BUSINESS SIMULATION PROJECT

REPORT
ALPHA LTD.

Submitted by TEAM 3

Sindhura Junju (Managing Director)@00258674

Sai Krishna (Marketing Manager)@00257488

Lavanya Sangadala (R & D Manager) @00219959

Sandeep Kunnummal (Production Manager) @00251087

ChandraMouli Medaramitla (HR Manager)@00255640

Sandeep Kumar (Finance Manager) @00261844
Receipt: Success
BUSINESS SIMULATION PROJECT TEAM 3 The file has been sent to the selected users with role of
Instructor.

BUSINESS SIMULATION PROJECT TEAM 3

Junju, Sindhura
Submitted Fri Oct 01 2010 15:27

TABLE OF CONTENTS

 INTRODUCTION

 BUSINESS PLAN AND STRATEGIC APPROACH

 MARKETING

 RESEARCH AND DEVELOPMENT

 OPERATIONS MANAGEMENT

 HUMAN RESOURCE MANAGEMENT

 FINANCE

 CONCLUSION

 REFERENCES
 INTRODUCTION

Alpha Ltd is a European based Motor Manufacturing Industry. The company

manufactures cars of different sizes and designs. The company targets customers
of age groups 25-40 as well as 41-55 and categorizes the cars into city, large and
luxury cars for the market sector. The company’s vision is based on “Providing
Value for the Future”. The Company also concentrates in the production of Stylish,
Comfort and Safety features in low price for all generations. There are various
assessments that have been taken at different areas like marketing, operations,
human resource and finance to raise the company’s performance and make it a
captor in coming years. The team made use of the strategies discussed in the
Bowman’s strategy clock and cost optimization.

There are many theories that have been applied while taking assessment at every
step during the business. Some were helpful and had a potential effect on the
business. This report aims at examining the company’s performance with respect
to the appropriate theories using business simulation data. First section deals with
business plan created for next 7 years, different strategies and theories used to
capture the market and increase the sales. The next sections show the marketing
tactics used for pricing, promotion of the products and research analysis. The third
section includes research and development used to improve the quality of the
product. The Fourth section determine the strategies used to determine the
production level of the product using product life cycle and at the same time keep
in mind the stock levels. Employee satisfaction is also taken in consideration
which deciding upon their wages and giving then proper training to decrease the
warranty cost and increase the quality is the Role of HR which comes under the
fifth section. The last section deals with financing of the company and managing
and reinvesting the cash and profit in proper place.
BUSINESS PLAN AND STRATEGIES:-

The company formulated a business plan for the first 7 yrs. The business plan is an
effective tool used by businesses to organize the goals and objectives in a coherent
format, especially for new or small businesses, which will help the company,
maintain focus (Hormozi, et.al, 2002). Even though the company was
comparatively a new one, it was necessary to assemble a good quality business that
had the focus of lasting out 7 yrs. The group entered the automobile industry with
a analysis of market penetration in the first year exclusively to establish itself in
the market. During the first year the company determined on city and large cars
for the younger and middle group generations. Then in the second and third year
the company focused in the market expansion plan where it spent concentrating on
expanding the market hoping for better profits through its promotions and
advertisements. The company also changed the sector from the buyer’s age group
under 25 to the age group 25-40 in the city car segment.

In the fourth year the company firm for the improvement in its profits through
investment in its Research and Development. The reason behind this was the
management decision to differentiate the company’s products compared to the
market leaders and competitors. This strategy failed and sales figures dipped.
Throughout the fifth and sixth year new segment of the car was initiated in the
different sector that is the luxury car was launched in the 41-55 sectors. Also
during the same year initiatives were taken to strengthen the existing products by
bringing changes in its features and packages and strengthening the market
portfolio. Adding on in the same year the company brought in changes in the
sector which led to heavy loss therefore in order to bring up the companies level
the action was taken to go back to the previous sector itself in the next year that is
the final year. Also during the final year increase in the gross profit margin was the
main goal of the company.
The company also fallowed two different strategies which are the long term and
short term strategies. The long term strategy includes low pricing, high quality and
improved features. The short term strategy includes customer attention and
advertising strategy.

STRATEGIES

SHORT TERM
LONG TERM

The strategy clock’ shows different positions in a market where customers have
different `requirements’ in terms of value-for-money. These positions also show a
group of generic strategies for accomplishing competitive advantage (Faulkner. D.
and Bowman .C, 1995). From year 2, city car hereafter is low price strategy of no
frills, which combines a low price with low perceived product benefits and focus
on a price-sensitive market segment (Faulkner. D. and Bowman .C, 1995). A cost
leadership strategy is intended to generate competitive advantage by achieving
costs that are lower than all competitors (Saunders. H., and Piercy. 2004).There
were different strategies used to make the company compete in the market. we
concentrated on cost optimisation, where the company has made products at the
lowest possible price when compare to its competitors.
 Source:
http://www.marketingteacher.com/Lessons/lesson_bowman.htm

MARKETING

Marketing is the process by which companies create customer interest in products

or services, and it generates the strategy that underlies sales techniques, business
communication, and business development (Kotler, P; Armstrong, G; Wong, V;
Saunders, J, 2008). Therefore, marketing can be said as planning and
implementation of the production, market analysis, promotion, pricing and
distribution of goods and services to make trades to achieve individual and
business goals.

MARKET ANALYSIS
The initial purpose of the marketing department was to recognize in which sector
the first two models of cars can be launched. For this we used bowmen’s low price
strategy and analysed all the market sectors in respect to the company strategy, and
made a decision to enter in the city car market sector which holds the largest
market sector of European car market.
Initially the sector under 25 in the first year was chosen later changed to another
sector in the second year to 25 to 40 based on gaining more the opportunities.
Afterwards the company decided to enter in the large cars market sector under 25
to 40 and in the second year moved to age group 41 to 55 where the company
could get more profits, with high quality and style as it was a step to inward bound
in the luxury car market. In the fifth year, company entered in the luxury car
market for the age group over 55 and changed in the sixth year but still the
company was not receiving any profits in that year so it return to the same position
in the seventh year. Later on Alpha Ltd launched a new car in large sector in sixth
year over 55, but the company was not getting any profits in that sector therefore it
changed the sector again to 25 to 40 where it gained more profits. Even though
Alpha ltd sells products and gains less profits the Company doesn’t compromise in
the quality of the product which it sells for the best low price.

PRODUCT

According to our company’s vision, the company produced cars for low price and
was persistent for continuous improvement in high quality, through investing in
research and development, promotions and training.

PROMOTION EXPENDITURE

According to Stewart, D., (1996) there are five generic methods to determine the
appropriation for the promotion budget. These are objective task method, the
percentage of sales method, competitive parity, the managerial approach and the
all you can afford method.

Here the company used competitive parity method. Alpha Ltd invested more
amounts in televisions and promotional offers. When comparing with others the
company stands in third position. The company on an average invests £140m per
year on promotions.

PROMOTIONS WITH COMPETITORS

This figure shows the position in the market of Alpha ltd along with its
competitors in promotions. In the fifth year and sixth year the company increased
its promotions level to 21% and 30% respectively in promotions.

PRICING
Low pricing is the company’s strategy for selling cars at low price. The Company
maintains almost same price throughout the seven years even though there were
different factors influencing the market (increase in the manufacturing price and
decrease the market size). According to PLC, prices should be either stable or
decreased during maturity and decline stage which is one of the Strategies which
the company followed.

TARGETING STRATEGY

Over all Alpha ltd introduced 4 cars. Initially it launched 2 models alphai1 which
is city car for younger generation and large car, alphai2 for middle aged group. In
fifth year the company launched new luxury car over 55 sectors called alphai3 and
in sixth year the company launched another car in the large sector for middle age
group alphai4.

MARKET SHARES

Here the company compares its shares with competitors in alphai1 which is in city
car segment up to 5 years and the company stands in the leading position but in the
6th year there was a sudden decrease and in the 7th year the company recovered it.
In alphai2 which is the large segment the company stands in the leading position in
sixth year there was a decreased and the company stands in a position between
EMW and The Six-6.

Alphai3 is the luxury car which got introduced in fifth year and due to high threat
of competitors the market share was low. Alphai4 is the large car which got
introduced in sixth year and company has maintained its market share in sixth year
amidst its competitors and has improved in the seventh year.
 MARKET SHARES

RESEARCH AND DEVELOPMENT

Research and development (R&D) refers to the analysis and improvement of

products, This R&D services and processes that a company must continuously
undergo in order to stay competitive and this process refers to investigating new
technologies, as well as investigating marketing feasibility design, production and
manufacturing process and this process includes exploring market needs and
identifying innovative new ways of operating and managing organizations

Research and Development is a scientific investigation so these investigative

activities that a business chooses to conduct with the intention of making a
discovery that can either lead to the development of new products or procedures,
or to improvement of existing products or procedures. Research and development
is one of the means by which business can experience future growth by developing
new products or processes to improve and expand their operations. So this research
and development process needs to be planned and managed very carefully because
to get the success results.

This R&D report is based on investors Vs Competitors. So present study explained

about the investment variations in different companies in seven years period. The
investment in research and development was largely based on market research
perception report. According to this graph Alpha Company invested 23.05 million
pounds in first year production to increase in quality.

And in the 2nd year this company invested just 18.35 million pounds because the
production decreased and in the 3rd year they increased the investment to 19.05
million pounds and finally the company recorded more profit in this year and again
in the year-4 and year-5 the company increased investment in research and
development because to increase in quality. Although, buyers’ perception can
change with time, however it proved to be helpful in increasing sales and gross
profit margin.

And especially this company introduced the new and latest model car in the fifth
year that’s why this R&D investment recorded as the highest amount which is
£112.1m and compare to other companies this alpha limited invested highest
amount on R&D in fifth year. And later years the company not invested on R&D
because in the previous years the company invested more amounts so that’s
process is still ongoing.

In the future the company planning to investment more amount on R&D because
this company estimate more production with latest models and facilities. And also
the company plan to increase in terms of quality, price, productivity and sales also.

OPERATIONS MANAGEMENT
The role of operation manager in any company is mainly to manage activities that
come as part of production of goods and services in that particular company. The
tasks like managing the operation process, designing, planning, control, improving
performances and also formulating a good and suitable strategy is to be undertaken
by an operation manager

The indirect responsibilities of an operation manger come in the form of

interacting with other functional managers whose decision s are vital in the
ultimate functioning of the operations department. The decisions made by other
functional managers also impact the operation manager because the functions like
Marketing, Finance, and HRM and also R&D effects the decisions made by
operations manager

Decision making is the central role of all operations manager and here as far as the
company alpha ltd is concerned as an operations manager decisions were made in
areas like

 The number of cars to be produced per year (considering the capacity of

operation)
 Maintaining a good stock level and also stocking of raw materials for
production
 The quality level of cars produced

Production levels Vs stock

Effective production levels and also stock maintenance was essential in our
company Alpha Ltd. As you can clearly see from the figure below in the initial two
years we faced the problem of underproduction thus leading later to inappropriate
stock levels and also losing some of the potential customers in the long run

It is quite essential for a car company like alpha to maintain a strong stock level
with the vision of a long term in the industry. At the beginning our plan was to
have at least ten percent of stock for the years, however in the year’s one and two
our stock levels were pretty poor due to under production.

PRODUCTION Vs STOCK

Taking into consideration the mistake committed by underproduction, in the

subsequent years we produced more cars and maintained a better stock level.

But in the later years we increased the level of production taking into account the
factors stated above which led to some negative trends in the department of
finance (which will be discussed later by finance manager).
Also in accordance with product life cycle in the mind we subsequently decreased
the production and also maintained a better level of production which one can say
was not under or over the production levels.

AUTOMATION AND WORKFORCE USED VS PRODUCTIVITY

Productivity can be defined as a measure of output from a production process and

is calculated at the rate of per unit production. For example labour productivity is
calculated as a ratio of output per labour which is the input.

Our company used less automation and workforce in the initial two years and
increased the usage considerably from the third year onwards; this is clearly
depicted in the graph given.

AUTOMATION AND WORK FORCE

Again with the introduction of a new model in the fifth year we had to invest more
on automation and also increase the workforce. In the seventh and final year we
had to put more work forces so as to enable more production levels.

From the figure given below it is clear that the company alpha limited started with
sustainable rate of productivity in the first two years. But in the third and fourth
year there is an increase in rate of production.

OVERALL PRODUCTION

But in year five it again increased tremendously with much input and increase in
usage of automation and workforce involved.

The trend of increase in production rate continued in the last two years that
followed.
Total production Vs quality

The ability of a product to fulfil a customer’s expectation while buying that

particular product can be called as the quality of the product.

If a product fulfils a customer’s expectation and thus he/she feels it is of high

quality will automatically place their trust on the sellers of that particular product
and will often be a regular customer of that company.

In alpha company we always made it a point to sell quality cars at very low prices
as mentioned by our MD but in the initial years even though the quality mark
exceed one, in the coming three years the quality level decreased owing to many
factors like (low wages and thus leading to strike) etc.

OVERALL PRODUCTION

QUALITY

However the company managed to increase the quality levels in the final three
years and the level of quality touched the highest in the year six as clearly depicted
in the graph.

HUMAN RESOURCE MANAGEMENT

Human resource management is defined as a strategic and coherent approach to the

management approach of an organisation must value asset the people working
there who individually and collectively contribute to the achievement of its
objectives. (Armstrong, 2006)
According to the Dessler, 2008 Human resource management is the process of
acquiring, training, appraising and compensating employees and of attending to
their labour relations, health and safety and fairness concern.

HERZBERG THEORY:

Fredrick Herzberg performed analysis to understand the employee satisfaction and

dissatisfaction based on factors in an employee’s work environment. Frederick
Herzberg is regarded as one of the great original thinkers in management and
motivational theory.

He suggested a two-step approach to understanding employee motivation and

satisfaction (www3). He developed motivation-hygiene theory to explain
satisfaction and dissatisfaction results.

He called satisfier’s as the motivational factors and the dissatisfier’s as the hygiene
factors, using the term hygiene in the sense, they are considered as maintenance
factors that are necessary to avoid dissatisfaction but that themselves do not
provide satisfaction. (www2).

IMPLEMENTATION OF HERZBERG THEORY IN ALPHA LTD.

According to Herzberg theory the management should focus on reorganising
employment so that motivator factors can take effect. He recommended three ways
in which this could be done:

• - Job Magnification

• - Job Alternation

• - Job Improvement

JOB MAGNIFICATION:

It determines the job growth for the company based on the Wages and job
opportunities given to the employees.

Minimum wages Vs Alpha Ltd wages

Alpha Ltd has always given more wages when compared to that of minimum
wages by which the company tried to motivate their employees. The figure above
denotes the wages comparison between the Company and minimum wages.
Human resource director had always included a steadily increased the wages of the
employees every year which increased the quality of production and decreasing the
strike days and give the employees satisfaction and motivate to produce good
quality.

Accordingly Alpha ltd in the third year had announced 1273 Job vacancies hence
by which the company improves its production of Alphai1 model and Aplhai2
model to 275% and 382% respectively.

JOB ALTERATION:

It includes the job interest and employee satisfaction. The following graph shows
the positioning of employees satisfaction in Alpha Ltd based on the absenteeism
rate. In the primary years absenteeism rate was 2- 3% of the workforce this
denotes that employees were satisfied with the opportunities, salary and interest
provided by the company.

ABSENTEEISM

But on the other hand in the fourth year the absenteeism rate was high nearly 8-
10% of the workforce. This ground to dissatisfaction among employees. The basis
behind such absenteeism was due to the drop off in the Overall Market from
£12.8m to £11.8m cars sold. Therefore the company had reduced its production in
addition to which announced redundancies. In order to overcome this, the
company increased the employment opportunities and wages by which the number
of strikes had reduced to 2 %.

JOB IMPROVEMENT:

Training means giving new or present employees the skills they need to perform
their jobs (Dessler, 2008).

Alpha Ltd had invested nearly in the initial years to build up their quality of
production. From the third year the Human Resource Manager had reduced the
investment in the Training in order to increase the Operating Profit but still had
maintained the Quality of production.

TRAINING VS QUALITY

Even though the company had minimized its investment in Training it had
maintained its production through speculations in Automations. For example in the
third year the company had invested nearly £ 42m in Automations.
FINANCE
The figure shows the role of finance in corporate decision making and its
integration with corporate strategy. The role of finance in operating decision is
primarily one of valuation and monitoring. Finance helps managers evaluate the
operational alternatives available to them, and help them monitor the decision that
is implemented. Finance plays a major role in formulating the financing strategy,
evaluating the alternatives, and monitoring the outcomes. The objectives of
financing strategy are
to raise capital at
the lowest cost, which
in turn increase
shareholder value.

Financial Planning and Risk

The managers of different departments seek help from finance manager to

formulate plans and policies. Using this production level is set to according to
market demand.
Decision in a company is made mostly on future prediction, so the risk factor is
always there. Much of finance is concerned with a balance between risk and
return. Any decision made faulty may lead to crisis of company finance decision
model consist of few steps.

Finance
Operation
Managing
Marketing
Budgetdirector
work
group
director and
financial
controller

This model clearly depicts the importance of the role played by finance manager. It
is not only about financing the firm but also how to manage cash in the bank by
investing in government gilts or for expansion of the business.

The budgeting decision made by finance manager is important because operation,

marketing, R&D, HR all need money for their works.

Financing the company

Finance is the lifeblood of a business. The finance manager of an existing business

must therefore ensure that finance is available, when required. This involves short
and long-term cash forecasting, completed by reference to the overall investment,
production and marketing plans of the business.
Company can be financed by issuing share, through bank loan or overdrafts.
Initially the alpha Ltd. needed more funds to buy a plant or factory, pay salary to
workforce, investing in R&D and marketing.

Issuing Shares

The Alpha Ltd. generated £500 million by issuing 500 shares each having value
£100. However to support the funding of this enterprise, £500 million was
insufficient when the cost of factory, automation, market research, data on
competition, wages and other overheads were took into consideration.

Bank Loan

The bank loans are usually for fixed amounts for specific periods, at fixed rates of
interest, although variable periods, at fixed rates of interest rates can be negotiated.
However how much maximum loan a company can borrow is depends on its
credibility. Taking loan is a better option which allows company to tackle the cash
flow problems. Over borrowing or under borrowing both can convert companies
profit into loss.

BANK BALANCE / LOAN

Alpha Ltd. borrow £350 million bank loan in the first year from the available
£1000 million to overcome the cash flow problem which is under borrowing,
resulted the balance bank goes negative.

Next year the company took all the available loan £293 million which is over
borrowing. So in both the year finance manager are unable to estimate how much
loan taken from the bank.

Since the company was struggling for 7 years to generate cash and therefore was
unable to repay the loan amount. That means the company waste millions of
pounds in the form of paying interest to bank.
Overdraft

This is another way by which company can have extra cash, withdrawing the
money over the available balance in the bank is overdraft. Although a company
can create more cash by overdraft, there is lot of interest rate from 8% plus
inflation (minimum 15%).

Since Alpha Ltd. use overdraft almost every years that mean company waste lot of
money in paying interest for overdraft

Thus overall, finance manager did not deal properly with the financing the
company and wasted lot of money not only in paying interest over 7 years also
paying more interest for overdraft almost every year.

Shareholder’s Fund

Shareholder funds is all the money belonging to common stock shareholders which
includes the balance of share capital, all profits retained and money classified as
reserves ( e.g from revaluation increase of assets). It can be positive and negative.

Initially there was £500 million in the shareholder’s fund and the investor
expectation this fund is increase by 50% every year.

But the company could not fulfil the expectation of our shareholder and the
shareholder fund continuously decline year by year because of the negative
retained profit.

This gives a bad message to our shareholders and our company loses the trust of
our shareholders who invested in our company.

REATINED PROFIT / SHAREHOLDER’S FUND

Gross Profit and Overheads

The gross profit of the company is increase year by year. On the other side the
gross profit margin percentage is decreases year by years because of increasing
cost of sales.

The overheads and inflation were increased every year but due to over low price
strategy we don’t increased our product prices, resulted the difference between
gross profits and overhead were narrow and negative or very low retained profit
every year.

GROSS PROFIT/ OVERHEADS/ RETAINED PROFIT

Finally, the finance manager of Alpha Company failed in generating profit,

repaying loan amount, increasing shareholder fund etc. The main reasons behind
this are the low price strategy and increasing overheads.

Thus in future the Finance Manager will see to that the company allocates a proper
fund to each department and try to overcome the overheads.

CONCLUSION

Learning Outcomes:

First of all The Alpha ltd grasped its major slip-up slanders in its Strategy i.e.
Production of high Quality in Low price which is extremely hard which is one of the
major drawback for the company. This drawback leads to the drop in the Company’s
Gross Profit Margin.
According to the Product life Cycle the company should change its Product design
and options based on the Life span of the Car. But the Alpha Ltd Company did not
include any changes in features and design in its Alphai1 Model due to this the
company had a loss of £ 100m in the Seventh year. In addition to which the
company’s Gross Margin decreased from 18.07% to 3.21%.

Moreover the Company’s Productivity rate and Material cost kept increasing every
year but even then the company did not increase its Model Price in order to maintain
its Customer Satisfaction. Concurrently the company had sold more number of cars
when compared to its Competitors however the company couldn’t gain profit due to
its low and standard Model Price.

The Company also understood that there would be amplification in Sales through its
investment in Promotions. Therefore the Company had always ventured more in
Promotions when compared to its Competitors.

The company also studied through its experience that Over Production is better than
under production. The company had also tried to follow this but at certain
circumstances the company was not able to maintain it due to its high level of Sales.

However the company had managed to sustain stable growth through its alternative
plan that helped to gain competitive edge over some of its competitors.

Recovery Plan:

The Alpha Ltd Company for its recovery plan had studied to implement in
Focused Differentiation Strategy instead of Low Price Strategy. The company had
planned for this plan so that there would be an increase in its Gross profit Margin
by which the company would top its competitors.

REFERENCES
 1. Armstrong, M., (2006) Human Resources Management
Practice, 10th Edition, Kogan Page: London and Philadelphia.
2. Bowman, C. and Faulkner, D. (1996) 'Competitive and
Corporate Strategy’, Irwin
3. Dessler G., (2008) Human Resources Management, 11th
Edition, Pearson Prentice Hall, London.
4. Jae K. Shin, Joel G. Siegel; Operations Management; Barron’s
Education Series – 1999.
5. Kotler, P; Armstrong, G.; Wong, V; Saunders, J. (2008)
Principles of marketing (5th ed.). p.7.
6. Knott, Geoffrey Financial management / Geoffrey Knott . -
4th ed . - Basingstoke : Palgrave Macmillan, 2004
7. Mclaney E.,(2006), Business finance theory and
practice,7thedition
8. M.P. Narayana, Vikram K.Nanda; Finacne for strategic
decision making: Jossey-Bass, A Wiley Imprint-2004
9. Stewart D., (1996). Allocating the promotional budget:
revisiting the advertising and promotion-to-sales ratio.
Marketing Intelligence & Planning. 14 (4), p34-38.
10. The role of operation manager - understanding operation
management; Online access on Sept, 30, 2010.

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http://openlearn.open.ac.uk/mod/oucontent/view.php?
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[Accessed Date 28th Sept 2010]

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[Accessed Date 29th Sept 2010]

WWW3

http://tutor2u.net/business/people/motivation_theory_herzberg.asp

[Accessed Date 30th Sept 2010]

WWW4

http://www.wisegeek.com/what-is-rd.htm

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