Foundation Business Simulation
Strategy
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:
1. Vision and Mission Statement
2. S.W.O.T. Analysis (or Environmental and Internal
scans)
3. Tactical and Functional Area Plans
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
Strategy

From where in the organization
strategy should emerge?
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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.
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:
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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
Cost Leadership

Advantages:

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Cost advantage protects from new entrants.
Can reduce price to protect from competition
Risks:
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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
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
cheaply copied
2. Spend less on differentiation than the price premium that
can be charged
Characteristics:
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Include unique features
Key is perceived quality (whether real or not).
 Actual product quality
 Service after sale
Rapid innovation thru R&D
Differentiation

Advantages:
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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:
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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?
Focus (Cost or Differentiation)

Objective

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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:
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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:
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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.
Porter Curve
High
ROI
Low
High
Market Share
Porter Curve
ROI
High
Low
Market Share
• 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
High
Porter Curve
High
ROI
• 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 $$
High
Low
Market Growth
BCG Growth/Share Matrix
Market Share
• Star products occupy
High
strong positions in high
growth markets
Low
?
• 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
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)
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Differentiator
Differentiator with Focus
(High-Tech 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:
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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
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:
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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
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:
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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:
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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
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:
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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
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:
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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.