what tools are available to generate strategies?

Strategic Business Planning for Commercial Producers

What Tools Are Available to Generate Strategies?


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.


SWOT Analysis

Opportunities1.2.3.

Strengths1.2.3.

Threats1.2.3.

Weaknesses1.2.3.

Internal Environment

ExternalEnvironment


TOWS Matrix• Technique used in strategy

formulation for combining – External analysis

• Opportunities• Threats

– Internal analysis• Strengths• Weaknesses


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


Business-Level Strategy


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 Position

Successful farms will answer a fundamental question:

• Where will my farm focus itsresources and its

passion?


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.


• 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


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.


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?


DifferentiationCoordinationCost

Broad

Niche

MarketScope

Core Competency

Customization

DifferentiationDifferentiationCoordinationCoordinationLow-Cost

Leader

Low-Cost

Leader

Overall Strategic Orientation


Cost

Low-Cost

Leader

Low-Cost

Leader

Strategic OrientationDifferentiationCoordinationCost

Broad

Niche

MarketScope

Core Competency


Low-Cost Leader Strategy

PROFIT = $6

COST = $2

PROFIT = $5

COST = $5

INDUSTRYAVERAGE

COSTLEADERSHIP

PRICE = $10PRICE = $8


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.


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

RG

IN


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


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


Examples of Low Cost Leadership

• Southwest Airlines• Wal-Mart• Gateway Computers• Nucor Steel• Nissan


Cost Leadership

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


DifferentiationCost

DifferentiationDifferentiationLow-Cost

Leader

Low-Cost

Leader

Strategic Orientation


Broad

Niche

MarketScope

Core Competency


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


Differentiation

COST = $6

PROFIT = $5

COST = $5

INDUSTRYAVERAGE

DIFFERENTIATION

PRICE = $10

PRICE = $12

PROFIT = $6


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


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.

MA

RG

IN

MA

RG

IN

The Value Chain for a Differentiation Strategy


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


Examples of Differentiated Companies

• Nike• Harley-Davidson• Levi Jeans• Mercedes-Benz• John Deere


Differentiation Strategy

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




Leader

Low-Cost

Leader

Strategic OrientationDifferentiationCoordinationCost

Broad

Niche

MarketScope

Core Competency


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


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



Broad

Niche Customization


Leader

Low-Cost

Leader

Overall Strategic Orientation


Broad

Niche

MarketScope

Core Competency


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


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


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


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?

what tools are available to generate strategies?

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