Strategy, key success factors and the
effectiveness of arable farms
Development of a strategic concept and a Balanced
Scorecard
Harald Ligtenberg
Master thesis
University of Groningen
Faculty of Economics and Business
MSc Business Administration
1
PREFACE
Before you lies my master thesis conducted at the University of Groningen. This research is performed in the last few months of my study Business Administration, Organizational and Management Control. The subject of this research is motivated by my internship at Acconavm. During this internship I have become more and more interested in the arable sector. As a child I had a number of vacation jobs in this sector and I saw it as an exciting opportunity to integrate my academic education with this sector. Especially the role of strategy and how to use it constructively had my attention. For this reason the subject of this thesis is the influence of strategy on the effectiveness of arable farms and the use of key success factors.
This thesis could not have been realized without the help of others. First of all I would like to thank the farmers who took the time and effort to answer my questions. You provided me with a lot of information that forms the basis of the qualitative research. I enjoyed conducting these interviews and it was a worthwhile experience. Secondly I would like to thank Harm Jan Schipper and the other employees of Acconavm Uithuizen to give me the opportunity of doing an internship at a an advisory and accounting organization. They created the opportunity to visit farmers and find information I otherwise would not have found. Furthermore drs. Molenaar helped me during the process of writing the thesis. Thanks for asking the right questions and triggering me to think thoroughly of what I am writing. I also would like to thank Dr. Tillema for co-supervising my thesis. Finally I would thank the persons who took the time to read my thesis and provided it with feedback.
2
ABSTRACT
This research explores the effect of strategy, with the use of key success factors, on the effectiveness of arable farms. Through reviewing literature and conducting qualitative research, insights in the arable sector are gained. The literature review provides a strategy-effectiveness framework that structures the research. A strategic concept for the arable sector is developed. It emphasizes that strategy considers where and how a farmer wants to compete and how the farm want to stay successful. The farmer is the central actor for the development of strategy. The strategy should adequately consider the environment, society, power relations and learning because these aspects are important for farmers. Furthermore key success factors, which are tasks, processes and capabilities of a farm, are provided. These factors are measured through leading and lagging indicators. The effectiveness of farms consists of extrinsic and intrinsic aspects. Also the family and community play an important role in the way farmers view success. This research develops a Balanced Scorecard (BSC) to measure performance in the arable sector. The BSC is able to measure the diversity of a farms effectiveness. The study contributes by increasing the knowledge about strategic management in the arable sector. It benefits academics through the development of a framework and practitioners by developing a BSC.
3 TABLE OF CONTENTS PREFACE ... 1 ABSTRACT ... 2 1. INTRODUCTION... 5 1.1 Initial Motive ... 5
1.2 Goal of the Thesis ... 6
1.3 Research Questions... 7
1.4 Research Design ... 7
2. THEORETICAL FRAMEWORK ... 9
2.1 The Contingency Approach ... 9
2.2 Concepts and Relations ... 10
2.2.1 Organizational effectiveness ... 10
2.2.2 Key success factors ... 11
2.2.3 Strategy ... 12
2.2.4 Arable sector ... 12
2.2.5 Conclusion... 13
3. LITERATURE REVIEW ... 14
3.1 Organizational Effectiveness ... 14
3.1.1 Characteristics of organizational effectiveness ... 14
3.1.2 Organizational effectiveness in SME’s ... 15
3.1.3 Organizational effectiveness in farms ... 15
3.1.4 The Balanced Scorecard ... 16
3.2 Key Success Factors ... 18
3.2.1 The role of key success factors ... 18
3.2.2 Productivity, costs and quality ... 18
3.2.3 Sustainability and stakeholders ... 19
3.2.4 Entrepreneur, knowledge and learning ... 19
3.2.5 Cooperation ... 20
3.2.6 Finance ... 20
3.2.7 The key success factors in the BSC ... 20
3.3 Strategy ... 21
3.3.1 Influence of strategy on organizational effectiveness ... 21
3.3.2 The diversity of strategy ... 21
3.3.3 Agricultural strategy literature ... 24
3.3.4 Arable sector versus strategic management literature ... 26
4
4. QUALITATIVE ANALYSIS ... 29
4.1 The Methodology and Cases ... 29
4.2 Organizational Effectiveness ... 30
4.3 Key Success Factors ... 31
4.4 Strategy ... 34
5. DISCUSSION AND CONCLUSION ... 37
5.1 Discussion ... 37
5.2 Contribution for Academics and Practitioners ... 40
5.3 Conclusion and Limitations ... 42
REFERENCES ... 44
APPENDIX I ... 52
APPENDIX II ... 53
APPENDIX III ... 55
5
1. INTRODUCTION 1.1 Initial Motive
‘There is a future for the agricultural sector in the Netherlands, also for the arable sector. […] The entrepreneurs have the key in their hands. The way they react on changes is crucial. Therein they will have to make choices. The occurring developments with a freer market and globalization forces them. Waiting is the wrong reaction in this situation. Without a clear vision of the future success will be a lucky strike.’
(Ministerie LNV, 2005: 6, translated)
In the agriculture different developments are increasing the need for more insight in the way enterprises should be managed. As the statement at the beginning of this chapter shows, arable farmers have to think about their vision and strategy because of the developments that are taking place. Agricultural firms are more and more forced to respond to changes in their environment and adapt their strategies and plans accordingly. The demands for product safety and quality are increasing and sustainable production becomes more important. These developments have led to an increasing attention for new management accounting approaches for farms. But there is not enough known about strategic management and its implementation at farms (Noell & Lund, 2002: 1-2).
The subject of this thesis is the relation between the strategy pursued by an arable entrepreneur and the key success factors leading to success. In the Netherlands the agriculture still has an important role in the economy. It provides about ten percent employment and contributes about nine percent to the Dutch economy in 2006 (Silvis, de Bont, Helming, van Leeuwen, Bunte, & van Meijl, 2009: VIII). In this thesis the terms arable farm and arable enterprise are used to refer to the type of farm that grow crops. In particular it aims at organizations which are growing seed potatoes as main product.
Organizations differ from each other, even in the same sector. Arable farms can aim for high quality or rather lowest possible costs (i.e. differentiation or cost leader) or even a combination. It would be very helpful to understand organizations and the strategy they pursue to assure that taken actions are appropriate for a particular organization. Ondersteijn, Giesen & Huirne (2003: 32) state that farms in the Netherlands are mainly family businesses and the strategy pursued is chosen by the farmer and his family. Farming decisions are not made by strategy experts and the family business has no large staff to support their decision making process. Knowledge about the style of a farm helps the management of a farm to create congruence and actualization of the goals (van der Ploeg, 1999: 122). So, some additional insight in strategic management fulfils an actual need for farming families in the Netherlands.
6 the development of a farm in a better way (Ondersteijn et al., 2003: 53). It is important to understand the strategy and the key success factors for high performance for arable entrepreneurs and for consultants advising entrepreneurs. Next the goal of the thesis is introduced.
1.2 Goal of the Thesis
The objective of this study is to explore the role of strategy in arable farms and what important (key success) factors for organizational effectiveness are. This research tries to enhance the knowledge about strategies and the success factors of arable enterprises. The research is exploratory and by exploring literature, executing interviews and visiting farms, ideas about strategy in the arable sector are generated which helps future studies. The research represents a preliminary investigation in this sector which can become the basis for empirical testing (Scapens, 2004: 260).
Knowledge about why an organization is, or is not, successful is important for organizations. Without this understanding managers do not know how to stay or become successful. That is why it is necessary to study arable farms, because it enhances the understanding of their effectiveness. A way to analyze organizations is the use of the contingency approach. Contingency theory is an approach to understand the structure of organizations which can be dependent on a number of factors like size, technology, strategy or environment (Robbins & Barnwell, 2002: 27, 46). Organizations are studied to see what the impact is of a variable on that particular organization. This thesis focuses on strategy, because it is seen as one of the imperatives with the largest impact on the way organizations are managed (Robbins & Barnwell, 2002: 138) and because it is not well understood how strategy should be managed at arable farms (Noell & Lund, 2002: 1-2).
Besides business goals arable farms also have to deal with family aspects and combining these goals can be difficult. Arable family farms aim to be sustainable and viable in the present and for the next generation (Lourenzani, Queiroz & de Souza Filho, 2005: 290). The way entrepreneurs manage their farms, the building of networks and how they respond to changing consumer demands are issues which become increasingly important for farms (Silvis et al., 2009: 99). But how should entrepreneurs in the agriculture incorporate these goals and issues? Which strategy should they follow and which elements are important for successful deployment of the strategy? The usefulness of management control tools, like the balanced scorecard (BSC), for agricultural enterprises is more and more recognized these days. Shadbolt (2007: 867) states that ‘the BSC used by farm managers would provide an ongoing learning opportunity for the farm as it facilitates in-depth discussion about the business’ vision, strategy and critical success factors and translating them into specific measures and objectives.’ This statement shows the importance of knowing what drives success and how to manage and control this at an arable farm.
7 2002: 1). But above all, it will increase the insights in how strategy influence arable farms performance. In the next section the problem analyzed above is structured through the use of research questions.
1.3 Research Questions
The problem statement on which this thesis is focused is: what is the role of strategy in
arable enterprises and how can organizational effectiveness be achieved with the use of key success factors?
This question considers the way strategy influences arable enterprises and what the key success factors for organizational effectiveness are. Strategy is an imperative, a variable that dictates the structure of an organization (Robbins & Barnwell, 2002: 139). The key success factors of an organization are contingent on the strategy of the organization. Because organizations have different strategies consequently there are differences in key success factors. The chosen strategy should lead to success for an enterprise. But success is not only dependent on the generation of profits and that is why this research considers organizational effectiveness as being more than just financial success. To answer the problem statement the following research questions are asked:
1. What is organizational effectiveness? 2. What are key success factors?
3. What is strategy?
4. What is the relation between strategy and organizational effectiveness?
5. What is the relation between organizational effectiveness and key success factors?
6. What is the relation between strategy and key success factors?
7. What are distinguishable characteristics of the arable sector and enterprises? 8. How should organizational effectiveness be measured in the arable sector? 9. Which key success factors need to be used in the arable sector?
10. What is the role of strategy in the arable sector and arable enterprises?
These questions are answered in the forthcoming chapters. Through the answers on these research questions the problem statement can be answered and new insights in the arable sector are developed. The methodology of the thesis is considered in the following section.
1.4 Research Design
8 researcher has executed his research and the reliability and validity can be assessed (Boeije, 2005: 150; Saunders, Lewis & Thornhill, 2003: 421).
In the previous section the purpose of this research is presented. It wants to contribute to the arable sector by exploring strategic management in this sector. The nature of this study is exploratory, which means that it aims to increase the understanding of the problem statement (Cooper & Schindler, 2006: 164). Through exploration of the subject under study, insights are gained about strategy, effectiveness and success factors in the arable sector. In the following chapter the theoretical framework is established in which the approach and concepts of this thesis are discussed.
After the theoretical framework a literature review is executed. The review provides insight in the use of strategy, the success factors and organizational effectiveness in the arable sector. Cooper & Schindler (2006: 164-165) state that a literature search is the first step in an exploratory research. The literature review is used to explore the subject under study and understand and define the problem. It is important to understand the theory underlying qualitative research and it is an essential part when conducting research (Ahrens & Chapman, 2006: 823; Yin, 2003: 28). Through the literature review the qualitative research can be better interpreted. And according to Scapens (2004: 274) it is important to establish linkages between literature and the cases to enhance the plausibility of the research.
After the literature review a qualitative analysis is executed. Because not all existing knowledge is written down, it is important to find out what participants in the arable sector know and experience (Cooper & Schindler, 2006: 145). Through interviews and case studies a deeper understanding of the subject is achieved (Jansen, Merchant & van der Stede, 2009: 75). By using multiple sources of data, triangulation is used to improve the construct validity (Yin, 2003: 34, 98). The use of theories in case study research also improves the external validity of the research. It helps to generalize the results to theory, which Yin (2003: 37) calls analytical generalization. The methodology of the qualitative analysis is further elaborated in chapter four. Furthermore, in chapter four the results of the qualitative research are presented. Interviewing farmers helps to understand the problem more clearly. Also a reflection on the participants of the research takes place in chapter four. Yin (2003: 24) argues that is important to describe the unit of analysis because it enhances the transparency of the research.
After the literature review and qualitative analysis, a discussion of the findings takes place. In this section the limitations of the research are revealed to understand the reliability of the results (Cooper & Schindler, 2006: 23). In this chapter a conclusion is given which answers the problem statement. This conclusion is based on the findings and the interpretation of these findings in the discussion section. By executing the study according to the above process, transparency is given about the research. This should enhance the reliability of the research. The coming chapters contain additional methodological considerations, specific for those chapters.
9
2. THEORETICAL FRAMEWORK
The basis for executing empirical research is the use of concepts. By building concepts a shared perception of the terms under consideration is created. This enhances the understanding and communication of these terms (Cooper & Schindler, 2006: 36). In this section the used approach and concepts are explained. By establishing and communicating the framework of the research to the reader, the intelligibility of the research is increased. First the approach that is used (contingency theory) is considered.
2.1 The Contingency Approach
Contingency theory is often used as research method but it is not possible to give one exact definition of contingency theory (Chenhall, 2003: 157). It refers to a set of organizational theories (Schreyögg, 1980: 306). According to Chenhall (2003: 157) contingency is used as a term to state that something is true under specific conditions. There is not one theory to explain how a specific dependent variable acts under different circumstances. The behavior of the variable is dependent on a number of specific factors. The contingency approach in general has been defined in the literature as the identification and developing of functional relations between variables as environment, organizational design or performance (Luthans & Stewart, 1977: 183). Donaldson (1987: 19-21) argues that structures need to fit with the contingencies for the organization and the goodness of this fit will enhance economic performance. In this thesis the contingency factor on which the focus is placed is the strategy. The conceptual development of strategy is done in section 2.2.1.
The contingency approach has gained influence from the 1960s. Approaches in the organization theory field were lacking the consideration of organizational structure. The question that rose was: is there a best structure of an organization for every situation? Or do different circumstances mean adaption of the organizations structure to that specific situation (Robbins & Barnwell, 2002: 46)? Determinants which are influential on an organizations structure are strategy, size, technology and environment (Robbins & Barnwell, 2002: 27). Chenhall (2003: 128) adds culture of a nation and he argues that the structure of an organization can influence the design of management control systems (MCS). The contingency approach is frequently used in research. For example much of the empirical MCS research follows a contingency approach to study the effect of contingent variables on MCS design (Langfield-Smith, 1997: 207). But why is the contingency approach so widely accepted and used?
10 when explaining the behavior of arable organizations. This makes the contingency approach the appropriate methodology to study the way farming strategies influence the structure of a farm and in the end the organizational effectiveness (figure 1).
FIGURE 1
Strategy-effectiveness, version 1
Strategy
Structure
Organizational
Effectiveness
The contingency approach helps to understand and establish functional relations in the arable sector. Due to the relevance for practitioners and academics of the relation between strategy and effectiveness, the research subject is the influence of strategy on organizational effectiveness. In chapter 3.3.1 it is shown that strategy has a significant influence on the effectiveness of organizations. The intermediate variable structure falls beyond the scope of this research and is for this reason not discussed. Next the different concepts are considered that are relevant for this research.
2.2 Concepts and Relations
In this section the concepts needed to answer the problem statement are explained. The organizational effectiveness, key success factors, strategy and the arable sector are discussed and defined.
2.2.1 Organizational effectiveness. According to Chenhall (2003: 135) the
dependent variable of contingency research should be organizational performance. But defining organizational performance is not as easy as it seems. Performance is about the effectiveness of an organization and it is conceptualized in different ways. Research often uses economic measures to indicate the performance of organizations in studies (e.g. Merchant, 1985: 71; Simons, 1987: 363). Tosi & Slocum (1984: 12) discuss the concept of effectiveness in contingency theory and they conclude that ‘profitability fits nicely with the free market, capitalistic view of the economy shared by most organizational theorists.’ But they also state that profitability is only one concept of effectiveness. Also Langfield-Smith (1997: 226) shows that the use of economic performance measures is not optimal for indicating success.
11 Several approaches are available to assess the organizational effectiveness which could be used to study effectiveness in the arable sector. To understand an organization and its behavior an analysis of the goals is crucial (Perrow, 1961: 854). In this view the goals are the measures of effectiveness and this is the goal-attainment approach (Robbins & Barnwell, 2002: 69). This approach is dependable on the clarity of the goals, which is not always the case.
The systems approach sees organizational effectiveness as the ability of organizations to exploit their environment for valued recourses. The focus is on the ability of organization to get the necessary resources (Yuchtman & Seashore, 1967: 898). The problem is that important processes are often difficult to measure and the focus on process distracts attention from the actual goals (Robbins & Barnwell, 2002: 75).
The strategic-constituencies approach focuses on the constituencies which are important for the survival of the organization. To be effective the demands of those constituencies need to be fulfilled, this approach has a stakeholder view (Pfeffer & Salancik, 1978). However it is difficult to balance the most important (strategic) constituencies with the less important ones. Another difficulty is the changing environment that changes the demands placed on an organization (Robbins & Barnwell, 2002: 80).
Finally the balanced scorecard approach balances the different demands placed on the organization with its capabilities (Kaplan & Norton, 1996: 56). This approach aligns the organization with its environment and produces measures in four perspectives (financial, customer, internal business and learning and growth). However it is difficult to determine which demands are most important and which stakeholders are important. A changing environment makes it even harder (Robbins & Barnwell, 2002: 85). When studying organizational performance in the arable sector, the most appropriate approach needs to be used. In chapter three the most appropriate method to measure performance at arable farms is presented.
2.2.2 Key success factors. When managing or advising an enterprise it is
important to know what is critical for high performance. Through this knowledge the execution of the strategy can be monitored and the possibilities for good results increase. Rangone (1997: 208) states that the assessment of the effectiveness of an organizations strategy can be performed with the help of key success measures. By measuring the key success factors the achievement of the strategy and objectives can be evaluated (Ferreira & Otley, 2009: 271). In the literature these factors which are important for the survival of an organization are often called the key (or critical) success factors.
12 managers and employees and be measured to know if the strategy is executed in such a way that the goals are achieved. The key success factors are a more concrete explanation of the mission and vision of an organization and a part of the control structure of an organization. The key success factors are used to make sure that the most important elements are measured and can be attained (Ferreira & Otley, 2009: 271).
To understand performance thoroughly it is important to measure the key success factors. Therefore, the focus in this thesis is on the measuring aspect of these factors. Walsh (1996: 509) states that organizations measure the progress towards the organizational goals through key performance indicators. But Walsh (1996: 511-512, 519) shows that indicators need to be distinguished in two different aspects: outcome measures and in-process measures. This is in line with the distinction made by Kaplan & Norton (1996: 64) that a BSC is more than a collection of key success factors and should consist of lagging and leading indicators. Lag indicators tell if something is working well (outcome) while lead indicators tell how something is working.
In this study key success factors are defined as a limited number of context dependant factors that could be tasks, processes or capabilities that are measured through leading (process) and lagging (outcomes) indicators in the BSC. They are based on the vision and strategy of an organization and are required to attain high performance. If key success factors fail, the overall performance is, in general, low.
2.2.3 Strategy. Strategy is a somewhat different than the other contingency
factors. Strategy is a way for managers to influence the contingency variables. The choice of a particular strategy influences the environment of an organization. Managers have room to position their firms in a particular environment through their strategic choice (Chenhall, 2003: 150). But what kind of choices are there? According to Porter (1980: 126-129) it is necessary to characterize the competitors through the strategic dimensions, such as product quality, cost position or specialization. This way it is possible to structurally analyze the specific sector. When analyzing competing firms in one industry ‘patterns of behavior begin to emerge which suggest that these various organizational forms can be reduced to several archetypes’ (Miles & Snow, 1978: 29).
According to Robbins & Barnwell (2002: 139) strategy is ‘the adoption of courses of action and the allocation of resources necessary to achieve the organizations goals.’ But this is a very general definition. One exact definition of strategy does not provide the variety which entails strategy. For this reason Mintzberg (1987) recognizes multiple definitions of strategy and Mintzberg, Ahlstrand & Lampel (1998) distinguished different schools of strategy. The review of these authors is done in chapter three. In the next section the arable sector is discussed.
2.2.4 Arable sector. It is important to understand what exactly is meant with an
13 particular it aims at organizations which are growing seed potatoes as main product. Most of the farms in the Netherlands are small family farms (Ondersteijn et al., 2003: 32).
2.2.5 Conclusion. Figure 2 is a visual representation of the research questions in
chapter one. It consists of the three concepts that are the subject of this research. These concepts are studied in the context of the arable sector and are for this reason also influenced by this sector. Based on the conceptual development, the model shows that strategy influences organizational effectiveness and the key success factors. However the key success factors influence organizational effectiveness also, as is argued in the conceptual development. FIGURE 2 Strategy-effectiveness, version 2
Strategy
Organizational
Effectiveness
Key Success
Factors
Arable sector
14
3. LITERATURE REVIEW
In this chapter literature is reviewed to gain insight in the strategy of arable farms, its effect on organizational effectiveness and the use of key success factors. The objective is to understand these concepts and their relations. The search for literature is performed through search engines like: Business Source Premier, Academic Search Premier, GreenFILE and Google scholar. Literature discussed during courses attended at the University of Groningen is used. Also the database of the University of Wageningen, because of its specialization in agriculture, and additional business literature (Rabobank, ABN AMRO, Ministerie LNV and LEI) is used.
This chapter starts with discussing organizational effectiveness, followed by a discussion of the key success factors. Thirdly, the strategy literature is reviewed and at the end a final version of the strategy-effectiveness model is presented. The literature review is extended to all types of farms because literature about arable farms only is not very extensive. Moreover are farms relatively comparable, they are almost all small organizations with a natural input (crops or animals) to deliver output.
3.1 Organizational Effectiveness
The dependent variable is organizational effectiveness of farms. The purpose of this section is to show what organizational effectiveness is and how it is used and measured in arable farms. First of all it is important to know the characteristics of organizational effectiveness. Next the organizational effectiveness of small and medium enterprises (SME’s) and of farms is discussed. Effectiveness in SME’s is included because the existing literature of organizational effectiveness in farms is not very extensive. This section is ended by a discussion about the BSC and its appropriateness for arable farms.
3.1.1 Characteristics of organizational effectiveness. It is difficult to find a
comprehensive definition for organizational effectiveness, as is shown in chapter two. The definition of organizational effectiveness differs between organizations and sectors. Nonetheless there is agreement about some aspects crucial for defining organizational effectiveness. Cameron (1986: 540) describes these areas of agreement and first of all she points out that organizational effectiveness is the central construct for organizational sciences. Consensus is also reached about the diversity of the construct. Organizational effectiveness is different for organizations and even changes over time in one organization. Quinn & Cameron (1983: 49) state that a change in an organizations life cycle stage changes the criteria of effectiveness of that organization. This leads to the fact that no best set of indicators can be achieved for organizational effectiveness in general. Cameron (1986: 541) states that the indicators for organizations effectiveness are based on the preferences of individuals. And these preferences differ between individuals and actors linked to an organization. Thus organizational effectiveness is characterized by a huge diversity but it is a very important concept.
15 definition of organizational effectiveness can be given for a particular situation. This is consistent with the concept defined by Robbins and Barnwell (2002) stated in the theoretical framework. There the organizational effectiveness is seen as the achievement of the short and long term goals of an organization and these goals reflect different strategic constituencies and the perspective of the evaluator.
When studying organizational effectiveness these characteristics need to be incorporated. The BSC is a way to incorporate these characteristics. It is a tool to balance short and long term goals, the outcomes and drivers of performance, objective and subjective measures (Kaplan & Norton, 1996: 56). It achieves it through four perspectives (financial, customer, internal process, learning and growth). The BSC seems to provide the diversity and attention for multiple aspects needed to assess organizations effectiveness in a constructive manner. Before exploring the usefulness of this tool it is important to know how organizational effectiveness is studied and measured in SME’s and farms.
3.1.2 Organizational effectiveness in SME’s. Paige & Littrell (2002: 315) state
that success in SME’s often is defined in tangible extrinsic outcomes such as financial objectives. Kuratko, Hornsby & Naffziger (1997: 31) find in their study that entrepreneurs not only try to achieve extrinsic goals (increasing personal wealth and income) but also intrinsic goals such as excitement, recognition, challenge, accomplishment or growth. Also employment autonomy and security for the family are often cited goals for the entrepreneur. This last reasoning is confirmed by Langen-Fox (1995: 215-216) in her study of female entrepreneurs. She found that more than halve of the female entrepreneurs in their sample placed high values on family and economic reasons to be an entrepreneur. Langen-Fox called these the pragmatic types, other types found were managerial (high on internal control) and need achiever entrepreneurs. From this research it becomes clear that there is diversity in goals for SME’s, with a distinction between extrinsic and intrinsic goals for entrepreneurs.
3.1.3 Organizational effectiveness in farms. Arable farms are not the same as
every other SME. Specific literature about farms is needed to find out if organizational effectiveness is seen differently in farms. Walter (1997: 64) shows in his study of American farmers the diversity in success perspectives of farmers and proposes four different perspectives: steward, manager, conservative farmer and agrarian farmer (Walter, 1997: 55-65). The steward links success to taking care for his land and the environment. This derives from a moral responsibility of being part of the natural system but also derives from economic interest for taking care of the families interest. The manager sees successfulness through the analysis of the business. Success is having an efficient business through detailed records and production figures. Good management of the farm is the goal of this type of farmer. The conservative farmer wants to maintain a viable enterprise for the family and has an explicit long-term orientation. Community involvement is important while a business and efficiency perspective is less present. The agrarian farmer finds success in the intrinsic reward of living and being a farmer. Farming and family are important and time needs to be invested in both. The success typologies show that land, environment, economic, efficiency, long-term continuation, family and intrinsic rewards all can be incorporated in the effectiveness of an arable farm.
16 perspectives (economic, conservative, lifestyle). While Robinson, Freebairn, Bell & Huda (2003) found that the pride of ownership is the most important goal of Australian farmers. Other goals are making a satisfactory income, self-respect by their work, having a challenge and a future income. Mäkinen, Rantamäki-Lahtinen, Ylätalo & Vehkamäki (2009: 187) state that the goals of farmers can have different grounds. It could be survival, financial or more subjective. According to Mäkinen et al. (2009: 187) the financial measures of success are seen as good fit of the goal of profit maximization. But they argue that there are a number of findings indicating that the rural entrepreneurs are not (only) seeking profit maximization. Intrinsic aspects of the job (enjoying the work, independence or a good reputation) are often seen as more important than profit maximization (Gasson & Errington, 1993: 97-99; Komppula, 2004: 21). Gasson (1973: 527) provides four perspectives of the objectives of family farms. These reward perspectives are instrumental (satisfactory income, expanding business working conditions), intrinsic (working in the field, variety of tasks, independence), social values (farmer prestige, belonging to a farming family) and expressive (personal fulfillment, pride of ownership, doing a worthwhile job).
The common factor in the arguments of all these researchers is the diversity of goals of farmers. Another relevant aspect for farms and their effectiveness is that arable farms in the Netherlands are mostly family farms. Goals of the farms need to balance the organizations and family interests (Lourenzani et al., 2005: 289). The goals need to provide an acceptable economic income and take the lifestyle of the family in account (Mäkinen et al., 2009: 187). This also increases the diversity of goals arable farms pursue.
3.1.4 The Balanced Scorecard. It is clear that there is a great variety in how
organizational effectiveness is defined by entrepreneurs in the agriculture as well as SME’s in general. This could be the reason for the growing attention for the BSC in SME’s and farms. The BSC can be used to balance the different and competing objectives in an organization (Sundin, Granlund & Brown, 2010: 234). Developing a BSC aligns the organization with its environment, by developing and implementing strategy. The BSC is a tool to see if the goals and objectives are achieved (Robbins & Barnwell, 2002: 81).
Kaplan & Norton (1996: 57-64) developed the BSC and they proposed four perspectives. Because the financial and customer perspective are generic they state for these perspectives actual concepts. For the internal business process and learning and growth perspectives guidelines are stated because they are dependent on organizations specific characteristics. In table 1 the recommendations of Kaplan & Norton (1996) are presented.
TABLE 1
The BSC perspectives (Kaplan & Norton, 1996)
Financial Revenue growth and mix, cost reduction, productivity improvement, asset utilization, investment strategy
Customer Product service attributes, customer relationship, image and reputation
Internal business process
17
perspectives. This perspective incorporates both the long-wave innovation cycle as well as the short-wave operations cycle.
Learning and growth Learning and growth occurs through people, systems, and organizational procedures
Gumbus & Lussier (2006: 410) state that the BSC is appropriate for SME’s. Entrepreneurs should make objectives and targets for each of the perspective of the BSC. They should measure those targets to see if the stated objectives are achieved. SME’s can benefit from the use of the BSC but there is not much research done towards the use of the BSC in SME’s (Gumbus & Lussier, 2006: 422). Is it possible to use the BSC in arable farms to measure performance, and if so, how?
According to Noell & Lund (2002: 1) the changing environment in the agriculture calls for more professional management of the farm. It increases the need to understand the role of strategy in arable farms and its effect on the performance. Lourenzani et al. (2005: 295) state that the BSC is an efficient tool to control the financial and non-financial performance of the farm. Noell & Lund (2002: 14) argue that the BSC is an effective tool to assist the management of a farm and that it is implementable in farms. According to Shadbolt (2007: 867) the BSC provide ‘an ongoing learning opportunity for the farm as it facilitates in-depth discussion about the business’ vision, strategy and critical success factors and translating them into specific measures and objectives.’
Lourenzani et al. (2005: 292-294) developed the different perspectives of the BSC applied to small- and medium sized farms. For arable farms the financial perspective would include generating income through crops and other activities and getting a high price for the products with low costs. The customer perspective would consist of a competitive price and an attracting product which is delivered by the farms through efficient production. The production should be efficient and technological up-to-date and able to deliver the wanted quality. The learning and innovation perspective is aimed at the farmers management qualities and fulfilling the families goals.
The BSC seems an appropriate tool for assessing the effectiveness of arable farms. It is obvious that effectiveness of an arable farm is a multiple construct consisting of different perspectives. When studying organizational effectiveness of arable farms different perspectives are needed. Only focusing on profits is not enough and other (intrinsic) goals should be included. Noell & Lund (2002: 15) argue that farmers need to extend the customer perspective with a stakeholders perspective. But when using the BSC as an measurement tool for organizational effectiveness it is important to be aware of its limitations. Nørreklit (2000: 82) argues that the relationships in a BSC are not causal but rather logical which can lead to faulty assumptions of performance drivers. When developing a BSC the linkages between the perspectives should be considered carefully to make sure the right causal factors, leading to high organizational effectiveness, are chosen. The second criticism of Nørreklit (2000: 82) is about the rooting of the strategy in the organization and environment. The lack of rooting of the strategy could lead to a gap between the intended strategy and the one executed. Nørreklit (2002: 83) argues that to improve the BSC regarding these two flaws, coherence between the perspectives is needed and a dialogue about the strategy is needed to increase the awareness of the employees.
18 aspects. The BSC is a tool that can measure the diversity of the effectiveness of farms because it has multiple perspectives. But what should be measured, which aspects are key to the survival of an arable farm? In the next section key success factors are discussed.
3.2 Key Success Factors
In the following section the role key success factors play in organizations and the relation with organizational effectiveness and strategy is discussed. When the role of key success factors is explained, agricultural literature is reviewed to find out which key factors are important for arable farms. This section ends with a discussion of the key success factors that are found and their relation with a BSC.
3.2.1 The role of key success factors. In the conceptual development of key
success factors (p. 12) is explained that these factors are based on the vision and strategy of an organization. They are measured as indicators distinguished in leading and lagging. The view of a company on its own key success factors determine the measures a company has in place in its BSC (Kaplan & Norton, 2005: 179). The BSC is more than a collection of key success factors and should consist of lagging and leading indicators (Kaplan & Norton, 1996: 64). Lead indicators are mostly found in the internal business and learning and growth perspective of the BSC (Kaplan & Norton, 1996: 69-76). Noell & Lund (2002: 10-11) argue that the lagging indicators are generic and similar for most farms while the leading indicators differ more between farms.
Measuring key success factors also benefits organizations in another way. Martinez, Pavlov & Bourne (2010: 78) state that reviewing performance gives organizations the opportunity to learn. This learning occurs on two levels: single- and double loop learning. The first is the process of carrying on the current way of working and only adjusting it by taking corrective actions. The second one is the process of questioning the underlying policies and objectives of an organization leading to a new process (Argyris, 1977: 116). These adjustments influence the strategy and create a feedback loop between the key success factor and performance with strategy. Noell & Lund (2002: 13) state that single and double loop learning is important for farms. Double loop learning is important because farmers need to respond to developments and make strategic changes.
Key success factors need to be incorporated, through leading and lagging indicators, in a BSC to measure an arable farms performance. These leading indicators create understanding of possibilities of improvement. But which key success factors are there for farms? At the end of this section the distinguished key success factors are placed in the context of the BSC.
3.2.2 Productivity, costs and quality. An important factor for success for arable
19 (2009: 97) showed clear differences in growing costs for seed potatoes. And these costs were lower for the entrepreneurs with more hectares. However this research also showed that low costs are achieved by entrepreneurs with less hectares of arable land. Scale enlargement seems to enhance productivity and lower the costs but is not mandated to achieve low costs. The quality of Dutch crops is high and this high quality makes the products of Dutch arable entrepreneurs appealing (Venema et al., 2009: 99). In the Netherlands productivity is important and reducing costs is something every entrepreneur should pursue. But the high quality of crops in the Netherlands creates a competitive advantage for arable farmers.
3.2.3 Sustainability and stakeholders. To be successful, resources like soil and
water should be healthy. This is achieved by exerting sustainability through the use of fertilizer and other farming actions. In the agricultural literature sustainability is an important issue. Goulding, Jarvis & Whitmore (2008: 677) conclude that farmers should focus on being sustainable and meeting environmental targets. These will become ever more important because consumers increasingly want products which are produced with minimal environmental costs. In the Netherlands sustainability has been viewed through the ‘people, planet, profit concept’ (Bos et al., 2007: 2). This way the interests of different stakeholders are considered which is common feature in the Netherlands (Bakker, Evers, Hovens, Snelder, & Wegeman, 2005: 75). Bos et al (2007: 2) state that this stakeholder view can be achieved by taking in account the rural community and economy, the use of water, soil fertilizer and crop protection. According to Rabobank (2010: 38) agricultural entrepreneurs should exert good stewardship over their natural resources and assets to attain sustainability. Parra-Lopez, Groot, Carmona-Torres & Rossing (2008: 546) show that in the Netherlands (and in Europe) organizations need to understand their stakeholders and the public demands. They show for example that Dutch citizens value environmental health, landscape quality and nature value (in descending order). But research showed that arable and dairy farmers do not change their strategy when sustainability policies change (Wageningen UR, 2011: 62).
3.2.4 Entrepreneur, knowledge and learning. Guan & Oude Lansink (2006: 654)
show the importance of personal characteristics of entrepreneurs. The human resources of a farm are as important to the success of a farm as land and capital (Jose & Crumly, 1993: 121). Rougoor, Trip, Huirne & Renkema (1998: 270) argue that the management capabilities of an agricultural entrepreneur influence the performance of their business. ABN AMRO (2010: 9) give characteristics of successful entrepreneurs: initiative, cooperative, creativity, information seeking, persistence, boldness, organizational capacities and self-criticism. According to Harris (2011) forward thinking family farms are performing better than the rest in Britain. The personal characteristics and capabilities of an entrepreneur are important drivers of success (Rougoor et al., 1998: 263).
20 business advice (Harris, 2011). Thus besides increasing knowledge through training, using advisory organizations also seems to have a positive influence.
Aside from personal characteristics and education, innovation is a possible success factor (de Lauwere, 2005: 229). In the Netherlands arable farming is technological advanced and research to enhance the sustainability of agriculture has led to the increasing use of decision support systems by Dutch farmers (Bouma, 2003: 461). The long-term continuity of the organization becomes more important and technology can assist in securing a sustainable future. According to Venema et al. (2009: 98) technological innovations can be more interesting when a certain size is reached because new technology is expensive. In this case cooperation can be a way to benefit from technological innovations.
3.2.5 Cooperation. Sometimes it could be the case that it is not possible for a farm
to increase the land, enhance the productivity or buy the newest technology. When that is the case an arable farmer could cooperate with other farmers. Working together can be an excellent way to achieve scale enlargement. The optimal amount of hectares for seed potatoes is around 40 or 50 hectares (Venema et al., 2009: 97), but this is difficult to attain because the soil in the Netherlands is very expensive. Through cooperation with other farmers this size can be reached and economies of scale can be achieved. Cooperation with science institutions can enhance the knowledge which makes it easier to enhance productivity or sustainability (ABN AMRO, 2010: 6). Cooperation can be helpful in other ways too. It increases the effectiveness of agricultural enterprises, their flexibility and it lowers the costs (Fortescue, 2005). Cooperation can help to coordinate markets and exert control over other parties in the market. Cooperation challenges managers of agricultural enterprises in how they organize, direct and finance such systems (King, 1992: 1217). According to Harris (2011) the best performing farmers cooperate with each other. It shows, from surveys, that this group is performing better at the bottom line. Cooperation can be a way to increase productivity, efficiency, knowledge or power.
3.2.6 Finance. Debt is used by organizations to invest in property they otherwise
could not buy, however it also puts pressure on a firm to pay its obligations regarding the debt (Hillier, Ross, Westerfield, Jaffe & Jordan, 2010: 3, 435). When managing a farm, entrepreneurs should consider their finances. Davies (1996: 187) shows in a study of British farms that there is a relation between the failure of farms and the insolvency of those farms. His advice is that farm managers should be careful in relying at the appreciation of land value to stay in business and farmers should not accumulate a high indebtedness (Davies, 1996: 192). But according to Guan & Oude Lansink (2006: 654), long-term debt seems to have a positive effect on productivity growth through the risk perceptions and the personal characteristics of a person. The influence of financial structure on the performance seems to be quite complex.
3.2.7 The key success factors in the BSC. The review above shows a number of
21 distinction in leading and lagging indicators is made in chapter five when the research discussion takes place.
TABLE 2
Key Success Factors for arable farms
Perspective Concepts
Finance Income, costs, finance (debt), productivity
Customer/stakeholder Customer & stakeholder management, quality, competitive price, sustainability
Internal Business Technology, cooperation, fertile soil,
Learning & Growth Personnel, learning, innovation, management qualities
3.3 Strategy
In this section the strategy and its effect on an organization is discussed. An appropriate understanding of strategy is needed when the BSC is used to measure performance. First of all the relation of strategy with organizational effectiveness is discussed. Next the strategic management literature (3.3.2) and the agricultural literature (3.3.3) are reviewed. These discussions increase the knowledge about strategy and the specificities of strategy in the arable sector. The discussion helps with the generation of the strategic concept in the arable sector in section 3.3.4. The definitions of the categorization made by different authors are not discussed because it is beyond the scope of this research.
3.3.1 Influence of strategy on organizational effectiveness. Porter (1980: 5)
states that strategies are used to create a position for an organization which it can defend. He argues that strategies are needed to survive and influence the competitive forces of an organization in a positive way. Organizations use strategies to survive in the market. The strategy an organization follows significantly influences the performance of an organization. It appears that differences in strategies lead to differences in performance (Hambrick, 1983: 17). Cameron (1986: 107) states that strategy, together with the environment, has the largest impact on organizational effectiveness. Strategy also has an effect on organizational effectiveness when it is combined with other variables (resource sharing, controls) (Govindarajan & Fisher, 1990: 279). Research showed that general and strategic management approaches can be used for farm businesses. It even shows that successful agricultural entrepreneurs use strategic management concepts (Harling & Quaile, 1990; Harling, 1992; as stated by Ondersteijn et al., 2003: 33). Strategy influences the performance but this effect should be reviewed by organizations. Martinez, Pavlov & Bourne (2010: 71) show that it is important to review the strategy to find out if it is leading towards the goals of the organization. Reviewing the strategy demonstrates the viability of the chosen strategy. The review is done by measuring the key success factors which is discussed above. Strategy influences organizational effectiveness but it is very diverse. To understand the effect on organizational effectiveness it is important to zoom in on this diversity.
3.3.2 The diversity of strategy. Although strategies cannot be captured in one
22 those actions. Strategy can be intended or emerging, realized or not, it can exist at different levels and it involves conceptual as well as analytical thoughts. Strategy and the decisions influence the performance of an organization. These agreement points do not enhance our understanding of strategy as much as needed. For that reason a review of the literature is carried out to understand this concept better. Two important contributions to the strategy debate are discussed: Miles & Snow (1978) and Porter (1980) (Robbins & Barnwell, 2002: 147) and secondly the diversity in this field is shown. These discussions create insights in how strategies are formed and which concepts are important. But first of all the different forms in which strategy appears are discussed.
Mintzberg (1987: 11-17) argues that strategy can be a ‘plan, ploy, pattern, position or a perspective’. The definitions are listed in the table below.
TABLE 3
Strategy definitions Mintzberg (1987)
1. Plan: strategy is made in advance of the actions and the strategy is developed consciously and purposefully.
2. Ploy: strategy involves specific tactical maneuvers executed to be ahead of competitors.
3. Pattern: strategy is the consistency of behavior of an organization which can be intended or not. Strategies can be deliberate where intentions are realized, but also emergent meaning that patterns develop without planned intentions.
4. Position: strategy is the way to position an organization in their internal and external context, the environment.
5. Perspective: strategy is shared by the organizations members through their intentions and actions.
According to Mintzberg (1987: 20-21) these definitions are complementary and add to the understanding of strategy. They help to understand and manage the process of forming strategy.
23 Porter (1980: 34-35) develops three generic strategies to help an organization create a position which enables the organization to outperform competitors in the long run. The chosen position helps an organization to use its capabilities in the best way to defend itself against the competitive forces. Through strategic moves and by anticipating changes in these forces, the balance of these forces is influenced in favor of the organization (Porter, 1980: 29-30). The best strategy for an organization is a unique one adapted to the particular situation of that organization. Three generic strategies are defined that should be translated to a more specific level for particular kinds of industries (Porter, 1980: 34). The generic strategies are: overall cost leadership, differentiation and focus. These strategies differ in their strategic target which can be industry wide or one particular segment, and in their strategic advantage that can be the uniqueness of a product or its low costs (Porter, 1980: 35-39).
Mintzberg et al. (1998: 8) carried out a review of the strategy field to show the ‘different angles, orientations and tendencies.’ Their division in schools helps to understand what the role of strategy is and can be for arable farms. But rather than discussing all these schools in complete detail, the goal here is to show and understand the variety that underlies the strategy formulation process. According to them the strategy field consists of a design, planning, positioning, entrepreneurial, cognitive, learning, power, cultural, environmental and configuration school. These are presented in table 4.
TABLE 4
Schools of thought in the strategy field (Mintzberg et al. 1998)
1. Design school: strategy making aims to
establish a fit between the organizations internal capabilities and the external possibilities. A formulated strategy should be explicit and act as a perspective for all organizations members (p. 24, 29-32).
2. Planning school: strategy is carefully
planned and guided by formal structures. Strategy is an explicit path with attention for objectives, programs, budgets and accompanying operating plans (p. 58).
3. Positioning school: strategy is a generic,
identifiable position in the economic marketplace which is very competitive and is chosen through analytic calculation (p. 85).
4. Entrepreneurial school: strategy is a
perspective, the sense of direction and vision of a single leader. This vision is ‘a mental representation of strategy, created or at least expressed in the head of the leader.’ This vision acts as a guide for the long-term while the details evolve during the process of implementing the strategy and responding to the environment (p.124-125, 143).
5. Cognitive school: this school recognizes
that strategy formation is a process of cognition. Strategy formation is happening in the mind of the strategist and emerges as a perspective in their mind through concepts, schemas and frames (p. 170).
6. Learning school: strategy is a learning
process. The formulation and implementation of strategy are intertwined. Learning emerges through the process of reviewing past behavior and is managed by the leaders. Strategies at first are patterns of the past, later becoming plans and finally a perspective guiding organizations (p. 208-209).
7. Power school: the strategy process is
shaped by power and politics inside the organization and in its environment. These
8. Cultural school: this school considers
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strategies are emergent and take the form of ploys and it is a process of negotiation. It involves political games between individuals or groups with different interests (micro power) and between networks or alliances of an organization in its environment (macro power) (p. 260).
the organizations members which they share through social interaction. Strategy is considered to be a perspective and deliberate although not always being aware of it (p. 267-268).
9. Environmental school: the environment
is the central actor for the formation of a strategy. The strategy should adequately cope and react to the environmental forces. If an organization fails to respond effectively it will die (p. 288).
10. Configuration school: this school argues
‘each school at its own time, in its own place.’ It describes the organization and its context (configuration) and the strategy making process (transformation). Strategic management should be capable to create stability but, when needed, manage transformation. Strategy making is a diverse process consisting of concepts of the above nine schools (p. 302, 305-306).
The first three schools are prescriptive of nature, how strategies should be formulated. The next six schools are more concerned with describing how strategies are made. The configuration school combines all these schools (Mintzberg et al., 1998: 5-7). These ten schools describe different parts and definitions of the strategy making process and should be incorporated when creating a strategy. All these schools contribute to strategy but every strategy process is different. Sometimes it is a more individual process than a group process, for example in the case of a small firm. This means that in a strategy process not every school has the same importance (Mintzberg et al, 1998: 367).
3.3.3 Agricultural strategy literature. To understand the role of strategy in arable
farms, agricultural literature is considered. In this literature archetypes are developed, called styles of farming. Van der Ploeg (1994: 18) defines a farming style as responses from an entrepreneur to the environment, the markets and the technology. It is a systematic and continual effort to create congruence in the farm (van der Ploeg, 1999: 110). The term is used to identify groups of arable entrepreneurs who have the same way of doing and thinking in their business (Schmitzberger, Wrbka, Steurer, Aschenbrenner, Peterseil & Zechmeister, 2005: 278). These styles are various ways to achieve the goals of a farm. According to Vanclay, Howden, Mesiti & Glyde (2006: 62-63) the styles are strategies of farming which guide entrepreneurs in doing their business. In the following section a number of contributions to the strategy debate in the agriculture are discussed. This increases our understanding of the way arable entrepreneurs can influence (through strategy) the effectiveness of their farms.
25 Wiskerke (1997) conducted an interesting dissertation on arable farming in Zeeland, a southern province of the Netherlands. Wiskerke (1997: 73-76) distinguish six different farming styles in the arable sector: kilo farmer (high kg revenues), machinery farmer (mechanization of the process), thrifty farmer (reducing costs), grower (optimization of the process), labor intensive farmer (labor creates added value) and the biological farmer. The categorization of Wiskerke (1997: 66-69) is based on three phases of the production process of arable farms. These phases consist of two extremes and farmers can choose a point somewhere in between.
First of all arable farms need to mobilize their resources of which the soil is the most important one. To grow crops the soil needs to be fertile and this is done by the farm self or through the market. Farms ensure a fertile soil themselves through crop rotation and growing crops that place a low burden on the soil (e.g. wheat, cereals or grass). This is called the extensive path. The intensive option to ensure a fertile soil is with the use of the market. Fertilizer is bought and additional land is rented or exchanged. The second step is to convert the resources into products. The differing aspect here is how technology is used at an arable farm. A farm can use machines to reduce labor costs or instead use labor because they consider labor as key to adding value. Finally the products need to be commercialized. A farmer can decide to produce for broad markets by mass production or a farmer can produce a more unique product for specific (niche) markets. In mass production the farmer does not really add value while the production for specific niches implies a high degree of added value to the products.
Commandeur (2006: 116) studied pig farms in the Netherlands and also finds differences in farming styles there. The differences are based on the perspective a farmer has on the labor productivity and if the farmer wants to increase productivity (through intensification or growth). Furthermore the scale of the farm and the expectation for revenue (staying in business or making real profits) is a distinguishing factor (Commandeur, 2006: 117).
In Austria farming styles are studied by Schmitzberger et al. (2005: 277). They investigated arable farmers, winegrowers, dairy farmers and some mixed forms. They distinguish eight styles of farming (appendix II). The farming styles they found were based on economic, social and attitudinal aspects. ‘Economic criteria included input of labour time and production means, machinery, past and future farm development, economic situation and dependency from subsidies. Criteria related to the personality of the farmer comprised age, education, future perspectives (succession), attitude towards agriculture, attitude towards landscape and nature and their conservation, and landscape perception’ (Schmitzberger et al., 2005: 278).
26
3.3.4 Arable sector versus strategic management literature. The discussion of
the strategic and the agricultural literature provides the basis for developing a strategic concept for arable farms. The dimensions discussed in section 3.3.3 add value to the strategic concept because arable farms are different than other organizations due to the natural input (crops, soil) and the fact that most farms are small family businesses. The strategy concept in section 3.3.2 must be supplemented with these specific aspects to make the concept suitable for the arable sector. The purpose is to find the dimensions specific for strategy formation in arable farms.
The starting point for strategy development is the choice for a target market and product according to Miles & Snow (1978) and Porter (1980). Seed potatoes are the main product for arable farmers because they generate the most money. Other crops are also included to differentiate the ways of income and to rotate the crops on the soil to ensure a healthy soil. The strategic decision here is not as much about the choice of specific crops but more about if and how to add value to a product. Should the market be targeted through mass production or through unique products with a high degree of added value for specific markets? This is comparable to the strategic target in the model of Porter (1980: 39) that differentiates strategies in industry wide or niche. This solves the question where an arable farmer competes but does not solve the question of how the farmer competes.
How the farmer competes is dependent on mobilization and conversion of
resources. Because of the specific characteristic of the arable sector, dependent on natural
inputs and the high degree of family farms, the determinants presented by van der Ploeg (1999) and Wiskerke (1997) regarding the process are followed. The strategy is determined by mobilizing the resources (intensive or extensive path) and converting the resources into real products. The conversion into products is done through a process which involves a combination of technology (machines) and skill (human labor). These two decisions determine what the production process of a farmer is. This is similar to the engineering problem stated by Miles & Snow (1978: 22) about the process of producing.
Decisions relating controlling the current way of doing business and innovations for future success (Miles & Snow, 1978: 22-23) seem to be missing as a strategic decision in the arable literature. Authors acknowledge the fact that innovation and learning is important (section 3.2.4, p. 19) but do not incorporate it in the strategy debate. Only goals of staying in business or making profits are stated. There is a lack of awareness in the arable sector to control achievement of the goals and to innovate the farm. However this needs to be incorporated in the strategy development of farms.
Some of the aspects that are discussed by Mintzberg et al. (1998) in section 3.3.2 need to be included in the strategy of arable farms. Strategy making for arable farms is a more individual process of the entrepreneur in his own mind. The strategy needs to fit within the preferences and attitude of the farmer. Furthermore the organizational
environment is important for farmers because it determines the context of the arable farm.
