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Vulnerabilities to Continued Prosperity

STRATEGIC POSITIONING IN UNCERTAIN TIMES Michael Boehlje Center for Commercial Agriculture Purdue University. Vulnerabilities to Continued Prosperity. Increased supplies from productivity and acreage increases Slowdown in demand growth (exports and biofuels)

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Vulnerabilities to Continued Prosperity

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  1. STRATEGIC POSITIONINGIN UNCERTAIN TIMESMichael BoehljeCenter for Commercial AgriculturePurdue University

  2. Vulnerabilities to Continued Prosperity • Increased supplies from productivity and acreage increases • Slowdown in demand growth (exports and biofuels) • Cost increases – locked in higher cost structure on land • Higher interest rates • Margin compression • Asset value declines

  3. Vulnerabilities to Continued Prosperity (con’t.) • Weak working capital positions • Excess and/or poorly structured debt • Availability of credit • Increased tax burdens/reduced preferences

  4. The Paradox of Uncertainty • Uncertainty Creates Risk (Loss Exposures) BUT • Uncertainty Creates Opportunities

  5. THE FUNDAMENTAL CHALLENGE • Minimize the Downside • Capture the Upside

  6. Sources of Absorption/Resiliency • Size – can downsize if necessary • Diversified in business activity or geography • Strong financials – cash/liquidity and balance sheet • Unique tangible resource-not easily replicated • Unique intangibles-reputation, brand • Some slack/underutilized capacity (machinery, workforce)

  7. Sources of Absorption/Resiliency(con’t.) • Powerful partners (buyers, suppliers, lenders, landlords) who need us/want us to succeed • Customers who can’t easily replace us • Buffered from competition-surrounded by a moot • Low fixed costs-can better weather the storm

  8. Sources of Agility • Accurate real time data • Early recognition of market changes • An integrated management system-everyone informed/understands • Clear objectives/goals • Key performance indicators (KPI’s)-not too many • Entrepreneurial managers

  9. Sources of Agility (con’t.) • Sense of urgency-no complacency • Willingness to change or exit • Systematically reallocate resources • Seize opportunities when they arise

  10. Strategic Positioning Focus vs. Flexibility

  11. Strategic Focus – Best In Class • Intense Cost Control • Margin Management • Execution • SOPs • timely operations • details/details/details

  12. Buying Right • procurement mentality • sets your cost structure • Logistics Management • flow scheduling • 24/7 operations

  13. Manage Operating Risks • technology • marketing • insurance • Data Management • how to measure/collect • insights • who to share with

  14. Debt Management • sources (dealer financing) • leasing • interest rates • repayment terms • collateral • covenants • relationships

  15. Simplification/Automation • Do Fewer Things Better • Return to the Basics

  16. Strategic Flexibility • Anticipate • what to watch • preempt rather than react • Contingency Planning • scenario analysis • plan for the tails • triple based budgeting

  17. Options Thinking • beta testing • avoid “Big Bets” • value of waiting • Incremental Changes • Discovery Driven Planning

  18. Systematic Learning • learning by doing • learning by listening • a learning log • Position for the Opportunity • financial liquidity (cash or borrowing base) • slack resources (managerial and equipment)

  19. Downsizing/Exit • shrink to survive • exit smart • Position to Grow • buy distressed assets • sprint ahead when others pull back

  20. 8 Strategies To Use In This Environment • Lock in Margins • Buy Crop Insurance • Consider Fixing some Interest Rates • De-leverage – Pay Down Debt • Hold Financial Reserves • Conservative Bidding & Buying • Slow Growth & Fund with Equity • Make Investments in Operational Excellence

  21. Taleb’s Barbell Strategy • Never make an investment where the option is to lose everything • Move a portion to the left side to preserve what you have, rather than doubling down what you have on the “right” side. • Need to strive to be anti-fragile and preserve what we have from fragility • Don’t make single big bets, put small amounts in numerous big bets so you catch the positive black swans • Do everything you can to option the big bet – options thinking

  22. Taleb - Antifragile Can’t Accurately Predict, So Position for the Uncertainty

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