Supplemental Reading
Developing and Implementing a Strategic Plan for your CAPSTONE® Business
This is a Supplemental Reading for much of what you will be learning this term. You do not have to
use it. However, if you just quickly look over it, you will find good things to help you decide which
strategy your team might like to implement. This paper is meant to help get you ahead of the
learning curve before you start the CAPSTONE® Business Simulation®. You will learn more about
strategy and competition throughout the course, but this discussion coupled with the materials on the
CAPSTONE® web site should prepare you for the simulation. Good Luck!
CAPSTONE® Team Project
BUSN 6200, Strategy and Competition
Introduction. Essentially this course is an intensive 9-week evaluation of what you have
learned in your entire academic MBA career, whether or not you are able to comprehend and
synthesize what you have learned, and whether or not you are prepared to function as a
Webster-certified MBA in the real world. Strategy and Competition is a BIG PICTURE course, a
trait that makes it a truly different kind of course from other MBA courses. Virtually all of the other
required and elective courses you have taken were concerned with a specific functional area
(accounting, finance, marketing, operations) and/or a well-defined body of knowledge (economics,
statistics, legal). Your previous courses have been highly structured and related closely to a welldeveloped body of theory. Some provided quantitative techniques; others introduced information and
specific skills the university believes you needed to acquire. This course shares only a few of those
traits. The problems and issues of strategy formulation and implementation in a competitive
environment require dealing with many variables and situational factors at once. Weighing the pros
and cons of strategy entails a total enterprise perspective and a talent for deciding just how all of the
relevant factors add up to shape what actions need to be taken. To help you think strategically, this
course has a heavy emphasis on case studies and a strategic Business Simulation®. In a real sense,
this course requires you to think like an executive level manager—and the CAPSTONE® simulation
will get you started in that direction.
The course content will keep your interest and attention. The glamour of working at the 30,000-foot
level to formulate and implement a strategy that will propel an enterprise down the road of success is
exhilarating. I sincerely hope this course will be the very best course you have ever had and that it
will be instrumental in helping you become competitively superior and wildly successful in your
MBA career.
Like the safety afforded by flying in a flight simulator, if you crash during the CAPSTONE®
simulation you can get up and try again without the downside of going bankrupt or getting fired!
You now have your chance to fly and “get your first ten combat missions under your belt”, but you
can’t fly solo. You must fly as a team. If not, you may have trouble getting off the ground or, more
likely, take a sudden dive into the realm of negative profits. Technology and sophisticated
programming have combined to allow you to manage a multi-million dollar organization with limited
risk (either to investors, your bank account, or your future career).
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Any way you look at it, the workload in this course is way above average. Additionally, this class is
graded competitively! You will be expected to differentiate yourself and your team from the others
in your class.


Expect to spend at least 2 to 3 hours each week working on just the CAPSTONE® Business
Simulation®. Since this is a course in Strategy and Competition, you will be competing
against fellow students and the computer. You and your team will be graded on your ability
to gain a competitive advantage. You will be expected to exhaust every ethical resource to
gain a competitive advantage. Eating someone else's lunch will increase your success in this
class! If you are afraid to be competitive, you are definitely in the wrong class. This will be
an intense assignment. Somebody is going to win, and somebody is going to lose.
You will also need to spend a significant amount of time preparing cases for classroom
discussion. Trying to wing it is ill advised! Some case preparation time will usually be spent
searching the internet and making several trips to the library.
Management Teams. You will divide yourself into teams of four to five members each during the
first class. Each team will choose one student to be CEO. You and your fellow team members will
strategically manage your business in a competitive environment. Teams will compete against the
other teams in the class and/or against a sophisticated computer team. You may be assigned
management responsibility for a product (Product Manager) in a specific market segment. In
addition, you may become a functional manager in one or more corporate functions such as: CEO,
Productions Director, Research and Development Director, Sales and Marketing Director, Finance
Director, or Human Resources Director.
Simulation Schedule. As you participate in CAPSTONE®, some class time will be allocated to
team planning and decisions, but a significant amount of time will be required outside of class. Your
emphasis should be on planning your decisions, rather than just trying out decisions with no good
reason. Initially, your team needs to conduct its environmental analysis, define your overall strategy,
develop functional supporting strategies, analyze your competition and their anticipated decisions,
and project your decisions for the near future before beginning your first business year. Since you
will start the simulation long before we have covered the entire textbook, you should learn as much
as possible from the on-line tutorials on the CAPSTONE® web site and from the “Supplemental
Reading” posted separately.
The CAPSTONE® Business Simulation® is dynamic and the outcomes of each year—each rollover—
depend on decisions made by all teams in the industry collectively. The results of decision for you
and your competitors will then be available in the CAPSTONE® Courier and other reports. As you
continue your decisions for each simulation year, your team should use the CAPSTONE® Courier to
conduct a current competitor analysis as an input for the next year’s decisions. We will attempt to
complete two simulation years during each week of the course. We will finalize one simulation year
in class while the other will be rolled over outside of class. Each team must maintain a journal of the
Team’s deliberations and decisions including interpretations of industry dynamics, assumptions, sales
forecasts, strategic actions, the outcomes of those actions, and changes that may be necessary. You
will use the information compiled during the simulation to create a final team report of your business
history, decisions, results, and your projections of future years.
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Strategy Formulation
Overview: Strategy is separated into two components: (1) the content of the strategy and (2) the
process of developing the strategy. The content describes how an organization will achieve its vision
or strategic intent, i.e., it is a blueprint for winning. As such, there is no one best strategy. A firm’s
strategy ties together the different functional areas of the organization (e.g., marketing and finance)
so there is a consistency in action over time. It also drives implementation and measures results so
there is strategic control.
The process refers to how the strategy is actually developed by the individuals in an organization. It
starts with a definition of strategy, and then describes each of the following areas: external analysis,
internal analysis, vision, evaluation, implementation, and control.
1. Learning Objectives: In this exercise, we explore theory related to strategy. The main learning
objectives are to demonstrate the ability to:
 Write a vision statement
 Do an external analysis
 Do an internal analysis
 Develop an overall strategy
 Evaluate strategic options
 Expand the overall strategy into specific functional level strategies
 Define a measurement and control system for monitoring strategy implementation
2. The Objective for Strategy. A strategy is a set of goal-directed decisions and actions that define
how an organization will win. In most contexts, winning is defined in terms of a good
shareholder return and stakeholder value, subject to operating ethically within the laws of the
land. The strategic plan usually addresses the overall corporate strategy (where we are going and
the business we are in), the competitive strategy (how we are going to compete in our chosen
business), and functional strategies (what resources and capabilities we must bring to bear to
support the corporate and competitive strategies). These decisions are then implemented at lower
levels of the organization by a broader set of more detailed decisions.
For this simulation, we are going to assume the Board of Directors for your company gave you the
following metrics they want you to focus on. Your strategy should maximize these metrics:
Cumulative Profit:
25%
Stock Price
25%
ROE Average
20%
ROS Average:
10%
Market Capitalization
10%
Market Share Average:
10%
Your management team should establish a strategy and manage the company consistent with these
metrics. Your business journal should show how decisions were made specifically to maximize these
metrics.
We will get into all three areas of strategy formulation and implementation. The first step is to decide
what it is we want to do. Jim Collins in his 2001 book Good to Great established the Hedgehog
Concept toward strategy. His concept is based on his observation that the hedgehog only does one
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thing when faced with a fight (roll up into a ball), but it does it the best in the world. Collins says that
to determine what business you are going to be in and be the best at, you need to decide three things:
1. What are you (collectively) deeply passionate about?
 Why bother getting dressed (corporately) each and every day?
2. What can you be the best in the world at?
 Not “want” or “should”. An understanding of what you can and can’t be. Not just a
competence, but truly the best.
3. What drives your economic engine?
 One denominator (profit per x, or cash flow per x) that has the single greatest impact.
Once you have that part down you can articulate your corporate strategy and establish the criteria for
evaluating all of the other analysis you are going to do and actions you are going to take.
The second step is deciding your competitive strategy. Part of this process is deciding where within
the corporation you are going to create and implement your business strategies. What business
structure are you going to use and what will be the culture of the organization? In Chapter 11 we are
going to study a variety of structures and strategy levels, but for this discussion we are going to use a
Strategic Business Unit (business level) strategy since that is most appropriate for the CAPSTONE®
simulation.
In the third step you will determine the functional strategies that are best suited to successfully
accomplish your corporate and competitive strategies. For example, there are normally six areas to
consider at the functional level: marketing, product development, operations, finance, human
resources, and information technology. Within the CAPSTONE® Business Simulation®, you will
participate in a dynamic process where each function (particularly marketing, operations, and
finance) is aware of its own position and where the organization wishes to go, and wants to influence
overall strategy so that its particular strength is used. Collectively the functional players form the
business strategy and provide a consistent way to implement it.
3. Framework for Developing Strategy. To do well in CAPSTONE® you must develop a long-term
strategy. Making consistent decisions in all aspects of a firm’s operations is difficult without a welldefined and clearly integrated strategy. As in real life, if you bounce around with your decisions, you
will incur unnecessary costs. In this discussion, we outline the process of developing and
implementing a consistent business strategy, and the figure below summarizes a framework which is
often helpful in developing this.
Roughly speaking, there is a reasonably good overlap between the functional areas and the first four
of these steps: external analysis is often linked with marketing; internal analysis is often linked with
operations; and options, choices, and evaluation are often linked with finance. We will use these
groupings in the discussion that follows.
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3.1 Analysis. The first stage in developing a business strategy is conducting an analysis of the
environment. The management team must consider both the internal and external environment.
First, they should look at the opportunities and threats in the external environment. This should
include a sound analysis of existing and potential needs of customers as well as the actions,
intentions, and capabilities of the organization’s competitors. Internally, the management team
should consider the firm’s own competencies and resources. This may include looking at where the
firm is currently positioned, its strengths in terms of quality and delivery, and its financial resources.
3.2 Synthesis and Evaluation. Synthesis relates to pulling together all the data from the analysis
phase and formulating a number of alternatives. The desired strategy is chosen by evaluating the
alternatives against a number of criteria – some of which are financial and some more qualitative.
These criteria should already be established by the corporate and competitive strategies. The chosen
business strategy can then be broken up into sub-strategies to guide each functional area, but in
reality there is considerable overlap among these and much iteration occurs in the process. The best
corporations avoid multiple iterations by clearly establishing corporate and competitive strategies
before even thinking about functional strategies, and using concurrent planning techniques to avoid
numerous iterations.
3.3 Iterating Strategies. While the process outlined above follows clear sequential steps and
concurrent planning techniques would be most desirable, in reality, there will usually be a number of
iterations before reaching an agreed business strategy. It is important to reconsider each of the
functional strategies to ensure, for example, the marketing strategy does not make demands beyond
the capabilities of manufacturing and that neither the manufacturing nor marketing strategies require
investments beyond the firm’s ability to finance them. Too many companies simply let each function
create their own “strategy” and then staple all of the functional strategies together and call it a
business strategy. That is a recipe for failure!
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3.4 Implementation. Strategic planning is necessary, but those who actually live in the operations
world instead of in the PowerPoint world of “Strategic Planning” would say that 10% of the effort is
in the planning and 90% is in the implementation. In CAPSTONE®, it is assumed that the outcome
of your firm’s decisions depends on the amount of money you commit and on the competitors’
decisions. In reality, many other things also come into play such as the quality of the feedback and
control systems, the nature of leadership, and the motivation of the people in the organization.
3.5 Feedback and Control. In CAPSTONE®, you have feedback on a variety of quantitative
measures at the end of each year’s operation. The information is presented annually in the
CAPSTONE® Courier, as well as other reports. The CAPSTONE® Courier provides information on
your competition as well as your own company, similar to what you might find on the pages of a
business newspaper. This information allows you the opportunity to learn and to improve
performance in the following year. You may need to tweak your strategy in response to this
information.
EXTERNAL ANALYSIS
4. External Analysis. The previous discussion provided a quick overview of the steps in the strategy
development process. This section now revisits each of those to describe some analytical tools you
might use to put more flesh on the bones of your strategy. External Analysis may be broken into
three main areas—environment, competitor, and customer. It consists of understanding how
competitors and the company interact in the environment to provide products to customers. In this
part of our discussion, we consider environment and competitor. We’ll examine the customer later in
the discussion on marketing and demand. There are a number of tools that can help in your external
analysis. The ones covered here are PESTE (Political, Economic, Societal, Technological, and
Environment), Porter’s Five Forces Model, SWOT, and Stakeholders Analysis which all have
components related to external analysis. Then, we’ll address competitor analysis and stress the
importance of good competitive intelligence. And, finally, customer analysis overlaps and flows
through into the marketing function.
ANALYTICAL TOOLS
PESTE. PESTE analysis focuses on the key factors in the business environment in which an
organization operates, and identifies the elements that could have some impact on the products an
organization produces or intends to produce. Typically a lot of data will be required for this, so
structuring and summarizing is important. The other important consideration is the quality of the
information. Most people would argue that the better the quality, the better the decision. However,
the more current the information, the more valuable it is, but it is usually also the most ill-defined.
The art of analysis is to sort the nuggets of gold from the deserts of data and to convert this to
knowledge useful for decisions. The art of management is knowing when you have enough
information to make an effective decision, and knowing the marginal cost of collecting and analyzing
more data and knowing the improvement in the quality of the decision relative to the extra cost.
The PESTE factors are useful as they provide a good overview of the overall environment and can be
used at a number of different levels—anywhere from trivial to an exhaustive level taking months and
even years to complete. Consequently, our objective should be to get all the main issues that relate to
the enterprise and the industry in which it is competing on one page. It is best to start simple and,
with time, more information can be gathered about each of the areas.
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Porter’s Five Forces Analysis. Porter’s Five Forces Analysis is a tool for analyzing the
attractiveness of an industry. It has five components—customer, competitor, suppliers, barriers to
entry, and threat of substitutes. The tool allows you to consider each of these areas to determine
whether a particular industry is likely to be profitable.
Porter’s Five Forces Model
Potential Entrants
Threat of New Entrants
Bargaining
Power
of Suppliers
Industry
Competitors
Suppliers
Bargaining
Power
of Buyers
Buyers
Rivalry Among
Existing Firms
Threat of Substitute Products
or Services
Substitutes
Porter identifies many elements that can be considered in each of these areas, and these factors can be
scored—the higher the score, the better the industry. A simple way to do this is to score each factor
on a one-to-four scale: weak = 1; strong = 4.
While this tool can be very effective, it can also quickly introduce a Pandora’s Box of issues.
Consequently, you should apply the rule of 80/20 to make it work effectively. Avoid analysis
paralysis. Focus on the larger, more obvious factors first. Do the analysis quickly and then come
back later to increase the level of analysis if necessary. Not all of the five factors will be equally
relevant or important. However, Porter’s tool has three main purposes:



It serves as a way of sharing information in a management team.
It serves to structure the information.
The scores indicate the attractiveness of the industry, i.e., if the scores are high in each
dimension, then it suggests that most firms will be able to get a good return.
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Limitations of Porter’s Model
• Assumes the existence of a clear, recognizable industry
• Addresses only firms in an industry and does not consider partner firms
• Does not account for the fact that large firms may be able to modify the industry structure
• Assumes industry factors, not firm resources, comprise the primary determinants of firm
profit
• Difficult to apply to firms operating in multiple countries where industry environments vary
considerably
SWOT Analysis. The SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is a very
basic, but very useful way to get an idea of where the organization stands at present. It is simply a
list of key issues for the organization. The strengths/weaknesses relate to the internal aspects of the
organization, and the opportunities/threats to the external aspects. This can be modified to include
the estimated current and anticipated future positions. Because of its simplicity, it helps prioritize the
issues and, as with PESTE, it can be repeated over time to give more insight, and also allows more
in-depth analysis to occur if required.
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SWOT ANALYSIS
Sample Fast Food Chain
Matrix
Opportunities
1. Growth in developing nations
2. Health consciousness of U.S.
population
Strengths
1. Financial stability/resources
2. Brand name/recognition
3. Consistency
Threats
1. Possible increase in minimum
wage
2. Popularity of easy-to-prepare
grocery items
Launch new locations in China & Mexico (S1, S2, O1)
Develop and emphasize more healthy foods (W1, W2, O2)
Launch frozen foods in grocery outlets (S2, S3, T2)
Weaknesses
1. Market share decline
2. Dependence on fried foods
Stakeholder Analysis. Stakeholder analysis is a way of identifying the important groups of people
affecting the organization. These will include groups inside and outside the organization. The
following list is typical of stakeholders in most organizations. You should rank these groups of
stakeholders in terms of importance, and also in terms of their level of interest and predictability.
They can then be managed with the key ones receiving the attention that they require.
Stakeholders Analysis
INTERNAL
EXTERNAL
Other Company Plants
Customers
Different Functions
Suppliers
Employees
Shareholders
Management
Local Community
Government
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COMPETITIVE ANALYSIS
Sources for Competitive Analysis. Competitive analysis is important when identifying which
segments to compete in and how best to compete in those segments. Information about competitors
is often challenging to obtain, but usually less difficult than most people think. The wide variety of
sources that may be useful include Suppliers, Hiring Candidates, Distributors, Customers, Industry
Observers, Headhunters, etc.
The Competitor Response Profile. Competitive activity is a key determinant of ultimate success in
any industry. Armed with competitive analysis information, you should put together a competitor
response profile indicating the likely way the competitor will act and react. Competitors consist of
soft resources (people, their knowledge and skills) and hard (physical, non-human) resources. The
interaction of these will determine the likely actions of the firm in the future and a key outcome of
competitive analysis is to make meaningful assessments of these.
COMPONENTS OF A COMPETITOR ANALYSIS
What Drives
the Competitor
What the Competitor is
Doing and Can Do
FUTURE GOALS
At all levels of management and
in multiple dimensions
CURRENT STRATEGY
How business is
currently competing
COMPETITORS RESPONSE PROFILE
Is competitor satisfied with current position?
What strategy shifts is competitor likely to make?
What is competitor vulnerability?
What will provide greatest and most effective retaliation?
ASSUMPTIONS
Held about itself and
the industry
CAPABILITIES
Both Strengths
and Weaknesses
Competitor Responses. It is also helpful to use this information to map out your own competitive
moves for at least a couple of periods in advance. This forces the management team to think in a
“what if” mode and to look at the strategic alternatives. A decision tree format is useful for this, but
considerable skill is required to keep the options at a level that they can be relatively easily
understood and represented. Without the right skills and tools, even the simple example shown can
get very complicated very quickly.
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Planning Strategic Moves
My Move
“Enter Low End Market”
_________________________________________________
Potential Competitor Moves
Also Enter Low End Market
Capture Larger Share of
My Current Market
______________________________________
Competitive Entry
Into Market
Counter Move
Try to keep price up
Focus on Advertising
Irrational Entry
Into Market
Counter Move
Do not enter into price war
Look at destroying the competition
Experience suggests that competitive analysis is usually done quite informally by organizations on a
continuous basis and often only for a couple of the main competitors. It is usually only a few
functional groups in the organization who are involved in competitive analysis (and not necessarily
those that should be). Also, competitive analyses are often not updated as frequently as they should
be. The point is to make sure that competitive analysis is done regularly, by the right people, and on
the right competitors.
INTERNAL ANALYSIS
Internal analysis assesses the internal resources and capabilities of the organization. Internal analysis
has a heavy overlap with the operations function. Perhaps the most important factor in the internal
analysis is identifying the organization’s core competency(s). The term simply asks the question:
What profitable activity does our organization do better than anyone else in a defensible way? Such a
deceptively simple question can sometimes take a long time to answer, but knowing the answer is in
fact quite crucial for the organization’s long-term success.
Core Competencies. A core competency is something that an organization does extremely well and
that is integral to an organization’s strategy and competitiveness. Often a core competency is crossfunctional knowledge and expertise that is uniquely applied. There are four tests for a core
competency:




Does it provide potential access to a wide variety of markets?
Does it significantly add to the customer value derived from the end product?
Is it difficult to imitate?
Can different elements of the company benefit from the competency?
Examples of core competencies include the ‘stickiness’ of 3M, the miniaturization of Sony, and the
engine technology of Honda. Core competencies give an organization its competitive advantage.
They are what allow the organization to be more profitable than others in the industry. They are what
allow it to move into other industries and be profitable. Core competencies that are properly applied
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lead to Distinctive Organizational Capabilities, the things that differentiate an organization from its
competitors.
Typically, an important part of strategy will relate to how to grow or transfer the core competency.
The idea of “stretch” refers to using the core competencies as a source of competitive advantage in
other industries, thus supporting innovation in new areas.
A core competency frequently combines the abilities of people with the capabilities of the
technology. CAPSTONE® is more able to capture quantitative core competencies, but does attempt
to provide opportunities to exercise qualitative core competencies. On a limited basis, companies in
CAPSTONE® can talk about increasing quality, distribution, or branding for example by investing
more heavily in these areas.
SPECIFYING, EVALUATING, AND SELECTING A STRATEGY
Working from the External and Internal analyses, an organization is well equipped to consider some
business strategies for evaluation. There are two steps to this:
1.
2.
Developing alternative strategies.
Selecting and implementing one alternative.
Developing Vision and Specifying Strategies. This can be a very creative activity, and depends upon
the synthesis of all the data that has been amassed from the internal and external analysis. It also
involves reconsidering the mission, vision, and strategic intent of the organization (if the organization
has been in existence for some time), or developing these for the first time. This needs to be based on
the core competencies. A quick definition of these concepts follows:
Vision and Strategy. One of the first things that a company needs to do is to understand why it exists,
what it is trying to achieve, and how it is trying to achieve this. While this may be clear at the
founding of the organization, it will change over time due both to the changing environment and to a
better understanding of the environment by the organization.
A vision statement is a good start for describing the ‘what’ and ‘why’ of an organization.
Technically, a mission statement gives the reason that a company exists, a vision of what it wants to
achieve, and a strategic intent that makes it emotionally compelling. A strategy describes how the
vision and mission will be achieved and communicates it as a blueprint for winning. In most cases,
there is no one best strategy. In CAPSTONE®, any of the strategies chosen could work out to be the
best.
A vision for an organization that wants to own the Low End Segment Product of the market might be
“No one can match our price.” Its strategic intent might state, “No one will match our quality and
our price for that quality.” Such statements can be an important way of focusing on the organization
and its reason for being. Then, of course, it is necessary to develop a strategy that supports the
vision.
Types of Strategies. In the 1980’s, Michael Porter did considerable work in defining three basic
types of strategies that ‘fit’ a business unit into its environment. (See pg 114, Figure 4.1 in your
Strategic Management textbook and the accompanying discussion for further details.) One method of
describing these is by considering two dimensions: Strategic Target and Strategic Advantage. The
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quadrants then lead to 3 strategies: Differentiated, Cost, and Focus. A quick description of each
follows:

Differentiated. A differentiated strategy is one that has a broad target and has a scope that is
concerned with creating products and services that are different from competitors’ products in
the eyes of the customer. A higher margin can then be charged.

Cost. A cost strategy is one that has a broad target and has a scope that is concerned with
creating products and services that are priced less than the competition. For this strategy to
work, the company must have lower production costs than the competition since the margins
will otherwise be too small to allow for a decent profit.

Focus or Niche. A focused strategy is one that has a narrow strategic target, and is either
differentiated or cost based for a specific niche. The essence of the strategy is to make sure
the product is targeted carefully at the needs of the very narrow segment.
Developing Functional Strategies. Developing functional strategies refers to the translation of the
corporate strategy and competitive strategy into strategies for the functions of the organization (e.g.
HR, finance, marketing, etc.). These will often involve shorter term goals. The time frame for these
is sometimes called tactical. In CAPSTONE®, we focus on marketing, product development,
operations, and finance functional strategies. A brief discussion of each follows:

Creating a Marketing Strategy. Having completed external and internal analyses, a
management team should be able to develop a marketing strategy. This should consider the 3
C’s—customers, competitors, and company—and then segment the market as a result. An
important step in this involves the decision about whether to compete in one narrow segment
or broadly in several segments. The selection of a specific segment or segments allows
customer needs to be defined, and once these are defined the 4 P’s—product, price,
promotion, and place (distribution)—may be determined.

Creating a Product Development Strategy. This is closely related to both the marketing and
the manufacturing strategies. Depending on the choice of which segments will be served, it is
necessary to develop the products and the processes for these. Decisions must be made about
the positioning of the products, the ideal cost that will allow products to be sold at the
required profit margin, how much investment will be required, and whether or not it is a good
investment.

Creating an Operations Strategy. An operation (production) strategy should be defined in
conjunction with the marketing strategy. Strategic decisions may include setting objectives in
capacity, responsiveness, quality, and cost. As a result, it should be possible to decide
whether to produce a low cost product or to try to differentiate the product with special
features and then charge a premium for the differentiated product.

Creating a Financial Strategy. After both the marketing and production strategies have been
defined, the financial strategy can be developed to provide the necessary financing to support
investments required by the marketing and production strategies. In addition to financing,
investment decisions relating to future profits may also be made.
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Suggested Format: Initial 5-Year Strategy for CAPSTONE®
Topic
Issues to cover
Actions
External Analysis
PESTE; Opportunities/Threats;
Five Forces
Internal Analysis
Strengths/Weaknesses
Current Core Competencies
Vision and
1-2 sentences that capture where
the Team wants to take the Firm
Overall Strategy
A statement on how you intend to
achieve your vision for the Firm
Marketing Strategy
Which segments will you target?
What media will you use?
How much will you spend?
Which channels will you target?
How much margin will you give?
Operations Strategy
What capacity are you aiming at?
What delivery are you aiming at?
What quality are you aiming at?
What is your maintenance plan?
What is your training plan?
Finance Strategy
How much equity will you raise?
How much debt?
What will be your dividend strategy?
Product
Development
Strategy
What products will you develop?
(attributes, prime cost, development
cost)
Budget
Expected
Results
Revenues
Direct Costs
Indirect Costs
Profits
Shareholder Value
Share Price
Market Share
Net Assets
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Measures
Suggested Format: Periodic Re-Assessment of the for your CAPSTONE® Firm
Topic
Issues to cover
Planned
External
Analysis
PESTE; Opportunities/Threats;
Five Forces
Internal
Analysis
Strengths/Weaknesses
Current Core Competencies
Vision
and
1-2 sentences that capture where
the Team wants to take the Firm
Overall
Strategy
A statement on how you intend to
achieve your vision for the Firm
Marketing
Strategy
Which segments will you target?
What media will you use?
How much will you spend?
Which channels will you target?
How much margin will you give?
Operations
Strategy
What capacity are you aiming at?
What quality are you aiming at?
What is your maintenance plan?
What is your training plan?
Finance
Strategy
How much equity will you raise?
How much debt?
What will be your dividend strategy?
Product
What products will you develop?
Development (attributes, prime cost, development
Strategy
cost)
Budget
Expected
Results
Revenues
Direct Costs
Indirect Costs
Profits
Shareholder Value
Share Price
Market Share
Net Assets
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Actions
Reason for
Divergence
Suggested Format: Strategy of Main Competitor(s)
Topics
So Far
Vision
Operations
Strategy
A sentence that captures
where you think they
want to take the Firm
What is their target capacity?
How do they deliver to customers?
What is their quality goal?
What is their Maintenance Plan?
What is their Training Plan?
Finance
Strategy
How much equity will they raise?
How much debt?
What is their dividend strategy?
Product
Development
Strategy
What products will they develop?
(attributes, prime and
development costs)
Expected
Result
Shareholder value
Share Price
Market Share
Net Assets
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Predicted
Moves
Actual
Moves
Error
Hi, Med, Low
CAPSTONE® TUTORIAL ASSIGNMENT
Before reading further, go online to www. capsim.com. In the tutorials under Running Your
Company,you will find several illustrations of these strategies as they might apply in your
CAPSTONE® Business Simulation®.
Porter’s original ideas strongly argued that while an organization could focus on any one of these
types of strategies, it should not be ‘stuck in the middle’ of the strategic grid. Subsequent debate
suggests that the original conditions have to be carefully considered. In fact, most businesses must be
in both camps—they must be cost-oriented in mature markets that have many competitors, and
differentiated in newer markets where there is less competition. CAPSTONE® provides this multiple
strategy opportunity to play in multiple market segments.
Evaluation. There are three dimensions that should be used as the basis for selecting a strategy.
They are:
1.
Suitability: Is it appropriate for the organization? No matter how attractive some strategies may
be for an organization, that organization may not be able to implement those strategies for some
reason. An example would be a health insurance company with spare cash would not be able to
invest in a tobacco company due to conflict with its mission statement.
2.
Feasibility: Can it be done? Feasibility asks whether it is possible to carry out the strategy. Are
there enough resources or can they be acquired from somewhere? Is the way in which the
organization intends to develop itself, its markets, and its products supported by theory (both
managerial and technical)? Does management have the intestinal fortitude, desire, and ability to
implement the strategy?
3.
Acceptability: How good is the result? Acceptability asks whether the expected return is high
enough. This is usually calculated using Net Present Value (NPV) techniques.
Scoring of Strategies. A problem with the selection process is that it can get very complicated. A
good way to start the analysis is to consider the three dimensions above and to score the strategies
using a crude scoring system to focus the issues. This approach is shown in the figure below and can
be refined as appropriate. It may be appropriate to simply add up the raw scores or some weighting
may be applied. Of course, any such approach must be supported by common sense and is more a
technique for filtering and focusing the information than actually making decisions.
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Rank the Alternatives
What should you do?
Rank the Alternatives
Strategy 1
Suitable
2
1 is Low
5 Is High
Weight Feasible
3
Weight Acceptable Weight
4
Strategy 2
1
3
4
Strategy 3
Total
4
2
4
Which do you Choose?
Selection of a Strategy. Based on these three criteria, it should be possible to choose a strategy that
best satisfies the requirements of the organization.
How is Strategy Really Developed? A rather pure process has been described above, but there are
probably as many ways of developing strategies as there are organizations. Constant feedback is
vital, as is consistent adjustment to new conditions, and this is where much traditional strategy fails.
Implementation and Functional Decisions. It is one thing to have a strategy, but quite another to have
one that is understood, accepted, and “do-able.” A good strategy needs the input, buy-in, and
understanding of many people to be successfully implemented. This is usually the hardest thing to do
in strategic management. Concurrent development techniques help bring all of the organization’s
functions and stakeholders to the strategic planning table.
MEASUREMENT AND STRATEGIC CONTROL
“What you cannot measure you cannot manage.”
Lord Kelvin
Measurement is key to the long-term success of a project or organization, and what you measure will
determine what you get. Therefore it is vital to get the metrics right. Many of the important metrics
and measurements are difficult to make—but since an imprecise measure of something important is
far more valuable than a precise measure of something irrelevant, such measures should receive most
of the emphasis.
Measurement and the Balanced Scorecard. Historically, many people have measured a company’s
performance only by looking at immediate profit or earnings per share. However, focusing on this
has been compared to driving a car by looking out the back window. If performance has deteriorated,
it is usually too late to take corrective action, so it is important to look at some indicators which are
correlated to future financial performance.
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These indicators are described in the concept of the Balanced Scorecard. This tool introduced by
Kaplan and Norton extends the idea of financial measurement to three other areas as listed below.
Their well-supported argument is that if these measures start to deteriorate, then financial results will
eventually follow.
1.
2.
3.
4.
Financial: Measures of Profitability.
Internal: Measures of Productivity and Internal Efficiency.
Customer: Measures of Customer Satisfaction.
Innovation and Learning: Measures of New Products and Improvements.
However, the Balanced Scorecard is more than just a set of measures. It may be viewed as a total
management system that links these measures upwards to the strategic intent and vision of the
company. It also links them downwards to sub-units and to individuals. These measures can (and
should) also be linked to the reward system.
These relationships are indicated in the figure below.
Balanced Scorecard Relationships
While these are just a selection of the sorts of metrics that could be of use, the principle is to start
with a few simple metrics and add others later on. Select a few key reports to identify your success.
As you expand your knowledge of the information available to you, you can expand the
reports/metrics that you use to measure your progress more effectively.
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There are a substantial number of reports available for you in the simulation to let you know the
results of your decisions and to help you analyze and learn from your performance. These reports
can be accessed from the menus on the web site and on your capsim.xls. The reports provide a wide
variety of graphical as well as textual information relating to the previous period. It would be
worthwhile to review the reports and the key measures as they are described in the online Manager’s
Guide or in CAPSTONE®.xls.
This is the end of the supplemental reading on strategy development and implementation. The one
final activity I want to stress before you start the CAPSTONE® simulation is the importance of the
Sales Forecast. Every decision in your simulated company as well as in the real world is based on
your sales forecast. Whether or not to build more capacity, hire or reduce people, the amount of raw
material to buy, and every other decision comes down to how much service or product we can sell.
Use every technique at your disposal (including ‘gut feel’ if you are good at that) to establish the best
sales forecast possible. Most successful companies in the real world actually work internally on three
separate forecasts—the best case, the worst case, and the most likely case. As a senior manager in
the company, you need to know which forecast is being used for which activity or decision. In the
CAPSTONE® tutorial on How to Make a Sales Forecast, you are shown one technique for using the
best case and worst case forecasts to put an element of safety in your strategic implementation. I
encourage you to use that technique or something similar. It also helps to track the accuracy of your
forecasting over time. As a manager, you need to know if your company consistently forecasts high
or low, or if your forecasts are not much better than throwing darts at a board (an indicator for change
in people or techniques).
Now get into the simulation and have fun with it. But don’t forget, the results of how well you
synthesize everything you have learned has a significant impact on your grade!
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