Setting Strategy and Measuring Performance Jack Davis, Area Management Specialist – SDSU CES Agustin Arzeno, Area Management Specialist – SDSU CES Using

Setting Strategy and Setting Strategy and Measuring PerformanceMeasuring Performance

Jack Davis, Area Management Specialist – SDSU Jack Davis, Area Management Specialist – SDSU CESCES

Agustin Arzeno, Area Management Specialist – Agustin Arzeno, Area Management Specialist – SDSU CESSDSU CES

Using the Balanced Scorecard for Using the Balanced Scorecard for Ranch Planning and Management:Ranch Planning and Management:

What is it?What is it? A strategic management tool that A strategic management tool that

provides ranch managers with a provides ranch managers with a clear, concise picture of the health clear, concise picture of the health and progress of the business in and progress of the business in reaching the ranch goals. reaching the ranch goals.

Where Developed?Where Developed?

Harvard Business SchoolHarvard Business School Dr. Robert KaplanDr. Robert Kaplan Dr. David NortonDr. David Norton

Utilized by industryUtilized by industry General ElectricGeneral Electric Ford Motor CompanyFord Motor Company IBMIBM Walt Disney WorldWalt Disney World

What is it?What is it? The BSC translates mission and strategy into The BSC translates mission and strategy into

objectives and measures, organized into four objectives and measures, organized into four different perspectives: financial, customer, internal different perspectives: financial, customer, internal business process, and learning and growth.business process, and learning and growth.

The BSC provides a framework, a language, to The BSC provides a framework, a language, to communicate mission and strategy.communicate mission and strategy.

The four perspectives of the BSC permit a balance The four perspectives of the BSC permit a balance of ST and LT objectives, between desired of ST and LT objectives, between desired outcomes and performance.outcomes and performance.

Why Developed?Why Developed? Financial Measures are no longer the only Financial Measures are no longer the only

measure responsible for success of a company. measure responsible for success of a company. Others include Others include

Customer SatisfactionCustomer Satisfaction Better Internal ProcessBetter Internal Process Learning and GrowthLearning and Growth

All of these should work together (All of these should work together (in Balancein Balance) ) for the success of the companyfor the success of the company

All systems are part of a whole and every All systems are part of a whole and every action taken affects the sum of the partsaction taken affects the sum of the parts

Financial

InternalBusinessProcess

Customer

Learning and Growth

Vision and Strategy

Ranch WheelRanch Wheel

What is the Driving Factor?What is the Driving Factor?

The VisionThe Vision It gives you directionIt gives you direction

““I am here and I needI am here and I need

to get to there, how to get to there, how

do I do that?”do I do that?”

The VisionThe Vision

“Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.”

Jack Welch, former GE CEO

The VisionThe Vision Statement of values and reasons that are the Statement of values and reasons that are the

basis for business.basis for business. Envisioned future if goals are achieved.Envisioned future if goals are achieved. Recognizes how the business serves the Recognizes how the business serves the

stakeholders. stakeholders. It should guide the business through It should guide the business through

challenges and opportunities and provide a challenges and opportunities and provide a framework on which to base decisions.framework on which to base decisions.

3 steps in creating the VISION:3 steps in creating the VISION:a) Scenarios for your Industrya) Scenarios for your Industryb) Place business in contextb) Place business in contextc) Develop strategies to adaptc) Develop strategies to adapt

The VisionThe Vision “ “ To pursue excellence and growth in sustainable To pursue excellence and growth in sustainable

agriculture, thereby providing for diversification, agriculture, thereby providing for diversification, succession, and a continuity improving the standard of succession, and a continuity improving the standard of living for all shareholders in the business.”living for all shareholders in the business.”

““To have a farm business that is growing, is financially To have a farm business that is growing, is financially profitable, and is environmentally sustainable, while profitable, and is environmentally sustainable, while enabling us to maintain our lifestyle and enjoy time with enabling us to maintain our lifestyle and enjoy time with our children and friends and continue our involvement in our children and friends and continue our involvement in the community.”the community.”

““To grow the family farm business by profitably To grow the family farm business by profitably marketing quality products to ensure that the future marketing quality products to ensure that the future generation has a viable farming business.”generation has a viable farming business.”

Nicola M. Shadbolt, Massey University, NZ

The StrategiesThe Strategies

Set after Vision is developedSet after Vision is developed Limited to those that directly Limited to those that directly

correlate with vision statement.correlate with vision statement. Action plan that will close “gap” Action plan that will close “gap”

between vision and reality.between vision and reality. Strategies may involve major Strategies may involve major

changes or just fine-tune existing changes or just fine-tune existing ones.ones.

What is involved in your Ranch?What is involved in your Ranch? Livestock ResourcesLivestock Resources Natural ResourcesNatural Resources Financial Financial HumanHuman Ag Ag

commodities/productioncommodities/production

Perspectives

What is a Perspective?What is a Perspective? The capacity to view things in their true The capacity to view things in their true

relation or relative importance. relation or relative importance. Go back to the Ranch Wheel and look at the Go back to the Ranch Wheel and look at the

spokes of the wheel. These are your spokes of the wheel. These are your perspectives.perspectives.

View the business from each perspective.View the business from each perspective. Develop strategies. Develop strategies. Evaluate outcomes relative to each Evaluate outcomes relative to each

perspective. perspective.

Perspectives have to be Measured!Perspectives have to be Measured!

Need to set goals under each perspectiveNeed to set goals under each perspective The BSC forces goals to be linked to the vision The BSC forces goals to be linked to the vision

and actions to be linked to goalsand actions to be linked to goals Ask yourself 3 questionsAsk yourself 3 questions

What are the most important measures of What are the most important measures of performance?performance?

How should these measures relate to one another?How should these measures relate to one another? What measurements truly predict long-term What measurements truly predict long-term

success?success?

What else to consider with your What else to consider with your perspectives?perspectives?

Links between goals of different perspectives Links between goals of different perspectives should be examined.should be examined.

Leading (drivers) and Lagging (outcomes) Leading (drivers) and Lagging (outcomes) indicators should be included.indicators should be included.

Needs to be measurable, relevant and easy to Needs to be measurable, relevant and easy to measure.measure.

3 to 8 goals per perspective. Easy indicator of 3 to 8 goals per perspective. Easy indicator of balance.balance.

Leading or Lagging?Leading or Lagging?

Lagging Indicators have already Lagging Indicators have already happened.happened. Measure past performance.Measure past performance. Things you cannot change.Things you cannot change.

Leading Indicators are in the future.Leading Indicators are in the future. Future performanceFuture performance DriversDrivers

Is it leading or lagging?Is it leading or lagging?

Weaning WeightWeaning Weight Potential cattle Potential cattle

buyer inquirybuyer inquiry ROAROA

LaggingLagging LeadingLeading

LaggingLagging


LifestyleLifestyle

The 5 perspectives all build to this The 5 perspectives all build to this one.one.

Key indicators Key indicators StressStress Sense of securitySense of security Healthy, happy and content.Healthy, happy and content.

PERSPECTIVES WITH PERSPECTIVES WITH STRATEGIC OBJECTIVESSTRATEGIC OBJECTIVES

GOALGOAL ACTUALACTUAL

1. Healthy, happy family1. Healthy, happy family

2. Sense of security2. Sense of security

3. Low stress3. Low stress

YesYes

YesYes

YesYes

YesYes

NoNo

NoNo

RANCH LIFESTYLE

FinancialFinancial What terms are most encompassing?What terms are most encompassing?

ROAROA It measures how efficient the production It measures how efficient the production

system is at taking invested dollars, system is at taking invested dollars, regardless of sources and turning them regardless of sources and turning them into income.into income.

Others?Others? BreakevenBreakeven Free Cash FlowFree Cash Flow Record KeepingRecord Keeping



1. ROA1. ROA

2. $ net income2. $ net income

3. Breakeven3. Breakeven

4. Current ratio4. Current ratio

5. Free cash flow5. Free cash flow

8%8%

$200,000$200,000

$0.75$0.75

2:12:1

$50,000$50,000

6%6%

$180,000$180,000

$0.69$0.69

1.7:11.7:1

$43,000$43,000

FINANCIAL

The CustomerThe Customer

Who is your customer?Who is your customer? Are they satisfied with your product?Are they satisfied with your product? Do you have repeat customers?Do you have repeat customers?

Does the same person buy your calves Does the same person buy your calves year after year?year after year?

Backgrounder/FeederBackgrounder/Feeder Packing plant (get data back)Packing plant (get data back)



1. Feedback1. Feedback

2. Repeat customer2. Repeat customer

3. Customer inquiry3. Customer inquiry

YesYes

YesYes

YesYes

NoNo

YesYes

YesYes

CUSTOMER

Ag Commodities/ProductionAg Commodities/Production Need to focus on skills, competencies Need to focus on skills, competencies

and technology of the business and its and technology of the business and its ability to meet the needs of the ability to meet the needs of the customer.customer.

Use standardized termsUse standardized terms Have a benchmark as a starting pointHave a benchmark as a starting point Pounds weaned per cow exposedPounds weaned per cow exposed Preg ratePreg rate Actual weaning weightActual weaning weight Record KeepingRecord Keeping



1. Lb weaned/cow exposed1. Lb weaned/cow exposed

2. Pregnancy rate2. Pregnancy rate

3. Replacement rate3. Replacement rate

4. Cow BCS at weaning4. Cow BCS at weaning

5. Days fed harvested feed5. Days fed harvested feed

6. % of calves born in first 21 6. % of calves born in first 21 daysdays

7. $ vet/cwt. weaned calf7. $ vet/cwt. weaned calf

8. $ vet/cow pair8. $ vet/cow pair

9. Cattle ID9. Cattle ID

500500

94%94%

15%15%

66

8585

6565

$0.02$0.02

$18$18

YESYES

520520

91%91%

12%12%

55

9898

5555

$0.04$0.04

$23$23

NONO

AG COMMODITIES/PRODUCTION

Natural ResourcesNatural Resources

Why is it important?Why is it important? Impacts number of animals able to graze.Impacts number of animals able to graze. If conditions improving then you are If conditions improving then you are

matching resources.matching resources. How does this impact other How does this impact other

perspectives?perspectives? Pounds of product producedPounds of product produced

NATURAL RESOURCES



1. Stocking rate = carrying 1. Stocking rate = carrying capacitycapacity

2. Prescribed burn2. Prescribed burn

3. Residual forage adequate3. Residual forage adequate

4. Noxious weeds treated4. Noxious weeds treated

5. Precip. As % of normal5. Precip. As % of normal

6. Range condition score6. Range condition score

7. Photo points compared7. Photo points compared

8. Grouse count8. Grouse count

YesYes

SuccessSuccess

YesYes

YesYes

110110

ImprovinImprovingg

ImprovinImprovingg

IncreasinIncreasingg

YesYes

SuccessSuccess

YesYes

NoNo

9090

SteadySteady

No No changechange

IncreasinIncreasingg

Learning and GrowthLearning and Growth Why is it important?Why is it important?

Gives you base to grow from.Gives you base to grow from. Knowledge is power.Knowledge is power. Knowing new ways of producing and/or how to generate Knowing new ways of producing and/or how to generate

more businessmore business Knowledge impacts all the other perspectives.Knowledge impacts all the other perspectives.

What is availableWhat is available Extension sponsored programs.Extension sponsored programs. WebsitesWebsites Popular pressPopular press OtherOther



1. Attend Beef Cow 1. Attend Beef Cow SymposiumSymposium

2. Attend Farm 2. Attend Farm ManagementManagement

Conference Conference

3. Training of employees3. Training of employees

4. Attend Extension 4. Attend Extension workshopsworkshops

YesYes

YesYes

YesYes

YesYes

NoNo

YesYes

NoNo

NoNo

LEARNING and GROWTH

SummarySummaryThe process to build a BSC, includes:

1) Establish the vision for the future of the business and strategies for reaching that vision.2) Identify “perspectives” critical to your business.3) Identify measures for tracking progress and/or success within each perspective (leading/lagging)4) Create action plans to achieve goals.5) Evaluate performance and determine if goals have been met and if progress in reaching the vision has been made.

SummarySummary

“Think of the BSC as the dials and indicators in an airplane cockpit. To navigate and fly the plane, pilots need information on fuel, airspeed, altitude, bearing, destination, and other indicators. Reliance on one instrument can be fatal. Similarly, the complexity of managing a business today requires that managers be able to view performance in several areas at once.”

Drs. Robert Kaplan and David Norton


Documents

Setting Strategy and Measuring Performance Jack Davis, Area Management Specialist – SDSU CES Agustin Arzeno, Area Management Specialist – SDSU CES Using