United StatesDepartment ofAgriculture

AgriculturalCooperativeService

ACS ResearchReport Number103

Strategic PlanningSystems of LargeFarmer Cooperatives

Abstract

Strategic Planning Systemsof Large Farmer Cooperatives

James J. WadsworthAgricultural Economist

This report describes the methods, procedures, and functional relation-ships that make up the strategic planning systems of four large farmer coopera-tives. Case study analysis of the cooperatives indicates the existence of well-developed, comprehensive, and active strategic planning systems. Strategicplanning methods or components stressed by the cooperatives include: missionor vision statements; situation/environmental assessment; development ofgoals and/or objectives and corresponding strategies; implementation pro-grams, projects, or action plans; and strategic planning feedback.

Keywords: Cooperative, strategic planning, organizational structure, strategies,objectives.

ACS Research Report 103August 1992

Preface

This report presents case studies of the strategic planning systems of fourlarge farmer cooperatives. Cooperatives interested in strategic planning canuse these studies to help them implement or improve their own systems. Largecooperatives can develop or enhance strategic planning systems from expo-sure to the systems employed by their successful counterparts, and small- andmoderate-size cooperatives can improve or develop strategic planning systemsby learning important strategic planning philosophies and methods practiced bysuccessful cooperatives.

The case study cooperatives are among the top 100 cooperatives, eachhaving sales exceeding $400 million and having strong governance and organi-zational structures. The cooperatives vary in characteristics of their operationsand functions. Both marketing and farm supply cooperatives are represented.Information about the four cooperatives was collected by personal interviewsand by use of cooperative documents.

To protect the confidentiality of the cooperatives, the subjects are not iden-tified. Instead, the cooperatives are identified as A, B, C, and D. These cooper-atives were selected for study because of their size, diverse operations, prod-ucts and services, and financial and operational soundness, and because eachcooperative has integrated a system of strategic planning into its organizationalstructure.

Agricultural Cooperative Service is grateful to the cooperative leaders andmanagement personnel whose contributions were essential for this research.

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Contents

Highlights...

......................................................................................................... IIICooperative A-Diversified Marketing ............................................................. 1

Business Unit Long-Range Planning ....................................................... 2Review Sessions ...................................................................................... 5President’s Planning Retreat .................................................................... 6Board Planning Retreat ............................................................................ 6Annual Business Plan .............................................................................. 6Feedback .................................................................................................. 6

Cooperative B-Regional Farm Supply ........................................................... 6Market Outlook ......................................................................................... aCorporate Direction .................................................................................. aBusiness Unit Planning ............................................................................ aPlan Approval and Implementation ....................................................... .12Planning Feedback................................................................................. 13Planning Audits ...................................................................................... 13

Cooperative C-Farm Supply and Food Marketing ....................................... 13Corporate Strategic Plan ........................................................................ 13Business Group Strategic Planning ....................................................... 15Business Unit Operating and Marketing Planning ................................. iaLong-Range Financial Summaries ......................................................... 19Budget Development .............................................................................. 20Planning Feedback................................................................................. 20Planning Cycle ...................................................................................... .20

Cooperative D-Diversified Marketing and Farm Supply .............................. 20Business Unit Strategic Planning ........................................................... 22Business Unit Strategic Plan Presentations .......................................... .25Financial Strategy................................................................................... 25Strategic Overview Subcommittee Activities .......................................... 25Strategic Overview Subcommittee Reports-Feedback.. ..................... .25

Summary and Comparison ............................................................................ 26Conclusions ................................................................................................... .27

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Highlights

The cooperative strategic planning systems examined in this report arecomprehensive, results-oriented systems developed over time to fit the organi-zational and operational structures of the case cooperatives. Management per-sonnel in these cooperatives help carry out strategic planning from the initialdevelopment phase, through implementation, and to the feedback stage.

Among the many characteristics of large-cooperative strategic planning,these stand out:

l Mission, vision, or definition and scope statements provide direction forstrategic planning.

l The essence of strategic planning is to identify goals and issues, anddevelop strategies to achieve those goals and resolve those issues.

l Strategic planning is decentralized, with business units developing plansfor their particular area of responsibility.

l In-depth analysis of the business environment is an essential componentof strategic planning.

l Action plans, projects, or implementation programs are developed tocarry out strategies so time is properly channeled and necessary resources areproperly allocated.

l Feedback improves strategic plans. Major forms of feedback are moni-toring financial data and reports on the effectiveness of strategies and theprogress toward goals.

l The board of directors takes more of an advisory, review, and approvalrole than it does an active development role in strategic planning.

. . .ill

Strategic Planning Systemsof Large Farmer Cooperatives

James J. WadsworthAgricultural Economist

‘The dynamic business environment in whichcooperatives operate comprises a complex array ofstructures, institutions, and influences rangingfrom local to global in scope. Cooperatives identifyand respond to the changing needs of farmer-mem-bers in an evolving agricultural structure. Theeffectiveness of that response, however, is dictatedby cooperatives’ posture, flexibility, and influencein the marketplace, relative to competitors.“l

In responding to the changing needs offarmer-members within today’s dynamic businessenvironment, many farmer cooperatives have inte-grated strategic planning systems into their organi-zational structures. An increasing number of coop-erative leaders realize they need to make proactiveadjustments in their cooperatives’ operations-“posture, flexibility, and influence”-for them toremain competitive and progressive in today’smarketplace. Such adjustments are the essence ofstrategic planning. Business decisions must bemade on the basis of comprehensive strategic plan-ning, rather than in reaction to adverse internal orexternal developments.

No universal strategic planning system exists.Rather, each system encompasses philosophiesunique to the organization. Cooperatives are noexception. Cooperative leadership should seek toformulate and implement a system that “fits” thecooperative’s business philosophy and organiza-tional structure.

’ U.S. Department of Agriculture, Positioning FarmerCooperatives for the Future, A Report to Congress,Agricultural Cooperative Service, October 1987, p. 1.

This publication reports and analyzes thecomprehensive strategic planning systems that fourlarge farmer cooperatives have developed andincorporated into their organizational structures.

The phrase “strategic planning” is used toencompass the development, implementation, andevaluation of strategies that enable a cooperative toachieve its goals, including measurement, feed-back, and control. Management is intrinsic in thisdefinition. The case study cooperatives view strate-gic planning as more than a prescribed set of proce-dures. They see it as part of management’s dedica-tion to think, make decisions, and take action giventhe organization’s strengths, weaknesses, opportu-nities, and purpose.

The four cooperatives are among the top 100cooperatives in the United States. Some also areFortune 500 corporations with net sales of morethan $400 million. All are highly diversified in vari-ous capacities, including marketing farm products,selling farm supplies, and providing farm services.All are involved in joint ventures and/or have sub-sidiary operations, and have sound governancestructures. Each has a large board of directors (any-where from 10 to 40 members) and upper manage-ment organized into departments, divisions, busi-ness groups, business units, etc.

COOPERATIVE A-DIVERSIFIEDMARKETING

Cooperative A, though diversified, is orientedprimarily toward marketing. Operations includemanufacturing and marketing of agricultural prod-ucts, distribution of farm supply inputs, and vari-ous member services.

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Strategic planning, formalized by CooperativeA in the mid-1970’s, involves the development oflong-range (5-year) plans and an annual businessplan. The latter is a tactical plan for the next year’soperations that corresponds to the first year of the5-year plan. Management updates the strategiclong-range plan and develops the annual businessplan each year.

Cooperative A separates its many functionsinto major business groups or units. These units areidentified by their products, services, or manufac-turing and distribution functions. Each unit isresponsible for developing strategic plans specificto its function.

Because staff interaction is important, manyemployees participate in plan development.Further, the plan goes to the board of directors forreview and discussion. The board approves thefinal plan.

Strategic planning in Cooperative A has fivemajor stages or components (exhibit A-l and fig. 1).Stages are undertaken at specific times throughoutthe year. The time frame of each stage is shown inexhibit A-l.

Business Unit Long-Range Planning

Each business unit within the cooperativedevelops its own long-range plan from January

Exhibit A-l-Cooperative A’s strategic planningsystem time frame

Planning stage Time frame

1. Business unit long-range planning January to June

2. Planning review sessions June to August

3. President’s staff retreat July or August

4. Board planning retreat August orSeptember

5. Annual business planning September toDecember

through June. Three major components to be com-pleted are listed in exhibit A-2.

Vision Statement The cooperative’s visionstatement is the starting point for business unitplanning. The statement is developed through aninteractive process by the chief executive officerand other senior management. Cooperative Adefines its vision statement as a description ofwhat the organization is to become. The statementis clear and concise. It provides guidance tobusiness units as they each develop individuallong-range plans. Cooperative A’s visionstatements are usually qualitative but also can beexpressed in quantitative terms.

Business Unit Planning Each business unitfollows an organized procedure to prepare a long-range plan. The plan includes an executivesummary, the long-range strategic plan itself, andlong-range financial estimates. The focus is on thebusiness environment, unit goals, and strategies.At this stage, personnel spend about 90 percent ofplanning time on business strategy and theremainder on financial analysis.

Executive Summary. The executive summaryis held to one page. It contains the key points of thestrategic plan and identifies significant changesfrom previous plans.

Exhibit A-P-Cooperative A’s business unit long-range planning components

1. Vision statement

2. Business unit planning

A. Executive summary

B. Long-range strategic plan

C. Long-range financials

3. Business unit planning summary and action plans

2

Figure l-Cooperative A’s Strategic Planning

IBusiness Unit

Long-Range Strategic Planning

Planning Review Sessions

1

President’s Staff Retreat

1

Board Planning Retreat

1

3

Long-Range Strategic Plan. The long-rangestrategic plan for each business unit contains a mis-sion statement, an analysis of the competitive envi-ronment, critical business issues, and major goalsand strategies.

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Each business unit develops a mission state-y ment to define, in general terms, what the unit is to

accomplish.To identify the competitive environment, each

business unit completes industry, competitor, andinternal analyses. The industry analysis includes adescription of the general status (structure) of theindustry in which the business unit operates, iden-tifies key industry changes (internal and external),describes the government or regulatory issues thatmay affect the unit, documents significant industri-al trends, and identifies any significant trends inthe work force or labor markets.

The competitor analysis profiles the competi-tion, including historical and current performance(sales, market share, profitability, product quality,customer service and loyalty, etc.), strengths andweaknesses, and current and anticipated changesin strategy. The analysis also examines market-seg-mentation patterns, research and developmenttrends, and entry and exit of competitors.

The internal analysis evaluates the businessunit’s competitive position in terms of its ownstrengths and weaknesses, market position, criticalissues to address, and the impact of businesschanges.

Business units set major goals to be reachedand develop the strategy to be successful. Units (a)describe goals to be achieved; (b) define a measure-ment of the goal- for example, numericallyand/or time frame; and (c) identify and describeprogressive benchmarks.

In presenting the selected strategy, the unitdocuments the rationale, estimates resourcerequirements, and projects the outcome in broadfinancial terms from the present actual yearthrough the next 5 future years (exhibit A-3).

Business units identify the key factors for thestrategy to be successful in meeting goals. Theseinclude: what must be performed, acquired, oraccessed; organization structural changes; andemployee skill or development needs.

Assumptions critical to successful execution ofstrategies are documented. Situations that might bevolatile during strategy execution are noted, and arange of possible circumstances requiring adjust-ments are listed. Finally, the business units identifyand describe any risks or problems associated withcarrying out strategies.

Long-Range Financial Estimates. CooperativeA strategy includes development of long-rangefinancial estimates. These show the financial contri-bution that business units are expected to makethrough strategy implementation. They also esti-mate the financial resources required to carry outtheir strategic plans (exhibit A-4).

Exhibit A-3-Cooperative A’s format to project strategy outcome in broad financial terms

Strategydescription Estimate

Sales units

Sales $

Pretax earnings

Invested capital

Actualyear

year 1

Future years

year 2 year 3 year 4 year 5

4

Financial information derived from this exer-cise shows the anticipated results of successfullycarrying out the business unit’s strategies. Thisinformation is used also in formulating CooperativeA’s corporate long-range financial plan.

Business Unit Planning Summary and ActionPlans Business units summarize their plansclearly and concisely However, the length ofexplanation is determined by how large andcomplex the unit is. Further, some units havefunctions that are operationally related butorganizationally separated, so summaries indicateimportant interrelationships.

Action plans to carry out strategies are specif-ic and concrete. A timetable for completion isdeveloped. Resources needed, human and capital,are estimated.

Review Sessions

During review sessions, senior managementdiscusses major issues and strategic changes facingCooperative A. And management reviews eachbusiness unit’s plan. The review focuses on theselected goals and strategies and, taking intoaccount the effect of issues raised, assesses the abil-ity of the business unit to reach its stated goals.Unacceptable strategies are challenged. Changes

Exhibit A-4-Cooperative A’S business unit long-range financial estimation summary items

Actual Projectionyear Year. year 1

Future years

year 2 year 3 year 4

OperationsSales unitsSales $Pretax earnings

Cash FlowPretax earningsDepreciationCapital spendingAcquisitions/divestituresActual working capital changesInvestment changesNet cash flow

Invested CapitalBase working capitalInvestmentsProperty, plant, and equipmentPresent value operating leasesOther

Total invested capitalReturn on invested capital

5

are required if the business unit insufficientlydefends its position.

After review, the vice president and directorof corporate planning and business developmentsynthesize the business unit plans into a corporatestrategic plan.

President’s Planning Retreat

In August, the president and senior manage-ment staff hold a planning retreat away from cor-porate headquarters. Participants discuss the sig-nificant issues the cooperative needs to resolve.They review the drafted long-range strategic planand revise it as necessary into a final plan ready forpresentation to the board of directors.

Board Planning Retreat

In September, the board of directors holds itsplanning retreat away from corporate headquar-ters. But prior to the retreat, a copy of manage-ment’s final plan is sent to each director. Each busi-ness unit summarizes its plan before the board,highlighting for discussion critical issues, signifi-cant changes, and existing and new strategic plans.

Annual Business Plan

Cooperative A’s annual business plan isdefined as its tactical plan for the coming year,which also is the first year of the corporate strate-gic plan. It is developed through the September-to-December period. The plan describes the operatingenvironment and plans for the coming year andsummarizes the detailed budget previouslyreviewed and approved.

Feedback

Cooperative A measures the success of itsstrategies through an ongoing analysis of its long-range financial estimates. Financial data analyzedand/or tracked include performance measuressuch as return on sales, return on invested capital,unit or sales volume, and market share. The annualbusiness plan comes strongly into play each year inCooperative A’s strategic planning in that futureplanning depends on how well the cooperativeperforms under its tactical business plans.

COOPERATIVE B-REGIONALFARM SUPPLY

Cooperative B, a large regional farm supplycooperative, provides a wide variety of agriculturalsupplies and grain marketing services to farmersthrough a system of member local cooperatives.

The regional initiated annual planning in 1976and formally incorporated long-range (3 to 5 years)planning in 1980. The cooperative’s organizationalstructure comprises several operational groups,each having planning units responsible for carry-ing out their own specific functions.

Cooperative B does not describe its long-rangeplanning system as strategic planning. Rather,strategic planning is defined as an optional compo-nent of the planning unit (business unit).* Strategicplanning becomes part of the planning process ifmanagement feels plans in place need to bechanged.

Essentially, Cooperative B identifies planningas a management tool. More than 40 managersdevelop and implement plans for their respectivebusiness units (the division or area they manage).Business unit managers report to their operationalgroup vice president.

Five major components comprise CooperativeB’s planning system (exhibit B-l and fig. 2).

Exhibit B-14ooperative B’s planning system

1. Market outlook and corporate direction

2. Business unit planning

3. Approval and implementation

4. Planning feedback

5. Planning audits

2Though Cooperative B uses the term “planning unit,”which may have a different connotation than “businessunit,” this publication uses business unit to be consistent indiscussing the four case study cooperatives.

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Figure 2-Cooperative B’s Planning System

Business Unit Planning

V

Plan Approval and Implementation

Planning Feedback Report

Planning AuditFeedback

7

Early in the planning cycle, Cooperative Buses outside consultants and internal resources todevelop marketing scenarios. These scenarios pre-sent assumptions about the cooperative’s externalbusiness and market environment, and will be usedfor planning.

Corporate Direction

Cooperative B’s plans are developed fromlower management tiers with more direct links tomarkets, and proceed to upper tier management.Some direction comes from the chief executive offi-cer (CEO) in the initial stages. The CEO sets anagenda, provides corporate direction, answersquestions from management, and discusses possi-ble corporate directional change such as acquisi-tions or mergers.

Business Unit Planning

Business units begin with individual planningthat follows a guide developed by the corporateplanning division. Cooperative B has severalguides so it is important to note that planning doesnot involve a rigid system. Cooperative B stronglyasserts that the major idea is not for business unitsto write a plan, but to reach goals and get thingsdone. Planning time and effort are directed towardquality and action, not the plan appearance.

Cooperative B’s planning process involvesreviewing the organization’s purpose, primaryfunctions, and long-range direction; and develop-ing plans of action for the next year. As a tool,planning is carried out to let the business unitknow where it is going, how it is going to get there,and what needs to be done.

Cooperative B’s guide includes nine businessunit planning components (exhibit B-2 and fig. 3).

Definition and Scope Each business unit has itsown “definition and scope” to explain why thebusiness unit exists and to define its principal

Exhibit B-2-Cooperative B’s business unitplanning components

1. Definition and scope2. Long-range goals3. Current strategy4. Situation appraisal (optional)

A. External factsB. Internal factsC. Historical data

5. Strategic planning (optional)A. Strategic issues8. AlternativesC. Recommendation

6. Problems and opportunities7. Specific objectives8. Projects9. Progress reports

responsibilities and functions. Definition and scopeimplies one concept, not two.

The definition and scope is reviewed by thebusiness unit each year. The unit manager, withinput from staff, seeks to improve how well thedefinition and scope communicates what the busi-ness unit does. Under this scenario, definition andscope evolves as changes occur due to reorganiza-tion, adoption of new functions, or introduction ofnew technology.

Business units develop a definition and scopestatement to identify their primary functions.Cooperative B business units sometimes use defini-tion and scope in place of a mission statement.However, when a business unit conducts strategicplanning, a mission statement is also developed todescribe what the business unit wants its futurebusiness to become.

Long-Range Goals Cooperative B develops long-range goals from the review and development ofthe definition and scope (or mission statement),situation appraisal, and strategic planning. At leastone long-range goal is developed for each principal

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Figure 3-Cooperative B’s Business Unit Planning

Definition and Scope

Current Strategy

Long-Range Goals

l _bbStrategic Planning

4

Problems and OpportunitiesI

+

Specific Objectives

Progress Reports

9

business unit function. A list of long-range goals,intended to set the agenda for the business unitover a 5-year period, results. Each business unitdevelops from three to six performance andoperational categories under which long-rangegoals can be grouped.

Current Strategy Business units develop currentstrategies to reach each long-range goal. Strategiesare assessed to determine if they are working asexpected. If they are not working, reasons areidentified as part of the problem/opportunity stageof the planning process (the sixth component).

The relationship of current strategy to long-range goals is considered important. Business unitsare expected to be progressive and results-oriented,improving and changing current strategy as neces-sary. The rate of strategy improvement and/orchange is a primary measure of planning effective-ness in Cooperative B.

SItuafh Appraisal Situation appraisal identifiesoperational problems, opportunities, and issuesthat need to be resolved through strategicplanning. However, business units are allowed toskip this step if they believe the strategic planningisn’t necessary.

In proceeding with a situation appraisal, busi-ness units use external facts and internal facts andhistorical data to describe their business situationin terms of the past, present, and future. As the sit-uation appraisal progresses, business units identifyoperational and long-range problems and opportu-nities. Problems and opportunities identified aredealt with in a later stage of the planning process.

External facts describe situations outsideCooperative B’s control. They reflect situations thatlimit or enhance business unit ability to reach long-range goals. Business units develop new and/orreview existing external facts about external forcesinfluencing their day-to-day operations and abilityto accomplish long-range goals.

Internal facts describe situations withinCooperative B that affect business unit ability tooperate day-to-day and attain long-range goals. Tocarry out this exercise, business units first develop

a current internal facts list then compare it with theprevious year’s list. The approach is to provokefresh thought but still not overlook previouslyidentified and still relevant facts.

As part of internal fact gathering, businessunits identify their own strengths to be exploitedand weaknesses to be corrected.

Among subjects Cooperative B business unitsdevelop into internal fact statements are:

l Personnel skills, productivity, turnover, etc;l Work-place technology;l Availability of capital resources;l Strengths and weaknesses; andl Operating systems and procedures.

Historical data, updated annually, are useful togain a thorough understanding of the businessunit’s situation. Data correspond to services pro-vided, people served, types of activity, events con-ducted, and financial information. These data are abasis for making forecasts to identify potentialproblems and/or opportunities.

Sffafegk Wannlng Cooperative B views strategicplanning as an optional step in its planning systemif the business unit needs to change its long-rangegoals and current strategies. In this sense, strategicplanning for business units means definingstrategic issues, developing alternatives, andmaking recommendations that will change long-range goals and current strategies.

Strategic Issues. In undertaking strategicplanning, business units develop strategic issues byevaluating relationships between their long-rangegoals and current strategies, and between theirlong-range goals and situation appraisal. They alsoevaluate the significance of their identified prob-lems and opportunities. Several questions areanswered in this evaluation.

l Will current strategies accomplish the long-range goals? If not, what is stopping their accom-plishment? Is the problem something that can bechanged?

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l What situation is restricting the ability ofthe business unit to accomplish its long-rangegoals? Can this situation be corrected or changed?Will this situation get worse with time?

l What are the major strategic problemsand/or opportunities facing the business unit?

Cooperative B frames strategic issues in aquestion format, believing that questions causeplanners to immediately search for answers. Incontrast, a statement format could result in plan-ners either agreeing and giving no further thought,or disagreeing and concentrating on what is wrongwith the statement rather than thinking of ways toresolve the issue.

Resolving strategic issues helps determinelong-range goals and new strategic direction lead-ing to more effective operations.

Alternatives. Business units develop alterna-tive solutions to resolve strategic issues. These aredeveloped over time and are intended to changecurrent strategy and/or long-range goals. To devel-op effective alternatives, business units ponder thestrategic issue over a period of months, gatherexpert input (usually technical in nature), and seekappropriate counsel (counsel is gained from staffwithin the business unit, employees withinCooperative B who are affected by or have knowl-edge of the strategic issue, and members of thecooperative who would be affected by the issue). InCooperative B, it often takes up to 12 months todevelop effective alternatives to a strategic issueand sometimes another 3 to 5 months to analyzethe alternatives before making a recommendation.

Three to five alternatives are developed foreach strategic issue. In Cooperative B, experienceindicates that only 1 or 2 good alternatives becomeapparent initially and that it takes another 4 or 5months to develop 5 to 10 alternatives. Businessunit managers then reduce the number to three tofive high quality alternatives through consolidationand/or elimination. These alternatives are present-ed to the business unit supervisor for approval. Incertain instances, corporate management staffreviews the alternatives to ensure that each is real-istic and fits into Cooperative B’s overall strategic

plan. After approval, business units recommendone of the alternatives to resolve the strategic issue.

Recommendations. Alternatives for resolvingstrategic issues are summarized into recommenda-tions, complete with reasons for accepting or reject-ing each alternative. Recommendations must beproperly developed to give corporate managementa clear understanding of what needs to be changed,what benefits will result, and why the cooperativewill benefit from making the change.

Recommendations contain the followinginformation (exhibit B-3):

The executive summary, written after parts IIand III are completed, summarizes the completerecommendation in one page.

The part II summary precisely defines the rec-ommended change in a few pages. Some or all ofpart III attachments may be submitted as part ofthe recommendation.

Problems and Opportunities Business unitsoften identify problems and opportunities whilethey are carrying out other phases of their planning

Exhibit BSAooperative B’s business unitrecommendation components

I. Executive summary

II. Recommendation

A. Summary

B. Alternatives considered

C. Selection analysis

III. Attachments

A. Business unit long-range plans

B. Situation appraisal background

C. Impacts on Cooperative B, members

D. Financial analysis commentary

E. Risk analysis

F. Implementation plans

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process. Problems and opportunities may surfaceduring the development of long-range goals andcurrent strategies, during the conduct of situationappraisal, or while exploring strategic issues. Insome cases, what is thought to be a strategic issueis really just a problem that needs to be addressed.

SpecMc Objectives Specific objectives are short-term (l-year) objectives. They include target datesand have a high degree of measurability. Theseattributes distinguish them from the more generallong-range goals. Specific objectives aremeasurable, so business units know precisely whenthey should complete their work. Specificobjectives are a critical component in CooperativeB’s quest to move from planning to action.

Business units review their long-range goalsand problems and opportunities and compile a listof specific objectives they can reach within thecoming year.

Prcjecfs Projects are organized to accomplishspecific objectives. Business units have fullflexibility in organizing projects. However,

Cooperative B provides guidelines that businessunits follow for developing projects (exhibit B-4).

Progress Reports Business unit managers writequarterly reports of progress toward specificobjectives to the operational group vice president.Timing, content, and format of progress reports areleft to the discretion of the group vice presidentand business unit managers.

Plan Approval and Implementation

Business unit managers submit plans to theirsupervisors for approval, working with them onany modifications. Their final plan goes toCooperative B’s chief executive officer for reviewand approval. After the total plan has beenapproved, management allocates the resources forplan implementation.

The board of directors of Cooperative Bbecomes more involved in the planning processwhen business units undertake strategic planningthat points toward substantial change in opera-tional function. Under this scenario, the board pro-

Exhibit B-4-Cooperative B’s project development guidelines for business units

1. Project data summary- l-page project description including results expected, responsibility, key com-pletion dates, and resources required. The resource section includes the following:

A.

B.

C.

D.

E.

Operating expenses-include estimate of the project expenditures for travel, materials, meetingexpenses, consulting fees, etc. (If other planning units contribute to the project, their expendi-tures are included also.)

Capital-if capital or fixed assets are needed to complete the project, estimate the total amountof capital required.

Staffpower-after developing the project activity and scheduling task sheets, include estimate ofthe total number of staff days and costs necessary to complete the project.

Information-estimate of the total project expenditures for the purchase of studies or informa-tion, computer costs, etc.

Project activity and schedule-a list of tasks needed to accomplish the results expected. Thistask sheet includes: 1. all key steps of the project activity; 2. the identification of tasks completedby others; 3. completion dates for each task; and 4. who is responsible for each task.

vides input, questions changes, and ultimately,either approves or rejects the plans.

Planning Feedback

Cooperative B closely monitors the successlevel of planning. The planning director reviewsbusiness unit progress reports and prepares a feed-back report that is presented to top managementand the board of directors.

Planning Audits

The planning director of Cooperative B con-ducts a planning audit of each business unit every3 or 4 years. Audits include reviewing the entireprocess that business units employ in planning.Focus is on how well business units put plans intoaction, how smoothly planning proceeds, and howefficiently resources are used. The planning direc-tor counsels and coaches business unit personnelwhen audits indicate inefficient or inadequateplanning practices.

COOPERATIVE C-FARM SUPPLYAND FOOD MARKETING

Cooperative C, a large farm supply and foodmarketing cooperative, has major operations inmanufacturing, processing, and purchasing of farmproduction supplies.

This cooperative formalized strategic plan-ning in the mid-1970’s. The chief executive office(CEO), the CEO’s staff, business group vice presi-dents, and business unit management and staff areall actively involved in the long-range strategicplanning system. Cooperative C’s organizationalstructure includes a divisional system of majorbusiness groups that is further divided into busi-ness units.

Long-range strategic planning is incorporatedinto the organizational structure of Cooperative Cthrough a six-component process (exhibit C-l andfig. 4).

Corporate Strategic Plan

Cooperative C’s CEO is responsible for devel-oping a corporate strategic plan every odd year.The plan sets strategic direction of the cooperativeover a 5-year period.

The corporate strategic plan of Cooperative Cprovides general guidance and direction for otherplanning (i.e., business group strategic planningand business unit operating and marketing plan-ning). The corporate strategic plan has six compo-nents (exhibit C-2).

Although the CEO is responsible for develop-ing the corporate strategic plan, the board of direc-tors plays an important role. For instance, theboard defines the cooperative’s basic purpose andapproves the plan. The statement that summarizesCooperative C’s basic purpose is reviewed and dis-cussed annually, but the purpose remains funda-mentally the same.

Exhibit C-l-Cooperative C’s planning system

1. Corporate strategic plan

2. Business group strategic planning

3. Business unit operating and marketing planning

4. Long-range financial summaries

5. Budget development

6. Planning feedback

Exhibit C-2-Cooperative c’s corporate strategicplan components

1. Basic purpose2. Corporate mission3. Corporate objectives and targets4. Corporate strategy5. Business group charters6. Corporate investments

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Figure 4-Cooperative C’s Strategic Planning

Corporate Strategic PlanEvery odd year

Business Group Strategic PlanEvery even year

Business UnitOperating and Marketing Plan

Every even year

Long-Range Financial SummariesEvery year

t

BudgetsEvery year

Feed back

14

The CEO develops the mission statement, cor-porate objectives and targets, and corporate strate-gy to provide overall direction for business groupplanning.

Each business group develops a charter. Thecharter includes the business group’s mission,strategic objectives, and performance targets. Inessence, the charter sets the base from which thebusiness group develops its strategic plan.

Possible and contingent corporate investmentsare listed in the corporate strategic plan. This listidentifies probable capital investments and estab-lishes when and where they will take place.

Business Group Strategic Planning

Business group strategic planning is complet-ed every even year. This planning provides themission and strategies for each business group andsets direction and targets for the business unitswithin the business groups. Business group vicepresidents prepare the plans, while the CEO, theboard executive and planning committee, and theboard of directors approve the plans.

Exhibit C-3 lists the components of businessgroup strategic planning.

Business group strategic plans place heavyemphasis on the business units within the businessgroup. Thus, much of the business unit operatingand marketing planning (the next component of

Exhibit C-3-Cooperative C’s business groupstrategic planning components

1. Business mission

2. Situation analysis

3. Business strategy

4. Business unit(s) direction (summary form)

A. Mission

B. Strategic effort

C. Objectives and core strategy

D. Targets

Cooperative C’s planning system) is actually doneduring the business group strategic planning.

Business group vice presidents appoint taskforce groups to assist in developing information forbusiness strategic plans and to develop the busi-ness unit operating and marketing plans.

Business Mission The business missionstatement is the starting point of business groupstrategic planning. It establishes the foundation fordeveloping objectives and strategies. In thisrespect, the business mission provides direction tothe business group and to each business unitwithin the business group.

Cooperative C defines business missions ascomprehensive statements of purpose that arebroad in scope. Missions are stated in terms consis-tent with the corporate strategic plan and definewhy Cooperative C is in its particular businessesand what function each business group performs.Missions reflect the desired positioning, direction,scope, and general activities of business groupsand establish any limitations placed on businessactivities.

Cooperative C business mission statementsoften include managerial philosophy, desiredimage, economic goals, production or deliverymethod, markets served, technology, service/prod-ucts offered, and/or sources of competitive advan-tage.

SIfuation Analysis Situation analysis is a criticalcomponent of Cooperative C’s planning system.Information generated during this phase formsmuch of the basis for the planning that follows.Situation analysis permits the development ofbusiness strategies, business unit targets, and thebusiness unit operating and marketing plans. Thisanalysis identifies significant forces that have animpact on the formulation and implementation ofbusiness group strategies, and appraises thepresent and future internal and externalenvironment of business groups.

Planning task forces identify significantchanges between the present situation analysisprevious situation analyses. These changes are

and

15

summarized and listed in the business groupstrategic plans and business unit operating andmarketing plans.

The situation analyses define the relative posi-tion of each business group and associated busi-ness units both within the cooperative and theexternal environment. The analyses address thepast, present, and future. For the past, entry into aparticular business and past performance areexamined. Information is presented relative to howand why Cooperative C got into the business, salesand margin history, how customer segmentsevolved, technological advances that have affectedthe business, development of competition, and paststrategies and their degree of success. For the pre-sent, the analysis includes business group informa-tion on who the customers are, their needs, atti-tudes, and degree of satisfaction; the currentcompetitive position; distribution capabilities; salesand profitability; source of supply; and environ-mental issues and factors. For the future, businessgroups estimate the most likely trends and devel-opments that will affect them and their businessunits. Future internal and external environmentalissues are documented and realistic assumptionsare developed.

Business groups also analyze the competitiveenvironment within which they operate during the sit-uation analysis. This includes examining the strengths,weaknesses, and opportunities of, and threats to, theiroperations and those of their competitors.

Business Strategy Each business group developsa business strategy that describes-in generalterms-how the business group will fulfill itsmission. If a well defined and working businessstrategy is already being implemented, then thatstrategy is simply reviewed.

Business Unit Dlfecfion The business unitdirection component of business group strategicplanning, listed in exhibit C-3, includes a mission,strategic effort, objectives, core strategy, and targets.

Mission. The business unit mission statementdefines why Cooperative C has the business unit

and what role it is expected to perform. The state-ment reflects the desired positioning, direction,scope, and general activities. It can contain eco-nomic goals, services and products offered, marketsegments served, desired image, distribution chan-nels, managerial philosophy, primary customerneeds, and the basis for gaining a competitiveadvantage in the marketplace.

If business unit missions had been previouslydeveloped, they are reviewed to ensure consistencywith the business group mission.

Strategic Effort. Strategic effort provides thedirectional thrust for management and investmentwithin business units. Strategic efforts are catego-rized as (a) penetrate and grow, (b) protect anddefend, (c) generate cash, and (d) recoverresources. A product life cycle curve is used tochart the progress that business units make with aspecific product or product line (fig. 5). It consistsof four phases-introduction, growth, maturity,and decline. Each of these phases has characteris-tics relative to sales volume, demand, competition,profit level, growth, etc. By identifying where inthe product life cycle curve a business unit’s activi-ties fall (the situation analysis helps accomplishthis), the task forces determine what strategic effortis required of business units.

The four business strategic effort categoriesare distinctive by definition: (1) Penetrate and growrefers to the business unit making a long-term com-mitment of resources where risks are assumed andplanning is done for future payback. This strategiceffort usually represents increasing market shareand often requires the addition of new productsand/or new market segments. (2) Protect anddefend includes maintaining or increasing currentprofitability and developing a strong competitiveposition. This strategy requires cost control, high-capacity use, maintenance of market share, andinvestments to maintain market position-that is,when competition is strong. (3) Generate cashfocuses on gradual cash intake from past invest-ments for use elsewhere. This effort is character-ized by a controlled reduction in market share inmarkets that are mature or declining, as profits aremaximized. (4) Recover resources effort is directed

16

Figure 5-Cooperative C’s Product Life Cycle Curve

Phases

Unitvolumedemand

Strategiceffort

I

Introduction

/I I I I I I

Growth

I I I I I

Maturity

J I 1 1 1 I I I I I

Decline

I I I I

______ _____ ____________________________ Time ___________________ _---_-______ ___________

Penetrate and grow Protect and defend Generate Recovercash resources

17

toward recovering resources as optimally as possi-ble during a carefully controlled exit from an exist-ing business.

Objectives and Core Strategy. Objectives pro-vide business units with direction and define theposition to be achieved. They are developed consis-tent with the corporate and business strategic plansand the business unit strategic effort. Objectives aredefined in qualitative, not quantitative, terms sinceobjectives are quantified into targets later in thestrategic planning process. Each business unitwithin a business group has a definite objective.

Business units also develop a core strategy. Acore strategy is a single general statement thatsummarizes-in terms consistent with the strategiceffort-the strategic intent for the business unit. Itis the basic strategy from which the remainingbusiness unit planning flows.

Targets. Business units develop 5-year targets.They are stated in quantitative, measurable termsconsistent with the business unit strategic effort,objective, and core strategy. They are specific quan-titative goals that define the results to be attainedat a definite time and are used to measure howwell a business unit accomplishes its objectives.Targets define performance and are measured interms of market share, sales volume, cash flow,gross margin, return on assets, net margin, or vari-ous other measures.

Business Unit Operatingand Marketing Planning

At this stage in Cooperative C’s planning, agood deal of business unit marketing and operat-ing work has already taken place. Research anddevelopment work completed for the businessgroup strategic planning provides the base forbusiness units to proceed with the remaining por-tions of their operating and marketing plans.Essentially, what remains is developing strategiesto reach business unit targets-and therefore objec-tives, creating implementation programs to putstrategies to work, and developing contingency

plans that enable business unit managers torespond to unexpected developments (exhibit C-4).This planning takes place every even year to coin-cide with business group strategic planning.

Operating and Markethg Strategies AfterCooperative C has determined where it wants itsbusiness units to be in the marketplace through thedevelopment of objectives and targets, wherebusiness units are in the marketplace, and wherethe cooperative would like them to be, strategiesare developed.

The business unit task forces develop the mar-keting and operating strategies by reviewing busi-ness units’ strategic efforts and corporate and busi-ness group strategies. This ensures that businessunit operating and marketing strategies are devel-oped in line with corporate and business groupstrategy as well as the business unit’s strategiceffort.

implementation Programs Implementationprograms are courses of action that detail, inmeasurable terms, precisely how business unitobjectives and targets will be met, conditional uponavailable resources. Implementation programsspecify how strategies will be implemented, thepersonnel responsible for implementing andcompleting the program, and the date by which theprogram is to be completed.

Human Resource Requirements Business unittask forces analyze the human resources needed tocarry out implementation programs. Some

Exhibit @l-Cooperative C’s business unit operat-ing and marketing planning components

1. Operating and marketing strategies

2. Implementation programs

3. Human resource requirements

4. Volume projections

5. Contingency plans

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programs require new positions, experience, andskills. If additional human resources are required,task forces must identify the precise changesnecessary. Additional human resources requiredfor a particular implementation program of abusiness unit are submitted to the personneldirector for review.

Volume P@eCti~fl~ Business units project thevolume of products associated with their businessfor 5 years. When possible, volume projections aremade in units; otherwise they are made in dollars(exhibit C-5).

Contingency P&IS Contingency plans outlinespecific actions to be taken when a situation occursthat is inconsistent with the assumptions uponwhich actual plans were developed andimplemented. They document possible events orfactors that would critically affect the use of

established strategies and programs, and theyinclude warning signals that indicate whencontingency plans should be implemented.

Long-Range Financial Summaries

Business units develop long-range financialsummaries each year that correspond to long-rangestrategic plans. Targets specified in the coopera-tive’s business group strategic plans-which areadjusted regularly for changes within the relativeindustry-provide the source of direction for thesesummaries. Operation personnel and controllersusually prepare these summaries. The businessgroup vice president, CEO, and the board of direc-tors approve the financial summaries.

Four components are included in long-rangefinancial summaries (exhibit C-6). Together, thesecomponents provide the costs and expected returnsthat will evolve through implementation of the cor-

Exhibit CX-Cooperative c’s business unit volume projections

Productcategory units

Actualcurrent-year Budget

year 1

Plan

year 2 year 3 year 4

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Exhibit C-6-Cooperative C’s long-range financialsummary components

1. Five-year financial targets2. Unit volume projections3. Operating statements4. Balance sheets

porate strategic plan, the business group strategicplans, and the business unit operating and market-ing plans over the 5-year planning period.

Budget Development

Budget development is the final stage ofCooperative C’s strategic planning system. Allbusiness units develop annual budgets. The samestaff that developed the long-range financial sum-maries usually prepares the budgets. Businessgroup vice presidents, the CEO, and finally theboard of directors approve the budgets.

Budgets cover the next year, or the first yearof long-range plans, thus providing the path forbusiness units to follow. Components are shown inexhibit C-7.

Planning Feedback

Feedback from strategic planning inCooperative C results mostly from the monitoringand follow-up of long-range financial summariesand budgets. Results from operations and planimplementation programs provide the means formonitoring plans. This feedback is instrumental forCooperative c’s future planning.

Planning Cycle

Cooperative c’s strategic planning system,involving its five parts, evolves during a planningcycle that incorporates an every-other-year timeframe for some parts and an every-year time framefor others. It includes the planning component, fre-quency of plan development, the time frame within

Exhibit G74ooperative C’s planning unit budget-ing process components

1. Operating year statement2. Sales volume and expenses3. Balance sheet4. Fluctuation analysis

which plans are completed, the time period thatplans cover, and the personnel involved in devel-oping the key planning components (exhibit C-8).

COOPERATIVE D-DIVERSIFIEDMARKETING AND FARM SUPPLY

Cooperative D is a diversified marketing andpurchasing cooperative. Its strategic planning wasformalized in the early 1970’s and has evolved intothe present system. Strategic plans cover a 5-yearperiod and are updated annually. They correspondto the present marketing year and 4 subsequentyears.

Cooperative D’s organizational business struc-ture includes divisions and groups, and sub-sidiaries, each having business units. CooperativeD has a corporate planning department, essentiallyone person, to facilitate strategic planning. The cor-porate planner, who has other job responsibilitiesin the cooperative, guides the strategic planningprocess, organizing the process, providing econom-ic analysis, assisting business units in their strate-gic planning, and consolidating business unitstrategic plans into the corporate strategic plan.

Cooperative D’s board of directors is indirect-ly involved in strategic planning through discus-sion with top management. The board providesgeneral strategic direction. The board sees strategicplan summaries but not all of the detailed strategicplans.

Cooperative D uses a multiple committee sys-tem for strategic planning review, enhancement,and regulation. Top executives and the controllerserve as the strategic planning review committee,reviewing, enhancing, critiquing, and approving

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Exhibit CX-Cooperative c’s strategic planning cycle

Planning component

Cycleattribute

Business unit Long-rangeCorporate Business group operating and financialstrategic plan strategic plans marketing plans summaries Budgets

Frequency everyodd year

everyeven year

everyeven year

everyyear

everyyear

Time frame August Sept to Nov Dee to Jan Feb to May May

Period covered 5 years 5 years 5 years 5 years 1 year

Personnel involved:

Plandevelopment CEO and Business group

board of vice presidentdirectors and assignedtask forces staff

Planapproval Board of

directorsCEO, board Business group Business group Businessexecutive vice president vice president, group viceand planning CEO, and president,committee, and board of CEO, andboard of directors directors board of

directors

Assignedtask forcesstaff

Business unitand controllercontroller

Businessunit and

21

plans. Four-member overview subcommittees areassigned to specific business groups, with three ofthe members coming from areas outside the busi-ness unit to which they are assigned. These sub-committees regulate group and business unitstrategic plans by monitoring and evaluating theeffectiveness of developed objectives and strategy

Strategic planning in Cooperative D involvesa six-step process (exhibit D-l and fig. 6).

Business Unit Strategic Planning

A guide for updating strategic plans is givento business units early in Cooperative D’s planningcycle. The guide, distributed in December orJanuary, includes corporate definitions, descrip-tions, and explanations of significant strategicplanning components (exhibit D-2). Business unitsgenerally follow the guidelines but have the flexi-

Exhibit D-l-Cooperative D’s strategic planningprocess

1.

2.

3.

4.

5.

6.

Preparation of preliminary business unitstrategic plans.

Presentation of consolidated preliminaryplans to the Strategic Planning ReviewCommittee for critique and suggestions forrevision.

Submission of final business unit plans tothe Corporate Planning Department for con-solidation into the corporate strategic plan.

Submission of final updated plans to strate-gic overview subcommittees.

Presentation of the cooperative’s financialstrategy to Strategic Planning ReviewCommittee.

Presentation of reports from each strategicoverview subcommittee to the StrategicReview Committee.

Exhibit D-S-Cooperative D’s strategic planningcomponents

1. Mission statement

2. Industry conditions and outlook

A. Current conditions

B. Assumptions and projected conditions

3. Capital investment requirements

A. Desirable capital expenditures

B. Essential capital expenditures

C. Annual depreciation

4. Cooperative human resource conditions

A. Strengths and weaknesses

B. Organizational structure

1. Lines of authority

2. Lines of responsibility

C. Personnel requirements

1. Additional personnel needed

2. Replacement personnel anticipated

5. Competitive position

A. Major product market share trends

B. Major competitors

1. Whom

2. Strengths and weaknesses

C. Major markets and customers served

6. Objectives and strategies

7. Financial performance goals

A. Average for past 3 years

B. Projections for next 5 years

8. Action plans for strategy implementation

A. Steps to be taken

B. Human resources assigned

C. Completion dates

D. Results achieved

22

Figure 6-Cooperative D’s Strategic Planning

Business Unit Strategic Planning

Business Unit Strategic PlanPresentations

Business Unit Strategic PlanFinalization

Financial Strategy Development

Strategic Planning Reports

1IFeedback

23

bility to update and develop their individual plansas they wish. However, this report discusses thecomponents contained in Cooperative D’s strategicplanning model.

To keep business unit strategic planning consis-tent, Cooperative D’s corporate planner providesplanning forms to business units. Forms are availableto document capital investment requirements; ana-lyze competitive position; list objectives and strate-gies; complete past, budgetary, and projected finan-cial performance goals; and develop action plans.

Mission Mission statements specify the overallpurpose of the business units. Each business unithas a mission statement. Business units use theircurrent mission statement or modify it contingenton changes in their operational functions and/orpurpose.

Industry Conditions and Outlook Industryconditions and outlook summarizes the currentsituation and projected conditions for theindustries in which the business units are involved.

Capita/ lnwestment Requirements Businessunits document capital investments that are, or willbe, required over the planning horizon. Unitsprovide specific data for three major areas: (1)essential capital expenditures, (2) desirable capitalexpenditures, and (3) annual depreciation. Anarrative description of the required capitalinvestments accompanies financial estimates in thisportion of the plan.

Essential capital expenditures are funds suffi-cient to maintain facilities and equipment in mini-mal operating condition. Desirable capital expendi-tures would maintain facilities and equipment ingood condition and fund the additions necessary toreach 5-year planning objectives.

Human Resources Business units identifypersonnel strengths and weaknesses for eachfunctional area within their unit. This exerciseprovides an overall assessment of the personnelsituation and identifies areas for improvement. An

organizational chart in this analysis shows lines ofauthority for business unit operations.

Business units summarize anticipated addi-tional or replacement personnel needed for the 5-year period, explaining the reasons for changes.

COmpetitlve Position Business units assess theircompetitive position in the marketplace, including:(a) market share of major products, (b) majorcompetitors and their strengths and weaknesses,and (c) major markets and customers served.

The business unit’s market share for eachmajor product is determined for the past 3 years sotrends can be observed. Cooperative D’s corporateplanner helps business units identify their majorcompetitors’ strengths and weaknesses.

In defining major markets and customers,business units determine who is purchasing a sig-nificant portion of the unit’s total sales for a prod-uct and who, if that business were lost, could havea significant impact on unit operations.

Objectives and Strategies Objectives are concisegoals business units would like to accomplish.Objectives are presented in measurable terms withan indication of expected results. A strategy isdeveloped for each objective. Both objectives andstrategies carry interim and completion dates soprogress can be monitored.

Financial Performance Goals Business unitsdevelop financial performance goals for each yearof the 5-year planning period. These goals arebased on the most likely expectations of financialperformance. For comparison and future reference,average financial performance measures aredeveloped for the past 3 years of operations.

Action Plans Business unit managementdevelops action plans to implement strategies foreach objective. Plans list steps to be taken,management personnel responsible forimplementing the steps, staff personnel assigned tothe steps, intended completion date, and, after

24

implementation, the date of the completed actionplan and the results achieved.

Business Unit Strategic Plan Presentations

Business units present their strategic plans tothe review committee usually in March. At thistime, the committee critiques the plans, includingoffering suggestions for improvement. The busi-ness unit then incorporates review committee com-ments and produces its final plan within 2 weeks.The plan then goes to the corporate planner whocondenses all business unit plans into the corporatestrategic plan.

In this consolidation process, the corporateplanner summarizes each business unit’s financialperformance goals, objectives, and strategies.

Financial Strategy

Cooperative D’s financial division produces acorporate financial strategy from the completedcorporate strategic plan, business group plans, andbusiness unit strategic plans. This strategy is pre-sented to the strategic planning review committeeusually in May. Financial performance criteria inthe strategy show the overall financial directionCooperative D will follow.

Strategic Overview Subcommittee Activities

Final business unit strategic plans go to strate-gic overview subcommittees. As indicated previ-ously, each business unit reports to a strategicoverview subcommittee. The subcommittees pro-vide regulatory functions-reviewing, monitoring,and evaluating-through the rest of the year, usual-ly May through November.

Subcommittees use regulatory guidelinesdeveloped by the corporate planner. These guide-lines help facilitate subcommittee activities andprovide a common format.

Strategic Overview SubcommitteeReports-Feedback

Strategic overview subcommittees report onthe progress business units make toward theirobjectives and strategies to the strategic planningreview committee. Subcommittees developprogress reports containing five sections: (1) trans-mittal, (2) executive summary, (3) objective andstrategy review, (4) recommendations, and (5) sup-porting data.

The transmittal section documents the namesof subcommittee members and identifies the busi-ness unit reviewed. The executive summary sectiondescribes the approach the subcommittee used toreview business unit achievements relative toobjectives and strategies, the quality of the objec-tives and strategies, and financial performance.

Objective and strategy review includes aninterpretation from the subcommittee on the statusand rating of each objective and correspondingstrategy. The status indicates progress made inimplementing strategies according to plan datesand reaching associated objectives. Status guide-lines include: (1) completed, (2) ahead, (3) onschedule, (4) behind, and (5) no progress.

The subcommittee gives an “effectiveness”rating on objectives and associated strategies. Therating system is somewhat subjective; subcommit-tees must make an interpretive judgment on resultsachieved. However, in cases where objectives havedefinitive measures, ratings become more objective.Ratings commonly are stated as: (1) excellent, (2)good, (3) fair, (4) poor, and (5) not rated.

Subcommittee recommendations for improv-ing existing objectives and strategies or for devel-oping new objectives and strategies make up thefourth section of the report. The fifth sectionincludes any supporting information and/or datathe subcommittee feels are important to the strate-gic direction of the business unit.

The strategic overview subcommittees devel-op their reports over a period of months as strate-gies are implemented to reach business unit objec-tives. These reports are an essential element ofstrategic planning feedback in Cooperative D.Subcommittee reports are presented to the strategic

planning review committee and the appropriatebusiness unit manager in December.

SUMMARY AND COMPARISON

The four agricultural cooperatives have inte-grated comprehensive strategic planning systemsinto their organizational structures. These systemswere not just applied from a guide book, but weredeveloped and modified as the cooperativeschanged and grew over the years. What evolvedare complex, efficient, results-oriented systems.

All four cooperatives use a 5-year planninghorizon, although their planning cycles are notidentical. Cooperatives A, B, and D go throughtheir complete strategic planning system everyyear while Cooperative C uses an every-other-yearalternating routine for some of its planning com-ponents and an annual routine for others.However, it is important to note that all four coop-eratives are continually involved in some facet ofstrategic planning.

The cooperatives take a bottom-up approachto strategic planning by using line business man-agement and personnel in their strategic thinkingand planning systems. However, top-down direc-tion also comes from corporate developed plan-ning guides. Cooperatives A, B, and C also pro-vide further corporate direction-Cooperative Awith overall corporate vision, Cooperative B withdirectional communication from its CEO, andCooperative C with the development of aCorporate Strategic Plan.

Although they use different terminology, allfour cooperatives view assessing the businessenvironment as a critical component of strategicplanning. Assessments are made on an internaland external basis, taking into consideration thecooperative’s operations and performance, and itsposition relative to the marketplace and competi-tion.

Cooperatives A, C, and D emphasize financialdata-estimates, projections, and performancemeasures-in their strategic plans. WhileCooperative B often uses data in its detailed strate-gic plans, doing so is at the discretion of businessunit management.

All of the cooperatives use action or imple-mentation plans/programs to carry out and moni-tor developed strategies.

The boards of directors of the four coopera-tives take part in strategic planning in essentiallythe same manner-in more of an advisory andapproval role. Cooperative A has a board planningretreat where the long-range strategic plan is pre-sented to the board and major strategic issues areexamined and discussed. Cooperative B’s board iskept abreast of plans through presentations frombusiness unit vice presidents on approved plansand from the planning director’s report on specificobjective progress. The board of Cooperative B getsmore involved only when strategic planning thatpoints to directional change is included in plans. InCooperative C, the board is mainly involved inplanning as it relates to the corporate strategicplan; it assists in some development, as well asapproval, and it also reviews business strategicplans. In Cooperative D, the board reviews strate-gic plans, but only in summary form.

Cooperatives A and C include retreats in theirstrategic planning-Cooperative A, a president’sretreat and board planning retreat, andCooperative C, a retreat-type meeting (for plan pre-sentation to the board executive and planning com-mittee). Cooperatives B and D do not appear to setup any formal corporate retreat strictly for plan-ning purposes. However, business unit managersin Cooperative B are free to organize retreats fortheir respective units if they wish.

Cooperatives A and C get planning feedbackfrom an ongoing financial analysis of strategy per-formance. On the other hand, Cooperative B uses areport feedback system to evaluate its specificobjectives and a planning audit to correct for inad-equate or inefficient planning, and Cooperative Duses strategic overview subcommittees to developreports corresponding to the progress that businessunits make relative to objectives and strategies.

The methodology followed for strategic plan-ning in the four cited cooperatives is basically simi-lar-developing a mission statement, assessing thebusiness environment, developing goals and/orobjectives, designing strategies to meet objectives,carrying out implementation programs, and gain-

26

ing feedback. The cooperatives’ differences in ter-minology and methodological order of planningcomponents seem to have evolved largely depen-dent on the personalities and business philosophiesof their management personnel. Cooperative C’ssystem should be noted as being somewhat atypi-cal. Cooperative C’s distinctive method of strategicplanning, whereby it identifies a strategic effortfrom a product life cycle curve for business units toplan and operate from, relates to the primary busi-ness characteristic of the cooperative-selling farminputs.

CONCLUSIONS

Methods of strategic planning by large farmercooperatives have undergone important changesover the past lo-15 years. In the past, many cooper-atives had rather large complex planning depart-ments made up of personnel whose primaryresponsibilities were tied to planning. This was notfound to be the case in this research. Current sys-tems show that planning responsibilities are dele-gated to different levels of management in whichthe managers have many other responsibilities aswell. This is important evidence that strategic plan-ning is interwoven into management.

It is clear that the four cooperatives spend agreat deal of time and effort on strategic planning.The strategic planning concepts, methods, andthinking implemented by these cooperatives pro-vide an organized means for developing andachieving objectives.

While smaller cooperatives may lack theresources to undertake an extensive planning pro-cess, it is clear that many of the principles andpractices of strategic planning are relevant at thatlevel as well. For example, although many smallerscale cooperatives may not be organized into busi-ness groups or units or have the resources toundertake planning on a divisional basis, they canuse the strategic planning methodologies of busi-ness units by applying them to their complete orga-nizations. Methods for analyzing the environmentand market position, tracking strategies throughfinancial analysis, and feedback and strategy exam-ination are strategic planning concepts smaller

cooperatives could use. In some instances, theboard of directors in small cooperatives would like-ly need to take a more active role in the actualdevelopment and negotiating phases of strategicplanning, rather than just review and approve.While strategic planning is an important manage-ment concept that is gaining in use, the agriculturalbusiness environment imposes limitations. Manyagricultural cooperatives operate on relatively lowmargins that limit resources. So cooperatives mustbe efficient in all modes of their operations, includ-ing strategic planning. Therefore, the challenge isto develop strategic planning systems that are notonly comprehensive and action-oriented, but thathave characteristics that allow them to be efficient-ly implemented into distinctive organizational andoperational structures.

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U.S. Department of AgricultureAgricultural Cooperative Service

P.O. Box 96576Washington, D.C. 20090-6576

Agricultural Cooperative Service (ACS) provides research, management, andeducational assistance to cooperatives to strengthen the economic position offarmers and other rural residents. It works directly with cooperative leaders andFederal and State agencies to improve organization, leadership, and operationof cooperatives and to give guidance to further development.

The agency (1 ) helps farmers and other rural residents develop cooperatives toobtain supplies and services at lower cost and to get better prices for productsthey sell; (2) advises rural residents on developing existing resources throughcooperative action to enhance rural living; (3) helps cooperatives improveservices and operating efficiency; (4) informs members, directors, employees,and the public on how cooperatives work and benefit their members and theircommunities; and (5) encourages international cooperative programs.

ACS publishes research and educational materials and issues FarmerCooperatives magazine. All programs and activities are conducted on anondiscriminatory basis, without regard to race, creed, color, sex, age, maritalstatus, handicap, or national origin.