BU 449 Framework for Stakeholders’ Report Dr. Juma The sto.docx

BU 449 Framework for Stakeholders’ Report Dr. Juma
The stockholders report should cover these
1. An Outline of the Situation Analysis
2. Company Vision Statement
3. Vision Statement Critique
4. Outline Your Strategy {Include the impact of TQM, Business
Ethics and Advance
Marketing}
5. Competencies and Competitive Advantage
6. Competitor Analysis
7. Performance Measures
8. Financial Structure Policy Statement
Concluding Section
1) If given four more years to manage, what changes if any
would you make? and why?
2) What are some of the lessons you learnt during the eight
rounds? Highlight some of the most
crucial problems you encountered as a team.
Some Guiding Framework to consider
Situation Analysis

Tools
SWOT analysis
• Use data from the Perceptual Map (highlight the weakest of
the products at inception)
• Use data on demand analysis (emphasize the industry growth
rate to demonstrate
opportunity)
• Use the margin analysis coupled with the demand analysis to
identify the highest growth
segments and slowest growth segments.
External Analysis:
• Porter’s Five Forces Model
• Strategic Group Model
Internal Analysis
• Value Chain Analysis
Vision Statement
Here are some questions you can reflect upon to bring your
vision into focus.
1. By segment, how many products will appear in the segment?
2. What will our capacity and automation levels be in each
segment?
3. How much money will we have invested by the last round?
4. What will our financial structure look like? The financial
structure is everything on the right-

hand side of the balance sheet. Fundamentally, it summarizes
how much of the assets were
funded by debt holders and equity holders. You can get the
financial structure you have today
by looking at your “Annual Report”. On the right-hand side of
the Balance Sheet, you will
see your financial structure in percentages. To determine what
sort of structure you want, you
can ask several simple questions.
a) What mix of long-term debt, stock issues, and retained
profits do we need to grow the
company?
b) Do we want to keep profits or pay them out as dividends?
c) Do we want to pay off our debt to avoid interest payments?
d) How would we express these in percentages? For example,
5% Accounts Payable, 0%
Short Debt, 35% Long Debt, 20% Stock, 40% Retained
Earnings.
5. Are we biased towards cost leadership or differentiation?
You will find a short essay on Mission and Vision statements at

http://www.quickmba.com/strategy/vision. In their context, we
are marginally interested
in “Core values” and “Core purpose” (which are known and
common to all teams), but
we are keenly interested in “Visionary Goals.”
Vision Statement Critique
Any good vision statement makes choices between alternatives.
For example, if your vision
places you in the Traditional and Low End (Niche Cost
Leadership), you implicitly plan to give
up High End, Size, and Performance (Niche Differentiation).
The Critique looks at what you are giving up, and at the threats
you face. You are comparing the
potential of your vision against alternatives. Here are a few
questions that might help to develop
your thoughts.
1. How likely is it that competitors will choose a similar vision
to the one you have
selected?
2. Does our vision require significantly more investment than
alternatives?
3. Is our vision difficult to execute? For example, does it
require a broad product line?

Heavy investment? Many segments? If it is more difficult to
execute than alternatives,
that could be good or bad. You might offer a few words on the
trade-offs.
4. How long will it take execute your vision relative to other
plans?
5. Consider growth rates. Overall, the market will grow 150%
over the next eight years, but
the growth is uneven. Is your vision attractive for, say, the first
four years, and less
attractive in the last four years?
Strategy
Use these resources:
1. Michael Porter’s “Generic Strategies”:
http://www.quickmba.com/strategy/generic.shtml
A quick search of www.google.com for “Porter Generic
Strategies” will turn up hundreds of
alternate references. The QuickMBA’s one-page summary is an
excellent overview of the
topic, but feel free to examine others.
2. Review Chapter 12 of the Student Guide, "6 Basic
Strategies."

With these as background, state the strategy attempted to
execute. Be sure to identify errors
or miscalculation made by your team and attempts made to
rectify the errors.
3. Here are some questions to consider:
a. Segments. Which segments matter to you? How much share
of those segments must
you achieve to be an “average competitor” in the overall
industry? For example, if
you choose to play only in Traditional and Low End, you would
have to command a
higher share of those segments to achieve “average industry
sales”.
b. Profit potential.
c. The speed at which you can create a defendable position. For
example, new products
typically take two years to bring to market. Significant
productivity improvements
could take several years.
d. Priorities. Which products are most important to you? Which
are least important?

Competencies and Competitive Advantages
What were the long-range priorities around performance
capabilities? Assuming your team has
clearly articulated a vision, and you have a strategic direction.
For example, you might be saying,
“We plan to be a high technology company. We will concentrate
our resources upon the High
End, Performance, and Size segments. We will compete based
upon differentiation.”
Or you might have decided to be in every segment and compete
on price, or any of a dozen other
combinations of vision and strategy.
But what capabilities do you need to develop to execute your
strategy? For example, it is one
thing to say, “We will compete on price”, and another to build a
company that can effectively
compete on price and still produce a solid return for
stakeholders.

Resources:
You will find dozens of references to “Core Competence” (C.K.
Prahalad and Gary Hamel) and
“Competitive Advantage” (Michael Porter) on the Internet. (For
example, try the QuickMBA.
http://www.quickmba.com/strategy/core-competencies/ and
http://www.quickmba.com/strategy/competitive-advantage/.)
You could develop competencies in awareness, accessibility,
product redesign, product
invention, automation, plant utilization, human resources, cash
flow management, and
forecasting. All of these competencies take several years to
develop.
You would use these competencies to develop competitive
advantages. For example,
competencies in automation and human resources could lead to
a competitive advantage in
cost leadership. Competencies in awareness, accessibility, and
design could lead to a
competitive advantage built upon differentiation.

Guiding Questions
1. What are the top three competencies you believe your team
executed to realize your vision
and strategy? You may also mention competencies you may
have attempted and failed to
achieve. It is more insightful if you can identify what caused
the failure.
2. What decisions or investment led to the development of your
core competencies?
3. How did core competencies produce competitive advantage?
Competitor Analysis
Detailed analysis of your competitor:
1. Give a short description of their current strategic position --
products, segments, plants, capital
structure, source of competitive advantage, etc. Consider their
product line from a “consumer
reports” standpoint.
2. Assess their current opportunities and threats. Given the

segments they have settled upon, how
big could their sales volume get? What is the profit potential?
Can they maintain a competitive
advantage? This requires that you think beyond the 8 years.
Tools:
1. Strategic Group (Section: 2.6)
2. In a competitor analysis, you may highlight the following
(Figure 2.3):
• What drives the competitor, as shown by its future objectives.
• What the competitor is doing and can do, as revealed by its
current strategy.
• What the competitor believes about the industry, as shown by
its assumptions.
• What the competitor's capabilities are, as shown by its
strengths and weaknesses
3. Competitive Dynamics
• A Framework of Competitor Analysis (Figure 5.3): Market
Commonality and Resource
Similarity.

Performance Measures
What performance measures your team select to assess your
company’s performance? What is
their relative importance? Why did you select those measures?
The simulation offers 8 performance measures:
1. Cumulative Profit
2. Ending Market Share
3. Average ROS
4. Average Asset Turnover
5. Average ROA
6. Average ROE
7. Ending Stock Price
8. Ending Market Capitalization
You can find a brief explanation for each measure on the
website under “III. Simulation”

“Success Measures”.
There should be a match between performance measures and
selected strategy.
Financial Structure Policy Statement
Given the performance measures you selected earlier in the
course, and your current strategy and
vision (which may have evolved considerably since your
original vision statement in Round 1),
state your current financial structure policy.
By this point in the simulation you have probably achieved your
most important strategic goals.
Chances are good that you are beginning to spin off significant
cash. How will you apply this
towards your capital structure? (You may discuss the possibility
of using dividend policy, stock
buyback and even bonds to align the capital structure)
As an observation of the real world, when presented with large
cash flows, managers prefer to
spend the money rather than give it back to shareholders. They
might enter a new market, buy a

promising startup, acquire a competitor, splurge on a corporate
jet, or push for higher salaries
and bonuses. Investors generally resist such moves, using
performance measures and the
authority of the board of directors to keep management in
check.
Tools
You may discuss the following:
• Too Much Diversification (Section 7-3e)
• Product Diversification as an Example of an Agency Problem
(1 Section 10-1b)
The struggle between management and owners varies from
company to company. A major factor
in the outcome is the degree to which ownership is
concentrated. Your situation in the simulation
is comparable to a wholly owned subsidiary or to a company
with a very large voting block of
conservative stockholders. You cannot do any of the things
managers love to do. Instead, you
must maximize the wealth of the owners.

Questions to consider
1.) “Financial Structure” is simply the Liabilities and Owner’s
Equity side of the Balance Sheet
expressed in percentages. Given your performance measures,
what should your financial
structure be? Why?
2.) List your performance ratios and the priority weights that
you gave to them.
3.) What should your Accounts Payable policy be? Accounts
Payable is debt. You are leveraging
your vendor’s money. However, at 30 days they withhold
deliveries and production falls by
1%. Your production costs go up as workers stand idle during
parts shortages. At a 60-day
policy production falls by 8%. At a zero-day policy there are no
shortages. Given your
measures, what should your AP policy be?
4.) Current Debt is typically used to fund Inventory and
Accounts Receivable. However, those
accounts could also be backed by Retained Earnings. Given
your measures, what should be
your policy towards Current Debt?

5.) Long Term Debt is used to fund Plant and Equipment.
However, you could use equity
(Common Stock plus Retained Earnings). If you eliminate Long
Term Debt, its interest
payment will disappear, and earnings will go up. However, the
profits used to pay off the
debt essentially went into the bondholder’s pocket. You could
pay dividends to shareholders
instead.
During these last few rounds the market, how did you use Long
Term Debt, Stock Issues, or
Retained Earnings for fund the growth?
Human Resource (HR)
Prepare a policy position that addresses the issue, "Does it make
sense to invest in the
productivity improvements offered by the HR module?"
Suppose that you applied the maximums to recruiting and
training. Here are the costs:
• Recruiting costs per new worker are $5000.
• Each employee trains 80 hours per year at $20 per training
hour
• Workforce complement increases by 4.2% to cover the 80
hours people are in training.

For this section you need a spreadsheet and both the Capstone
Courier and Annual Report. Use
the Round 0 reports for the analysis. Human Resources statistics
like workforce complement and
turnover are on Courier page 12. Use Annual Report Income
Statement's total Labor cost to
estimate payroll costs.
Assume the following productivity payoffs:
Round 2 - 102%
Round 3 - 105%
Round 4 - 108%
Round 5- 112%
Round 6 -115%
Round 7 - 118%
Therefore, in Round 7 each worker would be 1.18 times as
effective as the beginning worker,
and your workforce complement would fall to 1/1.18 or 85% of
its round 1 level.

For a quick evaluation, assume your total labor expenditure
from the Annual Report Income
Statement will stay flat for the next six years.
How much of a cost savings might you expect in the sixth year?
For example, if the total labor
costs on the Income Statement says $29M, and costs stay the
same for six years, then in the last
year your costs would fall to $29/1.18 M.
Apply the same approach to years one through five to get a total
savings over time.
Would this justify the necessary expenditures in recruiting and
training made over time? Assume
a turnover of 10% and no increase in workforce size. Since you
are sending workers to train for
80 hours or two weeks each year, you also need to expand the
workforce enough to cover the
workers that are in training. I am looking for a ballpark answer,
not a precise answer, this

information is just to argue for or against the investment. You
need to decide whether a payoff in
HR productivity justified the expense.
You may assume that the workforce and labor contracts are
constant. In practice the market is
growing at about 14%, and your labor contract has a 5% wage
escalator. At what level, if any,
did your company invest in recruiting and training? Are there
any factors beyond the simple
numbers that should be considered?
Topics worth considering:
• Employees Productivity-
✓ Training increases productivity, motivation and retention (i.e.
reduces separation cost
and recruitment costs).
✓ Increased productivity leads to reduced labor cost since less
employees will be
required to complete the same amount of work.
✓ It is also costly, and the payoff is gradual…
✓ Most importantly it is the only source for sustainable
competitive advantage. All
advantages created in the simulation are gradually imitated.
Once a competitor gains

competitive advantage in HR, its rivals cannot surpass it.
Ethics:
Apply the problem-solving formula {You may use this approach
to demonstrate how you
arrived at your decision} -- ask yourself:
• What are the facts of the case?
• What is the issue here?
• Who is affected inside of the company and outside of the
company?
• What are the choices?
As a team:
• Reach a consensus and make a decision. If you team did not
reach a consensus, explain why.
• Follow your company’s financial and operational results over
time to observe the results.
• Explain how and why your decision resulted on those
outcomes.
Select your preferred option and evaluate the risks and benefits
to stakeholders:

• Is it legal?
• Is it fair?
• Can we defend it?

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BU 449 Framework for Stakeholders’ Report Dr. Juma The sto.docx