Strategic Assessment of Simulation

First of all, I would like to congratulate the prof. for moving ever so rapidly from assignment #4 to assignment #8, I am sure it's a relief for him as much as it is a relief for us. I had never run anything in my life but my own life, so running a company with a few millions of dollars in revenue was quite an excitement for me. Our major goal of the simulation was to get an A, the path in which we thrived to achieve that goal is somewhat bumpy. We didn't really start with an effective mission statement, we wanted to feel the industry at first, set the price, figure out how much are we going to sell and what is the size of compensation to our sales people, and maybe even more importantly, feel the competition, I would define us at the beginning (I may be wrong because it was a long time ago, and my group might disagree with me) as "counter punchers", we wanted to react to the market developments and not necessarily set the trend. We did, however, had the R&D bug, which means we invested in research from day 1, a gamble, but as I will elaborate soon, a good one. The shareholders are an interesting aspect, we did not directly take them into account, we had given out very small dividends on the first year because we wanted our stock price to increase, we had also figure out quite early that one of the main points is to decrease expenses and maximize revenue, I am aware of the fact that all businesses aspire for this, but we focused on ROI, as compensation for shareholders and, again, to increase the stock price. The bottom line is that I didn't feel as if they had made claims but every public company need to satisfy the shareholders in order to have a reason for existence, that is the whole reason of IPO, to raise money in return for a stake of the company, the trade off is quite clear, that is the whole essence of the stock market.

Porter's 5 forces; the supplier power was enormous, they set the price and we have to pay, no choice whatsoever, very low attractiveness; I can only assume that the threats of substitutes is also very high, you can practically choose between 7 companies, all producing the same thing, why would you choose one or the other? There are no switching costs, it seems as if there is not much differentiation, very low attractiveness; the buyer power, ironically, is limited, they have to choose between 7 sellers, who divide among them 100% of the market, high attractiveness here; I can only asses that the barriers to entry are not simple, the initial capital investment seems high, you will need to set up a production site, purchase raw materials, and most importantly, advertise and market the product, which does not come at a low cost, like in every business, the brand image and the economies of scale is also a difficult thing to achieve and a lot of time and patience is needed, I must add that I honestly believer that the entry barriers is high in any business because I am not the innovative creative type, and to me it always seem unobtainable, I think that the attractiveness here is low as well; last but not least, the rivalry among competitors, I must say that probably because of my lack of experience, this is the most fierce competition I had ever seen, a 7 company oligopoly that control the entire market, fighting over bits and pieces like a group of piranhas, neck to neck throughout the race in terms of the graded variables, very competitive in terms of price, marketing, sales people, income, stock price, cost factor and the rest of the variables, but once again, it is an oligopoly, and all 7 companies do sell, so I must conclude medium attractiveness.

The bottom line is that the attractiveness of the industry as it is presented in the simulation is medium, because again, and I am sorry to be repeating my self, although the competition is fierce, all 7 players always sold something, and remained afloat.

The overall simulation index which we relied on if I remember correctly kept going up throughout the simulation, which had a very positive affect on our market demand forecast, we tried to maintain a fixed, limited production while hoping to sell all the products we produce, I believe that here we were very successful, not spending money where we shouldn't have, and as I mentioned before hand, keeping our expanses to a minimum. Another thing that supported this strategy is that fact that raw materials were always getting more expansive (naturally) so we attempted to purchase as much as we could in advance, again, to not spend money foolishly.

Luck is a required and not acquired, and luckily, we had some, after spending and throwing money into the bottomless pit called R&D we had never dreamed (well, Josh did) to have accomplished a breakthrough, but we did, and as soon as we understood that we need to strike when the iron is hot, we increased our price to $60 and capitalized immediately on the following quarters. One of our most important decision was not to spend on capacity and sub-contracting, which means that we only produced shifts 1+2 and overtime, and our objective was simply to sell the units we produced, we were mostly successful, another important thing was not to spend too much on advertising, form the trial period we gathered that advertising is not cost-benefit effective, and decided to only spend what we believed would increase sales and would make the market aware of us, we constantly spend money on engineering in order to minimize our cost factor, and we also tried to invest a fixed amount on QC to minimize returns due to a relatively high eventual costs. That was our strategy and our main goals in general, nothing very creative or innovative, on the contrary, I saw us as a risk averse team that tried to maintain a low level of risk and to out run the competition in the long run.

There was a difficulty in all the success; we had trouble listening in class, so none of us heard or noticed that we were supposed to maintain a debt ratio of 1to 1, by the time we found out, a year had passed (which is a very long in dog years) and it was a bit too late to teach an old do new tricks, so we stuck with it, furthermore, our amazing CFO (not me) realized that taking debt and maintaining a leverage firm is a trade off, which means that if we had take on debt, we would have fallen behind on other variables, only another reason not to do it, and two reasons were enough for us.

I think we implemented our corporate strategy almost perfectly, we introduced a low price at first because we wanted to meet the competition first hand, after establishing our low cost factor and our maximum level of production and hitting the R&D discovery, we raised the price to capitalize, we were strong competitors throughout mainly due to a sound demand forecast, production and sales forecast. In addition, I believe that if the simulation had not ended when it did, we would have performed even better because as I stated earlier, our objective was to compete in the long run with respect not necessarily to the next quarter, but the last year, naturally however, we were very much aware of the fact that if you snooze you lose, and that short term decision need to be taken all the time in order to succeed in a two year stretch.

To conclude, it was a great experience for me for a few reasons; I got to run a company and make decisions in a business environment that had a sound affect on the company's result, I got to work in a small team environment where all the voiced are heard and they all count, and we were successful, which always helps. I believe this experience was beneficial with no regards to success or failure, and being in this college for as long as I have, the more real world imitations, the better, thank you very much for the experience.