As another growing season has come to an end and we start looking towards next year it is valuable to reflect on what worked this year and what did not. Think of it as part of the “where we are at” piece of strategic planning. A year that started dry, then had ample or sufficient moisture and then switched back to an extremely dry situation for many on the Prairies.
In holistic management, there are a few specific steps that we go through as part of the annual review process.
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First of all, step back and ask if any big logjams are preventing us from moving forward. It could be financing or the amount of debt. It could be blocks to a succession plan or it could be unresolved communication issues. It is important to recognize these to prioritize how we allocate time and money to work on these areas in the coming year.
Another part of the decision-making framework, which I have referred to in previous columns, looks at the operation from the weak link aspect. Think of the links in a chain of production for each enterprise. Do you break the activities into enterprises to analyze them? For example, in our operation, we use cow-calf, yearlings and custom grazing. Elsewhere, it might also be a seedstock, haying or cropping enterprise. The chain of production begins with the capture and conversion of solar energy — resource conversion link — or the growing one. Next, is the product conversion or harvesting link followed by the marketing link. As we are allocating time and money, again it is important to start with the weakest link. To spend dollars on any other link in the chain before addressing the weak link would be a waste of resources. The strength of a chain is that of its weakest link.
There is a resource-conversion weak link when you have insufficient ability to convert sunlight into raw resources (grass, trees, crops, etc.) And/or lack sufficient raw resources (including money, capacity, talent, etc.) to produce your product. Or, you may have more than enough raw resources, but you lack the capacity to convert them to a marketable form or harvest them. In that case, you have a product conversion weak link (grass to meat, for example). If you’ve created a great product or service, but are having difficulty selling it, then there is a marketing weak link.
Here are more examples of weak links in different types of operations:
Crop farming operation
- Resource-poor — water management, wrong choice of crop, poor crop health, high fertilizer cost, low yields.
- Production — high damage loss (insect, disease), poor germination, high harvest and handling loss, poor product, inadequate equipment or labour to harvest crop.
- Marketing — low prices, market resistance due to insensitivity to demand, inadequate research, poor sales effort.
Livestock operation
- Resource — forage shortage, not enough paddocks to minimize overgrazing, species composition poor, high supplement cost.
- Production — unutilized forage, animal performance, poor product, not enough animals.
- Marketing — low prices, market resistance due to insensitivity to demand, inadequate research or poor sales effort.
Small business
- Resource — understaffed, lack of or confused strategic focus, lack of leadership and management, lack of raw resources (money).
- Production — production challenges, shipping or transport issues, high production costs/poor profit margin, poor product, high damage loss.
- Marketing — low prices, market resistance due to insensitivity to demand, inadequate research, poor sales effort, or ignorance of market mechanisms (niche, wholesale, venture capital etc.)
There had been a time when we were simply not growing enough forage and had too much bare ground, so resource conversion was the weak link. For many years we worked on strengthening that link through improved grazing management. During a drought, this was challenging, particularly when we were trying to avoid destocking. Looking back that was not always the best strategy but as they say, hindsight is 20/20.
Forage production did improve and the next weak link to surface was animal performance. We were no longer getting the gains we once had. There are so many factors that affect this and it is challenging to isolate just one — type of grass, time of grazing, legume percentage, quality, health and condition of cattle etc. At that time, we were getting paid based on a cost per pound. One of the first changes we made was going back to a per-head per-day fee. The most recent equation we use is a combination of the per-head per-day fee based on weight going to grass plus a bonus if they gain over a certain amount of pounds per day.
After a good growing season, our weak link was again going to be production as we simply did not have enough animals. When we begin prioritizing expenses for next year that is going to be a major consideration. But there has also been a significant boost to the grass with the amount of litter we left behind. We have built biological capital.
Determining the weakest link in each enterprise can also be a valuable tool to prioritize your expenses as you do your annual financial planning. Categorize your expenses into top priority, liabilities and maintenance, depending on the weak link. A top priority expense can also be described as wealth generating. Some examples may be fencing, education or livestock purchase. For this exercise, liabilities are inescapable expenses. It may be lease or loan payments. Maintenance expenses are all the rest. The premise is that when we start doing our financial planning and cash flow projections, funds get allocated to the top priority items first, then liabilities and finally maintenance. But we will leave the financial planning process for another time.
Kelly Sidoryk ranches with her family just west of Lloydminster, Alta. She consults in a number of areas including succession planning and holistic management.
