Sunteți pe pagina 1din 10
ENGINUITY TUTORIAL
ENGINUITY TUTORIAL
ENGINUITY TUTORIAL Forming A Business Strategy Copyright Virtual Management Simulations
Forming A Business Strategy
Forming A Business Strategy
Copyright Virtual Management Simulations
Copyright Virtual Management Simulations

Why Have A Strategy ?

Business Strategy

A smartly designed, well-executed business strategy is indispensable not only to an organization’s long-term success, but to its very survival. Simply having one does not give you a competitive advantage. It’s the depth, quality and flexibility of a business strategy that makes the difference.

The new management team need to develop a clear strategy, or business plan to :-

Grow the business and improve its value

Enhance the company’s reputation with clients

Keep shareholders happy

The value of the company is measured by a number of assets, such as the company cash account, capital base (infrastructure) and investments.

OBJECTIVES

Developing an effective strategy will involve acquiring a good understanding of :-

The economic environment in which the company is operating

The strengths and weaknesses of the business as it currently stands

The strategy will consist of number of objectives relating to :-

Identifying new work in different sectors and locations (UK/Overseas)

Expanding the infrastructure of the business to achieve growth

Winning new work in a competitive bidding environment

Improving profitability through effective job and overhead management

Current State Of The Company

Business Strategy

We will now look at an example of setting and reviewing company strategy.

We have been given the task of running a fledgling UK-based multinational construction company, with its headquarters in London, that has been trading for just one year (4 periods).

To be able to develop an effective strategy we need to first look at the status of the company when we take control at the end of the History, at the beginning of period 5.

To do this we refer to information shown in the Performance Summary.

 The company is valued at 4.75m  The company share price is trading at
 The company is valued at 4.75m
 The company share price is trading at 1.12
 To date the company have identified 12% of the new work in
the market (market share)
 54% of the company’s infrastructure has been utilised in
procuring and progressing jobs
 The average turnover per period to date has been 7.7m
 A gross profit of 4.5% (of cost) was made on the work
progressed
 After taking overhead costs and tax into account the net
operating profit was 1.5% (of cost)
 The company order book looks healthy, with a forward
workload of around 18.3m

Global Economic Outlook

Business Strategy

As well as the status of the company, to develop a strategy for the business we need to look closely at the predicted global economic environment in which the company is operating.

Navigate to "Main menu/Industry information/The environment in which the company is operating" GLOBAL OUTLOOK
Navigate to "Main menu/Industry information/The environment in which the company is operating"
GLOBAL OUTLOOK
Looking at the outlook for the UK and Overseas it appears that after tighter
fiscal policies by Governments worldwide caused stagnation over recent
years, there is finally signs of growth, and there is optimism of a global upturn
for the Construction Industry.

The Global Market

Business Strategy

Navigate to "Main menu/Assessing performance/Overhead analysis/Market trend" NEW WORK In line with an expected
Navigate to "Main menu/Assessing performance/Overhead analysis/Market trend"
NEW WORK
In line with an expected upturn in the construction industry worldwide, the
overall value of new work in the global market is predicted to steadily
increase from currently 390m to around 465m by the end of period 9.
There appears to be work in all sectors, particularly in the building &
commercial sector.

Setting Objectives

Business Strategy

After a thorough review, the following key objectives are set for the foreseeable future, all aimed at increasing

the value of the business, improving the company’s reputation, and keeping shareholders happy.

MARKETING

Increase market share, and the number of new jobs indentified by :

Increasing the size of the Marketing Department.

Targeting the larger Building & Commercial sector to guarantee a flow of new work.

Targeting the Water & Sewage sector, which is expected to have a steady flow of new work for the foreseeable future in both the UK and Overseas, and which may not be as competitive as larger sectors.

GROWTH

Increase the average turnover each period through a combination of :-

Identifying a larger share of the new work in the market, as outlined above.

Expanding the company’s infrastructure, known as the capital base, to support more work.

Competitive bidding to secure more jobs.

PROFITABILITY

To increase the operating profit of the business by:

Progressing jobs won as profitably as possible by completing them on or before schedule, allocating appropriate personnel, effective risk and cost management.

Efficient management of the particular the Head Office, QHSE and Measurement departments, to ensure that the staff can cope the company’s turnover.

There are many other areas that could be considered, and creating a long-term strategy is a complex task.

Indeed, the strategy will have to be periodically reviewed, particularly as the economic environment is constantly changing, and our original objectives may not have been met.

ONE YEAR LATER, how did we perform against the objectives that were set ?

Reviewing Performance: Marketing

OBJECTIVE

To increase market share

ASSESSING PERFORMANCE

Business Strategy

Navigate to "Main menu/Assessing performance/Performance summary"

menu/Assessing performance/Performance summary" Referring to information shown in the Performance Summary,
Referring to information shown in the Performance Summary, by the end of period 8 the
Referring to information shown in the Performance Summary, by
the end of period 8 the market share had increased from 12 to 28%.
This was
achieved by :-
Increasing the size of the Marketing Department each period.
Targeting the Building & Commercial and Water & Sewage
sectors in particular, which accounted for 47 and 36% respectively
of the
new work identified.

Reviewing Performance: Growth

OBJECTIVE

To increase the average turnover each period.

ASSESSING PERFORMANCE

Business Strategy

By the end of period 8 the average turnover each period had increased significantly from
By the end of period 8 the average turnover each period had
increased significantly from 7.7m to 12.3m.
This was achieved by :-
Identifying more new work in the market.
Increasing the company’s infrastructure, or capital base, to enable
more work to be undertaken.
Successfully winning new work.
Progressing the work won
During periods 5 to 8, 5 new
contracts were secured.

Reviewing Performance: Profitability

OBJECTIVE

To increase the operating profit of the business.

ASSESSING PERFORMANCE

Business Strategy

By the end of period 8 the net operating profit had increased significantly from 1.5%
By the end of period 8 the net operating profit had
increased significantly from 1.5% to 3%
This was achieved by :-
 Progressing jobs profitably (gross profit of 6.1%)
 Efficient management of key overhead departments
During periods 5 to 8 the Head Office, QHSE and Measurement Departments were very well
During periods 5 to 8 the Head Office, QHSE and Measurement Departments were very well managed.
Bearing in mind that the benchmark level was 100% of the required level to prevent any understaffing, all 3
departments were more than adequately staffed, and by being overstaffed they contributed an extra 0.25m to the
company’s operating profits through :-
 Lower costs (Head Office and QHSE)
 Higher value (Measurement)
to the company’s operating profits through :-  Lower costs (Head Office and QHSE)  Higher

Strategy Successful ?

Business Strategy

Having met the objectives, have we also achieved the strategic goal of increasing the value of the business, improving the company’s reputation, and increasing the company share price ?

COMPANY VALUE

  

By the end of period 8 company value had increased by 14% by :-

Increasing market share to identify more new work

Growing the business by winning more work, and increasing turnover

Increasing operating profits through effective job and overhead management

COMPANY REPUTATION

During periods 5 to 8 the company’s reputation with clients improved significantly (client satisfaction) as
During periods 5 to 8 the company’s reputation with clients improved
significantly (client satisfaction) as jobs were successfully undertaken.
(client satisfaction) as jobs were successfully undertaken. KEEPING SHAREHOLDERS HAPPY  During periods 5 to 8

KEEPING SHAREHOLDERS HAPPY

During periods 5 to 8 the company’s share price rose from 1.12 to 1.42 as
During periods 5 to 8 the company’s share price
rose from 1.12 to 1.42 as a result of :-
 Keeping shareholders happy with ample dividend
 An increasing company value
 A stable level of anticipated future profits
 Keeping debt burden to a minimum