Amazing Cars' Business Position and Strategy - Case Study Example

Student Name: Tutor: Title: Business Game Report Course: 1) Starting business position and initial strategy Amazing Cars started strongly in the market as a market leader with sales of about $20.5 billion which was the industry’s best. The vehicles that the company manufactures include Alec, Alfa and Awesome. The company targeted various vehicle classes that included the economy class, family class, and unity class. The economy vehicles tend to be small in size, low priced and having a less powerful engine. The economy class vehicles target the low end market with middle income earners. The family vehicles are often mid-sized, have medium prices and have mid-range possess a variety of engines. I was impressed with Amazing Car Company productiveness in the industry 06. At the beginning of the period, Amazing cars started strongly as the most profitable company with a net income of $1780 million which was above any other company in the same industry at this time. The stock price was the second best in the industry after Cool Cars Company (C). Amazing Cars Company (A) had the second best market value of $21,487 million after Efficient Motors Company (E) that registered market value of $21,547 million. At the start of period 1, the cumulative net income of Amazing Cars was also good and above all the rest of companies in the industry. The company has the highest market share of 23.7% while the industry’s lowest market holder was Best Motor works (B) with 14.9%.The vehicles were ranked on capabilities consisting of interior, styling, safety and quality. The company chose to serve value seekers market segment by supplying economy class vehicle using Alec model and families’ segment market using family and economy category of vehicles. The company further supplies vehicles to the enterprisers segment of the market using utility category of vehicle using its Awesome model. The utility category was represented by Alfa model and economy category was represented by Alec. The company served three major market segments that included families, value seekers, and enterprisers. However, there was chance to diversify into other market through investing in the performance of the vehicles in terms of styling, interior, safety, quality, and size. New opportunities happened in the AEV category where no company had ventured into. Cost of production coupled with increased costs of marketing the new product were the major threats into venturing in such a market. Customers’ tastes and preferences evolve and there is need to ensure research and development comes up with vehicles that will satisfy the needs of the customers (Roth, 2014). The expectations of the customers’ in terms of size, quality; engine size, styling and interior have to be met. The company started strongly in terms of sales from the previous periods. The company has an opportunity to invest in the luxury and sports categories of vehicles. 2) Performance objectives of the firm and actual performance The objectives of the management of the firms were to ensure long-term productiveness and profitability while being realistic to the changing and competitive environment. Customers’ tastes and needs keep on evolving. There is increased competition from other players in the market as companies jostle to introduce new products. The company was to stick to its traditional markets as it looked for ways of diversifying into other market segments in the industry. The actual performance of the vehicle was disappointing after period 2 following major strategic decisions that I made. The company’s stock prize deteriorated from 50.56 to about 1 dollar after the 10 decisions in successive periods were made. It was a very retrogressive move that saw the company fortunes dwindle from all directions. The market value of the company fell affecting drastically the stock prices. Investors had to shun the company for other productive companies. Further investment in technologies did not change the fortunes of the company and a general lull in the industry’s economy in period 4 and 5 was doom for the company. The profitability of the company reduced progressively to a point of making massive losses. By the end of the 10 decisions the company was reporting huge losses that could no longer convince investors to invest more in the company. Financing decisions were hampered and the company had a few option for financing (Landström & Springer, 2005). Strategic alliances were out of questions since they could prompt a takeover or an acquisition that would send the company into oblivion. The net income only increased in the period 2 but decreased in the subsequent period to reach its lowest in period 11. Likewise the cumulative net income also assumed the same trend as the net income. The information in the appendices shows the actual performance of the company in every period. 3) Key strategic decision that led to demise The stock price of the company only improved in the second period from 50.56 to 52.29 since no decisions had been made in the first period. The financial projections of the company in period 1 looked up and the company was poised to remain a market leader in the industry particularly in the family and economy classes of vehicles. The subsequent periods from period 3 up to period 11 so the stock price of the company plummeted from the industry’s highest to the industry’s lowest. The stock price particularly in period 8 dropped from 7.48 dollars to about 1.00 dollar in the subsequent periods. I did not make any changes in period 2 and the company rode of the previous momentum since the period 1. There were noticeable changes in Alec, Alfa, and Awesome decisions. There was expenditure in technology expenditure and product development. I only allocated a higher budget to consumer marketing to increase product awareness. The inventory forecast for Alec in period 2 was 581,000, Alfa 315,000, and Awesome 310,000. There were no retooling costs projected. Production projection was 540,000; 292,000; and 311,000 for Alec, Alfa and Awesome. The strategic decisions to increase production cost the company more leading to loss of market share and a significant drop in the profitability of the company. Increasing technology capabilities by 1 million dollars did not go down well with the prevailing trend in the market. In the subsequent periods, the strategies were unable to yield the forecast profitability and in fact it began making huge losses. There was no further expenditure in technology capabilities in terms of interior, styling, safety, and quality. Perhaps the customers were looking for enhancement of performance capabilities of the vehicle particular if I had to breakthrough into sports category through increase expenditure in styling. The stock price increased from $50.56 to $52.29. The net income increased from $1780 Million to $2315 Million. This meant that the cumulative net income also increased with the same margin from $1780 Million to 4,096 Million dollars. The market value also rose from 21,487 million dollars to 22,224 million dollars. However, the market share dropped from 23.7% to 22.2%. Generally the second period worked well for my chosen company and the results were impressive despite the dwindling market share of the company which was worrying. The drop in the market share had a great impact on the profitability of the firm in the next period. The market value of the company improved also in period 2 and subsequently declined from the industry’s second best of $21,487 million to the industry second lowest of $535 million. Company D and C market value continued to improve throughout the covered periods. The decisions made after period 2 were not supportive of the long term objective of the firm and led to its failure generally in all sectors. The same pattern was replicated in the market share performance. While the market share for B and D improved increased substantially to the industry’s second best and best respectively, the market share of Company decreased substantially from the industry’s best of 23.7% to the a dismal 3.8%. Company B and D ate into the existing market of A, C, and E. While the market share of B and D increased, the rest decreased with in a worrying trend. Operating activities in the cash flow did not yield enough money to cover the investing and financing expenses. Instead the financing expenses escalated while the company sank deep into borrowing in an effort to salvage its place as a market leader at the beginning of period 1. At the end of period 11, companies A, C, and E posted negative figures in terms of cumulative income while company B and D improved tremendously to claim the industry’s best performance. The net income of the company increased in period 2 from 1780 million dollars to 2315 million dollars. However, it reduced drastically to almost half in period 3. The subsequent period saw the net income of company A decrease to the worst position in the industry reporting a loss of 2911 million dollars. The net income of company B and D increased safe for period four and five when there was a major decline in the industry. The period 4 and 5 showed a general recession and decrease in the purchasing power of customers of all vehicles manufactured by companies in industry 6. The company was unable to breakthough to other markets and its current market was invaded by the increasing popularity of B and D who specialised in Beaut, Boffo, Buzzy, Defy, Delite and Detonka. Company D market share in the economy class of vehicles increased significantly eating into the existing market share of our company. the company also lost a substantial market share in the family class. Seemingly I was unable to read into the changing customers’ needs and preferences and increased consumption of the sports and luxuary vehucle. In period 4 and 5, there was a general lull in the industry that signified a recession and reducing in the purchasing power of customers (Wild, 2008). Period 6 and the preceding periods saw the fortunes of our company through from bad to worse following mistakes in the stategic decisions that I made. Failure to learn from the decisions made in the previous periods set the company on a failing mood. There was high competition in the family class of vehicles and the decisions to increase financing in this area was misleading and erroneous. The utility class was promising but lack of control of the company in the market undermined its capcity to increase profitability. The high price of Alec in the economy class forced customers to look for alternatives in other vehicles with the same performance. Increase of manufacuring costs of economy class vehicle proved to be detrimental to the company and compensation through slight price increase to cover for additional expenses was disastrous. Vehicle pricing that was made without careful attention to all details led to customers to seek alternative modes of transport and luxury from other companies that seemed to be affordable. The distribution costs were covered by the company and highly flactuated indicating the instability in the market. The decisions to invest in new product development in period 4 and 5 caused a lot of distress to the company reducing its chances to grow. It was risky and taken when the industry was experincing a recession. The exercise was expensive and time consuming while the industry experinced slow growth. Research and development expenditure was huge and the company suffered from the slow growth in the market. Profitability reduced and money was diverted into new product development (Deakins & Freel, 2009). The stock price of the company took a beating from the rest the of the industry as investors shunned the company’s stocks. Expenditure on product advertising proved to be futile as consumers reduced their expenditure of vehicles due to the slow growth of the economy and increased competition from other industry’s players. My timing of product development and investing in technology was not perfect and did not result in the positive growth of the company. the company run into debt owing to the decisions to borrow more in order to invest in product development and technology improvement. Increase production of the Alec types of vehicles was costly for the company in a period that experinced slow growth in the economy across the entire industry. Generally the financing and investing decisions were not made at the right time hence they never changed the performance of the company. 4) The positioning of the company for the future The final position of the company is not impressive at all. The stock prices have fallen to about 1 dollar and huge losses have been incurred. There is nothing positive about the performance of the firm. However, I have to think about revising the fortunes of the company in a positive way. The company has to diversify into luxury and sports vehicle categories in order to tap into the high end market with high income earners. The company will reduce its investment into the economy class and diversify into other categories of vehicles. The small engines of economy vehicles seemed to be shunned by customers as they sought vehicles with high performance. The company will consider entering into the Sports category to challenge the dominance of firm B. There should be more investment in product development and technology capabilities. Strategic partnerships and alliances will be needed in order to break into other market segments that are currently dominated by other firms. It will be a toll order to obtain further financing for the company but a lot of effort has to be dedicated to this goal in order to realize the long term objective of the firm of profitability and being a market leader in the major segments. The company has to consider entering into the truck market since customers have increase of use of vehicles in this category. 5) Lessons learned from the simulation experience I have learnt a lot in the simulation experience about investment decisions and the impact of the firm’s performance on investors’ perception. Investment decisions have to be made with precisions and should bear both short-term and long-term objectives and goals. Where the stakes are too high it is important to wait before making critical decisions. The industry trends determine a lot what goes on in the company. The company cannot operate independently and ignore all that is happening in the industry. Failure to listen to customers’ grievances and not meeting changing expectations of customers can drive a company into oblivion (Bodie, Kane & Marcus, 2004). Trends in the industry cannot be ignored at all costs. Future plans have to be done while looking at what is happening currently in the industry. I realized investing in technology does not automatically increase profitability. Enormous investment that I made in technology did not necessarily mean high profitability for the company. In fact other expenses such as depreciation and interest paid came up to haunt the performance of the company in the subsequent periods. It is important to deeply consider the consequences of investing decisions before they are actually implemented in the firm. Moreover, copying what other firms are doing is not in a certain period can be very dangerous for the growth of the company. Investing decisions are better made in a stable industry that can be predictable. Huge losses are incurred when projections of further investment are not well documented. I have learnt that a company has to learn from its competitors and adapt accordingly. Investors want to put their money where return is guaranteed. The performance of the company hugely determines its financing decisions. New product development has to be done after duly consideration of all factors in the market (Watanabe, 2007). I have come closer to seeing the reality of theories learnt in class and applying them in hypothetical situations. This will help be in becoming a better manager in real life and making investment and financial decisions that have a positive impact to the organization. I have realized the impact of market value of the firm to its stock price and the effect it has on potential investors’ choices. I failed to steer the company to prosperity but I have learnt big lessons that will make me a better manager in future. I lost truck along the way and this being my first simulation game I have a lot to grasp before I engage further into more games. I look forward to performing better in subsequent simulation games and making investment and financing decisions that are profitable to the company. References Bodie, Z., Kane, A. & Marcus, A.J. 2004, Essentials of Investments, 5th ed. McGraw-Hill Irwin. p. 455. Deakins, D. & Freel, M. S. 2009, Entrepreneurial activity, the economy and the importance of small firms, Entrepreneurship and small firms, McGraw-Hill Education, London. Landström, H. & Springer L. 2005, Pioneers in entrepreneurship and small business research, Springer Science & Business Media, New York, N.Y. Roth, S. 2014, Booties, bounties, business models: a map to the next red oceans, International Journal of Entrepreneurship and Small Business, Vol. 22 (4): 439-448 Watanabe, I. 2007, The evolution of Income Accounting in Eighteenth and Nineteenth Century Britain, Osaka University of Economics, Vol.57 (5): 27-3 Wild, J.P. 2008, Fundamental Accounting Principles (18th edition ed.). New York: McGraw-Hill Companies. Appendices Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Read More