What Tools Are Available to Generate Strategies?

1. What Tools Are Available to Generate Strategies?

2. 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.

3. SWOT Analysis Strengths 1. 2. 3. Weaknesses 1. 2. 3. Internal Environment Opportunities 1. 2. 3. Threats 1. 2. 3. External Environment

4. TOWS Matrix • Technique used in strategy formulation for combining • External analysis • Opportunities • Threats • Internal analysis • Strengths • Weaknesses

5. TOWS Matrix From External Analysis (EFAS) From Internal Analysis (IFAS) Opportunities: 1. 2. 3. Threats: 1. 2. 3. Strengths: 1. 2. 3. SO Strategies Use strengths to take advantage of opportunities ST Strategies Use strengths to avoid threats Weaknesses: 1. 2. 3. WO Strategies Take advantage of opportunities by overcoming weaknesses WT Strategies Defensive strategies to minimize weaknesses and avoid threats Source: Weihrich

6. Business-Level Strategy

7. 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.

8. Strategic Position Successful farms will answer a fundamental question: • Where will my farm focus its resources and its passion?

9. 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.

10. Positioning Options • Example of Possible Positions in an Agricultural 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

11. 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.

12. 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?

13. Overall Strategic Orientation Customization Core Competency Cost Coordination Differentiation Low-Cost Leader Broad Coordination Differentiation Market Scope Niche

14. Strategic Orientation Core Competency Cost Cost Coordination Differentiation Low-Cost Leader Broad Market Scope Niche

15. PRICE = $10 Low-Cost Leader Strategy PRICE = $8 PROFIT = $5 PROFIT = $6 COST = $5 COST = $2 INDUSTRY AVERAGE COST LEADERSHIP

16. Low-Cost Leader Strategy Actions 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.

17. 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

18. Firm 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. MARGIN Technology: Easy-to-use production technologies, investment in technology that improves production efficiencies. Procurement: procedures to find the lowest cost inputs, frequent evaluation of suppliers’ performances. Service Efficient quality control to reduce buyer complaints. Inbound Logistics Efficient systems to link supplier products with production processes. Marketing & Sales Small, highly trained sales force. Products priced to generate sales volume. Outbound Logistics Delivery schedule that reduces costs. Selection of low-cost carriers. Operations Use of Economies of scale. Construction of efficient scale facilities. MARGIN The Value Chain for a Low Cost Strategy

19. 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

20. Low-Cost Leadership • Organization attempts to outperform competitors by doing everything it can to produce goods or services at a lower costthan competitors • Emphasis is on operational efficiency • May be achieved through process innovations • Results in above average returns

21. Examples of Low Cost Leadership • Southwest Airlines • Wal-Mart • Gateway Computers • Nucor Steel • Nissan

22. Cost Leadership • What are some things that can help us be cost leaders in production agriculture?

23. Strategic Orientation Core Competency Cost Cost Coordination Differentiation Differentiation Low-Cost Leader Broad Differentiation Market Scope Niche

24. 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

25. Differentiation PRICE = $12 PROFIT = $6 PRICE = $10 PROFIT = $5 COST = $6 COST = $5 INDUSTRY AVERAGE DIFFERENTIATION

26. 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

27. 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

28. Firm Infrastructure – Highly developed MIS to capture customer preferences, firm-wide focus on high-quality products. Human Resources: Compensation encourages creativity, subjective performance measures, superior training. MARGIN 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 of highest quality replacement parts, strict standards for suppliers. Outbound Logistics Accurate and responsive order processing. Rapid and timely deliveries. Service Extensive buyer training to assure max. value from Product. Inbound Logistics Superior handling to minimize damage and improve quality. Marketing & Sales Extensive granting of credit buying. Extensive personal relationships with buyers. Operations Consistent production of attractive products. Rapid response to customers’ production demands. MARGIN The Value Chain for a Differentiation Strategy

29. 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

30. Examples of Differentiated Companies • Nike • Harley-Davidson • Levi Jeans • Mercedes-Benz • John Deere

31. Differentiation Strategy • What are some activities that we can focus on to differentiate ourselves in the production agriculture marketplace?

32. Strategic Orientation Core Competency Cost Cost Coordination Coordination Differentiation Differentiation Low-Cost Leader Broad Coordination Differentiation Market Scope Niche

33. 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

34. 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

35. Overall Strategic Orientation Customization Core Competency Cost Cost Coordination Coordination Differentiation Differentiation Low-Cost Leader Broad Broad Coordination Differentiation Market Scope Niche Niche

36. 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

37. 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

38. Summary 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

39. 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?

40. Strategic Business Planning for Commercial Producers