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Using the Balanced Scorecard for

Ranch Planning and Management:

Setting Strategy and


Measuring Performance
Jack Davis, Area Management Specialist SDSU
CES
Agustin Arzeno, Area Management Specialist
SDSU CES

What is it?

A strategic management tool that


provides ranch managers with a
clear, concise picture of the health
and progress of the business in
reaching the ranch goals.

Where Developed?

Harvard Business School

Dr. Robert Kaplan


Dr. David Norton

Utilized by industry

General Electric
Ford Motor Company
IBM
Walt Disney World

What is it?

The BSC translates mission and strategy into


objectives and measures, organized into four
different perspectives: financial, customer, internal
business process, and learning and growth.
The BSC provides a framework, a language, to
communicate mission and strategy.
The four perspectives of the BSC permit a balance
of ST and LT objectives, between desired outcomes
and performance.

Why Developed?

Financial Measures are no longer the only


measure responsible for success of a company.
Others include

Customer Satisfaction
Better Internal Process
Learning and Growth

All of these should work together ( in Balance)


for the success of the company
All systems are part of a whole and every
action taken affects the sum of the parts

Financial

Customer

Vision and
Strategy

Learning
and Growth

Internal
Business
Process

Ranch Wheel

What is the Driving Factor?

The Vision

It gives you direction

I am here and I need


to get to there, how
do I do that?

The Vision

Good business leaders create a vision,


articulate the vision, passionately own the
vision, and relentlessly drive it to completio
Jack Welch, former GE CEO

The Vision

Statement of values and reasons that are the


basis for business.
Envisioned future if goals are achieved.
Recognizes how the business serves the
stakeholders.
It should guide the business through challenges
and opportunities and provide a framework on
which to base decisions.
3 steps in creating the VISION:
a) Scenarios for your Industry
b) Place business in context
c) Develop strategies to adapt

The Vision

To pursue excellence and growth in sustainable


agriculture, thereby providing for diversification,
succession, and a continuity improving the standard of
living for all shareholders in the business.

To have a farm business that is growing, is financially


profitable, and is environmentally sustainable, while
enabling us to maintain our lifestyle and enjoy time with
our children and friends and continue our involvement in
the community.

To grow the family farm business by profitably marketing


quality products to ensure that the future generation has
a viable farming business.

Nicola M. Shadbolt, Massey University, NZ

The Strategies

Set after Vision is developed


Limited to those that directly
correlate with vision statement.
Action plan that will close gap
between vision and reality.
Strategies may involve major
changes or just fine-tune existing
ones.

What is involved in your Ranch?

Livestock Resources
Natural Resources
Financial
Human
Ag
commodities/production

Perspectives

What is a Perspective?

The capacity to view things in their true


relation or relative importance.
Go back to the Ranch Wheel and look at the
spokes of the wheel. These are your
perspectives.
View the business from each perspective.
Develop strategies.
Evaluate outcomes relative to each
perspective.

Perspectives have to be Measured!

Need to set goals under each perspective


The BSC forces goals to be linked to the vision
and actions to be linked to goals
Ask yourself 3 questions

What are the most important measures of


performance?
How should these measures relate to one another?
What measurements truly predict long-term success?

What else to consider with your


perspectives?

Links between goals of different perspectives


should be examined.
Leading (drivers) and Lagging (outcomes)
indicators should be included.
Needs to be measurable, relevant and easy to
measure.
3 to 8 goals per perspective. Easy indicator of
balance.

Leading or Lagging?

Lagging Indicators have already


happened.
Measure past performance.
Things you cannot change.
Leading Indicators are in the future.
Future performance
Drivers

Is it leading or lagging?

Weaning Weight
Potential cattle
buyer inquiry
ROA

Lagging
Leading
Lagging

Ranch Wheel

Lifestyle

The 5 perspectives all build to this


one.
Key indicators

Stress
Sense of security
Healthy, happy and content.

RANCH LIFESTYLE
PERSPECTIVES WITH
STRATEGIC OBJECTIVES
1. Healthy, happy family
2. Sense of security
3. Low stress

GOAL

ACTUAL

Yes
Yes
Yes

Yes
No
No

Financial

What terms are most encompassing?

ROA
It measures how efficient the production
system is at taking invested dollars,
regardless of sources and turning them
into income.

Others?

Breakeven
Free Cash Flow
Record Keeping

FINANCIAL
PERSPECTIVES WITH
STRATEGIC OBJECTIVES

GOAL

ACTUAL

1. ROA
2. $ net income
3. Breakeven
4. Current ratio
5. Free cash flow

8%
$200,000
$0.75
2:1
$50,000

6%
$180,000
$0.69
1.7:1
$43,000

The Customer

Who is your customer?


Are they satisfied with your product?
Do you have repeat customers?

Does the same person buy your calves


year after year?
Backgrounder/Feeder
Packing plant (get data back)

CUSTOMER
PERSPECTIVES WITH
STRATEGIC OBJECTIVES
1. Feedback
2. Repeat customer
3. Customer inquiry

GOAL

ACTUAL

Yes
Yes
Yes

No
Yes
Yes

Ag Commodities/Production

Need to focus on skills, competencies


and technology of the business and its
ability to meet the needs of the
customer.
Use standardized terms
Have a benchmark as a starting point
Pounds weaned per cow exposed
Preg rate
Actual weaning weight
Record Keeping

AG COMMODITIES/PRODUCTION
PERSPECTIVES WITH
STRATEGIC OBJECTIVES
1. Lb weaned/cow exposed
2. Pregnancy rate
3. Replacement rate
4. Cow BCS at weaning
5. Days fed harvested feed
6. % of calves born in first 21
days
7. $ vet/cwt. weaned calf
8. $ vet/cow pair
9. Cattle ID

GOAL

ACTUAL

500
94%
15%
6
85
65
$0.02
$18
YES

520
91%
12%
5
98
55
$0.04
$23
NO

Natural Resources

Why is it important?

Impacts number of animals able to graze.


If conditions improving then you are
matching resources.

How does this impact other


perspectives?

Pounds of product produced

NATURAL RESOURCES
PERSPECTIVES WITH
STRATEGIC OBJECTIVES
1. Stocking rate = carrying
capacity
2. Prescribed burn
3. Residual forage adequate
4. Noxious weeds treated
5. Precip. As % of normal
6. Range condition score
7. Photo points compared
8. Grouse count

GOAL

ACTUAL

Yes
Success
Yes
Yes
110
Improvin
g
Improvin
g
Increasin
g

Yes
Success
Yes
No
90
Steady
No
change
Increasin
g

Learning and Growth

Why is it important?

Gives you base to grow from.


Knowledge is power.
Knowing new ways of producing and/or how to generate more
business
Knowledge impacts all the other perspectives.

What is available

Extension sponsored programs.


Websites
Popular press
Other

LEARNING and GROWTH


PERSPECTIVES WITH
STRATEGIC OBJECTIVES
1. Attend Beef Cow
Symposium
2. Attend Farm
Management
Conference
3. Training of employees
4. Attend Extension
workshops

GOAL

ACTUAL

Yes

No

Yes
Yes
Yes

Yes
No
No

Summary
The process to build a BSC, includes:

1) Establish the vision for the future of the busine


strategies for reaching that vision.
2) Identify perspectives critical to your business
3) Identify measures for tracking progress and/or
success within each perspective (leading/laggin
4) Create action plans to achieve goals.
5) Evaluate performance and determine if goals h
been met and if progress in reaching the vision
been made.

Summary

Think of the BSC as the dials and indicators in an


airplane cockpit. To navigate and fly the plane, pil
need information on fuel, airspeed, altitude, beari
destination, and other indicators. Reliance on one
instrument can be fatal. Similarly, the complexity
managing a business today requires that manage
be able to view performance in several areas at o
Drs. Robert Kaplan and David Norton

Ranch Wheel