Strategy Capstone Strategy Overview BUAD 475 Business Decision

Strategy Capstone Strategy Overview BUAD 475 Business Decision Making

Strategy and Tactics differ mainly around time scale. In Capstone®, a 5 -8 year Strategy is supported with annual tactical decisions. 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 From where in the organization strategy should emerge? • 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.

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

CAPSTONE STRATEGIES STRATEGY Mission Statement PERFORMANCE ASSESSMENT Success Measurements Analyst Report Round Analysis - Star Summary w Strategies are declared in corporate mission statements w Capstone firms may develop and execute any strategy (or INDUSTRY AND MARKET ANALYSIS none at all - though that isn’t S. W. O. T Analysis advisable). Basic strategies Competitor Analysis Competitive Analysis include: ü Overall Cost Leader ü Cost Leader with Focus (Low Tech or Product FUNCTIONAL PLANNING Life-Cycle) R&D ü Differentiator Marketing Production ü Differentiator with Focus HR Finance (High-Tech or Product TQM Life-Cycle)

Porter Curve ROI High Low • 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 all segments –risky, but effective when executed properly Market Share High

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 “cash cows” 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 • 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 The Situation Analysis generated an overview of the forces at work within the Capstone market place. Now you must decide how to use that information to gain a competitive advantage. There are many different approaches - all of which can be successful depending on how well they are implemented tactically.

OVERALL COST LEADER 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 all sales while keeping prices low for price-sensitive customers. w Firm Profile: ü More likely to re-position products than introduce new ones to the market ü Capacity improvements are unlikely to be undertaken (may run overtime instead) ü Automation may be pursued to increase margins ü Investments will be financed with debt and/or stock issues ü Tend to spend less on promotion and sales ü Focus on Market Share, Profits, and Stock Price

COST LEADER WITH LOW-TECH FOCUS A low-tech focused cost leader seeks to dominate the price sensitive market segments. Their aim is to set prices below all competitors and still be profitable. w Firm Profile: ü Multiple product lines in the low-tech segments (Low & Traditional) ü Invest heavily in automation ü Spend heavily on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects) ü Investments financed with debt and/or stock issues ü 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 traditional, and eventually low end buyers. w Firm Profile: l l l Minimum presence in “specialty” segments (Size & Performance) Low R&D spending (very little re-positioning & 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. w Firm Profile: ü High R&D spending to keep products fresh ü Maintain a presence in all market segments ü Spend heavily on advertising and sales to create maximum awareness and accessibility ü Prices tend to be higher ü 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. w Firm Profile: ü Multiple product lines in high-tech segments (High, Performance, and Size) ü Minimum focus in other segments ü High promotion and sales investments to create maximum awareness and accessibility ü High R&D expenditures to continually introduce new product lines and keep existing products fresh ü Unlikely to invest in increased automation or production capacity ü 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. w Firm Profile: ü Multiple product lines in targeted segments (High, Traditional, and Low) ü Minimum focus in other segments ü High promotion and sales investments to create maximum awareness and accessibility ü High R&D expenditures to continually re-position product lines and keep products fresh ü Unlikely to invest in increased automation or production capacity ü 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, and tactical adjustments.

Strategy Capstone Strategy Overview BUAD 475 Business Decision Making