MGT 606 - Business MGT 606 - Business SimulationSimulation

WALTER J. FERRIER, Ph.D.WALTER J. FERRIER, Ph.D.

Tel: 257-9326Tel: 257-9326

E-mail: walter.ferrier@uky.eduE-mail: walter.ferrier@uky.edu

Why Strategy? …Action that Creates ValueWhy Strategy? …Action that Creates Value

Pazzo’s

Lynagh’sPub

Lynagh’sPub

Firm A’sFirm A’sActionsActions

Firm B’sFirm B’sActionsActions

RivalryRivalry

CompetitiveCompetitiveOutcomesOutcomes

IndustryIndustryCharacteristicsCharacteristics

OrganizationalOrganizationalCharacteristicsCharacteristics

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

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

Strategic Management in the Strategic Management in the NewsNews

Low price leader / Price cuttingLow price leader / Price cutting Differentiated player / Unique product or Differentiated player / Unique product or

marketing approachmarketing approach Market pioneer / Innovator, first-mover / New Market pioneer / Innovator, first-mover / New

products, etc.products, etc. M&A / Restructuring / TurnaroundM&A / Restructuring / Turnaround Alliances / Joint venturesAlliances / Joint ventures New international markets / off shore productionNew international markets / off shore production New plants / equipment / efficiency processesNew plants / equipment / efficiency processes

What does this have to do with business fundamentals and functions?

Course Perspective: Course Perspective: Strategy…A View from the Strategy…A View from the TopTop

Top Management

Functional Integration• Marketing• Production• R&D• Logistics• Acct./Fin.

Value-addingactivities

Medium-Term Benefits at Big Medium-Term Benefits at Big Inc.Inc.

Top Management

Don’t let this be youyou.

?

Interested in Interested in Entrepreneurship?Entrepreneurship?

Small business management … ?Small business management … ? Start-ups … ?Start-ups … ? YOUYOU will be a top officer, strategist, will be a top officer, strategist,

decision-maker:decision-maker:– Pazzo’sPazzo’s vs. Joe Bologna’s vs. Domino’s vs. Joe Bologna’s vs. Domino’s– Lexington Brewing Co.Lexington Brewing Co. vs. Anheuser-Busch vs. Anheuser-Busch– John’s Running ShopJohn’s Running Shop vs. Footlocker vs. Footlocker– Pannell’s Swim ShopPannell’s Swim Shop vs. Dick’s Sporting vs. Dick’s Sporting

GoodsGoods

CAPSTONE SimulationCAPSTONE Simulation Web-based, interactive competition Web-based, interactive competition

simulation – simulation – YOUYOU run the company run the company Teams compete against one another Teams compete against one another Coordinate multifunctional strategy, Coordinate multifunctional strategy,

decision-making, etc.decision-making, etc.

Where Does Strategy Occur?Where Does Strategy Occur?

CEO & BoardTop Management

Functional Management

What do strategists do/think What do strategists do/think about?about?

Strive for Strive for competitive advantagecompetitive advantage / / above-average returnsabove-average returns

Assess Assess external factorsexternal factors causing change causing change Develop Develop internal factorsinternal factors that create that create

advantageadvantage Navigate Navigate stakeholderstakeholder landscape landscape Strategic management process… Strategic management process… Five Five

StagesStages

What else…..?What else…..?

External StuffExternal Stuff GlobalizationGlobalization Technological changeTechnological change Diverse and Diverse and

increasingly increasingly vociferous vociferous stakeholdersstakeholders

Wall StreetWall Street EnvironmentEnvironment

Internal StuffInternal Stuff Building functional Building functional

capabilitiescapabilities Organizational Organizational

cultureculture LeadershipLeadership Strategic HRStrategic HR Board of DirectorsBoard of Directors

Levels of StrategyLevels of Strategy

Corporate StrategyCorporate Strategy Business StrategyBusiness Strategy Functional StrategyFunctional Strategy

Value can be created an any or all levelsValue can be created an any or all levels

Corporate StrategyCorporate Strategy

Decide scope/reach of the firmDecide scope/reach of the firm– In which businesses do we compete?In which businesses do we compete?

Manage diversified portfolio of Manage diversified portfolio of businessesbusinesses

GENERAL ELECTRIC

AircraftEngines

LightBulbs

Appliances PowerGeneration

Corporate StrategyCorporate Strategy

Decide scope/reach of the firmDecide scope/reach of the firm– In which businesses do we compete?In which businesses do we compete?

Develop and leverage synergies Develop and leverage synergies across business unitsacross business units

PROCTER & GAMBLE

Soaps Food Beverages PaperProducts

Corporate StrategyCorporate Strategy

PEPSI

CarbonatedBeverages

Juices,Water,Sportsdrinks

SnackFoods

Fast Food

Corporate StrategyCorporate Strategy

COCA-COLA

CarbonatedBeverages

Juices,Water,Sportsdrinks

CapstoneCapstone Strategy Strategy Decide Market Scope of FirmDecide Market Scope of Firm

– In which market segments do we compete?In which market segments do we compete? Develop business-level strategy for Develop business-level strategy for

portfolio of market segmentsportfolio of market segments

Digby

High-End Traditional Size Performance

Business StrategyBusiness Strategy HowHow do we compete? do we compete?

Profit = (Price – Cost) Profit = (Price – Cost) × Qty.× Qty. Cost advantageCost advantage Size advantageSize advantage Differentiation advantageDifferentiation advantage New market spaceNew market space Bridge converging industriesBridge converging industries

Functional StrategyFunctional Strategy Given corporate- and/or business-level Given corporate- and/or business-level

strategy…strategy…– MarketingMarketing– ProductionProduction– R&DR&D– Human resource managementHuman resource management– FinanceFinance

Functional Functional integration/implementationintegration/implementation

a b c d e f g h

Functions and Adaptive Functions and Adaptive ManeuveringManeuvering

This Sequence:Black: Knight b4White: Pawn c3Black: Bishop g4White: Queen b5Black: Pawn c5

Named Sequences:Epaulette’s MateSicilian Defense

8

7

6

5

4

3

2

1

1. Articulate Mission / Intent1. Articulate Mission / Intent Sense of purpose, direction…Sense of purpose, direction… In which industriesIn which industries** does firm compete? does firm compete? How does firm compete?How does firm compete? Who are customers?Who are customers? Who are competitors?Who are competitors?

* For the Capstone simulation…* For the Capstone simulation…

““In which market segment(s) do In which market segment(s) do

we compete?”we compete?”

Strategic Management Process

2. Set Objectives & Performance 2. Set Objectives & Performance TargetsTargets

Financial– Achieve 10% ROI and $1.55 EPS by

YE06 Strategic

– Become low price leader in industry by YE07

– Enter five new country markets by YE09

3. Develop a Strategy3. Develop a Strategy

Where and How to compete:Where and How to compete: AcquireAcquire companies in related businesses companies in related businesses DivestDivest poor performing or poor fitting poor performing or poor fitting

businessesbusinesses EstablishEstablish R&D alliances in emerging R&D alliances in emerging

technologiestechnologies EnterEnter multinational markets multinational markets DevelopDevelop “market-push” marketing strategy “market-push” marketing strategy RestructureRestructure the company from “geographic” the company from “geographic”

structure to “global product division” structurestructure to “global product division” structure

4. Implement Strategy4. Implement Strategy

Develop Develop action planaction plan at functional level at functional level– Establish European distribution centerEstablish European distribution center

Buy warehouse facility near airport in GermanyBuy warehouse facility near airport in Germany Re-tool with robotic material handling systemRe-tool with robotic material handling system

– Create new ad campaign for 2008 OlympicsCreate new ad campaign for 2008 Olympics Endorsement contract with Lance Armstrong, Endorsement contract with Lance Armstrong,

Marylou Retton, Mia Hamm, and Michael JohnsonMarylou Retton, Mia Hamm, and Michael Johnson Contract with Spike Lee for 30-second TV adContract with Spike Lee for 30-second TV ad

– Launch new version of productLaunch new version of product Create multifunctional design teamCreate multifunctional design team License Oracle’s newest techologyLicense Oracle’s newest techology Increase R&D budget by 30%Increase R&D budget by 30%

– Cut prices on older version of product by Cut prices on older version of product by 33%33%

5. Evaluation and Adjustment5. Evaluation and Adjustment

Assess resultsAssess results relative to goals relative to goals Identify new opportunities / Identify new opportunities /

constraintsconstraints Change strategyChange strategy / implementation / implementation

plan (as needed)plan (as needed)