Strategic Management for Climate Change Affecting Agribusiness in South East Australia - Case Study Example

Strategic Management Introduction The ability to plan ahead is an attribute that makes human beings distinct from other species. Though the origin of formal planning is not traceable, it certainly precedes long before the body of knowledge of modern management came into being. The planning activity had been practiced by military commanders in order to formulate battle operations after analyzing capabilities of their own forces and that of the opponents, About 450 B.C, Aeneas wrote about “strategy”. In Athens the terms “strategos” and “strategoi”, meant “military commanders” and “body of commanders known to be the wisest citizens of Athens” respectively. Henry Fayol was the first to introduce long term and short terms planning which his French mining adopted for more than fifty years from 1866 to 1918. These included also the strategic planning in use today. The annual, two-year, five-year and ten-year planning procedures now being followed are all the updated versions of Henry Fayol’s works which could be almost used as strategic planning text. The planning methodologies adopted by the U.S. military during World War II were later adopted by industry as planning, programming and budgeting. The terms “planning” and “strategy” have been defined differently by the authors. While Chandlier and Andrews states that strategy would include an enterprise’s aims and means to achieve them which process is called by them as planning, Mintzberg terms planning as work scheduling after forming a more creative process of strategy. (Roney, C.W.2004 p 5-7, 35) Strategy implementation is analogous to athletics in that the enterprise should be proficient in management skills like the player being in good form. Just as there must also be good equipment for athletics, the enterprise should have other resources such as well-aligned organization and motivation for both the individuals and the team. (Roney C.W. 2004, page 231) From the above it would appear that strategic management precedes planning process and planning is part of the strategy. This essay is concerned more with this area of strategy rather than being confined to planning. This essay proposes to discuss about how organizations and agencies engaged in agribusiness would deal with climatic changes within the context of strategic management. Of various models available, a suitable model will be examined and applied to for strategically managing the agribusiness in the light of climatic changes over which organization have little control. Strategic management The following are the steps traditionally followed in strategic management by corporates. There has to be vision or mission statement to make sure in which business the organization is in. Objectives and goals are defined for the organization in order to convey the message of where it has reach and how to reach it. Market research is undertaken to identify customers and their needs. Ascertaining what external forces of threats and opportunities they face which should literally an audit of external environment. Analyzing the strengths and weaknesses of the organization in that its resources are critically examined. How to achieve the marketing objectives of the organization with the available resources. Formulating a strategic plan by matching the resources with the objectives. Finally an action plan which would lay down what should be done to achieve the objectives. (Pearson 2002) This would be more of a micro based strategy rather than the macro based strategy of the agribusiness this paper is concerned with though some of the strategies can equally apply to the industry in general from the point of view of the Government agencies and policy makers. The firms in agribusiness or any business or activity for that matter will also have to make a concerted effort to strategically manage the environmental challenges facing their relative industry or activity. Traditional frame works available in a given situation for strategic analysis are PEST Analysis, SWOT Analysis, the Five Forces and Value Chain analysis of Michael Porter and Core Competence model of Hamel and Prahalad. PEST Analysis As said above this is an ideal tool for assessing the macro-environment which the firm operates under. PEST stands for Political, Economic, Social, Technological. These factors play a vital role for value creation though they are beyond the control of the firm. They can be either threats or opportunities. Under the political, factors such as environmental regulation and protection, tax policies, international trade regulations, contract enforcement law and consumer protection, employment laws, Government organization and attitude, political stability, and safety regulations are examined. Under economic, factors such as economic growth, interest rates and monetary policies, Government spending, unemployment policy, taxation, exchange rates, inflation rates, stage of the business cycle, and consumer confidence are studied. Under social, factors such as income distribution, demographics, labor mobility, lifestyle changes, work and leisure attitudes, entrepreneurial spirit, education, fashion trends, health consciousness, feelings on safety, and living conditions are analyzed. Under technological, spending by Government on research, industry’s attitude towards research, inventions, technology transfer rate, life cycle and rate of technological obsolescence, use of energy and its costs and technological changes in information technology and mobile technology are the factors that are examined to make out a strategy. PEST analysis is not a complicated one as the factors mentioned above self explanatory and actors are encouraged to use brainstorming techniques. There are variants of PEST known as SLEPT Analysis (plus legal) and STEEPLE Analysis. (Social/demographic, Technological, Economic, Environmental (natural), Political, Legal and Ethical factors) Geographical factors are also incorporated. (12manage.com-PEST) SWOT Analysis It is another tool available for a firm to formulate strategies. It helps identify one’s Strengths, Weaknesses, Opportunities, Threats. (SWOT) Of these, threats and opportunities are external which a firm can not control. Threats that need to be identified by a firm are new competitors, price war, competitors innovative substitute product or service, enhanced trade barriers, and a likely new taxation on the firm’s product. Opportunities are emerging markets like China and technologies like Internet, Merger, joint ventures or strategic alliance possibilities, relaxation of Governmental restrictions, removal of international trade barriers, and the market under the control of a weak competitor. As a part of strategic management, a firm must draw a diagram of SWOT and endeavor to match with the external environment. (12manage.com-SWOT) Five forces model of Porter Porter’s competitive Forces model is the most popular strategy tool as it has proven its usefulness on several occasions. The Outside-in thinking concept of Porter is what has made his model most popular today. Porter has identified five competitive forces which are entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among the existing players. A sixth force is also added some times i.e Government. These forces considered as threats to a firm depends on variety of factors. Threat of new competitors is decided by economies of scale, investment requirements, costs of customer switching, industry’s distribution channels, technological access, brand loyalty, capability of retaliation by the existing firms and Governmental subsidy for new entrants. Similarly Substitutes, bargaining power of suppliers and buyers, and intensity of rivalry are determined by respective factors under each such force. One limitations of this model is that core competence of the existing firms can not be underestimated as core competence is capable of weathering out or sustaining any new competition (12manage.com-Porter) Creation of Porter’s Value Chain The value chain frame work of Porter suggests certain activities by firms so that they can create value and thereby attain competitive advantage. Porter points out the line functions which are primary activities in a company. They are Inward receipt of materials involving receiving, storing, inventory control, and transportation. Then comes the value addition activities of machining, packaging, assembling, maintenance, testing and all connected activities that convert the inputs into final products. Outgoing of materials involves activities in reaching of finished products to customers. They are warehousing, order execution, transportation, and distribution. Other primary activities are Marketing and sales and Service. By creating a value chain, a firm achieves a sustainable competitive advantage through cost reduction of individual value chain activities or through reconfiguring the value chain. (12manage.com-Porter) Core Competence As already seen earlier, Core Competence development is a strategy tool suggested by Hammel and Prahlad. Core Competence is rather development of strengths of a firm in a sustainable manner in its basic product rather than developing a portfolio of divergent products wherein specialization is not easily achievable within a short period and which will involve frittering away of the firm’s valuable resources built over a period or involve of needless borrowing of funds a cost. (12 manage.com-Hammel, Prahalad) The above discussed strategic models concentrate on how to counter the competition though they also recognize outside forces over which the firm’s can not have control. Even these outside factors do not recognize climatic changes as a possible threat for the firm’s existence though there is a mention of environmental challenges. As seen at the outset, the strategy associated with military, is so called since no Luke-warm approach to survival in challenging environments would do. The underlying idea from Porter’s theory is to treat any challenging condition as a threat and absence of climatic changes therein need not invalidate or make the theory inapplicable. Climatic changes are unpredictable and to a large extent comparable to equally unpredictable competition. It is noteworthy that STEEPLE analysis mentioned above includes geographical factors also. Climatic change is one of the geographical factors. In further analysis, it will be seen how in North Eastern Australia how various agencies including business firms are involved in strategic management of agribusiness and whether the elements or theoretical aspects of strategic management are evident in them. Climate has been acknowledged as the greatest risk affecting agribusiness not only in Australia but also in all parts of the world. Climate variability or climate change makes individuals, businesses, and nations vulnerable to serious repercussions. Hence knowledge of the climate has emerged as one of the risk management tools for the agribusiness. Seasonal weather forecasting and analysis of the scenario can enhance the preparedness on the part of the players in agribusiness and thereby reducing vulnerability. Use of the climate knowledge will result in two outcomes: 1) policies for multiple objectives for societal benefits and risk management strategies for businesses and individuals so that their vulnerability is reduced. In order for the policies and strategies to be effective, they must be coordinated and negotiated. Australia’s federal drought policy encourages self reliance measures to be adopted by the primary producers as part of risk management. The self reliance spells out that the producers are responsible for their own commercial performance by running their agricultural activities in economically and environmentally sustainable manner besides also expecting the Government to desist from intervention that would distort prices or outputs. The policy expects that producers to assume climate variations and extremes as a commercial risk of farming. It is expected that the approach should be rather risk management than crisis management at all levels. In addition, financial assistance rather than compensation in times of difficulties should be in place for the affected individuals through commonwealth support systems. Pilot studies should be undertaken in other parts of the world as to how drought situations are tackled. Meinke (2003) cites a pilot study undertaken in a village called Thamaraikulam, Tamil Nadu, India. In June 2002, it was forecast that there would be below normal monsoon rainfall during June-September. About 30 farmers took part in the discussions to formulate strategies to reduce risk of fall in out put or crop failure by resorting to crop choice and plant density. . A simulated crop yield from the cropping systems was adopted for the purpose. It was found that there would be a reduced yield of peanut and hence a reduction in plant population was suggested. Then it was also found that under very dry conditions “sorghum” would survive in the place of cotton plants. The simulations and meeting with the farmers resulted in a change of crop patterns from cotton to sorghum and reduced plant densities of peanut by majority of them. Thus 70 % of the farmers were benefited by switching over to sorghum and reducing plant densities of peanut itself. The remaining farmers who risked planting cotton had to abandon the crop by August thus incurring loss of all their input costs. The study demonstrates that simulation exercise helps reduction of risks associated with climate changes. The author says that systems analysis together with climate knowledge, simulation tools, participatory approach by community interactions do help reduce risks in agribusiness strengthened by climatic awareness. Queensland, a state of North eastern Australia has its policy on primary industries spelt out by the Department of Primary Industries and Fisheries (DPI & F) adapting to changing conditions. Economic forces that determine both the demand and supply of Queensland food and fiber commodities have been outlined by DPI & F. It seeks to address the challenges as well as to avail of the opportunities faced by the sector. Thus this policy takes into account of the threats and opportunities as tools for strategic management of the State’s agribusiness. Queensland accounted for 24% Australia’s output in 2005-2006, an increase from 19% in 1995-96 amounting to $ 12.5 billion per annum. Its export income amounted o $ 6 billion per year which was 25 % of state’s total exports. Thus the agribusiness sector contributed to state employment, economic growth and quality and cheap food and fiber products to Australian households in general and Queensland households in particular. The state of Queensland has the top priority to manage risks of climate change. The primary industries which are dependant on the climate have to adapt to climate changes for a sustained agricultural output. The climate changes result in changing levels of water availability due to global warming and also affect the conditions for optimal plant growth and distribution of pests and diseases besides impacting animal welfare and incidence of sea food species. Changing water availability and reduced water available in Southern Australia also forces shift to North Eastern Australia for the food resources. Government programs have also made a vibrant and robust transport infrastructure in Queensland to complement and aid development of the agribusiness sector in that State. The policy statement makes it clear that natural resources being limited in supply and are unlikely to increase considerably in future partly due to limited availability and partly due to competing forces and sustainability issues, agribusiness growth should be through productivity improvements through innovation in products and processes. 83% of the land in Queensland is held by agribusiness operators and therefore no further expansion is possible. (DPI & F) The Annual Report for 2005-06 of Managing Climate Variability Program says that it has invested $ 7.6 million for the last three years in research on climate changes in Australia and their likely impacts on agriculture and management of the impacts. This includes seasonal forecasting for farmers and other stake holders so that they can apply the climate information in their agricultural pursuits effectively. “Yield Prophet” a web based tool to simulate crop growth has been used 7,000 times in the last two years to take farming decisions. (DPI & F) Strategic management is continual process. Hence Government of Australia has appointed Professor Ross Garnaut of Australian National University to make a climate change review which will go into the aspects climate change and their impacts on the Country’s economy and then recommend medium to long term policies and policy frame works to achieve a sustainable prosperity to the country. Its final report due on 30 September 2008. (ACIAR) Conclusion The purpose of this paper is to relate the theoretical objectives of Strategic management to the actual practices in countering climate change in North Eastern Australia’s agri- businesses. In the initial part of this paper, several aspects of strategic management including its origin were discussed. Strategic management gains relevance in managing external factors over which the entities have no control. Climate change, a phenomenon applicable to all the stake holders in equal proportions, therefore needs to be tackled at the highest level possible to facilitate risk management. It has been evidenced that Australian Government’s policy has made it clear that agribusiness stake holders should assume risk management measures and should not expect compensation for crop failures. And that only financial assistance would be made available. Besides, climate forecasting through ‘web prophet’ and measures such as changing of crop patterns and planting densities through pilot studies have been part of the strategies to tide over the possible crisis due to climate changes. By becoming active participants in the Governmental programs on the management pf climate changes, the agri-business owners should be able to manage their own by adopting the principles laid down by five forces of Porter and core competence of Hammel and Prahalad along with SWOT and PEST analyses. Strategic management is generally known as business policy. Thus Government’s spelling out policies on climate changes vis-à-vis agribusiness is a part of the strategic management. Thus there is enough evidence to show that theoretical perspectives of strategic management have been valuable sources of tools to practically counter the climate changes in North Eastern Australian agribusiness stake holders. References 12manage.com-PEST, accessed 2 September 2008 Read More