In our Strategy! simulation, we began with $759,375 in cash, which we invested in the following six strategic business units: health club, exercise equipment, bed and breakfast, retail toy store, cellular telephone distribution and vending machines. This portfolio mix provided both independence and symbiosis because of the relationships among these industries. For example, health clubs buy from equipment manufacturers. The remaining industries are independent of each other and offer portfolio strength through diversification.
Strategy for Investment/Divestment Decisions
When considering the decisions for the next quarter, we evaluated each SBU's return on assets (ROA) with the industry average, seeking higher returns than the industry as a whole. While lower returns did not mean that we would immediately divest or liquidate the SBU, continued lower returns did make the SBU a candidate for such action.
Another measure which was taken into account is that of capacity. If capacity was less than 90 percent, we would divest. If capacity was greater than 90 percent, we invested. This represents building up SBUs who had potential to offer additional returns, while resisting the temptation to put additional monies in SBUs which may be short-lived.
Strategic decisions, such as differentiation or low-cost, were then applied to the SBU in question, and the appropriate action taken. Our simulation resulted in the liquidation of some SBUs, and the creation of others. In one case, an SBU was both created and liquidated during the simulation.
Our Health Club Industry SBU was a strong performer, finishing the simulation with an asset value 37 percent higher than in the first quarter. The overall strategy that was used in this SBU was that of low-cost. This strategy emphasizes quality control, mass marketing, lower prices and lower other expenses. Revenues in this SBU were unstable, increasing and decreasing from year to yea...