Business Game
Source: Business Strategy Lecture Video
Business Strategy Lecture
Table of Contents
- Introduction to Strategy
- Porter's Basic Strategies
- Strategy Types & Examples
- Industry Analysis & Strategy Selection
- Organizational Management Structures
Introduction to Strategy
What is Strategy?
Strategy is used in business and military contexts:
- Strategy = The end goal, the bigger picture, where we want to be
- Tactics = The way/methods to get there
Business Strategy Goal
Create a sustainable competitive advantage over other companies
When executed well, strategy allows a company to:
- Gain advantage over competitors
- Earn more revenue
- Be competitive in specific segments or regions
Porter's Basic Strategies
The simulation implements Porter's basic strategies globally. Three key questions define your strategy:
Three Strategic Questions
| Question | Options |
|---|---|
| Geographic Scope | Local OR Global |
| Market Scope | Niche OR Broad |
| Competitive Advantage | Cost Leadership OR Differentiation |
Strategy Visualization
Strategy Types & Examples
1. Local Niche Cost Leader
Positioning: Focus on Low Tech segment, one or two regions
Product Strategy:
- 3-4 products in Low Tech segment only
- All products positioned for cost-sensitive customers
- Lower prices = priority
Real World Example: Low-cost airlines (e.g., Cyprus, Greece routes)
- Don't fly worldwide, only nearby destinations
- Provide local service with cost leadership
Why Multiple Products in Same Segment?
Market Share Advantage:
- With 1 product among 6 competitors = 1/6 ≈ 16% market share
- With 2 products among 7 total = 2/7 ≈ 28% market share
Synergistic Benefits:
- Sales channels are shared across products in same segment
- If investing $1M in sales for each of 2 products = effectively $2M channel investment
- Competitors with 1 product need $2M investment to match
- Result: Less sales expense per product + higher accessibility
Cost Reduction Methods in Simulation
| Method | Impact |
|---|---|
| Automation | Reduces labor costs |
| Reduce Service Life/MTBF | Lowers material costs |
| HR Investment | Production team training → fewer employees needed |
| Plant Location | Consider labor costs, shipping, tariffs |
Real World Cost Reduction: Low-Cost Airlines
- Standardization: Same aircraft type → less training needed
- Bulk Purchasing: Volume discounts on aircraft
- Fees: Food, luggage, seat selection (mainly to disincentivize baggage = less fuel)
- Airport Choice: Secondary airports (e.g., Luton vs Heathrow) → cheaper landing fees
- New Fleet: Better fuel efficiency, less maintenance
- Quick Turnaround: 15-20 minutes between flights
Key Insight: Fees aren't the main profit source; biggest savings come from fuel efficiency, maintenance, and airport costs.
Implementation Strategy
- Automation Level: High automation required
- Material Costs: Minimum
- Factory Utilization: Produce at high capacity
- Margins: Maintain profitable margins while staying competitive
2. Local Niche Differentiator
Positioning: Focus on High Tech segment, one or two regions
Product Strategy:
- 3-4 products in High Tech segment
- Products positioned at ideal spot (upper right of perceptual map)
- Best performance = priority
Key Success Factors:
| Factor | Importance | Why? |
|---|---|---|
| R&D | Critical | Must offer best performance |
| Time to Market | Critical | Be first with new products |
| Positioning | High | Keep products at ideal spot |
| Regional Kit | Medium | Takes 3 months, plan ahead! |
| Pricing | Above average | Premium pricing strategy |
| Marketing Budget | High | Promo + Sales investment |
HR Focus for Differentiators
Priority: R&D Scientists recruitment & training
- Shortens development time
- Maintains innovation edge
- Can also support sales team training for increased demand
Product Management Considerations
Challenge: As market evolves, segments separate
- Low Tech circle moves differently than High Tech
- Products at ideal spots become increasingly important
- Need continuous R&D to stay ahead
3. Global Niche Cost Leader
Same as Local Niche Cost Leader, but:
- Serve ALL regions (not just 1-2)
- Higher investment requirements
- More complex capacity planning
Plant Location Strategy
Considerations:
| Factor | Optimal Location |
|---|---|
| Market Size | Largest market for segment |
| Shipping Costs | Central location or near major markets |
| Labor Costs | Low labor cost regions |
For Low Tech (Cost Leadership):
- Starting: US (good shipping to all regions)
- Long-term: China (biggest Low Tech market + lowest labor costs)
For High Tech (Differentiation):
- Option: Germany (2nd largest market, will surpass US)
- Advantage: Lowest defect rates
Main Challenge: CAPACITY
Problem: Need massive capacity + high automation = expensive
Planning Requirements:
- Cannot go global immediately
- Must balance demand creation with production capacity
- Don't create demand without products to sell
- Don't overbuy capacity without demand
Strategy: Plan ahead, expand capacity progressively as you enter new markets
4. Global Niche Differentiator
Example: Rolls-Royce
Strategy:
- High-end products globally
- Performance segments only
- High prices worldwide
Why Easier Than Cost Leadership?
Lower Initial Investment:
- Can start with LOW automation
- Customers willing to pay premium prices
- Don't need high automation from day 1
- Can increase automation later for better margins
Capacity Planning:
- Less pressure than cost leadership
- Premium pricing covers higher per-unit costs
- Easier to balance investment and returns
5. Global Broad Cost Leader
Example: IKEA
Strategy:
- Serve BOTH Low Tech and High Tech segments
- ALL regions
- Cost leadership across the board
IKEA's Sustainable Competitive Advantage
How IKEA Reduces Costs:
-
Customer Assembly
- No labor costs for assembly
- Customers convinced it's "fun" to build furniture
-
Customer Shipping
- Flat packaging fits in cars
- Customers transport products themselves
- Eliminates delivery costs
-
Flat Packaging Benefits
- Reduced shipping costs in supply chain
- Lower warehouse costs (efficient storage)
- Store = warehouse (no separate facility needed)
-
Standardization
- Common components across products
- Bulk purchasing power
- Simplified logistics
Result: No competitor can match their cost structure
Broad Strategy Characteristics
Product Positioning:
- Products span both segments
- Some products in Low Tech circle
- Some products overlap both circles (serve both markets)
Market Coverage:
- Don't leave any market to competitors
- Capture demand from both segments
- Higher initial sales volume
Challenges & Complexity
Product Management:
- 2 products serve BOTH segments
- Must forecast demand from Low Tech AND High Tech for each product
- More complex calculations: Units from Low Tech + Units from High Tech
Example Calculation:
Product A Total Demand = Low Tech Demand + High Tech Demand
Need to analyze each segment separately, then combine
Marketing Complexity:
- Different promotional needs per segment
- Sales channels shared within segment
- Must manage expectations across different customer types
R&D Challenge:
- As markets evolve, segments separate
- Overlap area becomes smaller
- Harder to stay relevant to both markets
- Niche competitors may become stronger in later rounds
Management Workload:
- If global → calculations for EVERY market
- Each product needs dual-segment analysis
- Significantly more decision-making required
6. Global Broad Differentiator
Example: Apple
Strategy:
- High-end products
- Both segments
- Global presence
Apple Product Portfolio
Positioning on Perceptual Map:
- iPhone 16 (latest): Top right (High Tech ideal)
- iPhone 15, 14: Still relevant for High Tech, not for Low Tech
- Regional kits applied to all products
vs. Cost Leader Alternative:
- Xiaomi: Broad Cost Leader
- Serves everyone
- Lower cost positioning
- Broader accessibility, lower prices
Apple Differentiation:
- Premium positioning
- Latest technology
- Relevant across markets but at high-end
7. Local Broad Cost Leader
Same as Global Broad Cost Leader
- Limited to 1-2 regions instead of worldwide
- All other characteristics identical
8. Local Broad Differentiator
Same as Global Broad Differentiator
- Limited to 1-2 regions instead of worldwide
- All other characteristics identical
Strategy Comparison Matrix
| Strategy Type | Geographic | Market | Focus | Investment | Complexity | Competition Risk |
|---|---|---|---|---|---|---|
| Local Niche Cost | 1-2 regions | Low Tech only | Price | High automation | Medium | Low (sustainable) |
| Local Niche Diff | 1-2 regions | High Tech only | Performance | R&D heavy | Medium | Medium |
| Global Niche Cost | All regions | Low Tech only | Price | Very High | High | Low (sustainable) |
| Global Niche Diff | All regions | High Tech only | Performance | Moderate start | Low-Medium | Medium-High |
| Local Broad Cost | 1-2 regions | Both segments | Price | Very High | High | Low |
| Local Broad Diff | 1-2 regions | Both segments | Performance | High | High | Medium-High |
| Global Broad Cost | All regions | Both segments | Price | Extremely High | Very High | Low (if achieved) |
| Global Broad Diff | All regions | Both segments | Performance | High | Very High | High |
Which Strategies Are Most Difficult?
Most Complex to Implement: BROAD Strategies
Why Broad is Challenging:
- Serve different segments with different requirements
- Different demand patterns
- Different customer needs
- More products to manage
- More forecasting complexity
Short-term Advantage:
- Access to both markets immediately
- Higher initial revenue potential
Extreme Strategies: Cost Leadership
Why Difficult in Short-Term:
Starting Position:
- First product starts in the MIDDLE of perceptual map
- If you immediately move to High Tech → product exits Low Tech circle
- Loss: 2/3 of market (Low Tech is larger)
- First companies to do this lose significant sales
Major Investment Challenge:
Starting Capital: ~$15M first year
What's Needed:
- High automation for products
- Large capacity for multiple products
- Need to launch 3-4 products quickly
The Problem:
- Invest heavily in capacity & automation
- Raise significant capital
- Can't reduce prices initially (need to cover costs)
- High demand but need profitable margins
- Planning is VERY difficult
Long-term Advantage:
- Once established (Round 4-5): high automation, large capacity
- Competitors CAN'T easily imitate
- Takes too much time to catch up
- Sustainable competitive advantage (like IKEA)
Moderately Complex: Differentiator Strategies
Easier to Enter:
- Launch product in right position
- Can compete relatively quickly
- Less initial capital required
Challenge:
- More susceptible to competition
- Competitors can match positioning
- Must constantly innovate
- Expect competition throughout the game
Industry Analysis & Strategy Selection
How to Pick Your Strategy
Step 1: Industry Analysis
Analyze the following data:
| Analysis Area | What to Examine |
|---|---|
| Growth Rates | Different segments in each country over 8 years |
| Market Size | Total quantities across 8 years by segment/region |
| Pricing Trends | Price evolution by segment |
| Investment Costs | Capital requirements for each strategy type |
| Plant Location | Shipping costs, tariffs, labor costs, defect rates |
Step 2: Competitor Consideration
Unknown Variables:
- What will other companies do?
- Need flexibility in your plan
Approach:
- Develop Plan A (primary strategy)
- Develop Plan B (alternative)
- Decide pivot point (after Round 2-3?)
- Understand when it's too late to change strategy
Step 3: Implementation Assessment
Team Capacity Questions:
- Can your team manage this strategy's complexity?
- Do you have the skills for this management style?
- How will you coordinate decisions?
Complexity by Strategy:
- Lowest Complexity: Global Niche Differentiator
- Moderate Complexity: Niche strategies (local/global cost)
- High Complexity: Broad strategies
- Highest Complexity: Global Broad Cost Leader
Strategy Implementation Tactics
Once strategy is chosen, determine tactics for all 8 years:
Key Decisions Per Department:
| Department | Key Decisions |
|---|---|
| R&D | Product positioning, regional kits, development priorities |
| Marketing | Product launch timing, regional entry, promo/sales budgets |
| Production | Capacity purchases, automation levels, plant locations |
| Finance | Capital raising pace, budget allocation, profitability targets |
Timeline Questions:
- When to launch each product?
- Which regions first?
- When to go global (if applicable)?
- When to invest in capacity/automation?
Organizational Management Structures
1. Functional Structure
Organization Chart:
Role Distribution (6 people):
- CEO (overall strategy & coordination)
- R&D Manager
- Marketing Manager
- Production Manager
- Finance Manager
- Business Intelligence (competitor analysis)
Advantages ✅
| Advantage | Description |
|---|---|
| Expertise | Everyone becomes expert in their function |
| Steep Learning Curve | Deep knowledge in specific area |
| Clear Responsibilities | Each person owns their domain |
Challenges ⚠️
| Challenge | Impact |
|---|---|
| Lack of Coordination | Departments work in silos |
| Function Conflicts | Marketing wants speed, R&D wants perfection, Finance wants budget control |
| Low Market Awareness | Only CEO & Marketing Manager see full market picture |
| Forecasting Nightmare | Marketing Manager must forecast: 3 countries × 4 products = 12 scenarios |
| No Redundancy | If Marketing Manager gets sick, no one can cover |
| Specialization Risk | One person overwhelmed, others can't help |
Who is Market-Aware?
- CEO (partially)
- Marketing Manager (fully - but overloaded!)
The Problem: Marketing Manager = sole person aware of all market dynamics across all products and regions
2. Product/Regional Manager Structure
Organization Chart:
Alternative: Regional Managers instead of Product Managers (same concept)
Role Distribution:
- Each person manages ONE product completely
- Responsible for: R&D, Marketing, Production for their product
- One person takes Finance (company-wide)
Advantages ✅
| Advantage | Description |
|---|---|
| High Redundancy | Everyone knows R&D, Marketing, Production |
| High Market Awareness | Each manager monitors market for their product |
| Simple Learning Curve | After solo, everyone has necessary skills |
| Accountability | Clear ownership per product |
| Cross-Coverage | Anyone can cover for sick colleague |
Challenges ⚠️
| Challenge | Description |
|---|---|
| Must Master All Functions | Each person needs R&D, Marketing, Production skills |
| Coordination Issues | Product 1 manager wants high automation, Product 2 manager also wants it → budget conflict |
| Potential Conflicts | Competition for resources between products |
Solution to Challenges:
- Team meetings to coordinate
- Everyone accepts overall strategy
- Agree on pace and priorities
- Align on investment timing
Popularity: Very popular management system for students (cultural fit for Israel)
3. One-Player Approach (Committee Management)
Structure:
Everyone is involved in every decision
Advantages ✅
| Advantage | Description |
|---|---|
| Shared Knowledge | Everyone knows everything |
| Better Decisions? | Multiple perspectives on each issue |
| Full Awareness | Everyone monitors all aspects |
| No Responsibility Fear | Shared accountability |
| Democratic | Everyone has input |
Challenges ⚠️ (HUGE)
| Challenge | Impact | Severity |
|---|---|---|
| Time-Consuming | Everyone discusses: R&D for 4 products × 3 countries × Marketing × Production | CRITICAL |
| Averaging Decisions | Compromise solutions, not optimal ones | High |
| Risky Decisions Avoided | Group conservatism | Medium |
| Dominant Voices | Some people don't contribute | High |
| No Expertise Focus | No one becomes truly professional in any area | High |
| No Clear Responsibility | When things fail, who's accountable? | CRITICAL |
Reality Check:
- Works for Round 1-2 (1-2 products)
- Becomes nightmare by Round 3-4
- Many teams start this way → must change later
When It Works
Good for:
- First 1-2 rounds only
- Simple decisions
- Building team cohesion initially
Must Change When:
- Managing 3+ products
- Operating in multiple regions
- Time pressure increases
Recommended Approach: STRUCTURED Management
Even if you want everyone involved:
Required Structure
Before Meetings:
-
Assign Responsibilities
- Someone analyzes R&D
- Someone analyzes Marketing
- Someone analyzes Production
- Someone analyzes Competitors
-
Preparation Requirements
- Each person comes with:
- Data collected
- Analysis completed (not raw data!)
- Recommendations ready
- Each person comes with:
-
Meeting Process
- Responsible person presents their area
- Everyone discusses and decides
- But ONE person owns the analysis
Key Principle:
Not everyone can do everything all the time - it just doesn't work!
Why This Works:
- ✅ Maintains involvement for all
- ✅ Ensures proper preparation
- ✅ Speeds up decision-making
- ✅ Creates accountability
- ✅ Produces analyzed (not raw) information
Deliverable: Strategy Presentation
What to Prepare for Team Meeting
Template Provided: Use the uploaded template
Slide 1: Overall Strategy (Round 1 → Round 6-8)
Include:
- Chosen strategy type
- Geographic scope plan
- Market scope (niche/broad)
- Competitive advantage approach (cost/differentiation)
- Timeline overview
Example:
Round 1-2: Start with 1 product, Local (US + Germany), Niche Differentiator
Round 3-4: Launch 2nd & 3rd products, maintain focus
Round 5-6: Expand to global (add remaining regions)
Round 7-8: Optimize and defend market position
Slide 2: Product & Market Launch Plan
Specify:
| Element | Details |
|---|---|
| Regions | Which regions, in what order? |
| Products | When to launch each product? |
| Market Entry | Timeline for regional expansion |
Example Timeline:
- Round 1: Product A in US
- Round 2: Product A in Germany, Product B in US
- Round 3: Product B in Germany
- Round 4: Product C launches...
Slide 3: Department Strategy
For Each Department:
R&D:
- Positioning targets
- Regional kit timing
- Development priorities
Marketing:
- Promo budget approach
- Sales budget approach
- Regional entry strategy
Production:
- Capacity investment plan
- Automation roadmap
- Plant location strategy
Finance:
- Capital raising plan
- Budget allocation priorities
Slide 4: Team Management Structure
Specify:
- Management approach (Functional/Product/Mixed)
- Role assignments
- Decision-making process
- Meeting structure
- Coordination mechanisms
Key Takeaways
Strategy Success Factors
- Plan Long-Term (all 8 years)
- Understand Your Market (growth, prices, demand)
- Know Your Costs (investment requirements)
- Match Team Capability (can you execute?)
- Stay Flexible (Plan A & B)
- Coordinate Well (management structure matters)
Common Pitfalls to Avoid
- ❌ Don't: Create demand without capacity
- ❌ Don't: Buy capacity without demand
- ❌ Don't: Choose strategy without team capability assessment
- ❌ Don't: Use one-player approach beyond Round 2
- ❌ Don't: Forget to analyze competitors
- ❌ Don't: Ignore the importance of timing
Success Formula
Strategic Planning
+ Tactical Execution
+ Team Coordination
+ Market Awareness
+ Continuous Adaptation
________________________________
= Sustainable Competitive Advantage
Next Steps
- Holiday Assignment: Think about strategy choice
- Industry Analysis: Use provided data to analyze markets
- Team Discussion: Agree on approach
- Pre-Competition Meeting: Present your strategy plan
- Execute: Implement with discipline over 8 rounds
Remember: All strategies can be profitable if executed well. The key is execution quality, not just strategy choice.