Final Blog: Simulation

I. Mission Statement- From the beginning of the simulation, our main goal is to turn the company around and make it a profitable company. This mean more revenue, less cost and maximize net income. During the middle of the way, we realize that net income is not going to give us an A, so we decide our new goal will be concentrated on the 7 criteria that will be graded on.

II. Stakeholder Identification- In the beginning of the simulation, we are hired to turn this company around. So the stakeholder will be the old management group, board of directors and finally the stock holders. They are ultimately the boss of this company. There are no influence of them on our strategy formulation

III. External Analysis: Identification of Industry Opportunity and Threats-

1. Threats from new entrants- Since there is no regulation for this Industry and it doesn't require a lot of capital investment, it is easy for entrants to rise in this industry. Hence low attractiveness.
2. Rivalry within the Industry- There are 7 companies we are competing and also and importer. This is a very competitive industry. Hence low attractiveness.
3. Power of buyer- Dish ware are very elastic, people can use disposable dish ware(paper and foam). Or they can simply eat out. Hence low attractiveness.
   
4. Power of supplier- The basic make up of a dish ware are clay and coat-paints. They are simple raw material that can be purchased anywhere. Hence low attractiveness
5. Substitutes- There are a lot of substitutes out there. There are metal dish ware, disposable paper and foam dish ware. The cost of switching is very low. Hence low attractiveness.

Overall the porter 5 analysis has a rating of Low attractiveness for this industry.
There a few quarters that the stock market had swing. The first time it was around 2nd and 3rd quarter of 05, where all the companies stock price were low. And at around the 2nd quarter of 06 the stock market goes up, raising the stock price of group 4 to more than 7 dollars. Also few companies reached 6. Stock price is one criteria is being graded on. This price influence our decision to buy/sell our stocks.

IV. Internal analysis: Resources, Capabilities, Competencies and Competitive Advantage- Every company in this industry started the same. At the beginning we offer 11% commission to our salesperson and also 3500 salary. And we lower our product price to 49.99($2 drop). Our purpose was to sell more than the other group. And everyone agreed to this strategy. However this strategy turned out to disastrous, we sold a lot products, but our profit margin was very low. and the cost is very high. We needed up with 2 quarters of loss. Then we tried to increase the price of the products and lower the commission and salary. Although we sold less products but it turn out to be profitable. The average industry price keep going up, and we followed.

V. Business and Corporate-Level Strategy- At the beginning we don't have much finance activity but later on we start to realize it is impossible to win this simulation if we don't get into the Corporate-Level Strategy. We financed through issuing bonds and we also bought back some stocks. We tried to boost the earning per share and reaching the debt-equity ratio to 1.

VI. Performance Assessment- If we started correctly, we will be able to finish the first or second place. But we started very bad and then have two consecutive quarter of loss. We expanded new capacity very late and this cost us a lot of sub-contract money. We tried to catch up, it was a bit too late.

VII. Implementation of Strategic Change- If this simulation continued for additional periods we will change our strategy in the middle, we gave up R&D and Engineering after the 1st quarter of 06 because it takes 3 period to become effective. If the simulation continued, it will be worthwhile to put more money into R&D and Engineering. I would also expand a little more on new capacity, since we are running OT and sometimes even sub-contracts. Sub-contracts is the killer of the profit margin.

My view- Over this simulation is exciting. The result is anticipated every time when decisions are inputed. The most difficult thing to do is to settle the right policy with team members. Everyone has their views of how this simulation works. And we won't able to know which view is better unless there is also a simulation for individual strategy. The fact that the 7 criteria is worth equal weight is not fair. A company can make a little profit but still can score high grade if they follow the criteria correctly. But in the end it is the profit that counts. Overall a Corporation is a for-profit organization.

Who got problems?

1) Company has too many legal suits pending-If a company has a lot of legal suits pending, it will definitely affect the future of the company. If the company lose a case that required them to pay a huge amount of fine in settlement, it will reduce the profits of the company. It could even bankrupt the biggest company.

• Philip Morris is an tobacco company. It has be proven that smoking causes health issues. Lung cancer is the #2 most common cancer, and smoking increases this cancer. Many people has file suit against Philip Morris. It has paid a lot of money for the lawsuit already. It is likely that Philip Morris has to pay huge amount of money to settle these lawsuit that keeps on coming.
  

2) Outmoded, fully depreciated technology - Technology has been an important factor in determining productivity. Since technology is getting better day by day, it is important to keep up the pace with the new technological machines. If one company has a new machine, it will do better than other company that has a outmoded machine, holding everything else constant. So an outmoded machine will make a company lose its competitiveness in the industry.

• United States once dominated the steel industry. It was the leading producer and export the most steel in the world. But recently US steel industry has been losing the market share to countries like Korea and China. The machine that US steel uses is built long time ago. Korea and China just recently built the machines. These machine are more modern. These machines are more technological advanced than the machines that US steel companies use. They are much more productive than the outmoded US steel machines.
  

Who got the competitive advantage??

Competition exists everywhere. From the morning rush hour, when you are trying to find a seat(unlikely) or find a pole to grab on so you don't fall when bus/train are moving; or trying to squeeze in the Baruch elevator; to the classroom of BPL, where we are competiting for our grades. As firms competiting over each to win more customers, more revenue, and more profit. One way to win is to have an advantage. Once the firm has an advantage, it is easier for them win over the competitor. The two companies I choose that have competitive advantage are Wal-Mart and Dell.

One of the advantage is cost leadership. Wal-Mart is the world's biggest discount department store. You can find almost anything you need in Wal-Mart. It's slogan is "Save Money, Live Better." The items selling in Wal-Mart might not be the best quality item, but it usually is one of the lowest priced compared to the market. Most items selling in Wal-Mart are like me "Made in China" or like my friend Abdul "Made in India". The labor cost in those developing countries are extremely low. Thus the cost of good sold is going to be low as well. Wal-Mart shows economy of scale to its best definition. Since they are such a big company, their average variable cost per unit is going to be lower than those of small companies.

Dell is the first mover in the computer industry to have customers customized their computer their way. One of the reason behind their success is their idea of letting customer choose how their computer are built. The first three computer I bought was a Sony and two unknown brand. They were all built when I bought it. Their idea of customization let the customers choose/create thousands of models. Dell was once the largest seller of personal computers. But the competitors quickly adapt the same idea and right now Dell is the third biggest computer company in term of sales. However, Dell's first move of customization has made Dell one of the most successful company in the world.

Applying Porter's 5 Forces Model to Banking Inudstry

Porter's 5 Forces Model is a reality check to see if a industry is attractive enough to enter. The 5 forces are: 1)Threats from new or potential competitors. 2)The intensity of competition among existing firms. 3)The power of the suppliers. 4)The power of the customers. 5)The easiness of changing to substitute products. If all of those forces are high then the industry is less favorable to enter. Before entering a industry, one firm should check whether those forces is low, so its favorable for the firm to enter.

Banking industry is among the most competitive industry. Which happen to be the industry I am working in. Lets break it down and see how Porter's 5 Forces Model apply in this industry.

Force 1: Threats from new or potential competitors--- Low---This might be the only force that will score a low. Opening a bank requires a lot of capital. Every member of the board of directors need to be checked and verified by the fed, this usually takes a long time. The filing also takes a long time for the fed to approve.

Force 2: The intensity of competition among existing firms---High--- As you can see, banks are branching everywhere. The banks are offering incentives for opening accounts. You might heard of "Free Checking for Life", "No ATM fee EVER", "FREE $75 for opening a new account". Some of the bankers are required to open certain amount of accounts every month. This makes the competition very fierce.

Force 3: The power of the suppliers---High--- There is only one supplier, the fed. All bank in the United States has a account with the Fed. This is account number is their routing number. This means that Fed has total control over the industry. A little change in interest by the Fed will have tremendous effect on the whole industry. Other key influences are fed fund rate, required reserve ratio, etc..

Force 4: The power of the customers---High---If the customer doesn't like anything, and I mean anything of his/her bank. He can open account in another bank, which it won't take him more than 30 minutes. This is why customer service is becoming so important in this industry. The bank I work at offers a tons of stuff for the customers, including: free pens, free coining counting machine, lollipops, dog biscuit, even a greeter at the door, etc.

Force 5: The easiness of changing to substitute products---Medium---Customers can always put money somewhere to make a little interests, there are all kind of bonds, mutual funds, stocks etc. However, the power of check clearing of the banks are undeniable. All the paychecks, payments goes through some banks to clear. Imagine if there is no banks to clear checks, then the whole economy will goes in halt. There are other financial institutions other than banks, such as thrifts, credit union, etc

Porter's 5 Forces Model says that banking industry is unfavorable to enter since most of the forces scored high.

How significant is Mission Statement???

This is the mission statement of Lehman Brothers, a global investment bank serving the financial needs of corporations, institutions,governments and high-net-worth investors worldwide:

"We are One Firm, defined by our unwavering commitment to our clients, our shareholders, and each other. Our mission is to build unrivaled partnerships with and value for our clients, through the knowledge, creativity, and dedication of our people, leading to superior returns for our shareholders."

In my mind a sound mission statement should have include the following:

1. The firm's purpose & value
2. Written in a way that can be easily understood by grandmother.
3. Should not take more than 1 minute to read it.

This mission statement surely does meet my requirement of a sound requirement. The states the firm's purpose as well as its value. The mission of statement does not required me to use dictionary.com and I finished reading this mission statement in under minute.


SURPRISE!! I am the CEO and I don't know what's our mission statement!!!

Mission statement can harm a company if its not properly stated or implemented. In an interview by CNN Money's Adam Lashinsky, Fortune senior writer, with Yahoo's former CEO, Terry Semel who was asked what was the company's motto. Terry Semel, five year CEO of Yahoo had no idea what Yahoo's mission of statement was. Terry Semel was replaced by Jerry Yang, co-founder of Yahoo in June of 2007.

http://money.cnn.com/2007/02/01/technology/pluggedin_lashinsky_yahoo.fortune/index.htm

Me!!!

Hi, my name is Hai C. Huang. My email address is alanhuang88@msn.com. From this email, you can tell people call me Alan instead of Hi Hai (Hi ^2). The URL for my blog is http://awowzone.blogspot.com. This is my fourth year in Baruch college. My major is finance and investments. I hope this is my last year at Baruch. I have been living in Queens since I came to US in 1996. I have been working in banks for more than two years, if you have any question regarding banking, I think I will have the answer. That might be a little bit exaggerating. I love sports, almost any kind of sports. I love internet,I think its one of the biggest advance of this century, or ever in the human history.