Internal Factor Analysis

Strategic Management: Internal Factor Analysis

Building For the Future: A Farm Managers Workshop
Sterling, CO February 26, 2008

Todays Objectives
How can a firm identify its strengths and weaknesses? What are your firms core competencies? Can you create a sustainable competitive advantage?
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SWOT Analysis
Customers

Competitors

Purpose to identify: Strengths Internal Weaknesses Opportunities Threats

3 Firm

External

Market Conditions

Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Strengths and Weaknesses

Goal: objective assessment of your strengths and weaknesses to: identify, protect and deploy resources,
understand capabilities and p develop core competencies. Assess strengths and weakness: Relative to your competitors and Important to your customers.

Note: This is difficult to do well.

Resources
Inputs into a farms production process such as capital equipment, skill of individual employees, patents, finance, and talented managers.
Tangible Resources Assets that can be seen and g quantified Intangible Resources Family commitment, networks, organizational culture, reputation.

By themselves resources do not create a strategic advantage for the farm.

Capabilities
The firms capacity to deploy resources that have been purposely integrated to achieve a desired end state. Primary base for the firms 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.
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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Core Competencies
Core Competencies are the end result of deploying resources using the firms capabilities. A core competency must be unique to the firm to create a sustainable competitive

advantage.

Research indicates firms focus on 3 or 4 core competencies.

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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.

Exercise: Identifying Strengths and Weaknesses

Internal Factor Analysis Summary (IFAS) Table
List up to 5 strengths and 5 weaknesses in your firms 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

Assess your firms current actions to take advantage of this strength or improve on this weakness
5 is well positioned to 1 being poorly positioned

Hand in the IFAS for your firm at the end of the period.
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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Strengths and Weaknesses

Consider marketing
products/services price/risk management distribution/location

Consider people
management farm employees

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Strengths and Weaknesses

Consider operations/facilities
implementation facilities/equipment cost management/efficiency

Consider finances
profitability debt position/capital structure inventory/receivable management
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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
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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

The Value Chain

Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Operations Logistics

Outbound Marketing Service Logistics & Sales

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

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Primary Activities in the Value Chain

Inbound Logistics

Procurement

Human Resource management Human Resources

Firm Infrastructure

Operations

Outbound Logistics

Marketing and Sales

Service

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 products value Timely delivery, identity preservation, certifying as organic, etc.

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Supporting Activities in the Value Chain

Procurement
Inbound Logistics

Procurement Technological Development Human Resources Firm Infrastructure

Service Operations Outbound Logistics Marketing and Sales

Activities to purchase the inputs needed to produce products Negotiating with suppliers, standard timing of replenishing parts and tools, tools setting up buying groups etc groups, etc.

Technological Development
Activities that improve the firms products and/or processes Volunteering for test plots, being a part of feeding trials, attending technology seminars/field days, designing equipment to make specifi production tasks more efficient, etc.

Human Resources
Recruiting, hiring, training, developing, and compensating all personnel 15

Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Supporting Activities in the Value Chain

Inbound Logistics

Human Resource management Procurement

Technology Firm Infrastructure

Service Operations Outbound Logistics Marketing and Sales

Firm Infrastructure
General Management, planning, finance, accounting, legal pp g 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

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The Result of the Value Chain

Margins
Capture the value from performing value-creating activities as cheaply as possible g p y 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.
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The Value Chain Grains Farm

Firm Infrastructure

Supporting Activities

Human Resource Management Technological Development Procurement

Inbound Operations Logistics

Outbound Marketing Service Logistics & Sales

Relationship with Suppliers

Relationship with Buyers

Elapsed Time - Value added time cost

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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Primary Activities for a Grain Farm

Service Outbound On-time delLogistics Marketing ivery Inbound Operations & Sales Forward Logistics contract Grain
Fertilizer and chemical storage, custom application of inputs Tillage Planning Pl i Fertilizing Spraying Cultivate Harvest transport Fwd contracts Fwd. to elevator Futures Options or buyer IP grain Grain Value added grain transport to storage IP Storage Tracing QA

Relationship with Suppliers Relationship with Buyers

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Supporting Activities for a Grain Farm

Infrastructure: management, planning, finance,
accounting, government compliance, quality control

Human Resource: motivation tools, compensation,

training, and directing f farm employees, including family, management, and laborers

Technological Development: research and adoption practices for things like GPS, VRT, GMOs, 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
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Value Chain Analysis

A firms 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 competitors performances Perform a value-creating activity that competitors cannot complete

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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

Linkages within the Value Chain

Optimization and coordination of activities in the value chain Linkages exist between support activities and p a y act t es a d bet ee separate primary activities and between sepa ate 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 22

Value Chain Linkages in the Supply Chain

Buyer Chain Supplier Chain Firm Chain Supplier Chain Buyer Chain
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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 suppliers bargaining power and reflecting in suppliers margins. Both coordination with suppliers and hard bargaining are important to competitive advantage.

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Building for the Future: A Farm Managers Workshop

Internal Factor Analysis

The Buyers Value Chain

A firms differentiation stems from how its value chain relates to its buyers chain. Differentiation derives fundamentally from creating value for the buyer through a firms impact on the buyers 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.

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Building for the Future: A Farm Managers Workshop