The good news: There is not a recipe to success with a beef cattle enterprise. The bad news: There is not a recipe to success with a beef cattle enterprise. Certainly there are a multitude of tools, technologies and processes that can be selected to improve decision making, but the mix will vary based on the goals, limitations and resources unique to each enterprise. One of the great misconceptions about agricultural enterprises considered to be small-scale — based on measures such as annual cash flow, inventory numbers or land mass — is that they can be managed without consideration of business fundamentals such as planning, budgeting and benchmarking. Nothing could be further from the truth.
Regardless of size, a cow/calf business is a system characterized by complexity. Consider all the variables inherent in a cow/calf setting — landscapes highly diverse in soil type, topography, mix of flora and fauna, and watershed characteristics; cattle at various stages of production; seasonality in markets and weather; mix of skills in the available human resources; and the combination of enterprises undertaken by management. Throw in a few heifers that have escaped to the flower garden, a broken piece of equipment and finding the neighbor’s bull on the wrong side of the fence, and it’s not surprising that people can feel overwhelmed regardless of the size of enterprise.
John Preston once wrote that “the beauty of not planning is that failure comes as a complete surprise and is not preceded by any period of anxiety.” However, by taking an intentional approach to the enterprise, complexity can be managed, goals can be achieved and personal fulfillment can be obtained. Creation of a management plan that aligns with the vision, goals and objectives of the owners and managers is a critical step. Initiating this process begins with establishing the vision for the enterprise: Is it to produce income, provide a shared family experience, improve the landscape or enhance quality of life? Without clarity of vision and desired outcomes, it is very difficult to build an effective plan.
A useful model for creating an integrated plan is the balanced scorecard concept (figure 1). This concept recognizes six fundamental components to the cow/calf business: lifestyle, agricultural production, financial, customers, natural resources, and learning and growth. For each component, a set of goals and objectives can be developed with associated performance metrics to measure progress. By working within the six components, managers are more likely to build systems that work in harmony. For example, if a lifestyle goal is to involve family in the enterprise and to share positive experiences beyond the farm, a financial objective is to generate positive cash flow and a production goal is to maximize live calves, then it is critical to select cattle that are easy calving, have calm dispositions and meet the demands of the marketplace for growth rate, muscularity and frame size. The outcomes of such a strategy are:
- Easy-calving cattle require less input of time and labor (allowing more flexibility to be involved with family events), are more likely to breed back quickly in subsequent breeding seasons and are more likely to wean healthy calves.
- Calm cattle are more enjoyable to work with and better allow the involvement of all members of the family.
- Cattle with positive market attributes are more likely to maximize revenue to the enterprise.
Creation of the plan should involve those who will be asked to execute it and those who will be significantly impacted by the business. Thus, both key employees and family members should have input on the front end of the process and be engaged in ongoing discussion as the enterprise plan is implemented and ultimately measured.
Albert Einstein pointed out that solutions should be “as simple as possible but no simpler.” This concept is very appropriate for enterprise-management planning. A plan with too much complexity that focuses on too many details will create an unwieldy nightmare for all involved. However, by focusing on the critical few elements of greatest significance to the overall performance of the enterprise, a roadmap can be constructed that keeps the organization moving toward its desired future.
What is the rationale for the six components to be included in the balanced scorecard? These six elements are deeply connected and have the greatest impact on the profitability and longevity of the enterprise.
Natural resources — Landscape health is critical to long-term success, and enhancement of the ranch ecosystem provides a buffer against the whims of weather, protects decision flexibility and offers opportunities to diversify income.
Commodities/production — The mix of livestock, cropping and non-agricultural activities and the productivity of each are fundamental to cash flow and cost of production. Furthermore, the commodity mix chosen must be aligned with the natural and human opportunities and constraints of the ranch or farm.
Customers — Management guru Peter Drucker believed that the “only valid definition of business was a satisfied customer.” Given the nature of commodity production it can be difficult to have in-depth conversations with specific customers, but awareness and knowledge of the demands of the market place are important.
Financial — Return on investment, net income and profit margins are important measures of a business driven by profit motive. Even for enterprises that are more focused on lifestyle, a failure to have a system of checks and balances on cost of production can lead to undesirable outcomes.
Lifestyle — Attention to this component acknowledges that in addition to making a living humans long to make a life worth living.
Learning and growth — This may be the most important component of all because successful management and leadership of a complex system depends on the ability of people to learn, adjust perspective, develop skills and grow their capacity.
A management plan is never flawless, and future conditions cannot be foreseen with perfect clarity. However, the balanced scorecard approach coupled with widespread communication of the plan within the organization go a long way in managing complexity and attaining the vision upon which the enterprise was created.
For more detailed information, visit agrisk.umn.edu/conference/uploads/AArzeno0205_02.pdf.
Tom Field is director of the Engler Agribusiness Entrepreneurship Program at the University of Nebraska.