Strategic Management Report: European Car Industry Simulation

This report analyzes the strategic management and performance of Excel Auto in a European car industry business simulation. It examines key performance indicators (KPIs) across four rounds, including return on assets, gross margin, and net margin, providing a detailed breakdown of financial results. The report evaluates the functional areas of marketing, HR, finance, and operations management, highlighting their impact on decision-making. It also assesses the company's liquidity, capital structure, and market share, including an analysis of product performance, sales, and cash positions. Furthermore, the report critically reflects on the company's performance, team dynamics, and leadership, offering insights into strategic choices and their outcomes within the simulated business environment. The executive summary also includes an analysis of the company's performance in different rounds and a critical evaluation of the team's performance and personal reflection.

Strategic Management for
Competitive Advantage

Executive Summary
The strategic management is an important aspect in the organisation as competitive
advantage may be gained with the help of strategic management. The functional areas such as
marketing, HR, finance and operations management plays essential role for better and effective
decision making for the betterment of the firm. Moreover, leadership intends to have effective
performance of team by motivating them to accomplish goals effectually. This gives organisation
better results within stipulated time.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Company Performance...........................................................................................................1
Critical reflection..................................................................................................................10
Critical evaluation of team performance and personal reflection........................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
The organisation should have effective strategic management so that it may earn more
profits by beating competitors'. This report deals with business game in the European car
industry. The company which had played in the game is Excel Auto in the business simulation
exercise (Peteraf, Gamble and Thompson, 2014). For effective achievement of goals, strategic
management is required to be achieved beforehand. Moreover, four functional areas such as
marketing, HR, finance and operations management are important for the company so that better
and effective decisions may be taken in the best possible manner. Moreover, these functional
areas should be performed carefully so that effective outcome may be accomplished by the
organisation with much ease. Leader also plays vital role in motivating and inspiring employees
so that they may perform well for the successful attainment of organisational goals.
Company Performance
It is essential to analyze the results of simulation clearly using various key performance
indicators including both the financial and non-financial measures.
Round 1 results
KPIs: Key performance indicators are the best tool that are used for the purpose of
examining financial results of the organization. Simulation outcome for the round 1 present
following financial results as follows:
KPIs R1 R2 R3 R4
Return on assets -6.93% 31.76% 25.23% 5.74%
Gross margin 38.65% 32.69% 29.15% 16.74%
Net margin -6.58% 11.45% 9.19% 1.75%
Current ratio 2.94:1 2.01:1 1.50:1 1.56:1
Liquidity ratio 1.85:1 1.09:1 0.62 0.65:1
Return on shareholder
capital
-14.90% 47.06 35.20% 6.96%
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Figure 1 P&L breakdown for Round 1
The findings of the round 1 results presented that Excel auto suffered loss on their total
assets as ROA is found to 6.93%. It shows poor performance due to loss-driven. Gross margin
which shows excess of total revenues over cost incurred. It is found that overall gross margin
shows impressive results for the company for the 1st round to 38.65%. Model wise, gross margin
percentage on Kaurum is 35.70% whilst on Luxxis, Excel Auto get a greater margin of 49.48%.
However, excessive overhead incurred by the firm leads to operating loss worth £31.05m at a
post-tax loss of £64.85m. As a result, profitability ratio shows 6.58% loss on total sales revenues
indicates poor performance of Excel Auto because the operations were not gained any return to
the entity (Madsen and Walker, 2015). Due to loss, Return on shareholders’ fund is negative to
14.90%, as a result, shareholders may be dissatisfy and would not be interested to put their
money.
2

Figure 2 P&L breakdown for Round 2
In R2, ROA and ROE shown favourable results as they both rose to 31.76% and 47.06%
is a sign of excellent performance because this year, P&L statement present post-tax profitability
of £386.80 due to controlled overheads (Wheelen and Hunger, 2017). However, due to overall
increase in cost of sale, gross margin shows slightly decline to 32.69%, still, net margin present
improvements to 11.45%. Thus, it can be interpreted that the decisions made this year drive
favourable improvements.
3

Figure 3 P&L breakdown for Round 3
In R3, profitability ratio indicate decline as ROA and ROE fallen to 25.23% & 35.20%.
Likewise, P&L statement present decline in the gross margin and net margin to 29.15% and
9.19%. In this year, gross profit and net profit of Excel Auto were found to $1416.70m and
$446.44m shows that profitability of the entity came down (Schilke, 2014). The result represents
that in this year, although total grown up from $3377.77m to $4859.96m and net profit grown to
$446.44m however, its percentage on sales dropped indicate declined performance.
4

Figure 4 P&L breakdown for Round 4
In final round, ROA, ROE, gross margin and net margin shows huge decline to 5.74%,
6.96%, 16.74% and 1.75% exhibit that firm performed poor this period due to ineffective
business decisions (Sakas, Vlachos and Nasiopoulos, 2014). The period reported higher turnover
to $5,436.45m at a profit after tax of $94.95m. It shows that entity did not perform well during
the period.
Profit per employee
Profit /employee
R1 -73,107.35
R2 134,536.42
R3 114,586.83
R4 19,210.44
In 1st round, above table indicates loss each worker by $73,107.35 which in next round,
improved to $134,536.42 due to greater return where total workforce employed by Excel Auto
were 3550. Excessive return availability made it possible for the company to raise its return each
employee. In R3 and R4, it had been fallen to $114.586.83 and $19,210.44 shows less profit
available on each worker.
Liquidity performance
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Liquidity results showcases Excel Auto’s capability of paying suppliers with credit
amount owing on time. In round 1, current ratio is 2.94:1 which is above the benchmark ratio of
2:1 exhibit that firm has enough resources available to pay their creditors with deferral amount
whenever they fall due (Rothaermel, 2015). Liquidity ratio, on the other side, is measured to
1.85:1>1:1 is a sign of strong liquidity performance of the business unit. In R2, CR and liquidity
ratio came down to 2.01:1 and 1.09:1 more closer to the industry benchmark. It is good because,
higher the ratio exceeding the benchmark is a sign of unproductive use of cash and other assets.
However, ideal ratio shows perfect cash or working capital management practices of Excel Auto.
In next round, both ratio fallen to 1.50:1 and 0.62:1 below the industry benchmark which does
not seems good as it showcase liquidity crunch which may tends to bring financial trouble.
However, in final round, liquidity position of the firm gone improved at ratio 1.56:1 and 0.65:1,
still, Excel Auto need to focus on strengthening its cash management and credit decisions to
reach the ideal position by maximizing working capital balance, so that, it will be able to pay
their suppliers with correct time.
Sales, Production cost and gross margin each unit in simulation game
Model Selling
price
Materials
cost
Design
and
option
Labour
cost
Total
costs
Gross
profit
Gross profit
percentage
Round 1 Kaurum 31,000 13,640 5,743.07 549 19,932.07 11,067.93 35.70%
Luxxis 84,500 27,693.33 12,502.08 2,493.00 42,688.41 41,811.59 49.48%
Round 2 Kaurum 32000 13768.04 5986.3 583.82 20,338.16 11,661.84 36.44%
Luxxis 84500 27953.3 13040.64 2652.39 43,646.33 40,853.67 48.35%
Mixxus 20500 9490.61 4465.27 577.3 14,533.18 5,966.82 29.11%
Round 3 Kaurum 32640 14187.57 6459.52 553.7 21200.79 11439.21 35.05%
Luxxis 84500 28805.07 14094.1 2591.14 45490.31 39009.69 46.17%
Mixxus 20700 9780.83 4746.94 570.13 15097.9 5602.1 27.06%
Tixxus 25000 14187.57 4691.32 583.68 19462.57 5537.43 22.15%
Round 4 Kaurum 31050 14796.38 7009.88 582.69 22388.95 8661.05 27.89%
Luxxis 78000 30041.13 15329.14 2723.32 48093.59 29906.41 38.34%
Mixxus 19500 10200.53 5096.37 599.89 15896.79 3603.21 18.48%
Tixxus 22000 14796.38 5074.75 614.14 20485.27 1514.73 6.89%
Cirrux 10100 7454.24 4112.36 566.22 12132.82 -2032.82 -20.13%
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Figure 5 Selling price of various models in different rounds
In Round 1, on comparison of the cost results of both the models, in every case, its luxury
product, Luxxis car model incurred higher cost on material, designing and labor as well to
£27,693.33, £12,502.00 and £2,493.00. There are 277 workers employed in the Luxxis
production activities, however, 610 labour are engaged in manufacturing Kaurum model as there
production quantity is large to 25,000 (Barney, 2012). Excel Auto charged high price for Luxxis
to £84,500 at good gross margin of £41,811.59 each unit. In the next round, a new model has
been launched by Excel Auto named Mixxus at selling price of £20,500. In this round, Luxxis
price remain constant to £84,500 whilst Kaurum model price shows bit increase to £32,000. In
this year, firm incurred higher expenditures on production cost for both the Kaurum and Luxxis
model to £20,338.16 and £43,646.33. However, Mixxus total production cost reported to
£14,533.18. Higher increase in selling price compare to cost delivered increased gross margin of
£11,661.84 on Kaurum whereas, Luxxis and Mixxus model get a GP of £40,853.67 and
£5,966.82 respectively at a margin of 36.44%, 48.35% and 29.11%.
In next round, again a new model, “Tixxus” made at selling price of £25,000 each unit at
a gross margin of 22.15%. In that period, Kaurum and Mixxus prices gone up to £32,640 and
£20,700 with no change in Luxxis. However, high cost increase delivered decline margin
percentage of 35.05%, 46.17% and 27.06% shows downward performance. Similar result were
found in next round with declined GP percentage to 27.89%, 38.34%, 18.48%, 6.89%. Tixxus
profit shows a sudden decline because of decline in its selling price from £25,000 to £22,000
whereas cost gone up from £19,642.57 to £20,485.27 at same production volume to that of
earlier year (Swayne, Duncan and Ginter, 2012). In this round, one more model launched named
Cirrux which were offered at prices of £10,100, however, it driven loss because its production
costs of £12,132.82 exceeded the selling prices by £2,032.82 at loss of 20.13% each unit. This
year, all the model’s profitability came down which is a sign of poor business decisions that
declined Excel Auto’s performance.
Model
Production Sales Stock Model price
(GBP)
Market
share
Round 1
Kaurum 25000 25000 Nil 31,000 0.90%
Luxxis 2500 2500 Nil 84,500 0.35%
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Round 2
Kaurum 29,285 29,285 Nil 32,000 1.05%
Luxxis 3,223 3,223 Nil 84,500 0.45%
Mixxus 105,771 105,771 Nil 57,730 1.82%
Round 3
Kaurum 35728 35728 Nil 32640 1.35%
Luxxis 3651 3651 Nil 84500 0.57%
Mixxus 113799 113799 Nil 20700 2.04%
Tixxus 43700 41186 2514 25000 1.56%
Round 4
Kaurum 39,658 39,658 Nil 31050 1.60%
Luxxis 4053 4053 Nil 78000 0.73%
Mixxus 126,317 126,317 Nil 19500 2.43%
Tixxus 43,700 46214 Nil 22000 1.87%
Cirrux 40,500 40,500 Nil 10100 0.91%
Figure 6 Market share of Excel Auto during different rounds
In Round 1, Excel Auto had two models, Kaurum and Luxxis which totl production
quantity is reported to 25,000 and 2,500 equal to the target production set earlier. Company had
sold all of its items in this round at nil unsold stock availability. Luxxis model is luxurious model
which is too expensive at its price is £84,500 whereas Kaurum’s model price is just £31,000 only
hence, it has greater market demand compared to Luxxis. Due to these, market share of Kaurum
is comparatively higher to 0.90%, the reason behind this is lower charges enable Excel Auto to
generate larger market demand and serve maximum audience base (McWilliams and Siegel,
2011).
In R2, considering the increasing market demand, firm decided to produce more quantity
of Kaurum and Luxxis as target production goes up to 29,285 and 3,223 with additional model of
Mixxus at production volume of 105,771. Due to larger production volume, both the products
market share grown up from 0.90% to 1.05% and 0.35% to 0.45%. However, as out of total
production, Mixxus contain maximum contribution with having strong market share of 1.82%.
In R3, again, in order to meet rising consumer demand, firm had made several changes in
their production decisions by enhancing production quantity to 35,728, 3,651 and 113,799 for
Kaurum, Luxxis and Mixxus at selling price of £32,640, £84,500 and £20,700. All the
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manufactured models were sold rose market share to 1.35% 0.57% and 2.04% respectively. In
this period, Tixxus product had been produced at a total quantity of 43,700 however, actual
demand were slightly lower to 41,186 as a result, 2,514 units remain in unsold inventory with
market share of 1.56%.
In last round, through market research, Excel Auto determined one more product in good
demand named Cirrux (Sirmon and et.al, 2011). Hence, in order to grab the benefit of market
opportunities, it expanded its product portfolio by introducing Cirrux with totl production
volume of 40,500 at a selling price of £10,100 with market share of 0.91% only. Including the
item to develop new revenue stream were not discovered as good because it incurred loss.
However, other items like Kaurum, Luxxis and Mixxus demand rose to 39,658, 4,053 and
126,317 at higher share in market to 1.60%, 0.73% and 2.43%. Tixxus production did not
changed, still, its market share increased because due to lower selling prices, actual sales has
been increased from 41,186 to 46,214 with total market share of 1.87% which was earlier 1.56%.
Cash position
Although, under the operational activities, Excel Auto had spent excessive overhead, still
as it had borrowed loan of £500m resultant favourable bank balance of £208.02m. In R2,, net
bank balance increased to $489.27m due to larger sales at controlled spending. In this period, no
debt had been borrowed by the company (Leonard, 2011). It shows good cash management as a
result, liquidity position had strengthened. Thereafter, R3 present slight decline in the closing
cash position to $423.51m. Although, revenue has been increased still, rising production cost,
launch of new model, repayment of loan and factory overheads tend to decline bank before loan
to $73.51m. However, this period, loan worth $350m had been taken by the Excel Auto. In final
round, again cash balance gone up to $476.84m as a step to strengthen its liquidity position.
Capital structure
Round 1
(£m)
Round 2 (£m) Round 3(£m) Round 4 (£m)
Debt 500 395.99 1268.39 1363.35
Equity 435.15 821.95 501.36 289.6
Debt/Equity ratio 1.15 0.48 2.53 4.71
Figure 7 Capital structure of Excel Auto in different round
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