Introduction
StratSim management is a strategy simulation based on the automotive manufacturing industry. Success in this industry depends on firm’s sales of cars and trucks, exceeding or meeting client expectations, strong financial management system and managing changing environment.
In this exercise, we were asked to form a group to run automotive manufacturing organisation (Firm D).The management team analyse industry environment and make managerial decision that will provide long- term return for shareholders and give control on marketing mix, product development and technology capabilities. We were required to compete with other firms to increase market share and become market leader.
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Industry Overview
In the StratSim environment our firm is among seven competitors .At the beginning in the first period, the market share for all firms was 14.3%.This make conducive environment for the firms to compete directly on the safety, quality, styling and interior design. The industry has been divided into seven classes which are economy, luxury, sport, family, minivan, utility and truck, however there where one new class (AEV) offers future potential if developed and marketed well.
Strategic Analysis
Strategy is the general programs of action involving the use of resources and competences to achieve organisational objective over the long the period of time.
Our Mission and Vision Statement
A mission statement is a formal written statement explains the background, purpose and benefit of an organisation to the stakeholder.
Firm D mission statement : As our initial budget, market position and cash flow was similar to other StratsSim firms and therefore our company mission was to increase sales and provide the customers with the safety and quality standard vehicles to gain highest returns while at the same time remaining low cost producers in comparison to our competitors.
Vision Statement is a short summary explaining the future direction of the organization, showing the capabilities and image of it.
Our vision is to make available the vehicles which our customers require in the best and affordable prices and standards.
Strategic Planning
Basic Strategy:
In this simulation exercise, our Firm D would like to increase sales where by the management team give the most important attribute of cars which are safety and quality.
Our firm increase adverting and promotion on cars to keep the customers aware of the product and attract more new customers. We also increase dealer discount by 1% on Delite in period 4 to motivate them so they can sell more vehicle and increase their revenue on their side. (See Appendix 1)Marketing Detail
Financials Control:
The company management where cost conscious as they are manage to have retain earning of $1516millions in a period 5 as an increase of $ 993millions. (See Appendix 2)Balance Sheet
Marketing:
Marketing and promotion program where the main key for the Delite and Dusty to boost their revenue. Defy where doing fine as it was our core product for the family class.
Future Development:
The firm D plan to develop another new class like AEV for the potential customer whose need where not yet covered by the industry. This development will be implemented on the next period and the cars will be on the dealer showroom on period 7.We also planning to reposition the vehicle in the BCG matrix from dog towards question mark/star.
External Analysis
Every business considers the external environment in which they are surrounded by. Scanning and monitoring the environment provide organisational competitive intelligence that allows projection of the environmental changes or detect changes that are likely to happen in a near future.
PESTEL
PESTEL framework is used as a tool to scanning external forces the business has to take into consideration. The framework has got six main entities:
PESTEL Analysis
Political:
In the political arena, automotive sector should be aware of the government action in terms of vehicle emission, safety and standard issue, trade agreement and import tariffs, respect for patents and copyrights that may affect the firm.
Economic:
Factor such as bank interest rate, inflation, unemployment, currency exchange rates, population and retail price index normally change and they can affect the automotive industry.
In this automotive industry real GDP increase by 1.5% to 2.5% in period 5, we expect disposable income for the individuals will increase and boost our sales. Inflation fluctuates from 1% – 2.5% from period 1 up to 5 which make sale of $15564.8 millions in period 5 from $15278.3millions in period 1. (See Appendix 3: Economic outlook
Social -cultural:
Social factors such as value and attitude, disposable income affect consumer’s decision when it comes to buying a car.
Our company consider what customer prefers to be valued which is quality, safety, engine size and cars which does not pollute the environment.
Technological:
Technology advancement changes increase our technology capability on car manufacturing, it enable us to produce enhanced features especially on safety issues, having just- in -time management and computer -aided design software which increase our plant capacity and save money.
Environmental:
Pollution is now threatening the automotive manufacturing industry; our firm future strategies would pay attention on transforming technological used into alternative energy vehicle to reduce emission in the future so as to preserve the environment. Possible alternatives can be rechargeable batteries, solar or hybrid engine.
Legal:
The car manufacture should pay attention on issues such as emissions law, safety and vehicle regulation which regulate their operations on daily basis.
Porter’s Five Force Model
Michael Porter model dictate the rules of competition and together this 5’s forces determine the industry’s attractiveness and profitability.
The five forces of competition
Threat of New Entrant: Low
Car manufacturing requires extremely huge capital to operate, this act as a barrier to entry in automotive sector for small firm to exist. Some competitors are forced to accept cost disadvantage where they find difficult to achieve economic of scale and scope.
Threat of Substitute: Medium
Alternative substitute to automotive transport are public transport, motorbike, trains and bicycle. Individuals prefer these alternatives due to increase number of cars on the road which lead to congestion, high parking charges and increasing cost of running a car.
Bargaining Power of Buyer: Medium
The sense that all firm started on same period of time in the simulation, bargaining power of buyer were so minimal. Buyers have few choices to distinguish brand reputation form one firm to another.
Bargaining Power of Supplier: High
Suppliers of automotive components are not concentrated in one area, and the switching cost is so expensive for the buyer. For these case supplier are more powerful, so defensive strategies like backward integration or strategic alliances should be set-ups to reduce supplier power for our firm.
Competitive Rivalry: High
Firm D operate in a market containing six competitors on which all implementing different strategies in order to perfume better in the market. Rivalry among existing firms is very high, due to the fact that all firms were started at the same time.
SWOT Analysis
SWOT analysis is used to analyse the organisation’s strengths, weaknesses, opportunities and threats. These analyses help the management to capitalize on their good opportunities and able to minimises weakness to achieve desired results.
Strengths
-High quality brand
-Latest technology
-Sound financial management systems
Opportunities
-New customer
-Growing economy
Weakness
-Limited budget
-Narrow product range
-Pessimistic management
Threats
-Increase price of complementary product
-Development of hybrid technologies
-Substitute product
-Increased competition
An attempt to serve additional customer segment Firm D has to employ latest technology capability to produce enhanced features at the same time it lowers the cost of production. The good thing is that the economy is growing and the future demand will increase. But the management has to bear in mind that increase in fuel price will reduce their sale as the customer will prefer substitute product, so merging with other firms to product new product will lock- in their customers. (See Appendix 4)Technology Capabilities
Firm D management should not be pessimistic in operating expenses they should be able to invest more in research and development, employ more product development engineers to increase product range that appeal to customer needs and preferences.
What I learnt from the simulation exercise
Throughout simulation I learnt that making strategic decision for the organisation requires the full understanding of the industry and the position of the business within that industry. Knowing your competitive arena and how you’re going to compete it’s the most important for the management, also ability to identify market opportunities and the important of the team work.
Forecast ability allows the firm to know the financial outcome and later compare with the actual results. If there is a discrepancy between the two, I should be in a position to find out the cause.
As for now, I know how managerial decision can affect the future performance of the organisation and how to overcome challenges.
Conclusion
Automotive manufacturing industry is very challenging and most of the time the firms require to follow intended strategy thought in practice it preferred that emergent strategy will be required in order to adapt to changes of the environment.
Firm D sales level was good as we manage to have profit in all period by having very minimal debt. (See Appendix 5)Performance Summary
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