Take-outs from the agricultural sector
In a series of interviews I explore the approaches of business leaders (all of them chartered accountants) to strategy
This month I was in conversation with Corné Kruger CA(SA), Group Chief Financial Officer at Senwes. We were joined by Chris Koch, Manger: Risk and Strategy at Senwes. Our conversation highlighted some key take-outs underlying their strategic philosophy.
On strategic methodology
A formalised strategy
A formalised strategy gives you direction in both good and challenging times.
Corné started the discussion: ‘Over time, our strategy meant a lot to us, especially in giving direction. If you don’t have direction, you begin taking on everything that looks interesting, and after a while, you don’t know what to take and what to leave. Strategy gives you that direction: it narrows the scope, so if you start your investigation and analysis, you know that you are fishing in the right pond.’
He continued: ‘Strategically it is important to define your objectives. If you are, for example, pursuing the value chain, your strategy will focus on new channels, but if your strategy is to grow organically, you will tweak the strategy towards growing markets.’ He gave a practical example where they could have made strategic errors if they did not have a clear direction: ‘We were approached to buy a mill with strong brands in our market, in our production area – on face value a very lucrative opportunity. However, we responded that our strategy was not to compete with our customers: we deliver grains and commodities to our market and if we buy this mill, we will compete against other mills that buy grain from us.’
Chris added: ‘If we look at our strategy, we have a very good structured list what we call the “no-nos”: we know what we don’t want to do and that helps with context. The strategic process either strengthens an idea or rules it out.’
Corné picked up on this point with another example: ‘Our decision-makers put a strategic plan in place for our 2010−2020 strategic planning cycle. By 2015/2016 it looked like we might not achieve all the objectives, and then COVID-19 happened. Naturally, the initial conversation in the boardroom was that we needed to pull back and not take any risks. But then an opportunity came along that we have been waiting 10 years for … In times like these we fall back on the agreed-upon strategic framework and pursue the opportunity. If we didn’t have a strong strategy, we would not have been able to make such a decision. But because we have a strong strategic framework, we are guided by that.’ He reiterated: ‘If we didn’t have a strong strategic emphasis, our latest transactions would not have been successful.’
Risk-based, future-looking approach
Chris opened the topic by referencing the cyclical nature of the agricultural sector. ‘We follow a risk-based approach. Being in the agricultural sector, we believe that we need to be good risk managers. In Agri, you get deep cycles − you can have three to four bad years, then a better year and then a bad year again − consequently you can’t just have a year-on-year strategy. We need to look at how to mitigate the risk for the long term and then ask ourselves about potential opportunities.’ Corné added: ‘From an ecological viewpoint we want to remove the risk. That is why we base our strategy on risk, and the flip side is opportunity.’
Corné continued by elaborating on their future-looking approach: ‘We use the “future world” concept. For example, for our next strategy target date, 2030, we asked how Senwes and the environment and markets would look by 2030. And then we worked back to today and what we needed to do to get to 2030. For instance, back in 2010, for our 2020 strategy date, we deduced that the trend of 40 Agri corporations in the 1980s reducing to around 12 in 2010 is going to continue. Based on that, we believed six or seven will be left by 2020. One of our key strategies will therefore be consolidation − we need to be ready to consolidate the market. We took that same future-looking concept for 2030.’
Analysis and business intelligence
So, what are the power and influence of analysis and business intelligence?
‘The “future world” concept we use is very analytically focused. Scenario planning plays a big role in creating the building blocks and the drivers behind them. For instance, we will have different scenarios for the grain and food production side, the kind of harvest we expect. The reasons could be a, b or c and then we will have high, medium and low scenarios, backed up by detailed data and analysis, based on that.’ Chris continued: ‘There are response plans for certain trigger events. Originally we only developed these for the risk side, but now we also develop such plans for the strategy side. In effect, we have multiple response plans according to the way something could be triggered.’
Another example they mentioned was fuel consumption versus battery power in the agricultural sector. Will it be like the past 30 years where they have seen a 1% or 2% change or is it going to increase dramatically? A detailed analysis helps them to realistically, and with data to support it, model it into their future scenarios.
‘Our business intelligence incorporates post-implementation reviews. It is not just important from a strategic perspective, it also creates a culture of awareness of the environment around you and makes you much more adaptable. Awareness helps you to move quickly.’
Their in-depth analysis, market and competitor analysis also shape their implementation actions. Corné gives another example: ‘Our business intelligence told us in 2018 that a potential target/competitor was in financial difficulty. From our 2020 strategy, one of our objectives was consolidation. We put in a call and the response was no − in retrospect, we were too early. TThen, in 2020, developments around the Land Bank − together with COVID-19 − caused a perfect storm and we were able to action our response plan and enter the negotiations. Based on our business intelligence we were ready, but we were a bit ahead of the time.’ He added: ‘One of the most important lessons I learned relates to timing. Our process informs what to do in reaction to events, we just have to get the timing right.’
Organisational buy-in and implementation
Corné again highlighted their strong emphasis on analysis and business intelligence. ‘We have a number of CAs(SA) on our board − analytical thinkers who engage data and information: proper market research, proper interpretation, and proper scenario setting are the things that get us buy-in from our board. Over time, you build trust in the strength of your business intelligence and analytical rigour. What is nice is that you don’t debate where you come from or where you are going − business intelligence covers that − but rather how to position yourself.’
His approach is a bit different for personnel: ‘There is an old saying that you get 20% fast adopters, 20% no adopters and 60% just waiting before they act. We choose our champions, the fast adopters, the strong people, to start implementation. When you then have a few success stories, the take-up gets stronger and it is easier for the rest to follow the leaders. We also have enough soft and hard rewards such as new opportunities and career positions, and the remuneration structure is also leaning heavily towards variable remuneration. This helps the organisation to be more entrepreneurial.’
He added a word of caution: ‘Culture eats strategy for breakfast – with a strong culture you can have an average strategy and make it work, but the converse is also true: with a strong team and implementers and a bad strategy, you can become bankrupt very quickly.’
On sustainability and societal impact
Corné referenced their CEO’s philosophy, ‘You must leave it better than how you found it’, which began as words but later became part of their culture, even for small decisions. ‘For me, it was a bit of a mindset change – I want to stay economically viable at all costs, but if you have a choice with a 5% price tag, make it right and sustainable the first time!.’
He continued: ‘Historically the agricultural sector has been focused on sustainability. We are still doing a lot of that, but we are also now investing heavily in smaller towns in terms of roads and infrastructure. Being the major employer in town, the investor, we have a responsibility to make the community sustainable. The social-economic ecosystem became part and parcel of our business for the community, one of our core stakeholders.’
Advice for young professionals in terms of strategy
Chris highlighted that you need to challenge ideas and ask ‘what is next?’, and then again, based on the answer, ‘what happens next?’. ‘There is always a ‘what next’ question: if you take the ‘what’s next’ question two steps further than the person next to you, then you are already on a strategic path. He continued: ‘Don’t underestimate the people you are surrounded with, the mentorship you get, especially if you just started – use that exposure to its full potential.’
Corné added: ‘As a young professional, do the analytics and interpretations yourself. If you spend a lot of time on the data, the plan leaps out. Spend time on the hard yards, not on shortcuts, and the strategic plan will follow.’
Author
Christiaan Vorster CA(SA), SAICA Regional Executive
