Marketing & Strategic Management A Framework for Agribusiness Strategy AEC 422 Fall 2014 Lecture 1

Agribusiness Input Supply Input Supply Services Services Production Production Processing Processing Distribution Distribution Wholesaling Wholesaling Retailing Retailing Science driven Technology driven Environmentally driven Market driven Scale & scope economies Regulations, competition Many other factors shape the evolution of the agribusiness sector 2AEC 422 F14

Strategy & Economics Strategy is…. Strategy is…. …the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. …the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Alfred Chandler, Strategy and Structure: Chapters in the History of the American Industrial Enterprise Alfred Chandler, Strategy and Structure: Chapters in the History of the American Industrial Enterprise 3AEC 422 F14

Strategy Integrates Many Concepts Management Management Marketing Marketing Financing Financing Economics Game theory ….in order to understand the inter-relatedness of products, markets, and competition 4AEC 422 F14

FIRM MANAGEMENT CHANNEL MANAGEMENT STRATEGY MANAGEMENT 5AEC 422 F14

FIRM MANAGEMENT Organize activities within the firm to reduce costs and maximize margins Firm leadership focuses on efficiency and continuous improvement 6AEC 422 F14

Firm Management “Classic” business management functions “Classic” business management functions Planning – marketing, forecasting, budgeting Planning – marketing, forecasting, budgeting Organizing – legal structure, authority and delegation Organizing – legal structure, authority and delegation Controlling – Cost control, break-even analysis, asset management Controlling – Cost control, break-even analysis, asset management Directing – Supervising employees Directing – Supervising employees Evaluation – Financial performance, strategy effectiveness, customer satisfaction Evaluation – Financial performance, strategy effectiveness, customer satisfaction 7AEC 422 F14

Management of the Firm Efficiency ratios – focus on productivity Efficiency ratios – focus on productivity Output/unit timeboxes packed/hr Output/unit timeboxes packed/hr Output/unit labormonthly sales/salesperson Output/unit labormonthly sales/salesperson Output/unit capitalannual sales/$ invested Output/unit capitalannual sales/$ invested Good managers increase productivity by… Good managers increase productivity by… Improving production systems Improving production systems Adopting new tools Adopting new tools Improving morale and employee incentives Improving morale and employee incentives 8AEC 422 F14

North Dakota Pasta Cooperative 9AEC 422 F14

Organization of the Business Primary activities Support activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Source: Michael Porter, AEC 422 F14

Organization of the Business Primary activities Support activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Firm Infrastructure Human Resource Management Technology Development Procurement 11AEC 422 F14

Organization of the Business Primary activities Support activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Firm Infrastructure Human Resource Management Technology Development Procurement Profit Margin 12AEC 422 F14

Obstacles to Start-Up Ventures Business Gap: Strengths vs. Needs HIGH MEDIUM LOW Management Marketing Financial Production Procurement Strengths Needs 13AEC 422 F14

FIRM MANAGEMENT CHANNEL MANAGEMENT What are the firm’s business activities? Focus: raise productivity lower costs improve margins How does the firm compete and relate to other businesses? Focus: marketing & Business alliances – “value chains” 14AEC 422 F14

Fitting into the Supply Chain Picture YOUR FIRM Competing Business Key Downstream Customer EX. Kroger, Walmart, Whole Foods Strategies formed to become a preferred supplier relationships capabilities value creation (distribution Intermediaries) 15AEC 422 F14

Supply Chain Management Facilitating Trade Data exchange Data exchange Production or product certification Production or product certification Labels, licenses, audits Labels, licenses, audits Distribution Distribution Packaging, timing Packaging, timing Contracts Contracts Joint ventures Category management Promotions, merchandising, market research Product development YOUR FIRM Key CustomerKey Supplier or Partner 16AEC 422 F14

Supply Chain Management Who is doing this stuff for our firm? Who is doing this stuff for our firm? Manager plays a critical role – but need good leadership Manager plays a critical role – but need good leadership Need to provide opportunities for manager to have GREAT communication with key customers and suppliers Need to provide opportunities for manager to have GREAT communication with key customers and suppliers Can your firm compete with other businesses? Size, organization, distribution Can your firm compete with other businesses? Size, organization, distribution It’s tough – often need to be able to move quickly to implement programs or policies It’s tough – often need to be able to move quickly to implement programs or policies 17AEC 422 F14

FIRM MANAGEMENT CHANNEL MANAGEMENT STRATEGY MANAGEMENT Where is the business headed? How do I build and keep competitive advantage? Focus: market and competitor positioning – creating isolating mechanisms 18AEC 422 F14

The Strategy Process Assumptions & Beliefs about the Firm’s World Development of Strategy Operations (Strategy Implementation) Performance Control Select/Alter Challenge Change? 19AEC 422 F14

Source: Complements of Jim LeCureaux 20AEC 422 F14

The Strategy Process Assumptions & Beliefs about the Firm’s World Development of Strategy Operations (Strategy Implementation) Performance Control Select/Alter Challenge Change? FEASIBILITY STUDIES BUSINESS PLANS 21AEC 422 F14

Strategic Management What is the longer term direction of our business? What is the longer term direction of our business? Is our direction sustainable? Is our direction sustainable? What is the likely competitive response? What is the likely competitive response? What is our business really about? Defines a focus on…. What is our business really about? Defines a focus on…. Partnerships Partnerships Products (ex. Natural Products, Wine grapes, Soy Products) Products (ex. Natural Products, Wine grapes, Soy Products) Processes (ex. Organic, frozen foods, distribution) Processes (ex. Organic, frozen foods, distribution) 22AEC 422 F14

Core abilities of the firm Core abilities of the firm Understand what we do well Understand what we do well Make, partner, outsource, eliminate kinds of decisions Make, partner, outsource, eliminate kinds of decisions (ex.. Hubers’ Wine/cheese) (ex.. Hubers’ Wine/cheese) Search for complementary business activities Search for complementary business activities Strategy direction with input from financial partners and manager Strategy direction with input from financial partners and manager Accounting focus: “viable going concern” Accounting focus: “viable going concern” Strategic Management 23AEC 422 F14

FIRM MANAGEMENT CHANNEL MANAGEMENT STRATEGY MANAGEMENT 24AEC 422 F14

Putting it all together Strategy choices should determine the market channel relationships Strategy choices should determine the market channel relationships The market channel relationships and strategy should determine the scope and focus of the business activities The market channel relationships and strategy should determine the scope and focus of the business activities Adaptability of the firm to new opportunities is critical for long term success Adaptability of the firm to new opportunities is critical for long term success Review Besanko Ch1, Ch2 Review Besanko Ch1, Ch2 Application to Nest Fresh Eggs case Application to Nest Fresh Eggs case Firm, channel, strategy Firm, channel, strategy 25AEC 422 F14