faculty.cbpp.uaa.alaska.edufaculty.cbpp.uaa.alaska.edu/afef/performance_assessment.docx · web...

Team E

Performance Assessment

Performance Assessment

Tactical & Policy Considerations

Marketing: by ----

The following graphs illustrate our products’ performance as it relates to marketing awareness and accessibility, attributes, and customer survey ratings.

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Marketing - EAT

Awareness %Accessibility %Survey pts.Market Share %

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121518212427

Customer Criteria - EATPrice $ PerformanceSize Reliability

(in thou-sands)

Price $ PerformanceSize Reliability

(in thou-sands)

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Marketing - EBB


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Customer Criteria - EBB

Price $PerformanceSizeReliability (in thousands)Va

lue

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Marketing - ECHO


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Customer Criteria - ECHO


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Marketing - EDGE


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Customer Criteria - EDGE


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Marketing - EGG


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Customer Criteria - EGG


lue

Recommendations

As seen in the initial graphs, Product Eat and Ebb fell short of our goals in awareness, survey points, and market share. Since the traditional and low end segments are the target segments of our low cost niche strategy, each round we will give priority to marketing products in these segments while managing expenses and our financial health. But, we will increase both sales and promotion budgets across all segments.

Corrections to increase Awareness: This is affected by the promotion budget and we will increase the reach and frequency across all segments, employing the most in our target segments. Over the rounds, we will increase this budget in all segments and extend the accounts receivable lag. We will add print media to our size segment, direct mail to our performance segment, web media to our high end segment, email to our high end segment, and trade shows to our traditional, low, and performance segments.

Corrections to increase Accessibility: We will make changes to our allocation of the sales budget. We will increase inside sales, outside sales, and distributors across all segments. Traditional and low end will reach their maximum with the first two rounds while all other segments will experience increases with each round.

Corrections to increase Survey Points: At minimum, we will be positioned in the ideal spot within the traditional and low end segments, price at the bottom of the expected range, have the ideal age, and have an MTBF at the top of the range. We will lower prices and MTBF across the remaining segments as much as our financials will allow.

Corrections affecting Market Share: In many segments, we will find the ideal spot as soon as possible and maintain it the cheapest way possible prioritizing expenditures in the traditional and low end markets. We will reposition, develop new products, or move a product over time into the spot to increase demand and sale of our products across all segments.

We will avoid stock outs by running a capacity analysis combined with our demand analysis. Additionally, we will be proactive by adding capacity for the next rounds within the traditional and low end segments and selling a little less capacity in the remaining segments. Our time allocations will increase across all segments, but we will maintain greater allocations in our target markets.

Production/HR: by ------

Plant UtilizationFrom the start, the only product that was utilizing greater than 100% of the plant’s capacity was our Low End product Ebb. As we were clearly producing in excess of demand, we decided to cut production on Ebb to bring it line more towards our forecasted sales amount for year 1. In addition, we did have some excess inventory in year 0, which enabled us to cut production to 99% of the plant’s capacity, which provided us the opportunity to avoid paying overtime and to boost employee moral. However, once demand in the Low End segment picked-up in year 3, we then continued to produce over single-shift capacity out to year 4.

Since our competitive strategy was as a low cost niche provider of sensors, we ultimately decided that it would be in our best interest to focus solely on our Traditional and Low End products Eat and Ebb respectively. Therefore, as you can see from the chart below, our plant utilization for Echo, Edge, and Egg became zero starting year 2 and continued to be so until the end of year 4.We released all of the workers that were employed in these segments but did keep the lines open.

Plant Utilization

Year 0 Year 1 Year 2 Year 3 Year 4

Eat 66% Eat 66% Eat 99% Eat 198% Eat 124%Ebb 129% Ebb 99% Ebb 127% Ebb 121% Ebb 101%Echo 45% Echo 53% Echo 0% Echo 0% Echo 0%Edge 73% Edge 71% Edge 0% Edge 0% Edge 0%Egg 63% Egg 69% Egg 0% Egg 0% Egg 0%

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Plant Utilization Per Product

EatEbbEchoEdgeEgg

Year 0 to Year 4

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Year 0Year 0

AutomationGiven our low-cost strategy, it was imperative to increase our automation levels for products Eat (Traditional) and Ebb (Low End). Throughout the course of four years we did not adjust the automation levels of our other products because they were not our primary area of focus. In addition, the more advanced the sensor the more imperative it is to have actual workers constructing them. We have included below a chart and a graph representing the increases in our automation levels per year.

Automation Levels


Eat 4 Eat 6 Eat 7 Eat 8 Eat 8Ebb 5 Ebb 6 Ebb 7 Ebb 10 Ebb 10Echo 3 Echo 3 Echo 3 Echo 3 Echo 3Edge 3 Edge 3 Edge 3 Edge 3 Edge 3Egg 3 Egg 3 Egg 3 Egg 3 Egg 3

Auto-mation Levels

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Changes in Automation Levels Per Product

Eat Ebb Echo Edge Egg

As you can see from the information presented above, we were automated to the optimum levels by year 3 for our Traditional and Low End products. The optimum automation level for Traditional products is 8 and for Low End products 10. We had to steadily increase these levels as we ran into liquidity issues due to investing in other equally important areas.

Capacity ChangesFrom the start, we made very little adjustments in our capacity levels due to the uncertainty of what was going to happen in the sensor industry as we knew very little about our competitors’ overall strategies. We did not want any issues with stocking-out or being short capacity in subsequent years. However, once a few years had passed and the market started to take shape, we began selling excess capacity in all our lines except our Low End line where we increased our capacity. This strategy enabled us to free-up some cash to funnel into other areas within our organization that were in need.

Capacity Changes



Capac-ity

Changes

0200400600800

100012001400160018002000

Production Capacity Changes Per Product


Selling all the capacity we could in Performance, High End, and our Size lines was not a great decision. Even though these lines were not our ultimate focus, we sacrificed greatly in-terms of sales that we could have generated and market share we could have taken away from our competitors. We never recovered from this poor decision. In addition, selling excess capacity for Eat (Traditional) in year 3 was not a wise decision either because as the years progressed we could never afford to buy the capacity back that we needed in-order for us to gain additional market share. Our competitiveness in our strategic areas, Traditional and Low-End, was inevitably weak because of this mistake.

Inventory ManagementOur excess inventory levels were somewhat of a problem until year 4. However, the only reason that is was not a problem in year 4 was because many of our competitors stocked-out of their inventory and we captured additional sales. In fact, this was the only year that we had more than one segment stock-out. Presented below is our inventory management chart, graph and dollar impact chart due to stock-out.

Excess Inventory Levels



Excess Inven-tory

Levels

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Excess Inventory Levels Per Year


Dollar Impact of StockoutsYear 0 Year 1 Year 2 Year 3 Year 4

Eat $0.00 Eat $0.00 Eat $27.50 Eat $0.00 Eat $0.00Ebb $0.00 Ebb $798.00 Ebb $0.00 Ebb $0.00 Ebb $0.00Echo $0.00 Echo $0.00 Echo $0.00 Echo $0.00 Echo $874.50Edge $0.00 Edge $0.00 Edge $0.00 Edge $0.00 Edge $0.00Egg $0.00 Egg $0.00 Egg $0.00 Egg $0.00 Egg $320.00Total $0.00 Total $798.00 Total $27.50 Total $0.00 Total $1,194.50

Even though only a small amount of money was lost due to stocking-out over the course of four years, it is important for us to really look at the reasoning behind this. We made no product enhancements for our High-End, Performance, and Size products and, therefore, moved slowly out of favor with customers, which subsequently led to decreased market share. We stopped producing these products in-order to eliminate additional excess inventory build-up. We knew that the higher-end markets were growing in size and the chances of us selling the excess that had been created were greater each year.

RecommendationsOne recommendation to improve production efficiency will be to increase automation levels in High-End, Performance, and our Size segments to their optimum levels in-order to reduce labor costs associated with production. Another recommendation will be to keep these lines running by not selling too much capacity so we can capture additional market share. We will produce enough inventory in-order to satisfy our worst-case sales scenario per each higher-end segment to continue to stay somewhat competitive. We say somewhat competitive as these segments are not our primary area of focus given that we are a low-cost niche provider. In addition, in-order for us to capture this additional market share, we will need to spend money enhancing the performance and the size of these products so they remain of interest among customers.

Since we eliminated a great deal of our capacity in the High-End, Performance, and Size segments, we really did not need to spend a great deal on recruitment incentives as we displaced many employees. However, we did provide training of forty hours each year starting year 2. I do believe it would be in our organizations best interest to provide

eighty hours of training per year, especially given that we will be increase our automation levels in all of the segments and not just Traditional and Low-End as it takes a more knowledgeable worker to work with automated lines. Obviously, we will be spending money on recruitment incentives in the future as we will be keeping all lines running and will need an additional complement of workers.

Finance: by -------

The table included below represents the actual financial figures that were achieved over the four year period. Next to the forth year’s actual figure in each category, you will find our forecasted amount. In two areas, Net Margin and Asset Acquisition, we found it extremely difficult to provide a forecasted amount given the uncertainty of our product pricing decisions with respect to our competitors and the speed with which our competitors and their products would be moving in and out of market segments. In addition, as far as plant improvements/automation levels are concerned, our main objective was to be automated to the ideal level in both our Traditional and Low End lines before the end of Year 3. However, due to monetary constraints, we were not able to reach our optimum automation levels until the beginning of year 4.

Actual Figures Anticipated ObjectivesReturn on Sales (ROS) Year 0 4.10% Year 1 -10.20% Year 2 -1.00% Year 3 -1.60% Year 4 7.40% Forecast 12.50% Return on Equity (ROE) Year 0 8.70% Year 1 -14.10% Year 2 -1.40% Year 3 -2.20% Year 4 10.40% Forecast 40.00% Return on Assets (ROA) Year 0 4.40% Year 1 -6.10% Year 2 -0.70% Year 3 -1.10% Year 4 5.80% Forecast 20.00% Asset Turnover Year 0 1.05 Year 1 0.6

Year 2 0.67 Year 3 0.69 Year 4 0.79 Forecast 1.8 Stock Price Year 0 $34.25 Year 1 $14.22 Year 2 $14.90 Year 3 $17.51 Year 4 $30.49 Forecast $61 Contribution Margin Year 0 28.30% Year 1 27.40% Year 2 33.80% Year 3 37.00% Year 4 48.80% Forecast 32.22% Net Margin Year 0 4.14% Year 1 -10.24% Year 2 -1.00% Year 3 -1.60% Year 4 7.38% uncertain Leverage (Assets/Equity) Year 0 2.0 Year 1 2.3 Year 2 2.0 Year 3 2.0

Year 4 1.8 Forecast Approx 2.0

Plant Improvements ('000) Year 0 $0 Year 1 ($20,000)

Year 2 $19,591 Year 3 ($24,640) Year 4 $0 fully automated Asset Acquisition ($) Year 0 0 Year 1 0 Year 2 0 Year 3 0 Year 4 0 uncertain

We exceeded the forecast on our contribution margin, which indicates that we are utilizing our plants efficiently in terms of producing sensors, and that we are pricing our sensors appropriately.

With regards to our net margin, our goal here was to try and get this figure as high as possible or at least higher than our initial net margin in year 0. We did run into several financial issues during years 2 and 3, but we did manage to end year 4 with a net margin of 7.38%; therefore, we are generating $7.38 for every $1 spent. This figure is quite a bit larger than our beginning net margin of 4.14%. So, we are looking at this figure positively in that we exceeded our expectations because we are adding more dollars to our bottom line.

Our goal for leverage (Assets/Equity) was to be around 2.0 as we did not want to take on any more debt than we absolutely needed. The success of this goal came from us selling excess capacity when allowable and increasing our automation levels.

RecommendationsOur actual Return on Equity was substantially less than our forecast. One corrective measures that we will take in-order to raise this figure an attract more investors will be to actually increase our leverage. By increasing our leverage we will be able to grow significantly faster and larger than by just trying to operate within the confines of our net income. In addition, this will enable us to reach optimum automation levels faster, which will lower our labor costs and increase the spread between our cost of production and our costs in which we sell our sensors to our customers. The inevitable affect will be an increase on our Return on Equity.

We also fell short on our Return on Assets. We did have a 30-day accounts receivable policy throughout the four years, which no doubt had a negative affect on our ROA ratio. We will decrease our accounts receivable policy in-order to fee-up more cash. This excess cash will be used to increase the attractiveness on our higher-end products hopefully leading to greater sales as we got stuck holding a significant amount of inventory on these items. We were not running our operations efficiently because we had excess inventory on our shelves and as a direct result, our ROA suffered.

By incorporating the above corrections, we will achieve a higher stock price as this was the other area that we fell substantially short from our forecast.

While it is important for us to focus on our strategy as a Niche Cost Leader, we cannot fall victim to focusing only on our Traditional and Low-End sensors because the inevitable result will be exactly what happened in the previous four years: a low ROE, low ROA, and a low stock price.

Competitive Strategy Evaluation

Core Competencies & Competitive Strategy Assessment: by -------

Low-cost Position

Our strategy and vision was to become the leading low cost provider of sensors to the traditional and low end segments. We built better facilities and automation levels in these particular segments but did not in the high end, performance, and size segments to our company’s detriment. With minimal sales coming in from the non-targeted segments we subjected ourselves to monetary constraints and were not able to reach our optimum automation levels, thus not allowing for us to reach our optimum low prices. In our strategy we overlooked the need for healthy sales in our non-targeted segments. We gave up all market share in the high end, performance, and size segments and were not able to develop our core low cost competency.

We attempted to reach good levels in our contribution margins and net margins, utilizing our plants and adding more dollars to our bottom line. We were not able to develop a good return on equity level so we will work to increase our leverage and in turn reach our automation levels faster and lower our labor cost. We had excess inventory over each round and were not able to develop our return on assets. We will make greater investments in our marketing to increase our reach and sales to lower our inventory hold each round.

Industry wide Multi-segment

We reached good levels of awareness and accessibility in our target segments but not in the remaining segments. We need to improve our marketing reach and frequency in the remaining areas to increase our sales and revenues to provide for greater automation and human resource competencies. This will allow for greater market share in all segments and in turn we can take greater cost leadership in our targeted markets. In the future, we will invest in greater levels of awareness and accessibility in our target markets and fair levels in our non-targeted segments.

We did not develop the requisite competencies in product redesign and invention. We did not keep to our plan of repositioning the products in our non-targeted segments to hit the ideal spot in our traditional and low segments. We repositioned our low end too early and never repositioned our non-targeted segments products. Greater plant utilization was achieved in our low end product but not in the traditional product or any of our other products. We did not develop a new product in the later rounds as suggested in our business plan.

Competitive Position Assessment: by -----

1.) Our competitive strategy was low cost niche leader. Our unique and valuable position will ultimately be a product that meets the customer’s needs at a lower price within both the traditional and low end segments. We wanted to offer products in these segments with the best product meeting the customer criteria. We worked to increase demand of our product by lowering prices. In order to execute this strategy Team E needed to continuously monitor and assess its position to reach a competitive advantage. We monitored design, production, and marketing so that we are more efficient than competitors to be able to compete on cost.

We worked to keep R&D, production, and materials costs to a minimum. Our products in the traditional and low end segments were keeping pace with the market and we increased automation levels.

We needed to develop high levels of automation and plant utilization to lower costs sand in turn offer the customer the lowest price. At the same time we needed to gain great market share through significant investments in marketing. We needed to balance costs with investments in employees and product redesign. Our growth strategy included market penetration and market development. Rather than develop new products we wanted to attract new customers to existing products and increase our share among existing customers.

2.) We made the decision to not sell capacity in round 1 because we were trying to avoid buying capacity back at a higher rate. Unfortunately this led to underutilizing the plant and strained finances. We should have sold at least $300,000 of capacity in the high end, performance, and size products. We should have increased our sales and promo budgets to around $2 million in the traditional and low end segments. In the future we will increase the promotion budget and increase our reach and frequency across all segments.

We made an error in re-positioning our low end product in round 1. Our sales forecasting was too high in round one, so we will be using the customer survey scores to forecast demand better in the future.

We increased automation aggressively each round and will continue on the traditional and low end product lines and add automation to the remaining product lines. In the future, we will keep pace with the performance and size of all products to at least keep market share in the higher end segments. We maintained eighty hours of training per year to employees as we increase automation. We will spend more on recruitment as we will be utilizing more lines and need more employees in the future.

3.) We achieved competitive advantage by reaching consistently higher contribution margins over competitors and our bond ratings were consistently better than competitors. Our margins never fell below the initial 28.3% and our ratings were at least a BB.

We managed the customer criteria importance within the traditional and low end segments, pricing and MTBF at the bottom of the range. We reached our optimum levels of automation in the traditional and low segments at levels 8 and

10 respectively. We eventually sold some capacity in round 2 which freed up cash and allowed for increased investments in marketing. We then increased our sales and promotion budget to $2.3 million and $1.8 million respectively across our target segments. This in turn produced greater sales and increased market share into rounds 3 and 4.

Balanced Scorecard

Assessment: by ---------

The following graphs illustrate the trends from round 1 to round 4 across the dimensions of the balanced scorecard; financial, internal business process, customer, and learning & growth.

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Overall Performance

Overall Performance

Tota

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Overall scorecard performance was minimal over the four practice rounds. We will need to make significant improvements in all four dimensions to become competitive.

Team E’s overall scorecard performance was minimal over the four rounds.

Round 1 was successful in improving the balanced scorecard, but when emergency loans were needed in round 2 all gains were depleted and it was too hard to recover.

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Performance by Dimension

FinancialInternal Business ProcessCustomerLearning & GrowthPo

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Significant improvements must be made in the financial, customer, and internal business process dimensions to become and stay competitive.

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Financial

Market Cap SalesEmergency Loan

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Team E does not have an option to take out emergency loans. We must cover annual expenses by increasing sales, issuing more stock, and long term debt. Additionally, we must significantly increase sales across all segments and capture a majority of the market share in our target segments. We will need to invest in marketing in our non-targeted segments and redesign to stay in the fine and rough cut areas.

Our increased stock value over the rounds improved our market cap. We expect to give a little on our market cap as we increase our debt and plant/product investments.

Market Cap grew from round 2 to 3 and saw a slight decline in round 4. Emergency loans took a dive in round 1 and were unable to recover.

Sales experienced 0 growth and even shows a slight decline between rounds 1 and 2.

Team E made wrong decisions over rounds 1 and 2 and the Financial dimension experienced significant loss.

Learning & Growth experienced significant improvement and held strong through round 4.

Internal Business Processes were not utilized and Team saw 0 growth in this dimension.

The Customer dimension shows a slight decline.

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Operating Profit

Operating Profit

Poin

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We need to significantly increase our net profit. We can do this through increasing our sales and possibly our prices in the non-targeted segments and lowering our costs. We will have to capture a significant amount of sales in our non-targeted segments, because we do not see a way to significantly decrease expenses besides our plans to increase automation. We will continue with aggressive automation. We will spend as little as possible in repositioning and meet the minimum criteria on product specifications when it is not a customer priority in our non-targeted segments. We will also spend very little in product invention, instead position our current products to hit the ideal spots across the segments as drift happens.


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Customer

Wtg Ave. Survey ScoreMarket Share

Poin

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We must increase the customer’s demand and for our products and their sale across all segments. By investing in a fair amount of marketing in the non-targeted segments and some repositioning, we will increase our annual sales compared to the industry sales. We were not able to capture as much market share in our targeted segments as we were expecting. We plan to improve the overall customer survey score by prioritizing repositioning: high end and size products first then performance and finally traditional and low end products. We will be lowering our prices more aggressively to reach the bottom of the expected range and moving our MTBF to the top of the range when it is of higher importance to the customer. We are planning the repositioning to hit the ideal age as well.

Team E was unsuccessful in growing operating profit over the four rounds.

Team E saw small but steady growth in the customer survey score.

Market share declined over time after round 1.


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Learning & Growth

Sales/EmployeeAssets/EmployeeProfits/Employee

Poin

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We managed labor negotiations to both meet employee needs but also manage expenses. We increased our assets and decreased the number of employees over the practice rounds. We plan to focus on increasing profits/employee where we are not able to in the practice rounds. We will work to balance our workforce compliment to total profits by increasing automation aggressively as well as sales.

Team E did not improve its profits/employee significantly in the practice rounds.

Growth in sales/employee and assets/employee occurred between rounds 1 and 2 but remained unchanged through the end of round 4.

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