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Capstone SimulationCapstone Simulation

Strategy for your CompanyStrategy for your Company

Discussion: Overall ApproachDiscussion: Overall Approach

Instructor: Instructor: Dr Rajnandan PatnaikDr Rajnandan Patnaik

Strategy and TacticsStrategy and Tactics

Strategic Plan might consist of:

1) Vision or Mission Statement

2) S.W.O.T. Analysis (or Environmental and Internal scans)

3) Tactical and Functional Area Plans

Strategy and Tactics differ mainly around time scale.

In Capstone®, a 5-8 year Strategy is supported with annual tactical decisions.

Strategy from Where?Strategy from Where?

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.

Eric Banabeau says strategy should emerge from the bottom-up in a sort of dance with the marketplace, and that the goal of strategy should be to apply simple rules.

From where in the organization strategy should emerge?

IntroductionIntroduction

A strategy is one of four organizational time drivers.A strategy is one of four organizational time drivers.

TIME IN YEARS

Mission Statement (timeless)

Strategy (3-5 years)

Operational Intents (1 year)

Tactics (Day to day)

Capstone Strategies

Overall Cost LeaderOverall Cost Leader Cost Leader with Focus (Low Cost Leader with Focus (Low

Tech or Product Life-Cycle)Tech or Product Life-Cycle) DifferentiatorDifferentiator Differentiator with Focus (High-Differentiator with Focus (High-

Tech or Product Life-Cycle)Tech or Product Life-Cycle)

STRATEGYSTRATEGYMission StatementMission Statement

PERFORMANCEPERFORMANCEASSESSMENTASSESSMENT

Success MeasurementsSuccess MeasurementsAnalyst ReportAnalyst Report

Round Analysis - StarRound Analysis - StarSummarySummary

INDUSTRY AND MARKETINDUSTRY AND MARKETANALYSISANALYSIS

S.W.O.T AnalysisS.W.O.T AnalysisCompetitor AnalysisCompetitor AnalysisCompetitive AnalysisCompetitive Analysis

FUNCTIONAL PLANNINGFUNCTIONAL PLANNINGR&D, MarketingR&D, MarketingProduction, HR Production, HR Finance, TQMFinance, TQM

Strategies are declared in corporate mission statementsStrategies are declared in corporate mission statements Capstone firms may develop and execute any strategy (or none at Capstone firms may develop and execute any strategy (or none at

all - though that isn’t advisable). Basic strategies include:all - though that isn’t advisable). Basic strategies include:

Porter CurvePorter Curve

ROIROI

Market ShareMarket Share

HighHigh

HighHighLowLow

High Overall Market Share / High ROI firms would likely have a strong position in all segments –risky, but effective when executed properly

Firms with High ROI / Low Overall Market Share would likely have a clearly defined focused strategy

Porter CurvePorter Curve

ROIROI

Market ShareMarket Share

HighHigh

HighHighLowLow

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.

BCG Growth/Share MatrixBCG Growth/Share MatrixM

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Low

Low

Hig

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Market ShareMarket ShareHighHigh LowLow

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Long-term success is achieved by having a mix of high-growth potential products that require lots of cash, and low-growth “cash cows” that generate the required $$

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

Capstone StrategiesCapstone Strategies

The The Situation AnalysisSituation Analysis generated an overview of the forces generated an overview of the forces at work within the Capstone market place.at work within the Capstone market place.

Now you must decide how to use that information to gain a Now you must decide how to use that information to gain a competitive advantage.competitive advantage.

There are many different approaches - all of which can be There are many different approaches - all of which can be successful depending on how well they are implemented successful depending on how well they are implemented tactically. tactically.

Overall Cost LeaderOverall Cost Leader

An overall cost leader will attempt to be the low-cost producer in An overall cost leader will attempt to be the low-cost producer in every segment of the market. They will have good profit margins on every segment of the market. They will have good profit margins on allall sales while keeping prices low for price-sensitive customers. sales while keeping prices low for price-sensitive customers.

Firm Profile: Firm Profile: More likely to re-position products than introduce new onesMore likely to re-position products than introduce new ones Capacity improvements are unlikely to be undertaken (may run Capacity improvements are unlikely to be undertaken (may run

overtime instead)overtime instead) Automation may be pursued to increase marginsAutomation may be pursued to increase margins Investments will be financed with debt and/or stock issuesInvestments will be financed with debt and/or stock issues Tend to spend less on promotion and salesTend to spend less on promotion and sales Focus on Market Share, Profits, and Stock PriceFocus on Market Share, Profits, and Stock Price

Cost-Leader with Low-Tech FocusCost-Leader with Low-Tech Focus

A low-tech focused cost leader seeks to dominate the price sensitive A low-tech focused cost leader seeks to dominate the price sensitive market segments. Their aim is to set prices below all competitors - market segments. Their aim is to set prices below all competitors - and still be profitable. and still be profitable.

Firm Profile: Firm Profile: Multiple product lines in the low-tech segments (Low & Tradl.)Multiple product lines in the low-tech segments (Low & Tradl.) Invest heavily in automationInvest heavily in automation Spend heavily on advertising to cost sensitive customers (sales Spend heavily on advertising to cost sensitive customers (sales

people have more than one product to pitch to prospects)people have more than one product to pitch to prospects) Investments financed with debt and/or stock issuesInvestments financed with debt and/or stock issues Focus on ROS, ROE, and ProfitsFocus on ROS, ROE, and Profits

Cost Leader with Product Cost Leader with Product Life-Cycle FocusLife-Cycle Focus

A product life-cycle focused cost leader will seek to minimize costs A product life-cycle focused cost leader will seek to minimize costs through efficiency and expertise. Products will be allowed to age through efficiency and expertise. Products will be allowed to age and change in appeal from high-tech, to traditional, and eventually and change in appeal from high-tech, to traditional, and eventually low end buyers.low end buyers.

Firm Profile:Firm Profile: Minimum presence in “specialty” segments (Size & Perform.)Minimum presence in “specialty” segments (Size & Perform.) Low R&D spending (very little re-positioning & new product Low R&D spending (very little re-positioning & new product

every 2-3 years)every 2-3 years) Invest in automation Invest in automation earlyearly in the product’s life-cycle in the product’s life-cycle High spending on promotion and salesHigh spending on promotion and sales Focus on ROE, ROS, and ProfitsFocus on ROE, ROS, and Profits

DifferentiatorDifferentiator

A Differentiator will seek to create maximum awareness and brand A Differentiator will seek to create maximum awareness and brand equity. They want to be well known as makers of high quality/highly equity. They want to be well known as makers of high quality/highly desirable products. desirable products.

Firm Profile: Firm Profile: High R&D spending to keep products freshHigh R&D spending to keep products fresh Maintain a presence in all market segmentsMaintain a presence in all market segments Spend heavily on advertising and sales to create maximum Spend heavily on advertising and sales to create maximum

awareness and accessibilityawareness and accessibility Prices tend to be higherPrices tend to be higher Focus on Market Share, Profits, and Stock PriceFocus on Market Share, Profits, and Stock Price

Differentiator with High-Tech FocusDifferentiator with High-Tech Focus

A high-tech differentiator seeks to be known far and wide as the top A high-tech differentiator seeks to be known far and wide as the top producer of the best performing state-of-the-art products.producer of the best performing state-of-the-art products.

Firm Profile: Firm Profile: Multiple product lines in high-tech segments (High, Performance, Multiple product lines in high-tech segments (High, Performance,

and Size)and Size) Minimum focus in other segmentsMinimum focus in other segments High promotion and sales investments to create maximum High promotion and sales investments to create maximum

awareness and accessibilityawareness and accessibility High R&D expenditures to continually introduce new product High R&D expenditures to continually introduce new product

lines and keep existing products freshlines and keep existing products fresh Unlikely to invest in increased automation or production capacityUnlikely to invest in increased automation or production capacity Focus on ROA, Asset Turnover, and ROEFocus on ROA, Asset Turnover, and ROE

Differentiator with Product Differentiator with Product Life-Cycle FocusLife-Cycle Focus

Seeks to be well-known as a top producer of good performing Seeks to be well-known as a top producer of good performing products in each of the targeted segments. products in each of the targeted segments.

Firm Profile: Firm Profile: Multiple product lines in targeted segments (High, Tradl., & Low)Multiple product lines in targeted segments (High, Tradl., & Low) Minimum focus in other segmentsMinimum focus in other segments High promotion and sales investments to create maximum High promotion and sales investments to create maximum

awareness and accessibilityawareness and accessibility High R&D expenditures to continually re-position product lines High R&D expenditures to continually re-position product lines

and keep products freshand keep products fresh Unlikely to invest in increased automation or production capacityUnlikely to invest in increased automation or production capacity Focus on ROA, Stock Price, and Asset TurnoverFocus on ROA, Stock Price, and Asset Turnover

Strategies EvolveStrategies Evolve

Today’s shift is Today’s shift is tomorrow’s tomorrow’s nightmarenightmare

• Poor tactics undermine a good strategyPoor tactics undermine a good strategy• Good tactics can overcome a poor strategyGood tactics can overcome a poor strategy

There is no "magic There is no "magic bullet," guaranteed bullet," guaranteed

winning strategy. Each winning strategy. Each simulation has unique simulation has unique competitive dynamics.competitive dynamics.

Successful firms will Successful firms will focus on planning, focus on planning, strategic alignment, strategic alignment,

teamwork, competitor teamwork, competitor analysis, and tactical analysis, and tactical

adjustments.adjustments.