What Tools Are Useful in Assessing Strengths and Weaknesses?

Resources, Capabilities, and Core Competencies

Strengths and Weaknesses

• Goal: objective assessment of your strengths and weaknesses– relative to competitors– important to customers

Note: This is difficult to do well.

Challenge of Internal Analysis

• Identifying, developing, protecting, and deploying resources, capabilities, and core competencies

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.

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.

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.

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.

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

Firm Infrastructure

Human Resource Management

Technological Development

Procurement

InboundLogistics

Operations Outbound Logistics

Marketing& Sales

Service

MA

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IN

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Act

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Relationship with Suppliers Relationship with Buyers

Elapsed Time - Value added time cost

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

Marketing and Sales

Outbound Logistics

Operations

Technology

Human Resource management

Procurement

Firm Infrastructure

Service

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.

Inbound Logistics

Marketing and Sales

Outbound Logistics

OperationsService

Human Resource management

Firm Infrastructure

Human Resources

Procurement

Supporting Activities in the Value Chain

• 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

Inbound Logistics

Marketing and Sales

Outbound Logistics

Operations

Human Resources

Technological Development

Procurement

Service

Firm Infrastructure

Supporting Activities in the Value Chain

• 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

Inbound Logistics

Marketing and Sales

Outbound Logistics

Operations

Human Resource management

Firm Infrastructure

Service

Technology

Procurement

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 Value Chain – Grains Farm

Firm Infrastructure

Human Resource Management

Technological Development

Procurement

InboundLogistics

Operations Outbound Logistics

Marketing& Sales

Service

MA

RG

IN

MA

RG

IN

Sup

port

ing

Act

iviti

esP

rimar

yA

ctiv

ities

Relationship with Suppliers Relationship with Buyers

Elapsed Time - Value added time cost

Primary Activities for a Grain Farm

InboundLogistics

Fertilizer and chemical storage,

custom application

of inputs

Operations

TillagePlanningFertilizingSprayingCultivateHarvest

Outbound Logistics

Grain transport

to elevator or buyer

Grain transport to storage

Marketing& Sales

Fwd. contractsFuturesOptionsIP grain

Value added grain

ServiceOn-time del-iveryForward contractIPStorageTracingQA

Relationship with Suppliers Relationship with Buyers

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

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

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

Value Chain Linkages in the Supply Chain

Supplier Chain

Firm Chain

Buyer Chain

Supplier Chain

Buyer Chain

Buyer Chain

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.

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.

Internal Factor Analysis Summary (IFAS)

• Assesses strengths and weaknesses • Provides one overall number for the strength of your

firm’s internal position

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

Source: Wheelen and Hunger

IFAS Table – grains productionInternal 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 0.40Key to productivity. Manure from dairy helps keep fertilizer costs low.

Equipment 0.05 3 0.15 Generally in good shape but aging.

Financial position 0.10 3 0.30 Profitable, low debt, too many assets.

Information management 0.15 3 0.30Well 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 0.10 2 0.20 Out dated and in constant need of repair.

Commodity pricing 0.10 4 0.40Trying to improve by using marketing consultant.

Total 1.0 3.00

Strategic Business Planning for Commercial Producers