Vision Statement
The company’s vision statement: “Our vision is to make sensor technology affordable and available for everyone.” The main reason is that the company will focus primarily on low-end and traditional market segments, which is why it will not develop products for high-end, size, and performance markets. Both low-end and traditional markets will receive one product each, where the former will have bulky low performance sensors, such as Acre, and the latter will have more improved versions, such as Able.
- Making sensors accessible and available for all consumers
- Making sensors affordable and cheap
- Making sensors that perform their primary functions
- Our core values are excellent customer service and reliability.
The automation will be moderate, and capacity levels will be maximized for low-end and traditional markets only, and in order to achieve the vision of cheapness, it is important to obtain economies of scale. By the last round, the investment will be around $8000000 due to the yearly investment size in R&D of $1000000, but considering the fact that sensors will be mostly non-complex and low-tech, the majority of the money will be put into achieving economies of scale. 10% retained profits, 50% stock issues, and 40% long-term debt will be used to grow the company. It is important to retain the profits, and the debt will be paid around 20% on top of a minimum amount of payment, and it will be prioritized as soon as the company becomes larger in order to avoid interest payments. 1% accounts payable, 1% short-term debt, 40% long-term debt, 50% stock, 8% retained earnings, and the bias will be on cost leadership.
Vision Statement Critique
The company’s vision is to focus on low-end and traditional markets, which is why it will give up high-end, performance, and size marker segments. It is likely that other competitors will choose a similar strategy since it requires the least amount of effort in R&D. Therefore, there is a risk of tight competition due to the implementation of a similar approach. However, the advantage will be obtained by achieving economies of scale, where the products are cheapest. The vision requires significantly less investment than alternatives because the initial sensors were mediocre and poor-quality with high prices (“CAPSIM team member guide,” 2013). Thus, achieving high-performance, small size, and high-end state will need a heavy investment in R&D. It is evident that the selected vision is easier to execute because the only requirement lies in achieving economies of scale with a heavy focus on two market segments, which are traditional and low-end. The risks are manifested in the fact that competitors might be able to achieve economies of scale quicker than the company. There is a trade-off of differentiation and uniqueness for cheapness and cost leadership.
It will not take long to execute the vision since achieving economies of scale is only based on becoming a mass producer of cheap and low-end sensors. Considering the growth rates, the vision is the most attractive for the first four years since the shift towards performance and size is greater in the last rounds. Therefore, it is important to utilize the fact that adopting and successfully integrating the selected strategy is not as time dependent as committing to R&D, which why the initial rounds need to be used at a maximum rate. In the case of proper execution, the company will achieve economies of scale and produce sensors cheaper and quicker. After the high profitability is obtained, some allocations to R&D can be made in order to keep up with the market demand changes.
Strategy
The two selected approaches for climbing the hill are Niche Cost Leader (Low Technology) and Broad Differentiator. Both of these strategies are in tune with the vision for the company because they have a presence in low-end and traditional market segments, and these markets matter the most. It is important to achieve at least half of these market segments in order to be an “average competitor” because the company relies on economies of scale to achieve lower prices, which is only possible through higher volume output. Becoming a niche cost leader is always accompanied by low cost pressures since it is important to offer the products at lower prices. However, the demand for local customization is likely to be low because mass manufacturing is heavily reliant on standardization, where customization is ineffective and inefficient, and thus, redundant.
It is critical to creating a defendable position as soon as possible, and it is more achievable compared to producing high-end sensors, which require extensive R&D. The vision can be achieved quickly by making a heavy investment immediately into setting up mass manufacturing facilities and equipment. Therefore, a defendable position can be created rather quickly in a year or two because there is no need for making major modifications to the existing product. The goal is to produce these sensors for cheaper through economies of scale. Reaching such a position through productivity improvements is an important form of differentiation, which needs to be obtained early.
The most important products for the company are Able and Acre, which is sold in traditional and low-end markets, respectively. The least important products are Agape, Aft, and Adam, which sell best in high-end, performance, and size markets. Therefore, the main priority will be put on Able and Acre since they are designed for the selected segments. The goal is to achieve economies of scale through mass production and low costs. The scale effect in the theory of production functions is the relationship between changes in the number of resources used and changes in the corresponding production results.
A typical example is an economy on mass production, where the larger the scale of production, the lower, all other things being equal, the lower the average cost per unit of production, and therefore, the ratio of costs and output increases. This is affected by the influence of enlarged unit capacities, the possibility of using automation of production, processes, and other factors. They are reflected in the difference between fixed and variable shares of production costs. In these cases, an increase in costs leads to a disproportionate increase in output, and thus there are positive economies of scale.
Economies of scale are not absolute, and in many cases, they might not work without reaching the desired size. Even the enlargement of production facilities and equipment is only expedient up to certain optimal limits. The same applies to the organizational growth of production companies, where there may be negative economies of scale. Usually, it is associated with the problems of coordination, management of complex industries, complexes. Therefore, it is important to optimize the processes through efficiency and precise coordinative management.
Reference
CAPSIM team member guide. (2013). Capsim Management Simulations, Inc.