Strategy_SP4_MikesBikes_Review_document

MikesBikes Review Document

After the final decision of the Multi-Player simulation competition, your team will
have one week to review your firms strategy in preparation for Workshop 6.
This MikesBikes Review document is provided to assist you with completing the
exercises in Strategy, SP4, MikesBikes Review. When completing these
exercises, you and your team should use the assumption that your team is to
continue running your simulated firm for another four years (decision periods).

1. Balanced Scorecard review

Review the performance of your firm using your teams Balanced
Scorecard.
Calculate your firms KPIs for 2019. How many of the Mandatory KPIs did your
firm achieve by 2019? How many of your own KPIs did your firm achieve by
2019? What are the key reasons for your successes/failures?
KPI

Target

Actual

$48

$133.79

Reasons

Financial results
Shareholder value
(SHV)

Stuck to our cost leadership

strategy by developing low prime
cost products and rationalising
expenses.

Expanded our product lines to Kids

market segment.

mim

Growing the business (

profit, revenue).
Consistent growth in
dividends pay outs
No long term debt. High cash
reserves. Share buyback (signal
effect & EPS)
Steady growth and stability,
indicates a solid company
performing company with good
governance risk adverse, good
at what they do.
Increase investment in

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Gross margin %

58%

71.6%

Modified adventure bike to

lower the prime cost.

1,800,568

Reduce distributor margin to

25% from second roll over
Shares was purchased
back by 2016 to the
minimum level

min
Number of shares

1,800,000

min

We made the decision to

purchase shares early on
as company was in good
financial position with
significant cash reserves,
growth prospect and
relative low share price.

Customer
Wholesale sales
mim

Adv. to wholesale
sales %

$58,000,0
00

$58,389,9
15

19%

5.5%

0.5%

0.17%

55,000

52,181

max

Warranty rate
max

Launch new products in kids

market from 2016, maintain
market leader position for Kids
market, but we lost market
leadership for all other three
segments in the last couple years
We over spent in advertisement in
2017 (27%) and 2018 (17%) due
to unexpected economic downturn
which reduce demand. We
significantly reduced the
advertisement cost in the last two
years to try to increase our
profitability, even though the last
two years advertisement cost
were quite low, but we were still
We focused on constant
employee training and increase on
product inspection to improve our
product quality.

Business process
Total capacity
max

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We increase both the plant and

employee capacity to support the
growing market and new Kids
segment.

Strategy_SP4_MikesBikes_Review_document

Production
utilisation %

80%

91%

Focus on each of the individual

aspects of production utilisation to
ensure that we had the highest
possible utilisation.

We increased staff training and

preventative maintenance spend so
as to reduce rework and breakdown
to 0%.

We increase batch size and invest

more on setup time spend so as to
reduce setup to 0%

min

Breakdown %

1%

0.17%

Significantly increased
expenditure in quality inspections,
preventative maintenance and
increased training hours for staff
to 80hrs.

0.74

0.79

We planned to have training time

increase every year to help
improve our product quality.

max

Learning and
growth
Skill index
min

We also increase pay so as to

attract high skill staff.
Motivation index

0.74

0.78

We planned to have merit

increase in pay and training every
year to keep the employee moral

We launched new product in Kids

market from 2016 because it is a
fast growing market, big market
size, and it also meet our low cost,
high volume strategy.

min
No. of products
min

2. Mission
Review your MikesBikes firms mission statement.
Before you began the MB-AA Multi-Player simulation, you and your team
were required to write a mission statement. Review this mission statement
and evaluate how well your firm has followed it, and whether or not you
would change it if continuing on with the simulation for another four years
(periods).

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To produce low cost, high quality and affordable products with efficiency and
economic scale that is sufficient to customer needs.

3. Vision
Review your MikesBikes firms vision statement.
Before you began the MB-AA Multi-Player simulation, you and your team
were required to write a vision statement. Review this vision statement and
evaluate how well your firm has followed it, and whether or not you would
change it if continuing on with the simulation for another four years (periods).

To produce the most affordable bikes to all people in the local market.

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4. Strategic objectives
Review your MikesBikes firms strategic objectives.
For each of your firms strategic objectives, state whether or not they were
achieved and why or why not.
Increase shareholder value to $50
Increase gross margin to 60%
Increase wholesale to $58,000,000
Decrease warranty rate to 0.5%
Increase production utilisation to 85%
Decrease breakdown 0.5%
Increase skill index to 0.70
Increase motivation index to 0.70
Note: the strategic objectives are set based on year 2014 results.

Overall, we met all the strategic objectives we set in 2014, because we met all the
KPI targets we set for the strategic objectives. (details reason at the table above)

However, if we look at the business as a continuing base, there are a few things
that we should improve.
1. Improve sales planning accuracy to avoid over production or missing sales
opportunity. In 2020, our closing inventory has over 30 weeks stocks for
adventure and leisure, over 18 weeks stocks for commuter and kids. This
could be due to lower awareness to both Adventure and Leisure bikes after
we drop our advertising spend?
2. Improve cost planning quality and make sure we have productivity in each
cost segment, especially advertisement cost productivity.

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5. New strategic objectives

Write new strategic objectives.
Having reviewed your original strategic objectives, prepare a new set of
objectives to guide your firm for the next four years (decision periods).

Increase shareholder value to the new BSC target (suggested $200) or

above by the end of 2024

Improve annual net profit to $30mil by the end of another four years.

Maintain the current high margin

No lost sales and maintain the current high production utilisation by the
end of another four years.

Maintain the current Debt/Equity ratio by the end of another four year.

Increase marketing (advertisement) expenditure, between 10% - 15%.

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6. Resource-based view of the firm (RBV)

Identify the key tangible assets, intangible assets and organisational
capabilities of your firm. Then apply the four test questions from
Strategy, SP2, Business Strategy, to see which of them, if any,
qualify as a core competency.
Tangible assets Physical objects that exist, such as cash, plant, location,
technology.
$36.6mil cash (1, 3, 4)

$7.5mil Plant book value $1.1mil (1, 4)

52,181SCU (total capacity) (1, 4)

$8.4mil Finished good

$905K Raw materials

Intangible assets Non-physical assets that exist, e.g., strong brand

image, experienced employees.

Brand/ Product awareness (1, 2, 3, 4)

Well trained (0.79 skill index), motivated (0.78 motivation index) and
experienced employees(1, 2, 3, 4)

1. Valuable 2. Rare 3. Difficult to copy 4. Not easily be substituted

Organisational capabilities Organisational processes that turn inputs
into outputs in a superior way, e.g., extremely fast product development,
super-efficient manufacturing processes, outstanding customer service.

Financially capable to spend on product innovation and advertisement

fee to improve product awareness to dominate each segment again.

our distribution channel margin is at a very low level, and most of our
products are at top price range, it provides us room to lower our prices
but still maintain a reasonable profitability level if we come across price
war.

Core competencies

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The first step of the process is to identify the resources that the organisation possesses
under these three categories (refer to work performed above). The second step is to apply a
series of tests to each resource to see whether or not it can form the basis of a competitive
advantage. Strategically important resources have four characteristics:
1 Valuable
2 Rare
3 Difficult to copy
4 Cannot easily be substituted.

Resources that pass these four tests are important to the firm because they
are not perfectly imitable or substitutable without great effort. These can form
the building blocks around which strategies can be formulated to obtain a
sustainable competitive advantage.

Ability to control production utilization at a high level

Ability to provide high quality product to customer (low warranty rate)

Fast set up time (large batch size & high set up time reduction cost) to
meet market needs

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7. Competitor analysis

Step 1: Select approach

Stepof
2: Identify
focus generic strategies.
Categorise
your competitors in terms
Porters

Categorise each of your competitors and your own firm using Porters generic
Differentiated products
strategies.
Note that some may be best explained by a combination.
Differentiate by:
Product line
Differentiation strategy is the ability to provide a unique and superior value
Quality
to the
buyer in terms of product quality, special features, or after-sale service.
Design
CostFeatures.
leadership strategy is the ability ofFocus
a business unit to design, produce,
Focus on a specific
market
by:
and market a comparable product more efficiently
than its
competitors.
Industry
Focus strategy is determined by the organisations
level of market
Product
Market
segmentation. Focus is an option, and the
organisation can choose a narrow
Territory.or buyer group niche), or not.
target
(that is,
aim at a specific regional market
Low-cost
producer
Costisleadership
via:when the organisation uses either a differentiation or lowFocus
achieved
costSimplicity
approach, but only for a niche market. Thus a firm may adopt more than
one Volume
generic strategy.
Synergy.

Spokes:

4 products. Based on Spokes pricing strategy, it was aiming to have a cost

leadership strategy. However, from their product specs, they were all quite
close to other competitors, its leisure bike even had the highest spec on the
market, which means they sold medium/high quality products with very low
price, these are not aligning with their strategy and quite confusing, this is
probably the reason why they failed.
Chain Reaction:
4 products. Chain reaction is also adopting the low cost strategy, which they
were leader in Kids and Leisure market, 2nd in commuter and 3rd in Adventure.

Revolution
6 products. Revolution is the only competitor played in all market, they even
have launched two products in Adventure market. They have differentiated
strategies, which they focus on produce high spec products and sell them at
high price level.
Speedline
4 products. In terms of product, they focus both on low end products (kids,
leisure) and also high end products (Racers and Adventure) so they have a
mixed strategy. For both types of products, they focus on product specs. For
the high end products, the price at lower level and allow them to become
market leader. For the low end products, they price their products at high
level because the focus on spec, but they are not leader in the low end

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market.

8. SWOT analysis
Complete a SWOT analysis for your MikesBikes firm given its current
position.

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Strengths

Strong cash flow for future

growth

Leader in Kids market

Price at top level in all

segment exclude Adventure,
which gives us room to get
the market share back

Internal

High team moral and skills,

which helps us to produce
high quality products (low
warranty rate)

Low set up time which allow

us to response to market
change/needs in short time

High margin level in all

products which gives us
room to reduce price to
attract volume but maintain a
reasonable profit level

Very high product utilization

Strong supplier relationship

as we have been spent a lot

Weaknesses

Very high on hand stocks in

2020 for all segments, we may
have potential high
obsolescence if market
expectation changed next
year.

Some product specs are not

matching market expectation
(adventure) and potentially
lose more market share

Current market expense are

very low, only 5% , which
means low carry over brand
awareness in the next two
years , potentially lose more
market share

Inaccurate sales planning

Plant is old and may need to

invest a new plant

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External

Opportunities

We are financially strong

enough to take over Spoke,
as they are currently in
financial trouble, their
strategy is low cost, which is
matching with us and they
played in the same market
with us.

If we can take over Spoke,

we may consider to exist out
Adventure market (high end)
as our market share in this
segment dropped down to 4 th
place and completely focus
on the low end market.

After the recession, bikes

Threats

Employee may expect pay

increase every year because:
First, we create a culture in
the last five years so they
expect it will continue.
Secondly inflation increasing
externally. However, we may
not be able to do it if we keep
losing market share, in this
case, employee moral will be
affected and quality of product
will be lower.

Competitor may launch more

products in the low end
segment as it is not that
expensive to develop a low
end product

9. Industry life cycle

Categorise the bike industry your firm competes in, using the industry life cycle.

Then describe how your firms strategic objectives are consistent with this
analysis.

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our bike industry is sitting between the growth and maturity phase.

Most of the markets are beginning to plateau. This is a sign that the
demand for the bikes have almost reached their maximum point.

Companies are focusing on differentiation and cost leadership

strategies to try and gain customers and there is very intense
competition among the many market segments.

There will now be a high emphasis on process design (as opposed to

product design), as companies try to manufacture the same products
for the least manufacturing cost. Therefore the major area of concern
will swap from sales and marketing to production.

Kids (Mature)

Commuter (Mature)

Leisure (growth)

Adventure (mature)

Market growth rate

Low , current
market at 184000,
potential is 200,000

Very low, Current

156K, potential
160K,

High, Current 107K,

potential 150K

Low, current market

at 104K, potential si
120K

Number of
segments

Intensity of
compeitiion

Very intense

Very intense

increasing

low

Emphasis on
product deign

Low to moderate
not high spec, but
expectation on style
is high

Low - moderate

Low - moderate

high

Emphasis on
process design

High to reduce
cost

high

High

moderate

Major functional are

of concern

Production

Production

Sales and
marketing

production

Overall objective

Defend market
share and extend
product life cycle

Defend market
share and extend
product life cycle

Create consumer
demand

Defend market
share and extend
product life cycles

Appropriate generic
strategies

Cost leadership

Cost leadership

Differentiation

Cost leadership

Three of four segments we played in are mature market with low to very low
growing potential. Cost leadership is the appropriate strategy for these three

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segments. Our strategy objectives should be focusing on our product,

improving our internal process and deign to minimise the cost so that we can
allow to price these products competitively on the market to defend our
market share and extended the product life cycle.
Our strategies objectives are aligning with these

large batch size and great supplier support allow us have short set up
time and on time material delivery not missing market demand,

spend higher amount on prevention maintenance to avoid expensive

warranty cost and maintain customer satisfaction,

spend higher amount on training employee to produce quality products

and avoid product rework.

the current leisure market is expected to keep growing fast, we should modify
our strategy objective a little bit for this products, spend on product
development to make sure our products meeting the expectation of this
market, and improve product awareness of this products to create consumer
demand.

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10. Formulating functional strategies

Formulate functional strategies.
Set possible functional strategies for achieving each of your firms strategic
objectives over the next four years (decision periods).
Marketing:
Increase advertising cost to the range of 10% -15%
Raise overall product and brand awareness
Improve on NS planning accuracy
Maintain the current channel margin level

Product development:
Invest in product development and adjust product spec to market expectation
level accordingly.

Production
Maintain high batch size, high spending on setup time reduction and supply
relationship

Financial
Keep the low debt to equity ratio

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11. Performance measurement

Review your teams Balanced Scorecard.
Review the structure of your teams Balanced Scorecard. Make any changes
that you feel would give you better and more appropriate information to monitor
the progress of your new strategic plan.
Financial
Shareholder value
Gross Margin %
Number of Shares
Debt / Equity ratio

Customer
Wholesale sales
Advertising to wholesale sales %
Warranty rate

Market share
Brand awareness index

Business process
Total Capacity
Projected Capacity
(Adjusted Plant)
Production Utilization %
Breakdown %

Learning and growth

Skill index
Motivation index
No. Of products

Retention rate

Set up time
Number of lost sales

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