The company, which you have to manage is complex and, although it is fairly easy to understand its broad structure, there are many subtle aspects to the way in which it works.
The second part of the manual (The business environment) describes the structure of your company. In doing this it looks at the four main management functions of:
One of the main aims of this simulation is to illustrate these interactions and to demonstrate that, in managing a company, achieving a proper balance is fundamental to success and you can do this through teamwork, good organisation, and effective communication.
Your team needs to organise itself to carry out the senior management duties of the company it is controlling. Precisely how you organise yourselves is your own decision.
You can, for example, set yourselves up along functional lines, with each person responsible for looking after one aspect of the business. You will probably need a team leader who will ensure that everyone's views are heard and brought together to form a consensus.
Or, you may prefer a more relaxed setup with everybody in a broadly based committee.
There is no constraint on what technical aids you may use. If you wish to create your own spreadsheet models, you can find detailed definitions in the management report section.
Once you have a strategy, you can then devise the business tactics to make that strategy happen. (If you find that you are getting into trouble, the strategy can always be revised to make it achievable.)
One approach is -
- Marketing should consider the economic background, and the nature of the different markets, and then prepare a marketing plan. This would provide forecasts of likely product sales in the overall market.
- Operations then invests in plant and equipment, recruits staff, buys materials, organises production and distributes products in order to meet this demand.
- Personnel should check that whatever is planned by marketing and operations can be achieved, and at what cost, given the nature of the labour market.
- Finally, the finance department needs to check this whole process in order to ensure that it is not only profitable, but also can actually be implemented within the company's financial resources.
This is the basis of teamwork - and its need to compromise to find the best corporate solution, not only in the short term, but also one that fits into the longer term strategy.
Remember, you are trying to maximise your company's investment performance. The share price reflects the future prospects for your company and, therefore, you should devise a strategy to get your company into the best possible shape towards the end of the simulation.
You can buy basic materials in three different ways -
- by default, by not ordering enough materials to meet your production plan
- on the 'spot' market, at a price announced last quarter
- on the Futures Market at prices announced last quarter
Default purchases are likely to be the most expensive, as they are bought for immediate delivery at a premium above the spot price.
Buying on the spot market is the usual method. Material prices, however, can fluctuate quite widely under some economic conditions, so the spot price could be higher than you had been expecting. It could also be lower.
The futures market exists so that firms can buy ahead, at prices that are known in advance. In this simulation, you can order materials for delivery in three months' time (one quarter) or in six months' time (two quarters). However, there is no guarantee that prices on the futures market will turn out to have been cheaper than buying at the spot price some time in the future, but at least your costs are known in advance, at the time of purchase.
If you think that economic growth is strong and that material prices are likely to increase (perhaps at an even higher rate) then buying on the futures market may be a wise move provided that, in your view, the prices quoted are reasonable.
Conversely, if you think that the world economy is slowing, and material prices are likely to fall, then this might already be reflected by the prices quoted on the futures market. Whether the spot price will fall even further is a matter for you to judge.
Note that premium materials are not purchased in this way, but only from reliable suppliers.
Product marketing image
Each product has a marketing image which you are seeking to promote in order to attract sales. In effect it is a representation of your actual, or potential, customers' perceptions of your product in a particular market.
The image of a product is formed over time from a number of factors which are of varying importance, and relative to similar factors in your competitors' products. They include -
- the quality of your management
- staff training
- the number of agents, and how they are supported
- corporate and product advertising
- product design quality and reliability
- product pricing and 'value for money'
- product availability and delivery
- machining capacity and reliability
- assembly capacity and attention to detail
- employee motivation
- the quality of your website
Many of these factors are directly under your control and should be part of your marketing strategy (see below).
Because the image is composed of many factors, which may vary over time, it is not easy to strike the right balance. Some factors need to be considered together - for example, it is unlikely to be effective to charge a high price for a poor product. On the other hand, potential customers may be prepared to wait for a high quality product that is being sold at a fair price.
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Your marketing department is responsible for creating demand for, and selling your products in the face of competition from rival companies. In order to do this, it must review the market place and the competition; prepare strategic marketing plans and make decisions to put them into operation both in the long term and short term; and work with the company's other departments to ensure that sales are profitable.
Using the available economic and business information, and any conclusions you can draw from the Company History plus your experience in managing the company so far, you should be able to prepare a marketing plan for each of your products. You should consider -
- Product design and reliability policy
- Advertising schedule
- Agency and distributor policy
- Internet trading policy
- Product availability
The preparation of this plan implies that you have an expectation of how many orders you will receive for each product. You should use this forecast to discuss your plans with the company's other departments. It is of prime importance that marketing works closely with your operations department, providing the best possible forecasts of demand so that adequate quantities can be delivered to the areas. Problems in production which affect availability also become problems for marketing and must be solved by mutual agreement.
Most marketing factors (eg advertising, quality, commissions, etc.) are subject to the law of diminishing returns, so that increased effort does not yield proportionately increased results.
You should also take into account the activities of your competitors. This can only be done by forecasting how they are likely to behave in the future and making allowance for them.
As in many fields, there may not be a single best answer. For example, an exclusive (high-price, high-quality) strategy or a 'stack-them-high and sell-them-cheap' strategy, could be equally successful. However, one strategy might take longer to achieve than another.
You will need to work with your marketing department to ensure that their forecasts of likely demand can be met by a sufficient flow of products, both in the short term and the long term. It also implies working with your personnel department to ensure that there is sufficient labour to do the job at reasonable cost. And further implies proper forward planning to ensure that there is sufficient machinery and efficient buying of material.
Your production schedule should be prepared in co-operation with the marketing department, because it reconciles their sales forecast with the operations department's ability to make products for delivery to the sales areas. You should remember, however, to modify marketing's demand forecasts by:
a) Adding in products outstanding as backlog from last quarter, or;b) Deducting stocks of product left unsold in the warehouse from last quarter (except for stock which will be written off if you decide to take up a major product improvement).
A properly planned production schedule will take into account the resources available to you, and allow for all the factors which may constrain the utilisation of these resources.
The proportion of substandard products reaching your customers and then returned for repair under your guarantee will affect your product image and hence your ability to market the product successfully in the future.
Your ability to buy effectively will depend on the accuracy of your forecasts of the likely sales of your products, your use of the economic indicators to predict how material prices are going to move, and your use of a sensible buying strategy.
The demands on your website will vary a good deal and there will be extended periods when your system will be underused, but there will also be short periods of high usage when the traffic load approaches, or exceeds, capacity.
Your system's ability to cope with peak demand is critical for the efficient image that you must try to present to potential customers. Lack of capacity at these times can damage the company's marketing image.
Clearly the capacity that you have available should depend on how much traffic you expect at peak times - which implies that your decision is the result of a forecast on your part but, because of the uneven nature of traffic flow, it will rarely be used to the maximum.
The 'important detail' note gives further help on how to determine the appropriate capacity.
Software underpins the efficiency of your system and can also enhance the marketing image of your operation. Visitors to your web-site will be encouraged to buy your products by the impression it gives.
Updating your software to keep the information relevant and present a modern image, is a continuous task, and you should decide how much to spend on it each quarter. The money is spent on programming and design expertise and on software tools. The more you spend, relative to rival companies, the more you will enhance your image, and the more successful your Internet marketing will be.
Consumer assessments of websites award star ratings for attractiveness, ease of use, etc. High development spending on a regular basis should increase your star rating. Low or falling expenditure may lose you stars.
Your personnel department should monitor the labour market, working with the other functional departments in the company to forecast what demand for labour will be and taking steps to ensure that labour requirements are met, and that those who are working for the company do so under the best conditions that the company can afford. Any decisions to recruit, train or dismiss should be taken within the management team.
Success in recruiting depends on the current level of average earnings (not the basic wage rate) of the workers you employ already, the training they are given, the quality of goods which you produce, and the ability of your personnel management, all compared to the same factors in the other companies.
Recruitment also depends on the number of unemployed available in the labour pool. If there is high unemployment, recruitment will tend to be easier; if unemployment is low, recruitment can become very difficult and will depend on your ability to tempt people away from other companies, which may lead to a very unstable labour market.
Training unemployed, unskilled workers is more expensive than recruiting directly, but it does ensure that you get the number you want, and that they stay and work for you for at least one quarter after training. After that, they are influenced by pay and conditions as usual.
As well as ensuring that you have sufficient workers, you must also manage the cost of the workforce. You decide wage rates, but the way in which your workers are treated can also have a significant effect on earnings. Overtime, and shift payments can be controlled to keep costs down, but these elements can only be managed effectively in the context of current economic conditions, and the needs of your marketing and operations departments.
All grades of workers may leave because of retirement, sickness or because they have left to work for other companies that seem to be offering better conditions. The main reasons for leaving are not just low average earnings, but also excessive overtime working, colleagues being dismissed, poor quality products, weak management and inadequate training, all relative to other companies.
It is therefore essential for your personnel department to work as part of the management team not only to ensure that labour requirements are met, but also that those who are working for the company do so under the best conditions that the company can afford.
As well as ensuring that you have sufficient workers, you must manage the cost of the workforce, while at the same time trying to keep them happy. Although you decide wage rates, the way in which your workers are treated can also have a significant effect on earnings. Overtime, and shift payments can be controlled to keep costs down, but these elements can only be managed effectively in the context of current economic conditions, and the needs of your marketing and operations departments.
An effective management team can motivate your employees at all levels. This will depend not only on the skill of your managers, but also on what training is offered to all your employees.
It is difficult to know exactly how much training is desirable, or needed, but it is one way of making your employees feel that you value them and that you are prepared to invest money to help them perform better.
A well-trained and highly motivated workforce does not appear on a typical balance sheet, but it may be more important than other, more tangible, assets.
The company is financed by shareholders' capital, consisting of shares with a nominal value of €1 each, which are quoted on the Stock Exchange. The latest share prices for all companies are shown each quarter.
Your share price is determined by many factors, including:
- The company's net worth (ie net assets, or shareholders' equity)
- Current profitability
- Dividend performance (erratic or low dividends have a negative effect)
- Liquidity (and borrowing power)
- Ability to pay interest charges on all borrowings
- Use and availability of resources (physical, financial and human)
- Market and product potential (are sales likely to increase?)
- Product quality and reliability (and development effort)
- Ability to satisfy orders promptly
- The general state of the economy
- Current bank interest rate
Any decision to issue more shares, or to repurchase and cancel shares from the market will have an impact on your share price. In general, buying large blocks of shares will raise your share price but, conversely, selling more shares will lower the price. The precise effect will depend on market reaction.
A profitable, well-managed company is unlikely to have any problem. The cash generated from a share issue will be seen as helping expansion, or to reduce expensive debt. Repurchases will be seen as a way to use spare funds to increase earnings per share. On the other hand, an unprofitable company, or one with with poor prospects, is likely to suffer a fall in total market value, because the market thinks that new funds may be badly invested, or repurchases are just a means of reducing dividend payments.
Altered decisionsThere are three possible reasons why a decision is not shown in your Management Report as you had intended it:
- Your decisions were not received in time and default values will have been used, as defined in The Decision Form, and a plus (+) printed as an error indicator.
- A decision was impossible in terms of the simulation: for example -
- trying to dismiss five assembly workers when you only have four,
- or, trying to buy a machine when your credit-worthiness was inadequate,
- or it may differ because a decision did not achieve the desired effect; for instance you may have been able to recruit only three assembly workers when you tried to recruit five.
- There may have been an unforeseen 'insurance' event (shown by !) making your decision impossible to carry out. The nearest possible number will have been used.
If a number is different, and there is no error indicator, contact the simulation controller immediately (it can only be corrected if communicated within the time limit announced at the start of the simulation) so that a check can be made against the decisions that you sent in. If the number turns out to have been wrongly entered to the computer, then the appropriate action can then be taken.