Foundation Broad Cost Leader

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FOUNDATION® BROAD COST LEADER
This practice exercise will help you understand the relationships between business strategy, tactics, functional alignment, and the Foundation® simulation. We will use the Chester Company for this example. (During the practice rounds, each company is assigned a different strategy.) You will execute your plan by inputting the decisions described below. At the same time, your competitors will execute their assigned plans. The practice exercise will take three rounds As each round is processed, you will evaluate the results and then input the next round’s assigned decisions. Upon completion of the practice rounds, the simulation will be reset to the beginning. You can then create and implement your own strategic plan for the actual competition. Executive Summary

The Chester team will adopt a Broad Cost Leader strategy, maintaining a presence in both segments. We will gain a competitive advantage by keeping R&D costs, production costs, and raw material costs to a minimum, enabling us to compete on the basis of price. Our Cost Leader orientation will allow us gain a competitive advantage based upon low prices. We will increase automation levels to improve our margins and to make it acceptable to run overtime (which we can also view as a second shift). Vision Statement

Low priced products for the industry: Chester brands offer solid value. Our primary stakeholders are bondholders, customers, stockholders and management.
Research and Development (R&D)
We will keep our existing product line and launch one new product in order to maintain a presence in both the Low Tech and High Tech segments. We will work to keep our products up to date (i.e. Size and Performance) in each segment despite high automation levels. Marketing

We will maintain awareness and accessibility. After we establish our cost leadership position we will revisit our situation to decide whether sales and promotion budgets should be reduced or if we should keep pace with our competitors. Our prices will be lower than average. Production

We will significantly increase automation levels on all products. However, because automation sets limits upon our ability to reposition products with R&D, we automate more in the slower moving Low Tech segment than in the fast moving High Tech segment. We will prefer overtime to capacity expansions. Finance

We will finance our investments primarily through long-term bond issues, supplementing with stock offerings on an as needed basis. When our cash position allows, we will establish a dividend policy and begin to retire stock. We are not adverse to leverage, and expect to keep debt/equity between 2.0 and 3.0.

PRACTICE ROUND 1
Follow the decisions below. After the practice rounds are complete and the competition rounds begin, you are free to choose a different strategy; you are not obligated to continue as a Broad Cost Leader. R & D Round 1

Cake – Reduce reliability (MTBF) to reduce material cost. Example: Reduce MTBF from 21000 to 18000. Do not reduce MTBF below 17000 hours, because that is the lower limit of acceptable reliability (MTBF) for High Tech customers.

New Product – Launch a new High Tech product, with a project length less than 2 years (no later than December of next year). Example: Name: Cedar (replace the first NA in the list), performance 9.0, size 11.0 and a reliability (MTBF) 20000.

1

Important: Under the rules of the simulation, the names of all new products must have the same first letter as the name of the company.
Important: With the exception of the new product, make certain that the projects complete during this year before December 31st. Under the rules, a new project can only begin on January 1st. If these projects do not complete before the end of this year, you cannot begin follow-up projects next year.

Perceptual Map from the Research & Development Spreadsheet: Product names in black indicate the product’s current location, names in magenta indicate the...
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