April 25, 2016

Consolidations are making big waves in the industry. What’s your next move?

By Barney Bernstein, Senior Associate, Entira

Another year, another wave of consolidation announcements in the ag industry. And as the deals keep getting bigger, the playing field keeps contracting, causing companies to speculate about what it means to them.

Consolidation is happening at all levels of the industry—majors, generics, retail, distribution, you name it—and it’s inherent in the way our industry is structured that when one deal goes down it inspires reactions both horizontally and vertically on the chain.

The impending Dow-DuPont and Syngenta-ChemChina consolidations have us all waiting for the moves to rattle the industry, with everyone wondering what the scene will look like when the dust settles. What actions will competitors take in response to these changes? How about further down the chain—will it lead to more consolidation at the distribution level? Will there be changes at the production level? Tack these changes onto meager commodity prices, and it could motivate older growers who have hung around through recent high times to start thinking it’s time to slow down or retire.

These industry-rocking consolidations and their ensuing ramifications stir up a natural response to go on the defense. The knee-jerk reaction by companies that feel they are under attack is to retaliate with a drastic move of their own—they may scramble to implement massive change inside their own business with wide-scale cost-cutting measures, or they may try following suit by pursuing their own acquisition.

When the dominoes are coming down, reacting too quickly is usually the worst thing you can do for your business. The best way to avoid getting clobbered in the domino effect is to step aside and think strategically about your best next move.

Take this scenario, for instance: All of these industry moves are about tightening operations with cost savings and synergies. One of the natural inclinations competitors have while developing a next-step strategy is to look at the older population of the workforce—the hefty price tag of keeping these long tenured staff makes them an appealing prospect for expense control. But does the cost of losing that brain trust really make it worthwhile?

Companies feeling pressure to take action have to consider more than just the low-hanging fruit, because what may seem the most obvious may not be the smartest option. In the example of promoting an early retirement option, before making such decisions, it’s imperative to evaluate the cost of doing business vs. the experience that would walk out the door with a mass departure of the elders in the organization. As the competitive landscape takes on new life form, can you afford to lose those who have the most extensive knowledge of the company, the ones with the deepest relationships outside the organization, and the ones who are best situated to mentor those who receive the torch?

And speaking of those who remain with the organization—they certainly have vastly different characteristics than the more experienced generation, but to what degree exactly? And, how would that change the dynamic and culture of your business? These are all important factors to determine before making decisions that drastically impact the composition of your workforce.

The bottom line is you must resist the overwhelming urge to react quickly, which could so easily result in a flawed strategy. Hit the pause button and take a close look at your own market, and it can ultimately lead you to smarter, more innovative business decisions.

Think about how valuable and compelling it would be to understand the true value and untapped potential of your market. This is the insight you need to evaluate how effectively you’re structured internally. Entira can help get there through our tried and true discovery process encompassing quantitative and qualitative research. As Mike Karst explained in the previous article, Entira is helping companies look at their strategic moves through a new filter to help shed light on how to best manage through change. With our proprietary databases, models and insight, we can show companies a more detailed view than ever before of the growth opportunities within each of their individual markets. What we often find is that our in-depth analysis sheds light on options never considered. For companies concerned about resource allocation as the industry takes on a new shape, there could be tremendous payoff to analyzing the positioning of personnel.

One thing’s for certain, those of us in agriculture will never NOT be working in a dynamic environment. Be sure to pause and reflect on the best strategy for your business before you’re swept up in all the change. If you would like more information about how Entira can help you uncover opportunities for growth you didn’t see before, contact us at info@entira.net.