We've already touched on some of these concepts mentioned in chapters 13 and 14 when evaluating Monsanto.
First let's look at strategic alliance. You've already read about the cooperation of Monsanto with Dow in developing corn seeds. A more significant part of their daily operations however are the relationships with Monsanto's suppliers. And operating through global procurement, there are obvious advantages for the company. One is that they have a choice in who they deal with. They have flexibility within their supply chain to partner with suppliers in areas that are convenient for them, they're able to negotiate and take bids allowing them to keep their costs reasonable, and they can keep their level of diversity without having to micromanage and produce in each step of the production process. Furthermore, using this approach allows a more sustainable procurement for Monsanto without burdening or overusing resources in one particular area. For small areas or economically struggling, partnering with the company may lead to more local jobs and put more money into that local economy. Thus it is a better option for all involved.
There are also advantages for the suppliers that partner with Monsanto. For many of the small companies, landing Monsanto would be a very large account. Also they can be located anywhere in the world and still have an opportunity at venturing with them. Because Monsanto uses a large variety and number of suppliers, there's not an unreasonable expectation for one company to mass produce. Each company contributes what they can/what they commit to.
These partnerships are known as supply agreements.
Through licensing agreements, Monsanto builds another type of relationship through its corn states branch by selling some of its licenses to smaller seed companies. A good analogy of this may be like a resource/research thrift shop. It gives smaller seed companies an advantage because they do not have the money needed to invest in research or production for genetic modified products. This gives them the ability to incorporate modification needed for their area such as herbicide resistance in a mixed tailored for their local area and gives local farmers more choices based on their financial abilities. This also benefits Monsanto in a couple of ways. It builds relationships which is always a great means of marketing, and it allows them extra income for formulas they are no longer developing or selling because they are producing the next big thing.
Monsanto has formed equity alliances with numerous partners to ensure the advancement of technology and innovation. Currently, Monsanto is actively seeking partners to help them advance in biotechnology, biologics, seed breeding, and chemistry.
Monsanto has been a part of a number of mergers and acquisitions. The Jacob Hartz seed company as mentioned before was Monsanto's first acquisition. In 1996 they acquired biotech companies Agracetus and Calgene. The following year they purchased two more seed companies. 1998 they complete the purchase of Dekalb Genetics Corp.
In 2000, they entered into a merger and changed their name to Pharmacia. Monsanto's pharmaceuticals and nutrition business known as Pharmacia was later purchased by Pfizer, and Monsanto split to become the "new Monsanto".
In 2005, Monsanto purchases Seminis, Inc, a global leader in the vegetable and fruit the industry, forms ASI, holding company for corn and soybean seeds purchases two more seed companies. They also acquire Stoneville cotton company.
As the years continue, they buy more and more smaller companies. Monsanto and Dow sign a global agreement for crosslicensing. They form of business and licensing agreement with Bayer. They form a joint research and development relationship with BASF. In 2011, they acquired the biotechnology R&D company Divergence which focuses on parasites.
http://www.monsanto.com/whoweare/pages/sustainability-and-procurement.aspx
http://www.monsanto.com/whoweare/pages/partner-with-monsanto.aspx
http://www.monsanto.com/whoweare/pages/commitment-to-partnerships.aspx
http://www.monsanto.com/whoweare/pages/monsanto-history.aspx
Saturday, April 25, 2015
Implementing Corporate Diversification
Chapter 12 continues exploring diversification strategies and how companies can use them to make them more competitive if they plan appropriately. Specifically chapter 12 focuses on implementing corporate diversification. As with anything one must weigh the difference between the risks and benefits to determine if the strategy will be successful. In this case, will be competitive advantage gained by diversification be of greater value than the cost of implementing the strategy itself in the operational costs associated with maintaining the diversification.
While Monsanto is considered a GMO company, and primarily they are, they are not a GMO company that has diversified to provide chemicals and pesticides. As discussed in previous posts regarding their history, they are a chemical company that has expanded to provide other agricultural products such as seeds and GMO.
In 1901 upon opening, Monsanto's first product was saccharine. In 1945, they began producing and marketing the first agricultural chemicals. In 1964, they added herbicides. In 1975, they opened their first cell biology lab. In 1976, Roundup was released to the US market. In 1981, Monsanto becomes the first to genetically modify a plant cell and they acquire the Jacob Hartz seed company.
So as you can see, Monsanto took the profits that they made from their chemicals and reinvested it into cell biology, genetic modification, and seed production, and from a operational standpoint that really became their focus is they began to grow into this untouched territory. In the beginning, the implementation of diversification was a means to company growth. Now, chemical production and seed production are both large operations and are managed and maintained on a global scale and are for the most part separate endeavors. As a whole however, even though both categories are financially profitable and the investments in the research and development portion is very large, there are definitely some crossover and advantages that come from the diversification route they have chosen. For example, Monsanto produces herbicide. They also produced seeds that are herbicide resistant. Because they produce both, research efforts are made much easier.
This also makes me wonder if building 2 products that are reliant on each other or that creates exclusivity is unethical or just good business strategy? For example, Monsanto creates Roundup, then creates a Roundup resistant seed. This implies other seeds used with Roundup may be at risk to yield an inconsistent crop. It also implies that Monsanto Roundup resistant seed may be at risk if used with other types of herbicide. This would lock the farmer into both choices.
Even though the company carries several brands and operates with global procurement working with various and diverse suppliers and external partnerships to lead to technological innovations, it all comes back to leadership under one small group of 13 comprised of a CEO, COO, VP's and a board of directors.
http://www.monsanto.com/whoweare/pages/board-of-directors.aspx
http://www.monsanto.com/whoweare/pages/monsanto-leadership.aspx
http://www.monsanto.com/whoweare/pages/monsanto-leadership.aspx
Wednesday, April 8, 2015
Diversification Strategies
Chapter 11 discusses how businesses use diversification or lack of as a strategy. There is a broad range of possibilities of involvement levels. Some companies choose to focus solely on one area (what they do best) and provide strictly one type of service or product. This is called single business or limited diversification. The most diversified companies participate in unrelated diversification, meaning the products or services are just as implied unrelated and broadly varied.
For Monsanto corporation, they practice somewhere around the middle in what is called related constrained diversification. The products and support they provide are related, they all focus on agricultural sustainability, but they have a variety of offerings. They provide traditional seeds, GMO seeds, research and development leads of course to those products but also to expertise/advice to the farmers they serve, and they also provide pesticides and herbicides. Adding this variety makes them more appealing to their agricultural customers, because even if their needs change, they can still offer predictions, advice, and service. This also helps them to sustain unexpected hurdles in production. If a seed doesn't produce as planned or the pest population is slightly different, they can push another one of their products that do meet current needs. Diversification is like always having a back-up, as long as you are prepared, budgeted, and experienced enough to support the variety of products you plan to produce.
Monday, April 6, 2015
Vertical Integration Strategies
In Chapter 10, Barney teaches the principles of vertical integration strategies.
Key definitions to understand:
Value Chain: "set of discrete activities that must be accomplished to design, build, sell, and distribute a product or service"
Vertical integration: "the number of stages in a product/service's value chain in which a firm engages"
The amount of value that the level of integration adds can be computed by using a formula the divides the value added by the level of integration minus net income and taxes by the amount of sales minus the net income and taxes, or in another way, value added is equivalent to depreciation plus amortization plus fixed charges plus income tax plus net income plus interest expense plus labor expense plus rental expense.
Of course the level of vertical integration that makes sense is industry and company specific often times. While there would be significant cost-savings and benefits to controlling the process from point A through Z for some companies, the inability to focus efforts or the cost involved with all of the segments of the process can be detrimental for others.
In evaluating Monsanto, we find a good deal of vertical integration, however, they do not control every step of their production process.
Monsanto defines themself as "a sustainable agriculture company. We deliver agricultural products that support farmers all around the world." (http://www.monsanto.com/whoweare/pages/default.aspx)
They provide genetically modified seeds (GMO), pesticides and herbicides (like Roundup), and also some traditional seeds as well. They form and actively seek partnerships to aid them in the areas of the research and development of the GMO's (http://www.monsanto.com/sitecollectiondocuments/partnering-technology-focus-areas.pdf). They contract out some of the seed production to various suppliers globally. They have also been a chemical company since their startup in the early 1900's and oversee that process.
Monsanto states that the companies that partner with them and work with them as a supplier must adhere to there values and serve with their mission to the globes farmers. They list a variety of the companies that collaborate with them.
Key definitions to understand:
Value Chain: "set of discrete activities that must be accomplished to design, build, sell, and distribute a product or service"
Vertical integration: "the number of stages in a product/service's value chain in which a firm engages"
The amount of value that the level of integration adds can be computed by using a formula the divides the value added by the level of integration minus net income and taxes by the amount of sales minus the net income and taxes, or in another way, value added is equivalent to depreciation plus amortization plus fixed charges plus income tax plus net income plus interest expense plus labor expense plus rental expense.
Of course the level of vertical integration that makes sense is industry and company specific often times. While there would be significant cost-savings and benefits to controlling the process from point A through Z for some companies, the inability to focus efforts or the cost involved with all of the segments of the process can be detrimental for others.
In evaluating Monsanto, we find a good deal of vertical integration, however, they do not control every step of their production process.
Monsanto defines themself as "a sustainable agriculture company. We deliver agricultural products that support farmers all around the world." (http://www.monsanto.com/whoweare/pages/default.aspx)
They provide genetically modified seeds (GMO), pesticides and herbicides (like Roundup), and also some traditional seeds as well. They form and actively seek partnerships to aid them in the areas of the research and development of the GMO's (http://www.monsanto.com/sitecollectiondocuments/partnering-technology-focus-areas.pdf). They contract out some of the seed production to various suppliers globally. They have also been a chemical company since their startup in the early 1900's and oversee that process.
Monsanto states that the companies that partner with them and work with them as a supplier must adhere to there values and serve with their mission to the globes farmers. They list a variety of the companies that collaborate with them.
Sunday, March 29, 2015
Ch 9: Tacit Collusion: Cooperation to Reduce Competition
Tacit collusion was actually addressed once in my blog posting "Evaluating Environmental Threats".
See exerpt from Feb 8:
"Tacit Collusion- In the past, Dow and Monsanto have worked to strategically cooperate on development of GM corn seeds. While care was taken to avoid explicit collusion (which is illegal), they also had to attempt to avoid tacit collusion as well, which is sometimes difficult in horizontal alliances." (http://en.wikipedia.org/wiki/Tacit_collusion)
To better understand what tacit collusion is (as the lines seem blurry), let's start with wikipedia that defines it like this:
While competition in any industry is good for the consumer, it pushes product and service quality, helps keep prices down, and gives the consumer choices, it is reasonable to see how businesses could benefit from not competing if possible. This would only be possible if (1) the company had a monopoly on the market or (2) the companies at odds agreed to share amicably serving the best interests of both.
When the latter is the condition, things can get sticky. A price leader is defined by Barney in the text as "a firm that sets acceptable industry prices or margins." This characteristic sets the stage many times for collusion. In an industry where costs for research and development are significant and the time for a product to make it to market is lengthy, there would seem to be much temptation for collusion. If Monsanto knows that company B Iin the above case, Dow) is working on a specific line of corn seeds, it would be in the best interest of both companies not to invest years and millions of dollars into an identical product. Thus they cooperate.
Also, there is much to consider when setting the prices to ensure the costs of R&D are recouped, especially in the agriculture industry where depending on the season/weather/pests and various factors, needs may change and the window of opportunity for sales might be difficult to predict.
That being considered, as long as the competition knows what is in the pipeline for their adversaries, tacit collusion is a non-issue due to the costly-to-duplicate nature of the GM industry.
Sunday, March 22, 2015
Flexibility: Real Options Analysis Under Risk and Uncertainty
Businesses must have strategies that allow them to make it through difficult periods. Depending on the type of market, the level of risk and uncertainty must be weighed and tools should be implemented to help protect the company against times of challenge. For Monsanto, their strategizing has come under serious scrutiny. Two of their choices in particular strike a nerve.
The first: they claim that they have a right to a percentage of sales on all genetically modified resulting crops. For example, they sell the seed. The farmer grows the crop. The renewal crop that results the following year is subject to a royalty of 2% each year according to Monsanto.
The second: they are big guns that shoot at little guys. They are the world's largest seed provider, yet they have sued farmers who unknowingly used genetic modified seeds through third party purchase and were unaware of the renewal royalties expected from Monsanto.
How are they trying to enforce these rules and ensure the continued pay in case R&D is lacking or there are issues with new product? They are attempting to recreate the copywright/patent that would make any plant derivative of a GMO that started with Monsanto their intellectual property! Many call this "unnatural".
"The issue as it concerns Monsanto is not whether the company has a right to sell products and charge for them as it chooses. But essentially, Monsanto holds crops hostage with its position on royalties. The farmer grows his crop using manifold resources including labor. He also grows the seeds that he intends to replant – but finds he cannot until Monsanto is paid again … and again."
If Monsanto owns the rights to a portion of the profits from all future crops because their products were key in developing the original one, this gives them increased flexibility and padding in the event of a bad season for producing or sale of a new product. Because research and development is very costly to imitate, manufacturing decisions are crucial and can result in heavy losses if the wrong choices are made.
http://www.infowars.com/monsantos-business-model-a-devious-strategy-to-extend-copyright-into-perpetuity/
The first: they claim that they have a right to a percentage of sales on all genetically modified resulting crops. For example, they sell the seed. The farmer grows the crop. The renewal crop that results the following year is subject to a royalty of 2% each year according to Monsanto.
The second: they are big guns that shoot at little guys. They are the world's largest seed provider, yet they have sued farmers who unknowingly used genetic modified seeds through third party purchase and were unaware of the renewal royalties expected from Monsanto.
How are they trying to enforce these rules and ensure the continued pay in case R&D is lacking or there are issues with new product? They are attempting to recreate the copywright/patent that would make any plant derivative of a GMO that started with Monsanto their intellectual property! Many call this "unnatural".
"The issue as it concerns Monsanto is not whether the company has a right to sell products and charge for them as it chooses. But essentially, Monsanto holds crops hostage with its position on royalties. The farmer grows his crop using manifold resources including labor. He also grows the seeds that he intends to replant – but finds he cannot until Monsanto is paid again … and again."
If Monsanto owns the rights to a portion of the profits from all future crops because their products were key in developing the original one, this gives them increased flexibility and padding in the event of a bad season for producing or sale of a new product. Because research and development is very costly to imitate, manufacturing decisions are crucial and can result in heavy losses if the wrong choices are made.
http://www.infowars.com/monsantos-business-model-a-devious-strategy-to-extend-copyright-into-perpetuity/
Sunday, March 8, 2015
Monsanto: Product Differentiation
In Chapter 7, Barney discusses how businesses use product differentiation to their advantage. There are various way that firms can differentiate their products or services:
Product features
Product complexity
Timing of product introduction
Location
Product customization
Consumer marketing
Product reputation
Linkages among functions within a firm
Linkages with other firms
Product mix
Distribution channels
Service and support
Monsanto utilizes a few of these to their advantage.
Product features: Monsanto provides seeds that are genetically modified to fight off infestation from weeds and certain pests. Research and development is constant to stay abreast of the needs of farmers and keep an edge over the competition.
Product complexity: Similar to product features, Monsanto uses this to stay ahead. Making sure their products meet a particular need, they also have seeds that must be replanted annually to increase sales and stay current.
Timing of product introduction is key to ensure the product is available in time for planting season.
Location: They produce globally and provide globally.
Consumer marketing and product reputation are two areas where Monsanto could perhaps use a little help. Lack of regulation on GMOs means they are widely criticized and many end product consumers are speculative regarding the safety and wholesomeness of their genetically modified seeds. Also, with the company being a producer of chemicals from it's beginning, they carry a stigma they can't seem to shake.
Saturday, February 28, 2015
Cost Leadership: Monsanto's Strategy
When evaluating what cost advantage Monsanto exploits, one finds that Monsanto's approach is not necessarily to be a cost leader. Below is an exerpt from the Monsanto website discussing their seed pricing strategy.
"....as a business, we pride ourselves on products that provide the most value, and on being transparent in the way we price them...Our pricing philosophy is a key component of our commitment to serving the best interest of our farmer customers."
http://www.monsanto.com/newsviews/pages/seed-prices.aspx
Their business strategy is product differentiation (and sometimes tacit collusion) but not cost leadership. They are not shy about this, in fact, it is laid out squarely in this direct quote from their website (cited above).
"When determining the value provided by seed, we consider tangible and intangible benefits the product provides as compared to competing alternatives. Tangible factors include the money farmers save on inputs that our products reduce the need for (chemicals, labor, equipment, fuel, etc.) and the additional income from increases in yield. Intangible factors include convenience, reduction in financial risk and reduced exposure to chemicals. In some crops, these benefits differ between regions and we account for this through regional pricing. Much of the data we use to quantify benefits comes from annual field testing conducted in cooperation with our customers on their farms. Analysis of this data helps us price products so they deliver more value to farmers than competitors’ products."
This concept is interesting to me. While most industries I feel, focus on how much did it cost them to make and market their products, and how much will they need to sell at said price to yield profit, Monsanto focuses on what can they charge that customers will feel is reasonable based on all the benefits of their product. Then they further push or pull the pricepoint depending on the region and what competition exists for those local crops, how much people of that region are willing to pay for their advantages, and how much will people save in other expenses by choosing their product versus another without genetic modification.
"....as a business, we pride ourselves on products that provide the most value, and on being transparent in the way we price them...Our pricing philosophy is a key component of our commitment to serving the best interest of our farmer customers."
http://www.monsanto.com/newsviews/pages/seed-prices.aspx
Their business strategy is product differentiation (and sometimes tacit collusion) but not cost leadership. They are not shy about this, in fact, it is laid out squarely in this direct quote from their website (cited above).
"When determining the value provided by seed, we consider tangible and intangible benefits the product provides as compared to competing alternatives. Tangible factors include the money farmers save on inputs that our products reduce the need for (chemicals, labor, equipment, fuel, etc.) and the additional income from increases in yield. Intangible factors include convenience, reduction in financial risk and reduced exposure to chemicals. In some crops, these benefits differ between regions and we account for this through regional pricing. Much of the data we use to quantify benefits comes from annual field testing conducted in cooperation with our customers on their farms. Analysis of this data helps us price products so they deliver more value to farmers than competitors’ products."
This concept is interesting to me. While most industries I feel, focus on how much did it cost them to make and market their products, and how much will they need to sell at said price to yield profit, Monsanto focuses on what can they charge that customers will feel is reasonable based on all the benefits of their product. Then they further push or pull the pricepoint depending on the region and what competition exists for those local crops, how much people of that region are willing to pay for their advantages, and how much will people save in other expenses by choosing their product versus another without genetic modification.
Saturday, February 21, 2015
Evaluating Firm Strengths and Weaknesses: The Resource-Based View
Applying the VRIO Framework to Monsanto:
VRIO: Value, Rarity, Imitability, and Organization
When evaluating the resources and capabilities of the firm, it is essential to strategize in a way that exploits the environmental strengths and minimizes environmental threats as much as possible.
Using the VRIO framework approach, one asks the question, "Is the resource or capability...valuable? rare? costly to imitate? exploited by organization?"
Applying this principle, where does Monsanto lie?
Their products are unique. They are relatively rare, because they take a significant amount of time and money to develop. The research that goes into development of genetically modified seeds rival that of drugs and vaccines. Also, it would be both costly and difficult to imitate. They definitely capitalize on this quality.
They are global. This capability is not extremely rare overall. However, it is valuable and they definitely exploit this capability. If there are production issues in certain countries or areas, there are numberous other locations that could potentially meet there needs. This would be costly to imitate for other agricultural companies.
Clients gain more than a product. If a farmer invests in seeds that are modified by Monsanto to produce bigger, better crops, they also come with an innate defense against certain pests. This type of insurance without having to add poisonous chemicals/pesticides to the crops and guaranteeing a ROI by the increase in producation is definitely valuable. Is it rare? Potentially. Rare because competition is relatively scarce. Also, because so many variables go into farming. The quality of the land and most of all the weather are big determinants of success in addition to the quality of the seed. One way that Monsanto exploits the knowledge of these variables is by providing data to the farmers to help them prepare for the season and giving them expert advice based on the data gathered from state of the art equipment. This is a great perk to a farmer without the means to invest in that type of research based investment.
It would appear that they are pretty wise about what it takes to stay competitive in this market when it comes to the basics.
VRIO: Value, Rarity, Imitability, and Organization
When evaluating the resources and capabilities of the firm, it is essential to strategize in a way that exploits the environmental strengths and minimizes environmental threats as much as possible.
Using the VRIO framework approach, one asks the question, "Is the resource or capability...valuable? rare? costly to imitate? exploited by organization?"
Applying this principle, where does Monsanto lie?
Their products are unique. They are relatively rare, because they take a significant amount of time and money to develop. The research that goes into development of genetically modified seeds rival that of drugs and vaccines. Also, it would be both costly and difficult to imitate. They definitely capitalize on this quality.
They are global. This capability is not extremely rare overall. However, it is valuable and they definitely exploit this capability. If there are production issues in certain countries or areas, there are numberous other locations that could potentially meet there needs. This would be costly to imitate for other agricultural companies.
Clients gain more than a product. If a farmer invests in seeds that are modified by Monsanto to produce bigger, better crops, they also come with an innate defense against certain pests. This type of insurance without having to add poisonous chemicals/pesticides to the crops and guaranteeing a ROI by the increase in producation is definitely valuable. Is it rare? Potentially. Rare because competition is relatively scarce. Also, because so many variables go into farming. The quality of the land and most of all the weather are big determinants of success in addition to the quality of the seed. One way that Monsanto exploits the knowledge of these variables is by providing data to the farmers to help them prepare for the season and giving them expert advice based on the data gathered from state of the art equipment. This is a great perk to a farmer without the means to invest in that type of research based investment.
It would appear that they are pretty wise about what it takes to stay competitive in this market when it comes to the basics.
Thursday, February 12, 2015
Evaluating Environmental Opportunities
In Chapter 4 of Gaining and Sustaining Competitive Advantage, we take what we have learned in analyzing threats and extrapolate that into identifying opportunities.
Here, we will look at what strategies can be or are used by Monsanto to neutralize the various threats.
Neutralizing the threat of entry: To neutralize threat of entry, one would choose a strategy of erecting barriers to entry for other potential competitors. For Monsanto, the threat of new competitors is lower than in some other industries because of product differentiation and prohibitive costs related to product development.
Neutralizing the threat of rivals: One method of finding an advantage over the competition is to evolve product based on customer needs. The expense of genomic research and product development means it is vital to ensure product differentiation if possible. Another method is forming strategic alliances, which Monsanto has also done in the past as discussed briefly in the last post.
Neutralizing the threat of substitutes: The same strategies apply as thwarting the threat of rivals.
Neutralizing the threat of suppliers: Monsanto does not rely on any major supplier. For needs that they don't internally meet, they reach out to a diverse group of farmers. They claim to strive to meet the social commitment they have to the communities they serve. They also spread out globally. For this threat to be significant, Monsanto would have to do something significant to turn multiple groups against them to be effected by this threat.
Neutralizing the threat of buyers: Two primary methods of neutralization are product differentiation and seeking additional buyers. Monsanto participates in both of these measures.
One strategy that may benefit all of the these threats except the first one, is some PR overhaul. While Monsanto's website looks very "Kumbaya", their press is often anything but! If Monsanto wants to truly optimize their competitive advantages, having a public perception of benevolence and ethic conscience would go far. Not only do they have to be honest and forthcoming with their direct customers in the farming community, but the end products of their seeds are the general public, and they must be supportive as well or the farmers will not want to grow their product.
Here, we will look at what strategies can be or are used by Monsanto to neutralize the various threats.
Neutralizing the threat of entry: To neutralize threat of entry, one would choose a strategy of erecting barriers to entry for other potential competitors. For Monsanto, the threat of new competitors is lower than in some other industries because of product differentiation and prohibitive costs related to product development.
Neutralizing the threat of rivals: One method of finding an advantage over the competition is to evolve product based on customer needs. The expense of genomic research and product development means it is vital to ensure product differentiation if possible. Another method is forming strategic alliances, which Monsanto has also done in the past as discussed briefly in the last post.
Neutralizing the threat of substitutes: The same strategies apply as thwarting the threat of rivals.
Neutralizing the threat of suppliers: Monsanto does not rely on any major supplier. For needs that they don't internally meet, they reach out to a diverse group of farmers. They claim to strive to meet the social commitment they have to the communities they serve. They also spread out globally. For this threat to be significant, Monsanto would have to do something significant to turn multiple groups against them to be effected by this threat.
Neutralizing the threat of buyers: Two primary methods of neutralization are product differentiation and seeking additional buyers. Monsanto participates in both of these measures.
One strategy that may benefit all of the these threats except the first one, is some PR overhaul. While Monsanto's website looks very "Kumbaya", their press is often anything but! If Monsanto wants to truly optimize their competitive advantages, having a public perception of benevolence and ethic conscience would go far. Not only do they have to be honest and forthcoming with their direct customers in the farming community, but the end products of their seeds are the general public, and they must be supportive as well or the farmers will not want to grow their product.
Sunday, February 8, 2015
Evaluating Environmental Threats
In this chapter, we learn about the Structure-Conduct-Performance Model as a means to understand the relationship among a firm's environment, behavior, and performance. This model evaluates industry structure, firm conduct, and performance.
By applying the model, one can predict some constraints, competition, and potential barriers facing the company in question and likelihood of struggle for a new entrant into the market.
Let's look at Monsanto,
Type of industry: agricultural genetic modification/breakdown of operations equals providing seed and research/genomics
Number of competing firms-There are several large companies competing for providing seed to farmers worldwide. In the area of agricultural genomics however, there are only about 4 companies to note (Archer Daniels Midland, Dow Chemical, Evogene, and Syngenta)
Homegeneity of products- Products are complex and diverse. Seed type, variety of production results, and continuous changing demands and needs due to environmental and market issues lead to little homegeneity in this industry.
Cost of entry and exit- The cost of entry would be costly. Average cost to get a new GMO plant to market is about $126 million and takes approximately 13 years from start of research and development to launch!
Firm Conduct:
Price taking- Monsanto is often criticized for setting the price and basking in profit.
Product differentiation- While their GM seeds give farmers an advantage by innately warding off pests and producing more crop, they also often provide seeds that must be replenished annually versus seed that will reproduce. This is viewed by customers and the general public of course as market manipulation.
Tacit Collusion- In the past, Dow and Monsanto have worked to strategically cooperate on development of GM corn seeds. While care was taken to avoid explicit collusion (which is illegal), they also had to attempt to avoid tacit collusion as well, which is sometimes difficult in horizontal alliances.
Performance:
Firm level-Competitive disadvantages (Bad PR, often viewed in a negative light), Competitive advantages (longevity, money, variety of offerings on a global level)
Society- Productive and allocative efficiency (good, however, criticized for providing products without enough safety data), Level of employment (approximately 22,000 employees worldwide), Progress (strong for R/D and providing innovative solutions/attention needed to marketing and public relations)
The five forces model of environmental threats attempts to determine the amount of competitve power that exists in an industry. Expected level of performance can be predicted by measuring the barriers that a company faces.
Threat of entry: The threat of entry is relatively low because of the time and cost involved for genomics.
Threat of rivalry: As mentioned before, there are 4 major companies that compete as GM agricultural provider. Dow Chemical, an American company, in particular poses threat. Monsanto in the past has had a very poor image in the public eye which also puts them at a competitive disadvantage.
Threat of substitutes: This is lower than in many industries, due to the research and development and specialization required for this field.
Threat of powerful suppliers: This is low, because Monsanto needs little from outside vendors to aid in their production.
Threat of powerful buyers: This is high. While Monsanto does operate globally which would offset any localized issues they may have such as boycot or competitive disadvantage and their are many farmers worldwide, if the public or a regulating body deemed a product as potentially unsafe, it could have a serious effect on Monsanto's sales, especially if it is regarding one of their seeds that have a short shelf-life.
References:
http://www.investopedia.com/ask/answers/120314/who-are-monsantos-main-competitors.asp
http://gmoanswers.com/ask/how-much-time-does-it-take-and-how-much-does-it-cost-successfully-develop-hybrid-one-or-more
R.D. Ireland, R Hoskisson, M Hitt. Understanding Business Strategy: Concepts and Cases. Chapter 9. 2009.
By applying the model, one can predict some constraints, competition, and potential barriers facing the company in question and likelihood of struggle for a new entrant into the market.
Let's look at Monsanto,
Type of industry: agricultural genetic modification/breakdown of operations equals providing seed and research/genomics
Number of competing firms-There are several large companies competing for providing seed to farmers worldwide. In the area of agricultural genomics however, there are only about 4 companies to note (Archer Daniels Midland, Dow Chemical, Evogene, and Syngenta)
Homegeneity of products- Products are complex and diverse. Seed type, variety of production results, and continuous changing demands and needs due to environmental and market issues lead to little homegeneity in this industry.
Cost of entry and exit- The cost of entry would be costly. Average cost to get a new GMO plant to market is about $126 million and takes approximately 13 years from start of research and development to launch!
Firm Conduct:
Price taking- Monsanto is often criticized for setting the price and basking in profit.
Product differentiation- While their GM seeds give farmers an advantage by innately warding off pests and producing more crop, they also often provide seeds that must be replenished annually versus seed that will reproduce. This is viewed by customers and the general public of course as market manipulation.
Tacit Collusion- In the past, Dow and Monsanto have worked to strategically cooperate on development of GM corn seeds. While care was taken to avoid explicit collusion (which is illegal), they also had to attempt to avoid tacit collusion as well, which is sometimes difficult in horizontal alliances.
Performance:
Firm level-Competitive disadvantages (Bad PR, often viewed in a negative light), Competitive advantages (longevity, money, variety of offerings on a global level)
Society- Productive and allocative efficiency (good, however, criticized for providing products without enough safety data), Level of employment (approximately 22,000 employees worldwide), Progress (strong for R/D and providing innovative solutions/attention needed to marketing and public relations)
The five forces model of environmental threats attempts to determine the amount of competitve power that exists in an industry. Expected level of performance can be predicted by measuring the barriers that a company faces.
Threat of entry: The threat of entry is relatively low because of the time and cost involved for genomics.
Threat of rivalry: As mentioned before, there are 4 major companies that compete as GM agricultural provider. Dow Chemical, an American company, in particular poses threat. Monsanto in the past has had a very poor image in the public eye which also puts them at a competitive disadvantage.
Threat of substitutes: This is lower than in many industries, due to the research and development and specialization required for this field.
Threat of powerful suppliers: This is low, because Monsanto needs little from outside vendors to aid in their production.
Threat of powerful buyers: This is high. While Monsanto does operate globally which would offset any localized issues they may have such as boycot or competitive disadvantage and their are many farmers worldwide, if the public or a regulating body deemed a product as potentially unsafe, it could have a serious effect on Monsanto's sales, especially if it is regarding one of their seeds that have a short shelf-life.
References:
http://www.investopedia.com/ask/answers/120314/who-are-monsantos-main-competitors.asp
http://gmoanswers.com/ask/how-much-time-does-it-take-and-how-much-does-it-cost-successfully-develop-hybrid-one-or-more
R.D. Ireland, R Hoskisson, M Hitt. Understanding Business Strategy: Concepts and Cases. Chapter 9. 2009.
http://www.monsanto.com/investors/pages/faqs.aspx
Sunday, February 1, 2015
Firm Performance and Competitive Advantage
This week we focus on firm performance and competitive advantage. The complexity of the advantages and disadvantages is what drew my interest to putting Monsanto on the disection table. The article found at the link below is a great summary of some of the competitive disadvantages the company faces and some speculations why.
http://modernfarmer.com/2014/03/monsantos-good-bad-pr-problem/
Monsanto was founded in 1901, So neither business nor public criticizism are new concepts to the industrial agricultural giant. It's original focus was chemicals. " Monsanto was one of a handful of companies that produced Agent Orange, and its main poison, Dioxin. It sold DDT, PCBs, the controversial dairy cow hormone, rBGH, and the cancer-linked Aspartame sweetener." Of course, while these products may have turned a profit, they did not set well in the public eye.
Now, as a GM company (Genetic Modification), that produces "super seeds". Society often criticizes them for "playing God".
From an economic perspective, however, the company continues to be profitable despite looking like the villain, even when their competitors suffer much less scutiny. This report by Monsanto, http://news.monsanto.com/press-release/financial/monsanto-first-quarter-milestones-reinforce-foundation-growth-fy15-and-confi, confirms that continued growth is foreseen for 2015. Net sales for the first quarter this year is $2.9 billion. This is down slightly from last year, but Monsanto operates globally, so when activity is projected to decrease in certain markets, they diversify their capital allocation within their portfolio to ensure they stay on track.
Their stock prices are among the most expensive of their competing GM's. Around $118 per share is right up there with Terra Nitrogen and Agrium, while CF Industries sell for $305 per share and all other competitors reign in at $65 and below. (http://www.nasdaq.com/symbol/mon/competitors) Ownership is composed of 90.50% institutional holdings. (http://www.nasdaq.com/symbol/mon/ownership-summary)
Overall, Monsanto focuses it's strategies on development and performance. Public relations and marketing should be given more consideration if they desire to optimize their profitability. While their intentions to help farmers produce at the highest capacity possible, they are often seen as the creators of "Frankenfood" focused on $$$. When coming under fire during the Mad Cow epidemic in Europe some years back, they did not approach the scrutiny with concern or compassion, and the image they maintain as the bad guys continues. http://modernfarmer.com/2014/03/monsantos-good-bad-pr-problem/
http://modernfarmer.com/2014/03/monsantos-good-bad-pr-problem/
Monsanto was founded in 1901, So neither business nor public criticizism are new concepts to the industrial agricultural giant. It's original focus was chemicals. " Monsanto was one of a handful of companies that produced Agent Orange, and its main poison, Dioxin. It sold DDT, PCBs, the controversial dairy cow hormone, rBGH, and the cancer-linked Aspartame sweetener." Of course, while these products may have turned a profit, they did not set well in the public eye.
Now, as a GM company (Genetic Modification), that produces "super seeds". Society often criticizes them for "playing God".
From an economic perspective, however, the company continues to be profitable despite looking like the villain, even when their competitors suffer much less scutiny. This report by Monsanto, http://news.monsanto.com/press-release/financial/monsanto-first-quarter-milestones-reinforce-foundation-growth-fy15-and-confi, confirms that continued growth is foreseen for 2015. Net sales for the first quarter this year is $2.9 billion. This is down slightly from last year, but Monsanto operates globally, so when activity is projected to decrease in certain markets, they diversify their capital allocation within their portfolio to ensure they stay on track.
Their stock prices are among the most expensive of their competing GM's. Around $118 per share is right up there with Terra Nitrogen and Agrium, while CF Industries sell for $305 per share and all other competitors reign in at $65 and below. (http://www.nasdaq.com/symbol/mon/competitors) Ownership is composed of 90.50% institutional holdings. (http://www.nasdaq.com/symbol/mon/ownership-summary)
Overall, Monsanto focuses it's strategies on development and performance. Public relations and marketing should be given more consideration if they desire to optimize their profitability. While their intentions to help farmers produce at the highest capacity possible, they are often seen as the creators of "Frankenfood" focused on $$$. When coming under fire during the Mad Cow epidemic in Europe some years back, they did not approach the scrutiny with concern or compassion, and the image they maintain as the bad guys continues. http://modernfarmer.com/2014/03/monsantos-good-bad-pr-problem/
Saturday, January 24, 2015
The Blog "WHAT" & "WHY"
In my effort to absorb and apply the concepts learned in MGMT 7160 Global Strategic Management, I will be posting weekly a critique of the company of my choice. I have chosen to take a look at the company, Monsanto. From the Who We Are section of their company site, "Monsanto is a sustainable agriculture company." They provide GM (genetically modified) seeds to optimize agricultural growth. I find this interesting for a few reasons. 1. I have an educational background in and also thoroughly enjoy Chemistry and Biology. 2. I grew up in a rural town where farming is life. 3. They suffer huge scrutiny. An introduction to the company can be found at http://www.monsanto.com/whoweare/pages/default.aspx.
I look forward to sharing what I learn about them as I journey through this final semester towards my MBA!
I look forward to sharing what I learn about them as I journey through this final semester towards my MBA!
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