1. Foundation Business Simulation
Strategy

2. Strategy Strategy and Tactics differ mainly around time scale.
In Foundation®, a 5-8 year Strategy is supported with annual tactical decisions.
Strategic Plan should consist of:
Vision and Mission Statement
S.W.O.T. Analysis (or Environmental and Internal scans)
Tactical and Functional Area Plans

3. Introduction A strategy is one of four organizational time drivers.
Mission Statement (timeless)
Strategy (3-5 years)
Operational Intents (1 year)
Tactics (Day to day)
Time In Years

4. Strategy From where in the organization strategy should emerge?
Michael Porter argues for a top-down view.
Strategy is designed at the top of the organization, with the goal of positioning resources and building relationships in a unique way.

5. Porter's Generic Competitive Strategies
Target Scope
Advantage
Low Cost
Product Uniqueness
Broad
(Industry Wide)
Cost Leadership Strategy
Differentiation Strategy
Narrow
(Market Segment)
Focus
Strategy (low cost)
Focus
Strategy (differentiation)

6. Cost Leadership Objective Characteristics:
Create a sustainable cost advantage over competition to either:
Under-price competitors to gain market share
Earn higher profit margin by selling at market price
Characteristics:
Uses knowledge gained from past production to lower production costs
Reduce costs versus competitors by efficiently performing value chain activities
Low level of differentiation – standardized product
Add new product features only after the market demands them
Aim for average customer
Tight control of overhead and R&D
State of the art facilities

7. Cost Leadership Advantages: Risks:
Cost advantage protects from new entrants.
Can reduce price to protect from competition
Risks:
Overly aggressive in price cutting (reduced prices not offset by increased sales)
Fixation on reducing costs at expense of responding to changing market
Technological breakthroughs - competitors may leapfrog the technology, nullifying the firm's accumulated cost reductions.
Competitors may imitate the technology

8. Differentiation Objective Characteristics:
Incorporate differentiating features that influence buyers to prefer firm’s product or service:
Create value for buyers that are not easily matched or cheaply copied
Spend less on differentiation than the price premium that can be charged
Characteristics:
Include unique features
Key is perceived quality (whether real or not).
Actual product quality
Service after sale
Rapid innovation thru R&D

9. Differentiation Advantages: Risks:
Perceived quality and brand loyalty insulate company
Price increases from powerful suppliers can be passed on to customers
Buyers have only one source of supply.
Brand loyalty protects from substitutes.
Brand loyalty is a barrier to new entrants.
Risks:
Charging a price premium that buyers won’t support
Adding features customers don’t value - customer tastes may change
Imitations are a threat today because of production technology
How long can the firm sustain a particular differentiation advantage?

10. Focus (Cost or Differentiation)
Objective
Concentrate attention on a narrow segment of the total market:
Choose niche where buyers have distinctive preferences or unique needs
Develop unique capabilities to service target segment
Characteristics:
Firm must build competitive advantage into specific, difficult to mass produce value chain segment
Superior service
Greater selection to specific niche

11. Focus (Cost or Differentiation)
Advantages:
Power over buyers since focuser may be only source of supply.
Customer loyalty protects from new entrants and substitute products.
Easier to stay close to customer and monitor his needs.
Risks:
The firm may be at mercy of powerful suppliers since focuser buys in small quantities.
Small volume means higher production costs
Change in consumer tastes or a technological change could cause a focuser's niche to disappear.
Cost leaders or big differentiators may produce products that satisfy customers' needs - the focuser is subject to constant attack.

12. Porter Curve
High
ROI
Low
High
Market Share

13. Porter Curve ROI Market Share High Low High
Firms with High ROI / Low Overall Market Share would likely have a clearly defined focused strategy
High Overall Market Share / High ROI firms would likely have a strong position in both market segments –risky, but effective when executed properly
Porter Curve
High
ROI
Low
High
Market Share

14. Porter Curve ROI Market Share High Low High
Firms in the middle have a less definable identity, and a hard time competing. They might have a number of “sofa-bed” product lines: Not great sofas – not great beds.
Porter Curve
High
ROI
Low
High
Market Share

15. BCG Growth/Share Matrix
Market Share
High
Low
The Boston Consulting Group Growth-Share Matrix was developed in the 1960’s as a tool to assess a firm’s Strategic Business Unit (SBU) or product
Long-term success is achieved by having a mix of high-growth potential products that require lots of cash, and low-growth products that generate the required $$
Market Growth
Low
High

16. BCG Growth/Share Matrix
Market Share
High
Low
Star products occupy strong positions in high growth markets
Cash Cows occupy strong positions in low growth markets
Question Marks have low market share in segments with strong growth
Dogs are low market share products positioned in low potential markets
Market Growth
Low
High ?

17. Capstone Strategies
The Situation Analysis generated an overview of the forces at work within the Foundation® market place.
Now you must decide how to use that information to gain a competitive advantage.
There are many different approaches - all of which can be successful depending on how well they are implemented tactically.

18. Capstone Strategies
STRATEGY
Mission Statement
PERFORMANCE
ASSESSMENT
Success Measurements
Analyst Report
Round Analysis - Star
Summary
INDUSTRY AND MARKET
ANALYSIS
S.W.O.T Analysis
Competitor Analysis
Competitive Analysis
FUNCTIONAL PLANNING
R&D
Marketing
Production HR
Finance
TQM
Strategies are declared in corporate mission statements
Foundation firms may develop and execute any strategy (or none at all - though that isn’t advisable). Basic strategies include:
Overall Cost Leader
Cost Leader with Focus (Low Tech or Product Life-Cycle)
Differentiator
Differentiator with Focus (High-Tech or Product Life-Cycle)

19. Overall Cost Leader
An overall cost leader will attempt to be the low-cost producer in both segments of the market. They will have good profit margins on all sales while keeping prices low.
Firm Profile:
More likely to re-position products than introduce new ones to the market
Capacity improvements are unlikely to be undertaken (may run overtime instead)
Automation may be pursued to increase margins
Investments will be financed with debt and/or stock issues
Tend to spend less on promotion and sales
Focus on Market Share, Profits, and Stock Price

20. Cost Leader With Low-tech Focus
A low-tech focused cost leader seeks to dominate the low-tech market segment. Their aim is to set prices below all competitors - and still be profitable.
Firm Profile:
Multiple product lines in the low-tech segment
Invest heavily in automation
Spend heavily on Promotion (less on Sales as staff has more than one product to pitch to prospects)
Investments financed with debt and/or stock issues
Focus on ROS, ROE, and Profits

21. Cost Leader With Product Life-cycle Focus
A product life-cycle focused cost leader will seek to minimize costs through efficiency and expertise. Products will be allowed to age and change in appeal from high-tech to low end buyers.
Firm Profile:
Low R&D spending (very little re-positioning, introduce new product every 2-3 years)
Invest in automation early in the product’s life-cycle
High spending on promotion and sales
Focus on ROE, ROS, and Profits

22. Differentiator
A Differentiator will seek to create maximum awareness and brand equity. They want to be well known as makers of high quality/highly desirable products.
Firm Profile:
High R&D spending to keep products fresh
Maintain a presence in both market segments
Spend heavily on advertising and sales to create maximum awareness and accessibility
Prices tend to be higher
Focus on Market Share, Profits, and Stock Price

23. Differentiator With High-tech Focus
A high-tech differentiator seeks to be known far and wide as the top producer of the best performing state-of-the-art products.
Firm Profile:
Multiple product lines in high-tech segment
Minimum focus in low-tech segment
High promotion and sales investments to create maximum awareness and accessibility
High R&D expenditures to continually introduce new product lines and keep existing products fresh
Unlikely to invest in increased automation or production capacity
Focus on ROA, Asset Turnover, and ROE

24. Differentiator With Product Life-cycle Focus
A product life-cycle differentiator seeks to be well-known as a top producer of good performing products in each of the targeted segments.
Firm Profile:
Multiple product lines in both segments
High promotion and sales investments to create maximum awareness and accessibility
High R&D expenditures to continually re-position product lines as they transition from high-tech to low-tech
Unlikely to invest in increased automation or production capacity
Focus on ROA, Stock Price, and Asset Turnover

25. Today’s shift is tomorrow’s nightmare
Strategies Evolve
Today’s shift is tomorrow’s nightmare
Poor tactics undermine a good strategy
Good tactics can overcome a poor strategy

26. Summary Successful firms will focus on: Planning Strategic alignment
There is no "magic bullet," guaranteed winning strategy. Each simulation has a unique competitive dynamic.
Successful firms will focus on:
Planning
Strategic alignment
Teamwork
Competitor analysis
Tactical adjustments.