Strategy as the Long-Term Direction of Any Organization - Essay Example

Business Simulation Game Individual Report Business Simulation Game Individual Report Introduction Strategy is defined as the long term direction of any organization that takes into account the dynamic environment by configuring its competences, resources and fulfilling the expectations of its stakeholders. The overall goal of a company and its long term direction is a fundamental driving factor for any company’s successful operation. As much as it is crucial to have an overall direction, it is also fundamental for a company to exercise flexibility to fit in the changing environment. This task gives the breakdown of the external and internal environment of a foot-wear company operating in Europe-Africa, Latin America, Asia-Pacific and North America and the strategic decisions that the virtual company has made from its Year 10 to Year 15 of operation. Political The company operates in four different geographical areas; Europe-Africa, Latin America, Asia-Pacific and North America. This means the company operates in different political atmospheres. It thus has to deal with the problems and challenges of political ambiguities and turbulence. In order to create a political environment that is amenable to our business, we have pursued political risk management strategies. We have taken advantage of the growing global awareness and entered into the global market. As globalization leads to more business opportunities for our company, we have to change the roles of the business game and strategize accordingly with the changing dynamics. We appreciate that different organizational players and settings shape our business opportunities through different public policy processes in the locales that host our operations. Before settling on any particular strategy to take control of the political uncertainty, our company further considered the High Involvement Strategy. This involved contemplating the possibility of expending great resources and developing a more elaborate strategy. The strategy would be geared towards effecting the political environment in ways that would yield maximum returns to our efforts. Using this strategy, the company did not abandon the idea of networking with other similar-minded firms. Instead of coalition with like-minded firms to gain scale, the strategy would be for diverse parties to gain scope. All companies, organizations and agencies are potential members of the High Involvement Strategy. The strategy would include networking of regional, local, national, political, economic and social actors. Through frequent communication and contact, the network behaves like an information-gathering device that works with potential sources of political risks to lessen the probability of actions that may be in conflict with our company’s objectives. The management team of our company reasoned that aligning our objectives with those of already existing or newly created network would place the company in a safe position to obtain information that may guide our management decisions. In the event that it would not be possible to align the objectives of the firm with the objectives of the network, the company would still access the useful information of the group, placing it in a good position to predict risks and negotiate settlements, thus lessening the impacts of political actions. Our company acknowledged the role of such networks in mitigating cases of civil unrest and mediating in processes where political policies cannot be changed. Economic Improving the economic performance of our firm is subject to the strategies put in place and the economic factors that prevail in the markets and operation zones. Going global was one of the strategies that we noted to place the economic future of the company in a good position. With a global market, it is safe to find security in the hopes of diversified market. While operating in Europe-Africa, Latin America, Asia-Pacific and North America, our company enjoys the benefits of making sales in one or more of the regions despite economic woes in the other locales. It is often not usual to have a case of poor sales of products in all the four broad locations. The firm’s sales are likely to be influenced by the level of disposable income in addition to value for money factor. Other economic factors also have impacts on the profitability of the company and its operation activities. These factors vary from one national boarder to another and influence the strategies of the company. They include national Gross Domestic Product, money supply, inflation, unemployment, cycle of the economy, disposable income and interest rates. The nationally related economic factors also influence the demand and value of the firm’s products in relation to the national currencies. This in turn affects the exchange rates and the final success of the firm. Volatility of the exchange rate of the currencies of countries of operation has strong impacts on the revenue of the company. Therefore, we take fluctuating exchange rates while making decisions on economic strategies of our company. In addition, strategizing economically includes consideration of the market reliability of the products we deal with. Whereas there are no accurate methods of discerning the market reliability of the products, dependable estimations can provide the answers to the future of the market. Demand for our products is predicted to grow for about 5% to 9% per year for the next 10 years in the four regions that we operate in. Due to economic differences in the countries that we target, this growth rate could vary by 2% upwards or downwards from one country to another. The elements of uncertainty in the economic forums affect the operating and management aspects of the firm. Social While economic and political factors are crucial in strategizing and charting the way forward for our company, social aspect of the market is another extremely important facet of the company’s survival and growth. Given the rapid development in technology, the firm’s products have been decreasing in price as they improve in quality. In addition, there is a change in the trend of consumption of the products of the company given changes in lifestyle. Social changes include increased socialization through social media, sharing of pictures through the internet and mobile applications, thus raising the demand of the company’s products. Technological Advancements in technology has not only widened the scope of market for the company, but has enabled production of high-quality products. The foot-wear that our firm sells is presentable and pleasing to the eye. The first step to attracting the client of this nature is to appeal to their sight. It is crucial that they like the appearance of our commodities to gain interest in inspecting them then buy. This is particularly an essential aspect in new markets that the company struggles to penetrate in the Asia Pacific and Africa. Additionally, technology has ensured that the goods are consistent and uniform. Furthermore, the operation of our commodities is dependable and this boosts the confidence of our customers in continuing to use the products. For this reason, it is proper to conclude that embracing technological advances in providing goods and services has earned the company the considerably sound clientele loyalty it already enjoys in a few places. Environmental Corporate all over the world have the Corporate Social Responsibility to maintain a healthy environment. Both domestic and international laws recognize that the greater good of any business undertaking does not end with reaping profits. Therefore, there are policies that protect the environment from degradation by activities of various business operations. The KYOTO Protocol is one of the internationally binding protocols that our company abides by in all countries that are signatory to the charter. Our company recognizes the need to protect the world from negative externalities of industrialization and adheres to all environmental regulations that keep the environment safe and clean. Other than avoiding business practices that endanger flora and fauna, our company uses environmentally-friendly raw materials to manufacture its electronic products. Proper waste disposal is a stringent regulation of our company. It is observant and careful over global environmental issues of global warming. It does not produce the green house gases beyond the recommended levels. Environmental issues affect the perceived value of the products we deal in, and therefore, affect their demand. Legal Our company is bound to repaying its outstanding loans to the Global Community Bank. The interest that the company pays changes unpredictably based on the prevailing economic situation. The interest is related to the annual credit ratings of the company. Credit rating of the company is based on four broad factors; the times-interest-earned ratio, the debt-equity ratio, the number of years it would take to pay the company’s outstanding loans considering its prevailing cash flows and the percentage of credit-line used. The Global Community Bank charges less interest rate to companies with better credit rating. External Forces (Porter’s Five Forces) Threat of New Entrants This is measured on a scale of high to low. In addition, barriers to entry into the industry are also measured in the same scale of high to low. Economies of large scale are achievable although this will be highly influenced by brand reputation and image. Investment requirements range from medium to low. Further, differentiation in the industry is achievable and desired. There are several other well known companies already operating in the industry and this makes it difficult for new companies to enter the market and get a significant market share. In the case of our business, there are low threats of new entrants into the industry. There are already 9 established competitors in the industry, making it difficult for new ventures to pose any significant threats to the company. Bargaining Power of Suppliers There are many buyers and equally many suppliers. The supplies into the market are highly differentiated and come in both high and low volumes. Therefore, there is low threat of suppliers integrating forward into the industry and posing competitive threat to the company. Intensity of Rivalry There are very well known brands of foot-ware companies operating in the market already. There is easily available information concerning foot-ware including fashion, price and quality. Therefore, there is high likelihood of a customer to switch from one shoe brand to another. In the case here, there are 9 established foot-ware companies and competitors of our company. These companies operate in the same competitive market and have the same sales volumes but with different proportions that depends on the market. They have equal market recognition. There are low customer switching costs. Therefore, our company must pursue aggressive growth strategies. Bargaining Power of Buyers The buyers’ bargaining power in the foot-ware industry is medium. This is due to the fact that there is high differentiation of products in the market of several sellers and buyers. There is low cost of switching as buyers have extensive access to information concerning foot-ware. They can easily compare the prices and qualities of the foot ware and make sudden decisions to switch to other company products. In this case, buyers can also act as retailers as they have the authority t choose between 424 different designs of foot-ware. They decide which foot-ware to sell in shops, place on offer or offer discounts. Threat of Substitutes The threat of substitutes to our business venture is medium. The willingness of buyers to switch to our competitors is not so high despite the availability of information that could enhance the shifting. There are a few foot-wears with similar features and quality. Given the technological advancement that has affected the shoe industry as well, relative price and performance of the substitutes has improved. Internal Overview of the Company Strengths of the Company The company has a great upgrade potential. It can upgrade its assembly line so as to reduce its Reject Rate by 50%. For its year 16 of operations, the company has an upgrade option of its facilities to reduce Production Run Set Up by 50%. Further, the company can opt to upgrade it equipment, thereby boosting its S/G Rating by 42%. In addition to the options said so far, the company can upgrade its facilities that affect its workforce to boost the worker productivity by 25%. Weakness The company has been suffering for low operating profit. This is so given the high investments it had made in advertising (this has been reduced by internet marketing), investment in healthy working environment, low prices of our shoes and high administrative costs. The company suffers from high level production costs. There is a short warranty period for the foot-wear products that the company sells in North America, Europe and Asia Pacific. There is low retail coverage in Africa and Europe, low marketing and technical budget in addition to low warranty period. According to the data, Year 15 shows a low operating profit for the Europe and Africa locale. The company is well staffed, which turns out to be working against its operations due to redundancy of some staff, disagreements and time wasted as the large management groups try to come up with consensus on issues. Opportunities Improving the operating profits of the company in Europe and Africa provides an opportunity to become a stronger competitor in the foot-wear industry. The company can use the political coping strategies discussed before to extend its warranty period in the market regions with uneconomically short warranty periods. Threats As observed, the market can easily swing. Competitors are the biggest threat as any small strategy that places them above our operations makes customers lean on their side. Company Decisions Year 10 Objective (Why we did it) Strategic Action (What we did) Outcome (What was the outcome?) To Improve the Quality of foot-ware and other related products of the company We increased the P/Q rating of the foot-ware by a single point while keeping price at the same level We realized increased market share and improvement in demand for our products and the overall revenue To Improve Productivity There was an overall reduction in net revenues although the operating profits of the targeted markets increased. To improve Credit Rating Improved the operating profits in North America and Asia-Pacific Realized an improved Credit Rating of the company Year 11 To improve our return on equity We improved our productivity and profits We realized an improved return on equity To improve our company’s productivity We increased the base wages per PAT Member We realized an increased labor productivity for the 11th year To reduce our warranty claim rate in Europe-African Markets We conducted an increase in incentive bonuses to lessen our warranty claim There was a decreased warranty claim for entry level in Europe-Africa Year 12 Improve our Corporate Social Responsibility and Citizenship We increased the use of green foot ware materials and the use of recycled boxing and packaging There was an increase in cost of the standard materials by 0.5% and superior materials by 1%. Using recycled packaging and boxing increased packaging costs by 0.2%. compliance with Corporate Social Responsibility achieved To improve brand capacity Expanded existing sales capacity and production capacity There was a general improvement of brand capacity in the market, but with no increase in sales outputs, and therefore no increase in profitability. Profits dropped by 0.1% Year 13 To restructure Plant Capacity and productions We upgraded the assembly line to reduce reject rates by 50%. The Reject Rate was reduced by 50% To improve productivity from our unisex fashion shoes Increased the prices of the unisex fashion shoes The product became an ostentatious good and its sales improved. Profits improved and a brand recognition was established To increase out credit rating We paid our outstanding loans The company’s credit rating improved to A+ In addition, our image rating improved from 8 Year 14 To cause a further boost of financial ratios Increased our profitability and repurchased some shares There was a realization of improved net revenues. In addition, earning s per hour increased. There was an increase in stock prices. Further, credit rating and image rating increased To maximize profits as we reduced costs We reduced advertising costs, Research and Development, bonuses for workers and incentives There was a substantial increase in revenues and profits of the company Year 15 To prepare an set the conditions of the company for the next financial year The company issued 809 shares to raise capital The company invested extensively in research and development It did not change its products. There were no extra expenses. The company, however, increased its ability to find market niche in the untapped regions of the market There was a reduction of the expenses on advertisements so as to reduce the overall annual expenditure There was a slight increase in the company’s net revenue from $42,000,900dollars to $43,000,000 The company realized an increase in earnings per share There was additional increase in return on equity Furthermore, the company experienced an increase in credit rating To further increase credit rating of the company The company issued another 872 shares It repaid some of its outstanding loans The company labored to improve its profitability by adjusting the prices of its shoes in different regional locations within its market There was an increase in credit rating of the company from B+ to A+ Source: (Corporate Loby- E-Company, 2014) Final Results The final results of the decisions we took in our company as the managers reveal that despite a number of decisions that reduced our credit rating, reduced our profitability and reduced our sales outputs before, we were able to correct the mistakes and get back on track. From the results of our decisions in Year 15 and 14, there is an evident increase in profitability and credit rating. We stand at a credit rating B+ and profitability had increased from $42,000,900dollars to $43,000,000. Strategic Direction, Underlying Strategies and Principles Given the good financial direction that the company has taken, it is important that the management makes wise strategies to keep the trend. From the nature of the market, this improved profitability of the firm may not continue for long into Year 16 in the event that the management disturbs the market equilibrium to the disadvantage of the firm. All strategic decisions made must put in mind that the market is highly competitive, and any slight mistake could lead to reduced popularity. Politically, upon dissecting the political strategies available for us, we realized that the two approaches mentioned earlier (Low Involvement Strategy and High Involvement Strategy) were not mutually exclusive. We considered the Low Involvement Strategy and the High Involvement Strategy as two extremes of the same spectrum. Our form chose to move incrementally through the range. We reasoned that given our small size and subsequent lack of influence, we would concentrate on the Low Involvement Strategy. At the same time, we became part of the High Level Strategy by joining networks in the four broad operational areas that we belonged to. In addition, we have little resources to become high involvers in the markets. We, therefore, devoted little resources to political risk management, developed links to already existing community networks and government agencies and hoped to slide up the high involvement strategy with time. Competitors can be put in check through proper price control and product differentiation to produce more fashionable shoes. Intensified advertisement through the internet is also necessary. In addition, the company has to keep its Corporate Social Responsibilities to keep its popularity with the market. Key Learning Outcomes Strategy is defined as the long term direction of any organization that takes into account the dynamic environment by configuring its competences, resources and fulfilling the expectations of its stakeholders. The overall goal of a company and its long term direction is a fundamental driving factor for any company’s successful operation. As much as it is crucial to have an overall direction, it is also fundamental for a company to exercise flexibility to fit in the changing environment. Key competences and resources of a company change through the learning and adaption process due to both internal and external environments. Strategic decisions involve uncertainty. Management and operation decisions of any firms need to be linked with strategy There is need to be integration of various functions within the organization to the overall strategy Conclusion Whenever a firm like ours starts operations, its strategies are never able to stand on their own. There is the it gets into a sea of various factors that rock it from within and externally, and finally yields to the forces. It takes the path that emerges from the forces that affect it. Whereas it is presumed that decisions like an increase in price reduces a company’s market share and sales, what matters is the motive behind the price increase. If well communicated to the market, any strategy taken by a company can lead to increased productivity. At the same time, what dictates the right strategies is the environment in which the company operates. One wrong strategic decision must lead to a counter-strategy to fix the damage. Our company is a perfect example of firms that may make decisions that are detrimental to its survival, but as long as there is immediate fix, it gets back on track. Reference Corporate Loby- E-Company. (2014, February 14). Corporate Loby- E-Company. Business Simulation Game . Read More