2-47 Strategic Positioning: Fowlers Farm is a 1,000-acre dairy and tobacco farm located in southern Virginia. Jack Fowler, the owner, has been farming since 1982. He initially purchased 235 acres and has made the following purchases since then: 300 acres in 1985, 150 acres in 1988, dairy equipment and buildings worth $350,000 in 1988, and 315 acres in 1998. The cost of farmland has inflated over the years so that, although Jack has a total investment of $1,850,000, the lands current market value is $2,650,000. The current net book value of his buildings and equipment is $300,000, with an estimated replacement cost of $1,250,000. Current price pressures on farm commodities have affected Fowlers Farm as well as others across the country. Jack has watched as many of his neighbors either have quit farming or have been consolidated into larger, more profitable farms.

Fowlers Farm consists of three different operating segments: dairy farming, tobacco, and corn and other crops intended for livestock feed. The dairy farm consists of 198 milk-producing cows that are grazed on 250 acres of farmland. The crop farm consists of the remaining acreage that covers several types of terrain and has several types of soil. Some of the land is high and hilly, some of it is low and claylike, and the rest is humus-rich soil. Jack determines the fertilizer mix for the type of soil and type of crop to be planted by rules of thumb based on his experience.

The farm equipment used consists of automated milking equipment, six tractors, two tandem-axle grain bed trucks, and numerous discs, plows, wagons, and assorted tractor and hand tools. The farm has three equipment storage barns, an equipment maintenance shed, and a 90,000-bushel grain elevator/drier. The equipment and buildings have an estimated market value of $1,500,000.

Jack employs five full-time farmhands, a mechanic, and a bookkeeper and has contracted part-time accounting/tax assistance with a local CPA. All employees are salaried; the farmhands and the bookkeeper make $25,000 a year, and the mechanic makes $32,000 annually. The CPA contract costs $15,000 a year.

In the most recent year, the farm produced 256,000 gallons of raw milk, 23,000 bushels of tobacco, and 75,300 bushels of corn. Jack sells the tobacco by contract and auction at the end of the harvest. The revenue this year was $1,345,000, providing Jack a net income after taxes of $233,500.

Jacks daughter Kelly has just returned from college. She knows that the farm is a good business but believes that the use of proper operating procedures and cost management systems could increase profitability and improve efficiency, allowing her father to have more leisure time. She also knows that her father has always run the farm from his experience and rules of thumb and is wary of scientific concepts and management principles. For example, he has little understanding of the accounting procedures of the farm, has not participated in the process, and has adopted few, if any, methods to maintain control over inventories and equipment. He has trusted his employees to maintain the farm appropriately without using any accounting or operating procedures over inventories or equipment, preventive maintenance schedules, or scientific application of crop rotation or livestock management.

Required

1. What is the competitive strategy for Fowler's Farm?

a. Differentiation because of innovation in the farming industry.

b. Differentiation because of unique products at Fowlers Farm

c. Cost leadership because of increased competition

d. Cost leadership because of cost pressures in the industry

2. Explain briefly your choice for the competitive strategy for Fowler's Farm in requirement 1.

3. Develop a balanced scorecard with three or more groups of CSFs for Fowler's Farm. Explain your choice of groups and identify four to five CSFs in each group. Make sure that your CSFs are quantitative and can be measured.

The question above is in Cost management: A strategic Emphasis. Chapter 2