STRATEGIC BUSINESS MANAGEMENT

PRINCIPLES
AGBE 445
Agribusiness Management
Dr. Gary W. Brester
Department of Agricultural Economics and
Economics

THREE PRIMARY ASPECTS OF

STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis

THREE PRIMARY ASPECTS OF

STRATEGIC BUSINESS MANAGEMENT

Industry and Competitive Analysis

Strategy and Competitive Advantage

Company Situation and Analysis

INDUSTRY AND COMPETITIVE

ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors

INDUSTRY AND COMPETITIVE

ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors

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WHY DO A SITUATION ANALYSIS?

Objective

Identify features in a firms 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
(firms internal situation & competitive position)

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 Companys
Own Situation
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INDUSTRY AND COMPETITIVE

ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors

KEY QUESTIONS REGARDING

EXTERNAL ENVIRONMENT
1. Industrys 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
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IDENTIFYING AN INDUSTRYS
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!
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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
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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
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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

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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 entrants small sales volume puts it a
price/cost disadvantage

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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

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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

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COMPETITIVE FORCE OF BUYERS

Buyers are a strong competitive force when

They are large & purchase a sizable percentage
of industrys product
They buy in volume quantities
They incur low costs in switching to substitutes
They have flexibility to purchase from several
sellers
Selling industrys product is standardized
They can integrate backward
Product being purchased does NOT save buyer
money or has low value to buyer

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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
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INDUSTRY AND COMPETITIVE

ANALYSIS

Situation Analysis

Industry Environment

Five Competitive Forces

Driving Forces

Key Success Factors

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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

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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

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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

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PINPOINTING INDUSTRY KEY

SUCCESS FACTORS

Identifying KSFs is top priority as they are

good cornerstones of a firms 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
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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

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STRATEGY &
COMPETITIVE ADVANTAGE

COMPETITIVE ADVANTAGE exists when firm has

an edge in
Defending against competitive forces &
Securing customers

KEY TO SUCCESS

Convince customers firms 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

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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

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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
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THE THREE GENERIC

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

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THE THREE GENERIC

COMPETITIVE STRATEGIES
DIFFERENTIATION
Striving to build customer loyalty by differentiating
ones product offerings from rivals products

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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 Firms Competitive Position

Identifying Strategic Issues

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KEY QUESTIONS IN COMPANY

SITUATION ANALYSIS
1. How well is firms present strategy working?
2. What are firms strengths, weaknesses,
opportunities, & threats?
3. Are firms prices & costs competitive?
4. How strong is firms competitive position?
5. What strategic issues does firm face?
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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 firms

INTERNAL strengths & weaknesses and
EXTERNAL opportunities & threats

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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
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IDENTIFYING EXTERNAL
OPPORTUNITIES

OPPORTUNITIES most relevant to a

firm are factors in EXTERNAL
environment offering
Some kind of competitive advantage
Important avenues for growth
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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

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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

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