Written by Liz Duncan, Managing Consultant
If I had a dollar for every time I was asked the question “What do the best businesses measure?” I probably wouldn’t be working anymore!
What should we measure to know if our farm is successful or our business tracking well?
As a banker for 20 years, I asked countless clients what measures they used to know that their business was on track? I spent countless hours keeping track of my own business, measuring leading and lagging indicators. The lead indicators were things like client inquiry or even calls and visits made to clients. If we were performing well at those measures, then the outcomes would come. A test that informs us of a result is called a lagging indicator.
Agricultural businesses are challenging to measure and to analyse on a comparative basis. We measure utilising cash flows and comparison to the actual performance, financial statements, yields, grades, carcass weight, fleece weights and more. Many of the things we discuss informally, over a beer at harvest or after the auction, focus on the top line. However, what about the costs associated with producing income?
I had the pleasure of working with a large scale vegetable business some time ago. This business impressed me. Despite growing multiple products and even varieties within products – types of lettuce, broccoli, cauliflower, peas & beans across many farms, they had one single measure they relied upon.
The measure was the basis of a daily morning meeting in every layer of the business. It would then flow from ground level of the organisation – in the paddock, the truck or the packing shed up through the farm managers, the logistics and transport team, the sales team up to the CEO.
The measure they all discussed was devastatingly simple – DIFFOT.
- Delivered In Full
- Fresh
- On Time
The only measure that mattered to every single employee in this large business was related to their customer. They were striving to deliver all of their orders – to supermarkets, restaurants, retailers and food services in full.
To ensure that they would be paid for those deliveries, the products needed to be fresh and on time. Quality and timeliness of every aspect of the business led to that. If a field was planted late, it had an impact. If part of the crop was eaten by a grub that wasn’t picked up by the agronomists – there was a consequence on quality and volume. If a truck was delayed due to driver error or mechanical failure, it mattered. From the person planting the crop, to the person paying wages and fueling trucks, all the way to the CEO this business had a measure that mattered.
As grain, hay and livestock producers we typically do not have direct contact with our customer, so the single measure for your business may be Profit or the growth in Net Worth or Return on Capital. These single measures are the result of what’s happening in the paddock, our timeliness, our efficiency of labour and machinery or our family and personal goals.
Back in 1954 Peter Drucker famously said: “What gets measured, gets managed”. That’s been the case in every business I’ve worked with or for – the question I have for you is, do you measure the right things?