team chester (final paper)
TRANSCRIPT
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)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
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)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
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
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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