BSC in Agriculture (Farming)

 

The Balanced Scorecard is a management concept that recorded wide adoptions by thousands of organizations round the world from various industries and sectors. Despite this positive reality, the specialty literature doesn’t record, but only few examples of Balanced Scorecard implementations in the agri-food industry, all of them among large corporations (Lissitsa, 2005). Among the corporations activating in the agricultural sector that have adopted the Balanced Scorecard framework in their management process are Nordzucker in Germany, agricultural grain marketing cooperatives in Australia, Zeneca AG Products in the United States or Farm Credit Canada (Lissitsa, 2005).

 

One of the most critical factors that prevented the adoption of the Balanced Scorecard on a larger scale in the agricultural sector as suggested by Laurenzani (2005) seems to be the predominance of small family enterprises. Such family farms, predominantly lack of a formal strategic management business oriented focus, mostly due to the fact that physical work tends to exclude creative work and strategic thinking (Andersson, 2002).

 

However, even though, the vast part of the BSC literature is focused on the corporate sector, this does not preclude the application of the Balanced Scorecard to agriculture, and more particularly to small family farms. Several research studies have documented and demonstrated that BSC can be successfully implemented in small and medium enterprises (Andersen et al, 2001; Watts et al, 2009).

 

More than that, various researchers (Lissitsa, 2005; Andersson, 2002; Laurenzani, 2005) suggest that due to increased complexities of the farming business resulting from specialization of production but also increased demand of product quality, food safety and sustainable agriculture production (Noel and Lund, 2002), the need for strategic management at the farm level is increasing.

 

According with Laurenzani et al (2005) for a farming business to survive and have success its necessary to accomplish several conditions:

  • Have the necessary capacity to answer the pressures and challenges imposed by the external environment
  • Be capable to at least pay all its production costs
  • Improve  production processes and marketing activities in order to secure the financial balanced of the business
  • Be prepared to continuously take care of the family members necessities and aspirations

 

In order to accomplish all these conditions, keep the balance of the farming business and improve it, a strategically focused performance management architecture needs to be adopted. The Balanced Scorecard is one of the management concepts that can offer such an alternative for managing the farming business in search for the short term viability and the wealth in the long run. Several studies, some of them presented below, present examples of Balanced Scorecard frameworks adapted to the agriculture and farming realities. An example of a Balanced Scorecard implementation by a larger corporation, Agrosoyuz, a Ukrainian agriculture cooperative, is also presented in short details.

 

Balanced Scorecard for a rural family farm

The Balanced Scorecard model developed by Laurenzani et al (2005) is based on the original Kaplan and Norton BSC concept, and present examples of potential objectives, measures, targets and initiatives grouped on the BSC four perspectives: financial, customer, internal business processes and learning & growth.

Balanced Scorecard

Objectives

Measures

Targets

Initiatives

Financial perspective

To gain activity earnings

$ Returns

  • To increase the incomes and / or to decrease the costs
  • To increase the incomes of farm and non-farm activities.
  • To identify and to eliminate unnecessary fixed and variable costs.

To increase the operational cash margin

$ Cash Margin

  • To increase the sealing price and / or to decrease the variable cost
  • To add value in the product,
  • To add value in the product, looking for better prices
  • To reduce variable costs, by a efficient production.

Customer perspective

To develop the firm demand

# Demand

  • To increase and/or maintain the costumer number
  • To look for more profitable
  • To look for more profitable distribution channel;
  • To satisfy each customer requirements

To set up a high level of customer satisfaction

% Customer satisfaction

  • To satisfy the costumer, through the increase of its criteria
  • To improve the product quality level;
  • To set up competitive prices;
  • To provide offer regularity

To set up competitive prices

$ Selling price

  • To offer compatible price to the market and production costs
  • To follow the price market behavior;
  • To define the price in function of production costs 

Internal business perspective

To increase the level of productivity

# Productivity

  • To upgrade the productive efficiency
  • To use equipments and techniques that improve the level of productivity 

To increase the level of product quality

% Level of perceived quality

  • To upgrade the level of costumer perceived quality
  • To identify the level demanded for the costumer;
  • To make decisions that increase the costumer perceived quality 

Learning & growth

To improve the managerial and technical competences

% Capacity level

  • To advance in the learning curve
  • To provide training
  • To provide training opportunities;
  • To develop the managerial and technical competence;
  • To look for relevant information 

To provide employee motivation (family and contracted)

% Employee satisfaction level

  • To put employees and enterprises targets together
  • To recognize the employees’ necessities (security and welfare);
  • To develop employee’s competences 

Source: adapted from Laurenzani et al, (2005)

 

Balanced Scorecard for a Danish dairy farm

In order to test the properties of the Balanced Scorecard for farms, Danish researchers Noel and Lund (2002, based their Balanced Scorecard framework for a Danish dairy farm on a hypothetical case example. The BSC framework presented below is mapped to an idealistic strategic management scenario for the dairy farming in Denmark, identifies the main strategic objectives and corresponding measures grouped according with four original dimensions that try to map the BSC traditional perspectives.

 

Balanced Scorecard

Objectives

Measures

BSC perspectives

Financial

Increase total income

  • $ Income statement
  • $ Cost drivers

Financial

Improve production efficiency

  • $ Gross margin per cow

Financial

Improve profitability of investments

  • $ ROI
  • $ Investment portfolio

Financial

Activities

Better health status

  • # Farm visits of dairy advisors

Customer

Improve milk yield

  • % Replacement rate
  • # Milk yield per cow
  • # Hygiene and sanitary standards

Internal processes

Improve utilization of feed

  • # Feed units per cow

Internal processes

Higher yield of forage

  • # Feed units per ha
  • # Crop rotation

Internal processes

Less storage loss of forage

  • $ Investment in new storage facilities

Internal processes

Capacity

Better utilization of milk quota

  • $ Gross margin per kg quota
  • # Replacement of dairy stock

Internal processes

Better utilization of machinery

  • $ Machinery cost per ha
  • # Machinery contracting work

Internal processes

Improve utilization of buildings

  • % Stalls idle
  • # Purchase of more milk quota

Internal processes

Reduce the cost of labor

  • # Hours per milking cow
  • $ Investment in labor savings installations

Internal processes

Organization

Hiring of a more skilled herd manager

  • $ Gross margin per wage dollar
  • # Practical and theoretical education

Learning & growth

Use of better information system

  • $ Cost of bookkeeping and production control

Learning & growth

Development of managerial competence

  • # Course days
  • # Available time for overall management

Learning & growth

Source: adapted from Noel and Lund, 2002


According with the authors the framework presented above, still needs to be adapted to the Balanced Scorecard structure and developments. The customer perspective is only implicitly taken in consideration as it is considered that in the agriculture sector market driven production is only on an incipient phase, with the internal process perspective being the most developed.  While the BSC structure presented above tries to simulate the Danish farming realities, it provides with a good starting point for further consideration of the BSC adoption in the farming sector overall.

 

Balanced Scorecard at Agrosoyuz, Ukraine

Agrosoyuz is a large agriculture Ukrainian enterprise, established on the basis of the former collective agriculture enterprise “kolkhoz”. According with Lissitsa (2005), the company in contrast with many Ukrainian agricultural enterprises was committed to searching for new technologies and management strategies in order to increase its efficiency. Hence, the adoption of the Balanced Scorecard concept for managing the new company strategy came almost natural, despite big difficulties posed by the limited documented experience with the BSC implementation in the agricultural sector generally, and especially in transition countries.

 

The BSC at Agrosoyuz is based on 6 perspectives. To the traditional Kaplan and Norton’s perspectives 2 new were added: innovation and society. The two new perspectives were mapped in order to better reflect the company major objectives and strategy:

  • Of being the most innovative agricultural enterprise in the country
  • To play a leading role in the rural development by providing a wide variety of services under the “social sphere” (Lissitsa, 2005)

 

Outcomes of BSC implementation at Agrosoyuz

  • A balanced and more efficient use of available resources
  • Introduction of new monitoring and measurement systems
  • Simplification of management and organization system
  • Facilitate a better understanding of employees role in the business
  • Enables continuous adaptation to changing conditions by providing managers with updated information

 

References

  • Andersson, P. (2002), Competence development program for the farmer with reference to life as well as business, Proceedings of the 13th International Farm Management Congress, Wageningen, Netherlands.
  • Andersen, H., Cobbold, I. & Lawrie, G. (2001), Balanced Scorecard implementation in SMEs: reflection in literature and practice.
  • Laurenzani, W., L., Quiroz, T., R. & de Souza Filho, H., M. (2005), Strategic mapping of the rural firm: a balanced scorecard approach, Proceedings form IFMA 15th Congress - Developing Entrepreneurship Abilities to Feed the World in a Sustainable Way, Brazil.
  • Lissitsa, A. (2005), The Balanced Scorecard implementation in farm enterprise – a case study from Ukraine, Proceedings form IFMA 15th Congress – Developing Entrepreneurship Abilities to Feed the World in a Sustainable Way, Brazil.
  • Noell, C. & Lund, M. (2002), The Balanced Scorecard (BSC) for Danish Farms – Vague framework or Functional instrument, Farm Management, Proceedings of NJF Seminar No. 345, Norwegian Agricultural Economics Research Institute.
  • Watts, T. & McNair, C., J. & Baard, V. (2009), Untying the Gordian Knot: Small Businesses and the Strategy Balanced Scorecard, Northeast Region AAA 2009 Conference - American Accounting Association: Cambridge, MA, pp. 1-35.

BSC in practice : By industry

 

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