STRATEGIC BUSINESS
MANAGEMENT PRINCIPLES
AGBE 445
Agribusiness Management
Dr. Gary W. Brester
Department of Agricultural Economics and
Economics
1
THREE PRIMARY ASPECTS OF
STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis
2
THREE PRIMARY ASPECTS OF
STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis
3
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
4
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
5
WHY DO A SITUATION ANALYSIS?
Objective


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)
6
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
7
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
8
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
9
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
10
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
11
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!
12
Figure 2: The Five Forces Model of
Competition: A Key Analytical Tool
Substitute
Products
Suppliers
Rivalry
Among
Competing
Sellers
Potential
New
Entrants
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
14
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
15
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
16
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
17
COMPETITIVE FORCE OF
SUBSTITUTE PRODUCTS
Concept
SUBSTITUTES matter when products of firms in
another industry enter the market picture
Examples
 Transgenic Seeds vs. Chemicals
 Transgenic Seeds vs. Traditional Seeds
18
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
19
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
20
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
21
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
22
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
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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
24
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
25
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
26
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
27
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
28
INDUSTRY AND COMPETITIVE
ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors
29
THREE PRIMARY ASPECTS OF
STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis
30
STRATEGY AND COMPARATIVE
ADVANTAGE

Three Generic Competitive Strategies
 Low-Cost Leadership Strategy
 Differentiation Strategies
 Focus Strategies
31
STRATEGY &
COMPETITIVE ADVANTAGE

COMPETITIVE ADVANTAGE exists when firm has
an edge in
Defending against competitive forces &
Securing customers
KEY TO SUCCESS

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
32
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
33
Figure 3: The Three Generic
Competitive Strategies
TYPE OF ADVANTAGE SOUGHT
MARKET TARGET
Lower Cost
Broad Range
of Buyers
Buyer
Segment
or Niche
Low-Cost
Leadership
Strategy
Differentiation
Differentiation
Strategy
Focused
Strategy
34
THE THREE GENERIC
COMPETITIVE STRATEGIES
LOW-COST LEADERSHIP
Striving to be the overall low-cost provider in
industry
35
THE THREE GENERIC
COMPETITIVE STRATEGIES
DIFFERENTIATION
Striving to build customer loyalty by differentiating
one’s product offerings from rivals’ products
36
THE THREE GENERIC
COMPETITIVE STRATEGIES
FOCUS STRATEGY
Concentrating on a narrow buyer segment, outcompeting rivals on either a lower cost basis
or
offering niche members a product or service
customized to their needs
37
THREE PRIMARY ASPECTS OF
STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis
38
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
39
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?
40
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
41
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
42
IDENTIFYING EXTERNAL
OPPORTUNITIES

OPPORTUNITIES most relevant to a
firm are factors in EXTERNAL
environment offering
Some kind of competitive
advantage
Important avenues for growth
43
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
44
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
45