Strategy Formulation Swot Analysis Tows Matrix

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					Strategic Business Planning for Commercial Producers




   What Tools Are Available to
   Generate Strategies?
Strategic Business Planning for Commercial Producers



     Generating Alternative
     Strategies from SWOT
     • SWOT analysis is a tool for helping
       assess the current situation for the
       firm.
     • However, we need to be able to
       combine the information in the SWOT
       analysis in a meaningful way to
       generate alternative strategies that we
       might pursue.
     • The TOWS matrix is a tool designed to
Strategic Business Planning for Commercial Producers




     SWOT Analysis

                       Strengths          Weaknesses
                       1.                 1.
       Internal        2.                 2.
     Environment       3.                 3.




                       Opportunities      Threats
                       1.                 1.
       External        2.                 2.
     Environment       3.                 3.
Strategic Business Planning for Commercial Producers




      TOWS Matrix
     • Technique used in strategy
       formulation for combining
         – External analysis
            • Opportunities
            • Threats
         – Internal analysis
            • Strengths
            • Weaknesses
Strategic Business Planning for Commercial Producers



      TOWS Matrix                              From External Analysis (EFAS)


        From
                                    Opportunities:        Threats:
  Internal Analysis
                                    1.                    1.
        (IFAS)
                                    2.                    2.
                                    3.                    3.

                      Strengths:       SO Strategies
                                                             ST Strategies
                      1.              Use strengths to
                                                            Use strengths to
                      2.              take advantage
                                                              avoid threats
                      3.               of opportunities

                                       WO Strategies
                                                            WT Strategies
                      Weaknesses:    Take advantage of
                                                          Defensive strategies
                      1.              opportunities by
                                                              to minimize
                      2.                overcoming
                                                           weaknesses and
                      3.                weaknesses
                                                             avoid threats
                                                                     Source: Weihrich
Strategic Business Planning for Commercial Producers




   Business-Level Strategy
Strategic Business Planning for Commercial Producers



     What Is Business-Level
     Strategy?
     Strategy is an integrated and coordinated
       set of commitments and actions
       designed to exploit core competencies
       and gain a competitive advantage.
     Business-level strategy is an integrated
       and coordinated set of commitments
       and actions designed to provide value
       to customers and gain a competitive
       advantage by exploiting core
       competencies in specific, individual
       product markets.
Strategic Business Planning for Commercial Producers




     Strategic Position

     Successful farms will answer a
       fundamental question:
     • Where will my farm focus its
                  resources and its passion?
Strategic Business Planning for Commercial Producers




     Strategic Position
      • Is the way a firm goes to market.
      • Is the fundamental way the firm creates
        value for the customer.
      • Is the passion of the organization.
      • Drives the organization’s resource
        investment decisions.
      • Is built around the firm’s core
        competencies, the firm’s primary skills
        and sources of competitive advantage.
Strategic Business Planning for Commercial Producers


     Positioning Options
   • Example of Possible Positions in an
       Agricultural Production Firm
      – Low-cost, bulk commodity producer
      – Customer-oriented specialty products
        producer
      – Full-service, consumer-focused custom
        farming operation
      – Efficient, partnership-focused contract animal
        feeder
      – Technology-focused, cutting-edge animal
        breeder
Strategic Business Planning for Commercial Producers



     Customer Focus
  • Adding value for customers ultimately
    determines a firm’s success.
  • But we need to know who the
    customers for our product are, what
    those customers needs are, and how
    to satisfy those customers’ needs.
Strategic Business Planning for Commercial Producers



     Customer Focus
   – Who is about determining what segment of
     customers we will serve.
      • Is it the broad market? Or a specific customer in our local
        marketplace?
   – What is about determining what the customer
     groups’ needs are that our products and services
     can satisfy.
      • Is it organic GMO-free products? Is it consistent timely
        delivery of the product over an entire year?
   – How is about exploiting our core competencies to
     implement value-creating strategies to satisfy our
     customers needs.
      • How can we take advantage of what we do well to deliver
        our targeted customers’ needs in a way that gives us a
        competitive advantage with this set of customers?
Strategic Business Planning for Commercial Producers


   Overall Strategic Orientation
                            Core Competency
                     Cost       Coordination   Differentiation


                  Low-Cost
      Broad                    Coordination Differentiation
                   Leader
     Market
     Scope

      Niche                     Customization
Strategic Business Planning for Commercial Producers


   Strategic Orientation
                            Core Competency
                     Cost       Coordination   Differentiation


                  Low-Cost
      Broad
                   Leader
     Market
     Scope

      Niche
Strategic Business Planning for Commercial Producers


   Low-Cost Leader Strategy

              PRICE = $10
                                  PRICE = $8

              PROFIT = $5
                                 PROFIT = $6

               COST = $5
                                  COST = $2
               INDUSTRY             COST
               AVERAGE           LEADERSHIP
Strategic Business Planning for Commercial Producers


   Low-Cost Leader Strategy
   Actions are integrated and designed to
     produce or deliver goods or services at the
     lowest cost, relative to that of competitors,
     with features that are acceptable to
     customers.
   Firms seeking competitive advantage through
     this business-level strategy often sell no-
     frills, standardized goods and services to
     the industries typical customers
   Successful implementation requires a
     consistent focus on driving costs lower,
     relative to competitors’ costs.
Strategic Business Planning for Commercial Producers



     Characteristics of a
     Low-Cost Leader
     • Usually make investments in efficient-
       scale facilities
     • Maintain tight cost and overhead
       control
     • Usually minimize costs in areas such as
       service offerings, labor force, and R&D
         – Minimizing costs in the labor force is NOT
           giving away management and family labor
     • Typically have standardized processes,
       limited variety, supply chain mentality,
The Value Chain for a Low Cost
Strategy
Firm Infrastructure – cost-effective management information
systems (MIS), few managerial layers, simplified planning practices.
Human Resources: consistent policies to reduce turnover,
intense focus on training employees to be efficient and multi-skilled.
Technology: Easy-to-use production technologies,
investment in technology that improves production efficiencies.

Procurement: procedures to find the lowest cost inputs, frequent
evaluation of suppliers’ performances.
Inbound      Operations      Outbound         Marketing        Service
Logistics    Use of           Logistics       & Sales          Efficient quality
Efficient    Economies of    Delivery         Small, highly    control to
systems      scale.          schedule that    trained sales    reduce buyer
to link                      reduces costs.   force.           complaints.
supplier     Construction of
products     efficient scale Selection of     Products
with         facilities.     low-cost         priced to
production                   carriers.        generate
processes.                                    sales volume.
Strategic Business Planning for Commercial Producers


    Low-Cost Strategy and the Five
    Forces
  • Rivalry – can sustain low prices better than
    competitors
  • Power of buyers – price pressure not likely
    to be below that of next-most-efficient
    competitor
  • Power of suppliers – better able to absorb
    price increases than other competitors
  • Threat of new entrants – ever improving
    efficiency levels to create entry barriers
  • Substitutes – has more flexibility to reduce
Strategic Business Planning for Commercial Producers




     Low-Cost Leadership
     • Organization attempts to
       outperform competitors by doing
       everything it can to produce goods
       or services at a lower cost than
       competitors
     • Emphasis is on operational
       efficiency
     • May be achieved through process
       innovations
Strategic Business Planning for Commercial Producers


     Examples of Low Cost
     Leadership

     •   Southwest Airlines
     •   Wal-Mart
     •   Gateway Computers
     •   Nucor Steel
     •   Nissan
Strategic Business Planning for Commercial Producers




     Cost Leadership

     • What are some things that can
       help us be cost leaders in
       production agriculture?
Strategic Business Planning for Commercial Producers


 Strategic Orientation
                            Core Competency
                     Cost       Coordination   Differentiation


                  Low-Cost
      Broad                                    Differentiation
                   Leader
     Market
     Scope

      Niche
Strategic Business Planning for Commercial Producers


    Differentiation
   • Organization attempts to create a product
     that is perceived by customers as unique
     in some important way
   • Emphasis is on strategic positioning
   • May be achieved through
      – Superior quality
      – Superior customer responsiveness
      – Superior innovation
   • Results in above average returns through
     premium pricing
Strategic Business Planning for Commercial Producers


     Differentiation
                                    PRICE = $12

             PRICE = $10
                                   PROFIT = $6
            PROFIT = $5


                                    COST = $6
              COST = $5

             INDUSTRY           DIFFERENTIATION
             AVERAGE
Strategic Business Planning for Commercial Producers



     Differentiation Strategy
  • Integrated set of actions is designed to produce or
    deliver goods or services that customers perceive
    as being different in ways that are important to
    them.
  • Firms following this business-level strategy rely on
    unique features of their product or service to drive
    superior margins to those of their competitors.
  • A firm’s product can be differentiated in an almost
    countless number of ways, such as:
     –   Unusual features
     –   Responsive customer service
     –   Rapid product innovation
     –   Technological leadership
     –   Perceived prestige and status
     –   Different tastes
Strategic Business Planning for Commercial Producers



   Characteristics of Differentiated
   Firms
     • Mental focus on the customers’
       needs
     • Entrepreneurial business
       structure, creativity, and
       innovation prized and encouraged
     • Efforts spent communicating value
       to customers
     • Efficiency important, but cost
       secondary to delivering value to
The Value Chain for a Differentiation
Strategy
Firm Infrastructure – Highly developed MIS to capture
customer preferences, firm-wide focus on high-quality products.
Human Resources: Compensation encourages creativity,
subjective performance measures, superior training.
Technology: strong capability in basic research, investment in
technologies that allow for production of highly differentiated products.

Procurement: procedures to find the highest quality inputs, purchase of
highest quality replacement parts, strict standards for suppliers.
Inbound Operations         Outbound       Marketing         Service
Logistics Consistent        Logistics     & Sales           Extensive buyer
Superior production of     Accurate and   Extensive         training to
handling toattractive      responsive     granting of       assure max.
minimize products.         order          credit buying.    value from
damage Rapid response      processing.                      Product.
and        to customers’                  Extensive
improve production         Rapid and      personal
quality.                   timely         relationships
           demands.
                           deliveries.    with buyers.
Strategic Business Planning for Commercial Producers



 Differentiation Strategy and the 5
 Forces
• Rivalry – creates customer loyalty that reduces price
  sensitivity
• Power of Buyers – the uniqueness of the good or
  service reduces number of suppliers and increases
  switching costs
• Power of Suppliers – higher margins insulate the firm,
  and price insensitivity by buyers allows the firm to pass on
  price increases
• Threat of New Entrants – loyalty of customers and
  need to invest in differentiating techniques reduces this
  threat
• Substitutes – loyal customers and high switching costs
Strategic Business Planning for Commercial Producers


    Examples of Differentiated
    Companies

    •   Nike
    •   Harley-Davidson
    •   Levi Jeans
    •   Mercedes-Benz
    •   John Deere
Strategic Business Planning for Commercial Producers




    Differentiation Strategy

    • What are some activities that we can
      focus on to differentiate ourselves in
      the production agriculture
      marketplace?
Strategic Business Planning for Commercial Producers


  Strategic Orientation
                            Core Competency
                     Cost        Coordination   Differentiation


                  Low-Cost
     Broad                      Coordination Differentiation
                   Leader
   Market
   Scope

     Niche
Strategic Business Planning for Commercial Producers




    Coordination
    • Focus: playing the facilitator role linking
      suppliers and customers
    • Competitive advantage based on
      innovative relationships/linkages
    • Key strengths in ability to control without
      ownership, identify market opportunities
    • Push for a more coordinated agriculture to
      create a potential role for such
      organizations
Strategic Business Planning for Commercial Producers




    Coordination
     • May add substantial value through re-
       configuring the supply chain
     • Heavy focus on soft assets, information
       and people, as opposed to hard assets,
       plant and equipment
     • Real focus on building trust among channel
       partners, developing incentive, and
       payment mechanisms that keep partners
       engaged
Strategic Business Planning for Commercial Producers


 Overall Strategic Orientation
                            Core Competency
                     Cost        Coordination   Differentiation


                  Low-Cost
     Broad                      Coordination Differentiation
                   Leader
   Market
   Scope

     Niche                       Customization
Strategic Business Planning for Commercial Producers




    Customization
    • Focus: developing highly tailored
      solutions to fit a specific set of
      customers
    • Deep relationships with the segment
      of choice
    • Can be applied to differentiation, cost
      minimization, coordination
    • Pursued by both large and small firms
      in an increasingly fragmented market
Strategic Business Planning for Commercial Producers




    Customization
    • Focus: solving problems/creating
      results for chosen segments
    • Unparalleled tailoring of solutions
    • Support tailoring through range of
      products and services consistent with
      needs, seamless access to
      resources, localized decision making
    • “Customer wins/we win” attitude
Strategic Business Planning for Commercial Producers


  Summary
  Successful farms of the new millennium will:
     – Thoroughly understand the dimensions of the
       external environment
     – Not take the market environment as a given,
       and will drive change through their own actions
     – Choose a strategic position that is consistent
       with the marketplace and their own
       competencies
     – Deliver on the critical elements supporting that
       strategic position
Strategic Business Planning for Commercial Producers


    Exercise
      • Consider one of the business units on your
        farm.
      • Who are the customers you are trying to
        serve from this business unit?
      • What opportunities and threats exist for this
        business unit?
      • What strengths and weaknesses do you
        have in this business unit relative to your
        competitors?
      • Using the TOWS matrix, is there a set of
        low-cost strategies you can pursue for this
        business unit? What about differentiation
        strategies?
Strategic Business Planning for Commercial Producers




 Strategic Business Planning
 for Commercial Producers

				
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Description: Strategy Formulation Swot Analysis Tows Matrix document sample