How some FPC balloons can become durable high flyers – IV

I have so far looked at issues of FPC – member relationships, managing with scant capital and interfacing with the market, and offered some suggestions in each respect. In this note, I deal with internal management of the FPC, in particular, acquisition, orientation, motivation and management of human resources.

In my first note on this subject I had noted that for a farmer producer company (FPC) to establish and grow from strength to strength, someone has to assume the role of an entrepreneur. READ: How some FPC balloons can become durable high flyers – I

I have no doubt that anyone who strives to help the poor and distressed farmers earn extra income and improve their economic position for a better life for them and their children is doing a very noble task. He must have an extraordinary motivation to overcome the normal self-interest for material well-being for self and family and work for the poor.

I have huge personal regard for such individuals and have always strived to help them in whatever way I can. However, all the managers and staff are also social beings with normal life to lead and the question is, to what extent they can do so working in an FPC.

FPC ownership

The ownership is by a large number of farmers. The FPC has the mandate to provide economic services connected with the produce of the farmers on sound commercial lines. It is a for-profit entity. However, it is a member-oriented firm whose “main” purpose is a provision of requisite services to producers and the profits are only subsidiary, additional gains.

If the person taking up the entrepreneurial role is also a producer of the commodity, he stands to gain from the work of the FPC like other producers to the extent of his farm produce contributes to the business of the FPC. If the person taking the entrepreneurial role is not among the producers, a more typical case, then he has no corresponding gain and he earns only his salary.

I am not sure if any FPC has yet offered an incentive directly related to business volume (say 0.5% of turnover) and gross margins (say 1% of gross profit) to its CEO and whether such a thing would contravene any law or rule.

Thus the person assuming the entrepreneurial role has no direct, ethical and fully above-board financial incentive in making the FPC grow and become strong. This is sharp to be contrasted with investor-oriented firms where the entrepreneur has a huge financial incentive in making his enterprise vibrant.

Lack of staff incentive

So far as the staff of FPC is concerned, they work for a salary. Some of them could have a performance-related incentive and some could be working on a pure piece-rate basis and thus have a stake in the business volume, but these staff members typically work at relatively lower levels in the staff hierarchy.

It needs to be noted that most FPCs working in input supply related to cultivation of farm produce and its marketing, do so in businesses that have thin trading margins. Only a few fortunate enough to have large donor support can establish elaborate processing plants that then help them improve gross margins.

Both the types are fully exposed to high market price fluctuation and hence risks. Furthermore, operating centers of most of these enterprises are in provincial or rural areas. Living conditions in such areas even as of now leave much to be desired.

In effect, one expects the staff to work on such salaries as are feasible within the thin gross business margins, most often without any performance-linked incentives and in living conditions prevalent in villages or small towns.  

Types of FPC staff

Let us now turn to the required skill sets of the staff. I will look at three types of staff. The first type has an extensive interface with membership: they mobilize the producers, organize them into small groups at the village level, engage in advisory and extension work, engage in logistic operations pertaining to the input supply.

Such type of staff also need to help the FPC mobilize member capital and continuing equity contributions; they need to engage with members when the latter have grievances, sort out conflicts among members and so on.

The second type of staff perform the accounting, financial and administrative functions: they work in offices on computers or ledgers. They go to banks, book vehicles, follow up on deliveries, receive and oversee stocks of goods. They may undertake stock audit, and deal with officials of such regulators as become relevant.

So far as their work is concerned, they could be working with any other commercial firm that buys and sells stuff. Finally, there is the type which engages in marketing the output. They constantly compete with other market players.

Varying responsibilities

For those engaging with state procurement agencies, the staff needs to be adversarial all the time to officials of the state procurement agencies long used to manipulating weighment and quality reports for illicit gratification.

Those selling to market operators need to be on guard against manipulations by the nimble and smart market player as also guard their own reputation since charges that they sold their soul and cheated the producers are all too easy to bandy about.

Finally those who have to sell their produce in retail market are competing with multiple other sellers offering the same or similar produce at terms that are possibly far more advantageous to retailers and distributors.

The content of work and constant worries differ across the three categories. And then we have the top management comprising men and women who have assumed surrogate entrepreneurship without the incentive.

Hierarchy and attrition

My observation is that while the staff in the first category have huge acceptance, affection and respect among the producer community, they are in a no-return street. To start with, they are the sheet anchors of the FPC and pull a lot of weight within the internal team.

As the FPC grows and marketing, processing and sound financial management functions start becoming more critical to its functioning, they see their relative importance within the organization declining. Unless one re-trains them and redeploys them, they burn out, at times becoming cynical and counterproductive.

The second category of staff acquire organizational importance over time and are often considered busybodies who only issue unrealistic orders without seeing field realities while they themselves sit in comfortable offices. They also are the ones whose skills are more wanted elsewhere and can find positions in other organizations once they have long enough experience.

The third category usually sees a large staff turnover particularly if the FPC is engaged in retail marketing. They need to be overseen carefully since they deal with money. They also acquire retail marketing skills that can be applied elsewhere. Since new marketers of a wide range of products continuously look for fresh manpower to man their retail sales network, there is a lot of demand for them and they migrate.

Management’s challenges

And what about the top management? Professional management personnel carry the burden of entrepreneurship of the FPC without compensation. Most FPCs like to claim that eventually, they would like the producers themselves to manage their companies, which means they will acquire the skills of managing a commodity business in an intensely competitive world with the additional complexity of satisfying the dual expectation of service and profits by a membership that may be fissiparous due to social and economic stratification.

As Verghese Kurien, the man behind the White Revolution in India, said, the task of the top management is to train the producers to be good masters and then to serve them. The unfortunate part is that noble though the task of running an FPC successfully is, the good deeds of the top management and the dedicated workers will help them only in the next world.

The argument that producers themselves are poorer than them does not hold water when they are confronted with existential problems of managing their lives. They cannot pay their children’s fees of an engineering college with the immense goodwill of the producers. They need hard cash for it.

And FPC is always under tremendous pressure to increase member benefits by keeping all overheads low. Is there any surprise that you have only one Kurien among a million men born? And hence is there any surprise that only a handful FPCs out of thousands floated in the past decade show any sign of maturity and stability?

The to do list in this respect is:

• Plan for a staff cost budget of an order which will enable the FPC to acquire and retain high quality talent that is both motivated, willing to stay and is competent to deal with the risk, travails and tribulations of running a nascent FPC; and willing to stay in places without the amenities they are used to or aspire for.
• Devise mechanisms to introduce an element of financial incentive linked in the first place to volume of business done by the FPC and at a secondary level with the gross margins fetched. This incentive should be applied to all those whose compensation package is not piece rated.
• Keep constantly drilling into the minds of the board of the FPC (comprising producer representatives) that it is absolutely vital to encourage and retain the existing staff and that their well-being is as important to the proper running of the FPC as the well-being of members.
• Introduce constant team building exercises for teams comprising the board members and the top management so that they develop a deep personal rapport and understanding of each other’s human concerns.
• While constant reminders of the larger purpose of the FPC is essential for the staff to enable them to derive meaning in their job, the FPC must remain sensitive to their changing needs in their life cycle and should create adequate insurance provisions and a general purpose employee benefit fund to cater to emergencies and sudden large fund needs of the staff.

Never to do:

• FPC must resist the temptation to hire sons of the soil for positions that deal with critical action areas.
• FPC must try and ensure that sons of the soil hired never work in their own village or communities lest they engage in partisan behavior arising out of their caste or social affiliations.

Sanjiv Phansalkar is associated closely with Transform Rural India Foundation. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad. Views are personal.