Strategic Analysis and Competitive Advantage BUSI 7136 Strategic Analysis and Competitive Advantage

Introduction to CAPSIM View Alternative Strategies Risk-Free Why a Simulation? Compresses Time (1 Round=1Year) Enjoyable/ Competitive Appreciate Complexities

Key Objectives Use strategic thinking Understand the interaction of various parts of the business Appreciate team dynamics Grow awareness of competition Take away practical skills

The Story Sensor Industry has six companies Andrews Baldwin Chester Digby Erie Ferris There are a variety of customers that need sensors for the products to function. Your job: Operate one of the companies and make it successful.

To Begin You are a going concern Every company is equal. $100 Million Sales 5 Market Segments 5 Product Lines Every company is equal. Closed Marketplace. Two practice rounds, then reset for competition rounds.

The Market Space Round 1 Consumer Segment Expectations Perceptual map used to track changing consumer demands in size and performance Each year, consumers will expect faster (higher performance) and smaller products (lower size) This causes the segment circles to drift to the lower right constantly Market segments continue to diverge over time *Note the drift towards the lower right(expectations of faster and smaller products). Also note the divergence of the segments. Round 1 Consumer Segment Expectations Round 8 Consumer Segment Expectations

Low End Segment Price Positioning Age Reliability Ideal Age: 7 years Ideal MTBF: 12000-17000 Prefer less cutting edge products (Bigger Size & Low Performance) Price sensitive. Prefer price to be lowest possible. Price Positioning Age Reliability

Traditional Segment Price Positioning Age Reliability Ideal Age: 2 years Ideal MTBF: 14000-19000 “Average” Performance and Size Price sensitive, but willing to spend more than Low End consumers Price Positioning Age Reliability

High End Segment Price Positioning Age Reliability Ideal Age: 0 years Ideal MTBF: 20000-25000 High Performance and Small Size Not price sensitive, willing to pay highest prices. Price Positioning Age Reliability

Performance Segment Price Positioning Age Reliability Ideal Age: 1 year Ideal MTBF: 22000-27000 Highest Performance and Less important Size Not price sensitive, willing to pay moderately high prices Price Positioning Age Reliability

Size Segment Price Positioning Age Reliability Ideal Age: 1.5 years old Ideal MTBF: 16000-21000 Average Performance but Maximum Miniaturization Not price sensitive, willing to pay moderately high prices Price Positioning Age Reliability

Munificent Environment! According to a Market Analyst, there will be continuous growth in the sensor market. Your goal: Prepare your company’s products to meet the needs of the growing market.

Integrated Decision Map R&D Marketing Production Finance

R&D Ensure the perceived age of the product meets customer demands Build the quality and reliability (MTBF) of the products Invent new products to address the changing marketplace and take advantage of new opportunities Determine the specifications of the products to meet customer expectations

Marketing Set the price for each product Build customer awareness through investing in promotion Establish a sales force and distribution channels Set the sales forecast for each product Set Credit Policies (A/R and A/P)

Production Purchase machinery to automate production facilities Buy or sell capacity on product lines Set production schedule Manage the majority of the company’s fixed assets Staff your facility with workers

Finance Acquire capital to fund growth and operations Issue Stock Issue dividends to shareholders Short-Term Debt Issue Long-Term Bonds Balance debt portfolio Manage Proformas

Analyzing them is critical for company success Pro-Formas Proformas use decisions made in the current year to project company performance for the next year Analyzing them is critical for company success The following proformas are available: Balance Sheet Income Statement Cash Flow Statement Financial Ratios

Analyst Report Analyst Report Evaluates your company in ten categories: Margins Profits Emergency Loans Working Capital Market Share Forecasting Customer Satisfaction Productivity Financial Structure Wealth Creation

Porter’s Strategies

Broad Cost Leader No-frill, Standardized goods Profits come via market share Affords Advantages Force suppliers’ hand Continuously improving levels of efficiency difficult to replicate Barrier to entry But Be Careful Brand loyalty can be problematic Can overlook customer preferences Not good for fragmented markets Not good for dynamic markets

Broad Differentiator Customers perceive product value Customized products, differentiating in many ways Affords Advantages Large margins Buyer loyalty Few Customers But Be Careful Customers determine cost is too great Means of differentiation loses value Counterfeiting

Stuck in the Middle?