Business Management Laboratory Reflections

Note: Question number VII was missing from the handout posted on the Blackboard. We would like to know what was taken away from us.

I. Mission Statement
- Our mission was to serve as many customers possible at the lowest possible price.

II. Stakeholder Identification
- Our company is public is does not have any person with significant ownership in it. In the past, the last person that owned a relatively large percentage insisted on dividends payout thus hurting the development through lack of retained earnings.

III. External Analysis: Identification of Industry Opportunities and Threats
- Bargaining power of suppliers: there were no suppliers really. There is a market for raw materials and all teams have the same prices.

- Bargaining power of customers: the customers had relatively good bargaining power since there were at least 7 teams and 1 importer to choose from. On the other side, I had the observation that teams kept raising prices, which meant that the pressure from customers was not of such high impact.

- Threat of new entrants: 0. Game was set, no one was coming in.

- Threat of substitute products: Since all teams were producing only 1 type of product (barely anyone produced P2) it makes sense to say that 2 factors affecting the substitution of products were price and quality. I did not see a tremendous power in changing to a lower price than everybody else, so I must say that quality must have played an important role. I would classify this as medium.

- Competitive rivalry within the industry. This is very high. There are 7 teams, 1 importer that continually undermined all prices and all of them were doing the exact same products thus creating a tremendous pressure and rivalry. Definitely very high.

Overall The industry seems attractive.

I did not notice any significant changes. The economic index kept staying high above the 100 with small fluctuations, which I guess resulted in decent salses. The price of the labor seemed that may have gone up, but it was somewhat impossible to tell for sure.

IV. Internal Analysis: Resources, Capabilities, Competencies, and Competitive Advantage
There are really limited options on developing competencies. There were generally 3 things we could play in. One was engineering study which I did not see much impact in production cost in terms of labor or materials needed so it must have played a role that was not easily trackable. Quality control and R&D were the other two options. Developing a competency was mostly in terms of improving the overall quality rather than having a specific niche. Our company decided to go the other way and produce cheap products with less innovation/quality, as a counter to what most of the other companies would do. There were no barriers to entry really since anyone could have done that. However, adapting in the sense of turning 180 was a bit difficult so to say since the game itself was very short compared to the time it takes to notice changes from all those three factors described atop.

V. Business, and Corporate-Level Strategy
- Our strategy was to create cheaper products and sell a lot. On a business level we tried to calculate the lowest costs and highest returns in different scenarios of production level.

VI. Performance Assessment
- Although we got a B I would classify our performance of the company in a way as failure compared to the ambitions we had. A number of factors came together to be play for that final:
*) The biggest surprise and problem was that customers were not price sensitive. Right off the bat, that means we are doomed. It takes time to realize that unfortunately because you need at least few quarters to notice a tendency of price and sales, which is half the game.

*) Another problem was that economies of scale did not play well. Though it was expected that labor increases significantly, the prices of products continually was higher than what we could calculate. With the information given we did not seem to be able to get to the number labeled “UNIT MFG COST”

*) For quite an unknown reason the ROI was very low. Even when we decided to give up the huge quantities and decided to concentrate on the amount of units to be produced at cheapest ROI stayed well below the leaders, considering we were not heavily investing in quality improvement.

*) Dividends hardly seemed to affect stock price, that was quite surprising. We stopped paying large dividends after the first time when we realized that.

*) A number of small mistakes were made. One of them was that we forgot to upgrade the stage two capacity one time, which in delayed us in terms of production capacity, since we paid for increase on stage one, we got it, but we were still bottlenecked at stage 2.

*) We also produced product 2 in the very beginning, but it seemed that it neither had good margin nor wide market. That was only too bad that we were the first to figure this out.

VIII. Implementation of Strategic Change
- By now it seems obvious that going the safe way with this simulation is the way to win. Going slowly and with quality apparently seems to be a better choice. A lot of the connections between the different items on the simulation were not clear but they do play a role, and so we suffered by not going the standard way.

Diagnosing Strategic Problems

There is a reason why medical doctors have one of the highest salaries - health of a person is critical and often outcome depends on a diagnosis. A company is a person in itself and is characterized with the same problems - virus, temporary flu, headache etc. Diagnosing it is done in exactly the same manner as humans are diagnosed for diseases - you look at the facts, try to gather as much information and then analyze it to figure out if it fits in the general range of acceptable values.

One such symptom that we can observe is that the company's products are perceived as relatively substandard. This is a problem that doesn't need necessarily studies and questionnaires. All you have to do is overhear conversations. Think General Motors. They have been one of the largest US producers and sellers of vehicles. They probably still are, but their logo now carries a different message - expensive, low mileage, and substandard vehicle. This really hurts sales, forces them to lower prices of cars, give more promotions, reduce their R&D budget and so on. It is actually interesting how GM has not yet adapted to this problem. They seem to choose short term strategies over long term brand image. It is actually quite amazing because it seems to be it takes far more persistence to build a bad image than a relatively good. That also shows another problem - GM is not willing to adapt. This is a huge hint that GM is really sick and needs not a flu shot but an emergency heart transplant.

Another interesting problem that can be observed with a lot of companies is lack of focus. There is a reason why everybody says it is good to find a niche and concentrate on it. With limited resources and time, it is crucial that companies stay on track with what they are doing. Well the example that I will provide has quite a lot of cash sitting in their accounts - in billions, but that shows only one thing - you lose focus, and you don't do well even if you have enough (close to limitless) cash. No focus means there is no passion, which means there is no desire to make a better product and serve the customers. Let's look at Microsoft. After taking over and completely controlling the market for operating systems and productivity office package, looks like they have spread their tentacles all around the computer sphere - online chatting, social networks, search, portals, emails, came consoles (xbox). Name it - they are making it. And this is not really a problem because as we can see Google has pretty much all of these too. The problem is that Microsoft's products are not the best. They are not only not the best, or even outstanding, their products just honestly suck. Now that they are losing market share in operating systems and productivity package, they seem to have no products that are worth talking of. Or rather praised should I say. Google on the other side is doing quite well. Maps, Gmail, Search, and OpenSocial (not theirs completely but they are so to say organizing it) are absolute leaders in their genre. The only way I see MS get out of this big mess is cut on products and try to be the best in few things only and bring real value to their customers.

Bstrategy for dummies

They probably teach you this in business 101 - you need to have a competitive advantage. However, until you dig into the theory, analyze examples, and learn to evaluate companies, 'competitive advantage' will lack meaning.

Getting to the point, I want to give a few examples of good business strategies. First I am listing the 6 types of advantage:
- First mover
- Niche dominance
- Cost lidership
- Product/Service Differentiation
- Market Share
- Government Protection

By heart I am an innovator and I love creative approaches to solving problems. That automatically should tell you that I am a fan of the 'First mover' advantage. It is hard to find a product that stays atop not because it is better but rather because it was first. One such example that comes to my mind is Adobe's Program Flash, that allows you to create animations for the web. Flash is not the only way to achieve those animations and to watch youtube videos. As a matter of fact Silverlight has a better foundation. Yet, Flash came first. Why this matters is that any new technology on the internet has 2 parts: Developer software and player that allows to play the animations. You can make software, but if people do not have preinstalled player built into the browser, no one will ever see what you created. Flash gained such big popularity that now is pretty much the standard technology for animation and even video. Statistics show that over 98% of the internet users have flash player installed on their machines. We as a team that develops highly dynamic and entertainment oriented products were seriously considering whether we should use Silverlight and force people to download the player, or use Flash and have visitor's comfort high. No need to say, Flash won. Adobe currently has almost a monopoly on the market. Their development of the flash system is growing and gaining outside support since it is currently the standard. Their life has become much easier.

The second source of advantage that I am a big fan is the Cost Leadership. As a matter of fact, to take that to extremes, I am a fan of the FREE 'stuff'. One of the greatest minds of the new times and business doings is Chris Anderson. Long time ago he predicted the success of Netflix in a brilliant, brilliant article in Wired magazine named "The Long Tail". If you don't know what that term means, you need a serious catchup with today's business. His newest striking and equally profound article is called "Free! Why $0.00 Is the Future of Business" and explains why companies should be offering products for free. Price definitely is a competitive advantage, and you can see this obvious trend anywhere from the Chinese watches (5 for $10) to Chinese food (fried pork chops for $4? can't beat that). But in my opinion, the pioneer of the free products is Google. An array of extremely good products are now offered to users - Gmail, Maps, Calendar...and a number of others are just the best there is and yet cost $0.00. How is that possible? Well, it turns out that money is not all you can get from the customers. We are just beginning to understand the power of information as the monster Google shades the sun off. Meanwhile, while we remain in misunderstanding of how to price our products, Google continues to develop good products, give them for free, suck out information, make money with it, make more products...

P5

[UPDATE: before reading, scroll all the way up, on the left side is my music box. Press PLAY, and listen to the music while reading.]

Porter five analysis has been well accepted in the academic world. It has been around since 1979 and it has been probably edited and improved since then. It is hard to find any glitches, problems with it's effectiveness, so rather let me jump to the example.

The music business in the internet world.
1. Bargaining power of suppliers. When you are talking about internet business, there are a number of different suppliers. One problem with Porter 5 is that it works well with traditional businesses, but with internet sites, it gets a little fuzzy. Here is why: if you are making an internet site for music, you have a number of different suppliers with very different nature:
- Suppliers of servers. There has been lately so much internet stuff going on that hosting providers are around every corner. Prices are low, competition is high, bargaining power is LOW
- Suppliers of music. We can either talk of random people putting up content (high supply, but not in the traditional way, since we are not paying for it) or we can talk of record label companies who have extremely high bargaining power due to their legal powers. HIGH
2. Bargaining power of customers. A lot of the sites lately are free around and based on advertisement models. In that sense, customers really have LOW power to bargain, since they are not paying for anything.
3. Threat of new entrants in the pure online business is HUGE. Barriers are low, money is available, technology is available...everything screams, "Come make a business online!"
4. Threat of substitute products is also HIGH. there are a million sites that are around. Pandora, like.fm, youtube if you want also has music etc...
5. Comeptitive rivalry within industry. Again, low barriers of entry, high number of substitutions, HIGH number of companies to rival each other.

Generally that would be bad. But in the internet business prices to start a business are low and in such environment you may hit sometimes. Also, even though competition is tight, the demand grows, since more and more people start using the internet.

So my final verdict for that industry is "GO FOR IT". Though it is not easy with so much competition, it doesn't hurt to try. You can see my brand new business, just launched at:
http://thefeelgood.com/
(firefox and safari only for now)

On A Mission

[I am mad mad mad at myself that I had a wonderful example and good points to make and forgot them before I got to this blog.]

It is understood that such a statement serves the purpose of marketing the company image (or what they call 'informing') customers and on the other side to 'inform' stakeholders, management and the like.

In general, a mission statement has to be clear, concise, understandable. Also what I read around that it should be centered around clients.

What I really want to talk about though is another site of the mission statement - the motivational, the directional. A mission statement should be written in such a way that it can relate to every action of an employee or management. It has to make people want to work for the company and give them a sense of direction and meaning. "Provide the best quality socks to our clients" doesn't really make the line of motivation and direction in life. Rather, I would have a mission statement appreciated even by people that DO NOT need the services of that company. More like, "Warm up people's hearts by providing peoples with socks" If you have people united around a more noble idea, then this will flow through the arteries of the organization to the smallest task. Employees will start to do what they do differently without even realizing it...

So let's hop on to the real world. One of my favorite mission statement is Google's, "Organize the world's information and make it universally accessible and useful." As you can see it doesn't say, "We want to organize our client's information and make it accessible" but they rather submit to a more noble cause that triggers an inside feeling of support.

So...direction and motivation is what my company's mission statement will be good at.

Who I am

This as we all know is my BPL blog.

However, if you have the habit of reading blogs, you may want to check my real blogs:
http://entrepreneur2be.com
and the music i post every day:
http://thefeelgood.com
Enjoy!