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Transcript of 1 STRATEGIC BUSINESS MANAGEMENT PRINCIPLES AGBE 445 Agribusiness Management Dr. Gary W. Brester...
1
STRATEGIC BUSINESS MANAGEMENT PRINCIPLES
AGBE 445
Agribusiness Management
Dr. Gary W. Brester
Department of Agricultural Economics and Economics
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THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT
Industry and Competitive Analysis
Strategy and Competitive Advantage
Company Situation and Analysis
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THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT
Industry and Competitive Analysis
Strategy and Competitive Advantage
Company Situation and Analysis
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis Industry Environment Five Competitive Forces Driving Forces Key Success Factors
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors
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WHY DO A SITUATION ANALYSIS?
Identify features in a firm’s external & internal environment which frame its window ofSTRATEGIC OPTIONSOPPORTUNITIES
Focuses on two considerations:EXTERNAL factors: MACRO environment
(industry & competitive conditions) INTERNAL factors: MICRO environment
(firm’s internal situation & competitive position)
Objective
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Figure 1: How Strategic Thinking and Analysis Lead to Good Choices
Thinking StrategicallyAbout Industry
and CompetitiveConditions
Thinking StrategicallyAbout a Company’s
Own Situation
IdentifyingStrategic Options
Open to the Company
Choice ofThe Best Strategy
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors
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KEY QUESTIONS REGARDING EXTERNAL ENVIRONMENT
1. Industry’s dominant economic traits
2. Competitive forces at work in industry & strength
3. Drivers of change in industry
4. Firms in strongest/weakest competitive positions
5. Competitive moves of rivals
6. Key factors determining competitive success or failure in industry
7. Attractiveness of industry
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IDENTIFYING AN INDUSTRY’S DOMINANT ECONOMIC TRAITS
Market size & growth rate/stage in life cycle Scope of competitive rivalry Number of competitors & relative sizes Prevalence of backward/forward integration Entry/exit barriers Nature & pace of technological change Product & customer characteristics Scale economies & experience curve effects Capacity utilization & capital requirements Industry profitability
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors
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ANALYSIS OF COMPETITIVE FORCES
To identify Main SOURCES of competitive forces and STRENGTH of these pressures
Objective
COMPETITIVE FORCES MATTER BECAUSE:To be successful, strategy must be designed
to cope effectively with competitive pressures -objective must be to build a strong, marketposition based on competitive advantage!
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Figure 2: The Five Forces Model of Competition: A Key Analytical Tool
SubstituteProducts
RivalryAmong
CompetingSellers
PotentialNew
Entrants
Suppliers Buyers
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THE FIVE COMPETITIVE FORCES
1. RIVALRY among competing sellers in an industry
2. SUBSTITUTE PRODUCTS offered by firms in OTHER industries
3. Potential ENTRY of new competitors
4. Bargaining power of SUPPLIERS
5. Bargaining power of BUYERS
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PROCEDURE: ANALYZING THE FIVE COMPETITIVE FORCES
Identify main sources of competitive pressures Rivalry among competitors Substitute products Potential entry Bargaining power of suppliers Bargaining power of buyers
Assess strength of each competitive force Strong? Moderate? Weak?
Explain how each competitive force works & its role in overall competitive picture
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RIVALRY AMONGCOMPETING SELLERS
Usually the MOST POWERFUL of the five competitive forces
Weapons of COMPETITIVE RIVALRY Price Quality Performance features offered Customer service Warranties and guarantees Advertising & special promotions Dealer networks Product innovation
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COMPETITIVE FORCEOF POTENTIAL ENTRY
New entrants boost competitive pressures By bringing new production capacity into play Through actions to build market share
Seriousness of threat of entry depends on BARRIERS to entry Expected REACTION of existing firms to entry
Barriers to entry exist WHEN It is difficult for newcomers to enter market A new entrant’s small sales volume puts it a
price/cost disadvantage
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COMPETITIVE FORCE OFSUBSTITUTE PRODUCTS
SUBSTITUTES matter when products of firms in another industry enter the market picture
Transgenic Seeds vs. Chemicals Transgenic Seeds vs. Traditional Seeds
Concept
Examples
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COMPETITIVE FORCE OF SUPPLIERS
Suppliers are a strong competitive force whenwhen Item makes up large portion of costs of product,
is crucial to production process, and/or significantly affects product quality
It is costly for buyers to switch suppliers They have good reputations & growing demand
for their product They can supply a component cheaper than
industry members can make it themselves They do not have to contend with substitutes Buying firms are not important customers
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COMPETITIVE FORCE OF BUYERS
Buyers are a strong competitive force when They are large & purchase a sizable percentage
of industry’s product They buy in volume quantities They incur low costs in switching to substitutes They have flexibility to purchase from several
sellers Selling industry’s product is standardized They can integrate backward Product being purchased does NOT save buyer
money or has low value to buyer
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STRATEGIC IMPLICATIONS OF THE FIVE COMPETITIVE FORCES
Competitive environment is unattractiveunattractive when:
Rivalry is very strong Entry barriers are low Competition from substitutes is
strong Suppliers & customers have
considerable bargaining power
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors
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IDENTIFYING & ASSESSINGDRIVING FORCES
Industry conditions change because EXTERNAL FORCES are DRIVING industry participants to alter their actions
DRIVING FORCES are the MAJOR UNDERLYING CAUSES of changing industry & competitive conditions
Concept
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TYPES OF DRIVING FORCES
Changes in long-term industry growth rate Changes in who buys the product & how
they use it Product innovation Technological change/process innovation Marketing innovation Entry or exit of major firms Diffusion of technical knowledge
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TYPES OF DRIVING FORCES
Increasing globalization of industry Changes in cost and efficiency Shifting from standardized to differentiated
products (or vice versa) Regulatory influences & government policy
changes Changing societal concerns, attitudes, &
lifestyles Changes in degree of uncertainty & risk
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors
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PINPOINTING INDUSTRYKEY SUCCESS FACTORS
KEY SUCCESS FACTORS (KSFs) spell difference between Profit & loss Competitive success or failure
A KEY SUCCESS FACTOR can be Specific skill or talent Competitive capability Something a firm must do to satisfy
customers
Basic Concept
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PINPOINTING INDUSTRY KEY SUCCESS FACTORS
Identifying KSFs is top priority as they are good cornerstones of a firm’s strategy Winning COMPETITIVE ADVANTAGE
often hinges on being distinctively better than rivals at one or more of the KSFs
KSFs consist of the 3 - 5 really major determinants of financial & competitive success in industry
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INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis Industry Environment Five Competitive Forces Driving Forces Key Success Factors
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THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT
Industry and Competitive Analysis
Strategy and Competitive Advantage
Company Situation and Analysis
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STRATEGY AND COMPARATIVE ADVANTAGE
Three Generic Competitive Strategies
Low-Cost Leadership Strategy
Differentiation Strategies
Focus Strategies
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STRATEGY &COMPETITIVE ADVANTAGE
COMPETITIVE ADVANTAGE exists when firm has an edge in Defending against competitive forces & Securing customers
Convince customers firm’s product/service offers SUPERIOR VALUE Offer buyers a good product at a lower price Use differentiation to provide a better product
buyers think is worth a premium price
KEY TO SUCCESS
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WAYS TO WIN ACOMPETITIVE ADVANTAGE
Become the low-cost producer Make the best-made product Provide customer more value for the money Save customer money Provide superior customer service Enhance performance buyer gets Provide more convenient locations Make a more reliable & durable product
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Figure 3: The Three Generic Competitive Strategies
Low-CostLeadership
Strategy
DifferentiationStrategy
FocusedStrategy
TYPE OF ADVANTAGE SOUGHT
MA
RK
ET
TA
RG
ET
Lower Cost Differentiation
Broad Rangeof Buyers
Buyer Segmentor Niche
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THE THREE GENERICCOMPETITIVE STRATEGIES
LOW-COST LEADERSHIP
Striving to be the overall low-cost provider in industry
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THE THREE GENERICCOMPETITIVE STRATEGIES
DIFFERENTIATION
Striving to build customer loyalty by differentiating
one’s product offerings from rivals’ products
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THE THREE GENERICCOMPETITIVE STRATEGIES
FOCUS STRATEGY
Concentrating on a narrow buyer segment, out-competing rivals on either a lower cost basis
or
offering niche members a product or service customized to their needs
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THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT
Industry and Competitive Analysis
Strategy and Competitive Advantage
Company Situation and Analysis
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COMPANY SITUATION ANALYSIS
Determining How Well Present Strategy is Working
SWOT Analysis Strengths & Weaknesses of Firm Opportunities & Threats Facing Firm
Strategic Cost Analysis & Value Chains Assessing Firm’s Competitive Position Identifying Strategic Issues
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KEY QUESTIONS IN COMPANY SITUATION ANALYSIS
1. How well is firm’s present strategy working?
2. What are firm’s strengths, weaknesses,
opportunities, & threats?
3. Are firm’s prices & costs competitive?
4. How strong is firm’s competitive position?
5. What strategic issues does firm face?
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S W O T ANALYSIS
S W O T S W O T represents the first letter in S trengths W eaknesses O pportunities T hreats
SWOTSWOT analysis involves sizing-up firm’s INTERNAL strengths & weaknesses and EXTERNAL opportunities & threats
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IDENTIFYING INTERNALSTRENGTHS & WEAKNESSES
A STRENGTH is something firm is good at or characteristic giving it an important capability Useful skill Important know-how Valuable organizational resource or
competitive capability Achievement giving firm a market
advantage A WEAKNESS is something firm lacks, does
poorly, or condition placing it at a disadvantage
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IDENTIFYING EXTERNAL OPPORTUNITIES
OPPORTUNITIES most relevant to a
firm are factors in EXTERNAL
environment offering
Some kind of competitive advantage
Important avenues for growth
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IDENTIFYING EXTERNAL THREATS
EXTERNAL FACTORS posing a danger to firm Emergence of cheaper technologies Introduction of new/better products by rivals Entry of low-cost foreign competitors New regulations Vulnerability to rise in interest rates Potential of hostile takeover Unfavorable demographic shifts Adverse shifts in foreign exchange rates Political upheaval in a country
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SUMMARY
Industry and Competitive Analysis Current Industry Situation Competitive Forces in the Industry Driving Forces Causing Change Key Success Factors
Strategy and Competitive Advantage Low-Cost Strategy Differentiation Strategy Focus Strategy
Offensive Strategy -- Implement
Defensive Strategy -- Protect
Company Situation and Analysis SWOT Analysis