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. Firm A’s Actions Firm B’s Actions Rivalry CompetitiveOutcomes IndustryCharacteristicsOrganizationalCharacteristics

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 Low price leader / Price cutting Differentiated player / Unique product or marketing approach Differentiated player / Unique product or marketing approach Market pioneer / Innovator, first-mover / New products, etc. Market pioneer / Innovator, first-mover / New products, etc. M&A / Restructuring / Turnaround M&A / Restructuring / Turnaround Alliances / Joint ventures Alliances / Joint ventures New international markets / off shore production New international markets / off shore production New plants / equipment / efficiency processes 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 you this be you. ?

9. Interested in Entrepreneurship? Small business management … ? Small business management … ? Start-ups … ? Start-ups … ? YOU will be a top officer, strategist, decision-maker: 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 Web-based, interactive competition simulation – YOU run the company Teams compete against one another Teams compete against one another Coordinate multifunctional strategy, decision- making, etc. 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 Strive for competitive advantage / above- average returns Assess external factors causing change Assess external factors causing change Develop internal factors that create advantage Develop internal factors that create advantage Navigate stakeholder landscape Navigate stakeholder landscape Strategic management process… Five Stages Strategic management process… Five Stages

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

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

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

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

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

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

19. Capstone Strategy Decide Market Scope of Firm Decide Market Scope of Firm –In which market segments do we compete? Develop business-level strategy for portfolio of market segments Develop business-level strategy for portfolio of market segments Digby High-EndTraditionalSizePerformance

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

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

22. a b c d e f g h Functions and Adaptive Maneuvering This Sequence: Black: Knight b4 White: Pawn c3 Black: Bishop g4 White: Queen b5 Black: Pawn c5 Named Sequences: Epaulette’s Mate Sicilian Defense 8765432187654321

23. 1. Articulate Mission / Intent Sense of purpose, direction… Sense of purpose, direction… In which industries * does firm compete? In which industries * 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… “In which market segment(s) do “In which market segment(s) do we compete?” we compete?” Strategic Management Process

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: 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 Develop action plan at functional level –Establish European distribution center Buy warehouse facility near airport in Germany Buy warehouse facility near airport in Germany Re-tool with robotic material handling system 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 Endorsement contract with Lance Armstrong, Marylou Retton, Mia Hamm, and Michael Johnson Contract with Spike Lee for 30-second TV ad Contract with Spike Lee for 30-second TV ad –Launch new version of product Create multifunctional design team Create multifunctional design team License Oracle’s newest techology License Oracle’s newest techology Increase R&D budget by 30% 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 Assess results relative to goals Identify new opportunities / constraints Identify new opportunities / constraints Change strategy / implementation plan (as needed) Change strategy / implementation plan (as needed)