The Changing Strategic Environment and Company Performance at Andrews Company Ltd - Case Study Example

Name of the Student Name of the Institution Date of Admission ANDREWS GROUP OF COMPANIES Overview: Andrews Company Ltd is a manufacturing company dealing with production of sensors which are in high demand since they are used by a number of organizations in their electrical appliances. Andrews Company Ltd was formed as a result of the Government’s move to split a previously existing company known as Sensor Inc. which used to manufacture the sensors. Sensors Inc. was the only company at the time manufacturing those products hence used to enjoy monopoly in the market. The company used to take advantage of the increasing demand of sensors and thus charge prices at the same time producing low quality sensors so as to satisfy the large market base (Dickinson & Dickinson 2012). After formation of Andrews Company Ltd, the company started off with sales total amounting to $100m, the demand for the sensors was relatively high with different market segments; There was increased number of customers who demanded sensors that have reasonable sizes compared to the ones they had procured from Sensor Inc. In addition there were those low end customers who demanded the price of these products to be reduced a little bit regardless of the size of the sensors or their level of performance. These customers also wished to have these sensors even if the gadgets are as old as seven years (Curtin, Finn & Cawley 2011). According to Hornyak & Snyder (2014), the market had also those customers, who were relatively traditional, that is, they demanded sensors that are at least medium in size even if it would force them to part with some little amount. In comparison to the low end customers, they wanted sensors that would at least function for sometimes. However, they wanted sensors that are not very old at most two years was There were those customers who were regarded as high end customers; they preferred very high quality sensors that are reliable in terms of performance and at the same time very small in size. These categories of customers’ preferred the latest and new products in the market regardless of the price they were to pay (Hornyak & Snyder 2014). There was also group of customers who demanded relatively high quality sensors in terms of performance and small in size as well. These customers preferred gadgets that are still new, at least one year old and with prices being at least moderate (Hornyak & Snyder 2014). Critical analysis of the changing environment The industry has grown and this has contributed to our competitors coming up with much more advanced techniques to remain in the forefront. Some of competitors include: Digby They have created good customer relationship, that is, they even sell them sensors in creditors thus attracting more customers (Hornyak & Snyder 2014). They have a superb distribution chain channels that ensures products reach customers on time. Chester They tend to have highly trained sales and marketing team that has been the major contributor towards their high sales volume witnessed every other year. They are also specialized in production of small sized and highly efficient sensors, therefore attracting majority of the high end customers who prefer small size gadgets(Hornyak & Snyder 2014). Baldwin They tend to pay their shareholders attractive dividend rates hence many investors prefer investing with them, as result they usually have large amount of capital at their disposal to enable expand thus having a competitive edge over us (Hornyak & Snyder 2014). They give priority to customer satisfaction through ensuring that their clients receive the best services from them hence being the preferred choice of a number of customers. Erie They have so many outlets thus giving them an easy way to reach customers all over. They tend to offer attractive discount rates to their customers, this has been one of the reasons their customers become loyal to them. Therefore, in assessing how to balance our power in the business environment, we tried as a company to come up with strategies that will ensure we remain competitive in the market. In order to outline appropriate business strategies, will consider Porter’s five forces model and generic strategy model. Porter’s Five Forces Model As stated by Kulkarni & Sivaraman (2013), according to Michael Porter, there are five forces that influences competitive in the business environment thus the changes that we witness in the business environment, for instance when we began the production of sensors, the sales volume was quite attractive, but with time our products have become old thus leading to reduction in terms of output. These forces include; Power of suppliers According to Porter, the suppliers may influence the prices of sensors in the sense that, they may decide to reduce their supply of raw materials thus leading to scarcity of the materials in the process, we may decide to go for an alternative which to some extent could be expensive thus forcing us to increase the price of sensors as well (Kulkarni & Sivaraman 2013). As company we are trying to establish good relationship with our suppliers to ensure we have constant supply of the materials we need. Threat of new entrants into the industry It is stated that possibility of new competitors into the market may weaken our position in the supply of sensors (Kulkarni & Sivaraman 2013). As company we have put in place strong mechanisms to ensure all our departments work towards realization of the company’s mission. Competition in the Industry As mentioned earlier regarding the competition situation in the market, we are trying to strengthen our competitive advantage through investing in research and development so as to have a proper understanding of our customers’ expectations and produce the sensors as per their requirements We are also outsourcing some services such as staff trainings among others to cut on costs Power of customers There are high chances of customers leading to reduction in sensor prices depending on the how well we service their needs (Kulkarni & Sivaraman 2013). Therefore, as a company we try to produce sensors based on our customer’s specifications and affordabity. Threat of Substitute Products According to Kulkarni & Sivaraman (2013), the availability of an alternative option for customers may hinder the market of sensors thus affecting our business at a great deal. As a company we try to understand our customers and respond to their requests as much as possible. At the same time, we normally do a little bit of research on how we can diversify our business so as to increase our customer base. Figure 1: Diagram of the Porter’s Five Forces Model On the other hand according to Nugent (2014), Porter’s generic strategy states gaining competitive edge over your rivals involves considering the following strategies; The cost leadership strategy As state by Chasteen (2014), this involves reducing costs will maximizing on your profits through charging the average prices in the market, for instance, our company is considering outsourcing some services so as to cut on costs and in the end charge average prices which will eventually attract customers The differentiation strategy This involve having the ability to deliver quality products compared to your competitors, our company is doing an extensive research to ensure we become the leaders in terms of producing sensors of high quality (Chasteen 2014). The focus strategy This involves understanding needs of customers in a particular market segment, for instance our company has a clear expectations of our high end customers all the way to low end customers and thus produce sensors based on their needs (Chasteen 2014). Figure 2: Diagram of the Porter’s generic strategy model Review of the Company Performance According to Chasteen (2014), although the company’s performance has been on an upward trend, the market analysts have predicted decline in performance as from this year owing to the fact that the company’s products are becoming old and marketing techniques being rendered inefficient. The table below shows the projections of our income statement in the next few years if we maintain our current way of doing business. Andrews Company Ltd Income Statement   2015 2016 2017 2018 2019 2020 2021   $ $ $ $ $ $ $ Sales 101,073 105,831 113,954 117,807 117,705 96,379 62,610                 Variable costs:               Direct labor 28,932 32,949 31,230 33,647 33,647 29,002 16,903 Direct Materials 42,546 42,197 44,180 45,472 43,654 35,466 23,047 Inventory Carry 1,034 2,655 1,395 2,053 1,368 4,014 1,193 Total Variable 72,512 77,801 76,805 81,172 78,669 68,482 41,143                 Contribution margin 28,561 28,030 37,149 36,635 39,036 27,897 21,467                 Period costs:               Depreciation 7,587 9,040 9,827 10,347 10,813 11,360 9,840 SG & A :R & D - 3,687 1,601 1,997 3,282 3,922 4,799 Promotions 4,100 7,400 7,200 7,200 7,700 7,400 6,400 Sales 4,100 6,200 7,200 8,300 8,800 8,300 6,700 Admin 778 913 2,028 985 1,467 828 2,216 Total Period 16,565 27,240 27,856 28,829 32,062 31,810 29,955 Net margin 11,996.00 790.00 9,293.00 7,806.00 6,974.00 (3,913.00) (8,488.00) As indicated above, this financial year of 2015 will yield a net margin of $11,996, the subsequent year of 2016 will decline even further to $790, will the following year of 2017 will increase a little bit to $9,293. The year 2018 will decline again as the company is anticipated to report a net margin of $7,806 followed by further decline to $6,974 in the year 2019, the year 2020 will in fact report a loss of $3,913 and the year 2021 will report even a higher loss of $8,488. Therefore, as management we have to invest research and development to have a clear knowledge of the market scenario so as to enhance production based on the market expectations (Chasteen 2014). Recommendations As the management of Andrews Company Ltd, we would wish to improve the performance of each and every department in the following ways:- Marketing Employ services of professional and experienced sales and marketing personnel; this group will carry out an extensive sales promotion to ensure our sales volume increases as the market grows since they have an adequate knowledge of the market situation (Backhaus & Heiner 2014). Production The company should acquire new plants and machineries to help in production of new sensor gadgets since the machineries in existent have been worn out and thus ineffective in terms of meeting the company targets (Backhaus & Heiner 2014). BIBLIOGRAPHY Backhaus, K., & Heiner, K. 2014. The Effects of Group-Level and Individual Contributions on Business Simulation Team Performance. Organization Management Journal, 11(3), 172-179. Brooks, W., Burson, E., & Cox, S. 2012. Increasing Complexity in Marketing Simulations: Critically Examining the Trends (No. 2012-02). Chasteen, L. 2014. Simulations for Strategy Courses: Comparing Online and on-Campus Courses. Developments in Business Simulation and Experiential Learning, 41. Curtin, B., Finn, A., Czosnowski A., Whitman, B., & Cawley J. 2011. Computer-based simulation training to improve learning outcomes in mannequin-based simulation exercises. American journal of pharmaceutical education, 75(6). Dickinson, J., & Dickinson, C. 2012. The effect of introducing coaching from an experienced business professional on performance in a computer simulation classroom exercise. Journal of Instructional Pedagogies, 8(2), 6. Hornyak, J., Peach, B., & Snyder, J. 2014. Assessment and simulations: Measuring the academic learning compacts within. Developments in Business Simulation and Experiential Learning, 34. Kilburn, R., & Kilburn, J. 2012. The team vs. the individual: Login activity as a predictor of web-based simulation team success. Academy of Educational Leadership Journal, 16(3), 15. Kulkarni, B., & Sivaraman, V. 2013. Using Business Simulations to Introduce Business Concepts. In ABSEL Conference Proceedings, Oklahama City, USA. Naraharisetty, P., & Vanka, S. 2012, July. Effectiveness of Computer Based Management Simulations--A Case Study. In Technology for Education (T4E), 2012 IEEE Fourth International Conference on (pp. 31-37). IEEE. Nugent, M. 2014. Business Simulation Team Performance after Completing an Individual Practice Module. Developments in Business Simulation and Experiential Learning, 41. Read More