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A report on value creation in business for NOVUS AGRO

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EXECUTIVE SUMMARY

This report sheds light on Novus Agro’s impact in the agricultural space, the value chain gaps it tries to fill, and the issues/limitations to achieving its goal. It also analyses Novus Agro’s business model and adviSes on how to sustain growth using financial and non-financial solutions. The first part of this two-sided report highlights the company’s current standing and value creation for consumers, shareholders and all interest parties whereas the second part concentrates on preferring effective solutions required to achieve sustainable growth and provision of targeted monetary and non-financial gains.

A general survey of Novus Agro presents the company as a pace setter in its field and its footprint in the industry. It also reveals loopholes that if left unattended can have a lasting negative effect on the company while revealing opportunities that should be exploited.

The company’s financial report highlights the company’s gains and losses in the past four years and offers solutions to improve the company’s income. Novus Agro faces risks and threats such as bargaining power of suppliers, economic policies, and foreign exchange. This report also highlights the various marketing functions that can be exploited.

 

SECTION ONE

COMPANY REPORT FOR NOVUS AGRO

1.0 INTRODUCTION TO THE COMPANY

As an agro-allied company, Novus Agro provides both active and passive interest groups in the agriculture industry with agro-based facts and consulting help. It runs the largest private network for the collection of agricultural market data and the widest network of market facilitators who are all based in the community. Novus Agro was founded in 2009 and has since maintained a stand in the agriculture sector in Nigeria. Novus Agro is fully represented across the six geo-political zones by employing its market agent footprint technique of over 305 facilitators. They are currently in 33 states, covering over 97 key markets and tracking no less than 34 commodities daily.

Image 1: Novus Agro’s core functions

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                                       Novus Agro annual report, 2017

2.0 STRATEGIC ANALYSIS TO DETERMINE THE CURRENT BUSINESS MODEL OF NOVUS AGRO

For a review of the situation analysis at Novus Agro, a SWOT analysis will be employed. To assess the company’s strengths and weaknesses, this study will employ an internal module, and use external analytical tools such as Porter’s 5 Forces and PESTEL to identify a list of threats and opportunities that are available to the company.

Image 2: Novus Agro Current Business Model

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Novus Agro annual report, 2017

2.1.1 EXTERNAL ANALYSIS

PESTLE Analysis

A PESTLE framework is applied in analyzing and monitoring the impact of macro-environmental factors on a firm. These points are viewed in different perspectives such as the political, economic, technological, legal, environmental and socio-cultural influences.

Image 3: PESTLE framework

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Political Factors

Certain factors such as the lack of food safety regulations, efficient agricultural policies and quality testing bodies has negatively affected Novus Agro in providing grains free of debris, moisture and foreign matter to delivery location while favorable taxation policy has encouraged the ease of doing business in the industry. There are few commodities on the export ban list and this provides a wide range for Novus Agro to trade in.

Economic Factors

Economic factors such as interest rates, economic growth, inflation, exchange rates, depreciation of currency, and over-dependency on oil have affected the way Novus Agro does business. In 2015, the company found a lot of maize contracts being cancelled due to the inflation and exchange rates that affected its procurement as it became more expensive to purchase locally while seeing the neighboring countries buying up same commodity.

Social Factors

Increase in demand and population growth has created a large gap in the demand and supply structure of agricultural products. This has created an opportunity for Novus Agro to find creative and innovative means to procure and deliver agreed quantities to its clients.

Technological Factors

Technological landscape changes rapidly and affects the way business is done and how we market our products. Novus Agro frequently tries to upgrade its use of technology in the monitoring and gathering of data via its cutting-edge market application. It has also launched the farmer’s helpline to assist and provide technical and modern farming techniques and farming related issues that may arise.

Environmental Factors

These are recent additions to the factors that influence or affect how business is conducted.

With the recent change in climate conditions and ethical issues arising, the demand for ethically and sustainable source of products have been on the rise, causing Novus Agro to consistently perform quality testing on procured commodities in order to reduce the number of rejected produce by the clients.

Legal Factors

Each country has its own set of laws, rules and regulations that impede or facilitate the ease of doing business and also the lives of the citizens. There are few enforced laws guiding the industry and lack of it affects Novus Agro. There are currently no laws guiding the sale and quality of commodities by the merchants and farmers which impacts on the quality Novus Agro delivers to the client.

2.1.2 PORTER’S FIVE FORCES

This is a framework for rating a company’s completion of business. Porter’s five forces determine the intensity of the competition, gives a clearer understanding of the strategic points of a business and the profitability of the industry.

Image 4: Porter’s Five Forces

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Porter, 1980

Rivalry among existing competitors: Findings show there is ample room for competition and growth in the agro-allied space. Novus Agro is still the only company with a network of field agents in 33 states, daily collecting, monitoring and updating of data in over 97 major markets. AFEX is a holding company and operates national commodities exchange in Africa and is seen as a partner by Novus Agro. A competitor such as Nosakis also able to procure commodities to supply to clients with the added advantage of owning its own farms.

Threat of Substitute products: At the moment, Novus Agro leverages on its private network which no other company has; however, Commodity Exchange Company such as AFEX has the capital needed to launch its application on a wide scale. This can prove to be detrimental to Novus Agro if there are no exceptional value-added services such as free analysis / trends on major commodities, and articles geared towards assisting small holder farmers and processors.

Bargaining power of suppliers: Novus Agro leverages on its network to locate suppliers and merchants in various states for the purchase of commodities as required by clients. This arrangement gives it a wide selection of suppliers and can procure at the best price possible

Bargaining power of buyers: Novus Agro is largely affected by any sharp rise and fall in prices partly due to lack of government monitoring and economic instability. Contracts are usually agreed on with minimal room for price change and hence any difference in price can negate a contract or make it difficult to execute. Clients have a wide room of options to purchase from; individuals and companies. As a result, they can call for a downward review of contract price irrespective of other factors that may have added to the cost.

Threat of new entrants: There are quite a number of opportunities in the industry with the potential for huge profits but knowledge and capital are a deterrent. Certain skills, knowledge and innovation are required in areas such as transportation (cold storage), packaging, farming (techniques) in order to succeed or make an impact. The threat of new entrants is reduced and there are quite a number of fields within the industry that new entrants can participate in. In the area of technology, the sale of market data is still untapped as very few clients and individuals are willing to pay for this service. Market data is still kept at a minimum and contributes less than 20% of the company’s revenue as at 2016, however, this is expected to change with the farmer’s helpline and warehousing services.

 

3.0 INTERNAL ANALYSIS:

VALUE CHAIN ANALYSIS

Image 5: Value Chain Analysis

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Porter, 1985

Support Value Activities

Human Resources

As of 2016, Novus Agro has a network of over 305 facilitators round the country and 30 employees who monitor and gather data, build customer relationships and run the operations.

Infrastructure

Novus Agro has managed to set a foot print in its core product by building and designing apps, linking farmers to processors through technology and monitoring market information on specific commodities. They also commit to purchasing and delivering of commodities to clients as a value-added service.

Technology

Novus Agro makes use of its proprietary application to gather, monitor, distribute data and provide linkages to market.

Three platform interfaces are for the clients’ use.

  • Price Determination Interface
  • Aggregation Interface
  • Stock Management Interface

Price Determination Interface

This interface can be accessed by login onto www.namarkets.com or through regular email updates from the enumeration desk. Clients are able to view price highs, lows and averages from markets and aggregation locations. Prices are updated within a maximum of 24 hours upon collection and availability estimates for each aggregation location can be tracked on the platform.

Aggregation Interface

Novus Agro in partnership with VirtualCity (www.virtualcity.co.ke) deployed its technology solution at the various aggregation hubs. VirtualCity’s solution has the ability to read weights directly off digital scales via a Bluetooth link, reducing room for entry errors.

Stock Management interface

This shows payments, as well as stock movement to give a historical overview of clients’ transactions.

 

Operational Processes

Novus Agro operates under four key operational processes.

  • Price determination
  • Commodity Procurement
  • Commodity Holding and Handling
  • Commodity Discharge

Price Determination

Novus Agro collects market day prices across 97 markets and 33 states of the federation currently. In addition, Novus Agro collects weekly price and data from facilitators at its aggregation hubs. This data is uploaded through the mobile phone to its online price database and information such as price highs and lows, average prices and modal prices can be generated.

Commodity Procurement

Once the current procurement price has been established, the facilitators at the various hubs will post the procurement price at the hub as well as actively engage farmers in the community and try to secure produce at the agreed price range. Farmers are expected to bring their commodity to the warehouse for weighing, and quality assessment (e.g. moisture content and foreign matter test) before the produce is received into the warehouse and payment is made to the farmer. The weight and moisture content level for each bag procured is registered against the farmer’s identity on a mobile-based application and an advice given to the farmer. In partnership with Union Bank, Novus Agro seeks to establish agency banking desks at the aggregation hubs to facilitate payment to farmers’ accounts as soon as commodity is received and assessed. This is also expected to serve as a financial control measure as well as establishing the building blocks of a farmer incentive and loyalty scheme. Clients will be able to see details of aggregated commodities as soon as they are received in the warehouse and thus will be able to maintain a running balance of their stock levels with Novus Agro at every point.

Commodity Holding and Handling

As commodity is received, bags will be marked with farmer’s details, receipt date, weight and moisture content before being taken to a designated pallet. Fumigation and other handling protocols to ensure the highest level of sanitary handling of produce under our care will be undertaken. Novus Agro in partnership with SGS will provide regular process audits as well as a quarterly physical stock count at each of the aggregation hubs to ensure that the highest level of quality and quantity standards are maintained.

Commodity Discharge

Clients are expected to follow certain protocols in requesting for their stock to be dispatched to designated location. Novus Agro will arrange for transportation of the produce and advice client on associated costs. Stock will be discharged on a First-In-First-Out basis and samplings of weight and moisture content changes will be taken at discharge to account for normal discrepancies if any. Stock discharge is captured on the platform and stock levels adjusted.

 

3.1 HORIZONTAL AND VERTICAL ANALYSIS

Horizontal Analysis:

Horizontal analysis is used to measure the year-to-year growth against a company’s competitors. The following is a representation of yearly growth recorded by Novus Agro and its competitor Nosak Group:

Fig1: Year on Year growth for Novus Agro against Nosak Group (in Naira)

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Novus agro annual report ,2017

OBSERVATIONS

1) In 2015, Nosak and Novus Agro’s revenue, gross profit and EBITDA experienced some loss; however, Novus Agro took a larger hit due to the cancellation of major contracts and the inability to meet up with its loan repayment

2) In 2016, Novus Agro recovered better than Nosak as a result of projects with GEMS4, re-awarding of contracts by breweries and other major processors and operational processes re-defined

Vertical Analysis:

Vertical analysis reflects the changes in costs composition and margins. It shows the true state of the company’s financial standing. This helps researchers, shareholders, financiers and management make relevant decisions and an analysis of this will shed light on the current business trends and identify potential threats and problems.

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Fig 2: Cost compositions and margins for Novus Agro against Nosak Group

Novo Agro annual report, 2017

OBSERVATIONS

1)For the year 2013 to 2014, Novus Agro did not experience any significant change in its Revenue, Profit, or EBITDA but it maintained its administrative expenses while Nosak group saw an increase in its revenue, profit and EBITDA and it is also noted that it its administrative expenses increased as well.

2) In 2015, Novus Agro lost N19 million in revenue as against N2million lost by Nosak group. Novus Agro trimmed its administrative expenses in 2015 and subsequently increased it from 2016-2017 as a result of operational and field staff handling procurement, supervisory task of loading and unloading of commodity and monitoring delivery at designated points for newly awarded contracts.

3) Novus Agro’s figures shows no change in 2014, a sharp dip which resulted in huge losses in 2015, a sharp rise in 2016 which resulted in profits and a slight dip in its profits in 2017. This suggests that contracts (supplies to client) are its major source of income and not the dissemination of data while Nosak group experienced a steadier rise and fall in the year 2014-2015. In 2016-2017, Nosak group maintained a steady pace in its Revenue, Profit, Administrative Expenses and EBITDA.

 

3.2 RESOURCE-BASED VIEW (RBV)

Resource based view is an analytical model that considers assets as the determinant factors in a company’s delivery of high-level performance. Economists advise firms to look inwards and discover available sources of competitive advantage that can be exploited for growth rather than concentrating on the volatile, competitive business environment.

Image 7: Resource Based View

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Barney, 1991

 

RBV ANALYSIS

TangibleResource: Novus Agro operates an office in Lagos which houses all the departments; Operations, Sales & Business Developoment, Enumeration and Finance

IntangibleResource: This refers to Novus Agro’s reputation, brand, logo, cutting edge proprietary apps.

Resources must be heterogeneous (skills or capabilities that differ from one organization to another) and this refers to the capabilities and skills such as Novus Agro’s operational procedures, collecting and updating of price and availability data on the app.

Resources must be immobile (resources are not mobile and do not move from one organization to another at least in the short-run) and this refers to Novus Agro’s strategies such as Commodity Procurement, Commodity Holding and Handling by aggregating and warehousing commodities so as to create long-year availability and avoid price increase.

 

3.3 SWOT ANALYSIS

The SWOT analysis is simply a planning tool applied in organizations to correctly identify its strengths, weaknesses, opportunities and threats. It makes known the favorable and non-favorable factors (internal and external) that are encountered by management in achieving the organization’s objectives.

Strengths and Weakness are often intertwined whereas Opportunities and Threats deal with environmental placement issues.

Image 6: SWOT Framework

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                                                          Source Author, 2018

 

4.0 ANALYZING NOVUS AGRO COMPETITIVE ADVANTAGE

The need for competitive advantage in the global agribusiness has been a source of concern amongst policy makers and economists, particularly in developing countries. The agricultural sector without a doubt has contributed significantly to improving the economic well-being of nations.

The commodity trading space in Nigeria is categorized with a lot of players involved in the buying and logistics of commodity delivery and while the Abuja Securities & Commodity Exchange (ASCE) was established as a vehicle for commodity trading in Nigeria in 1998, it has hardly lived up to expectations. A couple of new entrants like AFEX, Nosak group, Cargill etc represent both immediate and future competition. Local buying agents represent the most significant players in this space and are largely independent operators purchasing on behalf of various manufacturing companies with a large chunk of export buyers of Nigerian agricultural commodities thrown in the mix.

Novus Agro maintains a competitive edge among other players in the industry despite the relatively steep terrain of the sector.

  • Novus Agro provides price information to clients as requested for a fee.
  • Novus Agro’s web application provides a commodity index with regular updates on the commodities market to keep clients abreast of market events
  • The technology platform links farmers and their produce to processors and buyers
  • Novus Agro in partnership with CCSNL has launched a farmer’s helpline in local languages and English with the sole aim of providing price updates, technical know-how on inputs, best farming techniques and general assistance.
  • Novus Agro value add services include free commodity index on selected commodities published in the newspapers and website, analysing the impact of price, exchange rates and policies on commodities, providing information on availability of commodities based on location and market.
  • Alliances and agreements with key players such as Sygenta, Olam, GEMS4, CCSNL and NAERLS further strengthen the organization’s competitive advantage.
  • Novus Agro focus on harnessing opportunities in the agricultural markets value-chain by using big-data is anchored on two key pillars – technology and networks.

4.1 STRATEGY FOR EXPLOITING COMPETITIVE ADVANTAGE

Image 8: Porter’s sources of competitive advantage

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                       Porter,1980

According to Porter, a total of 4 “generic” business strategies are available for every organization to exploit for competitive advantage although the strategies are connected to the extent to which the scope of a business’ activities are considered as thin or broad and the product differentiation level it aims at achieving.

Differentiation drives profitability when an added product price outweighs the incurred expenses on acquiring the product or service but is ineffectual whenever its distinctiveness is easily copied by competitors (Michael Porter, 1980)

Novus Agro can compete from a position of strength against its competitors by adopting a change in the PESTLE factors and by carrying out development strategies. It has the potentials for huge growth if users maximize opportunities in the value chain. The weaknesses as seen in the SWOT Analysis.

External environment

Responding faster than competitors by making use of the information being collected daily and spearheading the increase in technological awareness and innovation in the industry would give Novus Agro an edge over its competitors. Novus Agro through its market information is able to analyse the trend of key commodities against certain factors such as exchange rate and transportation cost. For example, a trend analysis was conducted on maize and a direct correlation was found between the rise in US Dollars and the local purchase price of maize despite the fact that maize is a locally-produced commodity.

Internal environment

A company can also achieve a competitive edge by developing its unique competencies and offerings or by investing in innovative products and strategies.

Novus Agro developed a strategy to warehouse commodities available throughout the year by implementing a 4-6 month buy-in/holding strategy to combat the high prices prior to planting season. This will ensure constant supply of commodity to processors throughout the year at affordable prices.

In partnership with Sygenta and other inputs companies, farmers will make provision for demo plots to be cultivated and monitored by the input companies as a way of teaching the farm holders the right techniques to use in the application of inputs and how to combat pests and diseases. This exercise is expected to improve and increase farm yields by over 70%.

 

4.2 EXECUTING COMPETITIVE ADVANTAGE THROUGH UTILIZATION OF BUSINESS MODEL

A business model, according to Riley, defines a company’s adopted strategies in adding value to its products and services for customer satisfaction, including the business managers path to understanding their capabilities and maximizing outputs from their relationships with employees, shareholders, and other stakeholders (such as interest group) associated with it, for the purpose of producing, selling, as well as delivering the value and relationship capital to consumers for the sustained profits.

Novus Agro can attain its profit goals through a cost leadership and differentiation approach, especially if it formulates and execute workable strategies aimed at plugging the loopholes in purchasing and delivering of commodity to client with minimal loss, creating a hub for aggregation of commodities all year round in order to prevent shortage and / commodity price increase as well as linking input companies to small holders and illiterate farmers at minimal cost. Through partnerships with NGOs and government related agencies, capital or lending structures to the small holder farmers for expansion and purchase of machinery and inputs in order to improve productivity should also be explored.

Image 9: Novus Agro’s Business Model Canvas

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Novus Agro annual report, 2017

 

4.3 ASSESSMENT OF VALUE BASED SHORTFALLS TO BE ADDRESSED

The SWOT analysis showed certain weaknesses that are present in the company’s structure and operations, and which calls for immediate attention for achieving enhanced growth as well as creating value and profitability. The negative factors include:

Discrepancies regarding tonnage purchased and tonnage delivered: Novus Agro usually factors into its cost a loss of 1-2% at delivery due to factors such as difference in scales used at loading and delivery, loss experienced after cleaning and bagging system. This is expected to cover up any slight variation experienced, however, there is a lot of concern arising from tonnage paid for and tonnage delivered. In extreme cases, a discrepancy of over a ton is experienced with no one being held accountable. This affects profits and, in some cases,, erodes it totally. There is a need to carefully monitor commodity purchased, what is loaded and what is delivered.  Currently, a loading and delivery order is used to reduce losses to the barest minimum as each one is held accountable at various stages for commodity in their care (purchase, loading, delivery and receipt of goods) but can be improved upon.

Unreliability of farmers or large merchants in providing commodities: Key players have tried to offer fixed price take-off agreements to farmers for their produce before harvest season at an estimated future market price; however, farmers do renege on these agreements if a higher price is offered outside market price. Novus Agro has cancelled certain contracts with processors as a result of farmers and merchants reneging on off-take agreements. The involvement of banks as a medium for the finance or capital made available to the farmers in the form of a loan can be instituted. This will ensure that the farmers are bound by an agreement intermediated by the bank to repay the loan secured in the form of commodities given at a price mutually agreed by both parties.

Unstable government and agricultural policies: The Abuja Security & Commodity Exchange was created in 1998 after commodity boards were banned in 1986 to broaden the Nigerian economy, encourage unemployed youth to embrace agriculture and provided numerous benefits to farmers, merchants and processors of agricultural produce. It was set up with the vision to function as a veritable platform that mitigates all inherent risks associated with producing and marketing agro-products in the country but, unfortunately, these expectations have not been met. The over-dependence of oil and imports in the country has impeded the growth of other sectors by creating a myopic focus on the oil sector and abject neglect of other industries. In 2016, there was a government plan to diversify its economy into other sectors with emphasis on agriculture, and this created a sort of frenzy with everyone wanting to jump into what was perceived as the next national cake. The inability of the government to implement well-thought out policies and support the industry is a deterrent to positive changes and growth implementation. This prevents Novus Agro from fully exploring its potentials and limits it from maximizing opportunities that may be found in the foreign market.

Farmers and clients persistent resistant to change in technology and new methods of farming: Agriculture in some areas is still done manually or with obsolete equipment. Farmers still rely on word of mouth to discover market prices and a lot are still without the knowledge of how to use phones. Novus Agro discovered this to be a weakness as farmers had to be convinced to make use of their phones for information purposes, and in worse-case scenarios, had to teach farmers how to use phones. Some clients still find it impossible to use the idea of using technology to either track farmers with commodities or gather useful information that may be used in business forecasts and strategy implementation. With the use of the proprietary technology, it has become easier to link farmers to processors without the client needing to be in the same locality or environment, but the implementation of this business model has proven hard to accomplish.

Capital intensive to bridge the value chain gap: Over 65% of fresh produce are lost post-harvest due to improper handling. Certain gaps such as transportation of fresh produce to other states, improper manner of sowing seeds, manual farming, improper commodity handling such as stacking of fresh produce right on top of each other are but few of the issues to be addressed. For example, the capital needed for cold van transportation of fresh produce to long distance states and modern equipment is intensive; however, if invested and managed properly with distribution chains, there would be a massive improvement in the supply of commodities. Novus Agro does not have the necessary capital to embark on such endeavors and making use of loan facilities so far has been a problem due to high interest rates.

 

4.4 VALUE CHAIN-BASED PROPOSAL FOR ACHIEVING INCREMENTAL VALUE FOR ACTUAL & FUTURE SHAREHOLDERS AND STAKEHOLDERS

Novus Agro leverages on its core competencies in commodity aggregation and market information to expand its stake in the commodity handling and logistics business and a departure from the traditional procurement system to one that sees the client in control of stock quantities and prices held outside their factory locations throughout the course of the year, by creating strategic reserves in various managed warehouses across the country.

Novus Agro should provide the following services:

  • Provide market and price information to companies to enable procurement decision making. This would be achieved by daily market information from the 97 major markets across the country and from its 305 trade facilitators in the field.
  • Aggregate and procure quantities as determined by the buyer within approved buying price range
  • Procure at the best possible price at each point in time within the buying period.
  • Identify, secure and mange warehousing to hold procured commodity.
  • Manage commodity holding risk by providing physical security and insurance coverage. This includes the installation of infra-red IP close-circuit cameras at warehouses allowing for real-time video streaming on internet and mobile devices by clients as well as organizing on-site police protection where possible.
  • Maintain the quality of commodities under its care by instituting best practices in pest control and phyto-sanitary handling at warehousing locations.
  • In partnership with SGS establish audit and monitoring protocols that will provide full transparency to clients of the stock position at every point.
  • Handle transportation & other logistics management for deliveries to designated factories.
  • Sale of inputs such as seeds and fertilizers and offering of technical assistance to farmers.

IMPLEMENTATION STRATEGY

Locations:

Warehousing remains an important part of structured trade. Centralized bulk storage facilities play important roles in the production chain such as receiving produce, mainly grains, from farmers or merchants and safely storing it for foreign exports or distribution in local markets. Its long-term operational storage aids in cushioning the risks between harvesting of farm produce and transfer to the markets (foreign or local) as well as the end consumers of grain. These storage facilities are best located close to the harvest areas.

The need for effective storage of agricultural products in quantity and quality has posed serious challenges to many farmers and businesses. In choosing locations for storage operations the following factors have to be put into consideration:

  • Ease of Logistics; primarily ease of transportation of commodity to and from the location, availability of truck heads at location and road conditions.
  • Commodity availability
  • Reliable site management personnel

Subsequently, Novus Agro would build bulk holding and pre-processing hubs to service warehousing clusters in the form of silo complexes with cleaning, sorting, grading and drying lines for longer-term storage and for better quality control. An agreement with government agencies on the leasing or sale of abandoned government-owned silos can also be contracted.

There would be the addition of further processing plants at the hubs. These could include malting plants for sorghum, and grits mills for maize to enable clients maximize contracts on pre-processed products.

Quality control

There is a need for commodity quality control and the demand for quality commodities by the clients is on the rise, and low temperature is a prerequisite for eliminating or reducing pest attacks as well as maintaining nutritional quality of products.

Achieving good commodity quality control starts form the point of acceptance and would require trained warehouse managers to enforce set standards and policies, including strict adherence to pest control protocols.

Security

Insurance coverage against fire, burglary and other perils on commodities will give the organization an extra edge in the industry. Goods-in-transit cover all grains moving out of warehouses to clients’ locations. Physical security at locations will be coordinated with local law enforcement and IP cameras installed at same locations.

Buying Strategy

On the spot buying is not an effective buying strategy as this is subject to availability and price volatility. In order to secure grains throughout the year for its clients, the following strategies can be put in place:

  • Holding Capacity: Consolidated warehousing of >100,000MT capacity distributed along various locations would be required.
  • Purchase Financing: Significant amounts would have to be committed to buying grain over a short buying period and possible cash-flow considerations would have to be addressed.
  • Distributed Buying: A large buying network would have to be employed over a large area to ensure that markets are not heated up unduly by the buying activity.

Pricing strategy

The business model is built initially on high volumes with low margins to deliver cost savings to clients and remain competitive in our product offering which initially would remain largely undifferentiated from that of other players in the market. A fee of 3% on cost is charged for aggregation, storage and logistics handling, while a margin of 5 – 7% is expected from spot trading activities. These margins are highly competitive and would be—even more so–once the aggregation centers evolve into local grain trading markets and long chains of middlemen are eliminated from the supply chain.

Technical assistance

Input companies can leverage on Novus Agro’s private network of farmers for the sale of inputs such as fertilizers, insecticides and pesticides. Through its partnerships, the input companies can provide technical assistance via the app to Novus Agro’s network of farmers.

 

4.5 NECESSARY CHANGES TO THE EXISITING BUSINESS MODEL FOR CREATING ACCEPTABLE VALUE TO THE BOARD

Novus Agro applies the competitive advantage model in its business operations; it is therefore advisable that this is sustained.

Currently, Novus Agro experiences loss as a result of loopholes witnessed in the procurement and delivery stages of its operations. It is necessary to implement reliable on-site personnel and a tighter POD system in order to check these lapses. To combat the consequences of failed off-take agreements, an aggregation hub for commodity holding purposes can be implemented.

In the distribution process, Novus Agro acts as the middleman, and this calls for stricter measures to close every security lapse on the procurement, delivery and quality of commodities.

HOW THE PROPOSED STRATEGIC INITIATIVE CAN IMPROVE THE ORGANISATION’S STRATEGIC POSITIONING & FUTURE SUSTAINABILITY

Despite the progress achieved so far by Novus Agro, there is still a lot to be done and opportunities to be taken advantage of. The current business model leaves room for a lot of failures and financial loss as seen in the horizontal and vertical analysis. There are still a lot of untapped potentials the company can leverage on as seen in the SWOT analysis. Porter’s five forces shows the company is not faced with a lot of threats or in danger of going under, however, a modification to its processes are necessary if it wants to remain relevant in the industry.

The strategic initiatives as proposed earlier, if implemented alongside the necessary adjustments made to the business model, will ensure the company’s viability and business sustainability. Constant reviews and checks can be carried out in order to remain ahead of political, economic and social changes that will occur.

 

4.6 RISKS TO THE ORGANISATION FOR NOT IMPLEMENTING PROPOSALS

For any company to continue growing, surveys and systematic studies have to be conducted–continually. This will ensure that the health of the company and strategies implemented to handle them are properly analysed. If the proposed solutions in this study are neglected, Novus Agro will face the risk of losing clients and investors and its place in the industry.

In addition, clients who received low-quality goods, incomplete tonnage or lost-in-transit commodities will file lawsuits against the company. This will certainly discredit all its years of research and strides made in the industry. Consequentially, the financial loss to be incurred would be huge, including poor reviews and negative publicity which may eventually lead to closure.

 

PART 2: EVIDENCE REVIEW

5.0 CONCEPTUAL FRAMEWORK OF ANALYSIS

Discussions on topic areas in the literature review will be reliant on the illustrative diagram below.

Image 10: Value Framework Analysis

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                                             Author, 2018

5.1 PESTEL ANALYSIS

A PESTEL framework is an analytic tool used in identifying and monitoring the macro-environmental factors that have an impact on an organisation which include legal, socio-cultural, political, economic, technological and environmental.

Two important roles of the PESTEL structure must be employed for companies successfully identify the working of their business environment and provide information that are utilized in planning for future activities (Dockalikova & Klozikova, 2014)

P refers to the government’s level of influence on the economy through policies and interventions which have impact on an organization’s business arena.

E represents how the society’s economic factor influences the growth of the firm such through exchange rates, inflation rates and economic growth.

S also known as “social” or “socio-cultural” focuses on people’s attitudes and common belief, with highlights on age distribution and a categorical representation of the population.

T refers to the impact of technology on the market. This includes technological awareness and innovations.

E represents environmental factors and how it affects our market like consumption attitude, climate change

L represents the legal factors that govern the market in which the organization is situated in.

5.2 SWOT ANALYSIS

The SWOT module is used in strategic planning and the acronym stands for Strength, Weakness, Opportunity and Threat.

Scholars apply an organization’s strengths and weaknesses during internal assessments of the all available positive factors and features that can be exploited in providing customers with improved services while, at the same time, achieving the company’s objectives. On the other hand, Opportunities and Threats are externally-related and are utilized in identifying the firm’s future business by ensuring that opportunities are maximized while threats are minimized (Kotler and Armstrong, 2012).

Limitations to SWOT Analysis

SWOT analysis is known for its simplicity and flexibility; easy to understand and does not require any technical knowledge to be implemented.

It is limited in its tendency to over simply a situation and can be unduly influenced by vested interests that may exist within the organization e.g. a technological change may be considered a threat by one perspective and an opportunity by another

It has been argued that the SWOT analysis can be misleading to practitioners since it promotes on-the-surface scanning, has no clear structure for prioritizing, and lacks deep-rooted examinations.

 

5.3 PORTERS FIVE FORCES

According to Michael Porter (1979), five forces shapes industries competition such as buyers’ bargaining power, suppliers’ bargaining power, rivalry among market players, threat of new entrants in the competition, and challenges posed by available substitute products or services. He adds that the applied instrument for identifying the company’s profitability is the strongest competitive force, which is also an effective and important tool used in formulating strategies.

  • Threat of new entrants makes reference to the challenges posed by newcompetitors to the industry’s existing players.
  • Buyers’ bargaining power refers to the consumers’ ability to create better values for themselves through making demands for high quality products/services, making suggestions and haggling to cut down prices.
  • The bargaining power of suppliers refers to how customers can achieve value by making demands for better prices on received goods or services.
  • Threat of substitute products refers to products introduced into the market to replace or provide another option to the buyer by performing the same function but going about it in a different way. It urges organizations to employ ingenuity in their business strategies.
  • Lastly, rivalry among competitors is noticed in product/service adverts, new product launch, and service improvement (Porter, 1979).

 

5.4 BUSINESS MODEL

Avision, El-Haddadeh and Al-Debei defined a business model is an abstract representation of a business in textual, conceptual, textual and/or graphical forms of every key interconnected financial, co-operational and architectural arrangements which are created by an organization presently and in the future. A business model includes all unique products and/or services the organization intends to roll out or is offering based on these arrangements that are considered essential in achieving and organization’s strategic goals and objectives.

Osterwalder and Pigneur (2010) see the business model as a plan utilized in executing a business strategy through the organization’s available structure, processes and systems.

COMPETITIVE ADVANTAGE

This can be defined as qualities that set apart a company in its sector and are capable of delivering profitability and sustainable advantage to the company.

An organization’s competitive advantage is identified when it applies an unprecedented value creation strategy (Barney 1991)

5.5 RESOURCE BASED VIEW (RBV)

The three main areas of Resource Based View, according to Galbreath and Galvin (2004) are as follows: tangible assets, intangible assets and capabilities.

Also, a resource-based view concentrates on assets and development of resources.

5.6 HOW THE FRAMEWORK SHOULD BE APPLIED IN ANALYZING THE CURRENT CHALLENGES

To identify how Novus Agro performs in its industry, a SWOT analysis was conducted to identify the Strength, Weakness, Opportunity and Threats while the external factors were analyzed using the PESTEL and Porter’s Five Forces to understand the current situation and trends. In addition, this study employed an internal assessment using financial ratios to gain insight of the company’s performance ratings and competitors.

The SWOT analysis made reference to all of Novus Agro’s achievements alongside the necessary areas for improvement.

Its current business model was reviewed to ascertain which areas or processes needed to be adjusted and strategies to be used. With this in mind, a slightly different business model was put together.

5.7 FURTHER DBA RESEARCH PERSPECTIVE

The need for competitive advantage in the global agribusiness has been a source of concern amongst policy makers and economists, particularly in developing countries. The agricultural sector has made significant contributions in burgeoning economic growth of many nations.

There are global demands for agro-products and this trend requires a highly competitive agricultural sector that knows its place in exploiting the ample opportunities present in the world market. This has placed a demand on the farmers to capture greater value based on know-how, it therefore, creates an interesting research to explore the competitive position of the agribusiness sector in view that it provides an opportunity for farmers to realize higher and stable income especially in the developing countries.

In agricultural products, competitiveness is mainly driven by the price of products and it is expected that the agricultural sector responds to environmental influences in order to preserve its competitive advantage.

PART THREE:

REFLECTION FOR ENHANCING EMPLOYABILITY

6.0 CRITICAL THINKING & CORE CAPABILITIES FOR CONSULTANCY TASK

In competing this task, I have learned certain essential skills for a consultant. Being objective as a consultant gives one the ability to view, dissect and analyze issues without being influenced by people or situations. For any company to maintain its footprint in the market, it has to constantly seek to refine its processes and strategy. Novus Agro has to continue seeking ways to improve on its technology and commodity related activities to ensure availability throughout the year. This will give it an edge over the other companies that tow the tide of market availability and cost.

6.1 SELF EVALUATION OF CURRENT KNOWLEDGE SKILLS AND COMPETENCIES

In completing this task, I had to carry out a lot of research especially as most information could not be found online. I have always had an interest in the role technology plays in agriculture and its value chain and how to overcome the supply shortages or production halt during planting season as a result of infrequent delivery of commodities to processors and this task helped me identify other areas that to be developed if agricultural industry is to grow in Nigeria. This task also taught me how to analyze the financials of a company to determine which areas or processes that need evaluation, and the use of business analytical tools and models such as resource-based views.

Researching on this task and incorporating the little I have learnt along the way, has broadened my horizons and made me take a neutral perspective in learning about corporate strategies and a formal insight into the theories, general principles and development of a sustainable value chain for the company.


6.2 REQUIRED LEADERSHIP SKILLS FOR CAREER ASCENSION & FUTURE PERSONAL DEVELOPMENT

Completing this task provided me with a set of business skills and improved my business mind-set. It has taught me the importance of looking at the individual components of a business and discovering how each part affects the business as a whole. It is imperative for a business to identify its mission and then constantly seek ways to achieve that through market analysis and performance reviews. I have also learnt organizational skills and art of prioritizing; knowing what is necessary at each point in time for the accomplishment of a goal. Lastly, this task has also taught me how to identify my personal strength and weakness and how to improve on them.

 

 

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