2011

Mudra Institute of Communications, Ahmedabad Arnab Mukherjee (2009-09-A) || Charu Chopra (2009-015-A)

[IBIZSIM: FINAL ANALYSIS OF STRATEGY AND

PERFORMANCE]

CONTENTS

Strategy and Performance Analysis .......................................................................................................................... 4

Quarter 1 ......................................................................................................................................................................... 4

What we did .............................................................................................................................................................. 4

The Results ................................................................................................................................................................ 4

What we learnt ......................................................................................................................................................... 4

Quarter 2 ......................................................................................................................................................................... 5

What we did .............................................................................................................................................................. 5

The Results ................................................................................................................................................................ 5

What we learnt ......................................................................................................................................................... 6

Quarter 3 ......................................................................................................................................................................... 6

What we did .............................................................................................................................................................. 6

The Results ................................................................................................................................................................ 7

What we learnt ......................................................................................................................................................... 7

Quarter 4 ......................................................................................................................................................................... 7

What we did .............................................................................................................................................................. 7

The Results ................................................................................................................................................................ 8

What we learnt ......................................................................................................................................................... 8

Results vs. Objectives ...................................................................................................................................................... 9

The final Balanced Score Card ................................................................................................................................ 9

Vision ............................................................................................................................................................................. 10

Mission .......................................................................................................................................................................... 10

For customers ........................................................................................................................................................ 10

For employees ....................................................................................................................................................... 10

For Shareholders .................................................................................................................................................. 11

For bankers ............................................................................................................................................................ 11

SWOT Analysis ................................................................................................................................................................ 12

Learnings .......................................................................................................................................................................... 13

Excel Based Learning .............................................................................................................................................. 13

As a Business Simulation ....................................................................................................................................... 13

Theoretically ............................................................................................................................................................... 13

Team play ..................................................................................................................................................................... 13

Comparison with Markstrat & BOSS ....................................................................................................................... 14

Based on General Information ............................................................................................................................ 14

Based on analysis and objectives ....................................................................................................................... 15

Analysis based on decision specific aspects of Markstrat and ibizsim ............................................... 16

Analysis based on decision specific aspects of Boss .................................................................................. 17

Modification Suggested in ibizsim ............................................................................................................................ 18

comments & suggestions on use of Balanced scorecard ............................................................................... 19

Finance perspective .................................................................................................................................................... 19

Customer perspective ................................................................................................................................................ 19

Internal processes perspective ................................................................................................................................ 19

Learning and development perspective ............................................................................................................... 19

STRATEGY AND PERFORMANCE ANALYSIS

In this section, we have given a summary of what strategy we adopted in each quarter, what was it

result and how it helped us alter and modify our decisions for the subsequent round.

QUARTER 1

WHAT WE DID

We started out by increasing dividends to 5%

We increased prices throughout by 2%

We increased investment in product policy for Bordo and Carti

We kept production levels same and didn’t go in for overtime

We spent 40% more on communications, TQM and Production Technology to improve

product quality and demand

No urgent orders were placed

Ordered raw material keeping in mind production for next two periods

No raw material for alesa was ordered, as we had enough in stock for the next 2 periods

Took a long term loan of 16,240,000 euros

THE RESULTS

High level of production of both alesa and bordo happened

The delivery capacity of the sales branch in market 2 and market 3 was less than the total

demand. Because of this you will be able to deliver only 97.71% of the total demand in

market 2 and 91.43% of the total demand in this market 2.

As a result there were unfulfilled orders of Carti in markets 2 and 3.

As planned, we had enough stock left of Alesa and Bordo for the next period

Production time reduced marginally for all 3 products

Rejection rate reduced for Carti

Deliverable part of production remained unchaged

Product Quality improved marginally

Debt/equity ratio increased to 127

Cash in hand rose to 15 million euros

Profit at the end of the period was 1 million euro upwards

WHAT WE LEARNT

We needed to up-haul the sales branches’ capacity

We needed to increase image to increase demand as the competition was playing up on image

Deliverable part of production had to be increased, so was needed for product quality

Both rejection rate and production time had to be reduced further substantially

The above 2 points were necessary to fight it out in the market by flooding the market with

our product after improving our image

QUARTER 2

WHAT WE DID

We invested 10% more on lean management to decrease throughput time

Product Policy investment was increased for Alesa (as we needed only alesa production in the

next period)

For the next period, we kept minimalistic production requirements (as we had to deal with a 4

week holiday period)

We kept the prices same (to avoid image fall due to price increase in subsequent periods)

We still used only single shift for production due to already high level of stocks

Increased the transportable quantity to match demand and to avoid any further unfulfilled

orders

We spent 40% more than the previous period on communications, the training of sales

personals and TQM to improve product quality and demand

Raw material was ordered only for alesa production as we had enough stock of bordo and

carti for period 3

As we had forecasted and planned production for the next 2 periods, we sold off 30 machines

and hired 80 people with the aim of going into double shift in the next period and then

eventually going into single shift again in the last period.

THE RESULTS

High level of production kept stocks at optimum and well in-stock for the next period

Sales figures for Bordo and Carti improved significantly, while sales for Alesa remained

almost constant

All demand was met as a result of better planned sales branches

Quality of products increased further

Turnover of Personnel reduced

Deliverable part of production still remained unchanged

Production time and rejection rate reduced considerably for all 3 products

A loan repayment of 2 million was made, and a fixed deposit of 2 million was made

Despite a cash-in hand of 13 million, a calculated and anticipated loss of 2 million was

incurred due to sale of machinery

Debt/equity ratio was contained at 127

WHAT WE LEARNT

There was a need to grab market share in case of Alesa, as the market was declining and new

customers could only be taken away from competition

Image (lost due to unfulfilled orders in period 1) had to be improved in USA and China for

better demand

We needed to reduce unused cash in hand (for better technology, personnel training, sales and

communication)

Despite the surplus cash-in hand, no more loan could be paid back to avoid making the

debt/equity ratio fall further

Profit had to be substantially higher in the next period to over-come the loss that we had

incurred in this period

QUARTER 3

WHAT WE DID

Investment in lean management was increased by 20%

We increased prices throughout by 40% to en-cash on the good image

Production levels were kept good despite the vacation period by going in for double- shift on

130 machines

We increased number of stores in all markets by investing 40% more in sales policy

We again spent 40% more than the previous period on communications and TQM to improve

product quality and demand, and to mitigate the negative effect of price hike on image and

demand

Investment on product policy again went up by 40%

As the price of bought-in goods fell below the cost price of alesa, for the last period,

production was limited to single shift and bought-in alesa was ordered

Raw material wasn’t ordered for alesa

Took a long term loan of 1 million euros

THE RESULTS

Throughput time decreased by 2 days for both single and double shift

High level of production of both alesa and bordo happened

Image went up in 3 markets (except in Germany) despite the price hike

The sales figures went up and profits increased substantially (3 million), mitigating and

nullifying the loss from the previous period

Quality of products increased

Production time reduced for all 3 products by almost 1 minute

Deliverable part of production became 47%

Debt/equity ratio decreased to 125

Cash in hand at the end of the period was 14 million euros (was considerably higher because

less raw material and more of bought-in goods were ordered)

WHAT WE LEARNT

Market share could have fallen when we increased prices but the balance could be maintained

with betterment of image

Flooding the market helps and increases sales if competitors fail to meet demand

Brought-in goods were a good option, when the discounts were being offered

We could afford loss in one period, if it helped in the long-term strategy

QUARTER 4

WHAT WE DID

We increased the investment in lean management by 0.1 million

Increased the dividend payout to 6%

We kept the prices same

We went back to single shift as we needed production of only 2 products of which Carti

already had substantial stocks

Increased the investment in sales branches, communication policy and training of personnel

by 45%

We increased expenditure on product policy and TQM again by 40%

We could have sold more machines and gone into overtime but we didn’t want to carryover a

negative profit figure from the last period

Invested 40% more on production technology

Redeemed long term loans worth 6 million to reduce debt/equity ratio to 125.8

THE RESULTS

The sales figures went up and profits increased significantly

Throughput time decreased further by a day each for single and double shift

Demand for Carti could not be met completely. We met our estimated demand, but additional

demand due to 0 sales from another company, weren’t factored in.

Both store and branch inventories were reduced to bare minimum

Quality of products increased to 102.15

Deliverable part of production increased to 40%

Production time reduced further

Debt/equity ratio reduced to 125

Cash in-hand increased to 14 million euro despite the loan pay-back

WHAT WE LEARNT

We improved market image significantly

We improved on the deliverable part of production by investing in production technology

We performed consistently on all parameters

We learnt that a healthy mix of bought-in goods and production could help a long way in

optimally utilizing resources and capacity

RESULTS VS. OBJECTIVES

THE FINAL BALANCED SCORE CARD

Weight Company value

Base value

Score

Finance perspective

Profit before tax 10 7,61,131 15,52,691 3

Debt-equity ratio 10 126 100 10

Dividend 5 6 2 10

Customer perspective

Market share (sales) 10 17.34 16.67 8

Image 8 114 100 10

Adherence to delivery dates 7 99 100 9

Internal processes perspective

Deliverable part of production 10 40.00 33.33 8

Rejection rate 10 7.20 7.33 7

Product quality 10 102.15 100.00 7

Production time 5 28.45 31.33 8

Learning and development perspective

Turnover of personnel 10 2.00 2.00 6

Training of personnel 5 7,18,141 7,17,176 4

Weighted average score 7.43

Period Score

1 6

2 6

3 7

4 7

Average score over all periods 6.7150

VISION

The vision was to improve the market position of the company while achieving a satisfactory level of

profitability and ensuring the long-term viability of the company

Result:

Initial market share was 16.67% which converted to 17.34% at the end of quarter 4

A high level of Profitability was maintained throughout,

o with adequate cash-in hand at all times

o no short-term loans taken/ no over-drafts

o partial re-payment of long-term loan

o investment in terms of fixed deposit

o a consistent debt-equity ratio of 125 to 127

Long term viability was insured by

o Building a good image

o Maintaining high levels of profitability

o Increasing market share

o Keeping all stake-holders pleased

MISSION

FOR CUSTOMERS

1.1. To improve the Image of the company to have a better perception among customers

Result: the image was up-hauled from 100 in period 0 to 114 at the end of period 4

1.2. Product quality improvement for image enhancement

Result: product quality at the end of four quarters was 102.15 as against 100 in period 0

FOR EMPLOYEES

1.3. Better Image of the company to reduce personnel turnover rate

Result: the image was up-hauled from 100 in period 0 to 114 at the end of period 4;

personnel turnover rate never went over the base value of 2

1.4. Profit maximization so as to be in position to give better dividends and be able to provide

consistent training to employees

Results: the end profit was 0.7 million and the percentage of dividend paid out was a

whopping 6%

1.5. Consistency of cash-in-hand so as to avoid workforce downsizing based on sales in a

particular period

Results: The cash-in hand at all times was enough to keep the plant running and to give-out

salary to all employees. Work-force was increased to meet high levels of required production

in tune with demand but a down-sizing never happened

FOR SHAREHOLDERS

1.6. Consistent increase in Market share

Results: Initial market share was 16.67% which converted to 17.34% at the end of quarter 4

1.7. Better company Image

Result: the image was up-hauled from 100 in period 0 to 114 at the end of period 4

1.8. Lowest possible Debt/equity ratio

Results: Long-term loan repayment wherever possible, to decrease the debt/equity ratio and

keep it constant around 125

FOR BANKERS

1.9. High Profitability

Results: A high level of Profitability was maintained throughout,

with adequate cash-in hand at all times

no short-term loans taken/ no over-drafts

partial re-payment of long-term loan

investment in terms of fixed deposit

a consistent debt-equity ratio of 125 to 127

SWOT ANALYSIS

Strengths

•Agile thinking using spiral model

•Long-term focus instead of short-term planning

•Balanced approach to capactity utilization and purchasing

•Future planning accuracy in terms of finances

•No downsizing of employees based on sales

•Optimum utilization of capacity

•Consistency of image

Weaknesses

•Couldn't meet demand left by competitiors on 2 occassions

•Surplus cash-in hand

•Need to maintain profitability as a goal, hence further sale of machines not viable in period 4

Opportunities

• Increased deliverable part of production

• Increased quality of product

•Reduced rejection rate and time taken to produce goods

•Market share could have been increased with the help of all the above

Threats

•Better pricing strategy by competitors

•Low image as compared to competitors in USA market

• Increased investment in production technology, TQM and communications didnt always bring immediate or linear benefits

LEARNINGS

EXCEL BASED LEARNING

The simulation was most effective in terms of acclimatization with excel and in making

templates for business decision purposes.

Secondly, it also gave an insight into when to rely on templates and when to use your own

judgments (in the scenario of having external variables)

AS A BUSINESS SIMULATION

Helped have a deep-dive into strategic planning and controlling of resources, which wasn’t

possible otherwise in real life

Practice of application of general business principles

First experience with analysis of reports to ascertain the interrelationships, as well as the

factors involved, in order to establish a rational basis for subsequent optimal decisions

Real time planning and changing of decisions based on long term objectives

effective decision-making in the given time per period

THEORETICALLY

Made concepts of financial planning more sound by practical application and training

Gave a head start into the structuring of the production plant, sales and turnover in markets,

managing stocks of goods and handling of cash, outgoing and incoming payments

To be able to act wisely in case of deviations from the planned or expected course of events

based on long term strategy

TEAM PLAY

How to learn from other’s mistakes

How to corroborate and come up with a mutually agreed upon decision

Allocation of specific functions (for example in sales, finances, production) to individual

team members based on strengths of each member.

COMPARISON WITH MARKSTRAT & BOSS

Markstrat and BOSS are both StratX simulations while iBiz Sim has been developed by professor

Ullal in Germany. Thus the interfaces are completely different, we will now look at some of the major

differences in a tabular form given below: -

BASED ON GENERAL INFORMATION

General

Information

Markstrat BOSS iBizSim

Developed By

StratX StratX Prof. Ullal

Focus STRATEGIC

MARKETING

STRATEGY AND

INNOVATION

OPERATIONS &

MARKETING

Audience Experienced Marketers

& MBA

Masters & MBA an

experienced Marketers

Experienced Marketers

and operation specialists,

MBA students

Simulated

Timeframe

Extended duration, 6 to

12 years. Up to 12 one-

year decision period

Short duration, 9 simulated

years split into four rounds

of decisions

Short Duration with 4

decision periods

representing 4 quarters of

a year

Number of

Participants

and

Competition

Type

Industries of 4 to 6

teams (4 to 6

participants each) in

direct competition with

each other.

Unlimited number of teams

(3 to 5) participants each)

in indirect competition.

Each team competes

against 3 computer

controlled companies

6 teams play in each

industry in direct

competition with each

other. There can be up to 6

players in a team

Market

Characteristi

cs

Durable consumer

goods One established

market and possibility to

add an emerging

Video game console 3 types of consumer

durables. One

degenerating, One market

leader and one upcoming

product

BASED ON ANALYSIS AND OBJECTIVES

Analysis And

Objectives

Markstrat BOSS iBizSim

Data Provided

for analysis

Consumer panel

Consumer survey

Distribution panel

Semantic scales

Multidimensional

scaling

Competitive

intelligence

Advertising

experiment

Sales force

experiment

Competitive

benchmarking

Market forecast

Conjoint analysis

Market research studies

For Red round:

Company KPI

Offering characteristics

Benchmarking study

Customer preferences

Sales & Market Shares

Market forecast

For Blue Rounds:

Visual exploration

Management Report

Market Research report on

:-

Pricing

Sales

Quality

Productions

Decisions

Economic Report

Purchasing reports

Summary reports

Decision Reports

Consumer

Segments

Established

Market

5 market segments

based on product

features and price

3 Segments based on product

features and price

No segments but customers

buy based on price, quality,

image and product

availability

Consumer

segments in

New market

3 market segments

based on innovation

adoption curve

Blue ocean market of

noncustomers based on teams’

strategy

N/A (no new market)

Performance

Metrics

Market and segment

shares

Revenues, product

contribution

Net contribution

Return on marketing

expenditures

Stock price index

Market Shares

Revenues

EBIT

Share Price Index

Team decides the needed

performance metrics like: -

Liability Equity Ratio

Market Image

Market Share

Profits

Production and Delivery

Time

Product Quality

Turnover of personnel

ANALYSIS BASED ON DECISION SPECIFIC ASPECTS OF MARKSTRAT AND IBIZSIM

Decision specific

Markstrat iBizSim

Product Portfolio Teams may withdraw or launch as

many products as they wish in each

decision period

There are 3 fixed products though a

team may choose not to produce 1 or

more types of products

R&D Teams design, request and

fund their own R&D

projects

No new R&D or products can be

commissioned

Distribution/

Transportation

3 channels (direct, general and

specialized)

Total amount for each product to be

transported to each of the markets

must be specified

Manufacturing Capacity is flexible, but teams must

forecast production target

Manufacturing must be calculated on a

template based on production time of

individual product. Also raw materials

must be ordered in advance along with

machine and personnel decisions

Sales force Teams select the number of sales

people devoted to each product

Teams decide expenditure on sales

branches and sales force both.

Finance/Currency All decisions are taken in K$ and is

the only currency used. Also loan

giving decision is upto the game

coordinator/ Teacher

All decisions are taken w.r.t. the

countries and their currency units. The

maximum loan that can be taken

depends on your equity and current

liability. Also exchange rate fixing and

factoring are essential financial

instruments used

Communications Teams set media and advertising

creation budgets for each product

Teams set media and advertising

creation budgets for each product in

each market

Pricing Team sets the retail price of each

product

Teams set the retail price of each

product in different markets in specific

currency units

ANALYSIS BASED ON DECISION SPECIFIC ASPECTS OF BOSS

Decision

specific BOSS

Blue Ocean Strategy Simulation

RED ROUND BLUE ROUND

‘AS-Is’

Strategy

Canvas

N/A Drawing the current indusry value curve

‘To-Be’

Strategy

Canvas

N/A Using the ERRC (Eliminate, Raise,

Reduce, Create) tools to draw Strategy

Canvas for Blue Ocean Offering based on

analysis of Visual Exploration

Marketing

Budget

N/A Teams set Marketing Communications

Budget

Product

Upgrade

Teams are allowed to

modify the physical

characteristics of their

offering

N/A

Production

plan & Price

Teams set the number of units to produce for the upcoming period, as

well as a recommended retail price to distributors

Segmentation

Strategy

Teams allocate efforts

between the 3 target

segments

N/A

Geographical

Expansion

Decide on coverage rate on the 2 markets, Roundland (main or local

market), and Starland (new or international market)

Distribution

Coverage

Teams allocate coverage

between 3 channels &

quantity and quality of

shelf space

N/A

Corporate

Projects

Teams decide on investments in projects aimed at increasing

productivity, reducing costs and/or improving organization capabilities

MODIFICATION SUGGESTED IN IBIZSIM

1. An important and a required modification in iBizSim would be to redo the coding of the

software as the software makes a lot of errors in calculating the final results. E.g. Increase in

spending on production technology and lean management should reduce throughput time and

in turn increase the deliverable part but the same does not happen even after huge investments

2. The pricing does not have a significant impact on demand. Since all companies produce

similar products the market can be said to be commoditized but steep hike in prices by one

team does not reduce its demand by a significant proportion. In such a case the increase in

price beyond 10% should lead to demand reduction by almost double the price increase

percentage as rational customer’s shift (There is no customer segmentation and loyalists).

3. Also longer duration of at least 12 quarters should be allowed for proper effect of decisions

on the company and to make the game more strategic than its present form where tactics take

precedence over long term strategy.

4. Another important modification would be on the interface as the interface is very rudimentary

and makes many participants lose interest when compared to StratX simulation. Outsourcing

the code might be the answer

COMMENTS & SUGGESTIONS ON USE OF BALANCED SCORECARD

The balanced Scorecard is a new addition to the iBizSim game simulation and it gives a complete

picture on the company performance and does an all round performance review. It reviews the

company on the following key parameters:-

FINANCE PERSPECTIVE

Profit before tax

Debt-equity ratio

Dividend

CUSTOMER PERSPECTIVE

Market share (sales)

Image

Adherence to delivery dates

INTERNAL PROCESSES PERSPECTIVE

Deliverable part of production

Rejection rate

Product quality

Production time

LEARNING AND DEVELOPMENT PERSPECTIVE

Turnover of personnel

Training of personnel

The current iBizsim performance is based on a company not reaching 160 for the liability to equity

ratio which is very rudimentary and easy to achieve. This component of evaluation can be better

done with the help of the weighted average score of the balanced scorecard instead.