Final Project

Final Project

Stacey R Cook

MGMT 585 Strategic Management

June 20, 2014

Dr. Michael Corriere

Southwestern College Professional Studies

Final Project 1

Table of Contents

Introduction 2

Strategic Vision 3

Trends for Annual Earnings per Share …………………………………………………………....4Earnings Per Share Performance Target 5

Trends for annual Return on Equity……………………………………………………………….6Return on Equity Performance Target 7

Trends for annual Credit Rating…………………………………………………………………..8Credit Rating Performance Target 8

Trends for annual Image Rating…………………………………………………………………..9Image Rating Performance Target 10

Trends for Global Unit Sales Branded Footwear………………………………………………11Competitive Strategy Branded Footwear 12

Trends for Global Unit Sales Private Label Footwear………………………………………….13Competitive Strategy Private Label Footwear 14

Production and Workforce Compensation Strategy 14

Trends for Year End Stock Price……………………………………………………………...…15Trends for Global Market Share…………………………………………………………………16Finance Strategy 17

Identification and Analysis of Strongest Competitor Branded Footwear 17

Identification and Analysis of Strongest Competitor Private Label Footwear 18

Actions to Compete with Competitors Branded/Private Label Footwear 18

Lessons Learned 18

Conclusion 19

References 20

Final Project 2

Introduction

Southwestern College offers students a unique opportunity to apply the knowledge that

they have gained over the course of their professional development and education to a Business

Strategy Game Simulation (BSG) as a majority of the Strategic Management course. This

simulation allows for students to interact with a group of other students (unfortunately for this

course, there were only three individuals attempting to complete this required course), and

maintain a Footwear Business. As stated previously, the class members worked alone with

completing the simulation, and for the final project, the student learner will discuss the results,

improvements, achievements and if given the opportunity the future of where the Footwear

Company (Company B) would appear.

This simulation identified key points to the strategic vision and development of

companies, and allowed the students the opportunity to take charge of the simulated company.

There were three teams that were comprised in the simulation, AKiCkS, CJM and Company B.

The student learner was the manager for Company B, and competed against AKiCkS and CJM.

Such information that was required for this simulation was items such as: Return on Equity

(ROE), Earnings per Share (EPS), Credit Rating, Stock Prices, Image Rating, Revenues, and

Global Unit Sales for both branded and private-label footwear. In addition to being able to

successfully identify those aspects within the simulation, student learner’s also had to focus their

attention to the strategic vision of their companies, as well as competitive strategy, production

and workforce compensation strategy, financial strategy, and even the social and corporate

responsibility of their industry and product development. The student learner will provide

information in regards to the mentioned areas, as well as visual aids as part of this in depth

Final Project 3

analysis of the performance of not just the student learner, but the competition of the companies,

and the strategic management (both pros and cons) of the simulation.

Strategic Vision

A company’s strategy is defined by the specific marketing positioning, competitive

moves and business approaches that form management’s answer to “What’s our plan for running

the company and producing good results?” (Thompson, 2013). Company B’s strategic vision is

“to provide customers with comfortable, quality and assortment of footwear products to meet

their needs.” This strategic vision provides what Company B is capable of providing its

customers, and what their customer may need from the company itself. The strategic vision is

clear, concise, and provides what the company has to offer to customers (and what customers can

expect from the company when they purchase their products). The strategic vision also provides

an exact graphic ideal of what the company wants to provide the customer, without stating any

information about the possibility of innovations that the company may be adding to their

products (although the statement includes “assortment”) but does not state any future

upgrades/downgrades or innovation included in their products that are offered to the consumer.

Also, the strategic vision is not necessarily vague of the ideals in which the company wants to

provide the consumer but allows for the consumer to “use their imagination” so to speak of the

products that the company can provide for them which may allow for the consumer to be able to

provide feedback about the products for future product creation and innovation.

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Trends for Earnings per Share

10 11 12 13 14 15 16 17

00.5

11.5

22.5

33.5

44.5

5

Earnings Per Share

Earnings Per Share

For the years of 2011, 2012, 2013, 2014 and 2016 the earnings per share averaged at

about 2.25 for the total years. Company B, did not want to decrease the earnings per share for the

stock options for stake holders because the company was afraid that this type of action would

provide evidence that the possibility of the company to go private was an option. The research

that the student learner researched was that of another shoe company’s situation in Wisconsin

which had no debt what so ever, decided to try to take the company “private” which top

executives thought that the deal was going in the right direction, but that was not the case. Under

Wisconsin law the company had to gain approval from half of the minority shareholders in order

to gain private status (Weinberg, 1994). The aftermath of this law for the company was that the

company vowed not to sell as an option if the deal as rejected and presented the idea that the deal

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was a take it or leave it option. The company progressed forward and in July 1994 the board

opted not to change and preceded forward and just vowed to continue to just “sell shoes.”

This scenario was not what Company B intended for their company, but some outsiders

could view this as a possibility with past research or even actions from organizations in the past

as well. Although the earnings per share did drop tremendously in year 2015, with the possibility

of negligence of management for funding options and the debt ratio as well as the possibility of

undervalued inventories and the possibility of over funded pensions. Year 2015 was substantially

weak for the company and the earnings per share, while year 2017, was the best year for the

earnings per share for stakeholders and Company B. Year 2017 alone presented a whopping 3.45

for the shareholders and Company B, which managed to be a successful year. After analyzing the

information for Year 17, management appeared to have a different approach for the company

and this information is not just apparent for the earnings per share analyzes but for the Stock

Prices and Credit Rating as well.

Earnings per Share Performance Target

Management intends to ensure that not only the inventory of the athletic footwear is of

good quality and ensures customer satisfaction, but also that inventory is properly managed. This

process will allow for accurate forecasting for branded sales which may not guarantee actual

sales but could maintain the surplus of inventory over and above the pairs that the retail stores

orders within the requested delivery times.

Management should also take into consideration of the payment of dividends to

shareholders, as this is vital for the company to maintain a positive outlook for the company’s

stock price itself. Also, management could purchase outstanding shares, this could also help to

raise the earnings per share for the company as well as return on equity and even aid (again) with

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the stock price for the company. If the stock price is raised, this may help gain more prospective

shareholders and even more financial contribution to the company as well. Company B and its

managers should pursue a 2 for 1 stock option for Common Stock in the future as well.

Trends for Annual Return on Equity

2011 2012 2013 2014 2015 2016 20170

2

4

6

8

10

12

14

16

Return on Equity (%)

Return on Equity (%)

The trends for annual return on equity for Company B seemed to have a good start for

Year 2010; however, the trend for the company and its return on equity seemed to steadily stray

downhill. This was especially true for 2015, as this figure was extremely low with 5.3 % and

although this percentage manages to increase over a slow pace for the next two years. Year 2017

seemed to present a brighter path for the Company. The ROE for Company B does not show

whether or not the company has excess debt or an extensive liabilities. Managers obtained more

debt in 2015, which placed the ROE in the lowest bracket. Managers in the future, must really be

able to observe and research whether or not the Company B really should examine whether or

not the company really needs to acquire more debt. Although Company B seemed to be off to a

fast and bright start, there are apparent learning curves in which management needs to not only

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learn, but practice for the success of the company. The typical growing company’s ROE should

be on the higher side. Most potential investors may not want to invest in Company B with the

low year (which can ultimately lower the average of all accounted years). This is management’s

responsibility to ensure and strive for a higher average, even though there was one low year, this

could harm the company’s average and the potential for new investors and to even

maintain/secure the current investors.

Return on Equity Performance Target

Increasing the Return on Equity (ROE) for the next two years will be a management task

for the most part. ROE indicates just how well a company’s management is utilizing the

investor’s capital that they (investors) have invested in the company/ A company can not

necessarily grow its earnings quicker than its present ROE numbers without being able to raise

additional money, borrowing the funds (a loan through a financial institution, etc.) or selling

more company shares. If Company B decides to seek a loan then in additional debt cuts into net

income and selling more shares of the company may actually decrease the Earning per Share

(EPS).

The goal for Company B for the next two years is to at least maintain or even surpass

15% as this percentage may be more acceptable for potential investors to invest in the company,

and allow for current investors to feel more at ease and secure with their investment decision.

Managers for Company B are hoping to steadily increase the ROE over the next two years to

show financial strengths within the industry and against competitors. An increasing ROE can

provide evidence that management of the company is giving shareholders more for their money,

which is represented by shareholders’ equity. Through research, another idea for management is

to open more retail outlets and expand operations. Wolverine World Wide had done so, and was

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known as the “Nike of nonathletic foot wear”. The company made great strides with its earnings

and was the Department of Defense’s largest supplier, the company received many orders and

this increased the company’s popularity and it’s ROE (Serafin, 2005).

Annual Trends for Credit Rating

Company B managed to maintain its credit scores with only two B+ ratings (for years

2011 and 2012). That was the start of medium risk for the company which is not necessarily

something that reflects the company as well as management in a positive light. However, for the

remaining years, the company and management finally had the credit rating in the right light with

A’s.

Credit Rating Performance Target

Company B seems to have been able to maintain a great credit score from Year 2013 to

Year 2017 (with A’s). Therefore, it is the opinion of the student learner that management seems

to have made the credit of Company B a top priority which will help the company to establish

credit and maintain successful partnerships with those institutions that it seeks credit from in the

future. At this time, from the Company Performance Survey provided by BSG, it seems as

though Company B will be able to successfully maintain its credit scores for the next two years,

if the company is able to maintain its current actions that have had a positive aspect on its credit.

Management will be able to establish credit while the company’s financial status may not

necessarily be in jeopardy due to high payments if debt may be required in the future of the

company. Having a lower risk credit rating allows for companies to establish payments that may

not jeopardize the cash flow that the company already has. If (for unforeseen circumstances)

Company B establishes a higher risk credit rating, this could not only harm the company’s image

Final Project 9

with investors, but creditors and if that were to occur, then repaying debt may be more difficult

for the company.

Trends for annual Image Rating

10 11 12 13 14 15 16 17

0

10

20

30

40

50

60

70

Image Rating

Image Rating

From the information provided from the chart above, Company B’s image rating was

strong for Year 2010, however, slowly escalated. The reasoning behind the success of the image

rating for Year 2010, was because Company B’s management wanted to try a trial period for

social responsibility and corporate ethics, once that trial period was completed, management

decided not to utilize the programs to strengthen its social responsibility and corporate ethics

therefore, the image rating began decreasing slowly and maintained for three years at the same

level for years 2015, 2016 and 2017. Year 2017, management decided to start to utilize the

programs that it disregarded a few years in the past.

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Image Rating Performance Target

Although the image rating for Company B manage to sustain the same rating for three

years, the company finally has been trying to analyze what it could do better and what

management’s major concern is for the company. Although management feels as though the

company offers a great value for the athletic shoes that the company has, management still feels

that the focus should remain on the corporate and social responsibility as management feels that

it is the job of larger corporations to ensure that communities in which they reside in are properly

taken care of and that consumers have positive feedback in regards to the employees that they

may encounter while purchasing (or even considering to purchase) that Company B provides.

Management has researched other companies that may have been in the same predicament with

the lack of taking responsibility within the community and even internally with the employees.

Nike was driven by a rise in public concern about physical fitness and also the popularity

of professional sport leagues came the demand for athletic footwear shoes and this started in the

1980s (Waller & Conaway, 2011). In the beginning, Nike failed to capitalize on the emerging

trend and Nike was the domestic athletic shoe market in which the company trailed Reebok

(Waller & Conaway, 2011). Nike faced difficult times as the company had allegations brought

against it in terms of its human rights practices due to the outsourcing of jobs and labor laws

(Waller & Conaway, 2011).

Although Company B does not have allegations pending about the way that they utilize

labor practices, this research led to management wanting to change views of athletic

corporations. Management felt as though if they did not step up and provide training, and take

part in the social responsibility that the company would also suffer scrutiny from the general

public, social media, and even the employees themselves.

Final Project 11

Trends for Global Unit Sales Branded Footwear

10 11 12 13 14 15 16 170

1000

2000

3000

4000

5000

6000

Global Unit Sales Branded Footwear

Global Unit Sales Branded Footwear

The trend for Branded footwear was lower within the first few years of the annual

reporting, but grew after year 2013. Managers were focusing on both Branded footwear and

Private Label footwear at the start up. However, with the ups and downs of the private label

footwear, management decided that they would prefer to see Company B focus more on the

Branded Label Footwear, and eventually lowered the focus of the Private label footwear. This

was a risk for the company and management, beings that every product has the capability to

make profit, and spread the word about the products in which the company is selling, but

management felt it was a better idea to press forward with more valuable time delegated to the

Branded Footwear.

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Competitive Strategy Branded Footwear

Management opted to utilize the low-cost provider strategy. They wanted the company to

provide customers with products that were made well, but would not cost too much for both the

company to manufacture and for the customer to purchase, while still offering unique styles and

comfort to the customers as well. Management was able to research and develop cost saving

opportunities within every opportunity that it could, and especially paid close attention to any

types of cost drivers that could surface at any given random time.

Another factor that management entered into the equation was that they did not want to

come onto strong within the industry, as the market was already saturated with companies that

were creating similar products, therefore, management wanted to step back and come out slow

into the market. Management focused on underserved regions (competition was still in those

regions) which it had hoped to create more business for the company. Management researched

different scenarios to see which options it could take for the company to be able to compete, but

without having to risk profits and revenues in doing so. Management had found a company that

had almost the same circumstances in which Company B had found itself, that was a company

that had started small and now has 16 stores because of the approach of stepping back and taking

“baby steps” to get where it is today.

The Shoe Station originated in Alabama, and started out with just one store, but nearly

twenty four years later, has managed to open and maintain 16 stores altogether (Flynn, 2008).

The company was able to add stores, but still had to maintain the older stores and provide

remodeling of those older stores to coincide with the new stores. The gradual changes that the

company had made by not pressing forward in an instant to gain customers was very time

consuming yet rewarding, as the managers and owners of those stores were able to slowly

Final Project 13

provide more products in successful market areas, but this process also allowed for “beefing up”

its marketing initiatives as well (Flynn, 2008). This concept is also what Company B is also

hoping to do as well for its future reporting years, as this Company has been around for years,

but would still like to start off slowly and be able to slowly add more stores and products to its

name and brand.

Company B will also still provide mail in rebates with their products and will in the

future aspire to create more free shipping opportunities as well for its customers. Management

feels as though this could not only help with marketing initiatives but could also aid with the

image rating of the company.

Trends for Global Unit Sales Private Label Footwear

10 11 12 13 14 15 16 17

0

200

400

600

800

1000

1200

Global Unit Sales Private Label

Global Unit Sales Private Label

As stated previously, management had intended on exploring options with the private

label footwear, and at first it seemed as though the options and time that the company spent on

focusing on private label seemed to be paying off, however, with the private label footwear being

Final Project 14

unpredictable, management eventually began to focus more of their time on the Branded

Footwear than the Private Label Footwear hence years 2015, 2016 and 2017.

Competitive Strategy Private Label Footwear

The original strategic plan for Private Label Footwear was for Company B to attempt to

pursue lower costs with medium quality; however with the fluctuation in all regions this process

was difficult to maintain. The company had a rather difficult time in competing with the

competition and the falling athletic shoe prices, therefore managers of Company B decided to

focus more attention on the branded footwear in hopes to gain profits, etc. where the company as

not making for the private label footwear.

Production and Workforce Compensation Strategy

During the Annual Reporting Years, Company B did not opt to purchase or expand any

production facilities (this could have harmed the company for profits and earnings) however, it

was the decision of management not to expand operations in any other areas. The compensation

for the employees was average for the industry and at the beginning annual reporting, employees

received ethics and social responsibility training, and there was a period of time, where Company

B did not provide the training, but then started the training again in annual reporting year 2017,

and will continue with the training for the future. The concept and strategic plan for this subject

area was to try to keep the cost of producing and manufacturing pairs of footwear at a low cost,

while trying to keep productivity at a high level. Management has since initiated more incentive

programs for employees not only to increase production but to ensure that the moral and welfare

of its employees is a priority as well. Employees receive paid time off and bonus pay for

minimum amount of rejected items, and even sales of the items in which they produce.

Management feels as though if it was not for the employees (along with customers) then the

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company would not be where it is today and would not have the products and or the customers

that it does today as well.

Trends for Year End Stock Price

11 12 13 14 15 16 170

5

10

15

20

25

30

35

40

45

Stock Price

Stock Price

The stock prices for Company B seemed to be all over the board so to speak,

management was quite pleased with the outcome of year 2014 and year 2017 for the stock prices

and thought that those prices were something that the company can definitely bring forward for

the next two years. However, year 2015 was too low for management and that could be

considered a lesson learned of what the company should not do again. Stock prices are extremely

important for stakeholders and the company. Companies could have a near term weakness for

performance scores of 20 or lower (Forecasts, 2012). If this were the case, then Company B

would be considered very weak and would not accumulate many investors due to the low stock

prices that it has upheld in the past.

Final Project 16

Trends for Global Market Share

10 11 12 13 14 15 16 170%

5%

10%

15%

20%

25%

30%

Global Market Share

Global Market Share

Many corporations seek to conduct business overseas and this reasoning is because

corporations seek to have control (Reynolds, 1984). Company B was not only seeking some

control, but wanted to be able to expand its operations in hopes to create a market initiative but

also to seek more revenue as well. The beginning stages for this process seemed to have been

going well for the company. Years 2010 and 2011 seemed to have had high percentages, while

Years 2012, 2015, 2016 and 2017 did not have such high percentages for the company. Some

reasoning for this may have been politics in some of the regions in which Company B was

located or even the strategies in which the companies in which they were competing may have

been established and executed differently and more efficiently. Other circumstances that may

have affected the shares could be the economic state of the regions in which the company was

located, if the economic state of the region is lower, and the competition may have something

Final Project 17

more to offer consumers in that region then of course, the consumer will chose the competition

instead of Company B especially if the competition is offering lower prices for their products.

Finance Strategy

Company B obtained one loan during the annual reporting periods which the company

did so to have more cash on hand. This did not really affect the credit rating of the company.

There were no additions to facilities or construction of new facilities. This may have either

helped or hurt Company B; however, management opted not to acquire too much debt for the

company. Also, the company never repurchased stock, this may have also caused great harm for

the company, but within the next two annual reporting years, Company B will be repurchasing

stocks to help with the financials of the company.

Identification and Analysis of Strongest Competitor Branded Footwear

The strongest competitor would have to be Company A. The student learner believes that

the strongest competition was utilizing Broad differentiation strategy. Management assumed this

because of the ratings that the competition that the company had achieved and how much this

company was able to gain success with so many aspects of the company. The company was able

to maintain a higher S/Q rating which had helped tremendously, and from interviews that

management had conducted with the manager of Company A, it seemed as though he was

striving to achieve a low cost strategy initially, but the broad differentiation strategy surfaced

instead of his initial strategy. Company A also purchased additional space for manufacturing

products whereas, Company B did not. In some aspects, Company A could be labeled as more of

a risk taker as far as management tactics and strategy is concerned, whereas Company B is more

of a sit back and waits, and plan for a sneak attack amongst the competition.

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Identification and Analysis of Strongest Competitor Private Label Footwear

Management believes that Company A was again, the strongest competitor with this particular

scenario, as the strategy that was being utilized surfaced later as the low-cost strategy (the same

in which Company B’s management was utilizing); however, it appeared as though the broad

differentiation strategy was more fitting for the private label footwear as well. After five years of

Company B pursuing the private label, management decided to eventually drift off of the path of

the Private label by year 2015.

Actions to Compete with Competitors Branded/Private Label Footwear

Company B will continue to offer rebates and get into the position to offer free shipping

options for some (or all of) their products. The company will continue to work towards

exceeding S/Q ratings, image ratings, and even become heavily involved in its corporate

citizenship responsibilities. Also, Company B will establish and re-evaluate its strategic plan

within every two years (or sooner if needed) to ensure that its strategy can fit the ever changing

needs and demands of society and industry. Company B would like to offer more competitive

pricing while still being able to maintain its quality products for the customers as well.

Lessons Learned

The manager for Company B would like to focus more on profits as well as lowering the

S/Q Strategy and outperforming the competition with higher numbers with those items as well.

The manager would also like to be able to produce in regions that may be able to provide higher

profit margins, create a better way to manage inventory, conduct extensive research to what

regions may benefit by creating bigger and better capacity for products as well as for the

employees environment in which they work, and finally be able to adapt to the ever changing

market by either deviating from the original strategy or continuing to utilize the strategy but add

Final Project 19

different variations to the strategy. After two years, create a new strategic plan to ensure that the

plan is current to what the competition and the times may be doing.

Conclusion

The student learner (or management) provided information in regards to the BSG

simulation experience, critically analyzed the performance, evaluations and important aspects of

the simulation as well as if given the opportunity what actions could be taken to correct certain

items or what actions may be needed to maintain some aspects of the simulation. The student

learner also provided some research and ideas of what other corporations are doing (or what they

may not have done) to present a better idea of what Company B would or would not want to take

action on in order to be successful in the future. There was additional information and facts

provided for the EPS, ROE, Stock Prices, Image Rating, etc. for Company B, and this

information also provided trends, and what the future may hold for the company as well.

Final Project 20

References

Flynn, M. (2008). Stepping Up. Retail Merchandise, 67-69.

Forecasts, D. T. (2012). Dow Theory Forecasts. Dow Theory Forecasts, 1-8.

Reynolds, J. I. (1984). The Pinched Shoe Effect of International Joint Ventures. Columbia Journal of World Business, 23-28.

Serafin, T. (2005). "If the Shoe Fits". Forbes, 108.

Thompson, A. A. (2013). Strategy: Core Concepts and Analytical Concepts. Retrieved from The Business Strategy Game Simulation (GLO-BUS Software, Inc.): http://www.bsg-online.com/

Waller, R. L., & Conaway, R. N. (2011). Framing and Counterframing the Issue of Corporate Social Responsibility: The Communication Strategies of Nikebiz.Com. The Journal of Business Communication, 83-106.

Weinberg, N. (1994). Games Businesses Play. Forbes, 12-13.