1 12 Best Management Practices Things that 95 of Ag Producers Don t Do AGEC 330 Test 3 Fall 2014 Review Some will be given be able to talk about them 1 Coordinated revenue cost management manage margins don t have to hit the market high to cover costs 2 What if scenarios sensitivity analysis contingency planning planning for what you will do if plan A doesn t work 3 Monitoring analysis managers use multiple perspective look for cause to catch problems both internal external analysis effective performance evaluations 4 Accrual adjusted profitability analysis cash basis cannot measure the true profitability of a business 5 Autopsies 6 Benchmarking 7 The 80 20 Rule 8 The 5 Rule evaluation of the results of key decisions whether good or bad evaluate how your business is performing compared to the rest of the market 80 of your outcomes come from 20 of your inputs Success comes from doing 20 things 5 better than doing 1 thing 100 better 9 Analyzing what to STOP doing Analyzing what they need to stop doing just as much as they evaluate new opportunities 10 The Entrepreneurial E Myth principle the mistaken belief that most businesses are started by people with tangible business skills when in fact most are started by technicians who know nothing about running a business Hence most fail 11 Peer advisory groups Sounding board for ideas Multiple vantage points and perspectives Benchmarking Accountability Honest constructive feedback Ability to see bigger picture 12 Strategic alliances pooling arrangements alternative business models capture economies of scale improve asset utilization better tech manager skills Gaining outside perspectives can help in creating business opportunities The Strategic Management Process 1 Define the firm s mission vision 2 Establish objectives 3 Assess the firm internal analysis 4 Asses the Environment external analysis 5 Identify opportunities threats 6 Develop evaluate alternative strategies 7 Select strategy 8 Implement strategy 9 Monitor performance 2 10 Revise strategy about anticipating adapting to driving capitalizing on change only 1 3 of family businesses have a strategic plan only 1 3 of those implement the plan b c this requires sharing info responding to ideas of others defending your own ideas and most importantly commitment to the plan Ten Best Practices of Firms that Have Completed Successful Management Transitions 1 An assessment of the needs of the business not just for now but for the future 2 An objective assessment of the strengths weaknesses of the current CEO 3 An objective assessment of the strengths weaknesses of the successor 4 Open honest mature conversation 5 The creation of a management development plan that addresses experience responsibility training and honest objective evaluation feedback 6 Planned experience exposure and networking opportunities for the successor not just outside the business but also outside the industry 7 Development of a common vision for the business 8 An ongoing delegation of responsibility authority with a specific timeline 9 Involvement of the successor in the development of the business plan the strategic decision making process 10 Implementation of a plan for what the current CEO is going to do next 5 Common Communication Relationship Problems 1 Dictatorship 2 Secrecy 3 Inability or Unwillingness to admit to being wrong 4 Unresolved conflict 5 Not fighting fairly 8 Questions Employees Families Should Know to Reduce Communication Problems 1 What are they expected to do 2 Why are they doing it 3 How are they doing it 4 How can they improve 5 Where is the business headed 6 How does it plan to get there 7 What is my role 8 What is in it for me 12 Drivers of Change in U S Agriculture Summary of One Set of Slides Given on 12 02 1 Share fracking for oil natural gas has the potential to make the U S energy interdependent within 10 years new technology increases needs for natural gas nitrogen fertilizer production 2 Management Development req s continuous improvement larger farms will survive management team 3 Water 3 oil of 21st century increased state national governance weather variability acts through supply interest rates political control would be a disaster 4 The Federal Reserve 5 Access to Capital lenders financial regulators worried about potential tighter margins due to a cyclical downturn in Ag income asset bubble in land values major problems tend to have spillover likely effect more conservatism 6 Global Interdependence Competition prices are global costs are local US farm income tends to follow exports competition increases developments biotechnology management practices 7 Integrating Technology broadest of all categories engineering biology info artificial intelligence expert system applications 8 Coordinated Supply Chain driven by increased regulations risks processors retailers desire to improve the alignment of quantity quality timing 9 Alternative Business Arrangements 10 Excessive Regulation capture economies of scale improve asset utilization better tech manager skills some necessary but should not burden the 98 to protect against the 2 Politics social activist groups w their own agenda Problems created also create opportunities for those prepared to change act 11 Underfunded Infrastructure infrastructure deteriorating govt budget problems mean not likely to change need to maintain expand improve dependent on capital investments 12 Changing Demographics aging population longer lifespans education tech training in areas is lacking ethnic shifts in the voting consuming population Advantages of Peer Advisory Groups Gaining an Outside Perspective Peer advisory groups CEO Successor groups allows the group to find their purpose objective structure composition and their Guidelines requirements for success Advantages Multiple vantage points different perspectives Insights into strategies for dealing w CEO Successor conflicts different priorities Sounding Board Feedback Benchmarking Information Access Drawing on different strengths experiences compensating for weaknesses Needs based training Accountability Overcome isolation Emotional support Pushing out of comfort zones 4 States of Mind 4 1 What you know you know 2 What you know you don t know 3 What you don t know you don t know 4 What you think you know but actually don t Positive Not Sure No Clue Wrong Fall 2005 Exam 1 List and describe the 5 credit factors that lenders need to consider when evaluating a commercial agricultural loan 15 pts