Business Policy Strategy

Now that you are familiar with the simulation, the industry, the products, and the competition, you will put your strategy into a formal document.


A Reminder…Your Goal is to  Create Shareholder Value (SHV)

As the Managers of your MikesBikes Firm, the primary goal for your company is to enrich its shareholders (owners) by providing a return on their investment in your company. The measurement of this total return to shareholders is known as Shareholder Value (SHV), so the success of your company is measured by the amount of SHV you can create in comparison to your competitors.

SHV is a measure of the current Share Price (which is the market value of one share in your company) plus the value of all past dividends paid, including interest accumulated on these past dividends. It is the value to an investor over time of owning a single share in your firm.

Maximizing shareholder value is assumed to be the ultimate goal for your business. To some degree your firm can control shareholder value itself, as the decisions that it makes will affect its current and future profits. However, shareholder value is also affected by some variables which are outside a firm’s control, such as competitor actions and general economic conditions. These affect a firm’s strategy also, as it seeks to improve its performance in the broader context of its competitive business environment.

Text Box: Your Share Price is mainly driven by:
§	Profitability and Earnings Per Share (EPS)
For example:
o	Firm A has 2 million shares issued and made $1 million profit. EPS = $0.50 
o	Firm B has 20 million shares issued and made $10 million profit. EPS = $0.50 
o	Firm C has 2 million shares issued and made $2 million profit. EPS = $1.00
§	Risk - Debt to Equity (D / E) Ratio
o	A higher D/E ratio means higher risk which results in a lower share price 
o	A lower D/E ratio means lower risk which results in a higher share price

*The Financial Results for All Firms report under the Financial Reports submenu shows how you are performing relative to your competitor(s).



Drafting Your Strategy

To be successful in our simulation, it is important to create and then pursue a coherent strategy. Each of the functional strategies that contribute to this strategy should be internally consistent, consistent with one another and consistent with the overall strategy. **Refer back to our readings by Michael Porter relating to strategy and sustainable competitive advantage. You will need to choose which type of strategy to pursue: Cost Leadership or Differentiation. This is not an easy choice to make, but one which will drive your decisions in this simulation.

Your strategy should be presented in written form, and should include the following:

  1. Vision and Overall Strategy
    1. 1-2 sentences that capture where you want to take this company.
    1. Be sure to identify which of Porter’s generic strategies you are pursuing (Cost Leadership or Differentiation).
    1. Goal Measures:
      1. Goal market share is: ________ (% of total bike sales)
      1. Goal Share Price is: _________ ($ per share)
  2. Industry Analysis & SWOT
    1. Describe the industry that you are competing in. Who are the major players (your competition)?  (In the simulation, all firms start at the same place financially, so you don’t need to do a major analysis of the firms. Just provide some basics about the industry and the competitors).
    1. SWOT: What are your firm’s strengths, weaknesses, opportunities, and threats within this industry?
    1. Based on the above, how does this drive your strategy?
  3. Marketing Strategy
    1. What are the possible segments in this industry? Describe each, noting similarities and differences.
    1. Which segments will you target? Why?
    1. For each segment that you’ll target, describe your overall strategy relating to:
      1. Develop new products or modify existing products
      1. Branding (brand advertising) expenditures
      1. Product advertising – which media channels will you use for each segment? Explain.
      1. What will be your strategy toward the use of public relations?
      1. Which distribution channels will you target? How much support will you provide to each channel? How important is margin to each channel?
      1. For pricing, where do you wish to be vs. your competitor’s prices? Remember that this is tied to your overall strategy described at the beginning of this strategy document.
  • Operations Strategy
    • Remember that, at the beginning of the simulation, you currently make one type of bike for the Adventurer market. You have around 80 staff and the capacity to manufacture about 16,000 bikes annually.
    • What is your overall strategy relating to:
      • Manufacturing capacity, including both the number of workers and plant capacity?
      • Production volume? Inventory to have on hand (safety stock)?
      • Employee salaries? Training?
      • Preventative maintenance?
      • Quality systems? Inspection rate?
  • Finance Strategy – what will be your strategy toward:
    • The level of debt – will you increase debt? Pay back debt?
    • Equity – will you issue more share to raise additional equity?  Repurchase (buy back) shares to lower equity?
    • Your dividend strategy?
    • Will you spend money on investor relations?

**Remember that your strategy needs to be unified and all parts must work toward your overall firm strategy. Keep in mind Porter’s example about Southwest Airlines’ Cost Leadership Strategy, and how all elements of the firm reflect this strategy vs. how other firms tried to copy part of Southwest’s strategy in some areas, but maintain their original strategy in other areas, and they failed.

Submit Your Strategy

Submit your strategy document to the link on Canvas in Week 3.

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