The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
Whether you are a CEO, management team leader or business owner, the corner office can be challenging in the age of anxiety. Clarity of vision and transparency in strategy, action and execution can be daunting tasks in an environment of accelerated change.
The agriculture industry is now moving into Phase Two of the elongated downturn. Phase One exhibited margin compression that impacted cash flows and financial liquidity. Farm equity has been resilient through Phase One due to stability in land values. Refinancing and restructuring of operating losses onto longer-term debt have been the mode of operation for some agriculture producers. Others have made proactive adjustments to garner profits and financial competitiveness.
Over the next few years, Phase Two of the cycle will exhibit more structural changes in the agricultural industry. Trade negotiations and expectations will more than likely be temporary, resulting in calculated and conservative strategic adjustments in business models. Climate and weather change along with political uncertainty, consumer demand shifts and demographic changes in agriculture and society will result in challenges and opportunities for the strategic leader. Managing expectations and a focus on fiduciary fundamentals or ownership of the numbers will be a key element in the leader’s game plan. Corner office leaders of the future will also have to place a high priority on a term known as decoupling in their strategic plans.
Anxiety in any corner office can be linked to changes worldwide. Globalization accelerated early in the century with the rise of the Chinese economy. Free trade agreements and the great commodity super cycle added fuel to any economy in reform. In 1990, China's gross domestic product (GDP) was 2%. Three decades later, the country’s GDP is registering at 12% and ranks as the second-largest economy in the world. The rising middle class in the emerging nations known as the “BRICS” (Brazil, Russia, India, China and South Africa) increased export growth for nations in North America, Europe and Oceania. The formation of the European Union, the Trans-Pacific Partnership (TPP), the North American Free Trade Agreement (NAFTA) and China enjoying favored nation status were all stimuli to growth of the world economy.
The corner office critical thinker must contend with another trend that has emerged in recent years known as decoupling. The recent trade wars, tariffs and currency challenges are causing disruption in global supply chains, manufacturing technology and agriculture. The breakdown of trust, which is critical in the free flow of goods and services, has resulted in the major world economic powers reconsidering the best options for their critical industries and even considering new trading partners to fulfill their needs. This lack of trust caused by socioeconomic and political positioning has resulted in a global manufacturing recession and has heightened the anxiety of the farm and technology sectors due to the possibility of loss of markets and the threat to return specific critical industries to the mother countries.
The next 12 to 18 months will be critical to any corner-office CEO. Will the United States-Mexico-Canada Agreement (USMCA) be passed? Will Brexit be executed? Will China continue to expand their influence by making huge investments in the Belt and Road Initiative, while others are following a populist regime throughout the world?
In the United States, close monitoring of social and political returns in California and Texas, or “Texifornia,” is important. As stand-alone nations, California and Texas would rank as the fifth and 10th largest economies worldwide, respectively. It will be important to monitor the outcomes of the elections and legislation in these two states. California tends to be more liberal and leaning socialist, while Texas tends to be more conservative and leaning capitalist. The world will be watching changes in these two states and their implications on the future direction of not only the United States, but the global economy.
One progressive agriculture leader asked an intriguing question concerning Phase Two of the agriculture economic cycle. “Are there any ‘green shoots’ or ’rays of sunshine‘ in the agriculture industry?” From a macro standpoint there are a number of areas that appear to be emerging.
The value-added sector is growing in importance. The key in this business model is alignment of the land, labor and capital resources to optimize the management and talents linked to the marketplace. To be successful one must offer a product or service that is transparent, customized, personalized and marketed as an experience. Whether an agricultural entrepreneur is launching a new business or a traditional commodity-based agriculture business is seeking diversification, the value-added sector can represent an opportunity regardless of the geographic location or agricultural enterprise.
Another “green shoot” is the emergence of more young and beginning farmers and ranchers. They come in all sizes and shapes. Some enter through a family business. Others are “boomerangers” who have moved away from the industry and returned to boost their entrepreneurial spirits and seek work-life balance. Still others are new to the industry and bring a skill set that is outside the box. More women, minorities and veterans with a wide range of skills and demographics populate this group. One must observe FFA, 4-H and other youth organizations and leadership groups to see the future players and talents of the agricultural industry.
Although stressful, another major area of excitement in agriculture is family business transition, which will accelerate over the next few years. The 40/20/40 rule will play out with this group. Forty percent of businesses in transition will not have the mindset, processes or timeliness to execute a transition plan. These businesses will offer opportunities for others in the industry to expand. Twenty percent will be in a constant state of confusion between multiple generations, draining the energy, capital and talent needed for the business to be a peak performer. The other 40% of businesses in transition, often in the fourth through seventh generation, will emerge stronger. Business formality with consensus in managing the business and the possibility of cousins managing with cousins, outside family business partners, and investor capital will frequent this group. This will represent “hybrid vigor” for an industrious business model.
Another quickly emerging segment is the “gig” economy. Often innovative and adaptive owners will use both capital and human resources to provide products or services to meet demands. Whether it is a towing business, trucking company, drone service or consulting venture, entrepreneurs will devise methods to allocate time and profitability to these ventures. A successful side gig provides profits and cash flow to the global portfolio of the overall business.
Another promising group within the agriculture industry is producers who are “dialed in.” Some use biotechnology, engineering and big data technology to drive efficiency, often scaling up in size. Other producers are resourceful by using their talents with a low investment approach that aligns with the resources and the marketplace. To the corner-office visionary, one or a combination of these business models can be successful.
Future Work Cultures
The corner office must constantly be observant of technology and human interaction and interface. A new term called “indistractable” is becoming popular in business writings. In a world of digital distraction, people and productivity can be challenged if the balance between high tech and high touch is not achieved. In the technology-driven world, there are those who let their lives be controlled and coerced by others. These individuals are constantly putting out fires by going from task to task, often initiated by others through technology and social media. Then there are the “indistractables” who have the discipline to use technology as empowerment. However, they also have the discipline during human interface to be “in the moment” by shutting off technology to do critical thinking as a high priority. This balance will be critical in developing productive work cultures with long-term success, sustainability and harmony.
The business of the future will often operate with five to six generations either in the workforce or ownership. This presents a challenge, but also an opportunity. The workforce of the future will desire projects with meaning instead of a career path or “up the ladder” responsibilities. A balance of group collaboration versus personal time will be desired in the workplace. Outcomes and productivity will become intermeshed with flexibility in the work environment, if at all possible. The creative corner-office leader will seek input from the new generation to tweak the culture to attract and retain the workforce. Training, education and engagement of team members will be driven not only by profitability, but by fulfillment.
The new generation in the workforce will be required to exhibit three distinct skills. One is data analysis. Whether it is the latest crop information, financial data, marketing trends or macro-economic trends, critical thinking applied to this data will be a differential edge. In the days of accelerated technology availability and adoption, being in the moment and the ability to interact and communicate will be a game changer. Whether it is a sole proprietor, a family business or a large corporate entity, interaction should be deeper than a tweet or an email. Oral, verbal, listening and nonverbal communication skill development and enhancement can be a difference maker between productive and conflicting work cultures. Engagement, networking, people skills and the development and maintenance of relationships, while often taken for granted, are just as important as investment in the latest technology.
The corner office challenge will require constant development and upgrading of business IQ. The farm crisis of the 1980s decades ago eliminated the average and below average production managers. This cycle is moving up the scale and culling the average and below average business managers. What are a few of the key business IQ attributes?
Price, cost and market trend volatility will require a strong working capital position. Analogous to the queen on a chessboard, stellar working capital provides flexibility in strategic and tactical moves that garner incremental profits. Working capital also brings a sense of confidence in controlling the destiny, if possible.
A drive toward efficiency will be a part of any corner-office leader’s business acumen. Knowing cost metrics, allocating resources toward profit zones, and a calculated balanced approach will be very important. Capital and human asset use will be the great divider in the successful business models.
Life is often lonely at the top for the corner-office CEO. In the business environment, burnout is often observed. Employing a network of positive, passionate people as a support team can be very important. As with other business cycles, adhere to the work-life balance and maintain focus on the fundamentals.
Following a fundamental marketing and risk management plan, with the assistance of a team of advisors, is analogous to assistant coaches on the sidelines providing and interpreting information that will be critical for a successful game plan.
In closing, this article reminds me of a time when I observed a Division 1 basketball practice one Saturday morning last year. Observing from the bench, the assistant coaches were discussing the fundamentals of foul shooting with the point guards. The coach said, “People will be yelling and screaming, but focus on the rim. If you follow your fundamentals and mechanics, you will make 75% to 80% of your shots.” The point here is following the business IQ attributes is not going to guarantee success. However, following business fundamentals with a strong, engaging work culture and observing green shoots in the agriculture industry will result in a higher probability of success. Even Steph Curry occasionally misses foul shots while doing everything right; however, he has hit over 90% of his career foul shots.
Stay up to date
Receive email notifications about Northwest and global and agricultural and economic perspectives, trends, programs, events, webinars and articles.Subscribe
Questions or Comments?
Contact us at 866.552.9193 or message us via the contact us form.Contact us