Success Requires Continous Management Improvement

By: Danny Klinefelter

I’ve been promoting peer advisory groups for business oriented farmers as the best tool I know to achieve continuous management improvement. In part, my passion for peer advisory groups stems from my familiarity with the AACREA organization in Argentina, which began over 50 years ago. AACREA has grown to over 200 groups and over 2000 members who represent only .5% of Argentina’s 350,000 producers, but over 20% of the country’s agricultural output.

I serve as director of the Executive Program for Agricultural Producers (TEPAP) and executive secretary for the Association of Agricultural Production Executives (AAPEX), both of which I believe serve to link participants to other top producers and a wealth of ideas. Yet I believe peer advisory groups represent the missing link in terms of the follow up, follow through and continuous management improvement that isn’t possible through educational programs and seminars alone.

I have also seen the tremendous benefits that non-farm entrepreneurs gain from participation in the Young Presidents Organization’s CEO Forums, Vistage’s CEO Peer Advisory Groups and other peer group based organizations. A MIT Sloan Management Review survey of members of CEO peer groups found that 100% agreed membership had improved their company’s performance, 100% obtained new knowledge, 90% improved organization in their professional life and 88% developed clearer performance bench marks.

Good Isn’t Enough. Jim Collins, the author of Good to Great, says that good is the enemy of great. It’s too easy to get complacent when things are going well. There’s an old saying, “If it isn’t broke, don’t fix it.” But I’m a firm believer in the point Tom Peters made in his book Thriving on Chaos, “If it isn’t broke, you probably haven’t looked hard enough.”

Remember, the basic function of a competitive market is to drive the return to the average producer to economic breakeven through supply and demand responses. At that point, the below average are losing money and getting forced out, the average are just hanging in there, and the top are still making money. Anyone who is in the business of farming for the long haul or with the intent for their business to continue onto the next generation has to be constantly striving to stay in the front of the pack.

The difference between the top quarter and the bottom quarter of producers is not just one thing. A six year study of farmers I conducted during a particularly trying time in agriculture (1982-1987), I discovered the top 25% were about 5% better than the overall average in terms of production per unit, cost per unit, and net price received per unit. The bottom 25% of farmers were about 5% below average on the same metrics. In addition, both groups tended to do it over and over again, and the combined compounded cumulative effect was incredible. It isn’t exactly comparable, but it is indicative of the differences to look at FINBIN data out of the University of Minnesota’s farm business management records. In 2012, net farm income for the top 20% averaged $844,000 and the bottom 20% averaged $14,000. Dave Kohl, Virginia Tech economics professor emeritus, has noted that the difference has increased every year since 2003.

Set Yourself Apart. In the roughly 25 years I’ve run TEPAP, among the top things I’ve learned is that the very best managers reject the status quo. They recognize that however well they’re doing, there soon will be a way to do better. Another big difference between the top 10% and the rest of the top 25% is their timing. The difference is even greater if you compare the top 25% to the bottom 25%. The timing factor relates to when they get in, expand, contract or get out and redeploy their resources elsewhere. It’s obvious when it comes to marketing commodities or buying land, but the importance of timing extends into every area of the business. Some success can be attributed to luck, but most of it is the result of better information and better management. A third attribute is that they are all intentional networkers. Much of what they learn is from the experience of others and from looking outside of agriculture.

No one model of peer group will fit everyone; but, I think the Top Producer Executive Network (TPEN) is one opportunity to consider. Those who don’t seek to associate with the best and the brightest or focus too much on looking inward or at their own industry, commodity group, geographic region or country, are going to get left behind. If you’re not changing at the rate of the leading edge of your competition, you’re falling behind the pack even if you’re moving ahead.

Unfortunately, it tends to take on political overtones; but, unless the successful are penalized and the unsuccessful subsidized, it is an economic reality that success requires continuous management improvement at a rate set by the competition and not by your own comfort zone. Don’t fall into the trap of this being about keeping up in terms of size -- I’m referring to continuously improving management. It’s about employing the best management practices.

I don’t want the U.S. to lose one of its major competitive advantages – superior management. I truly believe that peer advisory groups, comprised of the best of the best, afford that opportunity. Recognize that it’s often the things you don’t like to hear that you need to hear most.