Sustainable Competitive Advantage

Having a sustainable competitive advantage is very important to staying ahead of the competition and gaining the most business possible.  There are many things that a company can do to gain a competitive advantage.  Two ways firms can do this is by becoming  an overall cost leader or by differentiating from the rest of the companies in their market.

John Deere has a very obvious business strategy.  They focus on differentiating from their competition.  The focus at John Deere is on the quality of the machine and the quality of the service they give their customers.

JD's first product. 1837

Another way to differentiate your company from competitors is by patenting your inventions and ideas making your company the only one to have these solutions.  John Deere is constantly looking to gain a competitive advantage through patents and trademarks.  In December of 2012, they were named as a top 100 global innovator according to marketwatch.com.  The criteria for being on this list included four main areas.  They were, overall patent volume, patent grant success rate, global reach of the portfolio, and patent influence as evidenced by citations.  This shows how concerned John Deere is to finding new and better ways for people to work the land and make a difference.

 By looking at the company through the lens of Porters Five Forces, we can gain a better understanding of their business plan and how they plan to deal with threats to their business and how they plan to keep customers from going to a different dealer.

The more bargaining power you have with your suppliers, the cheaper you can get good products.  John Deere has good bargaining power with their suppliers because of their economies of scale.  They are such a large company that it would be very hard for one of their suppliers to quit producing for John Deere because it would take out such a huge chunk out of their sales.

The more  bargaining power you have with your suppliers have over them the harder it is to make a profit.  John Deere's commitment to quality and innovation makes it hard for their customers to bargain for a lower price.  John Deere customers expect a higher price because they know the quality of service and equipment they are going to get with their purchase.  This in turn gives customers low bargaining power.

Rivalry among existing competitors is something that every company is going to have to deal with at all times, although it might be more pressing for some than others.  John Deere has many competitors such as Case IH, New Holland, and Cat.  These companies all compete with John Deere at different levels, but none have the global or market selection that John Deere has.  This give John Deere a competitive advantage when it comes to their overall business because they do not have to rely on one market to be favorable to make a profit. Where Case IH is focused on Agriculture, John Deere has many supporting businesses such as construction, forestry, and lawn care.

The threat of new entrants is not very great for this industry because it takes so much capital and so many assets to get started competing with these big companies.  It would take a whole new invention to compete or government intervention to get a company started and even then they would have to compete with the vast amount of relationships and captial that John Deere has.

There are not many different substitutes for a tractor or plow.  The only decision you have to make after you decide you need one, is which one to buy, John Deere, or one of their other competitors. It would be very difficult to turn 80 acres of land today with a hoe.  With today's methods, consumers need to do a lot of work in a small amount of time to be successful and John Deere's products help them to be much more efficient then they could ever be with a hoe or spade.

Retaining Human Capital

Good service can make all the difference.

In an industry where service can add so much to the value of your product, it is very important to keep good quality employees on your staff with the experience, relationships, and know how to get the job done right.

There are several ways to keep good employees with your company.  A firm can either use incentives or make an attempt to force the employees to stay through legal course.  Using incentives is preferred but sometime it can be necessary to use legal force.  Above these things is the environment of the workforce.

Identifying with an organization's mission and values is very important to retaining human capital.  People who identify with the mission and the values of the organization are more likely to "fall in love" with the organization, so to speak.  They will want to do whats best for the company because they like working there and feel that they are making a difference.  John Deere is a company that influences its workers very early on.  By building a lasting relationship with people from the time they ride with their fathers or grandfathers in the tractor, John Deere makes sure that they build customer loyalty.  People identify with the brand of John Deere and want to work for the company at a very early age.

Part of enjoying work is feeling challenged and stimulated.  Studies show that this helps overall job satisfaction with employees. John Deere keeps its employees challenged by allowing for promotion and an open work environment.  At the dealerships that I have been to, the workplace is a very open environment.  It is easy for employees to talk to managers and they feel like the managers are just another employee.

Incentives are also very important for keeping employees happy.  Whether that is in the form of money, time off, or benefits, it is very important to satisfy the employees needs outside of work in so that they can be as productive as possible when they are at work.  If an employee needs time off because of issues in their personal life, the company needs to work very hard to accommodate that persons needs.  These things are sometimes more important to workers than money is and can be a reason for them leaving a firm. 

Value-Chain Analysis

2013 6125R Tractor

There are many things that give a tractor value.  The work that it does, the quality of work that is done by the tractor, and the durability of that tractor all contribute to its value.  In order for a company to create value with its products, the company needs to look at what the consumers need and how they can make these needs come to reality as efficiently as possible without sacrificing quality.  Doing a value-chain analysis will help a firm to understand its primary goals and needs of its business.  This way they can better serve their customers and in turn give their products more value. 

According to Michael Porter and his book Competitive Advantage, there are five primary activities.  John Deere needs to work hard on their inbound logistics, operations, outbound logistics, marketing and sales, and service.  All of these attributes contribute to the efficiency of the firm and in turn the value that the customer receives in the final product.

John Deere needs to be very efficient in its primary activities.  There are many ways that they can achieve this efficiency. When looking at the inbound logistics of John Deere's manufacturing places, it is easy to see how important this primary activity is.  They need to be able to assemble machinery quickly and get it out to the consumer.  They also need to avoid confusion to insure that everything is built with quality.  they can do this through making sure they have distribution facilities strategically located to cut down on shipping time, warehouse layouts and designs need to be efficient, etc.

Their operations, or the building of the machines also needs to be efficient strategically designed to cut down on costs, time, and confusion. Implementing technology can be a big help but they also need to keep their workers in mind as they grow in size and revenue.

Outbound logistics are very important to the customer.  Efficiency is important in this section of business also.  Having an efficient shipping process ensures the product is delivered in a timely fashion and without damages.  They can also cut down on costs by having good communication and shipping multiple things at once.  John Deere's gold key member program allows their customers a chance to come see their operations and outbound logistics activities.  The customer can come and see the last pieces being put on the equipment and then drive the machine out of the production line themselves.  This gives them something more than a machine but an experience.

Marketing, sales, and service are very important.  Without sales the company would not make a profit and ultimately, this is what drives business.  John Deere needs to make sure they are serving the customers needs in the correct region.  In other words they should not be selling a combine in the middle of Chicago.  Servicing a machine in this industry is one of the most important features of picking a brand.  In order for John Deere to be successful, they need to be able to quickly respond to breakdowns and customer emergencies.  They need to make sure that they know what they are talking about.  This makes ongoing training vital to the service industry. 

There are also support activities.  According to Porter there are four support activities important for gaining a competitive advantage over a firms competition.  These include procurement, technology development, human resource management, and general administration.  These actions support the primary activities and help in innovation to stay ahead of the competition.

John Deere has very expensive consumable items and assets.  It takes a lot to put machinery together including space, tools, machinery, and the best parts.  John Deer needs to make sure they have good relationships with their suppliers.  Having these good relationships helps them to be more efficient in the production of their product.

The Tango E5 mows on its own

In order to stay ahead of the competition, John Deere has concentrated on innovation and research and development.  They need to keep up with the technology as this section of business is growing at an extremely fast pace.  From GPS to automatic sensors, the machinery industry is becoming an increasingly technologically advanced place.

Human resource management is important for firms of all types.  Keeping the best employees in your business is important to success.  People are the ingredient that makes a business succeed.  Having a good relationship with your employees and the organizations that directly impact your employees is very important to keeping and drawing these quality workers.  Having good reward and incentive programs can greatly help motivate employees.

General administration is important to firms because they are the ones who set the tone for the business. They need to have good relationships with various stakeholder groups and need to be good at goal setting and evaluation.  Administration needs to be able to communicate well with all the parts of the business in order to set good goals and help the business succeed.

John Deere needs to continue doing value-chain analysis to better understand how they are doing and improve their efficiencies to keep a competitive advantage in their industries.