MGT 606 - Business Simulation
WALTER J. FERRIER, Ph.D.
Tel: 257-9326
E-mail: walter.ferrier@uky.edu
Why Strategy? …Action that Creates Value
Pazzo’s
Lynagh’s
Pub
Lynagh’s
Pub
Competitive
Outcomes
Firm A’s
Actions
Rivalry
Organizational
Characteristics
Firm B’s
Actions
Industry
Characteristics
Profit = (Price – Cost) × Qty.
Strategic Management – Developing a set of
coordinated and integrated commitments, decisions,
and actions required to achieve competitive advantage
Strategic Management in the News
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Low price leader / Price cutting
Differentiated player / Unique product or marketing
approach
Market pioneer / Innovator, first-mover / New
products, etc.
M&A / Restructuring / Turnaround
Alliances / Joint ventures
New international markets / off shore production
New plants / equipment / efficiency processes
What does this have to do with
business fundamentals and functions?
Course Perspective:
Strategy…A View from the Top
Top Management
Functional
Integration
• Marketing
• Production
• R&D
• Logistics
• Acct./Fin.
Value-adding
activities
Medium-Term Benefits at Big Inc.
Top Management
Don’t let
this be you.
?
Interested in Entrepreneurship?
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Small business management … ?
Start-ups … ?
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YOU will be a top officer, strategist,
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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
CAPSTONE Simulation
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Web-based, interactive competition simulation –
YOU run the company
Teams compete against one another
Coordinate multifunctional strategy, decisionmaking, etc.
Where Does Strategy Occur?
CEO & Board
Top Management
Functional
Management
What do strategists do/think about?
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Strive for competitive advantage / aboveaverage returns
Assess external factors causing change
Develop internal factors that create advantage
Navigate stakeholder landscape
Strategic management process… Five Stages
What else…..?
External Stuff
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Globalization
Technological change
Diverse and
increasingly vociferous
stakeholders
Wall Street
Environment
Internal Stuff
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Building functional
capabilities
Organizational culture
Leadership
Strategic HR
Board of Directors
Levels of Strategy
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Corporate Strategy
Business Strategy
Functional Strategy
Value can be created an any or all levels
Corporate Strategy
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Decide scope/reach of the firm
– In which businesses do we compete?
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Manage diversified portfolio of businesses
GENERAL ELECTRIC
Aircraft
Engines
Light
Bulbs
Appliances
Power
Generation
Corporate Strategy

Decide scope/reach of the firm
– In which businesses do we compete?
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Develop and leverage synergies across
business units
PROCTER & GAMBLE
Soaps
Food
Beverages
Paper
Products
Corporate Strategy
PEPSI
Carbonated
Beverages
Juices,
Water,
Sports
drinks
Snack
Foods
Fast Food
Corporate Strategy
COCA-COLA
Carbonated
Beverages
Juices,
Water,
Sports
drinks
Capstone Strategy
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Decide Market Scope of Firm
– In which market segments do we compete?
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Develop business-level strategy for portfolio of
market segments
Digby
High-End
Traditional
Size
Performance
Business Strategy
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How do we compete?
Profit = (Price – Cost) × Qty.
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Cost advantage
Size advantage
Differentiation advantage
New market space
Bridge converging industries
Functional Strategy
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Given corporate- and/or business-level
strategy…
– Marketing
– Production
– R&D
– Human resource management
– Finance
Functional integration/implementation
Functions and Adaptive Maneuvering
8
This Sequence:
Black: Knight b4
White: Pawn c3
Black: Bishop g4
White: Queen b5
Black: Pawn c5
7
6
5
4
3
2
1
a
b
c
d
e
f
g
h
Named Sequences:
Epaulette’s Mate
Sicilian Defense
Strategic Management Process
1. Articulate Mission / Intent
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Sense of purpose, direction…
In which industries* does firm compete?
How does firm compete?
Who are customers?
Who are competitors?
* For the Capstone simulation…
“In which market segment(s) do
we compete?”
2. Set Objectives & Performance Targets
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Financial
– Achieve 10% ROI and $1.55 EPS by YE06
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Strategic
– Become low price leader in industry by YE07
– Enter five new country markets by YE09
3. Develop a Strategy
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Where and How to compete:
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Acquire companies in related businesses
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Divest poor performing or poor fitting businesses
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Establish R&D alliances in emerging technologies
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Enter multinational markets
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Develop “market-push” marketing strategy
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Restructure the company from “geographic”
structure to “global product division” structure
4. Implement Strategy
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Develop action plan at functional level
– Establish European distribution center
Buy warehouse facility near airport in Germany
 Re-tool with robotic material handling system
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– Create new ad campaign for 2008 Olympics
Endorsement contract with Lance Armstrong,
Marylou Retton, Mia Hamm, and Michael Johnson
 Contract with Spike Lee for 30-second TV ad
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– Launch new version of product
Create multifunctional design team
 License Oracle’s newest techology
 Increase R&D budget by 30%
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– Cut prices on older version of product by 33%
5. Evaluation and Adjustment
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Assess results relative to goals
Identify new opportunities / constraints
Change strategy / implementation plan
(as needed)