Common mistakes decision makers make in Agribusiness Enterprises

Vijay Sardana

It is observed that some issues are impacting many agro-processing companies growth plan in India and aboard. The purpose of the article is to highlight the common mistakes response for poor performance of agri-food companies. After careful analysis, these are documented for the benefit of agro-processing managers.

The following issues should be taken up by the mangers to solve various problems faced by the organization either in market place or at factory level. These also summarize the major considerations the project managers should examine while developing the agro-processing project or reviewing the performance of existing agro-processing units.

Lack of ability to learn from past mistakes.

     Promoters or managers or decision makers in business world genarally prefer to defend their decisions instead of accepting that they may have made mistakes. Let us be open and analyze why we are going wrong. It will benefit everyone in the organization but this is the least common phenomenon in the business world today because of competitive corporate culture. It is high time we should shift from “competitive corporate culture” to “collaborative corporate culture.” All decision makers must appreciate that we are not gods; we can make mistakes. The only thing, which is required, is the courage to accept that, “I may have made the mistake, let us identify, why it has happened and what should be the remedy before it is too late.”

Lack of processing technology know-how consistent with the qualitative requirements of the marketplace?

     Based on the discussion with various decision makers, the following are the common observations:
       Very often this decision is based on capital cost of the technology only. Most of the agro-processing companies take decision based on cost consideration or sometimes “other” considerations that are detrimental to the business itself.
       Very few promoters take interest in learning about the technology options, which are beyond cost.
       In many cases, unfair trade practices of managers were responsible for selection of a particular technology. In such cases, promoters were only concerned about the cost of machines. They were only interested in cheapest equipment at any cost.

Lack of understanding of qualitative standards of market segments

     Most of the promoters of struggling companies have no idea about the quality issues in the products, which they are planning to start. The only criterion, it seems, is to look around and find out what is selling and just copy that and start the business. They get hold of any mechanic-cum-consultant that can assemble the equipments to start the business.

Lack of understanding about processing and operating cost and its implication on product

     The food business is energy intensive activity. In the era of rising fuel prices, lack of knowledge about operating cost and its implication on profitability can lead to high cost of production and industrial sickness.

Lack of resources to address the changing market needs

Most of the promoters do not analyze the incremental revenue versus added technological investment, technology appropriate for local and export markets and constraints process requirements impose on the changing business needs. Very often managers assume that consumers will always go for cheap and standard product. They forget that the consumers are dynamic in behaviour. They will change for better product after evaluating cost-benefit analysis.

Lack of comparative analysis of available technologies

     There is a need to understand the nature of requirements for the technologies, products and markets. Very few promoters evaluate available number of technological options in holistic manner. Which technology has the lowest socio-economic costs is not a criterion.

Lack of proper mix of labour and capital

     Very often cheap option is the only criteria. Promoters and managers should also keep in mind the cost of reprocessing, damages and wastages while selecting capital equipment and labour. Market returns and slow movement of products from retail shelf are very expensive for the companies. If precision is important dependence on labour should be minimum because labour is tend to make mistake in monotonous routine jobs.

Lack of focus on conservation of energy, water and labour

     Very often the factory layout is so bad that it needs extra manpower, supervisors, power and water to run the operations. Unnecessary walls, enclosures and fixtures add to problems.

Lack of understanding about appropriate technology for the given operation

     Raw material usage, energy requirements, alternate energy sources, by-product utilization, warehousing infrastructure, etc are vital consideration for a seasonal industry. Most of the agro-projects do not calculate by-product utilization strategy for the benefit of the project. They either waste the byproducts or sell valuable byproduct at a low cost to any other sub-optimal use. It is a national loss as well.

Unreasonable capacity planning by the promoters and over-estimation of the market

     Many promoters invest heavily on civil structure and non-productive assets because of various considerations. When it comes to evaluating cost implication, accounts department load all these overheads on the products and force the marketing team to sell the product at a price not acceptable by the buyers.
     In they are not able to sell the products due to high cost and bad positioning, instead of solving the accounting problem they start compromising on quality and other performance parameters and create mess for the whole organization and end of the day suffer financially. This leads to closure of the factory.

Souring of improper human resource and skills because it is cheap

     I always ask this question to promoters, “when you are sick which doctor you will prefer – doctor who is well skilled but expensive or doctor who is cheap”. Or “when you need legal opinion which lawyer you will prefer –skilled or cheap”. The answer is well skilled. The same is true in human resource requirement for factories or for managing supply chains. Promoters often try to justify why they go for cheap human resource. They hardly realize that managerial and technical skills help introducing cost of operation in factory.
     Lack of proper human resource is also responsible for delay in responding to the changing market needs.
     Promoters must appreciate that man behind the machine is more important than the machine itself because he will decide how machine should be run and not the other way round.

When other than sensible business considerations takeover the decision making process, organizations suffer

     It is a very common phenomenon in India. Small and medium enterprises, due to free money inducement of government subsidies or schemes, often fall in the trap very often. Any support to entrepreneurs should be based on ground reality and not linked to policy management tools.
     Is there any analysis, which can indicate that these policies in fact benefited the society at large?
     These policies, it seems, are products of certain hypotheses based on the views of the advisors driven by their own business motives. They make the policy paper and move on and leave the crisis for someone else to handle. Even repeated non-performance of various schemes do not bring of wrong approach, or assessment or criteria, etc .
     It is advised to promoters to do their own homework without any carrot and stick of government. If they feel they can do the project and run it without governmental support only then they should enter that business otherwise they will always remain at the mercy of someone else to run the business.

Interference by external factors

     Sometimes bankers force promoters to change the project and its technology just because the sanctioning authority does not like the project. They do not provide any better alternate but insist on change for the purpose giving loan. This forces the promoter to go for suboptimal technology to get loan or plan and which is detrimental to the project.

Lack of hand holding and technical support.

     There is hardly any support service, which is available to the small and medium companies from any institute. Most of the institutes are running their facilities as per government rule book, which are often far away from ground realities. It is not surprised that majority of the small and medium companies do not visit technical institutes for any help or support. Applied science and technology institutes’ performance must be evaluated based on their contribution to the number of enterprises serviced.

Lack of incentives to support innovations.

     Food laws and tax policies do not support innovation in market place. Absence of flexibility in polices to meet the changing market needs acts like a roadblock in growths.

      It is concluded that there is a need to have open-minded collaborative approach between various stakeholders to solve these issues in the interest of entrepreneurship, consumers and nation building. 




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