Andrews Company Finally Summary Report Capsim
Component 1: Executive Summary
Andrews Company was able to achieve a lot in its earlier years of operation, but it dropped drastically between second year of operation to sixth year of operation. The company incurred a net loss in seventh year as well and this can be attributed to lack of market strategies and inability to adapt to the changing market. Between third and seventh year, there was no significant change in total assets, which shows that it did not invest heavily in research and development or new machines. Also, the company suffered a net loss between fifth and seventh year of operation, this can be attributed to poor management decisions.
Andrews Company started with one product, Able which fell under the category of low-tech segment. The company maintained the production of the Able product only till its third fiscal year when the company decided to introduce its second product April. The company produced both Able and April, low –tech segment products starting from its fourth year, and onwards.
The introduction of April product under the low tech segment was attributed to the fact that the company was not enjoying significant market share in that segment and was poorly performing at that point. The production and inventory information at year four shows that the company had a lot of inventory for the low tech segment, Able, lying in the warehouse unsold. At year four, the company recorded 882 million units sold for Able, and an inventory of 766 million units for the same product. This shows that the product was struggling to be accepted in the market at this point in time. The newly introduced product, April, was however easily absorbed into the market as all the units produced were sold (50 million units).
The company however tried to move the April product through improved automation, so as to attain desirable products that could fit in the high-tech segment. This was an expensive affair for a company which was already struggling with financial liabilities, long term debts and high cost of operations. At round 6, the company only had a market share of 8% for the Able and 2 % market share for the April product.
The company further introduced Alicea product in its round 7, with the aim of increasing its production, utilizing its resources and probably creating more revenue after sales. The two products added April and Alicea performed well at round 7 and towards round 8, since the company managed to sell all the units for the two products. The April product, now under high tech segment had started improving in terms of performance and market acceptability as it improved by 1% in every year. The company performance had insignificantly improved by the end of its 8th financial year.
Progress of the Company
Looking at the financial statistics recorded at the end of every fiscal year from year 1 to year 8, the company had a very good start, until its fifth year when the company recorded its first Net loss. The company made a net profit of 2,494 million dollars in its first year and the profits increased gradually to 6,085 million dollars in its second year. The company outperformed all the other companies in round 2 and this was very impressive for a young company that had just started its restructuring and production.
The trend however changed from year three and profits decreased significantly from third year of operation to sixth year of operation. The company records show that, the company incurred a net loss of 6,142, and 6,443 million dollars in its sixth and seventh years of operation respectively. This can be attributed to the fact that the company added more product, April, at its low tech segment, while it tried to move its low end product Able towards the high end market segment.
The table below shows the net profit and net loss that the company experienced over its 8 years of operation.
|Year of operation||Net Profit (in million $)|
The figure below shows more detailed financial parameters of the Andrews Company
Figure 1: Financial Summary for Andrews Company over 8 years
The company allocated a lot of money towards its plant and equipment improvement throughout the years increasingly. This was necessary so as to allow the company improve on the quality of its products and fetch a higher market control. The company had to increase the quality of its product Able which was drifting from low-tech segment to high-tech segment across the years. This strained the company financially and had to issue some stock in its round 5, 6 and 7 so as to be able to fund the new development.
Current Situation of the company : SWOT Analysis
The company was able to achieve a lot in the first few years of its operation. The company had enough financial capital at its disposal so as to be able to sustain itself even when it lacked market shares for some products. The company’s leadership was also able to plan for the future, making the necessary estimates and improving on their plant ever so often. The company had plans in place to ensure that it could be a market leader in years following its establishment.
The company had a lot of financial capital at its disposal, which was used very well by the management in boosting the company’s performance by increasing the quality of their products. This increased market share and created more revenue for the company. The leadership was able to conceptualize and plan for a future where they would be manufacturing high-tech products, thereby supporting themselves in this endeavor.
The management failed to foresee an immediate demand from its customers for the products. The company was not able to satisfy its customers’ demands due to limited supply of their products in the market. This led to a decrease in sales revenue, which consequently affected the company’s performance.
The company also failed to realize that there were other competitors who had already started manufacturing quality products within this market before it could settle itself in. This led to a lot of market share loss, because the company’s product April lacked enough features which its competitor’s products had.
The management tried to push for market penetration towards high-tech segment with limited capital and human resource. It was not able to sustain its operations as it would have liked because of this reason. The company could only handle the low-tech segment for so long.
The new products commissioned by Andrews Company did not prove to be effective in the market. The company had to spend a lot of money on research and development just to achieve the results that were expected out of these new products. Also, it suffered several losses and financial drains in its earlier years and this was attributed to poor managerial skills in responding to market changes.
The introduction of new products into the market always creates opportunities for companies that are willing to embrace them, and Andrews Company is no stranger to this reality. The company has always introduced new products in order to compete with large corporations like Baldwin, Chester, Digby etc., which already had a strong hold on the market.
The company can further improve its research and development, to come up with more innovative products that will allow it to create a demand in both markets.
The company might improve on its production in the future and invest a lot more in research and development in product improvement. This would make a huge difference in market performance of Andrews Company. If the company could be able to tap into new markets, then it would also help boost up its revenue generation significantly. Also, the company should improve its product quality, especially the low tech segment where it recorded low profits in round 2. The high tech segment was doing well for the company and this helped boost up the revenue generation significantly.
The company might be faced with changing market trends which would make its competitors to diversify their products and expand into new markets. This will make a big difference in revenue generation and market share considering the fact that the company still has a few products to launch into the market. Also, the company should try to improve on its financial management so as not to face financial issues in future years of operation.
There are more companies who are competing with Andrews Company for market share; some of them include Baldwin, Chester, Digby among others.
Baldwin and Chester are very well-established in the market, having already dominated the market to a large extent. Even when their products’ features become outdated, they are still able to rely on their customers to purchase them because of the trust customers have in their companies.
Future of the Company and Recommendations
Andrews Company should focus on improving its financial management, then it would be able to achieve more in the future. It should expand into new markets if it has not done so, this would make a huge difference in its market share over time. Also, the company needs to invest heavily in research and development of products so as to improve their market performance significantly. This would help Andrews company generate more revenue and maintain a stable cash flow into the future.
The company has the potential to improve its market share over time, it can do so by focusing on production and diversifying its product portfolio. The company also needs to focus heavily on research and development of new products in order to sustain a competitive advantage. Research and development would help improve on current products as well as ensure that the company introduces new and innovative products into the market.
The company should also come up with a pricing strategy that would help them generate revenue and facilitate growth in production. This will be significant because competitive prices will allow the company to increase its market share and lead the market towards better performance over time. However, it is important for Andrews Company to realize that by lowering their prices, they would be undercutting the market which will lead to loss in revenue.
Diversifying product portfolio would help companies achieve growth over time. This can be seen throughout the simulation process where companies that had multiple products were able to generate more revenue than those with few or no products. For instance, Apple Inc. generated $180 billion of revenue in the first quarter of 2018 due to innovative products such as iPhone and Mac. Apple has been able to maintain a competitive advantage over time because it is constantly introducing new products, such as Mac and iPad, which helps generate more revenue throughout the years.
As for Andrews company, it should diversify its product portfolio if it wants higher revenue and market share. Each product should have a different price so as to help it stay competitive compared to its rivaling companies. In addition, the company should also choose a strategy that is more suitable for long term growth rather than short term benefits.
Ethical, legal and social Challenges
The company has been able to increase its revenue generation, despite facing significant challenges such as product defects and limited production capability. Despite this, there is still more work that needs to be done; the market share loss suffered by Andrews Company could have been avoided if the company implements a strategy that would help create a demand in both markets. The company might benefit from diversifying its products and expanding into new markets, rather than relying solely on improving existing products.
The management has been able to identify critical issues such as low-tech segment revenue generation and product quality concerns through analyzing financial records of the company; the company needs to improve on its production capabilities and create a demand in new markets.
The company should consider introducing more staff members if the numbers coming in are not sufficient for meeting market demands, since this is one of the most important elements that determine success or failure.
The globalization wave can also be seen to have an impact on the performance of Andrews Company, since the increase in production costs has pushed prices up so much so that there are people who are now finding it difficult to afford any products. The company should consider introducing its products at a further reduced price, which will still allow them to stay competitive with the other competing brands.
The company might benefit from the fact that its products are now coming at a reduced price.
Component 2: Professional reflections
There are several important lessons acquired after the whole simulation process from round 1 to round 8. One of the notable skills developed throughout the exercise is ability to make sound management and marketing decisions for a company, and in this case, Andrews, which was my company. As a student, I have learned various skills that are more relevant to the course content itself. One of them being financial management.
Financial management was one of the core components in this assignment since it involved capital allocation decisions and strategies adopted by Andrews company over time. This helped me realize that companies need to plan ahead before making investment decisions or entering new markets. For instance, companies should think about how they would be able to finance an expansion into a new market before setting up operations in that particular market.
Another important skill that was developed is marketing. One of the main reasons why Andrews’ company hasn’t performed well over time is because there are very few products on the market compared to other companies. Companies need to diversify their portfolio if they want to generate higher revenue and market share, or else they would be undercutting the market by selling similar products at lower prices.
One of the major learning outcomes after this exercise is that companies should diversify their product portfolio so as to generate more revenue over time. Also, companies must ensure that prices for their products are competitive so as to maintain a stable cash flow (Anderson, 2005). However, companies should avoid undercutting the market because it would lead to loss of revenue. As previously stated, this could be seen in round 5 where Andrews’ company was selling similar products at lower prices compared to its competitors. Further diversification would help the company stand out in the market and lead to overall growth in revenue.
Andrews Company Simulation Model & Scoring Rubric | Capsim Portal https://ww3.capsim.com/student/portal/index.cfm?template=reports
Anderson, J. R. (2005). The relationship between student perceptions of team dynamics and simulation game outcomes: An individual-level analysis. Journal of Education for Business, 81(2), 85-90.