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What Tools Are Useful in Assessing Strengths and Weaknesses?
Resources, Capabilities, and Core Competencies
Strengths and Weaknesses
• Goal: objective assessment of your strengths and weaknesses– relative to competitors– important to customers
Note: This is difficult to do well.
Challenge of Internal Analysis
• Identifying, developing, protecting, and deploying resources, capabilities, and core competencies
Resources• Inputs into a firm’s production process such as capital
equipment, skill of individual employees, patents, finance, and talented managers– Tangible Resources – Assets that can be seen and
quantified– Intangible Resources – Family commitment, networks,
organizational culture, reputation, intellectual property rights, trademarks, copyrights
• By themselves, resources do not create a strategic advantage for the firm.
Capabilities• Capacity to deploy resources that have been
purposely integrated to achieve a desired end state.
• Primary base for the firm’s capabilities is the skills and knowledge of its employees.
• Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage.
Core Competencies
• Resources and capabilities serve as a source of competitive advantage for a firm over its rival.
• Not all resources and capabilities are core competencies.
• Many suggest that firms should identify and concentrate on only 3 or 4 core competencies.
Identifying and Building Core Competencies
• Core competencies must be distinctive.– Capabilities that are done better than competitors
• Identifying core competencies is key to development of sound strategy.
• We use the value chain to help identify core competencies.
The Value Chain• A framework for identifying core competencies
– Inside the firm– In the supply chain
• Can be used to– Identify strengths and weaknesses– Identify sources of competitive advantage– Identify market opportunities
The Value Chain
Firm Infrastructure
Human Resource Management
Technological Development
Procurement
InboundLogistics
Operations Outbound Logistics
Marketing& Sales
Service
MA
RG
IN
MA
RG
IN
Sup
port
ing
Act
iviti
esP
rimar
yA
ctiv
ities
Relationship with Suppliers Relationship with Buyers
Elapsed Time - Value added time cost
Primary Activities in the Value Chain• Inbound Logistics
– Materials handling, warehousing, inventory control used to receive, store and disseminate inputs to a product
– Fertilizer and chemical storage, delivery of inputs, application of inputs• Operations
– Take inputs from inbound logistics and convert to final products– Plowing, planting, spraying, harvesting, feeding, medicating,
weighing,etc.• Outbound Logistics
– Collecting, Storing, and physical distribution of the final product.– Crop storage, finished hog handling, Processing and determining delivery
dates, delivery to the packer or elevator etc.
Inbound Logistics
Marketing and Sales
Outbound Logistics
Operations
Technology
Human Resource management
Procurement
Firm Infrastructure
Service
Primary Activities in the Value Chain• Marketing and Sales
– Provide means through which customers can purchase products and to induce them to do so
– Advertising, communicating with buyers, developing customer relationships, pricing products (futures, hedging, forward contracting, etc.), delivery scheduling
• Service– Activities designed to enhance or maintain a product’s value– Timely delivery, identity preservation, ISO9000, certifying as organic, etc.
Inbound Logistics
Marketing and Sales
Outbound Logistics
OperationsService
Human Resource management
Firm Infrastructure
Human Resources
Procurement
Supporting Activities in the Value Chain
• Procurement– Activities to purchase the inputs needed to produce products– Negotiating with suppliers, standard timing of replenishing parts and tools,
setting up buying groups, etc.
• Technological Development– Activities that improve the firm’s products and/or processes – Volunteering for test plots, being a part of feeding trials, attending
technology seminars/field days, designing equipment to make specific production tasks more efficient, etc.
• Human Resources– Recruiting, hiring, training, developing, and compensating all personnel
Inbound Logistics
Marketing and Sales
Outbound Logistics
Operations
Human Resources
Technological Development
Procurement
Service
Firm Infrastructure
Supporting Activities in the Value Chain
• Firm Infrastructure– General Management, planning, finance, accounting, legal support,
governmental relations, etc.– Establishment of accounting practices, management information
systems, compliance with environmental regulations, tracking and reporting for government programs, etc.
– Where strategy development takes place identifying opportunities and threats, resources and capabilities, and support of core competencies
Inbound Logistics
Marketing and Sales
Outbound Logistics
Operations
Human Resource management
Firm Infrastructure
Service
Technology
Procurement
The Result of the Value Chain• Margins
– Capture the value from performing value-creating activities as cheaply as possible
– The basic idea is that the consumer is willing to pay a certain amount for the value you create. This is depicted as the size of the overall pentagon.
– The size of the individual activity boxes represents the cost of performing those particular activities.
– Thus, the smaller the size of the individual activity boxes relative to the value the consumer is willing to pay, the greater the MARGIN will be for the firm.
The Value Chain – Grains Farm
Firm Infrastructure
Human Resource Management
Technological Development
Procurement
InboundLogistics
Operations Outbound Logistics
Marketing& Sales
Service
MA
RG
IN
MA
RG
IN
Sup
port
ing
Act
iviti
esP
rimar
yA
ctiv
ities
Relationship with Suppliers Relationship with Buyers
Elapsed Time - Value added time cost
Primary Activities for a Grain Farm
InboundLogistics
Fertilizer and chemical storage,
custom application
of inputs
Operations
TillagePlanningFertilizingSprayingCultivateHarvest
Outbound Logistics
Grain transport
to elevator or buyer
Grain transport to storage
Marketing& Sales
Fwd. contractsFuturesOptionsIP grain
Value added grain
ServiceOn-time del-iveryForward contractIPStorageTracingQA
Relationship with Suppliers Relationship with Buyers
Supporting Activities for a Grain Farm
Infrastructure: management, planning, finance, accounting, government compliance, quality control
Human Resource: motivation tools, compensation,training, and directing farm employees, including family, management, and laborers
Technological Development: research and adoption practices for things like GPS, VRT, GMO’s, No-Till, the Internet, IP storage facilities
Procurement: Purchasing inputs: seed, fertilizer, chemicals, fuel, land, Machinery, storage equipment, office supplies, parts, tools, insurance etc. with focus on negotiating capabilities
Value Chain Analysis
• A firm’s value chain must be compared to competitors’ value chains to determine where competitive advantages exist.
• To be a source of competitive advantage a resource or capability must allow a firm to:– Perform an activity in a manner that is superior to
competitor’s performances– Perform a value-creating activity that competitors
cannot complete
Linkages within the Value Chain• Optimization and coordination of activities in the
value chain• Linkages exist between support activities and
primary activities and between separate primary activities
• Generic causes for linkages– Same function can be performed in different ways– Efforts in indirect activities– Activities performed inside the firm reduce the need
for activities in the field– Quality Assurance can be performed in different ways
Value Chain Linkages in the Supply Chain
Supplier Chain
Firm Chain
Buyer Chain
Supplier Chain
Buyer Chain
Buyer Chain
Linkages with Supplier Value Chain
• Linkages between suppliers’ value chains and a firms chain provide opportunities for the firm to enhance competitive advantage.
• Division of benefits between firm and its suppliers is a function of supplier’s bargaining power and reflecting in supplier’s margins.
• Both coordination with suppliers and hard bargaining are important to competitive advantage.
The Buyer’s Value Chain
• A firm’s differentiation stems from how its value chain relates to its buyer’s chain.
• Differentiation derives fundamentally from creating value for the buyer through a firm’s impact on the buyer’s value chain.
• Value is created when a firm creates a competitive advantage for its buyer.
• The buyer must perceive the value to pay a premium price.
Internal Factor Analysis Summary (IFAS)
• Assesses strengths and weaknesses • Provides one overall number for the strength of your
firm’s internal position
Exercise: Identifying Strengths and Weaknesses
• Internal Factor Analysis Summary (IFAS) Table– List up to 6 to 10 factors (strengths and weaknesses) in your
farm’s internal environment– Give each item a relative ranking in terms of the importance
to your farm business’ competitive advantage • 0 is not important to 1 being most important • must sum to 1
– Assess your firm’s current actions to take advantage of this strength or improve on this weakness
• 5 is well positioned to 1 being poorly positioned– Multiply the two together and sum
Source: Wheelen and Hunger
IFAS Table – grains productionInternal Factors Weight Rating
Weighted Score
Comments
Strengths
Good management 0.15 5 0.75 Use Craig and Mike’s abilities very well.
Soil fertility 0.10 4 0.40Key to productivity. Manure from dairy helps keep fertilizer costs low.
Equipment 0.05 3 0.15 Generally in good shape but aging.
Financial position 0.10 3 0.30 Profitable, low debt, too many assets.
Information management 0.15 3 0.30Well maintained crop production data by field. Record system, capacity, etc. well designed.
Weaknesses
Spread too thin, several different crops
0.25 2 0.50 Craig seems to have too many things to do.
Hay and silage equipment 0.10 2 0.20 Out dated and in constant need of repair.
Commodity pricing 0.10 4 0.40Trying to improve by using marketing consultant.
Total 1.0 3.00
Strategic Business Planning for Commercial Producers