Outline of Strategic Decisions - Balanced Scorecard Metrics in the Practice Rounds and Comp XM - Research Paper Example

Outline of Strategic Decisions - Balanced Scorecard Metrics in the Practice Rounds and Comp XM Table of Contents Outline of Strategic Decisions - Balanced Scorecard Metrics in the Practice Rounds and Comp XM 1 Outline of Strategic Decisions 1 Research and Development (R&D) 1 Marketing 2 Practice rounds 4 1.1. Practice Round 1 4 2.1 Practice Round 2 4 3.1 Practice Round 3 4 4.1 Practice Round 4 5 5.1 Practice Round 5 6 6.1 Practice Round 6 6 7.1 Practice Round 7 7 8.1 Practice Round 8 7 2. Balanced Scorecard metrics in the Practice Rounds and Comp XM 8 3. Comp XM 8 Section 2: Reflection on Lessons Learnt about Business Decision-Making  9 Appendix 15 Outline of Strategic Decisions Research and Development (R&D) Every year the company will invest in R&D to keep pace with the market by improving the product to meet the ideal performance, size, age, and reliability. It can be shown in (Figure 1) that by improving our product to the ideal position and range of customers criteria it will increase Customer Survey Score (CSS) this would ensure product demand increase as well as net profit. Marketing Key Performance Indicator (KPI) Target Price To keep it within the customer criteria range but lower than competitor Promo Budget To achieve 100% customer awareness by the end of year 4. Sales Budget To achieve >80% customer accessibility Forecast No more than 10% difference between actual and forecasted sales. In order to obtain these targets from Year 1 to 4, the company will spend approximately $300 to $600 yearly in sales and promotion budget. This is to ensure that the products we offer will reach out to potential customers as well as having them to access conveniently to purchase the product through various distribution channels. This strategy results in a higher percentage of customer awareness and accessibility compare to our competitors hence this would be an advantage because the overall product demand increased. Year 2 Name Primary Segment Forecast Opening Inventory Units Sold Closing Inventory Apple Core 1950 2776 2259 517 Agape Nano 1480 2179 1212 967 Abby Elite 1200 1522 1098 454 Alan Thrift 2400 2278 2279 0 In year 2, the company over produce Agape Product in Nano segment which result in 967 leftover inventory as this would lead to cash flow issues. (Appendix 1) in order to ratify the problem in the following year, the production on Agape will be reduced to break even. By using the statistic report we received data from the previous year we are able to forecast the production more accurately based on the industry demand and the market growth. At Round 3, production of products was minimized to reduce inventories. And, in the last year, all excess capacity was sold off to help improve the finance. Practice rounds 1.1. Practice Round 1 Our team decided to adopt cost leadership in round 1 but the high-end performance and size are better, so we switched to board differentiator. We tried to provide better products than competitors by having high-performance level and low size for the sensors. By increasing customer’s awareness and loyalty, we provide products that are vastly superior and unique from our competitors and pricing our products within the reasonable price range hence we can gain higher benefit and opportunity than our competitors. 2.1 Practice Round 2 In the second round, there was an improvement in the market share to 20.04%. This was due to the differentiator strategy. The company invested a lot in brand awareness and production of unique products. This strategic decision gave the business a competitive advantage over the other companies. This was complemented by the improvement in the traditional segment by the introduction of top products, such as able. Able captured a market share of 19%. Nano buying criteria were highly accepted by the target audience. Analysis of financial statistics also led to the conclusion that the market share was improving. For instance, it increased to 32%. The customer buying criteria were also consistent with the first round. 3.1 Practice Round 3 The company used the cost leadership technique to achieve its market share of 18.69%. it led the other companies in cost reduction. This means that the cost of operations was comparatively lower than that experienced in the first round and second round. However, the company maximized the production while minimizing its cost. This was achieved through the use of efficient production techniques which other companies lacked. Andrews led in the amount and capacity of production. The segment of the market that had the largest share was Acre. That was an element of product differentiator strategies that were incorporated in the business. It also utilized the marketing analysis plus the retail differentiator strategy to improve its image. 4.1 Practice Round 4 The Company used the cost leadership strategy to lead in the industry. It reduced its overhead costs by ensuring the there are no wastes and also an efficient use of resources and capital. However, the market share declined due to other factors which offered a competitive advantage to the other companies. It reduced its expenditure on inventory to 11000 dollars. In addition, the taxation rate was lower than that of other companies. The company did well in the internal business organization. The other companies were relatively lower in terms of internal business organization. For instance, Andrews had the highest score on asset turnover (8.2). This is because of the increased amount of sales arising from the huge market share of 19.08. The sales amounted to 13 which was also the leading in the industry. The Company has a good financial position. The cash flow was 16,302 dollars. However, the increased inventory shows that it was experiencing huge costs. The income statement reveals that the company had it the highest profit compared to the other firms in the industry. The net profit amounted to 16,301 dollars. This was a great achievement. Andrews also performed well in production capacity. The unit demand also increased. 5.1 Practice Round 5 The Andrews Company applied the cost leadership strategy in this round 5. This enabled the company to attain a market share of 19.78. However, this is a decrease from the previous round’s performance. The sales also decreased in this round to 12.8 %. This can be attributed to the increase in overhead costs compared to that of the previous round. However, in the industry, Andrews had the least overhead cost. Therefore, this led to the maintenance of the proportion of the market share. 6.1 Practice Round 6 In this round, the company laid strategies on cost leadership. It focused on the reduction of the overhead costs in comparison with the other companies in the industry. For instance, it reduced spending much on inventory purchases. Therefore the inward flow of cash was enhanced. There was no purchase of common stock. Also, the amount spent on improving the plant was relatively low. This was amounting to 84000 dollars. However, this was not substantial because the market share reduced to 17.52. This is because of the declined supplies as per the needs of the market. The scorecard items for this round indicate a reduced improvement compared with the previous round. The production capacity was fair. This was an improvement though. The perpetual roadmap obtained a low score. Andrews Company was almost lagging behind with a score of 15 percent. The previous score was higher than that. This is because of the decreased brand awareness for the products of this company. 7.1 Practice Round 7 The company employed the cost leadership strategy as opposed to the other firms’ strategy of a differentiator. It incurred relatively lower variable costs compared to the previous round’ expenditure. It focused on research and development, marketing and also cost reduction segments to achieve that. Previously, the company was using board differentiator. In the performance segment, it adopted the aft product. This had a market share of 17%. The reason why this was chosen as a strategic measure is that it had a full customer awareness. Andrews Company adopted the Cost differentiator and was able to achieve the following scores in its balanced scorecard. 8.1 Practice Round 8 Andrews Company adopted board differentiator strategy in its decision making. Therefore, it captured the market segment through the various product promotion techniques. However, this led to an increase in the variable costs incurred by the company. In addition, the company will focus on the agape product in the Nano segment. This would, however, result in issues with the cash flow. 2. Balanced Scorecard metrics in the Practice Rounds and Comp XM Although Product Count Result in BSC was not good in the first few rounds we manage to improve during round 5 by introducing a new product that called Apple, we develop Apple in High-End segments. After that, we also produce another product called Ali in round 6 and develop the product under Size segments. Next, we buy the capacity to produce the products before we start selling. Hence, with this strategy, our result did improve for the last two rounds. Employee Productivity did consistently well through all rounds as we start to invest in Human Resource in Round 2 by spending $5000 recruiting employees and train them for 80 hours this is to ensure that we increase worker productivity and lowers worker turnover. 3. Comp XM Plant Utilization did consistently well throughout all rounds as planning of capacity had to be done ahead in order to support the production schedule, it matches the supply competencies and capability level with the predicted demand by the customer. Days of Working Capital has been consistently maintained in a healthy and positive value throughout the years. Having a positive working capital means that current assets are able to cover current liabilities, therefore, It allows the company to have a better cash flow and reduce financial risk. To ensure the company runs smoothly, we try not to have too much or rather to less inventory on hand. Section 2: Reflection on Lessons Learnt about Business Decision-Making  Andrews Company did so well in some segments. This is because of the various strategic decisions that were taken by the company in the rounds starts from the first one up to the eighth round. The strategies which entailed board differentiation and cost differentiation led to the variation in the output and overall performance of the company. For example, the cost differentiator technique entailed many aspects of price variation. This was not obviously leading to improvement in the performance as shown by the scorecard for the company over those 8 rounds. Reduction of the variable costs led to the reduction in the promotion of the product. This is attributed to for the small market share in some rounds. However, the use of the performance metrics also shows that variable costs gave the company a competitive advantage over the other firms in the industry. This implies that the company realized a higher net profit because the cash inflows were higher than the rate of outflow of cash. The production analysis indicates outstanding performance from Chester. In that regard, it is evident that the production in all the four firms was over the capacity. This forms a weakness in projections of the production units. For the case of Andrews, the capacity falls short by almost 2000 units. This shows a failure on the side of management on the expected production. The decision made by Baldwin almost matched with the production. This is simply by a relatively small margin between the capacity and production. This can be attributed to wise decisions in regard to the expected production of the firm. The latter can be improved in the future as the decisions can be tailored further. The margin between the capacity and the production for Chester is too large. The projections totally were indifferent to accommodate the production. This led to handling too many units at a particular time. This proves to be a weakness that requires to be addressed immediately to avoid the latter handling of the inventory. Too much inventory in any given time increases the labor costs. The costs deem to be unnecessary as they are not planned for increasing the overall expenses of the firm. Customer Awareness results in BCS did not score well but afterward, score improved and remained after rounds 2 as we continued to invest adequate amount on promotion budget yearly to maintain customer awareness at 100%. Customer Accessibility score consistently improved every round as we continued to invest adequate amount on sales budget yearly try to maintain at least >80% for each product. Stock Price did not do well in the first years but subsequently, there was a steady improvement in the following years. The company constantly improved by repositioning products and design through proactive R&D planning and TQM initiatives. This is to ensure that it hit the idea size and performance segments. Furthermore, the company also lowers the price every year to compete against the competitors to obtain more market shares. Hence, with this strategy, it increases the stock price. Contribution Margin result was not good in year 1 the company hold 34.2% but subsequently it improves from year 1 onwards; but at the end of year 4 the company hold 38.4% the company tries to generate more sales and keep a lower variable cost in order to maximize its contribution margin. Accurate pricing of each product will also help to improve the contribution margin score. The decline in Profits in year 1 lead to Balance Scorecard (BSC) having 0 score but subsequently there is an improvement from year 2 onward. In can be shown in the income statement that Andrew’s achieved highest sales among the competitors (Appendix 1) the company improve by setting a higher sales volume to generate more revenue. Andrews’ invest heavily in each product on promotion and sales budget to ensure that maximum customer accessibility and awareness is achieved so that the products we offer will reach out to potential customers as well as having them to access conveniently to purchase the product through various distribution channels. The company also consistently reducing our prices to complete with competitors, making sure our decisions are better as this would increase sales. Hence, we manage to achieve the highest sales among the competitors. Dominating the market took a good turn. The way to dominate and acquire a market segment worked well with the firms. They were to satisfy fully the segment composing of 5.667% with 100% turnout. However, there was on how to acquire an increased demand in the industry. The buying criteria focused majorly on the price. Customers were price sensitive as a slight change in price would dictate their demand. This is brought about by a 55% importance on the overall demand. The reliability and ideal position to present to the customers brought about 20% and 15% respectively. The age did not have an effect because it only covered 10% importance on the overall demand of the inventory. On the accessibility thrift, Andrews got the highest share while Baldwin got the lowest. The factors behind the success of the Andrews is attributed to appropriate decision making. Customers are the main target for a business. Understanding their behaviors definitely will enhance success. Baldwin needs to change its way of analyzing the market. A low market domination results in low profits. There is a 30% accessibility of Andrews on the actual market. This indicates an average share that keeps it in the business. Provided that all the factors are kept constant, return on capital is realized hence profits. This is however expected to rise as the more potential market share is exploited. The strategic decisions prove to have acquired and fully dominated a 14% market segment. The total industry units demanded are in the order of the actual industry unit sales. Whatever the industry required, therefore, was fully catered for by the four companies. The Nano buying criteria have far match proved to have a different view of what is considered on the side of the customers. Ideal position, price, age, and reliability has a direct impact on the expectations of the four companies. The economic importance of ideal position has outplayed all other factors across the companies. Products offered, therefore, depended majorly on the strategic position with respect to the customers. It has a 35% importance for the round 1 of the analysis. The price of the products has a great influence over 27% of total expectations. Nonetheless, the expectations do no actually translate to the final return due to uncertainties during forecasting. Based on the above market shares graphs, the company did consistently improve and maintain at least 25% of market shares in every product segment as compared to the competitors. Market shares are based on the company total sales earned over a specified period of time. This indicates that our product is more stable hence potential investors would be more confident in investing. The decisions made provided a basis where agape products dominating the market leveling with beetle at 20%. At this degree, there are stock-outs at a given period as more is demanded over the period. Abby products finished last in the category an indication that decision on them need to be reviewed. From the stated above results, it is clear that in round 1 all the market analyses satisfied the total demand. There is a total translation of the actual market share units with a 100% turnout. The perpetual market share analysis shows that there is a great interrelationship on the products offered by the four companies. However there no direct link to this relationship to the performance. On the account of the human resource, decisions made come in with a compliment on the labor supply. From the information, cases of production exceeding the capacity. The workers have not been subjected to overtime thus work stress in minimized to zero. Market shares in the above report do not indicate a good result but Andrews try to improve and maintain at least 25% of market shares in every product segment. By applying Broad Differentiator strategy we are able to match customer preferences and gain their loyalty which will able to increase the market share, meanwhile, the company will also increase the promotion budget in order to let more people know about this company. Traditional, Low End and High-End Segments did well by obtaining more actual shares compared to potential market shares. Each round, we lower at least $0.50 from the maximum price in all the segments to keep up with customer expectation. We also constantly check from Capstone Courier Report to monitor our competitors. If competitors are cutting prices we also lower down our prices to compete with them. Hence, with this strategy, we manage to obtain higher shares in Traditional, Lower End and High-End Segments as shown. Appendix As shown on the graph above, profit has been a decline after year 1 but from year 2 onward profit has been increasing steadily. Appendix 1 Income Statement ( In Thousand) Year 1 Year 2 Year 3 Year 4 Sales $162,001 $201,665 $210,543 $230,830 VARIABLE COSTS Direct Labor $48,443 $56,229 $52,844 $48,067 Direct Material $62,177 $74,431 $81,400 $93,014 Inventory Carry $3,924 $5,055 $1,271 $1,147 Total Variable $114,545 $135,715 $135,515 $142,227 Contribution Margin $47,456 $65,949 $75,028 $88,603 PERIOD COSTS Depreciation $8,841 $11,073 $13,365 $16,085 SG&A: R&D $2,891 $2,232 $1,904 $3,003 Promotion $6,150 $7,000 $7,100 $5,600 Sales $6,200 $6,800 $8,700 $11,400 Admin $2,422 $2,701 $3,217 $2,468 Total Period Costs $2,422 $29,806 $34,285 $38,555 Net Margin $26,503 $36,143 $40,743 $50,048 Net Profit -$148 $6,912 $12,780 $25,544 Appendix 2 Appendix 3 [Pricing] Apple Agape Abby Alan Year 1 $29.75 $38.95 $40.95 $18.95 Year 2 $29.50 $38.90 $40.90 $18.85 Year 3 $26.50 $37.90 $39.90 $16.85 Year 4 $24.50 $33.99 $35.99 $16.55 Read More