Farm business strategy is not a race, it's a process. It's also essential to being a successful farm operation in today's economy. Business organizations need strategy to guide them in achieving objectives that fulfill their vision and mission. For agriculture producers, the purpose of strategizing is to determine how the farm business will reach its performance targets, outperform challengers, find and maintain competitive advantages and build a long-term competitive position.
Financial economists have developed a process for strategy formulation that is geared to the farm environment. Systematic strategic planning requires a series of steps that farmers must work through in order to conceive a strategic business plan. The order of the steps is somewhat arbitrary because information considered at each point in the process may lead the farm business manager to go back and rethink previous steps of the process.
The basic steps of the strategic process are as follows:
Tina LeBrun and Wayne Schoper
Develop a clear understanding of what should be accomplished in the business and why.
Look outside the farm at the environment in which the business operates in order to identify potential opportunities and threats.
Evaluate the farm business to identify its strengths and weaknesses in terms of being able to compete in its business environment now and in the future.
Review current strategies and evaluate new strategies that appear to fit the situation.
Develop a plan of action for implementing selected strategies.
Identify the factors that are critical to the successful implementation of strategies and methods for frequent monitoring.
Each step in strategic planning involves information gathering, reflective thinking and communication. Most farmers gather information, think and communicate with others on a continuing basis. The balance struck among the different steps is the advantage to systematic strategic planning which emphasizes the connection of the steps in the process. One step in strategic planning is SWOT analysis.
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. Using SWOT, the farm business manager can develop strategies that will allow the farm business to use its strengths to capitalize on opportunities and limit threats while minimizing the weaknesses of the business.
To begin a SWOT analysis, the business needs to be broken down into comprehensible chunks. It is useful to group similar parts of the business together into units. A strategic business unit is based on important strategic elements common to each of the parts being grouped. Essentially, the farm business manager assesses what the business offers to its customers. The manager can answer this in a number of different ways. One way is to answer in terms of available resources. Another way is to answer in terms of what markets the business serves or what products the business produces. For instance, the manager of a dairy farm might want to think of its milk produced as one unit and its livestock produced as another unit.
The first half of SWOT concerns the business itself, its internal strengths and weaknesses. These are things that the business can control, such as employees or machinery. Identifying the internal strengths and weaknesses of the business is a two-stage process. The first part is to identify what the business does better than the competition. The second part is to consider how the business does it better. An internal analysis also lists the resources and capabilities that lie behind the strengths and weaknesses. Resources are the physical assets used in the business. While they are important, they are seldom the source of a competitive advantage.
Taking time to think about strategies for your farm business is ever more important each year. Writing out a plan and communicating it with other business partners and family members along with farm advisors goes hand in hand with strategic planning success. All of these components will only better the potential of your farm business for years to come.