Make hay while the sun shines: Lessons for businesses in emerging markets from the world of farmers.

“The great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms, and grass will grow in the streets of every city in the country.”

                                                                – William Jenning Bryan, Nebraska Congressman, 1896

 

Introduction

Very often, business leaders responsible for the growth and development of emerging markets units turn to the words and deeds of management gurus, industry leaders, governments, business titans and sometimes even politicians (!) to seek a way to best capitalise on the potential and to frame their actions in order to achieve success in their markets.

However, there is a segment of society that offers businesses an enormous amount of wisdom, knowledge and insight that leaders can benefit from – farmers. Now farmers are, for the most part, an unseen and unheard segment of society. We don’t hear much about them, we don’t see much of them and we don’t know much of how they go about conducting their business. The implications and impacts though which farmers have on society are profound. The food we eat, the clothes we wear and the security we seek for our sustenance come from farmers. Without them, society, as we know it, would not function.

Agriculture is a sector that contributes to roughly 3.8 percent of the world’s total GDP which equates to an industry that is worth over US$2.9 trillion at current prices. If farmers of the world united, they would represent the fifth largest country in the world in terms of total GDP!

Business leaders have an opportunity to use farming as the basis and blueprint for success. Over the last half decade of austerity and uncertainty, the one certain thing for most major organisations is that emerging markets represent more than just a passing phenomenon or a rising force – they are the main elements and pillars of sustained economic growth.

However it is important to note that these emerging markets (even amongst themselves) differ fundamentally from more mature markets. This means that the skill sets and capabilities that help emerging markets business leaders in not only establishing operations but to also flourish are unique. We may need to consider the lessons and experiences from farmers, given that the challenges and opportunities are similar. This is the context upon which the rest of this article is based on.

 

The wisdom of farmers

A book published in 1726 titled, ‘The Country Gentleman’s and Farmer’s Monthly Director,’ by Professor Bradley of Cambridge introduces the role of a farmer as follows: “I consider a Farmer as a Person whose Business depends more upon the Labour of the Brain than of the Hands.”

Almost a century later, Sir John Sinclair, founder of the Board of Agriculture highlighted that, “Agriculture, though in general capable of being reduce to simple principles, yet requires on the whole a greater variety of knowledge than any other art.”

The sentiments above remain true two centuries later. Farming and agriculture has been an outstanding, if not neglected, successful endeavour of human society. In the last century, it has succeeded in feeding an ever-increasing global population, a diverse range of produce and goods more efficiently and at lower prices. It can be argued that farmers have been an integral pillar supporting modern economic growth.

Agriculture is not an industry on the periphery of modern civilisation and the world of business. It is a fundamental element of human society from which businesses can gain significant insight and, if applied appropriately, will lead to success in emerging markets and beyond.

 

A common approach to investment

Established businesses looking to develop and sell their product and service offerings must fundamentally treat the way they consider investment in an emerging market or sector differently to their business as usual sectors. A number of organisations make the error of setting performance objectives and deliverables for an emerging market in the same way they would for an established business resulting in unwanted consequences of de-motivated managers on their emerging front lines.

My argument is that businesses looking to establish an emerging markets operation should consider their investment the same way a farmer approaches his investment in his agricultural practice.

To illustrate this further, let us consider an example of a multinational organisation that supplies professional consultancy services across a range of markets. In an instance such as this, we can expect the organisation to have very clear monthly or even weekly targets for their sales performance as they have an established business model, a recognised brand name and the people on the ground who have the experience and the networks to deliver performance to targets. They key factors of production are within control and output therefore is also more easily controlled. Therefore, makes sense to have monthly (or even weekly) targets, forecasts and delivery and indeed performance should be measured with the same frequency.

If the organisation decides to subsequently enter an emerging market where it has no established presence, a brand name that is not recognised and a team that is relatively new, they will need to alter the way they view performance and the way targets are set. Adopting a monthly or weekly target approach will prove to be unfeasible particularly as conditions in emerging markets are not always entirely stable. This is where businesses in emerging markets can consider the way of the farmers.

Farmers have a different system for targets and performance. Farmers do have seasonal targets and objectives but given that the nature of farming is such that it is impossible to predict all the various factors of production. Factors such as the weather and climate, the nature of seeds used, the crop yield, the animal production, amongst other things, can only be managed and not controlled.

A farmer has to deal with many uncertainties, for instance a cold weather snap will destroy ground crops, affect lambing, cause ewes to abort, which all affect the yield for the farmer.

A farmer also needs to deal with farming regulations, subsidies, and changes in government practices or policies (e.g. the structural changes that happened in the farming community upon the adoption of the Common Agricultural by the EU Commission). As Gary Libecap, Professor at the University of California explains, “Agriculture is the most regulated sectors of the American economy. The production and sale of almost all of its commodities are affected by some government policy through a complex mix of programmes.”

It is this enormous ability of farmers to navigate through uncertainties and their overall resilience to rapidly changing underlying conditions and factors that prove most instructive to leaders of emerging markets businesses.

An emerging markets business leader has to remain nimble and agile to the dynamic and sometimes unstable political and regulatory conditions in emerging markets. Even seemingly straight-forward tasks of setting up a legal entity in an emerging market may become a highly tenuous affair and an emerging market business leader has to retain the patience and the will to deliver through the bureaucratic obstacles. It is this patience and perseverance which successful farmers have  in abundance which allows for their ongoing success and growth.

A successful farmer and a successful leader of a business in emerging markets have more in common than we have assumed before.

 

Of growth and harvesting – the shared goals of farming and emerging markets

The objectives of both the farmer and an emerging market business leader are congruent in many respects. The average farmer is a skilled diplomat, a human resource leader, an effective delegator, a scientist, a chemist, a negotiator, a commercial leader, an innovative marketeer and sometimes even auctioneer. He has to possess exceptional skill and energy to carry out the above roles and tasks and ensure that his agricultural endeavour is a successful one.

An emerging market business leader is similar and has to be able to navigate through sometimes sensitive commercial negotiations in the face of vastly evolving regulatory changes and has to be able to engage both his teams as well as key stakeholders such as regulators, government leaders and suppliers in a diplomatic manner that allows him to achieve his business objectives.

Farmers have always been very adept in ensuring that they adopt relevant approaches to farming based on their location and underlying conditions. This is not a modern phenomenon but one that is as old as agriculture itself. For example, the indigenous Ifgugaos in the Philippines realised two thousand years ago that their mountainous and hilly terrain meant that crop cultivation was going to be challenging and sought to change the underlying condition and created what is now known as the Banaue Rice Terraces. These terraces were built with little tools and water was sourced from the forests which were above the terraces through a unique and ancient irrigation system.

To further illustrate this point, in the northern hemisphere, wheat must ripen in late spring or early summer to get as much sunshine as possible. To grow it, one has first to plough the ground, then sow, harrow (to get rid of the weeds), and eventually harvest. Any anticipation or delay of any of these operations entails losses, which can become serious. For example, ripe wheat, if not cut, would fall on the ground and soon become worthless. In Burkino Faso, land has to be ploughed within days of rain or the land becomes too hard to plough.

Similarly, an emerging markets business leader will need to be swift and decisive in their strategic and market implementation. There needs to be ample planning and analysis in advance of delivery and once a common approach has been agreed, timing becomes critical and execution must take place within defined times to attain the defined aims and ambitions. Delaying or vacillating over decisions will lead to missed opportunities and potentially allow for rivals to take the lead in a potentially lucrative segment.

Farmers also need to be able to think strategically for the future in anticipation of global and local circumstances. Strategic management and optimal operational delivery is a way of life for modern farmers. They have to be able to factor all information, both historic and projected, which allows them to make appropriate and relevant decisions that allow them a sustainable farming business. The farming sector, supported by high commodity prices, has demonstrated enduring resilience during the last economic crisis in 2008. World Bank data shows that in 2009, agricultural value added at world level rose by 4 percent which can be contrasted to a 5 percent fall in global sector-wide GDP. This resilience was more pronounced in emerging economies, where agricultural GDP rose by 8 percent.

Likewise, an emerging markets business leader needs to be able to clearly define and articulate their propositions to their markets and customer segments. They will need to prepare adequately for their specific targets and estimate accurately the required resourced needed to achieve their outputs. In this regard, they can learn from farmers whose entire seasonal output and sometimes even survival depends on their ability to estimate accurately the required resources to achieve a given output.

Emerging markets leaders also need to be assess and understand their market terrain and environment. They need to ‘work the ground’ and understand the local feedback, context and factors that will have significant impacts on their output. The most successful farmers continuously identify their strengths and weaknesses relative to their local as well as international competitors who may be able to offer the same output at a lower cost. An example of how this has been done includes potato farmers in Tasmania who undertook extensive research to understand how lower-cost potato imports from the Netherlands and Belgium are undercutting their business and took steps to address these challenges. Similarly, emerging markets business leaders will need to conduct sufficient levels of quantitative and qualitative market research to ensure that their businesses remain resilient against competition, both local and international, and also achieve their growth targets.

 

Resilience and leadership

Farmers face a range of challenges and issues. The challenges range from external environmental factors outside their control such as climate change. Global economic pressures, livestock disease and climatic changes are the types of issues which farmers have to navigate through.  For instance, there is a loss of arable land due to climate change amounting to as much as a fifth of all agricultural land in South America and Africa.

Events and challenges such as this affects crop yield which in turn affects farmers’ incomes and cause them to become highly volatile. These mean that farmers need to be careful in how they manage their finances and funds in order to ensure that they are able to meet expenses and also correctly anticipate demand. Farmers fundamentally need to navigate through uncertainty and steer their operations and farms through competing pressures and noise to keep producing in a way that meets challenges.

Risk management is a central pillar in terms of how farmers manage their business. They are now being required to produce more food and other agricultural products on less land, with less pesticide and fertilisers, with less water and also manage a lower carbon footprint. Part of the risk management process of farmers has been to understand what their underlying risks and challenges are and to subsequently develop and implement the technologies and practices that counter environmental and land degradation and climate change to maintain sustainable and viable farms.

Examples of this include mixed cropping that have led to better usage of nutrients in soils and more effective pest management systems. In Zambia, for instance, crop rotations have reduced water requirements by up to 30 percent. They also use a new strain of maize which produces a yield which is 500 percent higher than the average yield for the rest of Africa.

The underlying risks have also been managed through a series of other initiatives such as skills development training across a wide range of relevant topics and generation of non-farm income (such as agri-tourism). They also deal with it through diversification into renewable energy technologies and by developing markets for novel and alternative cropping.

Businesses investing in emerging markets also need to ensure there is a sufficient level of risk management and due diligence conducted prior to entry into new markets. They will need to ensure that they have diversified their risks through investment across a wide portfolio of markets. They also need to be able to react appropriately to emerging regulation and underlying economic conditions by reviewing their business operations and investment accordingly.

Farmers globally seek to create viable and resource-efficient farms and agribusinesses that are able to meet demand and yet remain resilient to fluctuations in the business cycle or other natural causes without recourse to significant public intervention.

Initiatives such as the establishment of grain stores in Africa and the creation of dairy hubs in India, Bangladesh and Pakistan are helping farmers to cut costs, create greater income and reduce price volatility.

A successful farmer is a leader who does not micro-manage staff or instruct them to do something they cannot or will not do. The most effective farmers are inspiring (particularly when they are undergoing moments of extreme uncertainty); strategic (by having a good view of the changing conditions and consumer patterns which impact their sales); energetic (to rouse their teams into action towards peak performance); and possess a clarity of vision which can effect great change.

Likewise, a successful emerging markets business leader should have the ability to delegate effectively and provide enough support to their people and inspire confidence. They should also cultivate and nurture their teams towards peak performance and give them a sense of ownership and achievement. It is also vital that emerging markets business leaders ensure their teams have sufficient levels of training and development so that they are constantly building on their capabilities and can support business and corporate objectives even better.

Farmers also remain a source of emotional vitality in their communities and countries. Their critical importance to the well-being of their nations and their role in a profoundly rebalanced world mean that they provide the vigorous inspiration required for growth and development. Their leadership and resilience has led to the innovation, creativity and has the potential to inspire the social cohesion required in a world marked increasingly by differences.

 

Innovation as a key essence to success

Thomas Malthus predicted in the 18th century that there would come a time in the late 20th century where the world population would exceed food supply leading to widespread impoverishment and famine. This has not come to pass and indeed over the last fifty years, agricultural production has tripled and farmers have ensured that the world, for the most part, remains fed and clothed. This has happened due to the constant innovation in farming. Smallholder farmers (who account for almost half of the emerging world’s labour force) have overseen a rise in agricultural productivity.

Farming innovation can be broadly grouped into four categories: biological innovations (new strains of plants and animals); practices of cultivation; technical and technological innovation (including machinery, fertilisers and the increasing use of technology).

The ‘Green Revolution’ which saw India experiment with new varieties of rice and wheat in the 1960s helped to ensure that India averted the pains of starvation. Increasingly, new strains of rice and wheat that can withstand flooding and salinity are being developed that will ensure that the poor agricultural lands are converted to fertile plains.

Increasingly, innovative agricultural practices are also improving farmers’ yields and performance.  An example of this is the way fertilisers are spread to crops. Traditionally, rural farmers applied fertilisers by spreading them by hand.

However more rural farmers are now applying a practice widely known as ‘Fertiliser Deep Placement’ (FDP) which works by using a specialised fertiliser called a briquette about four inches underground which releases nitrogen gradually.

This prevents less nitrogen to be lost through run off. FDP is now being used widely by farmers across Burkino Faso and Nigeria and has helped increase their yields by almost a fifth of total production.

Modern technological innovation is also being adopted by farmers and extended globally. VetAfrica is a mobile app which now allows for farmers to diagnose livestock illness and to apply appropriate remedies and drugs to treat diseases. In India, farmers now have access to various instructional support by the government’s agricultural agencies that provide both online and offline information to rural farmers and their communities.

This spirit of innovation will also place emerging markets leaders in good stead. Businesses that invest significantly in research and development and ensure their people are empowered to experiment and deliver innovative solutions will be better placed to create scalable and transferrable innovations that can support the wider business.

Farmers have remained at the forefront of innovation and have also been very enthusiastic adopters of new technology and solutions. This is despite the fact that agricultural innovation generally entails a high level of risk and many of them yield little or no financial reward to the inventor.

In an era of rising energy costs and greenhouse gas emissions, some researchers are questioning whether conventional agriculture’s reliance on chemical fertilisers is sustainable, and point to its negative effects: pesticide residues, soil erosion and reduced biodiversity. Switching to organic and resource-conserving methods of farming can improve smallholder crop yields, food security and income, a review study by the International Journal of Agricultural Sustainability has found.

Likewise businesses that enter emerging markets should also consider their overall business practices and consider how the implementation of socially responsible practices can help reduce their overall costs and improve their bottom line in the markets they are operating in.

Farmers have also identified increasing demand from a more affluent customer base and have responded to it by shifting towards organic production and cultivation. The amount of land in organic production across Europe has grown by about five million hectares over the past decade, according to the European Union, and has grown by 13 percent annually over the last decade. A similar phenomenon is also observed in the United States of America according to a survey conducted by the US Department of Agriculture (USDA). The number of USDA certified organic farms has quadrupled since 1990 and the area dedicated to organic farming has increased from 1 million acres of land in 1990 to over 4.1 million acres currently. Organic farming is also becoming increasingly popular across South Asia (particularly India) as farmers tap into the increased demand and are evolving their farming practices accordingly.

Similarly, there is significant scope for emerging markets business leaders to learn from the habits of the farmers. The approach to farmers in testing and innovating to arrive at the optimal farming solution (the way they test to see which crop rotations work best given the soil and land conditions for instance) will also help business leaders in emerging markets to test out product launches and to test it in a given market prior to a full-scale rollout. This allows them to obtain a clearer insight into consumer behaviours and the general market sentiment for their product which will allow them to make the necessary improvements or changes required before they invest in a full rollout. This experimentative approach to new markets will become increasingly important particularly as organisations become more risk averse and seek a higher level of returns on investment but within a defined risk framework.

 

Building a force for good and planting the seeds of hope

Farmers and agriculture are vital to the overall betterment of society as well. The Consultative Group on International Agricultural (CGIAR) certainly believe so and feel that agriculture will help nations meet the emerging UN Sustainable Development Goals (SDGs) – the successor to the UN Millennium Development Goals.

Despite the well publicised challenges and adversity faced by farmers and the struggle they undergo on a daily basis, their resilience and their hopeful outlook provides food for further though and reflection for emerging markets business leaders. This is a spiritual dimension that must be noted.

Likewise, an emerging market business leader has to remain cognisant of their responsibilities within the societies they operate. If they are representatives of larger multinational organisations, the general public will expect them to implement world class practices and behaviour. They will also be required to adapt to the culture-specific scenarios presented to them and act in an appropriate manner.

It is vital that emerging markets business leaders look beyond profitability and financial remuneration. They need to ensure that their organisations are acting in the public interest and whilst creating value for their businesses are also creating positive externalities and value for the communities in which they operate in. It is this that sets the framework for a fruitful and sustainable growth and development of both businesses and societies. This addresses both the social and economic dimensions of sustainability.

The final dimension of sustainability is that of environmental sustainability. It is well known that the natural world that agriculture relies on is exhaustible and the relationship with nature and the environment has been a distinctive and intractable feature of farmers.  This is true from the fertile padi fields of Java to the ranging prairies of the Midwest.

Emerging markets business leaders need to give sufficient consideration to environmental sustainability. This not only ensures that they are contributing in a positive manner to the society but also acts as an important license to operate across a number of countries.

In conclusion, farmers can be a powerful source of inspiration and guidance to business leaders in any market. A farmer needs to tend to his flock with loving care and the successful farmer is one who takes an active interest in the welfare of his farmhands, who cultivates and nurtures his crop and animals with passion and tenderness. A successful farmer also flows with the changes to the external environment and navigates them successfully. A farmer also continues new ideas (be it the type of seeds used, the type of farming, consider the impacts of automation and technology on his farms, the use of data to understand the changing crop yields, risk mitigation, etc) and constantly innovates. A successful farmer also has to negotiate effectively with other farmers, with government, with regulators. He has to manage finances effectively and think of new financing to make it through the lean times. All of these skills and qualities are also what contribute to effective and successful business leadership.

 

 

“The prosperity of other industries is not the basis of prosperity in agriculture, but the prosperity of agriculture is the basis of prosperity in other industries…Immense manufacturing plants and great transportation companies are dependent on agriculture for business and prosperity. Great standing armies and formidable navies may protect the farmer in common with other people of a nation but their support comes from the tillers of the soil.”

                                                    

                                                                     – Nahum J Bacheldar, 1908 (Leader of National Grange)

 

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Strategy and Innovation – the US Military approach

Recently, I learnt more about the strategic and innovation arm of the US Military,  the Defence Advanced Research Projects Agency (DARPA), (http://www.darpa.mil/) as I was reading through some articles and books on strategy to understand how different organisations approach strategy.

 Introduction

Putting aside the political and moral debate and discussions around whether one thinks the United States military does more good or harm, we must acknowledge the fact that they are an excellently run organisation with the logistical, operational and strategic frameworks that have kept them in peak condition. DARPA (founded in 1958) is an important component and arm of the United States military. Its stated aims are to achieve radical technological innovation to support national security.

DARPA’s original mission, inspired by the Soviet Union beating the United States into space with Sputnik, was to prevent technological surprise. This mission has evolved over time. Today, DARPA’s mission is all about, “Creating and Preventing Strategic Surprise.”

 

Some of the things which the DARPA has been responsible for:

  • ballistic missile defence
  • stealth technology
  • GPS (which was preceded by a DARPA system called ‘Transit’)
  • speech recognition
  • the Internet
  • unmanned land and air vehicles and nanotechnology.
  • the M-16

In short, the DARPA has been responsible for some of the most fundamental technological and innovative changes the world has seen in the modern era.

 

The challenge which DARPA sets out to solve through their strategy:

“A basic challenge for any military research organization is matching military problems with technological opportunities, including the new operational concepts those technologies make possible. Parts of this challenge are extremely difficult because: (1) some military problems have no easy or obvious technical solutions; and (2) some emerging technologies may have far-reaching military consequences that are still unclear. DARPA focuses its investments on this “DARPA-hard” niche – a set of technical challenges that, if solved, will be of enormous benefit to U.S. national security, even if the risk of technical failure is high.”

 

How DARPA solves this challenge

To attack this challenge, DARPA focuses on projects the military services see as too risky or too removed from their current missions. It tries to imagine what commanders will want in the future rather than what they are calling for today, but it restricts the work to that conducted by very talented people with good ideas.

DARPA’s strategy is more than a general direction. It includes specific policies that guide its everyday actions.

For example, to maintain an entrepreneurial atmosphere and the flow of new ideas, DARPA hires program managers for only 4 to 6 years because the best way to foster new ideas is to bring in new people with fresh outlooks. This also prevents empire building and ensures that people remain focused on innovation. Furthermore, since program managers are not at DARPA for a career, they are willing to pursue high-risk technical ideas even if there is a reasonable chance the idea will fail. Essentially, the downside to their careers as a result of an innovative idea that did not work out remains limited while the upside remains unrestrained! This model also ensures that new program managers will be willing to challenge the idea and work of predecessors.  

Furthermore, DARPA has a very limited investment in overhead and physical facilities to prevent entrenched interests from thwarting progress in new directions. These policies helped to address the impediments to innovation and helps remove self-interests and prevents legacy effects on projects.

 

Why DARPA works as a concept

DARPA’s business processes reflect this in a straightforward way: bring in expert, entrepreneurial program managers; empower them; protect them from red tape; and quickly make decisions about starting, continuing, or stopping research projects.

DARPA’s decision-making process is informal, flexible, and yet highly effective because it focuses on making decisions on specific technical proposals based on the factors discussed above.

There are two reasons for this. DARPA is a small, flat organization rich in military technological expertise. There is just one porous management layer (the Office Directors) between the program managers and the Director. With about 120 technical personnel, it is easy to make decisions. This management style is essential to keeping DARPA entrepreneurial, flexible and bold.

DARPA’s management philosophy is to pursue fast, flexible, and informal cycles of “think, propose, discuss, decide, and revise.” This approach may not be possible for most larger government agencies, but it has worked well for DARPA.

 

How DARPA identifies projects or programmes to work on:

 DARPA achieves this through a number of ways and channels:

  • Specific assignments from the Secretary of Defense or relevant directors within DARPA
  • Requests for help from the Service Secretaries and Chiefs, Joint Staff, and military commanders;
  • Discussions with senior military leaders on “What are the things that keep you awake at night?”;
  • Research into recent military operations to find situations where U.S. forces have limited capabilities and few good ideas;
  • Discussions with various US government, defence and intelligence agencies including the CIA and the NSA;
  • Visits to US Army exercises or experiments.

 

How DARPA decides whether a programme is the right one

DARPA’s projects are often guided by a series of simple questions to provide a ‘sense-check’ as to whether the projects and delivery is indeed the right one. These questions include:

  • What is the program trying to do?
  • How is it done now and what are the limitations?
  • What is truly novel in the approach that will remove those limitations and improve performance? By how much?
  • If successful, what difference will it make?
  • What are the interim technical milestones required to prove the hypothesis?
  • What is the transition strategy?
  • How much will it cost?
  • Are the programmatic details clear?

 

Conclusion 

Some of the ideas highlighted above may seem basic and simple, but simple ideas done right are what leave lasting changes on the world. It also gives us a clue into how organisations should consider their strategic thinking and processes as they evolve into much larger organisations. As small organisations who are leaders in innovation grow, they become large and complete and in the process lose the spirit of creativity and entrepreneurship which made them what they were.