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Posted: December 14th, 2024
A group of three students did form a management team of one of the seven firms. While initially all firms started out in the same position, manufacturing three vehicles in different classes-Economy, Family and Truck; according to the stratsim briefing notes, it was expected that each firm would develop uniquely based on its strategic choices and implementation. Accordingly; as the online game progressed, a new vehicle was developed in a completely new class.
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Due to the weak economy whose GDP growth was a mere 1% with a high interest rate of 5.0% in the first period (a year in the stratsim world), demand for cars was low resulting into slow car sales-industry sales were 6.6 million units. However; as the economy strengthened and the interest rates dropped, industry sales grew to as high as 8.4 million units by the end of period 5.
According to Johnson G, et al (2009) pp.3, strategy is defined as “the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations”
Coming up with a good mission and vision statements was very essential for firm A, because it did express the overall purpose of the company’s existence together with the different range of products and services it provides to customers plus the desired future state of the firm. (Johnson, Scholes and Whittington, 2009, pp.9)
“Objectives are statements of specific outcomes that need to be achieved” (Johnson, Scholes and Whittington, 2009, pp.114) Hence the management team first task was to set up firm’s A objectives which would provide means of monitoring the firm’s performance-whether actual performance was meeting the targeted goals and objectives.
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The objectives were grouped in two parts, financial-based objectives and market-based objectives. The financial objectives were: to generate the highest net income and maximizing sales, so as to provide long-term return for its shareholders over a five to ten year period. On the other hand; becoming a market leader in all the three vehicle classes and exceeding stakeholder expectations were the market-based objectives.
While firm A intended strategy was to operate at a lower cost than its competitors, the management was forced to invest heavily in product development so as to differentiate the firm’s technology capabilities from competitors’ since all the seven firms had started out with the same technology capabilities.
Organizations have an interdependent relationship with the environment they exist within and since a business environment is not static but rather a dynamic one, it is vital for managers to constantly analyse their external business environment so to anticipate and influence the changes thus ensuring the survival of their organizations. (Johnson et al, (2009), p.24)
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2.4.1 PESTEL
In an attempt to study the macro-environment, the PESTEL framework is regularly used to analyse the impact of Political, Economic, Social, Technological, Environmental and Legal factors to the organizational daily operations. (Johnson et al, (2009), p.25)
Through the economic outlook (see illustration in appendix 6.1), firms were able to study the previous, current and future year trends of economy, such as in the case where it was noted that at the beginning of the online game, the real GDP growth was low, with high inflation and interest rates causing weak economy hence lower demand for cars and trucks. Moreover; material and labour costs were decreasing hence firms were able to increase production of cars and trucks, likewise, by observing the gas price indicator firms were able to anticipate future demands.
SWOT analysis is most often carried out by managers in an attempt to study the correlation between their organizational strengths and weakness and its environmental opportunities and threats.
The purpose of carrying out a SWOT analysis is to examine the strengths, weaknesses, opportunities and threats facing a business and using the findings to take advantage of the existing strengths to search for the opportunities and implementing strategic actions to minimize weaknesses and avoiding threats. (Johnson et al, (2009), P.81)
Michael Porter’s five forces framework helps to determine the industry’s attractiveness and profitability. (Johnson et al, (2009), p.30) These five forces can be used to analyse automobile industry as follows:
Since the automobile industry is on a maturity level and referring to the stratsim environment, manufacturers were producing same vehicle class with more or less same features hence causing fierce competition as firms’ growth was on the expenses of winning market share from a rival. The slow automobile industry growth led to price war hence low profitability.
Internal analysis is carried out so as to analyse how an organizational resources and capabilities can be used to achieve competitive advantage over its competitors. Firm A had to conduct an internal analysis using tools such as VRIO and benchmarking.
Firm A used VRIO model to asses the sustainability of the company’s resources and capabilities by looking at each of the four criteria as follows; (Johnson et al, (2009), p.68-72)
Firm A used best-in class benchmarking to compare its vehicles performances with the leading firms performances, although unfortunately the management initiated this model during period four of the simulation exercise which was a bit too little too late. (Johnson et al, (2009), p.79)
While firm A made investment in technology capabilities during the first period, they made a mistake of not expanding all the four vehicle attributes to industry’s technology limits. Major increases were made on quality attribute-7, followed by styling-6, with interior and safety being 4, 4 respectively.
Firm A unwisely spent heavily on marketing of its vehicles. Major upgrade was made on Ace (Truck class) and minor upgrade on Alec, leading to heavy investment on advertising of these two vehicles to make customers aware of the newly upgraded vehicles.
The increasing cost of operations resulted due to the heavy marketing investment made on Alfa (family class) which the management failed to upgrade throughout the simulation. Hence the firm kept making loses, had the management upgraded this vehicle, the firm would have been in a better position to gain market share since the demand for family vehicles was very high.
In an attempt to lower the cost of operation, management decreased the costs on advertising and promotion on north, south and east regions, and focused marketing expenditure on west-region because it had highest dealer rating of 63 hence highest dealer sales of $39 million. (See Appendix 6.2)
The management failure to utilize the firms’ financial resources efficiently led to higher costs of operations with profit loses at the end of period 5. In an attempt to raise working capital, firm A stocks were sold during period 2 at a time when its stock price was $22 million.
Firm A total manufacturer sales increased at a very slow pace, initially the sales were $15,278.3 million and they rose to a mere $19.839.5 million by the end of period 5. (see Appendix 6.3)
Initially, the firm’s plant capacity was 1000,000 units, and total production of vehicles was 945,000 units, this led to under-utilizing of the plant capacity by 5.5%, hence during period 3 management increased total production to 1,280,000 units.
The performance results for period 5 showed that there were extreme shortages on Ace and Alec vehicles and significant shortages on Alfa, consequently; the firm had over 30% loss sales on each of its three vehicles. (See manufacturing details on appendix 6.4)
While firm A was a market leader on Truck Class with Ace (Truck class) having 19.8% of the total truck sales, the other two vehicles- Alfa and Alec did not do quite well due to poor decisions made on positioning them in their respective markets.
This whole simulation exercise have given the author a chance to put the strategic theories into real life experience, and thus learnt that financial analysis is crucial for company’s success. (see performance summary appendix 6.5)
Johnson G, Scholes K and Whittington R. (2009) Fundamentals of Strategy, Prentice Hal
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