Daniel Morgan

Kevin Tame
Tyler Christensen
White Label Simulation

The overall strategy employed in this simulation was to maintain steady growth across

the 10 year period and do it in a way that was slightly aggressive but still sustainable through the

ten years and beyond. A problem that is faced in growing a company quickly is that exponential

growth will never sustain over a long period of time and eventually critical mass will be reached.

In our mental model of this situation, there are three major relationships that influence our

strategic plan: crowding versus popularity, quality of service versus cost for quality, and personal

gain versus company sustainability. Amongst these three relationships are intertwined sub factors

that influence the overall relationships.

Crowding vs Popularity

In the CLD below, it can be seen that as customers increase the restaurant becomes more

popular, however at the very same time too many customers lead to over crowding. There is a

fine line between being over crowded and having no customers. Ideally, having the restaurant

full enough to make it seem popular but not full enough to have excessive wait tines and poor

service. Unfortunately, this symbiotic relationship left on its own leads to over crowding and a

decrease in popularity. To balance the struggle between these forces; pricing, menu development,

and marketing become key players in maintaining the balancing act.

In terms of a pricing strategy the first thing done was to raise the price of meals. The

restaurant industry is notorious for operating on very thin margins. Competing on price was not a

strategy which the company could reasonably sustain for a long period of time. As can be see in

the below CLD, pricing had a direct influence on demand. However, it was discovered that
customers’ perceptions of value were not drastically altered by these changes in price. This is

because crowding and popularity are both reinforcing and balancing the perception of value. This

allowed price to be used as a way to lower demand and increase demand when needed, while still

maintaining a high overall service quality factor. For example, once over crowding became less

of a problem and the variable started to decline lowering the price in order to increase numbers

helped. This strategy would not net any large bonuses but the profits were always very close to

their target marks.

The menu attractiveness was a very important factor in developing a successful strategic

plan. The most useful purposes of developing the menu was to control crowding. In the CLD

there is a loop that comes into the crowding loop and is used to help regulate this crowding. The

reason that spending on the menu helps with crowding is that by continuously developing new

various types of food choices the diversity of the demographics of customers increases. These

different groups have different eating habits and tend to eat at different times of day. This allows

White Label to server more meals at a more even rate throughout the day which reduces

crowding and wait time. Dumping large amounts of money into developing the menu early in the

simulation would show only one change in the menu to the customer. It was better for a slight

growth in spending over the years was the most effective because customers would consistently

be impressed by the menu and have a high perception of the restaurant. This strategy was

effective at first, but once the company reached a very large size the extra spending on the menu

did not help as much with the crowding issue as raising and lowering the price did.

The marketing strategy employed was similar to the People Express strategy previously

simulated. Starting off early with a reasonable percentage of marketing and slowly lowering it
throughout the game proved to be the most effective. This is because marketing will have the

biggest impact when trying to get a foot in the door but later on the customers word of mouth

and overall perception of the company has a greater impact on maintaining and increasing

customers.

Quality of Service vs Cost for Quality

Quality is essential to the success of the company so balancing the cost for quality with

the quality of service was done by focusing on labor force and maintenance. As shown in the

CLD, money spent on the quality factors increases quality but at the same time increases

operating cost. To successfully maintain an equilibrium of forces increasing or decreasing the

percentages was done. For instance, when service quality went below .9 or was trending down

the first step was to raise the labor fraction by half a percent and view it the next quarter to see if

the trend was reversing. This generally reversed the trend and towards the end of the simulation

the signs of this struggle between the two were apparent by the upward trending sin wave that

was developed on the overall quality factor BOT.

On top of the significant importance of a labor force, maintenance also proved to be a

vital factor in the success of White Label. As time goes on and facilities age it becomes essential

to dedicate a higher percentage of revenue toward maintenance. Early in the simulation

dedicating two percent to maintenance was sufficient because facilities were new. As time went

on slowly increasing the spending on maintenance until it peaked at five percent was good. It

was most important to stay on top of maintenance and not to allow the conditions of facilities to

begin to slip because maintaining is drastically cheaper than making large improvements.
Personal Gain versus Company Sustainability

One the greatest challenges within this simulation was understanding which performance

measures really mattered. The increase in one area generally is a decrease in another. By

maximizing personal gain through bonuses share holder and company stability will suffer. While

at first glance it should appear that bonuses, share holder value and long term sustainability

should increase proportionality, they do not. Beating the predictions of upper management

constantly means you receive more bonus, and the more you beat them the higher the bonus.

Having a strategy of maximizing one’s own wealth by focusing on short term gains ultimately

leads to being fired or simply lowers the other measures by a large margin. The motivation of

large bonuses is counter productive because self seeking gain becomes the real goal and not

sustainability. To avoid this problem a rigorous “do not over exceed forcasted profits” strtegy

was adhered to. Focusing on maximizing sustainability and share holder value was the ultimate

goal and in turn best for the company.

In order to achieve this steady sustainability growth, in first years it was necessary to

request capital at the fastest rate as possible so that the gap between competitors could be closed.

Once this level had been reached, maintaining a growth that was on the level with competitors

was taken until the growth curve reached an inflection point and exponetial growth rate began to

slow down. The critical mass point was identified as roughly 180 - 200 restaurants so efforts to

decrease capital investment were taken at that point. 180 - 200 was the target because it was

observed that once this level had been reached the market became saturated and White Label

restaurant began to cannibalize other White Label restaurants. Looking at the total restaurant

BOT the exponential growth curve and plateauing effect can be seen. Even though management
offered more allocation of capital it was key to control the urge to request the maximum amount.

The key to requesting capital is to resist this temptation and expand at a rate sustainable for the

company.

Conclusion

In conclusion White Label restaurants should grow steadily while trying to avoid

saturating the marketing by being too large and also should avoid competing on price. Marketing

will only be used to generate demand at the beginning of the game and will be slowly lowered

throughout, due to the fact that word of mouth opinion proves more effective at the end of the

simulation. Providing excellent service by focusing on maintaining all the different factors that

went into the overall quality measure is a wise strategy. Working to keep the overall quality

above 1 was incredibly important and required a great amount of attention to detail in spending.

Focusing on long term gains versus short term ones will be the deciding factor of the companies

success.
Causal Loop Diagram:
Crowding Loop - As customers increase crowding becomes an issue and people feel that they

have to wait for a long time. This effects the quality of service that can be provided and in turn

effects customers perceptions. Demand will decrease if the restaurants are too crowded.

Demand Loop - As customer increase the popularity and perception of quality increase resulting

in the demand increasing. This loop works in conjunction with the crowding loop and results in a

fine line between over crowding and building popularity.

Quality Loop - The quality loop is used to show how money spent on quality such as labor,

maintenance and menu effect customers perceptions of quality. The more money that is spent the

higher the quality there is.

Quality Cost Loop - With the increase in quality there is a cost associated with it. Demand

might increase as will revenue. However, as quality increases the cost of this quality will come

back to revenue and begin to decrease it creating a balancing of revenue.

Menu Loop - The Menu Loop acts a little differently then the other quality items so it was

necessary to diagram how it related to the decrease in crowding. By increasing the variety

(spending on development) the diversity increases and spreads out the time of when customers

come in which in turn decreases crowding.

Capacity - Executives see that there is available capital and allocates more to building more

restaurants. However the input of how much needs to be spent is up to the manager. This loop is

precarious because there is the temptation to grow faster than is sustainable.

Even though bonuses could be much larger share holder value and sustainable profit were the

biggest concerns for us.

We used this to gauge if we were getting to far away from what the companies targets were.

Getting too low or too high eventually leads to being fired.

We wanted to increase this as best we could and you can see that it is plateauing with a sin wave.
This is the most sustainable growth curve that we could create. It is highly likely that the

company will not go bankrupt in the following years.

We used this to maintain quality around 1.

This was used to see if we were generating new customers from value or marketing. We wanted

word of mouth to be the main source of marketing so we constantly focused on quality which

increased word of mouth and value.

Waiting more than 60 minutes was huge problem for us. We tried to keep the average time below

an hour.