2. What Tools Are Useful in Assessing Strengths and Weaknesses?
Strategic Business Planning for Commercial Producers
Business Strengths
What Tools Are Useful in Assessing Strengths and Weaknesses?
Resources, Capabilities, and Core Competencies
The internal environment of a business is that part over which you as a manager have control. You can influence the things that go on in the business. This presentation will give a number of tools that will help you think about the business.
© Purdue University, Center for Food and Agricultural Business, 2002

3. Strengths and Weaknesses
Strategic Business Planning for Commercial Producers
Business Strengths
Strengths and Weaknesses
Goal: objective assessment of your strengths and weaknesses
relative to competitors
important to customers
Note: This is difficult to do well.
Strengths and weaknesses are the internal side of a SWOT analysis. SWOT is a tool for auditing an organization and its environment. It is the first stage of planning and helps managers focus on key issues. Once key issues have been identified, they feed into objectives. It can be used in conjunction with other tools for audit and analysis, such Porter's Five-Forces analysis.
SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. For example, a strength could be your specialist expertise. A weakness could be the lack of good genetics. Opportunities and threats are external factors. For example, an opportunity could be a developing market such as the Internet. A threat could be a new competitor in your home market. During the SWOT exercise, the four titles are often written on a page. List factors under each title. It's that simple. This presentation is only on the internal factors.
© Purdue University, Center for Food and Agricultural Business, 2002

4. Challenge of Internal Analysis
Strategic Business Planning for Commercial Producers
Business Strengths
Challenge of Internal Analysis
Identifying, developing, protecting, and deploying resources, capabilities, and core competencies
Consider marketing
products/services
price/promotion
distribution/location
Consider people
management
farm hands
office staff/other
Sales force
Consider operations/facilities
Implementation
facilities/equipment
cost management/efficiency
Consider finances
profitability
debt position/capital structure
inventory/receivable management
© Purdue University, Center for Food and Agricultural Business, 2002

5. Strategic Business Planning for Commercial Producers
Business Strengths
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.
Business cards are resources – they can be used to network, develop, foster, and protect business relationships. Land and machinery are resources.
Probably some of the most important resources are intangible resources. Yet, we often have difficulty identifying and understanding how to capitalize on out intangible resources.
© Purdue University, Center for Food and Agricultural Business, 2002

6. Strategic Business Planning for Commercial Producers
Business Strengths
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.
If there are two identical farms but one is doing better than the other, it is the capabilities of the managers to use the buildings and tractors and intangible resources that likely makes the difference
A farm with 1,200 sows may be the most low cost/efficient operation in the area – but without an abil8ity to discover and foster a market, raising hogs is pointless. That is a capability that the manager brings to the business.
© Purdue University, Center for Food and Agricultural Business, 2002

7. Strategic Business Planning for Commercial Producers
Business Strengths
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.
One must recognize that resources are only half the battle. The firm must also have the capability to take those resources and use them effectively. This is usually related to the strength of the management team and their capacity to make the right short and long-term decisions about the allocation of resources to the various pursuits of the company.
Core competencies are created by the superior resources put to use in way that no other firm can replicate. Core competencies are those things that are fundamental to a firms success. Core competencies are rare, not many firms can do what you do in this area. Core competencies are difficult if not impossible for another company to copy, usually because of the firms capability and intangible resources, not because of physical resources. Core competencies are valuable to customers, that is, the things that your company does better than anyone else, someone else must be willing to pay for else you are simply good at something but it does not create long-term success of the company.
If you attempt to develop 10 core competencies, how are you going to develop and maintain all of them?
Successful firms tend to focus on the 2 or 3 things they clearly do better than others.
© Purdue University, Center for Food and Agricultural Business, 2002

8. Identifying and Building Core Competencies
Strategic Business Planning for Commercial Producers
Business Strengths
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.
Using key employees as an example of core compenticies.
Valuable Capabilities
A unique capability to higher employees that are good with equipment and capable of fixing problems.
Rare Capabilities
In today’s farm labor pool, loyal long-term employees that are good with equipment and can work on it are pretty few and far between. A farm that has this type of staisfied employee base likely has a key competitive advantage.
Costly to Imitate Capabilities
Because of the historical knowledge base contained by these “key” employees, it is costly if not impossible for other farms to gain this capability. Many times it is not even clear why these employees are so much better with equipment than others. Of course, the educational focus of our society puts well trained employees with the kind of skills needed in too high of a wage bracket for most farm businesses
Non-substitutable capabilities
Certainly there are some substitutes for employees that are good with machinery. Good mechanics in the region, renting equipment, etc. However these are imperfect substitutes at best and erode the competitive advantage obtained with “key” employees
© Purdue University, Center for Food and Agricultural Business, 2002

9. Strategic Business Planning for Commercial Producers
Business Strengths
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 is one way to help identify core competencies in your business.
The value chain is a systematic approach to examining the development of competitive advantage. It was created by Michael E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram (next slide) is the same as added value. The organization is split into 'primary activities' and 'support activities.‘
© Purdue University, Center for Food and Agricultural Business, 2002

10. Strategic Business Planning for Commercial Producers
The Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
Firm Infrastructure
Human Resource Management
MARGIN
Supporting
Activities
Technological Development
Procurement
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
The Value Chain, or value plate illustrates how to break down the functions of a company into its activities. The bottom half of the figure contains the primary activities that the firm conducts. These include inbound logistics, or the way in which the company receives, stores, etc. its inputs. Operations is the basic activity of producing your product. Outbound logistics are the activities associated with storing and distributing your final product. Marketing and sales are all of the activities associated with attracting and keeping customers for your products. Service is the activities associated with providing support to your customers for your products including users manuals, help lines, warranties, etc. Inbound logistics and Operations relate to your suppliers. Outbound logistics, marketing and sales and service relate to buyers.
As you move from left to right the primary activities move through time and adding further value to the end product. Linking these five primary activities together forms a chain.
The top half of the graph represents a set of activities that are conducted to support the primary activities of the firm. These would include procurement which are all of the activities associated with negotiating, financing, and paying for all inputs necessary for the business from raw inputs used in the final product to pencil used in the accounting office. Technology development is the activities associated with research and development and included R&D in all phases of the primary activities not just R&D associated with new product development (things like process improvement research, distribution improvement research, market research activities to support marketing, etc. Human resources are the support activities associated with hiring, firing, compensating, retaining, and training personnel for the company. Finally firm infrastructure is the top management activities of the firm which include, negotiating with the government, negotiating with competitors, developing the firms long-term strategy, development and maintenance of information systems for assessing firm performance, etc.
The next slides further explain the activities.
What do you do with this figure? That is, what support and primary activities do you do better than your competitors and which ones do you not do so well relative to your competitors. This is a great tool for helping you assess your strengths and weaknesses in a more structured way. It helps think about ALL of the activities that you conduct in your business and critical assess whether you are doing each activity as well as you can. This figure helps you focus on specific activities that you do well relative to your competitors so that you can determine what your core competencies are relative to your competitors.
Operations
Service
Activities
Primary
MARGIN
Relationship with Suppliers
Relationship with Buyers
Elapsed Time - Value added time cost
© Purdue University, Center for Food and Agricultural Business, 2002

11. Primary Activities in the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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 delivery dates, delivery to the packer or elevator etc.
Inbound Logistics
Here goods are received from a company's suppliers. They are stored until they are needed in the production. Goods are moved around the organization.
Operations
This is where goods are grown or produced. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.
Outbound Logistics
The products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer – whatever the next step in the industry chain.
Logistics
Inbound
Marketing
and Sales
Outbound
Operations
Technology
Human Resource management
Procurement
Firm Infrastructure
Service
© Purdue University, Center for Food and Agricultural Business, 2002

12. Primary Activities in the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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.
Marketing and Sales
In true customer orientated fashion, at this stage the organization prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
Service
This includes all areas of service such as after-sales service, complaints handling, and so on.
Marketing strategy has four components, known as the 4 P’s (Product, Price, Place and Promotion). We in agriculture have tended to think of marketing as only a factor of Price, (in terms of future/options, the market price etc). But it is much more broad. All sorts of things can be done to sell your product. This is asking your elevator manager if you can do something different. Can you deliver to the elevator at an off-peak time (an example of place)? Finding ways to solve someone else’s problem is how you create and capture value.
Logistics
Inbound
Marketing
and Sales
Outbound
Operations
Service
Human Resource management
Firm Infrastructure
Human Resources
Procurement
© Purdue University, Center for Food and Agricultural Business, 2002

13. Supporting Activities in the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
Supporting Activities in the Value Chain
Logistics
Inbound
and Sales
Marketing
Outbound
Operations
Human Resources
Technological Development
Procurement
Service
Firm Infrastructure
Procurement
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 specific production tasks more efficient, etc.
Human Resources
Recruiting, hiring, training, developing, and compensating all personnel
Procurement
This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations).
Technology Development
Technology is an important source of competitive advantage. Farms need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, and many other technological developments.
Human Resource Management (HR)
Employees are an expensive and vital resource. An organization would manage recruitment and selection, training and development, and rewards and compensation. The mission and objectives of the organization would be driving force behind the HR strategy.
© Purdue University, Center for Food and Agricultural Business, 2002

14. Supporting Activities in the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
Supporting Activities in the Value Chain
Logistics
Inbound
Marketing
and Sales
Outbound
Operations
Human Resource management
Firm Infrastructure
Service
Technology
Procurement
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
Firm Infrastructure
This activity includes and is driven by corporate or strategic planning. It includes the mechanisms for planning and control such as accounting.
© Purdue University, Center for Food and Agricultural Business, 2002

15. The Result of the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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 customer has to be willing to write a check for what you do.
© Purdue University, Center for Food and Agricultural Business, 2002

16. Strategic Business Planning for Commercial Producers
Business Strengths
The Value Chain – Grains Farm
Firm Infrastructure
Human Resource Management
MARGIN
Supporting
Activities
Technological Development
Procurement
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
Let’s go through an example of a value chain. This one will be of a grain producing division of a farm. The next slides will identify specific actions in each activity.
Operations
Service
Activities
Primary
MARGIN
Relationship with Suppliers
Relationship with Buyers
Elapsed Time - Value added time cost
© Purdue University, Center for Food and Agricultural Business, 2002

17. Strategic Business Planning for Commercial Producers
Business Strengths
Primary Activities for a Grain Farm
Inbound
Logistics
Fertilizer and
chemical storage,
custom
application
of inputs
Operations
Tillage
Planning
Fertilizing
Spraying
Cultivate
Harvest
Outbound
Grain
transport
to elevator
or buyer
to storage
Marketing
& Sales
Fwd. contracts
Futures
Options
IP grain
Value added
grain
Service
On-time del-
ivery
Forward
contract IP
Storage
Tracing QA
Relationship with Suppliers
Relationship with Buyers
Here is the bottom half of the value chain. These are the primary activities a grain farm performs as it creates and delivers its product.
© Purdue University, Center for Food and Agricultural Business, 2002

18. Strategic Business Planning for Commercial Producers
Business Strengths
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
These activities are the supporting activities for the value chain of a grain farm that a business has to perform in able to effectively perform its primary activities.
© Purdue University, Center for Food and Agricultural Business, 2002

19. Strategic Business Planning for Commercial Producers
Business Strengths
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
The analysis is helpful to you as you think about what you do well and what you can improve on. Benchmarking your performance to what your competitors do well is an important part of knowing if you are performing on par.
© Purdue University, Center for Food and Agricultural Business, 2002

20. Linkages within the Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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
some farm examples brought into the discussion?? Eric Akins?
Same functions can be performed in different ways.
© Purdue University, Center for Food and Agricultural Business, 2002

21. Value Chain Linkages in the Supply Chain
Strategic Business Planning for Commercial Producers
Business Strengths
Value Chain Linkages in the Supply Chain
Buyer Chain
Supplier
Chain
Buyer Chain
Firm Chain
The value chain a firm has for a product is just a part of the industry. The supplier sells to a buyer and buys from a supplier, each of which have their own value chains.
Supplier
Chain
Buyer Chain
© Purdue University, Center for Food and Agricultural Business, 2002

22. Linkages with Supplier Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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.
Who gets the value? It depends on the bargaining power.
© Purdue University, Center for Food and Agricultural Business, 2002

23. The Buyer’s Value Chain
Strategic Business Planning for Commercial Producers
Business Strengths
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.
For instance, the supplier’s Marketing Support Function relates directly to the buyer’s Procurement Function.
© Purdue University, Center for Food and Agricultural Business, 2002

24. Internal Factor Analysis Summary (IFAS)
Strategic Business Planning for Commercial Producers
Business Strengths
Internal Factor Analysis Summary (IFAS)
Assesses strengths and weaknesses
Provides one overall number for the strength of your firm’s internal position
An IFAS table helps us focus on some of the more relevant internal factors. If you’ve done a SWOT analysis on your farm you may have noticed that the one layer of analysis gave you lengthy lists of factors that weren’t weighted to reflect priorities. You may also have thought that a strength was also a weakness and so wanted to list it in two place.
An IFAS table gives you another layer of analysis by not only listing the factors, but links them to strategy implementation by providing a rating. If you use it in conjunction with the TOWS matrix (discussed in the Identifying Strategies material) you will have a clear link to what strategies are worth considering for your business.
© Purdue University, Center for Food and Agricultural Business, 2002

25. Exercise: Identifying Strengths and Weaknesses
Strategic Business Planning for Commercial Producers
Business Strengths
Exercise: Identifying Strengths and Weaknesses
Internal Factor Analysis Summary (IFAS) Table
List up to 6 to 10 factors (strengths and weaknesses) in your farm’s internal environment
Give each item a relative ranking in terms of the importance to your farm business’ competitive advantage
0 is not important to 1 being most important
must sum to 1
Assess your firm’s current actions to take advantage of this strength or improve on this weakness
5 is well positioned to 1 being poorly positioned
Multiply the two together and sum
Remember, although you are producing a number, this is still a very subjective analysis. It is only a guide. Two people doing the same analysis may have quite different answers.
Source: Wheelen and Hunger
© Purdue University, Center for Food and Agricultural Business, 2002

26. IFAS Table – grains production
Strategic Business Planning for Commercial Producers
Business Strengths
Internal Factors
Weight
Rating
Weighted Score
Comments
Strengths
Good management
0.15 5
0.75
Use Craig and Mike’s abilities very well.
Soil fertility
0.10 4
0.40
Key to productivity. Manure from dairy helps keep fertilizer costs low.
Equipment
0.05 3
Generally in good shape but aging.
Financial position
0.30
Profitable, low debt, too many assets.
Information management
Well maintained crop production data by field. Record system, capacity, etc. well designed.
Weaknesses
Spread too thin, several different crops
0.25 2
0.50
Craig seems to have too many things to do.
Hay and silage equipment
0.20
Out dated and in constant need of repair.
Commodity pricing
Trying to improve by using marketing consultant.
Total
1.0
3.00
Here is a sample IFAS table for a grain business of the BC farm. This farm thinks that not having enough time to do things well (spread too thin) and information management are important factors. However, it is not very well positioned to deal with these situations. The total score is a Since the scale is a 1 to 5 scale, a 3 would be average. A rating below a three would mean the management needs to seriously rethink some of their resources and capabilities.
If you’ve found that your resources, capabilities and core competencies don’t yield a competitive advantage, then the job of a good manager is to admit the mistake and get the organization on the right track. The strategy process is about learning about your company and choosing your direction. It is a process you will go through again and again. At least you’ve learned what not to do.
© Purdue University, Center for Food and Agricultural Business, 2002

27. Strategic Business Planning for Commercial Producers
Business Strengths
Strategic Business Planning for Commercial Producers
© Purdue University, Center for Food and Agricultural Business, 2002