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MGT 606 - Business Simulation WALTER J. FERRIER, Ph. D. Tel: 257 -9326 E-mail: MGT 606 - Business Simulation WALTER J. FERRIER, Ph. D. Tel: 257 -9326 E-mail: walter. [email protected] edu

Why Strategy? …Action that Creates Value Pazzo’s Lynagh’s Pub Why Strategy? …Action that Creates Value Pazzo’s Lynagh’s Pub

Competitive Outcomes Firm A’s Actions Rivalry Organizational Characteristics Firm B’s Actions Industry Characteristics Competitive Outcomes Firm A’s Actions Rivalry Organizational Characteristics Firm B’s Actions Industry Characteristics

Profit = (Price – Cost) × Qty. Profit = (Price – Cost) × Qty.

Strategic Management – Developing a set of coordinated and integrated commitments, decisions, and actions Strategic Management – Developing a set of coordinated and integrated commitments, decisions, and actions required to achieve competitive advantage

Strategic Management in the News n n n n Low price leader / Price Strategic Management in the News n n n n Low price leader / Price cutting Differentiated player / Unique product or marketing approach Market pioneer / Innovator, first-mover / New products, etc. M&A / Restructuring / Turnaround Alliances / Joint ventures New international markets / off shore production New plants / equipment / efficiency processes What does this have to do with business fundamentals and functions?

Course Perspective: Strategy…A View from the Top Management Functional Integration • Marketing • Production Course Perspective: Strategy…A View from the Top Management Functional Integration • Marketing • Production • R&D • Logistics • Acct. /Fin. Value-adding activities

Medium-Term Benefits at Big Inc. Top Management Don’t let this be you ? Medium-Term Benefits at Big Inc. Top Management Don’t let this be you ?

Interested in Entrepreneurship? Small business management … ? n Start-ups … ? n n Interested in Entrepreneurship? Small business management … ? n Start-ups … ? n n YOU will be a top officer, strategist, decision-maker: – Pazzo’s vs. Joe Bologna’s vs. Domino’s – Lexington Brewing Co. vs. Anheuser-Busch – John’s Running Shop vs. Footlocker – Pannell’s Swim Shop vs. Dick’s Sporting Goods

CAPSTONE Simulation n Web-based, interactive competition simulation – YOU run the company Teams compete CAPSTONE Simulation n Web-based, interactive competition simulation – YOU run the company Teams compete against one another Coordinate multifunctional strategy, decisionmaking, etc.

Where Does Strategy Occur? CEO & Board Top Management Functional Management Where Does Strategy Occur? CEO & Board Top Management Functional Management

What do strategists do/think about? n n n Strive for competitive advantage / aboveaverage What do strategists do/think about? n n n Strive for competitive advantage / aboveaverage returns Assess external factors causing change Develop internal factors that create advantage Navigate stakeholder landscape Strategic management process… Five Stages

What else…. . ? External Stuff n n n Globalization Technological change Diverse and What else…. . ? External Stuff n n n Globalization Technological change Diverse and increasingly vociferous stakeholders Wall Street Environment Internal Stuff n n n Building functional capabilities Organizational culture Leadership Strategic HR Board of Directors

Levels of Strategy Corporate Strategy n Business Strategy n Functional Strategy n Value can Levels of Strategy Corporate Strategy n Business Strategy n Functional Strategy n Value can be created an any or all levels

Corporate Strategy n Decide scope/reach of the firm – In which businesses do we Corporate Strategy n Decide scope/reach of the firm – In which businesses do we compete? n Manage diversified portfolio of businesses GENERAL ELECTRIC Aircraft Engines Light Bulbs Appliances Power Generation

Corporate Strategy n Decide scope/reach of the firm – In which businesses do we Corporate Strategy n Decide scope/reach of the firm – In which businesses do we compete? n Develop and leverage synergies across business units PROCTER & GAMBLE Soaps Food Beverages Paper Products

Corporate Strategy PEPSI Carbonated Beverages Juices, Water, Sports drinks Snack Foods Fast Food Corporate Strategy PEPSI Carbonated Beverages Juices, Water, Sports drinks Snack Foods Fast Food

Corporate Strategy COCA-COLA Carbonated Beverages Juices, Water, Sports drinks Corporate Strategy COCA-COLA Carbonated Beverages Juices, Water, Sports drinks

Capstone Strategy n Decide Market Scope of Firm n Develop business-level strategy for portfolio Capstone Strategy n Decide Market Scope of Firm n Develop business-level strategy for portfolio of market segments – In which market segments do we compete? Digby High-End Traditional Size Performance

Business Strategy n How do we compete? Profit = (Price – Cost) × Qty. Business Strategy n How do we compete? Profit = (Price – Cost) × Qty. Cost advantage n Size advantage n Differentiation advantage n New market space n Bridge converging industries n

Functional Strategy n Given corporate- and/or business-level strategy… – Marketing – Production – R&D Functional Strategy n Given corporate- and/or business-level strategy… – Marketing – Production – R&D – Human resource management – Finance Functional integration/implementation

Functions and Adaptive Maneuvering 8 This Sequence: Black: Knight b 4 White: Pawn c Functions and Adaptive Maneuvering 8 This Sequence: Black: Knight b 4 White: Pawn c 3 Black: Bishop g 4 White: Queen b 5 Black: Pawn c 5 7 6 5 4 3 2 1 a b c d e f g h Named Sequences: Epaulette’s Mate Sicilian Defense

Strategic Management Process 1. Articulate Mission / Intent n n n Sense of purpose, Strategic Management Process 1. Articulate Mission / Intent n n n Sense of purpose, direction… In which industries* does firm compete? How does firm compete? Who are customers? Who are competitors? * For the Capstone simulation… “In which market segment(s) do we compete? ”

2. Set Objectives & Performance Targets n Financial – Achieve 10% ROI and $1. 2. Set Objectives & Performance Targets n Financial – Achieve 10% ROI and $1. 55 EPS by YE 06 n Strategic – Become low price leader in industry by YE 07 – Enter five new country markets by YE 09

3. Develop a Strategy n Where and How to compete: § Acquire companies in 3. Develop a Strategy n Where and How to compete: § Acquire companies in related businesses § Divest poor performing or poor fitting businesses § Establish R&D alliances in emerging technologies § Enter multinational markets § Develop “market-push” marketing strategy § Restructure the company from “geographic” structure to “global product division” structure

4. Implement Strategy n Develop action plan at functional level – Establish European distribution 4. Implement Strategy n Develop action plan at functional level – Establish European distribution center n Buy warehouse facility near airport in Germany n Re-tool with robotic material handling system – Create new ad campaign for 2008 Olympics n Endorsement contract with Lance Armstrong, Marylou Retton, Mia Hamm, and Michael Johnson n Contract with Spike Lee for 30 -second TV ad – Launch new version of product n Create multifunctional design team n License Oracle’s newest techology n Increase R&D budget by 30% – Cut prices on older version of product by 33%

5. Evaluation and Adjustment Assess results relative to goals n Identify new opportunities / 5. Evaluation and Adjustment Assess results relative to goals n Identify new opportunities / constraints n Change strategy / implementation plan (as needed) n