Strategic Goals Within The Automobile Industry Management Essay

This Report looks the performance of Firm C against strategic goals within the automobile industry. We will be looking on how Firm C has used the strategic principles and theories in order to compete with other six automobile firms in same industry. Basing on the areas of study we can see how Firm C has managed to utilize the resources.

Using simulation technology over a number of weeks the company used market information to inform strategy and monitor performance. In retrospect, as this report concludes, much more informed decision-making processes and governance would have assisted in ensuring the performance of the company and achievement of the mission of Firm C.

However through this simulation game, individuals have managed to relate the theory they have learnt in class and apply them in the really field.

“A company’s strategy is management’s game plan for growing the business, staking out a market position, attracting and pleasing customers, competing successfully, conducting operations, and achieving targeted objectives.” (Thompson, Strickland and Gamble 2005, p 3)

As described Thompson, Strickland and Gamble (2005) who explained that for a company to have a sustainable competitive advantages, needs to have a differentiated products with features such as added performance , high quality and wider product choices. This is what Firm C tried to achieve by reducing cost of production so that the price of cars should go down, the reasons for this is to get to a wide range of customers. Therefore, the firm concentrate on the price sensitive category, value seekers, customers with more disposable income and fairly price sensitive customers.

Strategy Thinking

One of Firm C’s strategies was to have a “first mover” advantage. This can be defined as: an organisation that moves down the experience curve by getting into a market first should be able to reduce its cost because of the accumulated experience it builds up over its rivals by being first. (Thompson, Strickland and Gamble 2005)

Firm C has done this by being one of the first firms to produce a new concept car and by being the only firm to focus more on quality and safety.

Adopting the Boston Matrix, Kotler and Keller (2006), the company used market feedback to place products in the market into the appropriate categories and used this to inform investment decisions.

Using market data (consumer and external trading conditions) the company contextualised their strategic decisions by understanding customer needs, available market spend and trends linked to the overall economy, such as affordability and luxury.

One key strand to ensuring high performance was focusing the models produced on a core market, but to provide a number of models. This approach allowed a diversification of products without overstretching the company’s range of products. This, in turn, would allow for marketing to focus on the core offerings of the products.

Through focusing on the core market, and limited development of new products, whilst maximizing plant capacity and marketing, it was considered to be part of the long term strategy to offer a return to investors and increase the value of the company without compromising customer perceived valued of the products and brand.

Short-Term versus Long Term Considerations

All decision -taken on these six periods was to ensure the company is doing well in car manufacturing industry and keeps on meeting customers expectations. This would give a company to have efficient production and hence result to profit maximization. The Short-term investment in product development allowed minor upgrades to come to market quicker in response to customer demands for safety and quality above luxury. No long-term decisions were taken at the immediate outturn whilst the company assessed the long-term prospects. The long term was taken when there was a necessary change in what customers prefer and in order to go together with the technology changes.

Firm C has one of the highest technology capabilities in terms of interior, quality and styling with the highest technology capability than any other firm in the StratSim world to produce safe cars. This is one reason that has made Firm C to have competitive advantage over other firms in StratSim world which has set our cars to be safest over all cars.

Mission & Vision

Mission and vision can be defined as:

“A mission is a general expression of the overall purpose of the organisation, which ideally, is in line with the values and expectations of major stakeholders and concerned with the scope and boundaries of the organisation.”

(Johnson, Scholes and Whittington 2005, p 13)

The firm’s mission is to deliver a long-term high return for investors over the lifetime of products

“Vision is an integral part of strategic management and adds value to the process by integrating the products of strategic planning into a coherent and meaningful whole.”

(Wilson 2003, p 65)

The firm’s vision is to produce the safest cars for people who want to travel safely.

External Environment

Johnson, Scholes and Whittington (2005) explain that the growth rate in an industry may affect the degree of competitive rivalry in an industry. For example, in situations of growth an organisation might expect to achieve its own growth through the growth in the market place whereas when markets are mature this has to be achieved by taking market share from competitors. Another example is high exit barriers; high investment in non transferable fixed assets may also increase competition because there is likely to be the persistence of excess capacity.

Within this exercise, Firm C benefited from the lower performance of rival companies in the earlier stages. This ensured that the market place was one where companies could grow a significant market share in the early periods. Following major production years (period 4 and beyond), the market became more competitive with other company output increasing at a time when Firm C were decreasing output and incurring additional costs through utilizing a lower percentage of production capacity without the associated decision to reduce manufacturing capacity.

Other factors included general population wealth and market factors (GDP) and the sensitivity of oil prices, focusing consumers to look not just at the short term purchasing price of vehicles, but the longer-term running costs. This explains the greater interest in hybrid models as the exercise progressed. Low-end market for gas vehicles remained robust for those with purely a purchase price consideration; this benefited Firm G in the short term, although longer term investments and a reduction in dealerships as well as manufacturing capacity hindered the company’s ability to meet market demand related to external factors.

Internal Environment

The internal environment within the company is much easier to maintain a longer-term strategy, as well as making short-term adjustments to meat company objectives. However, it is the control of the internal factors that proved to be the single weakness in the deliver of the company strategy.

Thorpe and Homan (2000) suggest that cost efficiency is determined by a number of cost drivers: for example, economies of scale. This was a key consideration in reaching the top performing market share as low-cost production created value for consumers and permitted a higher volume of unit production sales.

In periods 2 – 4, the company strategy appeared to be paying dividends. Stock value price was attractive to investors in the early stages due to a large dividend pay out and strong sales / production outputs, promising even greater returns as a result of a longer-term strategy and the company’s market position.

In many of the key indicators set out in the appendices, Firm C was indeed the market leader. This led the company to believe that the existing strategy was correct and to maintain investment in the key areas that were driving performance. However, a number of internal factors were changed that hindered the product lifecycle, including decreasing the number of dealerships that then prevent the sales of our ‘star’ products. Additionally, an overproduction of a vehicle coupled with a move towards producing a new type of hybrid vehicle distracted from the core performance resulting in poor sales across the board.

As a result of the poor sales, reactive marketing spend was increased to try to attract a formerly strong consumer based. This reduced the investment in research and development and plant capacity, in turn hitting the bottom line of the company. In effect, it was a rapid downward spiral of performance.

This poor performance, slow sales, inefficient manufacturing, loss of market share (through dealership reduction) reduced the overall market value of the company and therefore the attractiveness to shareholders. Irrespective of the strength of the core product, the company allowed itself to become distracted from what was going well, onto a short-term reactive stance without out any return.

One area not monitored was the percentage return on sales. This would have been a better indictor of the overall health of the company as opposed to market share or sales totals.

By periods 5 onward, the company failed to take any meaningful decisions related to market intelligence, and was starting a rapid decline in all key indicators. By period 7, the decline of the company had seen it outperforming rivals to rival companies taking the market share and sales off Firm G, whilst the stock price collapsed. The inactivity, rather than the activity, in decision making was the most significant cause of the company’s failure in these periods.

Internal considerations and decision-making chronology are set out in appendix 4.

Personal learning

The textbook did provide many very useful theories which made decision making more measurable, for example, the strengths and weaknesses of the SWOT theory. This did not however take out the uncertainty of decisions such as which car will be the best option to produce first, one learned that this can be reconciled by playing it safe as to not produce the Hybrid car first which the firm thought everybody will see as a new opportunity and instead focused on a different car design and see what the strategic moves of the competitors will be and then react to that with a better version car.

The purpose and the priorities of the firm was not clearly established from the beginning of the StratSim exercise, this made it difficult to set the firms objectives and developing steps to achieve objectives in the long term and short term.

In retrospect, the corporate governance of the firm was not planned very well. The company should have worked out a corporate governance method by splitting the responsibility of decisions between the team members. For example team member 1 was responsible for the inventory of the firm and team member 2 responsible for the marketing and so forth. This way, a more in depth understanding of the StratSim world would have been the result.

In contrast, the time management of the firm was in the beginning stages more managed, but towards the end of the StratSim exercise the cooperation of the firm disappeared, a personal lesson learned was to for future references, to agree on set times when decisions needs to be made.

More research should have been done on how the StratSim world works and what requirements were necessary to perform well. For example, the firm did not plan the firm inventory very well, resulting in too little or too many cars being produced. Furthermore, plant capacity was in the beginning stages below 100,000: this increased the unit cost and decreased profits.

Conclusion

This report has set out the strategic goals and rationale for Firm C; this was explained by giving an explanation for the short and long-term goals and decisions that was taken to gain a share in the vehicle manufacturing industry.

The performance of Firm C started out healthy but because of poor informed decision-making processes and governance, the performance of Firm C radically declined and resulted in the failure of the firm to realise their mission which was to become one of the biggest car manufacturing firms in the StratSim world.

The decisions the firm took reflected a reactive management style as opposed to a proactive one, for example with the inaccurate inventory control which saw the firm producing too little or too many cars and reacting to competitors decisions as appose to developing steps to become the market leaders.

Strategic Models that were available for example, the Boston matrix, the product lifecycle and Value chain were never completely integrated into the company’s decision-making which resulted in uninformed decisions been made, with consequences that resulted in shareholders loosing an interest in the firm and sales spiralling downwards.

Reference

Arthur, A., Thompson, Jr., Strickland, A. J. and Gamble, J.E. (2005) Crafting and Executing Strategy, 14th Edition, New York, McGraw-Hill Irwin

Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy, Text and Cases, 7th Edition, Essex, Prentice Hall

Kotler, P. and Keller, K.L. (2006) Marketing Management, 12th Edition, New Jersey, Prentice Hall

Stacey, RD. (2000) Strategic Management and Organisational Dynamics, 3rd Edition, Essex, Prentice Hall

Segal-Horne, S. (2001) The Strategy Reader, Oxford, Blackwell Business

Thorpe R. and Homan G. (2000) Strategic Reward Systems, Essex, Prentice Hall

Wilson, I. (2003) The Subtle Art of Strategy, London, Praeger

Appendix

Final Results

Decision Summary: Firm C, for Period 6

Technology Capabilities

 

Interior

Styling

Safety

Quality

Curr. Expenditure (mill.)

$240

$330

$399

$412

Product Development

Dev

Ctr

 

Project

 

Class

 

 

Status

 

Size

 

HP

 

Int

 

Sty

 

Saf

 

Qua

Curr

Exp

1

Cameo

Economy

upgr:

launch Per. 7

22

135

5

5

5

6

$129

2

Cafav

Family

upgr:

launch Per. 7

28

155

4

3

5

4

$124

3

Crash

Truck

upgr:

launch Per. 7

77

230

3

6

5

4

$124

Total (mill.)

$376

Consumer Marketing

 

Budget

(mill.) 

Regional Corp. Adv.

$40

Direct Mail

$3

Public Relations

$8

  Total

$51

 

Direct Mail Targets: Value Seekers(1), Families(2), Singles(3), High Income(4)

Product Marketing

 

Vehicle

 

Platform

 

MSRP 

Dealer

Disc.  

Adv. 

(mill.)

Adv.

Theme

Promo.

(mill.)  

Cafav

No Change

$20,350

15.0%

$70

Safety

$60

Cameo

No Change

$13,500

18.0%

$70

Styling

$55

Crash

No Change

$21,598

16.0%

$65

Interior

$50

Total

$205

$165

Plant Capacity

 

 

Current Capacity (000’s)

3,050

Capacity Change (000’s)

Vehicle Production

Vehicle

Previous

Sales  

(000’s) 

Current 

Inventory

(000’s) 

Scheduled

Production

(000’s)  

Flexible

Production

Retooling

Costs  

(mill.)  

Cafav

660

660

X

$0

Cameo

605

605

X

$0

Crash

442

8

450

X

$0

Total

1,707

8

1,715

$0

Dealerships

 

North

South

East

West

Total

Dealer Inc./Dec.

Training and Support (mill.)

$3

Financing

 

Amount

($ mill.)

Bonds Issued

$60

Stock Repurchase

$50

Dividends Paid

$100

Bonds Issued

 

Issued

Amount

(mill.) 

 

Rate  

 

 

Status

Period 4

$10

8.5%

callable in 1 year

Period 5

$60

9.0%

callable in 2 years

StratSim Ind:ind1 Firm:c

Period 5

User gre9313