Before you read this article, grab a pencil and a notepad, and find a comfortable place to sit down.
This is an exercise in business planning – or the creation of a balanced scorecard – and it could very well start your business down a new path greater sustainability and increased happiness for yourself, your family and your employees.
But before we really begin the process, here's a little background information about balanced scorecards, which is the document you will be completing.
“The balanced scorecard allows you to pull all of your ranch's information onto one sheet, and allows you to cull those things that are extraneous,” says Barry Dunn, executive director and assistant professor for King Ranch Institute for Ranch Management, Texas A&M University.
The “balanced” approach works well because it forces you to embrace ranch management from a holistic standpoint, which can open your eyes to understanding the interconnections between all the various facets of your business and the impacts they have on each other.
“There's a tendency in ranching for people to manage each section of their business as if they were silos,” says Dunn. “When you think about managing pastures, livestock or crops, generally people see those three things separately, as silos. But managing them separately can cause consternation within a business.”
Instead, advises Dunn, you need to manage them cross-functionally.
“Managing with a silo mentality is disastrous for your long-term sustainability,” he says. “But we've been brought up this way. Your management can't be just about each silo. You need to think about your operation cross-functionally, and strive for balance within all the various aspects of your ranch,” Dunn says.
So here goes. Prepare to jot a few things down.
Step 1 – Think about where you want your business to be in the future – and ponder the strategies you will need to undertake to make that future a reality.
This begins by writing a vision statement for your business. This is where you call in your spouse, siblings, kids or key managers -- anyone who works with you to manage the ranch – to participate in this process.
So brew up a pot of coffee.
“A vision statement defines what your business aims to achieve in the future,” says Dunn. “It's not just what you want to accomplish, but why you want to accomplish it.”
It's also important to understand that a vision statement is different from a mission statement because it focuses on the future of the business, says Dunn.
“A mission statement summarizes what the current business is about and why. Because the balanced scorecard aims for continual improvement in future outcomes, it uses only the vision statement and omits the mission statement,” he says
A vision statement should contain three key components:
First, write a sentence or two that state your reasons for being in business.
Second, write a sentence of two that describes your vision for the future – and what you believe your business would be like after it achieves its goals.
And finally, jot down a sentence that states how your business serves its stakeholders. Stakeholders might include owners, employees, customers, community and society as a whole.
“Everyone involved in management should contribute to the vision and strategic plan,” says Dunn. “Reaching a shared vision for the business may require some time to agree on the driving forces of the business, the values that matter, and the effort necessary to make it work.”
The most critical thing to a vision statement is that once it's drafted, it's shared with everyone in the business from top to bottom, adds Dunn. Make a single-page copy, and distribute it to your family, hang it on the bathroom walls, and post it in your office.
“It's not created by everyone, but it has to be owned by everyone,” says Dunn. “It's the single-most difficult thing to accomplish in ranching. It's a futuristic look that you're trying to define. This process is about moving forward.”
Once you've drafted your vision statement, develop a set of strategies that will help your business achieve its vision.
“Strategies may involve major change and restructuring in your business -- such as adding a native grass seed harvest enterprise to a cow-calf entity,” says Dunn. “Or your strategies can be just small steps to fine-tune existing strategies, such as enhancing genetic selection to improve marketability of bred heifers.”
Dunn suggests that you keep your strategies limited, manageable and achievable.
“Choosing a breed or a composite is a tactical, not strategic, decision,” Dunn says. “Choosing to produce for a branded beef program that has a breed requirement is strategic. Choosing a specific implant is tactical. Choosing a program that is all natural is strategic. You need to understand the difference.”
Step 3 -- Identify perspectives. Perspective -- or basic components of your ranching enterprise – are critical to your business accomplishing its vision statement.
Again, on the same sheet of paper where you've written down your vision statement and strategies, jot down the six primary perspectives of most ranches (you may have more; such as a horse enterprise, for instance): financial, lifestyle, customers, livestock production, natural resources and learning and growth.
Leave some space on the paper between each perspective.
“No single perspective or resource should be over-emphasized compared to other strategies,” says Dunn. “Taken together, these components offer a holistic view of business health. Balance between them is achieved when all perspectives are considered equally.”
Step 4 -- Identify measures for tracking progress and/or success within each perspective.
Once you've listed your perspectives, the next step is to identify “metrics,” which will allow you to measure your progress in each of the perspectives.
Metrics should be tied to key strategies that are designed to help achieve the overall vision. They should also be measurable, relevant to the operation, and easy to document.
And, your metrics should include both lagging indicators and leading indicators.
Lagging indicators measure past performance; they are things you cannot change.
Leading indicators are predictors of future performance, and shed light on opportunities for you to capitalize on.
“We have plenty of measurements of the past, but we can't change the past,” says Dunn. “So we need our measurements to focus on predicting the future, so we can react to them.”
For instance, pounds weaned per cow exposed is a lagging indicator because it's already happened; it's in the past.
Body condition scores of cows is a leading indicator because it's a predictor of fertility for next year.
Dunn offers the following examples as useful, almost universal metrics that almost all ranchers can plug into their balanced worksheet:
• Learning and growth: Are you taking classes? Did you return to a college or institute for additional education? Did you tour someone else's ranch? Did you attend an extension meeting?
“If you answered yes, then you have a measurable response that shows you are meeting this goal,” Dunn says.
• Livestock: “Is your goal a 93% calf crop?” asks Dunn. “Maybe your goal is to have your cows in a BCS of 5 or better going into the winter?”
Other examples of metrics would be to increase pounds weaned per cow exposed, or to increase pregnancy percentages and percent of calves born in the first 21 days.
• Customer: Have we met the customer's needs? Do we have repeat customers? “This is something we haven't measured well over the years,” says Dunn. “But this is really practical and healthy and relatively easy to measure.”
Example for metrics might include involvement in retained ownership and/or marketing alliances. “Participation in these sorts of programs allow for information to be passed up and down the value chain and enables manager to identify if there are repeat customers and how much customer inquiry is produced,” adds Dunn.
Another example would be the development of quality-assurance systems on your ranch, something that's aimed at improving your supplier-customer relationships for the common good.
• Financial Examples of metrics for financial perspectives include rate of return on assets; determining operating profit margin or net income; or calculating your ranch's cash on hand after it's paid all its expenses or reinvested capital into ranch improvements.
• Learning and growth: “Learning and growth education has an intrinsic value to people and society,” says Dunn. “Morale and performance tend to be higher in a business that value individual education.”
An example of metrics for learning and growth would be participation in workshops, field trips utilizing enrolling in business courses at a local community college.
• Natural resources: As a future, your future depends on your management of natural resources under your care, so it's critical that you keep a close eye on this area.
Examples of metrics for measuring natural resources would be determining the carrying capacity of your ranch and calculating appropriate stocking rates; Photo-point monitoring for seeing long-term effects of grazing on range conditions; conducting wildlife inventories of desirable species that you're managing for; and monitoring water quality and/or residual forage.
• Lifestyle: “Are you, your family and your employees happy and healthy? Are you, your family and employees satisfied? It's foundational that you continue to be life-long learners to be happy, or you don't grow,” says Dunn.
Step 5 -- Evaluate performance and determine if goals are being met.
If you've completed your balanced scorecard – and chances are it's taken many weeks to do so – now you've probably come to realize that this process is never-ending.
Dunn says it's critical that you review your balanced score card on a regular basis, and that you use it as part of a ranch planning and management document.
As part of your regular reviews, you should meet with family members and employees, and provide feedback to each other on each of the perspectives.
“The review process should be permanently integrated into your operation as a single, continuous evaluation with neither a beginning nor an end,” says Dunn. “Weekly or monthly reviews are appropriate for individual perspectives, while quarterly and annual reviews should focus more heavily on strategic issues, goal setting and resource allocation.”
What makes the balanced scorecard unique is that it brings together in a single management report many seemingly disparate elements of a business's competitive agenda.
“The scorecard lets managers see whether improvement in one area may have been achieved at the expense of another,” Dunn says. “It represents a valuable measurement and management tool for ranch businesses as they prepare for the future. It enables the ranch to not only to put its financial and non-financial goals in perspective but also to better balance the difference between short-term and long-term sustainability.”