FOUNDATION BUSINESS
SIMULATION
Strategy
Strategic Planning Process
Mission &
Objectives
Environmental
Scanning
Strategy
Formation
Strategy
Implementation
Evaluation &
Control
• Vision
• Mission
• Values
• Internal analysis of the firm
• Analysis of firm’s industry
• Competitive advantage
• Cost or Differentiation
• Communicate the strategy
• Involve firm’s resources and motivation
• Define parameters to be measured and target values
• Perform measurement and compare to pre-defined standard
Strategy
A strategy is one of four organizational time drivers.
Strategy and Tactics differ mainly
around time scale.
Vision / Mission
In Foundation®, a 5-8 year Strategy is
supported with annual tactical
decisions.
Strategy
(5–8 years)

Operational
Intents (1 year)
Tactics
(Day to day)
Time In Years
Strategic Plan should consist of:
1.
Vision and Mission Statement
2.
S.W.O.T. Analysis (or
Environmental and Internal
scans)
3.
Tactical and Functional Area
Plans
Strategy


Corporate strategy refers to the overall
strategy for a diversified company. It is
concerned with:

the mix of businesses the company should
compete in

the ways in which strategies of individual units
should be coordinated and integrated.
Strategy is designed at the top of the
organization, with the goal of positioning
resources and building relationships in a
unique way.
Michael Porter, Bishop William Lawrence University Professor, Harvard Business School
Porter's Generic Competitive Strategies
Advantage
Target Scope
Low Cost
Product Uniqueness
Broad
(Industry Wide)
Cost Leadership
Strategy
Differentiation
Strategy
Narrow
(Market Segment)
Focus
Strategy
Focus
Strategy
(low cost)
(differentiation)
Cost Leadership

Objective


Create a sustainable cost advantage over competition to either:
1. Under-price competitors to gain market share
2. Earn higher profit margin by selling at market price
Characteristics:




Access to capital required to make significant investments in
production
Skill in designing product for efficient manufacturing
High level of expertise in manufacturing process engineering
Efficient distribution channels
Cost Leadership

Advantages:



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)
Other firms may be able to lower their costs
Technological breakthroughs - competitors may imitate / leapfrog the
technology
Differentiation

Objective


Incorporate differentiating features that influence buyers to prefer
firm’s product or service:
1. Create value for buyers that are not easily matched or copied
2. Spend less on differentiation than the charged price premium
Characteristics:





Access to leading scientific research
Highly skilled and creative product development team
Rapid innovation thru R&D
Strong sales team with the ability to communicate the perceived
strengths of the product
Corporate reputation for quality and innovation
Differentiation

Advantages:



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
Customer tastes may change
Other focusers may be able to achieve even greater differentiation
Focus (Cost or Differentiation)

Objective


Concentrate attention on a narrow segment of the total market:
1. Choose niche where buyers have distinctive preferences or unique
needs
2. 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
Focus (Cost or Differentiation)

Advantages:



Customer loyalty protects from new entrants and substitute products.
Easier to service customer by focusing entirely on narrow segment
Risks:




Focuser buys in small quantities reducing bargaining power with their
suppliers
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.
The Porter Curve
ROI
High
Low
High
Market Share
The Porter Curve
ROI
High
• According to the U-shaped curve, a
company can attain a relatively high
return on investment (ROI) by going after
the leading market share in its industry.
• If the firm cannot achieve a high a level
of sales, two alternatives are open: (1)
one is to choose unique differentiation, so
the firm can enjoy a price-premium
because of the special characters of its
products, (2) the other is to focusing on a
specialized but profitable niche within
the industry.
Low
High
Market Share
The Porter Curve
ROI
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.
Low
High
Market Share
BCG Growth/Share Matrix
Market Share
High
Low
Market Growth
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 $$
BCG Growth/Share Matrix
Market Share
High
Low
Market Growth
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
Capstone Strategies
STRATEGY
Mission Statement

INDUSTRY AND MARKET
ANALYSIS
S.W.O.T Analysis
Competitor Analysis
Competitive Analysis
PERFORMANCE
ASSESSMENT
Success Measurements
Analyst Report
Round Analysis - Star
Summary
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)
FUNCTIONAL PLANNING
R&D
Marketing
Production
Finance


Differentiator
Differentiator with Focus (HighTech or Product Life-Cycle)
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
Toyota
Toyota Camry
$18,470 - $24,900
Toyota Solara
$19,930 - $27,190
Toyota Avalon
$26,875 - $34,065
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
Toyota
Yaris
$11,150 - $13,525
Corolla
$14,305 - $ 15,515
Matrix
$15,410 - $ 16,890
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
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
Toyota Hybrid
Prius
$24,000
Prius V
$26,550
Prius c
$18,950
Prius Plug-in
$32,000
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
Lexus
Lexus IS
$30,255 - $35,705
Lexus ES
$33,470
Lexus GS
$44,150 - $52,375
Lexus LS
$61,000 - $ 71,000
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
Strategies Evolve
Today’s shift is
tomorrow’s
nightmare
• Poor tactics undermine a good strategy
• Good tactics can overcome a poor strategy
Summary
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.