MGT 606 - Business Simulation

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

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

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

4. Profit = (Price – Cost) × Qty.

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

6. Strategic Management in the News • 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?

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

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

9. Interested in Entrepreneurship? • Small business management … ? • Start-ups … ? • 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

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

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

12. What do strategists do/think about? • Strive for competitive advantage / above-average returns • Assess external factors causing change • Develop internal factors that create advantage • Navigate stakeholder landscape • Strategic management process… Five Stages

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

14. Levels of Strategy • Corporate Strategy • Business Strategy • Functional Strategy Value can be created an any or all levels

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

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

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

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

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

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

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

22. Named Sequences: Epaulette’s Mate Sicilian Defense Functions and Adaptive Maneuvering 8 7 6 5 4 3 2 1 • This Sequence: • Black: Knight b4 • White: Pawn c3 • Black: Bishop g4 • White: Queen b5 • Black: Pawn c5 a b c d e f g h

23. Strategic Management Process 1. Articulate Mission / Intent • 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?”

24. 2. Set Objectives & Performance Targets • 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

25. 3. Develop a Strategy • 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

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

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