Business Strategy and Business Game - Research Paper Example

Business strategy-business game Contents Introduction 4 Generic strategy 4 Industry overview 4 PESTEL Analysis 5 Porter’s five forces 8 Company overview 10 SWOT analysis 10 Company decisions 10 Year 1 11 Year 2 12 Year 3 13 Year 4 13 Year 5 14 The initial strategic direction 15 The final results 15 Underlying strategic principle 16 Key learning outcomes related to strategy 16 Reflections and Conclusion 16 References 18 Appendices 20 Appendix 1: Year 11 20 Appendix 2: Year 12 26 Appendix 3: Year 13 31 Appendix 4: Year 14 37 Appendix 5: Year 15 47 Introduction The company APanda Shoes is analyzed through the use of the business strategy game analysis with the aim of formulating and devising the future business and corporate strategies for the same. The analysis is started by analyzing the performance of the company through the use of the business strategy game for a period of five years. The use of the business strategy game simulation is done for the analysis part. The global market for athletics footwear is analyzed and the different factors affecting the market are studied with the aim of devising the strategic direction and strategic planning for the formulation. Generic strategy A single strategic direction for the firm is selected which is the differentiation strategy as per the Bowman’s strategy clock. The Bowman’s strategy clock is used to identify one or multiple strategic aspects that may be taken up by a company for developing competiveness, sustainability and continued success (Chesbrough and Rosenbloom, 2002). This is because the results of the analysis and the study of the external market indicate that the adoption of a differentiation strategy can be beneficial for the company for ensuring greater levels of success and sustainability for the future years. Industry overview The number of companies operating in the athletic footwear segment in which the case company belongs ranges from 4 to 10 main companies. However, for the analysis, three main competitors of APanda Shoes are considered which are Diversity Footwear, C Athlete Company and Bold Athletics Company. PESTEL Analysis Political: The company APanda Shoes operates in multiple geographical regions. The company has its manufacturing plants in North America, Asia pacific, Europe, Africa and Latin America. This makes the athletic footwear manufacturing company much vulnerable towards the political norms in the different countries of its operation. The political factors like the stability of the political environment, the formulation of government policies, taxation policies, export and import policies and duties levied on the athletic footwear products are some of the common factors that would affect the business decisions and operations of APanda Shoes. Economic The economic factors like inflation rates, Gross Domestic Predict (GDP), economic and business cycles, disposable income level and Purchasing Power Parity (PPP) are some of the economic factors that would directly influence the profitability, sales and sustainability of the company in the four operational regions. The volatility of currency exchange systems and the fluctuations in the foreign exchange rates are also major influencers of the strategies and business decisions of APanda Shoes because of the transnational nature of operations of the business (Johnson, Christensen and Kagermann, 2008). Social The athletic footwear market is a growing market in which there are higher scopes of sales and revenue generation are likely to emerge in the future years. The prospects for high level of growth and revenue generation in this industry are much optimistic. However, the alterations in the market shares and sales level of the globally operating companies are also forecasted which means that the competiveness of the industry will also increase. Athletic shoes as products have gained immense popularity among adults as well as children. The high level of comfort, ease of use and durability are the main attributes of these products which have made the athletic footwear segment a profitable industry among a varied group of customers. Also, the athletic footwear is bought by the people who are suffering from any foot problems. The sale of athletic shoes is driven by the prescribed suggestions of medical experts for treating certain types of heath issues as well. The combined effects of the multiple factors influencing the athletic footwear industry is likely to drive a 9% of growth per annum for the sector as measured from the perspective of the global demand levels for these kinds of products. Technological The technological factors play a comparatively less profound role in the functioning of an athletic footwear company. However, the use of the internet for promoting the brand and its products remain a high potential opportunity for the business. Also, the employment of innovative and latest technological systems in the production houses of the company are expected to act as a beneficial factor that would help the business to control its operational expense and thus, enable it to retain higher profit margins in the global business units. Environmental The environmental factors have started playing a major role in all types of industries. As such, the environmental concerns are also important in the segment of the footwear products, especially in the manufacturing houses. APanda Shoes have to consider developing manufacturing practices that lead to the least amount of environmental pollution. Focus on controlling the environmental impacts like release of pollutants, carbon footprints, use of sustainable raw materials and waste formation are the main environmental concerns that should be adequately addressed by the company in all the manufacturing plants. Also, the athletics footwear industry is highly influenced by the need for developing environment friendly manufacturing systems, proper waste management techniques, recycling of ancillary wastes and the consistent use of a lean and green supply chain. Legal The susceptibility of the athletic footwear industry to the legal concerns is high. The companies operating in this sector have to ensure consistent compliance with all types of legal formalities so that any kind of tarnishing of the brand image and the high expenses of legal consequences can be avoided. The company APanda Shoes has to concentrate on improving its credit ratings by controlling the interest expenses and by focusing on paying off the dues in the business so as to employ better legal compliance in the business (Lecoq, Demil and Warnier, 2006). Porter’s five forces Intensity of Rivalry: (high) The intensity of rivalry in this segment is high. The global athletic footwear segment is a concentrated market in which a handful of m major players have captured chunks of the market share. The companies compete with each other on the basis of pricing and product differentiation strategies. The scopes of price differentiation are decreasing because of the high level of operational expense in the production of the high quality footwear products. As such, the focus of the competitive strategies is shifting from the competitive pricing strategies to the product differentiation strategies (Prahalad and Hart, 2002) Threat of New Entrants: (medium to low) The threat of new entrants is comparatively low in this sector because the entry barriers in this industry are high. The setting up of an athletic footwear company needs high amounts of capital investments for developing the manufacturing capabilities. The quality of the products remains the most focused aspect of the industry due to which the companies operating in this sector have to use the best possible methods, materials and systems in their manufacturing houses. Threat of substitute products (low) The threat of substitute products is very low in the athletic footwear segment because the customers of these kinds of products are guided by the consciousness towards the quality and the benefits of the products which cannot be provided by the general category of footwear. Bargaining Power of Buyers (very high) The bargaining power of buyers is very high in this segment because there are major companies which compete for market share thereby creating higher scopes of the customers to switch to other brands (Govindajaran and Trimble, 2004). The brand switching costs are low and the facilities, product attributes and product prices provided by the leading companies are almost similar. However, the association of identity with particular brands and the comfort of usage of the products of a particular brand lead to the creation of brand loyalty in this segment. Bargaining power of suppliers (low) The bargaining power of suppliers is low in the athletics footwear segment because the athletic footwear manufacturing companies operate in a collaborative manner to control the procurement expenses. The industry is dominated by the product manufacturers and the procurement systems also display higher levels of control of the footwear manufacturing companies as compared to the suppliers of raw materials in this industry. Also, the number of suppliers is disproportionately higher than the number of manufactures in the market which has led to intense competition among the supplier groups. Company overview SWOT analysis Strength Weakness Strong brand name Global presence Widespread supplier and dealer networks Hugh quality of the products Weaknesses in the areas of ethical compliance High operational expense High interest expenses Unstable credit ratings of the company Opportunity Threat Emerging groups of customers Scope of use of product differentiation strategies. Intense competition level in the market Changing dynamics of the customer demands and market structure Company decisions The strategic decisions of the company are taken by identifying the requirements of the business in the five years. The simulation is done using the business strategy game method of simulation and the findings are implemented through the specification of the objectives, the strategic actions devised to meet these objectives and the outcomes as per the analysis (Markides, 2008). The company decisions as taken by the strategic developments simulation are given in the following tables developed for the five years period of forecasts. The calculations of the simulation process are given in Appendices 1-5. Year 1 Objectives Strategic Action Result Increasing the effects of corporate responsibility and social compliance initiative of the company Introducing the use of recycling systems which are absent in the company The sales of products increased by huge volumes and the brand image of the company are improved through the CSR practices coupled with the internet marketing practices. Improving the efficiency of the production plants and controlling the number of rejected items. Investments in the operations of the manufacturing plants. Allocation of higher volumes resources and capabilities in the plants (Zott and Amit, 2007). Interest coverage ratio increases to 0.78%. The credit rating of the company improved The credit default risk of the company changes from moderate to low level. The first year of the simulation involves the setting up of objectives like the improvement of the social and legal compliance levels of the company through proper CSRS activities and mechanisms. The efficiency of the manufacturing plants in all the four geographical locations are aimed to be improved and the number of defective or rejected items are aimed to be controlled. The outcomes of these actions result in desired improvements in the financial and operational performances of the business due to which the credit rating of the business is also expected to become better. Year 2 Objective Strategic Action Results Reduction of operational costs Decreasing the marketing costs and advertising costs Noticeable increase in profit levels and sales To improve the financial performances of the business Balancing their prices of the products with the operational expenses Improvement in profitability ratios. To improve the quality of the products Improving the technological system and other systems used in the manufacturing processes. Increased demand and market share for the company The main objectives set in the second year of simulation is the control of the operational expenses in the company because the manufacturing costs in the athletic footwear business accounts for the major part of the costs incurred by the company. The quality of the products are also to be improved which is done by employing better resources in the manufacturing and production plants in all the four locations. All these strategies are expected to improve the demand levels for the products of the company and as such generate higher sales volumes and profitability in the year. Year 3 Objective Strategic Action Results Maintain a higher credit rating for the company Repayment of the credit loans Improvement of the credit rating Increasing the overall S/Q ratings of the company Improving the production capabilities of the manufacturing plants The production efficiency increase in the two plants of the company which are the N-A Plant and A-P Plant. The third year of analysis is dedicated towards the improvement of the financial performances of the business including the objectives of enhancing the credit ratings of the business and focusing on increasing the various corporate ratings of the business. This is expected to lead to higher profitability and competiveness for the company. Year 4 Objective Strategic Action Results Improving the production level of the company. Up gradation of the manufacturing plants of the company Noticeable increase in the revenue generation of the business. Growth of the Earnings per share Increase in the level of brand image by focusing on the sale of the products. Increased overall revenues of the business and the Earnings per share. Maintain a suitable level of equity investment Increasing profitability of the company Increase in the investment levels of the company The fourth year of the analysis also sets up objectives which are aimed at making the financial and cash flow management of the company more robust. The main objectives include the increase of the earnings per share, equity investment levels and the production capacities which are expected to result in higher investment capabilities, increase in the total revenues of the business and the profit margins of the company. Year 5 Objective Strategic Action Results Increasing the earnings per share for the business. Improving the profit margins and productivity of the business. Increased operating profit and profit retention of the company. Increasing the prices of the stocks of APanda Shoes. Improving the productivity level and the credit rating for the business. Increased return on equity Increase in the market value of the shares. The fifth year of analysis includes the setting up of objectives which are aimed at improving the overall credibility of the company which will lead to the long term improvement in the profit margins and revenues for the business. The initial strategic direction The final results The operational and financial performances of APanda Shoes can be significantly improved by taking suitable steps and formulating business strategies according to the scenarios faced by the company in the respective years of its functioning. But, according to the business game analysis, it can be forecasted that the strategies should be properly implemented for extracting their full potential. The lack of synchronization of the strategies with the operational capabilities of the company may lead to the development of disparities between the expected outcomes and the actual outcomes in the business (Yip, 2004). The performances of APanda shoes are standard as per the industry standards but it can be seen that the company is not performing as efficiently as the leading company among the competitors which is the Diversity Footwear Company. It can be seen that APanda Shoes is not performing in the most competitive manner to negative the leadership position of Diversity Footwear. The performances of Diversity Footwear in all the scales of measurement, viz. the CSRS approach, the operational capabilities, the performances of the manufacturing houses, the financial and cash management of the company and the promotional capabilities are much ahead of that of APanda Footwear. Underlying strategic principle Key learning outcomes related to strategy Strategies in a business are based on the internal and external environment and the availability of resources and capabilities of the business. For developing the business and financial strategies, the consideration of the different units of operations of a business has to be considered (Teece, 2009). The main aim of developing the business strategies of a company is to create more value for the stakeholder groups and fulfil the expectations of the diverse groups of stakeholders of the business (McGrath, Gunther and Macmillan, 2005). The business game simulation indicates that for the achievement of the long term growth and success of APanda shoes, the overall operational and strategic direction of the company has to be decided through the analysis of the value and efficiency drivers as applicable for the business. The strategic decisions of the company should be efficiently linked with the operational decisions and functions so that any kind of mismatch between the forecasted performances and results and the actual performances and results of the business. The different functions within the business have to be connected in order to develop a more sustainable and effective business decision making process (Brandenburger and Nalebuff, 1995). Reflections and Conclusion The main aim of the business game simulation was to develop appropriate strategies in the five years of forecast by considering the improvements on a year on year basis. The main strategy which is focused on for APanda Shoes in all the five years of forecast is the product differentiation strategy. The way of emergent strategy is taken in the process of developing the strategic direction of the business. The differentiation strategy is considered to be most suitable for the case company after considering the external business environment and the internal financial and operational performances of the business. As per the industry overview of the selected sector, the price differentiation strategy is being fast replaced by the product differentiation strategy in the athletics footwear segment. The findings of the business game simulation analysis are in line with the same transition concept of strategy in the athletics footwear segment. The product differentiation strategy is likely to help the company to develop enhanced levels of sustainability and success (Christensen and Johnson, 2009). The differentiation strategy would help to improve the features of the products manufactured by APanda Shoes and also enable the company to enhance its efficiency in the industry of operations. The strategic direction for APanda Shoes is developed on the basis of a five year decision period by studying the opportunities of the business from various perspectives of the industry. The six year period of analysis and simulation has shown mixed results in which some of the strategic structure directions selected seemed to be benefit reaping while some others seemed to have lost their importance in the actual scenario of application. The process of analysis and simulation has helped to analyze the various dynamics of strategy in the modern business world and the relations between strategies as defined in theory and as implementable in the practical world. The main finding derived from the simulation is that strategy is the most important aspects in business management and the future success of a business is developed on the basis of the actions as taken up by an organization as a part of their strategic directions. Nevertheless, it is important to continuously monitor, reconsider and modify the strategies to suit the conditions of the business. References Brandenburger, A. M. and Nalebuff, B. J., 1995. The Right Game: use game theory to shape strategy. Harvard Business Review. [Pdf] Available at http://fringe.davesource.com/Fringe/Information/Business%20-%20Game%20Theory%20-%20Using%20Game%20Theory%20to%20Shape%20Strategy%20(1995%20Harvard%20Review).pdf [Accessed 20 March 2015]. Chesbrough, H. & Rosenbloom, R. S., 2002. The Role of Business Models in Capturing Value from Innovation. Industrial and Corporate Change, 11(3), pp. 50-55. Christensen, C. and Johnson, M., 2009. What are business models, and how are they built? Harvard: Harvard Business School Note. Govindajaran, V. and Trimble, C., 2004. Strategic Innovation and the Science of Learning. MIT Sloan Management Review, 14(2), p.90. Johnson, M., Christensen, C. and Kagermann, H., 2008. Reinventing your business model. Harvard Business Review, 14 (1), p.20. Lecoq, X., Demil, B. and Warnier, V., 2006. Le Business Model, un Outil d’Analyse stratégique. L’Expansion Management Review, 123(6), pp. 50-59. Markides, C., 2008. Game-Changing Strategies: How to Create New Market Space in Established Industries by Breaking the Rules. London: Jossey-Bass. McGrath, R., Gunther, I. and Macmillan, C., 2005. Market Busters: 40 Strategic Moves That Drive Exceptional Business Growth. Harvard: Harvard Business School Press. Prahalad, C.K. and Hart, S., 2002. The Fortune at the Bottom of the Pyramid. Strategy & Business. Vol. 26, pp. 2-14. Teece, D., 2009. Business Model, Business Strategy, and Innovation. New York: Long Range Planning. Yip, G. S., 2004. Using Strategy to Change your Business Model. Business Strategy Review. Vol. 15(2), pp.400-402. Zott, C. and Amit, R., 2007. Exploring the Fit between Business Strategy and Business Model: Implications for Firm Performance. Organization Science, 18(2), pp. 181-199. Appendices Appendix 1: Year 11 Appendix 2: Year 12 Appendix 3: Year 13 Appendix 4: Year 14 Appendix 5: Year 15 Read More