Tactical decisions, on the other hand, are more about doing things right than doing the right things. These are usually daily or frequent decisions, like ration changes or forage harvest timing.
Therefore, while tactical decisions are essential to your business, you also need to focus on your strategic decisions because that’s where you take your skills from tasks to knowledge.
The well-known economist and business-management expert, Peter Drucker, realized the emerging importance of knowledge in business and society decades ago. Drucker noted that “the emerging reality of the 21st century will be that those businesses which are organized around knowledge, rather than tasks, will have the opportunity to create wealth.”
There is no silver bullet, but business success is achieved through continuous improvement that keeps the best performers ahead of the pack, says Matthew Oesch, associate business consultant at Lookout Ridge Consulting.
“Our experience has shown that a key trait of excellence is the courage to confront brutal facts and change course if necessary,” he says. “Comparatively, less-than-spectacular performance often results from failing to acknowledge changing market circumstances or internal business weaknesses. The key is being a student of your industry and your business, and be willing to adjust when exposed to new information.”
Think about what drives the daily and long-term decisions of your business in that context. “Is the driver tasks or knowledge?” Hilty asks. “If it is the former, perhaps it is time to change. Knowledge is the premier input of your dair business. If you come to that realization, you just might have an opportunity to create wealth.”
3 profitability drivers
One of your main goals when assuming a business-like attitude is to make sure you’re meeting profitability objectives.
That means you need a good understanding of the three drivers of profitability:
- Margins — how much revenues exceed cost. Keep track of margin per hundredweight of milk, for example.
- Asset utilization — also known as asset turnover, this is the number or sales per dollar of assets you generate.
- Financing — determine your cost for borrowed money. Can you repay loans and other debts based on your profit margin, market volatility and interest rates?
You can be profitable according to your tax return or according to your income statement, but unless you’re generating enough income and revenue to reward yourself for the resource contributions that you are making to the business, you may not have created value, says Mike Boehlje, agricultural economist at Purdue University.