Be wary when you hear that sheep and beef farmers must benchmark and compare their farm businesses with each other as their main way to improve profitability. Touted as the way forward for farmers, immense energy and sums of farmers own money are spent on their behalf on systems to try and accomplish it. Why be wary? 3 reasons - No idea, Malcolm Gladwell and diversity.
I often find that when conventional benchmarking (i.e. comparing farm production and overall business data between farm businesses) is recommended as the main way to improve profitability, those recommending it are not at all clear on how profit is actually generated in a farm business. Often they have no idea at all! The assumption is almost always that more production equals more profit. That equation simply doesn’t add up.
There is a system that determines whether or not year on year profit or spare cash is delivered from a farm business and it is definitely not focused first and foremost on production. Production is only a small part of the Profit Equation. If that system isn’t followed, irrespective of whether or not you benchmark against others, profit has a low chance of consistently turning up. What conventional benchmarking also does is put a whole lot of different production and income data of a business alongside the same data of other businesses with the suggestion that the farmer should work on moving each of their figures into the optimum range of those in the sample – usually the top 10%. Farmers are told to look at what the top 10% are doing and then do that. In other words, copy someone else’s actions and they will work for you too! This isn’t a system, just questionable advice/opinion.
A whole range of differences exist between people and businesses, such as location, climate, land type, animal performance abilities, markets, skills, knowledge, ability to cope with challenge, aptitude, attitude, likes, dislikes, thinking, beliefs, passion, personal preferences, business structure, access to labour, debt levels, finance arrangements, strength of business teams and many others. There will especially be differences in the individual visions of farmers and their families, i.e. what they really want and what is most important for them. Therefore, everyone is operating with different parameters. An action that is right for one business may be wrong for another (as is often the case) and the benchmarking numbers don’t identify that.
These differences may mean that the actions that one farmer takes, or the resources they have available, are not available to another and therefore makes that advice irrelevant. What dictates the profitability of a farm business is how well the farmer takes the resources and skills they have and then implements the system for generating profit with whatever they are starting with. This allows any farmer to create profit while helping them to get better at it as they go. Business is business yes, but to actually improve each farmer must understand HOW to do that for their own business and parameters, not just copy others actions. They are business owners after all and must take responsibility for driving their own businesses. Learning lessons and principles from others so these can be applied to different businesses is very important, copying actions because “you should”, is not.
By the way, the top 10% of what? EFS/ha? Lambing percentage? Production/ha? Gross Income/su? Tables of many measures only serve to confuse most farmers and provide no clear direction on HOW to actually move their business results forward. The value of this is questionable. Production is not profit! Check the current and historic results of sheep and beef farm businesses (after decades of this approach) to complete this picture.
I suggest that the best benchmarking for a farmer and their family is against themselves and their own vision. Therefore, they can work on how THEY can improve their own business so it achieves what is most important for them, and they can use a great system to do it. This approach covers businesses at any level, be it top, middle or bottom.
Malcolm Gladwell in his book David and Goliath, discusses how comparison with others is not necessarily helpful. Although the context of his discussion is slightly different he presents solid evidence that when we compare ourselves to others, where we are in the list has a direct effect on our self-perception and motivation. This comparison tends to see those in the top bracket taking validation from it and feeling pleased and happy they are in the top bracket and so charge forward. Others tend to feel at a disadvantage and can easily either lose motivation or carry on anyway but with not too much will to improve. They can feel that those above them are “wired differently” and they are not necessarily going to reach the same heights. It’s called relative deprivation. Gladwell suggests that comparison is great for those in the top bracket, but not necessarily the remainder, which is the majority. He has a point!
This may or may not apply to farm business but it may well do. Some below the top bracket of course do go on and improve, which is great and anyone can who chooses to. But generally, comparing businesses on that basis doesn’t necessarily help the businesses below the top bracket to improve their profits.
The third reason - there is always diversity between people and businesses, due to the differences listed above and the fact that we are natural beings. Nature creates and thrives with, adversity. There will always be a spread of abilities and results - take the bell curve as one popular way of describing distribution. There will always be those who are getting better results, similar results and poorer results. You just cannot get everyone into the top 10%! Yes, you can theoretically shift the curve so all can move on up. Practically, getting everyone moving up is never achieved but the choice exists for any individual farmer to do what it takes, if they so desire.
It just makes more sense to take a different approach to benchmarking instead of the accepted one-size-fits-all model, as the main way to improve profitability. Individual farmers must understand farm profit, understand their own business and what is most important to them, and then use a great system to rock on and get it all done!
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