game simulation

Specific to business organizations operating in a global economy

The need to work with uncertainties in a fast-changing world while maintaining an advantage over rivals is crucial. Otherwise, the business will lose market share, sales, and could become unprofitable, contributing to its closure. Only management with well-developed expertise trained knowledge sources, and using for decision making not only instincts and personal will but also instruments of strategic planning in the form of classical models like Porters and others can conduct a profitable company over a long period of time. The process of learning such models may be supported by a simulation game where managers can understand models efficiency, specific of behaviour in various internal and external conditions, and polish their skills without the risk of real financial harm. Whatever is the result of the game it provides a lesson and information for next analysis, especially valuable when the game is processed many times with various strategies application.

The simulation game discussed in this paper is Bicycle shop (Falcon cycles)

The company mission was "To cater individuals with sustainable bicycles to meet physical needs and environmental needs of the society". The vision of organisation has been formulated as: "To be a responsible organisation that makes a difference by helping build and support sustainable societies. To be a highly valuable, lean and fast-moving organisation. To be an organisation which aims for the environmental development of the society." (Edumundo 2017).

Strategy development

For decision making support in competition with other market agents, it is possible to use some critical analysis instruments such as Porter's Five Forces Analysis, PESTEL-analysis, Strategic capability analysis, DMU strategy analysis. Participants of the simulation game used for their business development Porter's Generic Strategies, SWOT analysis, and Ansoff's growth strategy.

Porter's Generic Strategies

Porter's Generic Strategies is a matrix method for choosing the preference for particular business competitive advantage to get the better position within the industry. The model contains two types of competitive advantages - differentiation or lower costs. In combination with the scope of activities, the manager has a matrix with four cells. However, the model includes only three separated generic strategies: focus (cost or differentiation), differentiation, and cost leadership.In the case of cost leadership, the company becomes a producer with minimal costs in the industry or on a particular market. Sources to maintain such strategy may include the economies of scale, preferential access to information, materials, labour, and other factors. The profits higher than average in this approach comes from the gap between company costs lower than average and an opportunity to sell product by market price.In the case of differentiation, the company search for unique, valuable dimensions, particular attributes that can be popular and very attractive for a broad group of buyers. The extra profit with this strategy comes from meeting the unique need of customers and getting for that additional quality premium in price (University of Cambridge 2016).Finally, the third strategy is a focus in its two variants. Here the organisation chose a narrow competitive scope, a particular group on the market to serve it the best and exclusive way. This strategy becomes an initial one for the simulation game. We divided global market of operation into the number of regional ones and used both cost and differentiation advantages in dependence on the local market. As soon as geographical regions have different positive aspects, management considered them to follow and construct an advantage. The definite point of Asia and Africa is a high population; therefore, there is a massive market with a low income per customer. It is reasonable to sell cost-effective bicycles as they will meet demand due to price accessibility and will cover existing need in pure, functional bike. On the other hand, in North America, this measure of transportation is not so usual one. It makes more relevant selling high end/ premium bicycles attractive for sports lovers that will be interesting to them for some particular extra-qualities and features. Finally, in Europe, the management found relevant to use a mixed strategy and to sell at the same time bicycles of the premium quality to the full range of customers as soon as for this region, the bike is a favourite, convenient, and environmentally friendly measure of transportation and population has a higher income.

Ansoff's growth strategy matrix

The next instrument used in the game was an Ansoff's growth strategy matrix. The other name for this tool is a product/ market expansion grid. The model has two axes that reflect two possible directions of expansion: markets and products/ services. Moving forward by any of this axis lead to higher risks for business. In a market penetration quadrant, the company operates on existing markets with existing products and does not bear risk and costs of development. Both market development and product development lead to the risk of spending without adequate revenue. Finally, diversification is the riskiest strategy requiring many sources but potentially providing high benefits (MindTools 2017).Simulation game participants have chosen for bicycle business the growth strategy of market development; it plans to expand already existing bicycles to new regional markets. The reason for the strategy application is an existing brand loyalty, an asset allowing introducing existing and modified models on the new exchanges or particular segments of stratified markets trying to match the best needs of the layers. Construction of new products and brands would bring in such situation higher risks and underuse real advantages.

Market research

Market research includes collecting and analysing information about internal and external factors that can affect the company. One more matrix used for analysis within the simulation game was a SWOT. This tool allows the management to identify strengths and weaknesses of the organisation that are part of its internal environment and then based on the information of the external environment evaluate probable opportunities and threats (CTB 2017).Analysis results for Falcon cycles are presented in the table below:Strengths
- Good image
- We can sell products easily
- Customer satisfactionWeaknesses
- We don't make enough profit
- The staff loyalty is an issue
- Not enough innovation
- No efficiency improvement Opportunities
- A wide range of market
- Our market share allows us to dominate the market
- Brand loyalty
- We can use our profit to make innovationThreats
- Staff loyalty management
- If the profit growth is not optimized, the company can go bankruptBased on that information and previously formulated strategy an initial set of company products included one model for each region: Europe, North America, Asia, and Africa. In the process of the simulation, these models have been extensively developing. The results and costs of R&D and product details are provided in the table below:Company name
Falcon Cycles
Falcon Cycles
Falcon Cycles
Falcon CyclesProduct name
Period
7
7
7
7Category
Europe
North America
Asia
AfricaSupplier
7.22
7.85
7.43
7.64R&D-improvement status
6
6
6
6R&D spend on this product
£12,300.00
£16,800.00
£14,400.00
£15,000.00Surprisingly in the final table, the spending on R&D and the price in Europe are low in comparison to other regions, while the management planned to produce here bicycles of high quality and price.

Company performance

The financial results of running bicycle business within the simulation for Falcon group after seven periods are negative. While having 11.36% of the European market, 6.14% in North America, 11.20% in Asia, and 8.5% in Africa, the company got just £719 of net profit. In the period 6 and before this figure has been 5-8 times higher (£40,675).The mix of KPI's for the 7th period shows a little profit and its growth and therefore return on equity, turnover is also low. On the other hand, an image of the company is confident (better than average), and market share is coming close to the average yellow zone. Internal parameters are even better, the positive change from low to the average area shows loyalty to staff, price/ quality balance. Sold inventory is close to its maximum. KPI's of learn and growth are also right; the average results are shown in innovation and education level, the ones above average in efficiency improvements and R&D expenses.

Competitor prices and comparison

Figures below shows the dynamic of bicycle prices within the simulation game on two markets, an African one where it supposed to be an average and the European one where they should be higher than average. However, on both pictures in the second half of simulation is the same situation with prices, the red line is more top than a blue one.Africa
Europe

Conclusion

The group performance was unbalanced. Talking about KPI groups the best results shown in the learning and growth, an average one in internal KPI's and customer loyalty development, the worse results demonstrated in finance. At the same time, all these groups are essential for the long-term sustainability of the company; it cannot exist without interest by the customer, neither financial sources. The business will fail as well without constant learning and development or when striving severe internal issues.

Learning outcomes

By passing this simulation game, we learned about long-term planning and tools for strategy development. At the same time, we got an experience of making tactical decisions in conditions of high competition and unavailable full information about future and today actions’ outcomes. We learned that business environment requires will and resolve to act in the risky frame. As our experience show, the initial strategy may conflict with short-term market changes and the management can to miss an initial long-term view while fixing short-term problems. Therefore, managers in their education should pay particular attention to the vision coordination for various time frames. The flexible management should be able to come back to initial plans after slight shifts on the market. However, it should also know the time to review the long-term strategy when seeing the structural and fundamental changes of situation.

References

University of Cambridge. (2016). Porter’s Generic Competitive Strategies (ways of competing). https://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-strategies/

MindTools. (2017). The Ansoff Matrix. Understanding the risks of different options. https://www.mindtools.com/pages/article/newTMC_90.htm

CTB. (2017). Section 14. SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats. http://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-and-resources/swot-analysis/main

Edumundo. (2017). Greenwich Oct 2017 PA. Bicycle shop. http://game.edumundo.co.uk/default.aspx?id=1

Appendix – Presentation slides