MGT 606 — Business Simulation WALTER J FERRIER

MGT 606 - Business Simulation WALTER J. FERRIER, Ph. D. Tel: 257 -9326 E-mail: walter. ferrier@uky. edu

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

Profit = (Price – Cost) × Qty.

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 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 • R&D • Logistics • Acct. /Fin. Value-adding activities

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 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 against one another Coordinate multifunctional strategy, decisionmaking, etc.

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

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 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 be created an any or all levels

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 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 COCA-COLA Carbonated Beverages Juices, Water, Sports drinks

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. 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 – Human resource management – Finance Functional integration/implementation

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, 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. 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 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 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 / constraints n Change strategy / implementation plan (as needed) n