Wonder Co.: Strategy Analysis

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The conducted simulation tests the performance of Wonder Co. and its products: W1, W2, W3. The decisions are made through the 2013-2016 period to identify the best optimal tactics in reaching market saturation with the highest possible sales and revenue performance. In this instance, the previous decisions made by the former analyst, Joe, are used as the guideline for analysis. The objective is to shift all products into the maturity stage and perform better than Joe.

Products Review and Analysis

The strategic decisions for 2013-2015 years increase sales, revenue, and profitability of the company. The table below represents the changes for this period:

Table 1. Wonder Co. Revenue Statement

Variable Name 2012 2013 2015
Revenue
Total Sales $ 1 531 940,00 $ 3 068 065,00 $ 5 811 853,00
Revenue $ 523 298 924,00 $ 1 085 674 859,00 $ 1 825 744 338,00
Cost
Variable Costs $ 300 161 138,00 $ 622 247 876,00 $ 1 041 191 184,00
Fixed Costs $ 112 500 000,00 $ 150 000 000,00 $ 150 000 000,00
R&D Costs $ 24 000 000,00 $ 24 000 000,00 $ 24 000 000,00
Total Costs $ 436 661 138,00 $ 796 247 876,00 $ 1 215 191 184,00
Profit
Total Profit $ 86 637 786,00 $ 289 426 982,00 $ 610 553 154,00
Profitability 17% 27% 33%

The product performance for each product represents the changes before each product reached the market saturation:

Table 2. W1 product changes

Variable Name 2013 2015
Revenue
Total Sales $ 968 979,00 $ 1 480 329,00
Revenue $ 276 159 075,00 $ 429 295 461,00
Cost
Variable Costs $ 145 346 882,00 $ 222 049 376,00
Fixed Costs $ 75 000 000,00 $ 75 000 000,00
R&D Costs $ 10 000 000,00 $ 7 200 000,00
Total Costs $ 230 346 882,00 $ 304 249 376,00
Profit
Total Profit $ 45 812 193,00 $ 125 046 085,00
Profitability 17% 29%
Variable Name 2013 2015
Customer Base
Installed Base 1 035 000 1 917 729
Remaining Customers 6 000 000 5 117 271
Market Saturation 15% 27%
Sales Volume First Time Customers 882 729 1 328 170
Repeat Sales 86 250 152 159
Total Sales 968 979 1 480 329

Table 3. W2 product changes

Variable Name 2013 2015
Revenue
Total Sales $ 562 961,00 $ 1 422 150,00
Revenue $ 247 139 848,00 $ 625 746 072,00
Cost
Variable Costs $ 154 814 256,00 $ 391 091 295,00
Fixed Costs $ 37 500 000,00 $ 37 500 000,00
R&D Costs $ 14 000 000,00 $ 10 800 000,00
Total Costs $ 206 314 256,00 $ 439 391 295,00
Profit
Total Profit $ 40 825 593,00 $ 186 354 777,00
Profitability 17% 30%
Variable Name 2013 2015
Customer Base
Installed Base 550 000 1 066 018
Remaining Customers 6 000 000 5 483 982
Market Saturation 8% 16%
Sales Volume First Time Customers 516 018 1 293 414
Repeat Sales 46 943 128 736
Total Sales 562 961 1 422 150

Table 3. W3 product changes

Variable Name 2013 2015
Revenue
Total Sales $ – $ 165 586,00
Revenue $ – $ 30 633 325,00
Cost
Variable Costs $ – $ 9 107 205,00
Fixed Costs $ – $ 37 500 000,00
R&D Costs $ – $ 6 000 000,00
Total Costs $ – $ 52 607 205,00
Profit
Total Profit $ – $ -21 973 879,00
Profitability 0% 31%
Variable Name 2013 2015
Customer Base
Installed Base 340 000 340 000
Remaining Customers 17 500 000 17 500 000
Market Saturation 2% 16%
Sales Volume First Time Customers 0 141 538
Repeat Sales 0 24 048
Total Sales 0 165 586

Strategy Analysis

The conducted analysis of the 2013-2016 strategy for Wonder Co. indicates that the new decisions outperformed Joe’s choices. Foremost, the review of the 2012 and 2013 reports took place to understand how the market for all three products plays. In this case, the W1 product requires less R&D percentage due to customer behavior. The W1 customers are willing to have a moderate price, and they are less concerned about the functionality. As a result, the price decrease allows the company to attract more customers and increase market saturation.

On the contrary, W2 and W3 products require to divert R&D costs from W1 into further development, as both customer groups tend to pay more for high-quality and functional gadgets. In this case, the W3 strategy is based on the lower price but high R&D costs, while the W2 product price can be increased up to 20% with R&D costs near 40%.

The results from the 2013 and 2014 years indicate that such a decision increases the revenue statement and profitability of Wonder Co. Moreover, the changes in the market favorably affect all three products. W1 market saturation has increased and triggered sales and revenue growth. The W2 product becomes a sales leader and may reach high market saturation in 2015. Nonetheless, the W3 product starts to grow and show profitability after a 2-year negative revenue statement. Besides, the allocation of more R&D resources increased the performance of the W3 products so that the market saturation shifts from 2% to 5%.

For the 2015 strategy, the problem is whether the W1 product should be supported. It has reached 100% market saturation so that it is not feasible for the company to allocate resources and costs for its manufacturing. The decision is to abord the product and devote all resources to W2 and W3. Further, the W3 price is increased to compete on the market, as the advisory report states that W3 has a low price but excellent performance. The result of such a strategic change leads W2 to complete market saturation and sales performance decline. The W3 product’s sales are growing and outmatching competitors in both performance, sales, and balanced pricing strategy. The end of 2015 indicates that the W3 product will be growing for the next two years, while 2016 is the last year for W2 products.

From this perspective, the decisions are based on the market performance and dependence between demand and supply. Moreover, the analysis of competitors’ actions through advisory reports allows adjusting the strategy and keep all three products’ growth until complete market saturation. What is more, the competitive advantage is gained by the timely allocation of R&D resources, which can be marked as the pivotal strategic objective for Wonder Co.

Such indicators must ensure the competitiveness of the enterprise as high production efficiency, which is achieved through modern equipment, technology, skilled workers, and the ability to win and, for a long time maintain a stable position in the market, which is ensured by the effective use of management principles. The underlying conditions for ensuring competitiveness are:

  • ensuring the unity of development of technology, technology, economy, management;
  • application of modern methods of research and development (program-target planning, the theory of decision-making, etc.);
  • use of scientific approaches to strategic management;
  • consideration of the interconnections of the control functions of any process at all stages of the object’s life cycle;
  • the formation of a system of measures for ensuring the competitiveness of different purposes.

The analysis of the competitiveness of the enterprise in the market allows studying the factors that influence the competitiveness of the enterprise. All these factors can be divided into external and internal. Thus, the analysis of the influence of external and internal factors on the competitiveness of the enterprise makes it possible to reduce the level of uncertainty and risk in the process of production and marketing of the enterprise, to improve the quality of strategic planning and forecasting of the production and marketing activities of the enterprise, to increase the level of competitiveness of the enterprise and its products, to maintain competitive positions and increase the market share of the company. Ensuring the competitiveness of domestic enterprises at the current stage of economic development is extremely important, urgently needed, and indeed an urgent task for the enterprise. Businesses need more than financial resources to be competitive. They need to get rid of inefficient forms of economic activity to stimulate innovative activity, to optimize the system of management and organization of production.

Conclusion

The efficiency and technical and economic indicators of the production process depending on its organization in time. One such sign is the length of the production cycle, which relies on the volume of work in progress and the semi-finished products, the cost of which is included in working capital. At the same time, the duration of the production cycle affects the turnover of working capital: the shorter the period, the less the working capital required. One of the most important indicators, which is the basis for calculating many other signs of production and economic activity of the enterprise, is the production cycle. The production cycle includes the execution time of technological operations, which is the main component of the production cycle, which is necessary for the implementation of specific work operations of the transformation of the object of labor into finished products. The preparatory and final time is allocated to the worker to familiarize themselves with the delivery of finished products. The duration of the operating cycle consists of the time of execution of the technological operation and the preparatory-completion time. That is, the length of the working period is the processing time of one batch of parts on a specific activity of the technological cycle. The rational organization of the production process, especially the flow process, involves the execution of all partial processes within the least possible time, with minimal labor and cost. As a result, not only the duration of the production process is reduced, but also, the entire production cycle is minimized.

Technical improvement of production goes towards the introduction of new technology, advanced equipment, and new vehicles. This leads to a shortening of the production cycle by reducing the complexity of the technological and control operations, reducing the time to move objects of work. Increasing the manufacturability of product designs is to bring them as close as possible to the requirements of the technological process. In particular, the rational dismemberment of the product design into units and small assembly units is an essential condition for their parallel assembly and shortening the duration of the production cycle of assembly operations.

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