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Management Games

Term III
INDUSTRY: C65257
COMPANY: ERIE

Group E4:
Pramod Rathi
265/51
Puneet Agarwal 280/51
Ratnabali Majumdar
291/51
Reshma Babu
297/51
Rohit Patidar
299/51
Dhruvin Seth
327/51

Initial Strategic approach :


Market Penetration
Market Objective:
Capture Market in Traditional and low-end segment as together
they capture 83 % of the market
Focus broadly on all other segments
Financial Objective:
Keep sufficient cash balance at all times to avoid emergency
loans
Liberal financing under short term debt
Research Objective:
Launch new product line by the end of 2 nd and 3rd year
Continuous improvement through R&D

Round Wise
Strategies

INTENTIONS AND
RESULTS

ROUND 1: Strategic Shift


Capture Market in Traditional and Low:
Huge investments in terms of promotion and sales budget
Prices of these products were decreased considerably
Financial:
Raised Short term and Long term debt
Increased AP lag days to 50
Other:
Investment in Research and development to improve buying criteria
Automation in traditional and low segment
Results:
Overall, 13% Market share in low end market was achieved
Doing very well in the Size, Performance and High (20%, 19% and 16%)
The margins received from low and traditional were low coupled with low
market prices

Round 2 and 3 : Competitive


Industry

Started R&D for new product East in the high segment (also bought capacity) (end of 2 nd yr)

Started R&D for new product Energy in the size segment (also bought capacity) (end of 3 rd yr)

Increased prices by $0.5 to $1.5 in all the segments

Started doing sales forecast by using previous data and market share; ignored automatic
forecast

Started spending on recruiting and training hours

Started TQM initiatives to reduce labor, material and admin costs

Financially taking on debts to maintain leverage; also buy back of shares

Results:

Very good performance in Round 2 with 5 stars; stock price up by $5

Losses in 3rd round; all competitors.

Product stock out in low and size segment; could not meet potential sales target

Round 4 and 5: Recovery and


Recession

Retracting business in the traditional segment

Invested heavily in sales budget to increase accessibility; maintain awareness levels

Invested in reduction of R&D cycle time; recruiting and training spend

Bought capacity for performance

Financial:

Restructured towards more short term debt

Bought back shares at low price in 4th round; issued at 5th round expecting recession and
buy back at a later stage at low price

Results:

Round 4 results very good with highest cumulative profits; marketing decisions paid off;
demand prediction was spot on

Survived shock in recessionary round 5; stock price stable; bond rating improved to CC

Leading in low segment; leaving traditional good decision

Round 6 : Unexpected
Emergency

4 products in R&D to meet exact specifications

Invested in TQM primarily reduce R&D time, stimulate demand; maintained HR


investments

Aggressive production: above our own forecast

Distributed marketing and sales budget among various channels according to product
requirements; pricing tweaked to increase in low end and reduce marginally in size

Financial:

Bought back $1.5M shares

Retired long term debt of $5M; issued short term debt to $8M

Results:

Unexpected emergency loan; share buy back didnt help

Otherwise stable stock price, marginal increase in market share

R&D specs way off for Low end

Round 7 and 8 : Continuous


Improvement

Continued investment in R&D; launching perfect products (for next year too)

Started paying more attention to key ratios and numbers

Sold off excess capacity in Low segment (both round 7 and 8)

Financial:

Issued shares in both rounds to increase market cap; paid dividends in both rounds

Paid off all debt in the last round; kept AP days low to increase profit (better numbers)

Results:

Market cap increased from $40M at the end of round 6 to ~$249M at the end of
round 8

Bond rating improved to BBB; increased market share

ROE increased to 36.2%, stock price $102, highest in the industry

All products stock out perfect specifications match

Competitors

Initial round Ferris good sales and capital structure

Andrew in traditional segment till we decided to exit

After round 3, Baldwin (computer) was the main


competitor

Paid attention to its strategies, but did not imitate

Tried to pursue our own round wise strategy to achieve


the financial objectives

Key Learnings

WHAT WORKED
AND WHAT DIDNT

What went well

Automation in the initial rounds;

TQM from the very beginning, reduced costs through this balance

Multiple products in high margin segment helped sales and


R&D planning

Managed demand forecasting well

Sold off relatively low profitable segment with less market


share

Balanced capital structure, wrote off long term debt

Financed working capital requirements with short term debt

What couldve been better

Use TQM to reduce R&D cycle time from early on

Close matching of product specifications from early


on to increase sales

Better capacity planning could not meet potential sales


in the later rounds for high spec products

More coherent strategy in accordance with final objectives


from the beginning

Questions?

Thank you!

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