team chester (final paper)

PERFORMANCE ANALYSIS REPORT

2016 - 2024

Joanne Richard - Roushan Chowdhury - Sampathawaduge Silva

BUSINESS PLANNING SEMINAR (MGMT 600)

KELLER GRADUATE SCHOOL OF MANAGEMENT

June 22, 2016

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TABLE OF CONTENTS

EXECUTIVE SUMMARY 03

1. COMPANY ORGANIZATION 04

(Decision-making process and our responsibilities)

2. INITIAL STRATEGY 05

(Product strategies)

3. STRATEGY EVOLUTION 06

(Productivity of our strategies)

4. IMPACT OF COMPETITION 08

(Performance of competitors, and their impact on our decision-making)

5. PRESENTATION OF RESULTS 10

(Our achievements)

6. FUTURE APPROACH 17

(Lessons learned)

7. TEAM EFFECTIVENESS 18

(Teamwork)

REFERENCE 19

TABLE OF FIGURES

Figure 01: Profits & Cumulative Profit of Chester Corporation (2016-2024) 10

Figure 02: Return on Sales (ROS) of Chester Corporation (2016-2024) 11

Figure 03: Return on Assets (ROA) of Chester Corporation (2016-2024) 12

Figure 04: Return on Equity (ROE) of Chester Corporation (2016-2024) 13

Figure 05: Earnings per Share (EPS) of Chester Corporation (2016-2024) 14

Figure 06: Stock Price of Chester Corporation (2016-2024) 15

Figure 07: Sales of Chester Corporation (2016-2024) 16

Figure 08: Balanced Scorecard of Chester Corporation (2016-2024) 16

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EXECUTIVE SUMMARY

“Chester Corporation” is one of the leading sensor manufacturers in today’s market. The

company was established during the last quarter of year 2016 in order to meet the industry demand

by manufacturing various types of electronic sensors and achieve excellence. Chester’s vision is

to be the inspired solution for High Quality and Affordable sensors, and the mission of the

company is mainly focused on innovation, sustainability, and building talent and strategic

relationships.

The management team of Chester Corporation was comprised of three dynamic

individuals; Joanne Richard, Chief Executive Officer (CEO)/Head of Marketing and Finance;

Roushan Chowdhury, Head of Human Resources (HR) and Total Quality Management (TQM);

and Sampathawaduge Silva, Head of Production and R&D. As a result of the strategic business

decisions made by the company management, Chester Corporation achieved success in terms of

sales, profits, contribution margins, return on sales (ROS), return on assets (ROA), return on equity

(ROE), and market share year-over-year since its foundation.

Chester's current management team took over Chester Corporation in 2016 with $4.19

million profits in hand. By the end of the year 2024, the company managed to grow to $78.85

million in cumulative profits. When the current management team took over Chester Corporation

in 2016, company’s stock price was $34.25. By the end of the year 2024, the company's stock price

rose up to $103.33 as a result of the corrective decisions made by the current management. At the

same time, Chester Products are leading the traditional market segment with an overall 27% market

share. At present, Chester's sensor product line include six different sensors (Cake, Cedar, Cid,

Coat, Cure, and Crew) and expecting to introduce revolutionary products in the future in order to

acquire a greater share of the sensor market.

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1. COMPANY ORGANIZATION

Prior to allocating responsibilities for decision making, the CEO of Chester Corporation

wanted to find the most suitable organizational structure for Chester. After analyzing pros and

cons of various types of organizational structures, the Chester management selected the

organizational structure known as "Flat Organization". In a Flat Organization, everyone is seen as

equal (Forbes, 2015). Even though the company has already designated respective roles,

determined job titles, and distributed responsibilities among team members, the management

clearly wanted everyone's active participation in order to increase the total accuracy of the decision

making process. After finalizing the organizational structure of the company, the management of

Chester Corporation analyzed all the strengths and weaknesses of each team member. Based on

the findings of the above analysis, the company allocated responsibilities for decision-making. At

the same time, the management encouraged each and every team member to have knowledge in

all six departments of the company. As a result of that decision, the company was able to improve

coordination and communication among all six departments.

Head of R&D (S. Silva) made all decisions in terms of product performance, product size,

product MTBF ranking. Head of Marketing (J. Richard) addressed areas such as pricing,

forecasting, and allocation of money for sales and promotions. Based on the sales forecast, the

head of Production (S. Silva) made important decisions in terms of production capacity,

automation levels, and total production quantities. Based on those decisions, head of HR (R.

Chowdhury) made decisions on annual recruiting spending and training hours per employee. At

the same time being the head of TQM, Chowdhury made important decisions about the TQM

process management initiatives. After analyzing the above decisions, the head of Finance (J.

Richard) addressed financial decisions.

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2. INITIAL STRATEGY

Before selecting the most suitable strategy for Chester Corporation, the company

management had to go through several organizational constraints such as availability of financial

resources, company’s attitude toward risk, organizational capabilities, channel relationships (both

internal and external), and competitive retaliation. After analyzing the above constraints, the

company decided to select “Broad Differentiator” strategy as the initial strategy. This strategy

maintains a presence in every segment of the market, and that is the main reason behind this

decision (Capsim, 2013).

Chester Corporation was planning to gain a competitive advantage by distinguishing all its

products with an excellent design, high awareness and easy accessibility. The company wanted to

keep its designs fresh and exciting, while offering products to customers with improved size and

performance. Most importantly, the company's main objective was to become the inspired solution

for High Quality and Affordable sensors. In order to fulfill the above targets, the company decided

to select "Broad Differentiator" as the primary strategy.

Chester Corporation initially prioritized both Traditional and Low End market segments

due to their higher total industry unit demand. Even though the company was able to finalize the

initial strategy, the company was unable to successfully capitalize on the initial strategy as a result

of making two wrong decisions (which will be discussed in more detail under the topic 'Strategy

Evolution'). At the end of the fiscal year 2017, the company realized that the effectiveness of the

“Broad Differentiator” strategy is significantly lower than what the company expected. If the

company rank the effectiveness of the initial strategy on a scale of 1 to 10, the company will

certainly rate the effectiveness of 'Broad Differentiator' at '5' (based on the findings of a detailed

analysis on company's overall performance by the end of year 2017).

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3. STRATEGY EVOLUTION

As explained in the previous topic, the Chester Corporation was unable to perform well

during the year 2017 due to various reasons. Even though the company was able to acquire 18.25%

of the total market share, almost all the financial ratios indicated how bad the company performed

in year 2017 (ROS -3.8%, ROA -3.3%, ROE -9.3%, Profits -$4.83 million, Contribution margin

23.6%). At the same time, the company had to take a $22.68 million worth emergency loan in

order to facilitate company's actions. After carefully going through all available numbers, the

company realized that they made two wrong decisions. Those two wrong decisions are as follows;

Company's pricing strategy: After going through the prices of the competitors, the

company realized that the company has priced its products incorrectly. That is one of the

major reasons behind company's low contribution margin (products are less profitable).

Sales and Promo budgets: The Company was unable to allocate sufficient amount of

money in order to improve product awareness and accessibility. In other words, the

company made a conservative decision when it comes to allocating money for promo and

sales.

After realizing the mistakes made in year 2017, the company immediately decided to change

the overall strategy. Before selecting a new strategy, the company conducted a production audit

and realized that there is unnecessary plant capacity left. This finding led the company to invent

its own unique strategy in year 2018, which is now known as “The Capacity” Strategy. As

mentioned earlier, the company was struggling in terms of profits, inventory, contribution margin,

ROS, ROE, ROA, and other ratios. In order to recover faster and perform well, the company

decided to sell existing plant capacity (extra capacity). As a result of this strategic move which

was executed in year 2018, the company was able to witness an improvement in net profits, EPS,

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ROE, ROS, ROA, and other ratios. Similar to what the company went through in year 2017, again

the company had to go through the same in year 2020 (ROS -3.1%, ROA -2.6%, ROE -6.9%,

Profits -$5 million). In order to recover faster and perform well, again the company executed “The

Capacity” Strategy in year 2021 and was able to witness the same results. Even though “The

Capacity” Strategy was able to help the company to recover faster, the company knew that they

immediately need to select a permanent strategy in order to improve company's performance

consistently. This is where the company decided to select "Niche Differentiator (High Tech)"

strategy.

The company initially selected "Niche Differentiator (High Tech)" strategy in year 2019, and

continued executing the same strategy in years 2020, 2022, 2023, & 2024. This specific strategy

focuses on the high technology segments (High End, Performance and Size). As a result of

implementing this new strategy, the company was able to gain a competitive advantage by

distinguishing its products with an excellent design, high awareness, easy accessibility and new

products (Capsim, 2013). This time, the company made no mistakes in terms of pricing and

allocating money for sales and promotions. After analyzing the results of years 2020, 2021, 2022,

2023, and 2024, it is evident that the "Niche Differentiator (High Tech)" strategy was able to meet

the goals and expectations of Chester Corporation.

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4. IMPACT OF COMPETITION

Chester Corporation believes that competition (or rivalry among sensor manufacturers) is

good for the sensor business, because such competitions have the ability to teach the biggest

business lessons. In order to gain the maximum return out of the competition, Chester Corporation

always made sure to go through all available information (such as Market Segment Analysis,

Industry Conditions Reports, Production Information, and most importantly the 'Top Products in

each segment') prior to finalize managerial decisions (including R&D, Marketing, Production,

HR/TQM, and Finance decisions).

Chester's R&D department consists of investigative activities that a business chooses to

conduct with the intention of making a discovery that can either lead to the development of new

products or procedures, or to improvement of existing products or procedures. Chester's R&D

department always kept close watch on the 'Top Products in each segment' and the way how they

made improvements to their products (in terms of performance, size and MTBF). For an example,

"Baker" (A product of Baldwin) always acquired the highest market share in the traditional

segment. Baldwin always made sure to position 'Baker' extremely close to the ideal spot. After

analyzing Baker's movements on the perceptual map, Chester was able to successfully position

"CREW" (Chester's new product in traditional segment) on the perceptual map. As a result of that,

Chester was able to dominate the traditional market segment from year 2020 to date (27% of

traditional market segment by the end of year 2024).

One of the main responsibilities of Chester’s Marketing department is to promote the

business and drive sales of its products. During the first three years of business, Chester struggled

to determine the correct amount of financial investment to improve product awareness and

accessibility. In order to overcome this situation, Chester closely looked at Baldwin's Sales/Promo

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budgets and their recent achievements. Baldwin always made sure to invest the maximum on their

sales and promo, and that is the main reason behind their success. Based on those findings, Chester

decided to expand its sales and promo budgets, and was able to successfully increase product

awareness and accessibility during the last 5 years. At the same time, Chester had to understand

the pricing strategies of all the competitors, in order to make sure that Chester’s prices are

competitive.

During the first 4 years, the Production department of Chester was experiencing some

issues in terms of inventory management. In order overcome the above situation, Chester went

through the inventory management strategies of both Baldwin and Erie, and was able to figure out

the major mistakes (errors related to sales forecasting and others) made earlier by Chester. On the

other hand, the Finance department of Chester kept close watch on the financial activities of

Andrews and Ferris, and figured out the way how they maximize their cash positions by utilizing

long term debt in an efficient way.

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5. PRESENTATION OF RESULTS

Profits & Cumulative Profit: Profit is the reward gained by risk taking entrepreneurs when

the revenue earned from selling a given amount of output exceeds the total costs of producing that

output (Economics Online, 2014). In year 2016, Chester Corporation was able to earn a total profit

of $4,188,507 ($4.19 million). By the end of the year 2024, Chester Corporation earned a total

profit of $31,167,866 (31.17 million), which is $26.98 million more compared to year 2016’s

profits. At the same time, Chester Corporation’s cumulative profit rose from $4,188,507 ($4.19

million) to $78,849,326 ($78.85 million) by the end of the year 2024. The above two (higher profits

and cumulative profits) indicate that the company is in good financial health.

Figure 01: Profits & Cumulative Profit of Chester Corporation (2016-2024)

2016 2017 2018 2019 2020 2021 2022 2023 2024

Profits $4,188 -$4,83 $7,906 $3,384 -$5,00 -$19,6 $13,72 $28,33 $31,16

Cumulative Profit $4,188 -$646, $7,260 $10,64 $5,638 $5,618 $19,34 $47,68 $78,84

-$10,000,000.00

$0.00

$10,000,000.00

$20,000,000.00

$30,000,000.00

$40,000,000.00

$50,000,000.00

$60,000,000.00

$70,000,000.00

$80,000,000.00

$90,000,000.00

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ROS: ROS (Return on Sales) is one of the most commonly used measures of profitability,

and it clearly represents the final bottom line (Financial Wisdom, 2011). ROS measures the net

income earned for each dollar of sales. During the last 5 years, Chester Corporation managed to

improve its ROS consistently (from -3.1% to 11.9%, which is a massive achievement).

Figure 02: Return on Sales (ROS) of Chester Corporation (2016-2024)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

ROS 4.10% -3.80% 5.80% 2.20% -3.10% 0.00% 6.80% 12.30% 11.90%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

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ROA: ROA (Return on Assets) is a profitability ratio that measures the net income

produced by total assets during a period by comparing net income to the average total assets (My

Accounting Course, 2013). In other words, ROA measures how efficiently a company can manage

its assets to produce profits during a period. During the last 5 years, Chester Corporation managed

to improve its ROA consistently (from -2.6% to 9.8%, which is again a great achievement). The

year end 9.8% ROA indicates that the company is in good financial health.

Figure 03: Return on Assets (ROA) of Chester Corporation (2016-2024)


ROA 4.40% -3.30% 6.30% 2.50% -2.60% 0.00% 6.30% 11.40% 9.80%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

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ROE: ROE (Return on Equity) is a profitability ratio that measures the ability of a firm to

generate profits from its shareholders investments in the company (My Accounting Course, 2013).

In other words, ROE shows how much profit each dollar of common stockholders' equity

generates. During the last 5 years, Chester Corporation managed to improve its ROE consistently

(from -6.9% to 17.7%). The year end 17.7% ROE indicates that the company is currently in good

financial health, and also it encourages investors to invest more on Chester Corporation.

Figure 04: Return on Equity (ROE) of Chester Corporation (2016-2024)


ROE 8.70% -9.30% 13.20% 5.20% -6.90% 0.00% 15.90% 22.80% 17.70%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

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EPS: EPS (Earning per share) is a market prospect ratio that measures the amount of net

income earned per share of stock outstanding (My Accounting Course, 2013). Again, this can be

defined as the amount of money each share of stock would receive if all of the profits were

distributed to the outstanding shares at the end of the year. During the last 5 years, Chester

Corporation managed to improve its EPS value consistently (from -$1.83 to $9.74). The yearend

$9.74 EPS value indicates how profitable Chester Corporation is on a shareholder basis, and also

that the company is currently in excellent financial health.

Figure 05: Earnings per Share (EPS) of Chester Corporation (2016-2024)

2016 2017 2018 2019 2020 2021 2022 2023 2024

Earnings per share $2.09 -$2.14 $3.49 $1.41 -$1.83 -$0.01 $5.01 $9.60 $9.74

-$4.00

-$2.00

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

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Stock Price: Stock Price can be defined as the cost of purchasing a security on an exchange

(InvestorWords, 2014). At the same time, a company's stock prices can be affected by a number

of things such as volatility in the market, current economic conditions, market sentiment, growth

expectations, valuation, momentum, and popularity of the company. During the last 5 years,

Chester Corporation managed to improve its book value consistently (from $12.69 to $103.33).

Chester's current book value ($103.33) ascertains that the company is famous among its group of

investors, and also this reflects Chester's excellent financial discipline.

Figure 06: Stock Price of Chester Corporation (2016-2024)

2016 2017 2018 2019 2020 2021 2022 2023 2024

Actual Stock Price $34.25 $12.79 $32.73 $35.56 $12.69 $22.79 $46.51 $80.99$103.33

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

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Sales: Based on the figure 07, it is clear that Chester Corporation was able to consistently

improve its sales since the very beginning of the simulation (consistent growth in terms of sales).

This can be considered as one of the greatest achievements of Chester during the last 8 years. This

steady growth (from $101,073,437.00 to $262,729,437.00) is a clear indication of how fast the

business is expanding.

Figure 07: Sales of Chester Corporation (2016-2024)

Balanced Scorecard: According to the balanced scorecard results, it is clear that Chester

Corporation was able to achieve a total of 70% (69.9%). This can be identified as a very healthy

score. In other words, this indicates that Chester was able to successfully align business activities

to the vision and strategy of the organization, improve internal and external communications, and

monitor organization performance against strategic goals.

Figure 08: Balanced Scorecard of Chester Corporation (2016-2024)

2016 2017 2018 2019 2020 2021 2022 2023 2024

Sales $101,0 $128,9 $136,9 $154,1 $161,2 $177,1 $201,6 $229,6 $262,7

$0.00

$50,000,000.00

$100,000,000.00

$150,000,000.00

$200,000,000.00

$250,000,000.00

$300,000,000.00

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6. FUTURE APPROACH

If we (Chester's current management) were given the opportunity to run the company for

the next five-eight years, we must highly consider the following areas and should take immediate

actions in order to acquire a greater share of the market (more than 25% of the total market share).

Introducing new products: It is extremely important to introduce three new products

within the first three years. It will definitely help the company to dominate at least three

separate market segments while acquiring 25%-30% of the total market share.

Customer Buying Criteria: Again, it is extremely important to thoroughly study the

behavior of customers and offer them what they require. Resources such as Market

Segment Analysis, and Industry Conditions Reports can be used in order to understand the

mindset of the customer.

Positioning of products: It is always better to position all the products on the “ideal spot”.

Slight changes can be made after analyzing the top products in each segment.

Sales and Promo: In order to maximize customer awareness and accessibility, maximum

amount of money will be invested on sales and prom.

Sales Forecasts: Accuracy of sales forecast must be improved. In order to do that, Total

Industry Unit Demand, Next Year's Segment Growth Rate, and the Results of Customer

Survey will be thoroughly analyzed.

HR/TQM: Maximum amount of money will be invested on both HR and TQM departments

in order to reduce material costs, labor costs, admin costs, and R&D cycle time.

Finance: In order to have a healthy cash position at the end of fiscal year, the management

will mainly consider about issuing long term debt (less priority on short term loans, and

common stock)

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7. TEAM EFFECTIVENESS

All three members of Chester's management team efficiently utilized their knowledge and

experience to make the most accurate decisions. As a result of that, the company started performing

positively while expanding its popularity among the customers. Chester's team work is excellent,

the management worked closely together and performed up to the required level. The entire

communication mechanism was a total success, and also the management made sure to provide

necessary feedback whenever it was required. Chester's "active team working strategy" helped its

management to solve unexpected issues quickly by coming up with constructive solutions. Even

though the Chester management had only three members, they did an excellent job as a team, and

also they were able to manage the company during the last 8 years in a successful manner.

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REFERENCE

Capsim. (2013). Team Member Guide - Capsim. Retrieved May/June, 2016, from

http://new.capsim.com/PDF/2014_Capstone_Team_Member_Guide.pdf

Economics Online. (2014). Profit. Retrieved 19 June, 2016, from

http://www.economicsonline.co.uk/Business_economics/Profits.html

Financial Wisdom. (2011). Return on Sales. Retrieved 19 June, 2016, from

http://www.financialwisdom.com/smbusresourcecenter/Sample/Calculators/ReturnOnSal

es.shtml

Forbes. (2015). Flat Organizations. Retrieved 18 June, 2016, from

http://www.forbes.com/sites/jacobmorgan/2015/07/13/the-5-types-of-organizational-

structures-part-3-flat-organizations/#2674bb812067

InvestorWords. (2014). Stock Price. Retrieved 19 June, 2016, from

http://www.investorwords.com/8702/stock_price.html

My Accounting Course. (2013). EPS. Retrieved 19 June, 2016, from

http://www.myaccountingcourse.com/financial-ratios/earnings-per-share

My Accounting Course. (2013). ROA. Retrieved 19 June, 2016, from

http://www.myaccountingcourse.com/financial-ratios/return-on-assets

My Accounting Course. (2013). ROE. Retrieved 19 June, 2016, from

http://www.myaccountingcourse.com/financial-ratios/return-on-equity

team chester (final paper)

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