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Strategic Business Planning for Commercial Producers
What Tools Are Available to Generate Strategies?
Strategic Business Planning for Commercial Producers
Generating Alternative Strategies from SWOT• SWOT analysis is a tool for helping
assess the current situation for the firm.• However, we need to be able to combine
the information in the SWOT analysis in a meaningful way to generate alternative strategies that we might pursue.
• The TOWS matrix is a tool designed to match external opportunities and threats with internal strengths and weaknesses.
Strategic Business Planning for Commercial Producers
SWOT Analysis
Opportunities1.2.3.
Strengths1.2.3.
Threats1.2.3.
Weaknesses1.2.3.
Internal Environment
ExternalEnvironment
Strategic Business Planning for Commercial Producers
TOWS Matrix• Technique used in strategy
formulation for combining – External analysis
• Opportunities• Threats
– Internal analysis• Strengths• Weaknesses
Strategic Business Planning for Commercial Producers
TOWS Matrix
Weaknesses:1.2.3.
Strengths:1.2.3.
WO StrategiesTake advantage of
opportunities by overcoming weaknesses
SO StrategiesUse strengths to take advantage of opportunities
Opportunities:1.2.3.
WT StrategiesDefensive strategies
to minimize weaknesses and
avoid threats
ST StrategiesUse strengths to
avoid threats
Threats:1.2.3.
From Internal Analysis
(IFAS)
From External Analysis (EFAS)
Source: Weihrich
Strategic Business Planning for Commercial Producers
Business-Level Strategy
Strategic Business Planning for Commercial Producers
What Is Business-Level Strategy?Strategy is an integrated and coordinated set
of commitments and actions designed to exploit core competencies and gain a competitive advantage.
Business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
Strategic Business Planning for Commercial Producers
Strategic Position
Successful farms will answer a fundamental question:
• Where will my farm focus itsresources and its
passion?
Strategic Business Planning for Commercial Producers
Strategic Position• Is the way a firm goes to market.• Is the fundamental way the firm creates
value for the customer.• Is the passion of the organization.• Drives the organization’s resource
investment decisions.• Is built around the firm’s core competencies,
the firm’s primary skills and sources of competitive advantage.
Strategic Business Planning for Commercial Producers
• Example of Possible Positions in anAgricultural Production Firm
– Low-cost, bulk commodity producer– Customer-oriented specialty products
producer– Full-service, consumer-focused custom
farming operation– Efficient, partnership-focused contract
animal feeder– Technology-focused, cutting-edge animal
breeder
Positioning Options
Strategic Business Planning for Commercial Producers
Customer Focus
• Adding value for customers ultimately determines a firm’s success.
• But we need to know who the customers for our product are, what those customers needs are, and how to satisfy those customers’ needs.
Strategic Business Planning for Commercial Producers
Customer Focus– Who is about determining what segment of
customers we will serve.• Is it the broad market? Or a specific customer in our local
marketplace?
– What is about determining what the customer groups’ needs are that our products and services can satisfy.
• Is it organic GMO-free products? Is it consistent timely delivery of the product over an entire year?
– How is about exploiting our core competencies to implement value-creating strategies to satisfy our customers needs.
• How can we take advantage of what we do well to deliver our targeted customers’ needs in a way that gives us a competitive advantage with this set of customers?
Strategic Business Planning for Commercial Producers
DifferentiationCoordinationCost
Broad
Niche
MarketScope
Core Competency
Customization
DifferentiationDifferentiationCoordinationCoordinationLow-Cost
Leader
Low-Cost
Leader
Overall Strategic Orientation
Strategic Business Planning for Commercial Producers
Cost
Low-Cost
Leader
Low-Cost
Leader
Strategic OrientationDifferentiationCoordinationCost
Broad
Niche
MarketScope
Core Competency
Strategic Business Planning for Commercial Producers
Low-Cost Leader Strategy
PROFIT = $6
COST = $2
PROFIT = $5
COST = $5
INDUSTRYAVERAGE
COSTLEADERSHIP
PRICE = $10PRICE = $8
Strategic Business Planning for Commercial Producers
Low-Cost Leader StrategyActions are integrated and designed to
produce or deliver goods or services at the lowest cost, relative to that of competitors, with features that are acceptable to customers.
Firms seeking competitive advantage through this business-level strategy often sell no-frills, standardized goods and services to the industries typical customers
Successful implementation requires a consistent focus on driving costs lower, relative to competitors’ costs.
Strategic Business Planning for Commercial Producers
Characteristics of aLow-Cost Leader • Usually make investments in efficient-scale
facilities• Maintain tight cost and overhead control• Usually minimize costs in areas such as service
offerings, labor force, and R&D– Minimizing costs in the labor force is NOT giving away
management and family labor
• Typically have standardized processes, limited variety, supply chain mentality, and a frugal culture
The Value Chain for a Low Cost StrategyFirm Infrastructure – cost-effective management information systems (MIS), few managerial layers, simplified planning practices.
Human Resources: consistent policies to reduce turnover, intense focus on training employees to be efficient and multi-skilled.
Technology: Easy-to-use production technologies,investment in technology that improves production efficiencies.
Procurement: procedures to find the lowest cost inputs, frequentevaluation of suppliers’ performances.
InboundLogisticsEfficient systems to link supplier products with production processes.
OperationsUse of Economies of scale.
Construction of efficient scale facilities.
Outbound LogisticsDelivery schedule that reduces costs.
Selection of low-cost carriers.
Marketing& SalesSmall, highly trained sales force.
Products priced to generate sales volume.
ServiceEfficient qualitycontrol to reduce buyercomplaints.
MA
RG
IN
MA
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Strategic Business Planning for Commercial Producers
Low-Cost Strategy and the Five Forces
• Rivalry – can sustain low prices better than competitors
• Power of buyers – price pressure not likely to be below that of next-most-efficient competitor
• Power of suppliers – better able to absorb price increases than other competitors
• Threat of new entrants – ever improving efficiency levels to create entry barriers
• Substitutes – has more flexibility to reduce prices to thwart customers switching to substitutes
Strategic Business Planning for Commercial Producers
Low-Cost Leadership• Organization attempts to outperform
competitors by doing everything it can to produce goods or services at a lower cost than competitors
• Emphasis is on operational efficiency• May be achieved through process
innovations• Results in above average returns
Strategic Business Planning for Commercial Producers
Examples of Low Cost Leadership
• Southwest Airlines• Wal-Mart• Gateway Computers• Nucor Steel• Nissan
Strategic Business Planning for Commercial Producers
Cost Leadership
• What are some things that can help us be cost leaders in production agriculture?
Strategic Business Planning for Commercial Producers
DifferentiationCost
DifferentiationDifferentiationLow-Cost
Leader
Low-Cost
Leader
Strategic Orientation
DifferentiationCoordinationCost
Broad
Niche
MarketScope
Core Competency
Strategic Business Planning for Commercial Producers
Differentiation• Organization attempts to create a
product that is perceived by customers as unique in some important way
• Emphasis is on strategic positioning• May be achieved through
– Superior quality– Superior customer responsiveness– Superior innovation
• Results in above average returns through premium pricing
Strategic Business Planning for Commercial Producers
Differentiation
COST = $6
PROFIT = $5
COST = $5
INDUSTRYAVERAGE
DIFFERENTIATION
PRICE = $10
PRICE = $12
PROFIT = $6
Strategic Business Planning for Commercial Producers
Differentiation Strategy• Integrated set of actions is designed to produce or
deliver goods or services that customers perceive as being different in ways that are important to them.
• Firms following this business-level strategy rely on unique features of their product or service to drive superior margins to those of their competitors.
• A firm’s product can be differentiated in an almost countless number of ways, such as:– Unusual features– Responsive customer service– Rapid product innovation– Technological leadership– Perceived prestige and status– Different tastes
Strategic Business Planning for Commercial Producers
Characteristics of Differentiated Firms
• Mental focus on the customers’ needs• Entrepreneurial business structure,
creativity, and innovation prized and encouraged
• Efforts spent communicating value to customers
• Efficiency important, but cost secondary to delivering value to the customer
Firm Infrastructure – Highly developed MIS to capturecustomer preferences, firm-wide focus on high-quality products.Human Resources: Compensation encourages creativity, subjective performance measures, superior training.
Technology: strong capability in basic research, investment in technologies that allow for production of highly differentiated products.
Procurement: procedures to find the highest quality inputs, purchase ofhighest quality replacement parts, strict standards for suppliers.
InboundLogisticsSuperior handling to minimize damage and improve quality.
OperationsConsistent production of attractive products.Rapid response to customers’ production demands.
Outbound LogisticsAccurate and responsive order processing.
Rapid and timely deliveries.
Marketing& SalesExtensive granting of credit buying.
Extensive personal relationships with buyers.
ServiceExtensive buyertraining to assure max.value fromProduct.
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The Value Chain for a Differentiation Strategy
Strategic Business Planning for Commercial Producers
Differentiation Strategy and the 5 Forces
• Rivalry – creates customer loyalty that reduces price sensitivity
• Power of Buyers – the uniqueness of the good or service reduces number of suppliers and increases switching costs
• Power of Suppliers – higher margins insulate the firm, and price insensitivity by buyers allows the firm to pass on price increases
• Threat of New Entrants – loyalty of customers and need to invest in differentiating techniques reduces this threat
• Substitutes – loyal customers and high switching costs
Strategic Business Planning for Commercial Producers
Examples of Differentiated Companies
• Nike• Harley-Davidson• Levi Jeans• Mercedes-Benz• John Deere
Strategic Business Planning for Commercial Producers
Differentiation Strategy
• What are some activities that we can focus on to differentiate ourselves in the production agriculture marketplace?
Strategic Business Planning for Commercial Producers
DifferentiationCoordinationCost
DifferentiationDifferentiationCoordinationCoordinationLow-Cost
Leader
Low-Cost
Leader
Strategic OrientationDifferentiationCoordinationCost
Broad
Niche
MarketScope
Core Competency
Strategic Business Planning for Commercial Producers
Coordination
• Focus: playing the facilitator role linking suppliers and customers
• Competitive advantage based on innovative relationships/linkages
• Key strengths in ability to control without ownership, identify market opportunities
• Push for a more coordinated agriculture to create a potential role for such organizations
Strategic Business Planning for Commercial Producers
Coordination
• May add substantial value through re-configuring the supply chain
• Heavy focus on soft assets, information and people, as opposed to hard assets, plant and equipment
• Real focus on building trust among channel partners, developing incentive, and payment mechanisms that keep partners engaged
Strategic Business Planning for Commercial Producers
DifferentiationCoordinationCost
Broad
Niche Customization
DifferentiationDifferentiationCoordinationCoordinationLow-Cost
Leader
Low-Cost
Leader
Overall Strategic Orientation
DifferentiationCoordinationCost
Broad
Niche
MarketScope
Core Competency
Strategic Business Planning for Commercial Producers
Customization• Focus: developing highly tailored
solutions to fit a specific set of customers• Deep relationships with the segment of
choice• Can be applied to differentiation, cost
minimization, coordination• Pursued by both large and small firms in
an increasingly fragmented market
Strategic Business Planning for Commercial Producers
Customization• Focus: solving problems/creating
results for chosen segments• Unparalleled tailoring of solutions• Support tailoring through range of
products and services consistent with needs, seamless access to resources, localized decision making
• “Customer wins/we win” attitude
Strategic Business Planning for Commercial Producers
Successful farms of the new millennium will:– Thoroughly understand the dimensions of the
external environment– Not take the market environment as a given,
and will drive change through their own actions
– Choose a strategic position that is consistent with the marketplace and their own competencies
– Deliver on the critical elements supporting that strategic position
Summary
Strategic Business Planning for Commercial Producers
Exercise• Consider one of the business units on
your farm.• Who are the customers you are trying to
serve from this business unit?• What opportunities and threats exist for
this business unit?• What strengths and weaknesses do you
have in this business unit relative to your competitors?
• Using the TOWS matrix, is there a set of low-cost strategies you can pursue for this business unit? What about differentiation strategies?
Strategic Business Planning for Commercial Producers
Strategic Business Planning for Commercial Producers