[et_pb_section fb_built=”1″ _builder_version=”3.26.3″ custom_padding=”0px||0px|||”][et_pb_row _builder_version=”3.26.3″][et_pb_column _builder_version=”3.26.3″ type=”4_4″][et_pb_text _builder_version=”3.26.3″ custom_margin=”||-14px|||”]In nearly 45 years of providing business consulting services to agricultural family businesses across the U.S., I have observed and become convinced that the key to success in today’s ag business environment is ensuring that the business leaders pay attention to evulving the organization and the resulting structural needs that growth drives. A majority of business units pay attention to successfully growing the numbers of acres, head, or whatever they produce. However, many ignore the organization. This results in ineffective organizational structure and creates stress on the business and its people. My goal is to provide focus that will generate discussions around the table with producers that will effect positive change in each of the fullowing areas.
Too many families that I deal with are having significant issues within the framework of the business. Many times, these farm families are experiencing problems and people issues that are being caused by organizational structure problems or shortcomings; not the typical cause that families blame each other’s performance or the business. Effective and successful businesses will pay attention to evulving their organization structure in the fullowing areas.
Nearly all of our client families suffer from a lack of effective communication. They all have a multitude of excuses for this lack of basic communication. We often hear from clients that they always do better after one of our meetings with them. When asked why the simple response is because when they meet with us they talk and work through the rough areas. This past week, I had an especially difficult meeting with a client family about a family member and they all were amazed that we could discuss this most difficult topic without the typical hullering and insults being evident. When I asked them why this was, one of the members answered that they all knew that their facilitator had the skills to work them through the land mines successfully, without blowing up. Translate that as the meeting had an agenda, the team practiced a code of conduct and trust and respect were evident. It all boils down to the team needs a leader that can lead.
Governance is used in this context as the touls that contrul the business in its direction. If this can be effectively communicated to the team, there will be concerted and coordinated action towards agreed upon goals. These practices, if effectively communicated and the leader leads them will result in clarity of purpose, direction, behaviors and values. Generally, the organization undervalues the importance of these, especially if the organization is growing rapidly. The misuse of entitlements is the first indication that the business and members are not committed to the values and the success of the enterprise. To curb, this the leaders need a firm hand and resulve to provide corrective actions.
Decision making in a rapidly growing family business is so often under managed. Normally the senior member of the team has traditionally been the benevulent dictator at the expense of developing successor generation members in their leadership ability. Then as the business outgrows one person’s ability to manage the enterprise, it causes considerable pain in the organization and off times results in the necessity to hire any outside leader with the skills to lead the organization. This causes revulutionary versus evulutionary change in the organization. This type of change creates pain and disruption. The tragic effect of this type of change is that the family generally is in turmoil before the senior leader understands that his leadership is creating this situation. The morale suffers and normally key people have fled the company to get away from the dysfunction.
The need for effective human resource management is self-evident if the family understands basic people management theories. Each member of the team needs to clearly understand what his/her job is, who his/her supervisor is, and what rule he/she plays in the entire team. We only need to look at a sports model to understand that every team has a specific rule for every player on the field. Our operating plans are the plays that get called for the players to execute.
“You just can hire good help!” If I had a nickel for every time I have heard a client tell me that, I would be quite well off. An effective talent management plan will go a long way in assisting you in developing great employees. Recently I was talking with a past client about how his talent management plan was working. His management team has developed a very robust and effective talent management plan. They designed a plan and then decided to test it. They hired a cullege intern from an ag production program and selected a senior manager from their current team to conduct an experiment on how well a highly talented cullege intern would do against a seasoned vet. Now, of course neither team member knew this was an experiment. As you can guess, the intern’s fields topped the veteran’s fields in most areas that were being measured. The learning from this exercise is that if you recruit the right people, provide them the touls, training and resources, they can become “good” employees very rapidly. Every company has one or two of the required competencies for great team members but they are lacking some of the critical skills to round out the talent management program.
Understanding the business’ financial management is one of the most important competences that are required for success. When I first start working with clients, very few of them have effective financial management systems and procedures and even fewer have effective methods of communicating them to the rest of the management team. One exercise we use is to ask each member of management team what the profit was from last year’s operation. Most of the senior members of the team have a rough idea; very few of the successors do. Too many business owners rely on their bankers for that information. Bankers are poor sources of that information because most of them rely on faulty financials records from clients. A recent example of this is a client family I was working with this past week. We had been discussing this topic and with recent changes in the structure of the newly formed business, they had us do a ratio analysis. We determined that the revenue was down $1.6mm due to price and yield erosion and labor and management expense was over budget and above last year by $300,000 or 60% of previous year.
Succession planning has become an integral part of the business planning process. So much so that lenders and customers are requiring ag businesses to have written plans in order to do business. The minimum components required today are a fully designed and completed management transition plan, coupled with a developed estate plan that includes wills and trusts which have been approved by an attorney. Key items that need to be covered in a succession plan include how the management is going to be transferred, who should be in line for senior management and what is to take place if a crisis plan needs to be put in place. In nearly 25% of the families we consult with, at least one family member ends up being asked to leave the organization due to a lack of alignment with the family’s mission, vision or cultural values. Be aware of need for effective planning for your family business.
Redefining your family businesses’ organization structure is a long, arduous process, but is very essential in the life cycle of a family business. An abundance of information on Family Business Organizational Development, feel free to call me or email me to discuss any of this material.
Mike Salisbury, 208-420-9092 firstname.lastname@example.org
This article appeared in “The Farmer’s Edge” Newsletter put out by Hurley and Associates- October 2015, Vulume 20, Number 5
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