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

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

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

4. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

5. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

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

7. Figure 1: How Strategic Thinking and Analysis Lead to Good Choices
Thinking Strategically
About Industry
and Competitive
Conditions
Identifying
Strategic Options
Open to the
Company
Choice of
The Best
Strategy
Thinking Strategically
About a Company’s
Own Situation 5

8. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

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 6

10. 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 7

11. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

12. ANALYSIS OF COMPETITIVE FORCES
Objective
To identify
Main SOURCES of competitive forces and
STRENGTH of these pressures
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! 8

13. Figure 2: The Five Forces Model of Competition: A Key Analytical Tool
Substitute
Products
Rivalry
Among
Competing
Sellers
Suppliers
Buyers
Potential
New
Entrants 9

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 10

15. 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 11

16. RIVALRY AMONG COMPETING 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 12

17. COMPETITIVE FORCE OF 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 13

18. COMPETITIVE FORCE OF SUBSTITUTE 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 14

19. COMPETITIVE FORCE OF SUPPLIERS
Suppliers are a strong competitive force when
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 15

20. 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 16

21. STRATEGIC IMPLICATIONS OF THE FIVE COMPETITIVE FORCES
Competitive environment is unattractive when:
Rivalry is very strong
Entry barriers are low
Competition from substitutes is strong
Suppliers & customers have considerable bargaining power 17

22. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

23. IDENTIFYING & ASSESSING DRIVING FORCES
Concept
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 18

24. 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 19

25. 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 20

26. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

27. PINPOINTING INDUSTRY KEY SUCCESS FACTORS
Basic Concept
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 21

28. 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 really major determinants of financial & competitive success in industry 22

29. INDUSTRY AND COMPETITIVE ANALYSIS
Situation Analysis
Industry Environment
Five Competitive Forces
Driving Forces
Key Success Factors 3

30. THREE PRIMARY ASPECTS OF STRATEGIC BUSINESS MANAGEMENT
Industry and Competitive Analysis
Strategy and Competitive Advantage
Company Situation and Analysis 23

31. STRATEGY AND COMPARATIVE ADVANTAGE
Three Generic Competitive Strategies
Low-Cost Leadership Strategy
Differentiation Strategies
Focus Strategies 24

32. 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 25

33. WAYS TO WIN A COMPETITIVE 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 26

34. Figure 3: The Three Generic Competitive Strategies
TYPE OF ADVANTAGE SOUGHT
Lower Cost
Differentiation
Low-Cost
Leadership
Strategy
Differentiation
Strategy
Broad Range
of Buyers
MARKET TARGET
Focused
Strategy
Buyer
Segment
or Niche 27

35. THE THREE GENERIC COMPETITIVE STRATEGIES
LOW-COST LEADERSHIP
Striving to be the overall low-cost provider in industry 28

36. THE THREE GENERIC COMPETITIVE STRATEGIES
DIFFERENTIATION
Striving to build customer loyalty by differentiating one’s product offerings from rivals’ products 29

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 29

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

39. 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 31

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? 32

41. S W O T ANALYSIS S W O T represents the first letter in S trengths
W eaknesses
O pportunities
T hreats
SWOT analysis involves sizing-up firm’s
INTERNAL strengths & weaknesses and
EXTERNAL opportunities & threats 33

42. IDENTIFYING INTERNAL STRENGTHS & 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 34

43. IDENTIFYING EXTERNAL OPPORTUNITIES
OPPORTUNITIES most relevant to a firm are factors in EXTERNAL environment offering
Some kind of competitive advantage
Important avenues for growth 35

44. 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 36

45. 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 23