Strategy and Business Presentation

7/29/2019 Strategy and Business Presentation

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Copyright 2006 Ernest R. Cadotte

Introduction

to

Strategy and Business Policy


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Learning Strategy

I listen, I forget.

I see, I remember.

I do, I understand.

Old Chinese Proverb


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Learning Strategy

Computer simulations are a form of combative

training where participants pit their entrepreneurial

business skills against those of formidable

opponents under the watchful eye of a training

coach.


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When we study one discipline at a time,

we are like a bunch of blind people trying

to understand what an elephant is.

Please tell me

what it is?

Its a snake.

Its a

tree trunk.

Its a sheet

of rawhide.Its a steel

tube.


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With business simulations, you can crawl

all over and under the new venture to help

you to see and understand the whole thing.

It is an

enterprise!

Accounting

Production

Marketing Distribution

Finance

Human

Resources


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Team of Experts Helped to

Design a Very Realistic

Learning Environment Harry Bruceleadership,

governance

Joyce Russellteamwork, human resources

Jim Reeveaccounting,

profit analysis

Sarah Gardial & BobWoodruffcustomer

value

Jim Wansleyfinance

Dominique Garval

business strategy

Ernie Cadottemarketing

Ken Gilbertproduction

processes

Ivan Slimakbrand

design, quality processes

Tom Mentzersupply

chain


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Learning Strategy:Learn by Doing

Participants learn about all aspects of strategic

planning by managing a simulated new business

venture.

The Marketplacescenario follows the lifecycle of

a new product.

Business decisions are introduced as they become

relevant in the evolution of the product and

company.


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Mental Discipline &

Business Culture

Live and breathe strategic planning and

management in a rapidly changing environment.

Develop leadership, teamwork and interpersonalskills.

Promote better decision making by learning to

manage a totally integrated company, includingthe management of sales outlets, marketing,

production, and human and financial resources.


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Mental Discipline &

Business Culture

Crystallize the financial implications of

business decisions and how they flow to

bottom-line performance.

Facilitate learning of important business

concepts, principles and ways of thinking.


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Mental Discipline &

Business Culture

Discover how important it is to use

market data and competitive signals to

adjust the strategic plan and more

tightly focus business tactics.

Build business confidence through

knowledge and experience.


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How is the business simulation

conducted?

Teams are placed in a entrepreneurial scenario -

starting up and running a new business venture.

The opposition is played out by competing

teams.


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Business Team Market

Opponent

Opponent

Opponent

Objective is to profitably capture

a dominant market position


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Business Teams

Each team member

assumes a tactical area of

responsibility.

MarketingFinance

DistributionProductionOverall Leadership


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How conducted?

Business team receives information on currentsituation.

Current situation is evaluated, strategy

formulated and tactics set in placed.

Tactical decisions are fed into theMarketplace

simulator, along with decisions of opponents.

Results of decisions are fed back to business

team.


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How conducted?

The business team can acquire information onwhat is happening in the marketplace:

customer reaction to market decisions

competitor actions

Current situation is evaluated, strategy

formulated, and tactics set in place. Tactical decisions are again fed into the

Marketplace simulator.


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Game Scenario

You and your business partners have decided to

enter the international microcomputer industry.

The microcomputer industry is in its

introductory stage of the product life cycle.

Several other international new venture firms

are entering the market at the same time.


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What are the pros and

cons of each sales

channel?

You can setup an international Web Center for

e-commerce, and/or four international sales

offices.


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Market Segments(Market Structure)

Price

Performance

Work

Horse

Traveler

Mercedes


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Chronology of Events

Q1: Organize the team, name the company,

analyze market information, establish strategicdirection and set up shop (design brands, open

a sales office and/or an international web

center and build a factory).


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Q2: Test-market brands, prices, ad copy, media

campaigns, sales staffing and internet tactics.

Determine compensation package for employees

and production schedule for each brand.

Q3: Study end user feedback, competitive

tactics, employee productivity, factory operations,and financial performance and make adjustments

to strategy and tactics.


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Q4: Perform a comprehensive strategic

analysis and prepare a business plan. Present

strategic analysis, business plan and financial

request to venture capitalists.

Q4Q6: Initiate international roll-outcampaign.


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Q7: Prepare report to the Board regarding

performance since presentation of Business Plan

deviations from planjustification for departures

strategic analysis of current situation

plan for future


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Equity Financing (Q1-Q3)

The initial capitalization is 4,000,000 which is being

invested by the executive team over the first 3 quarters,

2,000,000 in Q1 and 1,000,000 Q2 and Q3.

The executive team owns 100% of the company.

Forty thousand shares of stock will be issued to the

executive team in exchange for their 4,000,000.

The initial stock value is 100 per share.


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Equity Financing (Q4)

At the start of quarter 4, the executive team willhave the opportunity to request up to 4,000,000 from

venture capitalists.

The venture capitalists will expect a strategic planfor the next three quarters in business, including

strategic analysis of the current situation,

strategy (goals, priorities, and strategic thrusts), tactical plan (geographic expansion, R&D, plant

expansion, etc.) and

pro forma financial statements through Quarter 6


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Debt Financing (Q4 and beyond)

The bank will extend a line of credit to the executive

team equal to one and a half times the firm's equity

position in the previous quarter.

The bank is highly risk adverse and will call in your

loan in part or whole if your debt capacity declines due

to unusual or extended losses.


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Special Financing Needs

The bank is intolerant of poor financialmanagement.

If a firm ends a quarter with a negative cash

position, the bank will contact a loan shark by the

name of Guido to obtain an emergency loan to

cover the firm's checking account.


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Guidos Financing Terms

Guido requires repayment in the next quarter

The emergency loan interest rate is a sliding scale which

begins at 10% per quarter and may go as high as 25%

per quarter.

For each 100 which Guido places in your checking

account, he will take one share of stock in your firm.

The issuing of stock to Guido causes a dilution of yourstock value and your share of the company.


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Bankruptcy

A firm is technically bankrupt if its cumulative losses

exceed its equity investment.

Bankruptcy occurs when the sum of the retainedearnings and the common and preferred stock is a

negative number.

Stated differently, the management has used up all of

the equity of the firm when the negative value of the

retained earnings exceeds the value of the common

stock.


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Performance Evaluation

Balanced Scorecard- cumulative score for quarters 3

through 6

Business Plan

Report to Board

Strategic thinking and tactical execution

Executive Briefings

How well the company is prepared for the future


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Measurement of the

Firms Performance

The Balanced Scorecard


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Why Use a Balanced Scorecard?

It is too easy to get caught up in market share and

short-term profits.

Long-term viability requires that managers also

deliver customer satisfaction and invest in the future.

The balanced scorecard measures both the long-term

and the short-term.

The best managers will be good in all areasmeasured.


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Total BusinessPerformance

Financial

performance

Marketperformance

Marketing

effectiveness

Investments in the

firms future

Creation

of wealth

Asset

management

Human resourcemanagement


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End of Introduction to

Strategy and Business Policy


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The following slides providean introduction to the

Web Software forStrategy and Business Policy inthe Marketplace


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Marketplaceis a Fun Way to

Learn About Strategy

It is a business game.

It is learning by doing.

It brings to life business concepts,

principles, and ways of thinking.

It energizes the competitive spirit.

It is transformationalit all comes together,

discover you can be a manager


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It Is Realistic!

You do what real-life strategists do:

Evaluate market opportunities

Write a business plan

Raise money by selling your plan to investors

Do what you said would workexecute the plan

Be judged not by your promises but by yourresults

i A


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You Will Actually

Run the Business

Design brands

Distribute products to end users

Workup advertising campaigns Decide on employee compensation

Schedule production

Worry about profits Manage cash flows

Etc.


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It Is Organized!

The game scenario follows the logical

process of starting up a new company.

You are guided through the strategicplanning and decision-making processes.

Detailed help files are available at the touch

of a button.


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You Will Sweat the Details

Investors are challenging Customers are demanding

Competitors are unrelenting

Many functional, tactical decisions to master Decisions must be well coordinated and

timed

Cash is always a constraint Constant skillful adjustment is required to

stay on course and get ahead


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You will be Driven!

Inherent competitivenessit is in your genes

Ownershipit is your business, your money,your responsibility

Captivatingtry ideas and see results immediately


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Discussion and debate within each team

Managing many tactical decisions withinfinancial constraints, demanding customersand aggressive competitors

Preparation of business plan

Negotiations with Venture Capitalists Instructor interaction with teams

Regular Executive Briefings

Development of Your

Critical Business Skills


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Sequence of Key Activities Startup phase (3 quarters)

Organize the team and learn to work together Learn the business

Test the market

Transition phase (one quarter)

Prepare Business Plan to accelerate growth Present Business Plan to and negotiate equity

investment with independent Venture Capitalists

Growth phase (3 quarters)

Execute Business Plan Skillfully adjust tactics in response to unforeseen

problems and opportunities

Final accountability - present Report to Board


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Introduction to Software


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Marketplace isavailable via

Netscape and

Internet Explorer.

Go to:

marketplace6.com


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The step-by-step

process that walks

you through the

information and

decisions.

The softwarecontrols your

progression to

reduce your

uncertainty and to

help you see the

logic of the

marketing process.


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Be sure to readthe directions

on how to use

theMarketplacesoftware.


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For illustration purposes, suppose you start up a

company named Traveler Computers.


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What are the pros and

cons of each sales

channel?

You can setup an international Web Center for

e-commerce, and/or four international sales

offices.


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Market Segments(Market Structure)

Price

Performance

Work

Horse

Traveler

Mercedes


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Each market

segment has

its own set of

needs.


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You must decide

which segment you

want to targetinitially. As the

exercise progresses,

you are asked to

select a secondsegment.

For example, theTraveler segment might

be selected.

O l t


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Once you select

a segment, you

must design abrand to meet

the needs of the

segment.

What features would

make a computer more

attractive to the

Traveler segment?


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You set the

selling price,decide if you

want to use a

rebate, andsignal to the

sales staff which

brand has the

highest priority.


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You must design ads

which appeal to the

target segment.

You select the benefits to

mention in the ad and indicate

their order of priority.

You decide

which brand

will be featured

in the ad.

Y l k i i h


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You can select marketing tactics that can

increase the traffic to your site.

You can spend moreor less than the

industry norm

to potentially

change the relative

attraction of yourweb site.

What

commission

should you offeryour partners?

Once at your web site, what can you do to increase the


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y , y

probability visitors will make a purchase?

The tactics are notequally good and

some may not

justify any

expenditure.

You must decide on the compensation package


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p p g

for your employees.

And, how many sales


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You canspecify how

many

should be

assigned toeach

segment

and service

support.

And, how many sales

people to employ.

How many units should you


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y y

produce to meet demand?


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And, how much should you invest in plant

capacity for next quarter given your demand

forecast and financial liquidity.

When your decisions are ready to be processed


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When your decisions are ready to be processed

through theMarketplace simulator, a quality

check is made to make sure there were no entry

errors and nothing important was forgotten.


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Immediately

after

processing,

you find out

how

profitable thefirm was in

the quarter

that justended.

Y


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You can see

your market

share bysegment and

for the whole

market.

Yourcompany is

Traveler.


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You are given market research that tells you how

satisfied your target segment is with your brand

design and those of the competition. 100 is total

satisfaction.


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You are alsogiven a profit

analysis of

each brand so

that you can

adjust your

brand strategy.


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If a brand isnot doing well,

you can study

other brandsand redesign

your brand.

Your

brand

Better

brand


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Grading:The Balanced Scorecard

Final evaluation will be computed based upon: Financial Performance (earnings per share)

Market Performance (market shares in 2 target segments adjusted for unmetdemand)

Marketing Effectiveness (customer satisfaction with brand and advertisingdesigns in 2 target segments (scored 0 to 100) plus unit sales per sales person)

Investments in the Future (spending on new offices and research anddevelopment as percent of sales)

Creation of Wealth (retained earnings/total investment)

Asset Management (asset turnover adjusted for excess inventory)

Human Resource Management (sales force and factory worker productivity)

The Final Score is a single number which combines all of these factors. Theresults of Quarters 3 through 6 will be used to compute the grade.


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Each quarter, you will be presented with

your balanced scorecard. Your goal is to be

the best firm by Quarter 6 in

Total Business Performance.


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You can also compare your scores

against industry standards.


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Mechanics ofWeb Marketplace

Electronic Marketplace Resides at


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Students log on to view

information and make decisions

MarketplaceProcessing

Center

Electronic Marketplace Resides at

Innovative Learning Solutions


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Q1, Organize the Business

Name the company

Assign organizational responsibilities

Share personal learning goals

Establish team norms

Q1, Establish Strategic Direction


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Q , g

Analyze market information to evaluate the

market opportunity

Consider

Available financial resources Costs to open sales outlets

Costs to set up and operate factory

Establish strategic direction

Formulate corporate strategy

Formulate functional strategies

Q1 Setup Shop Tactical Decisions


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Q1, Setup ShopTactical Decisions

Locate factory in Torontoall firms Build fixed plant capacity

Develop channel options

Decide on relative emphasis of brick and mortar

offices versus web centers

Open initial sales office or web center

Design two brands for target market segments


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View Sample Decisions


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The Following Slides

Represent a MarketingLecture on Market Response

FunctionsStudents must design brands in

Quarter 1. In selecting components

and price points, they should be

aware of the markets many response

functions.

Customers Buy Benefits


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Customers Buy Benefits,

Not Features

Once you select a segment you must design


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Once you select a segment, you must design

a brand to meet the needs of the segment.

Using the computer on the road is important to the traveler

segment. What features would provide this benefit?

Slim, rugged, portable

design

10 color flat screen for

portable

Network and Internet

connections

Using the computer on the road

How far do you go in giving the


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How far do you go in giving the

customers what they say they

want?

Is more speed, software applications,

memory, keys on the keyboard, etc.always valued?

Could more of some feature even

make a customer unhappy?


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What is the elasticity of the

peanut?

Searching for theMarkets Response Function

Suppose you could design the ideal


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Suppose you could design the ideal

candy bar. How many peanuts

would you put in the candy bar tomake you the happiest?

None

A few?

A bunch?

A whole lot?

Whi h C d B h th


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Which Candy Bar has the

Most Peanuts?

Baby Ruth

Snickers

Payday

Milky Way

Which Candy Bar


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Which Candy Bar

Do You Like the Most?

Baby Ruth

Snickers

Payday

Milky Way

What does your response


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What does your response

function look like for peanuts?

Is more always better?

Would your happiness increase withevery new peanut we added to the

candy bar?

Is there a limit?

Influence of peanuts on candy


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Number of Peanuts

Influence of peanuts on candy

bar enjoyment

None few bunch whole lot

Um-um good

Yuk

What would be your response


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What would be your response

function for the following?

Chocolate

Caramel

Nougat

Coconut

Rice Peanut butter

Here are a number of response


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Here are a number of response

functions. Which one applies to

peanuts, chocolate, coconut, etc?

Hot

Cold

Less More

Hot

Cold

Less More

More is

alwaysbetter

More is good to apoint and then ceases

to add excitement

i


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A little is justright, more onlytakes away value

Cold

Hot

Less More

Hot

Cold

Less More

More addsvalue to a point& then takesaway value

Response Functions


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Hot

Cold

Less More

Little interestuntil threshold

is crossed

Hot

Cold

Less More

Any amount is bad

Response Functions


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Hot

Cold

Less More

No reaction/indifferenceto having the feature

Response Functions

Take Any PC Segment,


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y g ,

How Excited Will It

Become if You Provide?

More memory

More functions on the key board More software

More .

Just like the candy bar ingredients, you must discover the

response function for each PC component.

Select components that yield


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Select components that yield

benefits for Travel PC segment

Rugged Micro- High Wireless 6-hour Low-profile, Compact Trackball Wrist rest

casement circuitry resolution modem battery built-in disk, keyboard mouse on keyboardflat LCD CD drives

display

Portability Use on road Connect to office Easy to use


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Learning Points for Quarter 1

Managing the team

Organizing the work Deciding what one wants from the learning

experience


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Market opportunity analysis

Strategic and tactical planning

Segmentation and target marketing

Financial management

L i P i t f Q t 1


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Game theory - competitive positioning

Brand design

linking product features to customer benefits

finding the customers response functions

Financial liquidity - cash versus assets

Strategic Planning MentalDiscipline


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Copyright Dominique Garval 2003

Discipline

Problem StrategyFormulation Tactics

Controls

StrategicAnalysis

Objectives Strategy Tactics

Resources madeavailable

Strategic options

Choice of one option(Chosen Option =Strategic Thrusts)

Internal appraisalExternal appraisal

Tactical PlansExecution

Definition ofproblem

Note : The chosen option is made of Strategic Thrusts


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The following slides are for

Quarter 2

Q2 Go to Test Market


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Q2, Go to Test Market

The Goal is to Maximize

Learning and Not Profits.



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50% of the firms

decisions will prove to be

unacceptablebe careful



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Set selling prices

Develop advertising campaign

design 2 ads, one for each branddetermine number of placements per ad

Develop sales channel

hire sales force for quarteropen new sales outlets for Q3

Q2 Test Market


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Q2, Test Market

Schedule production

forecast demand

set daily production for each brand

run factory simulation, check numbers

Contract for market research on customers

and competition

Check pro forma financial statements

You are a market maker, not a


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,

market taker

The market is not waiting for you to take their orders.

You must create the market

Sell brands that customers want and at a price they are

willing to pay Locate sales offices where the largest number of customers

can be found

Inform and persuade customers to buy a PC through

advertising Hire sales people to go out and find customers and

persuade them to buy your PC


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How to Set Price?

Costs (production, marketing, overhead) Profit goals

What market will bear

Competition

In the beginning you will not be


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In the beginning, you will not be

able to price above your costs

There are many startup costs which will

exceed your revenues. Your production volumes will be very low,

resulting in high per unit costs

No Early Profits


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No Early Profits

Money

0Time

Costs to setup

& grow the

business

+

Revenues will fall below costs


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at outset of new business

Money

0Time

Costs to setup

& grow the

business

Revenue

+

Profits will come later


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Profits will come later

Profits

come

later

You are here

Profit Profits

0

Time

Costs to setup

& grow the

business

Revenue

+

-

Your goal is to speed up the


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adoption rate

Demand

Time

introduction

growth

maturity

decline

You are here,

high costs-low demand

What will the market bear?


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What will the market bear?

You must discover the marketresponse function regarding price.

What is the markets price


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response function?

YourDemand

YourPrice

Elastic (demand drops fast

with increasing prices)

Inelastic

(price is not a big factor)

Or maybe it looks like this?


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Or, maybe it looks like this?

YourDemand

YourPrice

Demand drops slowly with small

price increases and then drops

dramatically with larger priceincreases

A differential advantage can


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reduce price elasticity

YourDemand

Price premium for your brand

Less Elastic

Elastic

Differential advantage

shifts demand curve and

reduces price elasticity

How will the market respond to


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p

competitor prices?

YourDemand

Competitors Price

Low competitor prices

will kill your demand

How to create ads?


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How to create ads?

Low price

Easy to useMore productive

FastOffice applications

Picture office workers

Most important

Order of priority

implies importance of

message to customer

Order of priority tells

the ad agency what to

stress in the ad

Your Ad

Least important

How much to say in an ad?


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y(number of benefits)

Which response function is at work?

or

More is good to apoint and then ceases

to add excitement

Hot

Cold

Less More

Hot

Cold

Less More

More addsvalue to a point

& then takesaway value

How often do you advertise?


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How often do you advertise?

YourDemand

Number of ads

Diminishing

returns

Too little

But it also depends on what


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p

your competitors do

YourDemand

Competitors Advertising

Strong competitoradvertising

will steal away

your customers

How many sales people?


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How many sales people?

YourDemand

Number of sales people

Too many

Diminishing

returns

Too few

The response function is dynamic!


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YourDemand

Number of sales people

Shift the response function

upwards with better brands,

prices, advertising, sales

force placement

The response function is dynamic!

Managing Inventories and Cash

(th d )


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(the razors edge)

High production Lower unit production costs

Risk of too much inventory

Uses up large volumes of cash

Risk of brand obsolesce (wrong product in warehouse) Low production

Low cash requirements

Higher per unit production costs

Risk of too little inventory Stock outs

Lost revenue

Customer ill will (unhappy customers)

P j i D d


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Projecting Demand

Sales people will probably sell between 30

and 100 units each.

Demand is a function of market potential ofthe segment and market and the quality of

marketing decisions.

On average, sales people will sell 50 unitseach for the entire quarter.

Expect net losses and negative

h fl


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cash flow

Profits

come

later

You are here

Profit Profits

0

Time

Costs to setup

& grow the

business

Revenue

+

-

L i P i t f Q t 2


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Execution of a coherent strategy

Management of cash in the face of greatuncertainty

Learning to walk before you run



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Coordinating a host of tactics

Pricing - balancing costs, profit, what themarket will bear, and competition

Testing the market - discovering themarkets many response functions

Production - managing capacity,

inventories, and costs in light of demandgoals


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