t become a weakness of your business.”

2. Remain aware of your current and future environment

Industry trends, competition and the socio-economic landscape are key external influencers of your agribusiness. When identifying trends in your field, it’s important to note changes in each of the industries you are competing within.

“External scanning is based on the premise that the environment in which you live and work is not static, but dynamic and constantly changing,” says Hofstrand. He advises dividing competitors into major groupings and then identifying the threat each group poses to your agribusiness.

When it comes to fluctuations in the market, keep an eye on factors including interest rates, business regulations, inflation, consumer preferences, government programmes and demographic distributions.

3. Establish your growth path

Depending on your age, how long you’ve been in the field and your future plans, you may need a long-term strategy that covers the next few decades, or a shorter plan that will see your agribusiness close down upon your retirement or passed onto your children. This step is called horizon planning.

Directional planning, on the other hand, involves many more business-related questions, such as:

• Where is the business going?
• Will it grow or stay the same size as it is?
• If it grows, how do you plan on growing it?
• Will you add one or more new ventures or will you expand your existing offering?
• If you add a new venture, will you drop an existing arm of the business?

Experts from the College of Agriculture and Natural Resources name the primary farm business strategies as:

• Growth – expanding the size of the business.
• Stability – maintaining the size of the business.
• Retrenchment – refocusing the business for improved performance.
• Succession – transferring the business to younger generation.
• Exit – ending and leaving the business.

Strategies to consider in your strategy development

According to the College of Agriculture and Natural Resources, businesses create competitive strategies to set themselves apart from others in the market. Two of the types of competitive strategies you can implement to your agribusiness include the ‘least-cost’ and ‘differentiation’ strategies.

• Least-cost strategy

While producing products of good quality at a significantly lower price leads to competitive advantage, this type of strategy is reliant on efficiency of operations and best for commodity-based industries such as the grain industry.

However, when you run a small agribusiness, price can be difficult to compete on, which is why the next strategy could be a better option.

• Differentiation strategy

When the value outweighs the increase in cost, you set your product apart from the competition by offering a unique or different product or service that your competitors either can’t or won’t offer.

To implement this strategy, however, you need to ask yourself what is unique or different about your business, and if these unique selling points can be copied easily.

“The overall strategy is derived from component strategies including marketing strategy, production/operational strategy, financial strategy, and management strategy. Be sure to include the main components of marketing, production, finances, management, and your key competitive advantage points," according to the College of Agriculture and Natural Resources.

Before choosing a strategy that will work for your particular operations and the internal and external environments your business faces, it’s important to backtrack and carefully evaluate your agribusiness’s goals, strengths, weaknesses and future plans.

Remember that the people within your organisation have personal goals and these need to be aligned with your business’s vision before you think about moving forward with your preferred plan.

This article was originally published on 26 March 2018.

Resources:

https://www.extension.iastate.edu/agdm/wholefarm/html/c6-41.html https://extension.umd.edu/newfarmer/start-here/formulate-farm-strategy

https://dspace.nwu.ac.za/bitstream/handle/10394/15633/Van_der_Merwe_D_2014.pdf