Balanced Scorecard

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“Advocacy versus Inquiry”
GPVEC
November 6, 2008
Clay Center, NE
Barry Dunn
Executive Director
King Ranch Institute of Ranch Management
Texas A&M Kingsville
“Advocacy vs. Inquiry”

Examples:








Decline in “Choice” cattle caused by X, Y, and Z!
Ethanol is good energy policy!
Inter-enterprise transfers should be at market
because of opportunity cost.
Shouldn’t calve in the ________.
Genomics are better than EPD’s.
Manure samples are a good predictor of diet
quality and can be used in determining
supplementation program
?
?
“Advocacy vs. Inquiry”

Where we see it:

Advocating Status Quo



Enterprise analysis vs. managerial accounting
Production systems
Advocating self interest
$
 Status
 Career


Misuse of information
Stupidity
 Negligence
 Strategic

“Advocacy vs. Inquiry”


Insidious problem in management!
Why:

Nature of who we are:
Bold
 Decisive


Information age:
Lots of it!
 Wide skill set needed to interpret.


Reward systems value decisive leaders who
can support decision with data
“Advocacy vs. Inquiry”
Story #1
Factors that affect % of choice
cattle in the market place.
“Advocacy vs. Inquiry”
Problem #1
Inadequate understanding of
statistics!
“Advocacy vs. Inquiry”
Story #2
I know the best time to calve the
cows!
Actual Results for King Ranch Calving Season
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
Highest
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Lowest
Net Income, $
?
?
?
Actual Results for King Ranch Calving Season
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
Highest
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income, $
Should be
Lowest
Should be High
Should be
Medium
Prediction Model Results for King Ranch Calving Season
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
Highest
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income,$
Lowest
High +
High
Prediction Model Results for King Ranch Calving Season
Payne et al, 2008
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
High
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income,$
Lowest
High +
High
Investment,$
Highest
High
Very Low
Prediction Model Results for King Ranch Calving Season
Payne et al, 2008
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
High
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income,$
Lowest
High +
High
Investment,$
Highest
High
Very Low
ROI
Lowest
High
High +
Prediction Model Results for King Ranch Calving Season
Payne et al, 2008
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
Highest
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income,$
Lowest
High
High
Variability NI
High
High
Very Low
Investment,$
Highest
High
Very Low
Variability Invt.
Very High
High
Very Low
ROI
Lowest
High
Highest
Variability, ROI
High
Very High
Very Low
Prediction Model Results for King Ranch Calving Season
Payne et al, 2008
Spring
Calving
Fall
Calving
Dual
Calving
Wean Wt, lb
Lowest
Highest
Medium
PG %
Lowest
Highest
Medium
Cow Cost/hd, $
Highest
Low
Low
Net Income,$
Lowest
High
High
Variability NI
High
High
Very Low
Investment,$
Highest
High
Very Low
Variability Invt.
Very High
High
Very Low
ROI
Lowest
High
Highest
Variability, ROI
High
Very High
Very Low
“Advocacy vs. Inquiry”
Problem #2
We don’t analyze deep enough!
“Advocacy vs. Inquiry”
Story #3
Cow Efficiency:
Big cows are less efficient than
little cows!
Cow Efficiency
High Bio Prod Cows
Efficiency
Low Bio Prod Cows
Energy
Jenkins and Ferrill, JAS 1993
Problem #3
Don’t know and understand the
literature!
Story #4
Cow productivity is increasing!
My cow’s calves weaning weights
are going up!
Reality Check!

Avg. Weaning Weights of South Dakota
Calves:

Data collected from 497 ranches, 1978-79= 484lbs
Dooley et al., 1982

8 years of Farm Mgt. data, 1986-93 = 496 lbs.
Hoyt & Odekoven, 1994

45 SPA herds 1996-99 = 487 lbs.
Dunn, 2000
“Advocacy vs. Inquiry”
Problem #4
Anecdotes form foundation
of our beliefs leading to
inappropriate (and irrelevant)
conclusions!
Problems
1.
Don’t know and understand principles of
statistics


2.
3.
4.
If you are going to give a “Mean,” you
better give the “Range” and “Variance”!
If you say two numbers are different, better
know the confidence interval!
Don’t dig deep!
Don’t know literature!
Based on anecdotes, opinions become
facts!
So What?
Other than who’s right,
what’s the problem?
Advocacy without w/o appropriate
inquiry leads to failure in management!

Problem #1, Misuse of statistics


Problem #2, Not going deep


Draw misleading conclusions
Problem #3, Don’t know the literature


Misunderstand reality
Repeat past mistakes
Problem #4, Anecdotes

Incomplete info leads to wrong path
Failure in management results in:


Inappropriate investment of scarce
resources.
Inappropriate communication
throughout “system” (company).

Irresponsible decisions.

Failure
(in ag, long delays mask responsibility)
Take
action
Adopt
beliefs
Draw
Conclusions
Make
assumptions
Add meaning
from background
Select data from
what we observe
Observable data
and experience
Ladder of Inference
Senge et al, 1994
Take
action
Ladder of Inference
Senge et al, 1994
Adopt
beliefs
Draw
Conclusions
Make
assumptions
Add meaning
from background
Select data from
what we observe
Observable data
and experience
Our beliefs affect
the data we select
and reinforces our
belief systems and biases
ADVOCACY
Adopted from
Senge et al, 1994
Assert
Discuss
LOW
By-Standing
Explain
Politicking
HIGH
Adopted from
Senge et al, 1994
HIGH
Literature
Statistics
Test
Trends
Sensing
Stories
Anecdotes
LOW
INQUIRY
Adopted from
Senge et al, 1994
HIGH
Literature
Statistics
ADVOCACY
Test
Trends
Assert
Discuss
LOW
By-Standing
Explain
Politicking
Sensing
Stories
Anecdotes
INQUIRY
LOW
HIGH
Adopted from
Senge et al, 1994
HIGH
Literature
Statistics
ADVOCACY
Test
Trends
Discuss
LOW
By-Standing
Sensing
Assert
Explain
Politicking
Stories
Anecdotes
INQUIRY
LOW
HIGH
Tools for Understanding





Literature
Statistics
Evaluation tools
Systems thinking
Systems dynamics
Let’s have a
discussion!
Successful Ranching in the 21st
Century: Putting the Puzzle
Together”
Modern Times
Overview
Dollars and Cents
 Investment
 Marketing
 Production
 Expenses
 Pts of Diminishing
Returns
Strategic Mgt.
 Strategic Planning
 Scenario Planning
 Balanced Scorecard
 Why should you
use them
 How do they work
Dollars and Cents!
Investment
Production
Expenses
Marketing
SPA Comparison
Dunn, 2000
n=148
Low
Medium
High
413
455
455
Investment, $/Cow
1538g
2308h
1397g
Total exp., $/Cow
638d
387e
270f
Total rev., $/Cow
390g
423g
495h
Net Income, $/Cow
-247a
36b
225c
lbs. weaned/Cow
exposed
abc
Means with uncommon superscripts differ (P<.01)
def
Means with uncommon superscripts differ (P<.05)
gh
Means with uncommon superscripts differ (P<.10)
Summary
What are the Characteristics of High Profit
Producers?
1. Large operators
2. Older
3. Inherited wealth
4. Operate on Federal land
5. Retain ownership
6. Operated in the western rangelands
Summary

When compared to Low or Medium, High
profit enterprises have:


Higher weaning %
No differences in:
Weaning weight
 Death loss
 Pregnancy %
 Replacement rate
 Calving distribution


No differences in size of operation or region.
Summary

High profit ranches have:


Lower Investment (High & Low vs. Medium)
Lower Total costs
Lower Vet Med (High & Medium vs. Low)
 Lower Depreciation
 Lower Inventory Adjustments (High & Medium vs.
Low)




Lower Breakeven (UCOP)
Greater Revenue
Greater Net Income
Profit is a Set of Relationships
Investment in
assets
(Land, Cattle,
Equipment)
Annual
Expenses
Production System
Value in the
Market
Place
Investment
Production
Expenses
Marketing
Production Function
Rational Business
Behavior
Outputs
Inputs
Case & Fair, 1996
Strategic Management
Strategic Planning




Part of a management process designed
to increase success
Widely used in businesses of all types, and
sizes, all over the world
Relatively new to ranching
Not hard, but requires discipline
Scenario Planning




Part of a management process designed
to increase success
Relatively new in business, but used in all
types, sizes, all over the world
Very new to ranching
Not hard, but requires dedication
Balanced Scorecard






Designed to tie strategy to
performance
Much like a report card
Build it top down
Works bottom up
Assigns specific metrics to measure
success
Assigns responsibility
Combining Strategic Planning and
Scenario Planning and
the Balanced Scorecard

A new concept in business that combines
the positive forces of planning and
reporting processes to help improve the
success of your ranch
Why Now?
Because the business of ranching is facing a
period of unparalleled levels of change in
the core aspects of its business!
•
Marketplace
Demand
Price
Costs
Access
Exports
• Volatility
Feed
Fuel
Cattle
• Policy
Ethanol
Tax
Trade
KRIRM 5 Stage Process

Stage 1: Charting the course

Stage 2: Strategies to achieve vision

Stage 3: Scenario planning for the ranch

Stage 4: Merging the 2 planning processes

Stage 5: Putting the plan into action and
measuring success
Stage 1: Charting the Course
Charting the Course

Step 1: Assess the situation and inventory
resources:




Financial
Natural resources
Physical resources
Human Resources
Goal is to get a handle on the entire
picture in terms of #s and condition
Charting the Course

Step 2: Conduct SWOT analysis




Strengths
Weaknesses
Opportunities
Threats
SWOT
Strengths
Weaknesses
Opportunities
Threats
Value of SWOT






Can be used on the whole ranch or part
Proactive: used before action is taken
Helps in objectivity
Creates discussion
It helps develop an objective inventory of
realistic “potential”
Balances “half full” vs. “half empty”
Charting the Course

Step 3: Establish a Vision

Should include:
Values and reason for being
 Envisioned future
 Recognition of how it serves its
stakeholders




Owners
Employees
Customers
Charting the Course

Step 3: Establish a Vision

Should address
Time: 5-10 years
 Energy: Through language , a vision
statement should inspire
 Cooperation: should encourage cooperation
and creativity

Charting the Course

Step 3: Establish a Vision

The process:
Allow yourself to dream
 Everyone should be involved
 Shared
 Comments from outsiders
 Key questions:



“What do we want?”
“What are we willing to commit to?”
“We progressively realize multigenerational
goals in a fun, challenging, encouraging
environment and continually improve
people, products, services, the ranch, our
community, and the ecosystem while
sustaining a net profit.”
Stage 2: Determining Strategies to
Achieve Vision
Determining Strategies to Achieve
Vision

Step 4: GAP Analysis




Vision vs. current state
How does vision fit with resources?
How does business measure up?
How different is current culture
compared to what is needed?
Determining Strategies to Achieve
Vision

Step 5: Strategies to close GAP




Find new resources
Reallocate resources
Lengthen time
Modify size or scope
Stage 3: Scenario Planning for the
Ranch
Technology Continues To Improve
U.S. Corn Yield
170
150
2004 Yield = 160 bu./ac
2005 Yield= 148 bu./ac
2006 Yield= 149.1 bu./ac
140
2007 Yield = 154.7 bu./ac.
Corn Yield (Bu./Acre) .
160
2008 Trend Yield = 156.7 bu./ac.
130
120
110
Actual Yield
100
Trend Yield
90
80
70
60
70
75
80
Source: USDA & K-State Ag. Econ.
WASDE Report: 10.12.07
85
90
Harvest Year
95
00
05
KSU Dept. of Ag Econ
www.agmanager.info
Reactive
WHERE WE WANT TO BE
PLAN
REACTIVE
WHERE WE ARE
Past
Now
Future
Ackoff, 1999
Preactive
WHERE WE WANT TO BE
PLAN
Set Objectives
PREACTIVE
Predict
WHERE WE ARE
Past
Now
Future
Akcoff, 1999
Questions for 2009:
What will commodity prices do?
Will beef demand keep cattle prices up?
What will be new administrations policy
towards _____?
Corn Usage Estimates (Millions of Bushels)
USDA/WASDE
est.
Feed and Residual
Ethanol for Fuel
Exports
Ending Stocks
Total Usage
(+16%)
1
USDA/WASDE
2006/07
5,600
2,115
2,125
1,304
11,210
2007/08
5,7001 (+2%)
3,200 (+51%)
2,350 (+11%)
1,997 (+53%)
12,640
Assumes DDGS retain 30% of the feed value of corn and are included in the feed and residual category by the
USDA.
Interactive
INTERACTIVE
WHERE WE WANT TO BE
Idealized Design
PLAN
WHERE WE ARE
Past
Now
Future
Akcoff, 1999
Scenario Planning for the
Ranch

Step 6: Describe Multiple Scenarios



List “what ifs” that relate to your ranch
6 to 10
A scenario is not:
“Peace in the Middle East.”
 “Global warming will raise sea levels.”


A scenario is:
“The price of oil will rise”
 “The price of hunting leases will level off.”

Stage 3: Scenario Planning for the
Ranch

Step 7: Select and evaluate the most
probable





Choose 2-4
These can be tied to a SWOT analysis
These can be tied to GAP
Collect objective information
Flesh out each with a paragraph
Stage 4: Merging Strategies and
Scenario Planning
Merging Strategies and Scenario
Planning

Step 8: Determine strategies with
highest likely hood of success
Scenario 1:
High feed $
Scenario 2:
Good Beef
Demand
Scenario 3
High Oil $
Scenario 4
?
Production
Strategy 1
Strategy 2
+
0
+
-
+
-
0
Financial
Strategy 1
Strategy 2
+
0
0
+
+
+
Lifestyle
Strategy 1
Strategy 2
+
+
+
0
+
-
+
-
Stage 5: Putting the Plan into
Action and Measuring Success
Putting the Plan into Action and
Measuring Success

Step 9: Implementation of the plan

Two critical components
Commitment
 Communication


Develop tactical and operational plans
Who
 What
 When
 Where
 How

Putting the Plan into Action and
Measuring Success

Step 10: Monitoring performance and
measuring success

Balanced Scorecard
Identify perspectives
 Copy strategies
 Set realistic goals
 Decide on when you will measure
 Decide how you will measure
 Report out

Balanced Scorecard
Perspectives with Strategic
Objectives for BOD
Goal
Actual
Quality of Life
+ 3rd Gen
Yes
Financial
10% ROE
10%
Customer
OCB +
Yes
Production
500 Lbs/
Female
550
Natural Resources
+ Trend
Yes
Leaning and Growth
CSU
Workshop
Yes
Balanced Scorecard
Perspectives with Strategic
Objectives for BOD
Goal
Actual
Quality of Life
+ 3rd Gen
Yes
Financial
10% ROE
10%
Customer
OCB +
Yes
Production
500 Lbs/
Female
550
Natural Resources
+ Trend
Yes
Leaning and Growth
CSU
Workshop
Yes
Concluding Thoughts


You must put the puzzle together!
This is the time for strategic
management!




Strategic planning
Scenario planning
Balanced Scorecard
Both are doable!
1. Is this a sunrise
2. Or sunset?
“We educate the leaders
that make a
difference in Ranching”
• Graduate education
• Outreach
• Lectureships
• Symposia
• Certificate program
Only MS Degree in
Ranch Management in the World

Course work







Business
Animal Science
Wildlife Management
Range Management
2 Internships
Extra curricular
Problem solving
Course Work






Statistics
Systems
Range Livestock
Production
Ranch Planning and
Analysis
Ruminant Nutrition
Rangeland
Measurements





Genetics
Managerial
Accounting
Finance
Marketing
Student Choice


Soils
Big Game
2 Internships



Summer
Last Semester
Goals:



Work under mentor
Different geography
Analyze
Extra Curricular


Lectureships
Symposiums


Certificates



Co-author article
UT in Business Process Mgt.
K-State MAST
Short courses


Quail Mgt.
“Bud Williams”
Problems








Should I plant farm ground back to grass?
Should I sell part of my ranch?
Economic selection index for my ranch?
How should I develop my heifers?
How should I manage my ranch?
Should I close my feedlot and sell calves
and grain?
Apply Balanced Scorecard to ranch.
Should I change time of calving?
Lectureships
Strategic



Cover weaknesses
Dynamic
Endowed
10 Topics






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
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Prescribed Burning
Managerial Accounting
Strategic Management
Equine Management
GIS
Grazing Management
Systems
Oil and Gas
Current issues
Law
Symposium

Just held 5th



Topics are about management


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16 States
5 Foreign Countries
Strategic management
Balanced Scorecard
Transitioning ranch ownership
HR
Adopting Technology
Last Thursday and Friday of October
Certificate Program


“Commit to Life Long Learning”
Umbrella over:





Lectureships
Symposia
2 Symposiums and 4 Lectureships in
3 years
CE Credits
Net working
Early Success

7 graduates





8 students currently


4 in management positions on ranches
1 Faculty member at Univ. MO
1 area range conservationist with NRCS
1 liaison between Texas Parks and Wildlife
and 140 ranchers
2 have interviewed
Recruiting more
Early Success


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
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$10.6 million endowment
Line Item Funding from Legislature
Degree Program Approved
1 Certificate Awarded
Created a “Buzz”
Building partnerships



TNC
NCBA
Ranches across the west
http://krirm.tamuk.edu/
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