SimVenture is a business simulation game which allows teams to run a virtual business over a number of months, gauging an understanding of the business process and becoming an entrepreneur, with those who think innovatively beyond single areas of specialisation being rewarded by the software.
This report will evaluate the team and strategic performance over the five virtual years, reflecting also on the use of relevant entrepreneurial theories that were put into practice and used as a basis for decision making.
Exploring a new venture can be an immense challenge, but those with entrepreneurial impulse find it very appealing (Kuratko, D.F. & Hodgetts, R.M. 2007). Often the dull moments are in working on the business process itself, the founders of ‘Dijiwan' stating “a good product idea and a strong technical team are not a guarantee of a sustainable business.” (Oncletom.io., 2018). SimVenture allowed us to focus on exactly the business process; planning, market analysis, pricing and economics of organisation, which I believe is often left behind planning a business. SimVenture has contributed to my personal development, optimistic tendencies and desire to achieve, as well as helping to understand the attitudes required to run a business and the role a team plays in the success of any venture.
According to Tuckman's Theory of Group Development (1965), a group must experience five stages of team building challenges pertaining to the completion of a task (Tuckman, Bruce W, 1965), and this was no truer than what the group experienced. The survival stage of the SimVenture project took the group through ‘forming' and ‘storming', as we had each never worked together, thus having different approaches towards effectiveness. In order to make interpersonal issues less polar, a characteristic of the forming stages, the assignation of roles was important, knowing that this was a factor of Varney's Effective Team Building (1989). I was assigned R&D Director and responsible for that remit.
The group started the project with no strategy, and as a result produced a bike that appealed to no one individual market segment. Unable to compete with other products, we were forced to restart after running a £300,000 loss. The blame lies with myself as Head of R&D, as with limited financial and physical resources, we have no choice but to attract sales through a product that customers wanted.
Upon our restart, the group decided to focus on a cost cutting strategy, but invest heavily only in market research, which gave us insight into target segments, competitor briefs, and customer preferences, as our earlier failures prove the importance of a strong product in establishing initial ground in a market. We set our target market as Road Commuting because the market was of the smallest in terms of competitors, so implementing a strategic approach towards dominating the market through gaining market share was easier than that of a saturated one. Competitive advantage was essential to our success, and as such was used as a basis for all decisions. To reinforce our cost cutting strategy, we used Porter's Model of Generic Strategies. The market our business was competing in was broad, and we sought cost as our competitive advantage, which best suited us to a Cost Leadership approach, whereby our objective becomes about being the lowest-cost producer in the market, using discounts to maximise productivity and market share (Porter, Michael. E, 1998).
We believed a Cost Leadership strategy would prevail successes, but during our first two years we were yet to pertain the benefits. We used a just-in-time method of production, which posed risks if we fell behind on production, however the team agreed that our cash flow would benefit, given that our expenditure only occurred when an order was received. Furthermore, as the group was aiming to minimise costs we chose a location that was an isolated premise with low rent, poor exposure and basic facilities. As space was a factor here, we didn't have to account for the storage of components under J-I-T. We also chose to employ two people, whom, according to Maslow's Hierarchy of Needs (Maslow A.H, 1943), we failed to accommodate their basic psychological needs of warmth and rest as they were overworked and had low job satisfaction according to statistics on their morale, which according to Herzberg's Hygiene Factors (Herzberg, F., 1959) is likely to have been down to setting the worker's salary as below average, with no allowance for overtime or training. We continued with our cost-saving strategy as our output was low and so the workers weren't being asked too much of, with a view that assuming production increases in the future we would have the capital to afford better facilities and improve job satisfaction.
The team felt that we had a solid product, built with components that suited our financial strategy, and based on increasing sales at the end of our first two years were clearly appealing to the consumer. Thus, the group decided to lay focus on the management of the different departments. We adopted a ‘bottom-up' operations strategy (Brady, Walsh, 2007) and shifted towards a ‘market requirements' strategy thereafter (Slack, Chambers & Johnston, 2007). The ‘bottom-up' view was suitable because our success was an accumulation of experiences in using the software and having already rewound many virtual periods, so our understanding of customer requirements and allocation of resources developed over time as started to understand the realities of the software.
The growth stage of a business often requires major changes in entrepreneurial strategy, which is reformulated because of competition and other marketing forces (Kuratko, D.F. & Hodgetts, R.M., 2007). Our group originally followed a cost-leadership approach to decision making which values profit margins over quality. By Y3, Q1, we started to see sales improving however at a slower rate than we were expecting, whilst our product returns increased to 43 over this two-year period. At the growth stage we could not risk tarnishing the reputation of our business, and as such chose to refocus our strategy on having high quality products with fewer returns. This is where our ‘market requirements' initiative began, coming from the notion that our strategy should reflect what our customers want, and a diminishing rate of sales and increasing returns proved that we weren't providing this. Although the market played host to many road cycling companies who competed on cost and product excellence, our business had one direct competitor in the Road Commuting sub-market who focused on a low price point and average-components, a strategy for gaining market share. On a market requirements strategy, we decided that our operations function should respond by providing capabilities owing to the satisfaction of the requirements of our market (Slack, Chambers & Johnston, 2007). Therefore, we invested in Quality Control, increasing it to ‘extensive' and also spending more hours on the development of the bike's product technology and components. As a result, sales picked up from their low of 39 when the quality issue was acknowledged to 59 when we ran with our decision, an increase of 51% over two quarters.
We also decided to drop marketing spending, in a bid to lower our fixed costs and out of practicality. We had always struggled to break even because our fixed costs outweighed our sales revenue. We discussed how we should reduce fixed costs and brought reality into the equation. A business owner continuing to invest £000's in marketing despite declining cash flows and falling sales is unlikely, as there must be a fundamental problem with the product itself, which was proven in the amount of product returns. Therefore, we decided to save £24,000 originally allocated to the marketing budget to assist in offsetting our cash deficit and allowing for some leeway in discounting the product to give sales channels an incentive to purchase. Some of this spending was also applied to quality control. This decision was highly successful. By reducing marketing and increasing quality control individually, we saw sales increase by 51%, which proved to us that marketing wasn't entirely necessary at that time, and our market-based operations strategy was successful. We understood the importance of marketing in furthering a brand's sales, and although we made a decision to reduce spend in this area, we invested heavily in year 5.
Year five opened with strong sales growth of 38%, which was previously identified as being down to improving the quality of our product. This sales figure was still not enough to cover our costs, and we realised that should we want to operate at an efficient scale then we would have to increase production, and in line with economic law, reduce the price as to increase our sales channels.
We chose to reduce the price of our bike from £550 to £500, a reduction in marginal revenue of £50, meaning that we would have to sell more bikes just to receive the same amount of sales revenue. We realised that this came with the risk of damaging our cash deficit, however we agreed that it was no longer sustainable run a level of production that doesn't allow us to cover our fixed costs. We knew that changing the pricing structure was likely to have a positive impact on our sales channels, and so our focus then turned to matching demand with production. We decided to upgrade our production method from manual to power tools, which increased our efficiency allowing for 69 units of production compared to a previous 58. We also changed the employee structure, reducing the number of employees from two to one, instead opting to contract the work. This made sense to us, because at current levels of output our employees were showing high levels of inefficiency as they had 520 available hours whereas we only needed 200 hours, at a cost of £4160 under contracted staff, a saving of £1040.
Our business did produce a profit of £10,125 in Y5, Q1 which evidences that our strategy did work, however in an attempt to grow the firm by the final period, Y5, Q4, we ran a loss of £-18143, and this was directly due to an increase in fixed costs from Y5, Q1 to Y5, Q2 of £18,543, owing directly to our decision to reinstate marketing through social media, whereby I believe the combination of limited sales channels and wide social reach placed strain on our production and used our marketing ability in a way that didn't capture the customers that were within a vicinity to purchase the product from the small retail outlet, contrary to the advice of our customer market research.
From our first interaction with SimVenture, our group has developed skills that would not be exhibited in a standard lecture format. A good product idea and a strong technical team are not a guarantee of a sustainable business, and it is important that one understands the business process, something that is often left behind. Being at the forefront of decisions businesses have to make on a daily basis and focusing each time on the why's behind our decisions and linking them to theory we have learned in lectures as to increase the depth of our report has been incredibly valuable and given a sense of reality to the theory that plays central to many businesses.
Although the team failed to make a profit in our last virtual year, the team does not feel disappointed because we failed many a time, but each failure was a learning curve and gave us an opportunity to apply a different method of thinking, to use a degree of ingenuity which I do not feel any of us have been given the opportunity to do so before.
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