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Strategic Business Planning for Commercial Producers

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, an
d 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
Supporting
Activities

Technological Development

Procurement

Inbound Outbound Marketing Service
Operations
Logistics Logistics & Sales

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 Procurement

delivery dates, delivery to the packer or elevator etc.
Technology

Firm Infrastructure

Human Resource management

Service

Inbound Outbound Marketing
Operations
Logistics Logistics and Sales


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.
Procurement


Human Resources

Firm Infrastructure

Operations


Supporting Activities in the
Value Chain Procurement


Human Resources

Firm Infrastructure

• Procurement
Service
Operations

– 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 specifi
production tasks more efficient, etc.
• Human Resources
– Recruiting, hiring, training, developing, and compensating all
personnel


Supporting Activities in the
Value Chain
Procurement

Technology

Firm Infrastructure

Service
Operations

• 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


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
Supporting
Activities


Procurement

Operations
Logistics Logistics & Sales


Elapsed Time - Value added time cost


Primary Activities for a Grain Farm

Outbound Service
Logistics Marketing On-time del-
Inbound Operations ivery
& Sales Forward
Logistics Grain contract
Tillage
Planning transport Fwd. contracts IP
Fertilizer and Fertilizing to elevator Futures Storage
chemical storage, Spraying or buyer Options Tracing
custom Cultivate IP grain QA
application Harvest Grain Value added
of inputs transport grain
to storage



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
Buyer Chain
Supplier
Chain
Firm Chain Buyer Chain

Supplier
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.


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 our
internal strengths and weaknesses


SWOT Analysis

Strengths Weaknesses
1. 1.
Internal 2. 2.
Environment 3. 3.

Opportunities Threats
1. 1.
External 2. 2.
Environment 3. 3.


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


TOWS Matrix From External Analysis (EFAS)

From
Opportunities: Threats:
Internal Analysis
1. 1.
(IFAS)
2. 2.
3. 3.

ST Strategies
Strengths: SO Strategies
Take advantage of
1. Use strengths to
Strengths to
2. take advantage
avoid
3. of opportunities
threats

WT Strategies
Weaknesses:
WO Strategies Defensive strategies
1.
Use Opportunities to to minimize
2.
overcome weaknesses weaknesses and
3.
avoid threats
Source: Weihrich

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