Assignment on a business game project
Assignment B (60% of module mark)
Each student will submit an individual report (word limit 5,000 words). This report will consist of the following sections laid out EXACTLY as follows:
1. Front page, with your name, ID, Seminar Group number, Team number and word count.
2. Contents (with page numbers)
3. Introduction: A brief (maximum 50 words) statement of the business objectives (from Assignment A) and a brief (maximum 100 words) summary of the company performance during the game and how far you succeeded in meeting the business objectives; a table showing total sales, total unsold stock, shareholder funds, closing bank balance and outstanding loan at the end of each of the four rounds. These figures should be in m, to the nearest 1 million.
4. Company Performance: A clear analysis and explanation (2000 words) of what happened during the game supported by graphs/tables of key financial and non-financial data for the company. [45%]
Guidance: It is important to show that you now fully understand what happened during the game even if you didnt understand during the game. To so do, you MUST start with the Round 1 forecast of key performance measures (KPMs), compare the Round 1 results with the forecast, explain the differences in detail, and the key issues that arose. Go on to explain the rationale for the Round 2 decisions, what these were, then present the Round 2 forecast. Follow this approach for all four rounds. You should then comment on the trends in KPMs over the game. The KPMs should include as a minimum production, sales, gross margin, unsold stock, post-tax profit, net cash position and market share. It is suggested that you discuss suitable KPMs with the tutors for each of the four functional areas. Effective comparisons with competitors (where possible) will earn additional marks.
5. Learning: A critical reflection (2000 words) on how the team used the financial, marketing, operations and human resources management material taught during the semester to make responsible business decisions affecting at least one stakeholder group internal to the organisation and at least one stakeholder group external to the organisation. [45%]
Guidance: For each of the decisions, explain how you made the decisions during the game. Looking back, discuss how you could have made better decisions by making better use of the material taught during the semester, particularly how the functions integrate and how the decisions act in the best interest of the individuals, groups or organisations affected.
Include citations within the text to refer to relevant readings covered in class.
6. Conclusion: An evaluation (150 words) of the extent to which your organisation met the key strategic objectives set out in part 3 above, with an indication for the reasons these objectives were fully met, partially met or not met at all.
7. Team Performance: A critical evaluation (700 words) of the performance of the team and a personal reflection on your role in the team [10%].
Guidance: Discuss, for example, the organisation of the team, the effectiveness of the decision-making process, and the roles played by individuals including leadership. How effective was your contribution to the team? What did you learn from the game about effective teamwork and decision making? Reflect on your experience in working in a culturally diverse team. What would you do differently if you played the game again? It is important to go beyond simply telling a story and to make use of relevant material the Leadership and Management Development module. Make use of the meeting logs that you kept during the game. Do not talk about the specific areas of contribution, e.g. how you made financial or marketing decisions, but how you developed as a team member and how you would approach a similar exercise differently should such an opportunity arise.
8. References: Remember that all sources cited in the assignment should appear in the reference list.
9. Appendices (not more than 6 pages). These should be used for supporting data and can include tables and graphs. However, Section 4 should include graphs of key data to support the explanation of performance. Key graphs and tables should appear in the body of your work.
ASSIGNMENT B: ********
******** Bougachouche
Student ID: 16042234
Module title and code: Strategic Management for
Competitive Advantage
Tutors name: Rob Wood
Assignment title: Assignment B
Seminar Group: Group A
Team number: 3
Date of submission: 17th May 2017
Word count: 5500 words
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Table of contents
I. Introduction ……………………………………………………………………………………………….. 3
II. Company performance ……………………………………………………………………………….. 4
A. Round 1 ……………………………………………………………………………………………………… 4
1. Decisions ………………………………………………………………………………………………… 4
2. Forecast and results …………………………………………………………………………………. 4
B. Round 2 ……………………………………………………………………………………………………… 6
1. Decisions ………………………………………………………………………………………………… 6
2. Forecast and results …………………………………………………………………………………. 6
3. Round 3 ……………………………………………………………………………………………………… 8
1. Decisions ………………………………………………………………………………………………… 8
2. Forecast and results …………………………………………………………………………………. 8
4. Round 4 ……………………………………………………………………………………………………. 10
1. Decisions ………………………………………………………………………………………………. 10
2. Forecast and results ……………………………………………………………………………….. 10
III. Trends analysis ………………………………………………………………………………………… 12
1. Production ………………………………………………………………………………………………… 12
2. Total sales ………………………………………………………………………………………………… 13
3. Sales revenue, Break-even point, margin of safety ………………………………………….. 14
4. Market share vs competitors ………………………………………………………………………… 15
5. Unsold stock ……………………………………………………………………………………………… 16
6. Revenue vs post profit after tax ……………………………………………………………………. 17
7. Net cash position ……………………………………………………………………………………….. 18
8. Current ratio ………………………………………………………………………………………………. 19
9. Gross margin …………………………………………………………………………………………….. 20
10. Return on investment ………………………………………………………………………………….. 21
11. Warranty claims …………………………………………………………………………………………. 22
12. Strike days with wages ……………………………………………………………………………….. 23
IV. Learning ………………………………………………………………………………………………….. 24
1. Strategy ……………………………………………………………………………………………………. 24
2. Financial decisions …………………………………………………………………………………….. 25
3. Marketing decisions ……………………………………………………………………………………. 26
4. Operations decisions ………………………………………………………………………………….. 29
5. Human resource decisions …………………………………………………………………………… 31
V. Conclusion ………………………………………………………………………………………………. 33
VI. Team performance ……………………………………………………………………………………. 34
VII. References ………………………………………………………………………………………………. 36
VIII. Appendices ……………………………………………………………………………………………… 39
1. Break-even point with margin of safety ………………………………………………………….. 39
2. Fixed costs ……………………………………………………….. Error! Bookmark not defined.
3. Profit ………………………………………………………………… Error! Bookmark not defined.
Table of figures
Figure 1: Summary of ********s performance over the 4 rounds …………………………………….. 3
Figure 2: Strategic clock ………………………………………………………………………………………… 24
Figure 3: Value chain…………………………………………………………………………………………….. 24
Figure 4: FCB grid ………………………………………………………………………………………………… 26
Figure 5: Product Life Cycle …………………………………………………………………………………… 27
Figure 6: Cost of quality Curve ……………………………………………………………………………….. 30
Figure 7: Link between HRM and performance………………………………………………………….. 32
3
I. Introduction
******** aimed to enter the European hybrid and electric automobile market. The business
objectives of ******** are the following ones:
Over the 4 years, ******** achieved most of its objectives. In regards of the C02 emission, there
was unfortunately no KPI to measure, however it has been predicted that this objective has
been achieved. ******** made profit during the 4 years except in year 1. Over the 4 years, our
total sales increased significantly along with the shareholder funds and the closing bank
balance (Figure 1). Moreover, the company sold out all its cars without having any stock left.
Overall, the company has been successful in achieving its objectives by holding a good net
cash position and by refunding the total loan by end of round 4.
Figure 1: Summary of ********s performance over the 4 rounds
4
II. Company performance
A. Round 1
1. Decisions
The market research revealed a growing demand for city and large cars. ******** decided to
target people under 25 as they represent 9,95 % of the city car market and for the large car,
people from 41 to 55 as they represent 6,3% of the total market. The firm produced 17680 city
cars and 22321 large cars because ******** forecasted that large cars will be more sold than
the city cars because of the higher purchasing power of this target. ******** aimed to sell few
number of cars to create a brand awareness among its new customers. Both cars had hybrid
engines as ********s mission is to provide eco-friendly cars. As ********s strategy is cost
leadership, Agile was produced with 4 basics options to reduce the cost of production. For the
following years, cars have gone through the product development by adding new features
related to safety and quality. ******** invested also a lot in R&D, although it can be costly, it is
a long return on investment.
2. Forecast and results
******** forecasted to sell all cars and to get 932,36M total sales revenue by capturing 0,35%
of market share for Agile and 0,39% for Revolution. Moreover, ******** allocated more
workforce and automation for Revolution. It was forecasted that large cars will be sold easily
among the specific target.
Although all cars were sold out, ******** made a loss with a post-after tax profit with -30,33M
because ******** borrowed a high loan of 958M and didnt produce enough cars to cover its
expenses. Although ******** invested in promotion, R&D and training, they havent contributed
to the profit. However, ******** forecasted 3 strike days and results show the same number.
The high loan and the weak number of cars contributed to the loss profit of ********.
5
6
B. Round 2
1. Decisions
******** decided not to launch a new model but rather to concentrate on the two existing
models. At this stage, ******** became well-known thats why ******** increased the production
of Agile by 300% and by 134% for Revolution. Consequently, the selling prices of Agile
increased by 7% and by 6% for Revolution. ******** bought automation and raised wages by
3 % to improve the productivity. Furthermore, ******** augmented by 90% their promotion to
contribute to their brand awareness but also to the sales. Moreover, ******** decided to keep
the same options as in year 1. ******** was hoping to get more profit and to capture more
market share.
2. Forecast and results
In this round, we started to pay the taxes and to refund the loan. ******** forecasted to leave
2700 city cars in stocks to start the following year with some stocks left. However, ******** sold
all cars. By producing more cars, ******** started making profit. The sales income reached
2760,83M which is slightly more than it was expected 2721,41M. Furthermore, ********
forecasted 2 strike days and results reached more than our expectations with only 1 strike day.
Additionally, ******** expected 576,82M net cash position, 279,7M post-tax profit and
366,72M operating profits.
The results show some differences in post-after tax profit and in operating profits. This is due
to the depreciation along with the increase of the promotion costs and the fixed overheads.
Moreover, warranty cost was expected at 200. Results show that warranty costs per car
decreased because of the rise of the salary and the training cost and this had a significant
impact on the quality. Overall, decisions were efficient because ******** started making profit.
7
8
3. Round 3
1. Decisions
******** launched a new medium car for people from 25 to 40 as they represent 13,75% of the
total market. The strategy was to fill the gap between the target for Agile and Revolution.
******** invested 59,9m in automation and created 1300 new jobs. ******** increased their
promotion by 201% because of the launch of the new model. Options have been added
considering the safety, quality and environment. In terms of R&D, ******** added the accident
prevention system to the 3 models for a safety purpose.
2. Forecast and results
******** forecasted to produce 59,783 Agile, 42,768 Revolution, 25,599 Dynamic with 1,26%,
1,7% and 1,92% of market share. Moreover, no stocks left were expected. The productivity
was expected to reach 74,73 for Agile, 61,1 for Revolution and 76,08 for Dynamic. The
warranty cost was expected at 300. Moreover, ******** forecasted 702,12M in net cash
position, 673,5M in operating profit and 531,4M in post-tax profit. The firm was expected 2
strike days.
Results show that ******** met the forecast only for the net cash position and market share.
The operating profit with the profit after tax were slightly different than the forecast and this
due to the increase of the depreciation along with the automation investments. Furthermore,
******** set-up the production too high as a result the productivity was reached with overtime
to produce Dynamic (76,08). The warranty cost per cars increased because ******** didnt
allocate well the workforce with the automation and it had an impact on the quality. Overall,
******** was concerned about the quality management in regards of the warranty claims.
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10
4. Round 4
1. Decisions
******** launched a new city car (Triomphe) with an electric engine for people over 55 to meet
customers needs. ******** reduced the number of workforce for Agile and Revolution and
rather increased the workforce for Triomphe. Furthermore, ******** invested 60M in
automation and changed the allocation of automation that goes for each car. ******** increased
slightly the production of all models. Its strategy was to produce only 26904 Triomphe cars to
capture the demand from the target.
2. Forecast and results
******** forecasted to sell all cars with a gross margin of 28,77% for Agile, 29,57% for
Revolution, 37,3% for Dynamic and 30,95% for Triomphe. ******** forecasted to reduce the
warranty costs to 300 and expected the strike days at 1. Furthermore, ******** forecasted
5358,71M in sales revenue, 1424,36M in net cash position, 1070,3M in operating profit
and 867,2M post-tax profit.
Results show that all cars were sold out with higher gross margin than the one expected. The
warranty costs didnt meet our expectations however it decreased from year 3 to year 4 from
409,64 to 331,33 due to the increase of salary and training cost. Although ******** increased
the wages to 580, the strike days reached 3 because ******** didnt increase the number of
employees and at the same time ******** augmented the production of cars. The net cash
position and the sales revenue are the same than forecasted whereas the operating profit and
the profit-tax profit were higher. Overall, decisions taken were profitable for ********.
11
12
III. Trends analysis
1. Production
As part of its brand awareness strategy, ******** sold two models for the first two years. In Year
3, ******** introduced a new medium car for people from 25 to 40. ******** decreased the
number of Agile and Revolution and increased the number of Dynamic as the market share for
the medium car was significant during this year. In year 4, ******** launched new few electric
city cars for people over 55 to evaluate the demand among the target. Moreover, ********
increased the number of medium cars by 3,86 % from year 3 to year 4. However, Revolution
decreased slightly from 42768 to 42408 while Agile increased from 59783 to 60480 because
large cars market was declining while city cars market was growing slightly.
Overall, ******** managed to produce effective number of cars considering the market
research.
17680
70720
59783 60480
26904
98904
102729
22321
52377
42768
42408
0
50000
100000
150000
200000
250000
Year 1 Year 2 Year 3 Year 4
******** Car Production over the 4 years
Agile Triomphe Dynamic Revolution
13
2. Total sales
******** sales increased from 932M to 5358M over the 4 years with a growth of 474 %. The
launch of two models model in year 3 and 4 contributed to the sales. Over the 4 years, the
sales augmented significantly because ******** was becoming well-known among the
customers. Indeed, ******** developed its brand awareness thanks to the huge expenses on
promotion.
14
3. Sales revenue, Break-even point, margin of safety
Due to lack of number of cars production in Year 1, ******** couldnt break even (Appendix 1).
Indeed, ******** made a loss because cost of production where higher than revenues. During
the following years, ******** produced more cars thus the sales revenue increased from year 1
to year 4 with a growth of 474%. ******** maintained an effective margin of safety. Indeed, the
higher margin of safety, the better it is in diminishing the danger of business losses. From year
3 and year 4, the break-even point decreased because the fixed costs such as promotion and
R&D decreased, it allowed ******** to increase its sales revenue.
Overall, the sales revenues were above the margin of safety and break even over the 4 years
this lead ******** to a profit except in year 1 because ******** didnt produce enough cars.
832.1
958.7
1,678.9
1,157.7
932.4
2,760.8
4,815.9
5,358.7
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
Year 1 Year 2 Year 3 Year 4
Sales revenue, margin of safety with break even point (m)
Break-even point (m) Margin of safety (m) Sales revenue (m)
Margin
of safety
15
4. Market share vs competitors
******** market share increased significantly from 2013 to 2016. Moreover, ******** exceed its
goal of getting 5% of market share by end of year 4. ******** main competitors are Ford, Toyota
and Peugeot. Through this graph, Peugeot, Toyota and Ford market share decreased slightly
from 2013 to 2016. ******** produced two more models in 2015 and 2016 that contributed to
the increase of ******** market share and to the profitability of the company.
1.31%
3.61%
5.05%
6.21%
4.16% 4.07% 3.97% 3.90%
7.30% 7.20%
7.70%
6.90%
6.01% 6.05% 6.02%
5.73%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
2013 2014 2015 2016
******** Market share vs competitors (%)
Wisent Toyota Ford Peugeot
16
5. Unsold stock
Over the 4 rounds, ******** sold out all its cars without leaving any stock left. It isnt efficient
for ******** because there were no stocks left to start the following year with. Overall, this had
a financial impact for ********.
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6. Revenue vs post profit after tax
This graph shows a major difference between the revenue and the post-tax profit over the 4
years. However, the difference decreased yearly indeed, 103% in year 1, 89% in year 2, 88%
in year 3 and 83% in year 4. Year 1 was a loss for ******** as the profit-after tax is negative
with -30,33 million. Indeed, ******** encountered difficulties in terms of cash flows because
******** didnt produce enough cars that could have covered its expenses. However, in year 2,
the revenue increased because ******** increased its production with the selling prices.
Moreover, all cars were sold out over the 4 years which contributed to the revenue.
Overall, the reason behind the significant difference between the revenue and profit is the cost
of sales increased yearly with the inflation as well as the operating profits including the
overheads.
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7. Net cash position
Net cash position decreased by 28 % from year 1 to year 2 because ******** borrowed a high
loan and 50 % of the profit was taken from the bank balance to refund the outstanding loan.
However, in Year 3, the net cash position reached 702,12 million a growth of 21% because
******** was holding higher current assets compared to its liabilities. In year 4, the company
shows a good cash position as the loan was totally refund. Overall, ******** had a good cash
position over the 4 years thus this is a sign of a prevailing financial health for ********.
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8. Current ratio
In year 1, ******** current assets were 17,99 higher than its current liabilities because ********
borrowed 958M loan consequently the firm had enough money to pay its current liabilities.
From year 2 to year 3, the current ratio decreased from 3,73 to 2,77 because 50% of the profit
was withdrawn each year to refund the loan. Therefore, ******** had less cash in the bank
balance. In year 4, ******** managed to sell more cars without handling any outstanding loan.
Overall, this is a good sign for creditors as it demonstrates that ******** is financially reliable to
repay its liabilities within a short time period.
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9. Gross margin
As part of ******** cost leadership strategy, the firm started with low selling price in year 1 to
develop its brand awareness. By year 2, ******** decided to increase the selling price as ********
became well-known. In year 3 and 4, the gross margin for Agile and Revolution decreased
because their cost of production increased however their selling prices didnt increase.
Dynamic was launched in year 3 with a high margin as it was believed that this car will easily
sell out among the 25 to 40 target. In the other hand, Triomphe was launched in year 4 with a
gross margin of 30,95% because the production costs of Triomphe are costly due to electric
and safety options that were added to meet the customers needs.
32.48%
35.65%
31.87%
29.54%
33.76%
35.92%
32.16%
30.66%
39.92%
38.23%
30.95%
28%
30%
32%
34%
36%
38%
40%
Year 1 Year 2 Year 3 Year 4
******** Gross margin (%)
Agile Revolution Dynamic Triomphe
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10. Return on investment
The ROI allows shareholders to analyse how efficient each pound invested in the cars is at
getting profit. In year 1, the ROI was -2,12% which means that the total capital employed was
greater than the income after tax because ******** didnt produce enough cars. Indeed, the
current costs were higher than the revenues which lead ******** to a loss consequently to a
negative return on investment. During the following years, ******** produced enough cars that
contributed to a positive return on capital. Indeed, the ROI increased from year 2 to year 4
from 22,18% to 40,21% and it even exceeded our objective which was to increase by 5% the
return on investments by end of year 3.
-2.12
22.18
34.06
40.21
-5 0 5 10 15 20 25 30 35 40 45
Year 1
Year 2
Year 3
Year 4
Return On Investment from year 1 to year 4 (%)
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11. Warranty claims
The warranty claims increased significantly from year 1 to year 3 from 11,98M to 82,52M a
growth of 588%. The problems were related to errors in the production lines, in the operations
management and on the wages. As warranty claims were increasing, quality perception was
declining because employees were being resistant to be replaced by automation and because
training investments were low. ******** didnt meet its objective of reducing by 25% the warranty
claims by end of year 3. However, in year 4, when ******** launched Triomphe, the salary
increased to 580 and the training cost to 2,6M, therefore the warranty claims decreased to
77,04M.
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12. Strike days with wages
******** started with 3 strike days because ******** didnt allocate high salary and enough
training. In Year 2 and 3, the strike days decreased to 1 because ******** increased the wages,
the workforce and the training. Indeed, the wages increased from 485 to 580 from year 1 to
year 4 a growth of 19%.
Overall, ******** achieved its objective to reach 1 strike day by end of Year 3. However, the
strike days increased in year 4 because ******** increased the production of cars but didnt
increase the workforce from year 3.
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IV. Learning
1. Strategy
To set up its strategy, ******** used the strategy clock from Faulkner and Bowman (Figure 2).
Indeed, ******** followed the hybrid strategy which combines low-cost and differentiation
strategy (Faulkner & Bowman, 1995). ******** aimed to simultaneously attain higher benefits
and lower prices compared to its competitors. The hybrid strategies are useful to enter rapidly
in the markets and to gain market share.
Figure 2: Strategic clock (Faulkner & Bowman, 1995)
Barney (1991) through its model The Resource-based View argues that the competitive
advantage comes from the distinctiveness of the firms resources and competencies. In other
hand, Porter (2004) suggests that the competitive advantage can be considered in any of the
primary and support activities in the value chain (Figure 3).
Figure 3: Value chain: Porter (2004)
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2. Financial decisions
Finance is a key element in an organization. According to Khan and Jain (2008), Financial
management provides a conceptual and analytical framework for finance decision making. It
is essential for an organization to manage effectively its working capital management to
survive. Indeed, the working capital management is about handling the current assets and
current liabilities with the objective of diminishing the risk of bankruptcy (Liquidity) and
increasing return on investment assets (Profitability). It involves finding a balance between
profitability and liquidity. An effective working capital management leads to the survival and
the growth of an organization (Kargar and Blumenthal, 1994). Similarly, an efficient working
capital management leads to profitability (Padachi, 2006). ******** had a capital of 500 M.
However, a total loan of 958.00 was required to start the business. This loan includes: the
market research, the total car production, data on completion, R&D, the promotion, the training
and the wages. ******** maintained a good cash flow position. Indeed, ******** net cash position
increased yearly expect in year 2 because ******** started to pay back the loan. ********
succeed in refunding the outstanding loan by end of year 4 because ******** had enough
current assets to pay off the current liabilities within a short period. This is an effective financial
sign for ********. Indeed, it reveals that the firm was able to cover its current liabilities with a
mix of cash and liquid assets over the 4 years. Similarly, in terms of profitability, ********
achieved its objective by increasing yearly by 10 % the net profit after tax and by increasing
the return on investment by 5% by end of year 3. In other terms, ******** succeed in achieving
the goal of maximizing the shareholder value. In regards of efficiency, ******** was using the
Just-In-Time inventories management to eliminate the need to hold inventories. Thats why
******** had no inventories from year 1 to year 4 (Atrill, & McLaney, 2013). However, if a
business lowers its inventories, then it must reorder frequently, which increases ordering costs
(Brigham, & Ehrhardt, 2014). Indeed, ******** started every year without any stock left which
had a negative impact on the assets of ********.
Overall, ******** maintained a good cash position and profitability. The financial decision had a
significant impact on the external stakeholders such as creditors as it shows that ******** is
financially reliable and it had also an impact on internal stakeholders such as the shareholders
as the company maximized their shareholder value.
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3. Marketing decisions
Kotler and Keller (2009) states marketing is a significant dimension of any business in todays
highly competitive environment and financial success is often depending on marketing ability.
Drucker (1954) argues Because it is the purpose to create a customer, any business
enterprise has two and only two basic functions: marketing and innovation. When giving brand
name to its car models, ******** considered that a brand should be memorable, meaningful,
likeability, transferrable, adaptable and protectable (Pelsmacker, Geuens, & Bergh, 2013).
******** name has been selected because it refers to a strong European animal. Agile reflects
the easiness to drive around in the cities, Revolution reflects the innovation, Dynamic reflects
the energy and Triomphe reflects the success. ******** unique selling proposition is
maximizing lifestyle while minimizing footprint. Indeed, ******** corporate social responsibility
is concerned about environment by providing eco-friendly cars. In terms of positioning, ********
produces eco-friendly cars with high quality at low prices thereby providing a good value for
