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«KEY INDICATORS OF SUCCESS IN RANCHING: A BALANCED APPROACH Barry H. Dunn and Matthew Etheredge King Ranch Institute for Ranch Management College of ...»

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167 While cattle, the land, and the business are the foundational parts of a ranching operation, it must be remembered that they serve the people who own, manage, and operate the ranch. The issues of quality of life and standard of living on contemporary ranches, when compared and contrasted to alternatives, is of great concern to families involved in the ranching business. In the 21st Century, the mantra, “The pay is poor but it’s a great way of life” will no longer be a successful business strategy for coping with issues concerning family members and employees.

While people may be willing to sacrifice some degree of quality of life and standard of living, employee surveys of businesses across America indicate that they also need to feel valued as contributors to the success of the operation. This can be accomplished in several ways. Providing employees with opportunities for learning and growth represents an investment that can have many valuable results. Some can be anticipated, many will not be.

Ranch owners and managers must first value education and see it for its intrinsic value to people and society. The creation of an atmosphere in a business that values individual education and growth has great potential to improve employee moral and performance. In ranching today, there are many excellent opportunities for education, including short courses, seminars, schools, and field trips on a wide range of topics including animal handling and behavior, range and pasture management, marketing, and business, and livestock production.

Community colleges offer courses in business. Web based courses are available on many topics from colleges and universities across the country. And many programs at national meetings and symposiums are broadcast on the web in real time. Some are taped and are available to view at a time convenient for the viewer.

Measuring success of the people side of ranching is challenging. Employee turnover rates, general family relations, and the number of applications for full or part time jobs are good indicators if in general, a ranch is a good place to work.

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Five perspectives on success on a ranch have been discussed. Each has many individual measures of success. All are legitimate. All are important. How should one organize, weight and value so many different measures from so many perspectives without over emphasizing some and under emphasizing others? Are financial measures more important than range management measures? Do the customers needs supersede the ranchers? These were the questions addressed by Robert Kaplin and David Norton in their seminal work which they referred to as the development of “A Balanced Scorecard” for measuring performance and success in business (Kalpin and Norton, 1996). Based on research conducted at the Harvard School of Business in the early 1990’s, their concepts have been widely reviewed, critiqued, evaluated, discussed, and applied in education, research, government, and business.

168 “…existing performance measurement approaches, primarily relying on financial accounting measures, were becoming obsolete.” Kaplin and Norton, 1996 A balanced scorecard is an organized, systematic, and very concise way of measuring a business or organizations progress towards its vision and mission. According to Kaplan and Norton (1996) businesses using the Balanced Scorecard accomplish critical management

processes to:

1. Clarify and translate vision and strategy

2. Communicate and link strategic objectives and measures

3. Plan, set targets, and align strategic initiatives

4. Enhance strategic feed back and learning A Balanced Scorecard is a simple matrix that is designed to translate a business’s

vision and mission into a set of performance metrics. The key elements are (Smith, 2004):

1. Perspectives from which progress and success are measured. These should be limited in number, for example 4-7, not 10 or more.

2. Performance metrics tied to key strategies that are designed to accomplish specific goals. There should be 3-12 per perspective, not 20 or more.

3. Both leading and lagging indicators.

4. Perspectives are organized from bottom to top in order that they build upon each other toward the overall accomplishment of the organizations vision and mission.

An example of a Balanced Scorecard for a ranch is in Figure 1. The key elements are met. Its five perspectives are learning and growth, natural resources, cattle, customer, financial, and people. There are 3-8 metrics to measure and monitor per perspective. There are both leading and lagging indicators. The perspectives build upon each other. For example; a very simple synopsis of the assumptions of the example Balanced Scorecard in Figure 1 is that learning and growth opportunities for employees translates into improved range and cattle management. If range and cattle performance is enhanced and the buyers of the ranches cattle are more satisfied, it will all translate into improved financial performance of the business. Ultimately they all add up to greater satisfaction of owners, managers and employees.

“We have plenty of measurements of the past. But we can’t change the past. What we need are measurements that predict the future that we can react to.” Genho, 2004 Identifying leading versus lagging indicators is a critical step to take when building and using a Balanced Scorecard (Kaplin and Norton, 1996). Lagging indicators measure past performance. Leading indicators are predictive of future performance. Some measures can do both. The importance of leading indicators is that they provide an opportunity for intervention if necessary. Examples of leading and lagging indicators for the topics discussed follows.

169 Range: Range condition is an example of a measure that is both a leading and lagging indicator. While range condition, or seral stage, estimates the current plant community with respect to a potential, and is a result of past management decisions, it is also an excellent predicator of future production. If range condition has not met goals, stocking rates can be reduced in the future to help drive change. A photo point of an example of gully erosion would be an example of a lagging indicator. The damage is done. The water is gone. The soil has eroded. Counts of mature grouse in the spring of the year would be a leading indicator of the future grouse population based on average reproductive rates.

Cattle Production: Body Condition Scores (BCS) of dry pregnant cows is an example of a leading indicator. Research from stations across the United States and from many diverse environments has shown that BCS is an indicator of future reproductive performance. This can be extrapolated into a prediction of total pounds weaned and gross income. If BCS is low after weaning, nutritional supplements can be fed to improve BCS before calving. Total pounds weaned is a lagging indicator. It is a cumulative measure of past reproductive performance of the cow herd, herd health and death loss, milk production of the cows, and growth rate. Pregnancy percentage is both a lagging and leading indicator. It measures past reproductive performance during the breeding season, and also can be a predicator of total pounds weaned for the up-coming production year.

Customer: Inquiries from potential buyer of cattle would be an example of a leading indicator with regards to how customers view a rancher’s cattle. Reports on how a rancher’s cattle performed for past buyers would be considered lagging indicators.

Financial: Many business measurements are lagging indicators. ROA is an excellent example of a lagging indicator. The net income has been generated and the investment in assets made. To some degree, liquidity measures, like current ratio and working capital, may be used to predict the future. Strong positions in these areas allows for different management choices compared to if these measures were evaluated as weak. Performance of commodities on the Board of Trade and the Mercantile Exchange would also be leading indicators.

People: Employee turnover is a lagging indicator. While measures of job satisfaction may be hard to acquire, they would be an example of a leading indicator.

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The use of a Balanced Scorecard could positively impact a rancher’s ability to manage his/her ranching operation. It is designed to succinctly measure the success of critical strategies that build towards the successful accomplishment of a rancher’s overarching goals, mission and vision. The use of leading as well as lagging indicators allows for the ranch manager to monitor not only the past performance of key performance measures, but also provides opportunity for intervention in areas that can be improved upon.

The Balanced Scorecard, while new to ranching, has proven to be an effective management tool in many applications over a relatively long period of time.

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Collins, J. 2001. Good to Great. Harper Collins. New York, NY. p 104.

Deming, W. Edwards. 1994. The New Economics for Industry, Government, Education (2nd Ed.), Massachusetts Institute of Technology, Cambridge, MA.

Dunn, B. H., R.J. Pruitt, E.D. Hamilton, and D. Griffith. 2005. Factors affecting profitability of the cow-calf enterprise in the Northern Great Plains. 2005 Beef Rep. 2005-09. pp 40-45.

FFSC.1997. Financial Guidelines for Agricultural Producers. Farm Financial Standards Council. p III-5.

Field, T.G. and R.E. Taylor. 2003. Beef Production and Management Decisions (4th Ed.) Prentice Hall, Upper Saddle River, NJ. p 134.

Genho, P.C. 2004. In conversation with the author. King Ranch, Kingsville, TX.

Holechek, J.L., R.D. Pieper, and C.H. Herbel. 2004. Range Management: Principles and Practices, (5th Ed.), Prentice Hall, Upper Saddle River, NJ. p 212.

Itami, H. 1987. Mobilizing Invisible Assets. Harvard University Press, Cambridge, MA.

Kaplin, R.S. and D.P. Norton. 1996. The Balanced Scorecard. Harvard Business School Press, Boston, MA. pp 8-11, 43-46, 147,150.

Kleberg, S.J. 2005. In conversation with the author. King Ranch. Kingsville, TX.

Monfort, K. 1983. In remarks to the American Junior Hereford Association Field Day. Wyoming Hereford Ranch. Cheyenne, WY.

NCA. 1992. Guidelines for production and financial performance analysis for cow-calf producers, Cow-Calf SPA. National Cattlemen’s Association, Denver, CO. USDACSREES, Washington, D.C. pp 1-74.

NCA. 1995. Guidelines for production and financial performance analysis for stocker/feeder producers, Stocker Feeder SPA. National Cattlemen’s Association, Denver, CO.

USDA-CSREES, Washington, D.C. pp 1-89.

Oppenheimer, H.L. 1961. Cowboy Arithmetic. The Interstate Printers and Publishers, Inc., Danville, IL. p 8.

Smith, R. 2004 The Balanced Scorecard: Making Strategy Measurable. University of Texas.

Austin, TX.

Teichert, B. 2005. In conversation with the author. Deseret Land and Livestock. Utah.


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