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1 STRATEGIC BUSINESS MANAGEMENT PRINCIPLES AGBE 445 Agribusiness Management Dr. Gary W. Brester Department of Agricultural Economics and Economics.

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Presentation on theme: "1 STRATEGIC BUSINESS MANAGEMENT PRINCIPLES AGBE 445 Agribusiness Management Dr. Gary W. Brester Department of Agricultural Economics and Economics."— Presentation transcript:

1 1 STRATEGIC BUSINESS MANAGEMENT PRINCIPLES AGBE 445 Agribusiness Management Dr. Gary W. Brester Department of Agricultural Economics and Economics

2 2 THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT n Industry and Competitive Analysis n Strategy and Competitive Advantage n Company Situation and Analysis

3 3 THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT n Industry and Competitive Analysis n Strategy and Competitive Advantage n Company Situation and Analysis

4 4 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

5 5 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

6 6 WHY DO A SITUATION ANALYSIS? n Identify features in a firm’s external & internal environment which frame its window of 4STRATEGIC OPTIONS 4OPPORTUNITIES n Focuses on two considerations: 4EXTERNAL factors: MACRO environment (industry & competitive conditions) 4INTERNAL factors: MICRO environment (firm’s internal situation & competitive position) Objective

7 7 Figure 1: How Strategic Thinking and Analysis Lead to Good Choices Thinking Strategically About Industry and Competitive Conditions Thinking Strategically About a Company’s Own Situation Identifying Strategic Options Open to the Company Choice of The Best Strategy

8 8 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

9 9 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

10 10 IDENTIFYING AN INDUSTRY’S DOMINANT ECONOMIC TRAITS n Market size & growth rate/stage in life cycle n Scope of competitive rivalry n Number of competitors & relative sizes n Prevalence of backward/forward integration n Entry/exit barriers n Nature & pace of technological change n Product & customer characteristics n Scale economies & experience curve effects n Capacity utilization & capital requirements n Industry profitability

11 11 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

12 12 ANALYSIS OF COMPETITIVE FORCES n To identify 4Main SOURCES of competitive forces and 4STRENGTH 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, market position based on competitive advantage!

13 13 Figure 2: The Five Forces Model of Competition: A Key Analytical Tool Substitute Products Rivalry Among Competing Sellers Potential New Entrants Suppliers Buyers

14 14 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

15 15 PROCEDURE: ANALYZING THE FIVE COMPETITIVE FORCES n Identify main sources of competitive pressures 4Rivalry among competitors 4Substitute products 4Potential entry 4Bargaining power of suppliers 4Bargaining power of buyers n Assess strength of each competitive force 4Strong? Moderate? Weak? n Explain how each competitive force works & its role in overall competitive picture

16 16 RIVALRY AMONG COMPETING SELLERS n Usually the MOST POWERFUL of the five competitive forces n Weapons of COMPETITIVE RIVALRY 4Price 4Quality 4Performance features offered 4Customer service 4Warranties and guarantees 4Advertising & special promotions 4Dealer networks 4Product innovation

17 17 COMPETITIVE FORCE OF POTENTIAL ENTRY n New entrants boost competitive pressures 4By bringing new production capacity into play 4Through actions to build market share n Seriousness of threat of entry depends on 4BARRIERS to entry 4Expected REACTION of existing firms to entry n Barriers to entry exist WHEN 4It is difficult for newcomers to enter market 4A new entrant’s small sales volume puts it a price/cost disadvantage

18 18 COMPETITIVE FORCE OF SUBSTITUTE PRODUCTS SUBSTITUTES matter when products of firms in another industry enter the market picture 4Transgenic Seeds vs. Chemicals 4Transgenic Seeds vs. Traditional Seeds Concept Examples

19 19 COMPETITIVE FORCE OF SUPPLIERS when n Suppliers are a strong competitive force when 4Item makes up large portion of costs of product, is crucial to production process, and/or significantly affects product quality 4It is costly for buyers to switch suppliers 4They have good reputations & growing demand for their product 4They can supply a component cheaper than industry members can make it themselves 4They do not have to contend with substitutes 4Buying firms are not important customers

20 20 COMPETITIVE FORCE OF BUYERS n Buyers are a strong competitive force when 4They are large & purchase a sizable percentage of industry’s product 4They buy in volume quantities 4They incur low costs in switching to substitutes 4They have flexibility to purchase from several sellers 4Selling industry’s product is standardized 4They can integrate backward 4Product being purchased does NOT save buyer money or has low value to buyer

21 21 STRATEGIC IMPLICATIONS OF THE FIVE COMPETITIVE FORCES unattractive Competitive environment is unattractive when: 4Rivalry is very strong 4Entry barriers are low 4Competition from substitutes is strong 4Suppliers & customers have considerable bargaining power

22 22 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

23 23 IDENTIFYING & ASSESSING DRIVING FORCES n Industry conditions change because EXTERNAL FORCES are DRIVING industry participants to alter their actions n DRIVING FORCES are the MAJOR UNDERLYING CAUSES of changing industry & competitive conditions Concept

24 24 TYPES OF DRIVING FORCES n Changes in long-term industry growth rate n Changes in who buys the product & how they use it n Product innovation n Technological change/process innovation n Marketing innovation n Entry or exit of major firms n Diffusion of technical knowledge

25 25 TYPES OF DRIVING FORCES n Increasing globalization of industry n Changes in cost and efficiency n Shifting from standardized to differentiated products (or vice versa) n Regulatory influences & government policy changes n Changing societal concerns, attitudes, & lifestyles n Changes in degree of uncertainty & risk

26 26 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

27 27 PINPOINTING INDUSTRY KEY SUCCESS FACTORS n KEY SUCCESS FACTORS (KSFs) spell difference between 4Profit & loss 4Competitive success or failure n A KEY SUCCESS FACTOR can be 4Specific skill or talent 4Competitive capability 4Something a firm must do to satisfy customers Basic Concept

28 28 PINPOINTING INDUSTRY KEY SUCCESS FACTORS n Identifying KSFs is top priority as they are good cornerstones of a firm’s strategy 4Winning COMPETITIVE ADVANTAGE often hinges on being distinctively better than rivals at one or more of the KSFs n KSFs consist of the really major determinants of financial & competitive success in industry

29 29 INDUSTRY AND COMPETITIVE ANALYSIS n Situation Analysis n Industry Environment n Five Competitive Forces n Driving Forces n Key Success Factors

30 30 THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT n Industry and Competitive Analysis n Strategy and Competitive Advantage n Company Situation and Analysis

31 31 STRATEGY AND COMPARATIVE ADVANTAGE n Three Generic Competitive Strategies 4Low-Cost Leadership Strategy 4Differentiation Strategies 4Focus Strategies

32 32 STRATEGY & COMPETITIVE ADVANTAGE n COMPETITIVE ADVANTAGE exists when firm has an edge in 4Defending against competitive forces & 4Securing customers n Convince customers firm’s product/service offers SUPERIOR VALUE 4Offer buyers a good product at a lower price 4Use differentiation to provide a better product buyers think is worth a premium price KEY TO SUCCESS

33 33 WAYS TO WIN A COMPETITIVE ADVANTAGE n Become the low-cost producer n Make the best-made product n Provide customer more value for the money n Save customer money n Provide superior customer service n Enhance performance buyer gets n Provide more convenient locations n Make a more reliable & durable product

34 34 Figure 3: The Three Generic Competitive Strategies Low-Cost Leadership Strategy Differentiation Strategy Focused Strategy TYPE OF ADVANTAGE SOUGHT MARKET TARGET Lower Cost Differentiation Broad Range of Buyers Buyer Segment or Niche

35 35 THE THREE GENERIC COMPETITIVE STRATEGIES LOW-COST LEADERSHIP Striving to be the overall low-cost provider in industry

36 36 THE THREE GENERIC COMPETITIVE STRATEGIES DIFFERENTIATION Striving to build customer loyalty by differentiating one’s product offerings from rivals’ products

37 37 THE THREE GENERIC COMPETITIVE 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

38 38 THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT n Industry and Competitive Analysis n Strategy and Competitive Advantage n Company Situation and Analysis

39 39 COMPANY SITUATION ANALYSIS nDetermining How Well Present Strategy is Working nSWOT Analysis 4Strengths & Weaknesses of Firm 4Opportunities & Threats Facing Firm nStrategic Cost Analysis & Value Chains nAssessing Firm’s Competitive Position nIdentifying Strategic Issues

40 40 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?

41 41 S W O T ANALYSIS n S W O T n S W O T represents the first letter in 4S trengths 4W eaknesses 4O pportunities 4T hreats n SWOT n SWOT analysis involves sizing-up firm’s 4INTERNAL strengths & weaknesses and 4EXTERNAL opportunities & threats

42 42 IDENTIFYING INTERNAL STRENGTHS & WEAKNESSES n A STRENGTH is something firm is good at or characteristic giving it an important capability 4Useful skill 4Important know-how 4Valuable organizational resource or competitive capability 4Achievement giving firm a market advantage n A WEAKNESS is something firm lacks, does poorly, or condition placing it at a disadvantage

43 43 IDENTIFYING EXTERNAL OPPORTUNITIES n OPPORTUNITIES most relevant to a firm are factors in EXTERNAL environment offering 4Some kind of competitive advantage 4Important avenues for growth

44 44 IDENTIFYING EXTERNAL THREATS n EXTERNAL FACTORS posing a danger to firm 4Emergence of cheaper technologies 4Introduction of new/better products by rivals 4Entry of low-cost foreign competitors 4New regulations 4Vulnerability to rise in interest rates 4Potential of hostile takeover 4Unfavorable demographic shifts 4Adverse shifts in foreign exchange rates 4Political upheaval in a country

45 45 SUMMARY n Industry and Competitive Analysis 4Current Industry Situation 4Competitive Forces in the Industry 4Driving Forces Causing Change 4Key Success Factors n Strategy and Competitive Advantage 4Low-Cost Strategy 4Differentiation Strategy 4Focus Strategy è Offensive Strategy -- Implement è Defensive Strategy -- Protect n Company Situation and Analysis 4SWOT Analysis


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