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 well-developed 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).

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 maybe 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 MarketingDirector, FinanceDirector, or Human ResourcesDirector.

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.

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
  1. 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 Price25%

ROE Average20%

ROS Average:10%

Market Capitalization10%

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 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?
  2. Why bother getting dressed (corporately) each and every day?
  3. What can you be the best in the world at?
  4. Not “want” or “should”. An understanding of what you can and can’t be. Not just a competence, but truly the best.
  5. What drives your economic engine?
  6. 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 well-defined 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.

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!

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.