Twelve Best Management Twelve Best Management PracticesPractices

Danny KlinefelterDanny KlinefelterProfessor and Extension Professor and Extension

EconomistEconomistTexas AgriLife ExtensionTexas AgriLife Extension

Texas A&M UniversityTexas A&M University

Back to RealityBack to Reality

The function of a competitive market is to The function of a competitive market is to drive the economic return to the average drive the economic return to the average producer to breakeven through supply and producer to breakeven through supply and demand responses in both input and output demand responses in both input and output markets. In equilibrium the top end are markets. In equilibrium the top end are profitable and growing, the average are profitable and growing, the average are hanging in there, and the bottom end are hanging in there, and the bottom end are losing money and exiting the industry. losing money and exiting the industry. Business success and survival depend on Business success and survival depend on continuous improvement at a pace necessary continuous improvement at a pace necessary to stay in the front half of the pack.to stay in the front half of the pack.

Best Management PracticesBest Management Practices

Strategic Management is about anticipating, Strategic Management is about anticipating, adapting to, driving and capitalizing on adapting to, driving and capitalizing on change.change.

Wayne Gretsky quoteWayne Gretsky quoteI recognized that I wasn’t bigger, stronger or faster than I recognized that I wasn’t bigger, stronger or faster than most of the people I played against. I believe that the most of the people I played against. I believe that the biggest reason for my success was that most players were biggest reason for my success was that most players were always going where the puck was, and I always tried to go always going where the puck was, and I always tried to go where it was going to be.where it was going to be.

Jack Welch quoteJack Welch quote The only truly sustainable competitive advantage is the The only truly sustainable competitive advantage is the

ability to learn and adapt ability to learn and adapt faster than your competition.faster than your competition.

Twelve Things that 95 Percent Twelve Things that 95 Percent of Agricultural Producers Don’t of Agricultural Producers Don’t

DoDo1.1. Coordinated revenue: cost Coordinated revenue: cost

managementmanagement

2.2. What if scenarios and sensitivity What if scenarios and sensitivity analysis, i.e., contingency analysis, i.e., contingency planningplanning

3.3. Monitoring and analysisMonitoring and analysis

Twelve Things (continued)Twelve Things (continued)

4.4. Accrual adjusted profitability Accrual adjusted profitability analysisanalysis

5.5. AutopsiesAutopsies

6.6. BenchmarkingBenchmarking

Twelve Things (continued)Twelve Things (continued)

7.7. The 80:20 RuleThe 80:20 Rule

8.8. The 5 percent ruleThe 5 percent rule

9.9. Analyzing what to stop doingAnalyzing what to stop doing

Twelve Things (continued)Twelve Things (continued)

10.10. The E Myth principleThe E Myth principle

11.11. Peer advisory groupsPeer advisory groups

12.12. Strategic alliances, pooling Strategic alliances, pooling arrangements and alternative arrangements and alternative business modelsbusiness models

Peer Advisory GroupsPeer Advisory Groups

Purpose and objectivePurpose and objective

Structure and compositionStructure and composition

Guidelines and requirements for Guidelines and requirements for successsuccess

Peer Advisory GroupsPeer Advisory Groups(continued)(continued)

Advantages of peer advisory groupsAdvantages of peer advisory groups Multiple vantage points and different Multiple vantage points and different

perspectivesperspectives Sounding board for plans and ideasSounding board for plans and ideas Honest and constructive feedbackHonest and constructive feedback Identifying alternatives and exploring what if Identifying alternatives and exploring what if

scenariosscenarios Increased insight and objectivityIncreased insight and objectivity Reducing or overcoming implementation Reducing or overcoming implementation

issuesissues BenchmarkingBenchmarking

Peer Advisory GroupsPeer Advisory Groups(continued)(continued)

Advantages of peer advisory groups (Cont.)Advantages of peer advisory groups (Cont.) Seeing the bigger pictureSeeing the bigger picture Expanded information accessExpanded information access Drawing on different strengths and experiences Drawing on different strengths and experiences

and compensating for weaknessesand compensating for weaknesses Needs based trainingNeeds based training AccountabilityAccountability Overcoming isolationOvercoming isolation Encouragement, support and understandingEncouragement, support and understanding Pushing out of comfort zonesPushing out of comfort zones

To remain independent, many To remain independent, many producers are going to need to producers are going to need to become more interdependent.become more interdependent.

Alternative Farm Business Alternative Farm Business ModelsModels

Capturing economies of scale, Capturing economies of scale, reducing costs, improving asset reducing costs, improving asset utilization and accessing greater utilization and accessing greater technical expertisetechnical expertise

United Food Service Purchasing Co-United Food Service Purchasing Co-op (UFPC) and Restaurant Services op (UFPC) and Restaurant Services Incorporated (RSI)Incorporated (RSI)

Alternative Farm Business Alternative Farm Business Models (continued)Models (continued)

Management Companies, Service Bureaus and Pooling ArrangementsManagement Companies, Service Bureaus and Pooling Arrangements• Services, purchasing, marketingServices, purchasing, marketing• Older and younger farmsOlder and younger farms• ExamplesExamples

CFO and accounting servicesCFO and accounting services Risk managementRisk management Input purchasing and contractingInput purchasing and contracting Exporting and importingExporting and importing Product and services advertising, marketing and sales (including contracting)Product and services advertising, marketing and sales (including contracting) Veterinary, nutritionist, and agronomic servicesVeterinary, nutritionist, and agronomic services Processing plantsProcessing plants Fertilizer, fuel, grain storage and handlingFertilizer, fuel, grain storage and handling Feed millsFeed mills Cold storageCold storage Repair shopsRepair shops TruckingTrucking Leasing CompanyLeasing Company Biofuels processingBiofuels processing Self insurance poolsSelf insurance pools Machinery and equipmentMachinery and equipment GeneticsGenetics Human resource management servicesHuman resource management services