Strategic Evolution of Chester Company - Example

Capstone Simulation Report s Introduction This is a report based on the simulation experience with a critical analysis of the strategic evolution of Chester’s performance. At the outset of incorporation, the management of Chester decided to concentrate on a strategy of being a cost leader with product life-cycle focus. This report is going to focus on how this strategy kept production and material costs low and competed with other companies in the industry on the basis of cost. There will be introduction of new products into high tech market every other round and allow them to move through the perceptual map into the low tech market before becoming obsolete. The report will thereafter measure the company’s performance in terms of stock price, Return on Equity, and Return on Sales. Competitive Environment and Industry Evolution Electronic sensors are widely used in industries and applications. In addition, they are constantly needed to be modified so as to meet the demands of customers (Capstone 2013). Customers prefer smaller sensors with higher performance, especially in the high market. In the low tech market larger slower sensors are highly preferred by the customers. A sensor is able to detect change like atmospheric pressure and change voltage while transmitting the information to another device like a thermometer (Biggs 1990). Chester company decided to enter this market and with the use of specialised software, the company made critical decisions about marketing, production, finance and, Human Resource among others. In the earlier rounds, Chester just like the rest of the companies in the electronic sensor industry was on an even keel (Capstone 2013). The company produced one sensor that sold in both high and low tech markets. After some time, the company began to differentiate its sensors in the areas of price, reliability, age and positioning which incorporates performance and size (Capstone 2013). The company could have applied the SWOT framework which is Strength, Weaknesses Opportunities and Threats to be able to know when their competitors are about to overtake them and the best step to take at that particular moment (Chan Kim & Mauborgne 2004). This involves the company specifying its business objective venture and identifying the internal and external factors that are favorable and unfavorable to achieve the specified objectives. This will create allowance of achievable goals or objectives to be set for the company. Strengths are characteristics of the business that will give the company an advantage over its competitors. Weaknesses are characteristics that place the company at a disadvantage relative to its competitors like running out of stock for Chester Company. Opportunities are elements that the company can exploit to its advantage. For instance, the company can decide to produce three new products in every round. Finally, Threats are elements in the environment that can cause trouble for the company. For instance, Chester could have stuck to its first strategy of being a cost leader with product lifecycle focus for it to beat its competitors in the market. The company’s customers within the low tech market portrayed specific buying criteria which showed off their interest in the type of sensors purchased. Most customers were interested on price then age, reliability and positioning respectively (Capstone 2013). This could have been the best moment for the company to apply the winning formula which is long time profit rate = attractiveness of industry structure + or – competitive advantage or disadvantage (Christensen & Raynor 2003). Unfortunately Chester did not do this. Instead, the company continued competing against six other companies over 6 rounds and during this period, the low tech market created more demand for products as compared to the high tech market (Crutzen & Van Caillie 2008). Low tech market started with a demand of 70% leaving high tech with 30% of the market. After the six rounds, low tech customers in Chester Company still demanded a greater portion of the production. They had 56% of the market leaving high tech with 44% of the market. This analysis shows a reduction in the market for the low tech and increase for the high tech. both markets had different growth rates (Ofek & Avery 2014). The percentage for low tech was 10% and the percentage for high tech was 20%. The growth rates were in correspondence with the demand for units produced in the company. The end of this round invited the simulation. Chester Company had just one product just like the rest of the competitors. Every product had 17% of the market in both the low and high tech markets. In addition, they had a stock price to build on of $11.15 per share, a return of sales (ROS) of 6.1 % and a return of equity (ROE) of 19.3% (Capstone 2013). From the start, Chester had a promotional and sales budget of $1,000 every year. The budget funded the marketing department of the company to advertise its products. According to the company’s management, advertising was important as it informed their customers about its products and services (Faria & Dickinson 1994). The company did not like leaving anything to chance which will make its customers stumble across its products. Round One In round one, things were interesting. The company management decided to avail the company’s products in both markets. Because the company had only one product which is Able which it had inherited from its predecessor, it invented another product which is Ace (Capstone 2013). Able was slightly repositioned to pave way for the positioning of Ace to attract customers from both markets. The company increased its sales and promotional budgets to get its name in the front of customers (Williams 2013,). Fortunately, the product was well received by the customers; everything was bought till the company was stocked out. The company sold just Able because Ace had not come out f the R&D. The product generated interest in both market segments just as the company had hoped and most of the interest and sales came out from the low tech market (Capstone 2013). During this round, sensors succeeded in the raising stock price for the company’s investors but lost ground in ROS as well as ROE. The company was however aware that it needed to raise its performance by every criteria the following round (Lainema 2009). The low ROS and ROE meant the company could have stood alone by squeezing better performance through restructuring and application of expertise to ensure there is a rise in its ROS and ROE. Round Two In round two, things got much better. Chester’s stock price, ROE and ROS were all moving well. Although the company’s stock price and ROS were not at best in the market, its ROE was better because it was making some profits off the money invested by its shareholders (Naylor 1971). The company had the best sales when compared to its competitors with downfall being that it stocked out again. The company started inventing strategies of producing enough products that could sustain enough sales in every market without stocking out (Senge &Lannon 1997). This shortage made the company loose most of its critical sales to their competitors. The running out of stock indicates informative decisions which are not time bounding, infinitive and unrealistic (Wolfe & Crookall 1998). The company could have made decisions that are bound by cognitive limitations, well timed and with finite amount of information. This could have solved the problem of running of stock. Round Three Chester’s ROS, ROE, sales and stock price remained better that those of its competitors. However, the company did not make enough money to start off round four (Larsen & Lomi 1999). The company’s inventory did not stock out this time round, hence it was able to hang on the little inventory without losing the critical sales to its competitors. There was also need for the company to invent another new product because Able and Ace were aging. Allani was the new product invented to appeal to both high and low tech markets (What really sank the Titanic? 2008). The new product was to be availed in the market in the fourth round. The company maintained its accessibility and awareness within the low and high etch markets in this round. Round Four By now, Chester had saved enough or was able to retain some cash hence did not require to get a loan. The numbers continued to be strong in its increasing stock price (Ewers 2008). The company learnt from its previous mistakes and decided to increase the MTBF on Able and Ace to see if it could generate more interest in the two products. Allani had not yet come out of R&D hence t was left alone. Able and Ace’s products were reduced to generate interest (Johnson, Whittington & Scholes 2013). The company’s two products did stock out and even Allani did sell out all that was produced. The company considered this ok since the production was low. Round Five The company invented the new product Adam the product was positioned to attract the low and high tech market segments. The older products like Able, Ace and Allani were aging though still appealing. Allani was the company’s only product appealing the high tech market by now (Bartholomeusz & Gottliebsen 2013). The company thought the introduction of Adam the following round would change the trend. Chester’s accessibility and customer awareness in both the low and high tech markets was relatively good. Round Six In this final round, Chester’s stock price continued doing well though it decreased slightly and moved up afterwards. The company ended round five with a stock price of $36.89 and round six ended with a stock price of $40.39 (Capstone 2013). When a comparison is done with the company’s competitors only one company had a stock price that was slightly higher than that of Chester. The company’s accessibility and awareness within its segments was good in all the six rounds. The company’s spending on promotional and sales budgets ensured that the company’s customers are aware of its products and gained easy accessibility to them. Size and performance modification as well as lowering the prices were some of the measures taken by the company to ensure the product were appealing to customers. The low market commanded the company’s products by 82% while the high market segment commanded the products by 18% (Chan Kim & Mauborgne 2004). Generally, the company lost ground in market share when compared to when the simulation started. Critical Analysis of Company Performance Although Chester Company did relatively good, it failed in various segments where its competitors took over. For instance, the company’s original strategy was to be a cost leader with product lifecycle focus. The company deviated on the way from the strategy by not keeping the sales prices (Horn & Cleaves1980). Although the company tried to keep its R&D, labour and material cost to a minimum, it still wanted the sales. This led to price increment to the customers. This is a mistake because strategies once agreed upon should never be changed and this was one of the ways the company had to pay for it. In addition, the company moved its strategy more toward differentiation ad insisted to compete on the basis of stock price, ROS and ROE (Barry 2010). According to differentiation strategy of the company, it wanted awareness, accessibility and good designs. In addition, the company wanted to have products in both segments of the market as well as cerate new products as the rest aged and moved through the perceptual map. The company failed to keep with the original strategy of creating a new product every round and just created new products in the first, third and fifth rounds. Recommendations for Future Strategy Chester Company should avoid the conservativeness of the decisions which can be useful in the implementation of appropriate strategies. This area needs to be worked on for the sake of future performance of the company (Lainema 2003). Another useful tactic for the success of the company is to watch its competitors ore closely every round or year to ascertain their strengths and weaknesses. This is one of the major areas where Chester Company was weak. The company did not watch its competitors close enough. The company was flourishing during the last rounds of simulation by getting more sales because the company management failed to analyse its strategies (Kolb 1984). There is a lot to learn from the last six rounds including the mistakes meant. The company can build on things done right and avoid the mistakes made for future strategies. The company can also consider the application of five factor model. This will mean the company get curious about its inner and outer world, to be always determined in accomplishing its objectives, develop a positive energetic approach to the real world, be compassionate and effective to its customers, and ensure its workers are always emotionally stable. The proper application of this model will always keep the company at top. The model ensures an industrious and orderly company where competitors will never penetrate to know the secret to the success of the company. The company leadership needs to be improved to have leaders who place the question ‘why’ at the centre. Such a leader will answer questions like why is the company not doing well like its competitors? Why is the company running out of the stock and paving way for the competitors to take away its sales and why is the company’s product not doing well in the market among others. The why question will lead to what question. For instance what can be done to improve the situation? The third question will be ‘how’, for instance how will the improvement be implanted and finally the want issue will come in. the leader will want to implement change to improve the situation. Conclusion Chester Company should direct their commitment to the production of good quality sensors which can be marketed in both the low tech and high tech markets. This will consequently improve the company’s performance in the future as long as it persists on monitoring both markets and position their sensors to the specifications preferred by customers. This is the secret to most successful businesses. References Barry, P 2010, ‘The cult of green’, The Monthly, No. 60, viewed 30 May 2014, Bartholomeusz, S & Gottliebsen, R 2013, ‘KGB interrogation: Phil Green’, Business Spectator, 22 February, viewed 30 May 2014, . Biggs, WD 1990, Introduction to Computerized Business Management Simulations: in Gentry Guide to Business Gaming and Experiential Learning, Nichols/GP, London. 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