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 Base Score

value value
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
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
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
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 MARK STRAT & 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 Markstrat BOSS iBizSim

Information

Developed By StratX StratX Prof. Ullal

Focus STRATEGIC STRATEGY AND OPERATIONS &

MARKETING INNOVATION MARKETING

Audience Experienced Marketers Masters & MBA an Experienced Marketers

& MBA experienced Marketers and operation specialists,
MBA students

Simulated Extended duration, 6 to Short duration, 9 simulated Short Duration with 4

Timeframe 12 years. Up to 12 one- years split into four rounds decision periods
year decision period of decisions representing 4 quarters of
a year

Number of Industries of 4 to 6 Unlimited number of teams 6 teams play in each

Participants teams (4 to 6 (3 to 5) participants each) industry in direct
and participants each) in in indirect competition. competition with each
Competition direct competition with Each team competes other. There can be up to 6
Type each other. against 3 computer players in a team
controlled companies
Market Durable consumer Video game console 3 types of consumer
Characteristi goods One established durables. One
cs market and possibility to degenerating, One market
add an emerging leader and one upcoming
product
 BASED ON ANALYSIS AND OBJECTIVES

Analysis And Markstrat BOSS iBizSim

Objectives


Data Provided Consumer panel Market research studies  Management Report
for analysis  Consumer survey  Market Research report on
 Distribution panel For Red round: :-
 Semantic scales  Company KPI  Pricing
 Multidimensional  Offering characteristics  Sales
scaling  Benchmarking study  Quality
 Competitive  Customer preferences  Productions
intelligence  Sales & Market Shares Decisions
 Advertising  Market forecast  Economic Report
experiment   Purchasing reports
 Sales force For Blue Rounds:  Summary reports
experiment  Visual exploration  Decision Reports
 Competitive
benchmarking
 Market forecast
 Conjoint analysis
Consumer 5 market segments 3 Segments based on product No segments but customers
Segments based on product features and price buy based on price, quality,
Established features and price image and product
Market availability
Consumer 3 market segments Blue ocean market of N/A (no new market)
segments in based on innovation noncustomers based on teams’
New market adoption curve strategy
Performance Market and segment  Market Shares  Team decides the needed
Metrics shares  Revenues performance metrics like: -
 Revenues, product  EBIT  Liability Equity Ratio
contribution  Share Price Index  Market Image
 Net contribution  Market Share
 Return on marketing  Profits
expenditures  Production and Delivery
 Stock price index 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 There are 3 fixed products though a
many products as they wish in each team may choose not to produce 1 or
decision period more types of products
R&D Teams design, request and No new R&D or products can be
fund their own R&D commissioned
projects

Distribution/ 3 channels (direct, general and
Transportation specialized)
Manufacturing Capacity is flexible, but teams must
forecast production target
Sales force Teams select the number of sales
people devoted to each product
Finance/Currency All decisions are taken in K$ and is
the only currency used. Also loan
giving decision is upto the game
coordinator/ Teacher
Communications Teams set media and advertising
creation budgets for each product
Pricing Team sets the retail price of each
product
Total amount for each product to be
transported to each of the markets
must be specified
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
Teams decide expenditure on sales
branches and sales force both.
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
Teams set media and advertising
creation budgets for each product in
each market
Teams set the retail price of each
product in different markets in specific
currency units
 ANALYSIS BASED ON DECISION SPECIFIC ASPECTS OF BOSS

Decision Blue Ocean Strategy Simulation

specific BOSS
RED ROUND BLUE ROUND

‘AS-Is’ N/A Drawing the current indusry value curve

Strategy
Canvas
‘To-Be’ N/A Using the ERRC (Eliminate, Raise,
Strategy Reduce, Create) tools to draw Strategy
Canvas Canvas for Blue Ocean Offering based on
analysis of Visual Exploration
Marketing N/A Teams set Marketing Communications
Budget Budget
Product Teams are allowed to N/A
Upgrade modify the physical
characteristics of their
offering
Production Teams set the number of units to produce for the upcoming period, as
plan & Price well as a recommended retail price to distributors
Segmentation Teams allocate efforts N/A
Strategy between the 3 target
segments
Geographical Decide on coverage rate on the 2 markets, Roundland (main or local
Expansion market), and Starland (new or international market)
Distribution Teams allocate coverage N/A
Coverage between 3 channels &
quantity and quality of
shelf space
Corporate Teams decide on investments in projects aimed at increasing
Projects productivity, reducing costs and/or improving organization capabilities
 MODIFICAT ION SUGGEST ED 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.