Succeeding in Business - Simulation Report PDF

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SID460042466 BUSS6000 Succeeding in Business Semester 1, 2017

Tutors: Aleta Keating and Lynette

a engineered! 5abulous Cars PERFORMANCE REPORT 2017

Contents 5abulous Performan Performance ce Report 2017 1. Overview 1.1 Our ‘Differentiation’ Strategy 1.2 Our Performance January 2017 – August 2017 2. Operating Environment 2.1 Rapid Change and Adaption 2.2 Recommendations 3. Performance Review 3.1 Brand Equity 3.2 Human Resources 3.3 Features of the Product 3.4 Future of the Company 4. Reflection 4.1 Team Dynamics 4.2 Individual Reflection 4.3 Leadership 5. References

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460042466 5abulous Performance Report 2017

1. Overview 5abulous Cars is an Australian ‘luxury SUV’ maker

looking for high performance cars.

listed on the ASX. The company has the global presence with its operations held in the automobile markets of the USA, Germany and India.

As mentioned earlier, the management followed the consumer profile reports to identify the type of product and its target consumer groups. The company decided to produce SUVs with highest safety rating as it provides highest number of target consumer groups (Figure 2).

1.1 Our ‘Differentiation’ Strategy

Cost Leadership

Differentiation

Narrow

Scope

Broad

The management had discussed various strategies identified by Porter (1980) in his book ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’ such as cost, differentiation and focus.

Cost Focus

Differentiation Focus

Cost

Differentiation

Source of Competitive Advantage Figure 1: Adapted from Porter (1980)

The company adopted focus – differentiation strategy after completion of the customer-profiling and management decided to start the operations in the niche markets focusing on the customers

5abulous Cars, initially, entered the markets of the USA and Germany as the company wanted to build its brand image in those countries before entering India. Indian market size, being smaller compared to that of the USA and Germany, also contributed to the delay in beginning of the operations in India. The company spent a major part of its budget for every month on advertising and marketing. This aligns with the company’s objective of gaining the highest brand equity which is integral for being a differentiator. The rest of the report informs the readers (stakeholders) about the constant change in the operating environment and how well the company adapted to it.

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460042466 5abulous Performance Report 2017

Consumer Profile

Price

Brand

Mileage

Safety Rating

Localisation

Type (Alternate Choice)

Group 1

100%

0%

0%

0%

0%

No Preference (0%)

Group 2

0%

100%

0%

0%

0%

No Preference (0%)

Group 3

0%

0%

100%

0%

0%

No Preference (0%)

Group 4

0%

0%

0%

100%

0%

No Preference (0%)

Group 5

25%

25%

25%

25%

0%

No Preference (0%)

Group 6

60%

20%

10%

10%

0%

Minivan (25%)

Group 7

20%

60%

10%

10%

0%

Sports (50%)

Group 8

10%

10%

70%

10%

0%

Electric (50%)

Group 9

10%

10%

10%

70%

0%

SUV (50%)

25%

25%

25%

25%

0%

Pickup Truck (10%)

Group 10

Figure 2: 5abulous Target Consumer Groups being highlighted (Adapted from GoVenture Consumer Profiles)

1.2 Our Performance January 2017 – August 2017 5abulous Revenue (A$m) Germany, 94.58 India, 111

The company, in 2017, successfully started the operations in the automobile markets of the USA, Germany and India with its ‘aussie

USA, 518

engineered’ SUVs.

Figure 3: 5abulous Revenue (Adapted from GoVenture January - August Performance Report)

SHARE PRICE (A$)

5abulous Share Price (A$) 2500 2000 1500 1000 500 0

10

263.63

594.38

1925.41 1625.28 1376.61397.81 1210.14 949.97

5abulous Profit for the period:

A$249m

PERIOD ENDING

Figure 4: 5abulous Share Price (Adapted from GoVenture January - August Performance Report)

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460042466 5abulous Performance Report 2017

2. Operating Environment

No. of SUVs

Sales and Inventory 2500 2000 1500 1000 500 0

Month Ending Units Sold

Missed Sales

Inventory

Figure 5: Sales and Inventory (Adapted from GoVenture January August Performance Report)

In the month of June, Hurricane Donald which toppled the economy had its effect on the company too. The management had rightly decided to decrease the production which reduces inventory. 5abulous Cars tries to retain as much as brand equity in the markets which it operates. Although this was the motive, the management, in initial stages, was very skeptical in spending a major part of its budget on advertising. It decided to spend about ≈25% of its budget every month. It was not

25 20 15 10 5 0

Product Line Brand

August

June July

May

April

Sales Promotion March

Through the span of 8 months, the company expected similar demand from the consumers and supplied accordingly. The company, except in January, met the demand of the market every month with a small amount inventory left over each time thereby balancing the ‘demand-meet’ and ‘low carrying costs’.

Sales and Marketing Investment

February

work in the industry is an important component of effective strategic planning’. It proves that industry analysis is essential for company’s sustainability. The management strives to attain the best analysis of the industry through its continuous investment in purchasing the market share and size reports, product competitiveness reports and the media research-reports.

January

According to Inc., n.d., ‘Understanding the forces at

until the month of May, when it surveyed various companies’ investments, did it realise that it should spend more on advertising to retain its brand equity. This is the competitive force which is one amongst the five forces mentioned by Porter (2008) others being power of customers, power of suppliers, threat from new entrants and threat from the substitute products.

Million A$

2.1 Rapid Change and Adaptation

Total

Figure 6: Sales and Marketing Investment (Adapted from GoVenture January - August Company Investments Report)

In the early months, the company spent a good proportion of the advertising investment on sales promotion to sell out the inventory to avoid the expiration of the units. The was reduced later as the company got settled into the market. The management, now, firmly believes that the company has established its brand on all the regions it operates and shows the signs of reduction on its marketing and sales expenditures. This can be observed in Figure 6, where the expenditure has reduced in the month of August. The company remained the differentiator throughout the period by providing value to the customers for the price they paid. Although, this refrained the company from growing at a fast pace as some of the competitors did, the management persisted on remaining the same. This was backed by the continual increase in the share price (Figure 4), improving brand equity and finally being one of the top companies in the consumer groups they initially focused on (Figure 2 and Figure 7). 4

460042466 5abulous Performance Report 2017

Group 2

Group 4

Group 5

Group 9

5abulous Cars

5abulous Cars

5abulous Cars

5abulous Cars

3D Motors

For1

3D Motors

Infiniti 10

Cloud9 Cars

Infiniti 10

Cloud9 Cars

4 the Horde

Figure 7: Leaders in the respective Consumer Groups (Adapted from GoVenture Consumer Profiles)

2.2 Recommendations The management has been under pressure from both its customers and its shareholders to change its strategy to being the cost-leaders rather than being differentiators (Refer Figure 1). The reasons given are that the company would increase its customer base, especially in India, and can achieve a phenomenal growth in the coming years with its established brand equity. One of the competitors, Zorro 7, recently shifted to being a cost-leader and it boosted their performance in the last quarter. However, there haven’t been any signals from the management as to change in the strategy as the price remains high and investments in research and development are at the highest level possible.

3. Performance Review

who were not cost sensitive.

3.2 Human Resources Although, this wasn’t one of the major factors while strategic planning took place, the management was forced to put this into the limelight. The spending on sales and marketing increased half-way through the period of 8-months due to competitive forces. This put immense pressure on the management to reduce the expenses else-where. The company had to reduce the costs in value chain without affecting the value created for customers (Parker 2016, pp. 77). Due to its limited options, the company reduced the investment on human resources by cutting the benefits, not raising the salaries and not investing on the training. The management thought this was better as human resources wasn’t directly related to the company’s objective of creating brand value. The reduced investment in human resources proved to be well in the initial stages but soon hampered the performance of the company. The reduced investments decreased the productivity of the employees and this decreased productivity made company to employ more people to meet its production requirements. Eventually, the spend on human resources surpassed the initial spend and kept raising until the investments into human resources were increased.

3.1 Brand Equity

The management focused on specific consumer groups based on the product the company wants to offer (SUVs with highest safety rating) and these consumer groups were similar in the USA and Germany markets but not Indian market. This is the reason for the delay in entering Indian market. However, during the expansion process of the company’s operations, the management decided to enter Indian market but focusing on fewer groups

Human Resources Costs 14,000,000.00 12,000,000.00 10,000,000.00 8,000,000.00 6,000,000.00 4,000,000.00 2,000,000.00 -

Severance Costs Hiring Costs Training Costs January February March April May June July August

The company did well in achieving brand equity. The maintained its brand effectiveness throughout the 8-month period by investing a large part of its budget on it. This could one of the reasons for the consistent sales figures.

Benefit Costs Salary Costs

Figure 8: Human Resources Costs (Adapted from GoVenture Human Resources Report)

3.3 Features of the Product The management took a conservative approach when investing on the research and development 5

460042466 5abulous Performance Report 2017

of the features of the product. It believed that it could increase the investment in R&D slowly and periodically. This again bought negative effects on the company. It is later realized that the level of differentiation they strive to achieve could have only been possible have they invested more in R&D from the beginning. Nevertheless, the management realised it in later half and right away increased the investments reaping good fruits.

3.4 Future of the Company 5abulous Cars is still trying to focus on being the differentiator while also stating that the plan of being a cost-leader is on the table. It can only be implemented after a thorough research of the market. This process couldn’t be a difficult one as company can decrease the investment in R&D and advertising while reducing the price. Added benefit would be that the company has got more brand equity than the other cost-leaders in the market. The company could save carrying cost of inventory by managing the inventory better. ‘To manage your stock successfully, you need to find a balance between the costs and benefits of holding stock’ (Business Queensland n.d.). Hybrid strategies can be helpful for operating in markets such as India. These strategies are placed between cost and differentiation strategies thereby providing benefits of lower price than differentiation and higher differentiation than lower price (Parker 2016). For Indian market, this can be helpful to tap the price sensitive customers while sticking to the differentiation strategy. The management is hoping for a higher performance in the coming periods with a possibility of change in the business strategy. 5abulous Cars will continue to provide the value for what the customers pay for.

4. Reflection 5abulous Cars’ management is, with no doubt, a contributing factor for its success so far.

4.1 Team Dynamics The team consisted of individuals from different fields of study including some with work experience. This was a benefit for the team as everyone gave their inputs which were based on the knowledge from their respective fields of study. Often, the team would not come to consensus immediately because of the level of diversity within the team. The improved the critical analysis skill of the individuals as a lot of brainstorming had to be done before the team arrived at a conclusion. This also means that our team hadn’t shared the responsibilities but approached every task collectively. The skills were complementary and even if they weren’t, the team tried to achieve them over the time. This constituted us a work team rather than a work group (Parker 2016, pp. 221).

4.2 Individual Reflection As an individual, I developed both the business skills and personal skills. The business knowledge was acquired by actively participating in the simulation decision-making process and learning from team members who have different backgrounds. However, the personal skills were tough to achieve due to the cultural differences amongst the team. I have an Indian background the rest of the team have Chinese background making it difficult for me to gel with the team initially. According to Hofstede (n.d.) cultural comparison (Figure 9), India is a more individualistic country than China. This was showcased initially when I wanted to allocate each department to different individuals. The rest of the team disagreed and we performed collectively. This benefited me as I mentioned earlier. The differences aroused very often but I adapted myself to different conditions and sometimes others did. 6

460042466 5abulous Performance

5. References Business Queensland n.d., ‘Costs and benefits of holding stock’, Queesland Government, Brisbane, viewed 21 May 2017,

Figure 9: Hofstede's Country Comparison

4.3 Leadership This simulation has also provided me a thought on what kind of leader am I. The team placed a lot of faith and often values my decisions. I had a vision and mission for the company while giving attention to the fellow team members. Rational thinking and problem-solving skills were deployed by me during the process of decision-making. These characteristics bring me closer to being a transformational leader (Parker 2016, pp.171).

GoVenture 2017, GoVentureCEO, viewed 21 May 2017,

Hofstede n.d., ‘Campare Countries’, HofstedeI, viewed 28 May 2017,

Geert

‘Inc. n.d., ‘Industry Analysis’, Inc., viewed on 24 May 2017,

Parker, H. (ed.) 2016, Succeeding in Business, Pearson Australia, Melbourne. Porter, M. 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, New York, viewed 21 May 2017, Google Books,

Porter, M. 2008, ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, January, viewed 24 May 2017,

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