Balance Scorecard for Us Beef Farm
Australian Agri-Nutrient 2000 Research Forum
Melbourne Baronial 17
The Applicability and Use of the Counterbalanced Scorecard for the Subcontract Manager.
K.M. Rawlings 1, Due west.J. Parker 2 and N.One thousand. Shadbolt 3
1 Institute of Land and Nutrient Resource, The University of Melbourne.
2 Full general Director Scientific discipline, Ag Research, Hamilton, New Zealand.
3 Found of Food, Nutrition and Human Wellness, Massey University, New Zealand.
Introduction
Strategic management is not widely expert in a formal manner amongst the farming community yet it is an important assist to achieving farm family unit and concern goals. The family unit farm is a complex business due to the intimate interaction between business and lifestyle goals. Often these goals disharmonize and the farming family unit must reach some sort of compromise in lodge to come across their aspirations. This is not an easy job: it creates a dilemma for the farm�s possessor, family and advisor, as each may have different needs and measure the realisation of these in different ways. Traditional measures of subcontract success are financial and production based; personal and family goals are rarely contemplated with respect to their measurement, every bit the farm�south strategy (if there is ane) is implemented.
The perceived complexity of strategic planning and command is overwhelming to many farmers. Our aim was to explore whether the Balanced Scorecard arroyo to strategic management would better farmers� understanding, and simplify the processes involved in developing, implementing and monitoring subcontract strategy.
What is the Balanced Scorecard?
The Counterbalanced Scorecard, adult by Robert Kaplan and David Norton in the early 1990s, is a strategic direction tool that provides the manager with a clear and concise moving-picture show of the concern�southward health and progress in reaching the goals of the business. Information technology was originally developed to amend the alignment of measures with strategy and thereby to assist in monitoring the success or otherwise of implementing strategy. Kaplan and Norton liken the Balanced Scorecard to that of an plane�s cockpit controls. The scorecard addresses the bones aim of fiscal profit, the cornerstone of every business, past revealing the drivers to creating long-term financial and competitive performance through investment in areas such equally employees, customers, partners and technology, amid others (McCann, 2000). It also aims to close the gap between the concern� strategic vision and its day-to-day operations and decision making (Towle, 2000). The Balanced Scorecard achieves this by linking both financial and non-financial performance measures to the business� vision and strategy.
A Counterbalanced Scorecard is a set of financial and non-fiscal performance measures that reverberate the factors that are considered to be critical to the success of the business. It gives managers important data from iv different perspectives, which together offering a holistic view of the business concern's health. It also allows managers to consider all of the important strategic measures at the same time, letting them see whether improvement in one area is accomplished at the expense of another (Kaplan and Norton, 1992; Butler et al, 1997).
The 4 perspectives as identified by Kaplan and Norton are:
The financial perspective that looks at how the business concern� strategy is affecting the lesser-line. Therefore traditional measures such as growth, profitability and shareholder value are monitored. It would be unusual not to find a number of goals in this expanse of the Balanced Scorecard.
The customer perspective that asks the question "How do existing and new customers view and value us?" The respond to this question requires client involvement, as they need to identify their expectations of the firm and how they measure the business firm�southward ability to attain their goals. Newing (1995) emphasised that for about organisations the price factor only represents 30% of their customers� total cost of acquiring materials or services. Therefore, businesses need to pay particular attending to identifying and understanding their customers� requirements. Some other question that should exist considered is: "How are y'all affecting your customers� results?"
The internal business perspective that focuses on the skills, competencies and engineering science of the business organization and its ability to run into the needs of the customer equally well as the potential to add value to customers� businesses.
The learning and growth perspective focuses on the business� ability to change, improve and conform their products and processes as well as the ability to develop and introduce new improved products and services (Kaplan and Norton 1992). The business must set targets that respond to continuous alter in customer needs (Newing, 1995).
Figure 1 The Balanced Scorecard Framework. (Source: Kaplan and Norton 1996)
The Balanced Scorecard approach places the business� vision and strategy firmly in the heart of the scorecard to ensure that focus is non lost. The business� goals (strategic choices) each with its stated measures and drivers of success are and then allocated to one of the 4 perspectives of the business.
The absence of goals or abundance of goals in any one perspective would requite a quick, visual indication of whether the business is "in residue". The links, sometimes causal, betwixt goals in unlike perspectives must then be examined to meliorate understand the upshot i might take on another. This understanding enables a short list of the key drivers of performance to be fatigued upward.
Identifying the relevant measures is a crucial stride in a Counterbalanced Scorecard evolution (Willyerd 1997). One time critical success factors are identified, measures must be established to monitor these.
The key concept of the Balanced Scorecard is the inclusion of non-financial indicators, which represent goal attainment and are key to the strategy. Financial indicators are by and large lagging indicators that is they correspond the past ie. what you have just accomplished. They have express ability to predict hereafter outcomes.
Focusing on these measures increases the focus on the nowadays rather than what needs to exist achieved in the future.
In contrast, non-financial indicators are usually leading, that is they inform the manager of likely futurity performance. For example, the learning of new knowledge and skills is a lead indicator of the farmer�s future focus and ability to manage. Without investment in staff learning and personal growth the business concern has less power to cope with and manage modify.
To design expert measures it is necessary to understand what needs to be measured. Therefore, you must be clear about your criteria. Measures have to be meaningful to the situation and the people using them to allow informed decision making.
Measures that are aligned to strategic intent provide feedback for management control. They too communicate to all levels of the firm the business plan. A adept scorecard tells the story of the business� strategy, therefore creating a shared agreement.
The Balanced Scorecard and Farming
Farming in both New Zealand and Australia is primarily based on family businesses. While the literature on Balanced Scorecards is focused on the corporate sector, information technology does not preclude its application to the family farm. All the same to practice this the elements of a family business, and how and why these differ from a corporate business organisation, must exist understood.
The family business concern mixes emotions and sentimentality with objectivity and rational calculation. The family unit and the business organisation are inseparably linked despite the relative incompatibility of the two components. The family unit business, unlike a corporate, must deal with the demands of family relationships likewise as the demands of the market place place (Robbins & Wallace 1992).
Robbins and Wallace (1992) characterised the typical family business as having 1 or more of the following:
- An unclear business concern structure with no formal legal agreements.
- Poor definition of responsibility ie. who does what, where, when and with whom?
- Lack of formal hierarchy for responsibility and dominance; specially of import when non-family labour is employed.
- An owner/manager "tends to do everything while staff do nothing" syndrome ie. "No 1 can do it as well every bit I can".
- Failure and/or inability to plan concern development.
- Disability to fix specific business objectives, design and implement strategies and actions, and so periodically and systematically evaluate the situation.
- Poor succession planning.
In a farming context the four perspectives of the Balanced Scorecard can be approached as follows:
The internal business organisation perspective is generally covered fairly in subcontract business plans. It covers the power of the business to deliver and produce to specification, thus concentrating on the production processes (feeding, animal health, resources, staffing etc.) and efficiency of resources employ. Production direction has historically been the strongest focus of subcontract business direction, both in practice and the literature (Parker, 2000b).
The customer and learning and growth perspectives, are generally poorly covered in well-nigh farming business concern plans. The importance of having goals for these area cannot be overemphasized.
These are areas in which a number of the not-fiscal goal dimensions ensure the production plans are aligned to electric current and future market needs, including environmental sustainability and livestock husbandry, an that the subcontract�due south greatest avails, its people, are being developed and nurtured to deliver the innovation that is crucial to future business success.
Integrating plans for these perspectives into the farm strategy ensures a amend remainder of effort and greater accent on time to come family and marketplace needs than focussing only on production and finance.
The Counterbalanced Scorecard provides farm managers with a framework that allows them to visualise the interactions between the different components of their strategy. . This is demonstrated in Effigy 2, which is based on an existing subcontract business plan. The Balanced Scorecard format helps the farm business to put its financial and non-financial goals into context and to identify conflicts between short and long-term viability.
The scorecard tin aid family businesses by aligning and focussing them on implementing long term strategy (Kaplan and Norton 1996a). The long-term vision that is a feature of strategic planning is less likely to be lost if the Counterbalanced Scorecard is used in the strategic program as it forces the farm concern to link its goals to that vision.
The scorecard as well forces farm businesses to ensure that they have goals that volition deliver to each of the four perspectives thereby achieving a residue that has been found, in a large number of other businesses, to exist vital to the business� ability to deliver to its vision.
Figure two Cause and effect relationships to achieve the lag and pb Indicators associated with goals of a case written report dairy subcontract concern -
Theory versus Practise:
Many articles tin be institute in the literature about the Balanced Scorecard and its application to strategic but there is as all the same relatively footling published empirical testify. In conducting research to adapt the Balanced Scorecard to farming, x example studies were undertaken with owner-operator dairy farmers in the lower North Island of New Zealand (Rawlings, 1999). The aims were to identify goal conflicts and apply the Counterbalanced Scorecards to the farmer�s hereafter plans. Nonetheless, a number of obstacles were encountered.
The first was the lack of formal value and goal identification. Values and goals are the foundation for strategic planning and indeed the Balanced Scorecard, thus they are integral to the process (Kaplan and Norton, 1992). Still, their identification for some farmers was a difficult task, with one farmer confiding that he had never really idea [formally] about the time to come.
While all farmers identified goals during the research interviews, some farmers developed these on the spot. Distinguishing between goals and dreams was therefore required. The mission statement is the culmination of the individuals� values and goals, however if these are poorly identified and then the task of developing a mission statement is difficult and the trend was for farmers to leave this for someone else to write, or to ignore it. Of the ten case study farms only four had developed a mission statement: not surprisingly these farms too had conspicuously defined values and goals.
The level of on-farm analysis was another obstacle and perchance presents one of the biggest challenges to Balanced Scorecard adoption. The level of business assessment by farmers was depression. Typical subcontract business assay tools were budgets, product monitoring, pasture monitoring and most farmers were involved in book-keeping. Budgets, although prepared were rarely used in conjunction with managing the actual greenbacks flow.
Business success was more often than not based on the end of year cash balance and level of milk product accomplished. Some farms used economic farm surplus (EFS, operating profit or EBIT) withal non all farmers who used this measure out understood it. Business organisation assessment had a strong operational focus, such as costs and prices. Farmers� knowledge and understanding of drivers of business organisation performance, financial management and the development and use of functioning indicators was low.
Little account was taken of solvency or fifty-fifty debt servicing issues and return on assets or capital was generally not used every bit a performance measure. With the exception of ane subcontract, there was no substantive long-term financial analysis of business concern wellness. This is of business, but not surprising, equally the industry itself focuses on short-term operational measures in its advisory work with farmers (Deane, 1993).
Possessor-operators generally have a strong upper-case letter base of operations and this creates an environment where poor business concern and fiscal direction can be hidden for a number of years earlier it is recognised as a problem, often past outsiders. Four of the example farmers were eroding their internet worth just were unaware of this fact because they had inappropriate monitoring systems in place to determine what was happening to this aspect of their business organisation.
In developing strategic objectives with farmers for the Balanced Scorecard, the following observations were made:
The financial perspective was relatively straightforward with goals and indicators being readily identifiable. Most farmers had financial goals. Their ability to identify financial measures appeared to depend directly on the level of fiscal assay they had undertaken. Measures identified mostly did non cover the whole business and tended to focus on the operational measures related to product and operating profit.
The client perspective varied in its prominence depending on the farming enterprise. The dairy farmers by and large did non consider themselves to have customers or they viewed the dairy company as their client. Consequently, identifying measures for the client perspective proved difficult for farmers.
Few considered the importance of having a good human relationship with their suppliers for case fertiliser suppliers, veterinarians and bankers. It was difficult to ascertain whether the observed responses to the customer/supplier focus are due to the traditional position of farmers as weak buyers and sellers; alternatively, it may be a reflection of the importance, or lack of, that they place on this outcome because they do not understand their position in the supply chain.
In both Australia and New Zealand the role of the customer/consumer in subcontract business organisation determination making cannot be underestimated. Similarly, the development and value of supplier relationships is ofttimes underestimated. On-farm quality balls systems, contractual arrangements and strategic alliances are examples of initiatives aimed at improving the supplier-customer relationship for the common skillful.
The internal business perspective was adequately covered in most of the subcontract business organisation plans. The case farmers were most comfortable working with this aspect of their farm business. A lack of longer-term planning for production was also a weakness of these farmer�s plans
The final perspective, learning and growth, was poorly covered for most of the farms studied. The farmers were not readily able to establish measures that related to their own personal and professional development.
Areas identified for additional training again highlighted the farmers� product orientation ie. pasture production, cow nutrition, and feed ration balancing. Despite their lack of business management knowledge/skills, the farmers did not announced to run across this as a priority area for comeback.
This is consistent with research that suggests that farmers perceive fiscal management to have a loftier time input but low benefit. Staff grooming and management, while best-selling as important by most of the farmers, rarely had a respective formal plan in place to meet this need. Achieving staff success was typically expressed in terms of remuneration, time-off and the relationship with the owner.
Discussion & Determination
The Balanced Scorecard aids strategic direction but it can simply be used effectively if the basics of preparing strategy are adhered to. This as well means that farmers have to identify or sympathise the link between strategic and tactical management, which in turn requires a shift in farmer and industry perceptions of what success is.
There are several possible reasons why farmers have non adopted strategic planning. Information technology may exist prevented because couples have not identified their values, which are essential for goal formulation (Olsson, 1988).
Where farms have clear, well-established values, they are more probable to follow a structured procedure leading to goal attainment, provided they accept business planning knowledge and skills. However, where farms have only vague values they tend non to take formulated goals leading to lax decision making (Olsson, 1988).
Near of the instance farms were characterised past vague values and absent goals and had a tactical and operational management focus. Having well defined values, however, does not automatically lead to realistic goals or strategy development. Further goals are oft strategic simply the management focus is tactical and operational; thus, the appropriate measures for goal attainment are non in identify.
The tactical focus may too exist influenced past the common belief that high production levels are responsible for a healthy business organization (Deane, 1993). This is exacerbated by both a community and industry perception, that success is dependent on the quantity of milksolids produced per cow or hectare (Deane, 1993).
These measures are routinely made. Financial information that usually accompanies this data such as operating costs as a percentage of gross farm income and economic subcontract surplus (EFS) add together support to this perception of farm business success. Yet, as Shadbolt (1998) explained, EFS does not tell the whole story, particularly on whether value is being created by the farm�s activities.
These direction foci encourage farmers to have product based goals with a narrow range of business concern health indicators. Hence, unless farmers understand strategic direction themselves, they are currently unlikely to notice much support from within the industry. Further, this situation encourages the bulk of farmers to maintain an external locus of control with respect to their personal and business future.
To overcome these barriers to the adoption of strategic management by farmers, its value and importance to their concern and future success must be demonstrated and advocated. The use of descriptive planning tools such as a strategy map (Figure 2 and Effigy 3 ) may help to break strategic planning into more readily accepted components. The diagram helps to "visualise" the linkages between different parts of the farm business organisation and highlights where lead and lag indicators could be adopted.
The Balanced Scorecard is not a panacea for poor farm business management. It does not supervene upon the need for farmers to take the knowledge on how to identify values and goals, develop a vision and mission statement or analyse the business. Without this foundation knowledge and agreement a Balanced Scorecard that is meaningful to the farmer cannot be developed. The Balanced Scorecard does help farmers to meet the linkages that occur within the business and to provide an appreciation of the demand for perspectives beyond product and finance.
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