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Business management simulation exercise

Growing a business from a small company to a large corporation is not an easy task. It requires making many decisions from time to time. A business leader can be static and follow their plans through to the end. Alternatively, they could also be flexible and make decisions based on the situation. I would prefer the latter. The business environment is ever changing, and therefore business leaders should also have an open mind when making a decision. They should be dynamic in their decision. The world has become a global village courtesy of technology and globalization. This means that businesses are not only competing with their next door neighbors, but also with other businesses across the globe.

In our case study, the business was facing three challenges. These included;

  1. Competition from other companies from China and South America. As mentioned before competition has increased due to globalization. This means that businesses have to be good at what they do. Otherwise, they face being kicked out of the market.
  2. The business also lacked investment in technology. Each and every day there are new products being introduced into the market. These products can be used as leverage to your advantage or can kill your business. Every business needs always to find ways of improving their products and processes to remain competitive.
  • The business was also facing a challenge of poor quality in their deliverables. Their designs could not meet their unique customer requirements. Through research and development, this can be reduced.

To be able to remain competitive the business needed to make a decision on how to curb the three challenges. To do this, they needed to come up with a plan. Business planning is crucial as it sets a path of the next year’s goals and objectives. The company came up with three achievement goals. These include:

  1. Mine into the existing customer base for more repair jobs.
  2. Come up and deliver a CapEx plan for new equipment and tool requirements.
  • Reorganize the floor efficiencies so as to achieve economies of scale.

The business did not have well set out plans before. This could have contributed to the challenges it was facing. The junior management team had not had the privilege of planning before. This means that they are skeptical of changes, as everyone would be.

Any plan has to be communicated, and the information has to flow so that it can succeed. Hearing a plan from your supervisor makes you internalize it more. The way the message is passed could be a win or lose, all together. The more the channels that a message passes through, the more distorted it is. The charge hands are also skeptical of the new plans. First, as a division head, you need to ensure that they buy in, into the plan. They are key implementers of the plan and should not be left behind. As a hands-on leader, I would attend a meeting with each division to pass the plans. This would take a lot of time but, it would be worth it as it contributes highly to the success of the plan.

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Businesses do not operate in a vacuum. They also deal with other corporates. The king of relationship should be mutual to ensure that both parties are benefiting. Dealing with suppliers who are also your client can be tricky. In one hand you need them to deliver, and on the other hand, you don’t want to frustrate them as they will refuse to buy from you.  Big Dog Ltd needs to maintain Motorworks as their client and also as a supplier. This way the business will not lose business to competition. Motorworks should also supply on time. To solve this stalemate Big Dog needs to reach out to Motorworks and have a service guarantee agreement between the two companies. All legal implication to the contract needs to be looked into. This will enable us to get supplies in time and also to maintain one of our biggest customers.

To achieve efficiency and economies of scale, all equipment used by the business need to be operational and up to standard. The secondary blade housing from WatcherMo needs to be fixed or replaced. This could be the reason for the delays. Improving the housing is a good strategy; however, that is a long-term goal. In the short run, the secondary blade needs to be fixed.

Some industries e.g. manufacturing, require specific skills. Losing a staff to competition would mean that they leave with some of your secrets. They might not reveal to the new competition, but they will be working with knowledge on what you aim to achieve. Attracting top quality staff is critical to business.

Research and development is an important function in today`s business. Despite their crucial role, managing the department can be vague. On the one hand, you need to develop new products, on the other, you need to maintain and improve the current ones. As a division head, we would have two working structures for the R&D department. When the business is not straining with sales and suppliers, they will put 70% of their time in new technology and products and 30% improving the current ones. When the business is facing challenges e.g. now when there is a humidity challenge to our robots, they focus 70% on product improvement.

The bottom line of a business is to make sales. The sales and marketing department is charged with this responsibility. To improve sales, I would separate the sales and marketing division into three sections, the marketing division, sales deepening division and acquisition division. The marketing division would be charged with the authority to advertise, organize sales promotions, manage public relations and ensure the overall corporate image is maintained through branding. The sales deepening section would be primarily mining and managing portfolios of the current clients. This would add a personal touch to our clients and also have a contact person with us. The sales acquisition would be attracting new clients to the business. This model will ensure a seamless interaction with our clients. The sales team will also be compensated on a commission basis. The deepeners will be paid a commission of the additional business they generate from our current clients while acquirers will be paid a fraction of the revenue they bring onboard. This would create completion among the salespeople and also the energy and zeal to work. We would also provide them with a comprehensive medical cover and a transport allowance to go and meet their clients.

Technology is an important part to be added to business. This technology can either be inborn or bought from other businesses; speed is of the essence when making technology decisions. A bad decision or a missed opportunity could result in the closure of business. NewTech, a technology firm has just discovered a way to reduce humidity in mobots. No, any another business has come up with such an idea. Humidity is a challenge to mobots as it leads to breakdowns leading to repairs and maintenance regularly. I would buy the technology from NewTech before competitors did while we waited for two years for our R&D division to complete. This would mean that our mobots are competitive, require less maintenance hence fewer costs on repairs and maintenance. Our sales figures will eventually increase and gain more market share.

Mowco one of our biggest clients is requesting for a 10% price reduction on their sales. The business does not have a policy on sales cut. This would have to be thought of and implemented for the future. For the case of Mowco, a competitor analysis would be done. How much are our competitors charging and at how much would they charge Mowco in case approached. If there are chances of Mowco getting a better deal with competitors we would negotiate with the company for less reduction e.g. 6%, If we are competitive we would decline the request and maybe offer something else like an account manager to handle their issues.

The compensation structure for salesforce is very important to be discussed in a sober mood and to be structured in a strategic way. The compensation of salespeople acts as a motivator and also as a way of giving them a sense of belonging. No one in the organization would work without pay. They all have bills to pay.

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The best proven strategy for the compensation of salespeople is through  commission basis. If paid on commission the sales force drives itself and therefore needing less supervision and more sales. The more a salesperson sells the more money they make. The team also starts competing amongst themselves. Friendly competition amongst team members is good as it increases productivity.

The sales environment is very diverse and dynamic. It also comes with a lot of pressure to perform. Research has also shown that salespeople live for shorter spans as compared to other professionals. This is due to the risks they are exposed to doing their jobs. Taking all this into consideration it is important to have a robust, working medical scheme for salespeople.

With a management team in place, change the shop to increase production, agreement with our supplier I believe that the business will be back to profits mark. With the ongoing market analysis on pricing, change of compensation structure for salespeople and purchase of software from NewTech the business future looks bright.


This exercise has taught me many things. First of all, management is not easy. Every time you are at crossroads. Every team is pulling strings towards themselves. They want you to make a decision that is favorable to them. This could make them forget the importance and goals of the business.

Before the exercise, I did not have the clear picture of the magnitude of the decisions I will be required to make as a business leader. The exercise has opened up my mind on what to expect on the ground. Some decision will be easy to make as they are rational. Others will be hard as they will require hard lining.

Before the exercise, I thought that being a hard liner leader was good. However from the exercise I have learned that it is important to be flexible over time. This would mean making a decision based on circumstances but also focusing on the future.

A business leader should not only just focus on the current situation. They should also think about what the future holds and what they can do now to ensure their existence and profitability in future. The past should be used for analysis and based on that analysis business decisions can be made.

The weight of the decision you take as a leader is immense. A single decision can lead to the collapse of the business. An example is the NewTech decision. It is either you acquire the technology, incur the initial costs, or wait for your competitors to get hold of it and crash you. This exercise was really important and educative.

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Clemen, R. T., & Reilly, T. (2013). Making Hard Decisions with DecisionTools. Cengage Learning.

Hammond, J., Keeney, R., & Raiffa, H. (2015). Smart choices: A practical guide to making better decisions. Harvard Business Review Press.

Mullins, J., Walker, O. C., & Boyd Jr, H. W. (2012). Marketing management: A strategic decision-making approach. McGraw-Hill Higher Education.








Apple Inc. Verses Microsoft Inc Financial analysis – 2014 & 2015

  1. Will Apple be able to meet its obligations as they become due? How does Apples liquidity compare with that of Microsoft? 

Liquidity ratios are used to measure a company’s ability to pay off its short-term debt obligations. This is achieved by comparing a company’s most liquid assets (or, those that can be easily converted to cash), and its short-term liabilities.

2014 1.08 2.5   0.67:1 0.6777:1
2015 1.11 2.5   0.725:1 0.53:1


A current ratio below 1 suggests that the company is unable to pay off its obligations if they came due at that point. This situation does not necessarily mean that it will go bankrupt. On the other hand, a current ratio (over 3) does not necessarily indicate that a company is in a state of financial well-being either. This depends on how its assets are allocated. A high cash ratio could also indicate that company is not using its current assets efficiently, is not securing financing well or is not managing its working capital well. Using Current ration Apple will be able to meet its short term obligations.

The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. This ratio measures the dollar amount of liquid assets equivalent for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company’s liquidity position. As per this ratio both companies do not show strength however as discussed under current ratio this should not raise an alarm. Apples liquidity seems to be becoming stronger as compared to Microsoft which is diminishing.

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  1. What is the capital structure of Apple (i.e., what percentage of the total assets of the company are financed through liabilities and what percentage through stockholders’ equity)?

A capital structure is a mix of a company’s long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
As at 2015 41% of Apples assets were financed by shareholders equity while 59% was funded through liabilities.

  1. 3. Is the capital structure of Microsoft significantly different from that of Apple?  Explain your answer.

As per the above, Applesuse of shareholders equity to total assets has been on a downward trend. That of Microsoft has also been on the same path but not drastic as that of Apple. To drive deeper into this lets see how their debt to income ratios look like.

DTI is a measure that compares an individual’s/business debt payment to its overall income. A low debt-to-income ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual/business has too much debt for the amount of income he or she has.

2014 1.08 0.92
2015 1.43 1.2

DTI ratio also paints the same picture as shown by the above percentages. Both companies seem to have borrowed a lot as they move to 2015. This has led to decrease in shareholders equity in both. Both companies have a similar capital structur


Outsourcing and Migrating from GAAP to IFRS


Outsourcing is the practice of using other companies to reduce your costs and transfer portions or the whole job to another supplier rather than doing it yourself. When used properly, outsourcing can be a good cost-cutting strategy. It is sometimes cheaper and more affordable to purchase a product from a company than having to produce it yourself. This is because the company producing it has acquired the important economies of scale in production.

Outsourcing comes with both pros and cons. The major disadvantage of outsourcing especially when outsourcing payroll is data confidentiality. A small leak by an employee of the outsourcing company could lead to court battles, negative reputation to your business. Some key corporate secret, salary, will be shared with a third party. This if not well handled could result in a disaster.

Outsourcing payroll could be cheaper to handle it internally. Most corporates which offer these services could be expensive since they use very complicated software that is expensive to acquire. Another complication of outsourcing payroll is that you could be using the same company with your competitors. This would lead to a conflict of interest. You could have a competitor requiring the information of your staffs and get it because the company does not want to lose business to the competitor. Dealing with employee complaints on salary-related issues would also be a concern. A staff that has been under or over paid will have to go through their supervisor who then lodges a complaint with the personnel department, then to the outsourced company. This would take time, which is not good especially considering that we are dealing with salaries, which is a very emotional issue. Staff currently handling the payroll function might have to be let go. This portrays an image of a possibly a struggling company.


To fully outsource a several payroll issues need to be addressed. If not well dealt with the whole process could be flawed with complaints and other issues. One of the issues to be dealt with is the choice of company. Competitive bidding needs to be done. The best company not only in pricing but also in controls and efficiency is to be chosen for the job.

Data confidentiality needs to be well addressed. The company given the contracts needs to demonstrate without reasonable doubt that its able to keep the company`s information securely. Performance agreements need to be signed in consultation with the legal team. Information should not be stored in transferable discs, e.g. Flash disk, CDs, etc. Consequences of a proven leak need to be agreed on at the beginning.

The process flows of how the transfer will need to be laid out. A direct injection plan or a piloting plan needs to be agreed on. This will ensure an easy transition from the previous system to the new system.

 Migrating from GAAP to IFRS

            IFRS is a principle based system while GAAP is a rule-based system. A principle-based system is favorable to businesses as it is flexible when compared with a rule-based system that is rigid. IFRS also offers more disclosures due to its flexibility. More disclosures are important to readers of financial analysis reports. Getting International Standards approval requires you to implement IFRS. ISO certification is crucial for businesses as it increases their credibility.

IFRS recognizes loss immediately unlike what happens with GAAP. Loss being reported immediately is advantageous to not the investors but also lenders and other stakeholders like suppliers. The sooner they can get this information the better.  This reveals the transparency that is in IFRS and not in GAAP. Contracting between companies and their management becomes easy, this also ensures effective corporate governance.

The convergence of IFRS has also made it easy to compare financial statements in many parts of the world. In the EU for example many companies adopted IFRS the same year it was introduced. With this kind of adoption businesses need to all now ensure they are on IFRS. The key reason for the preparation of key financial reports is for comparison purposes. It doesn’t make any sense to prepare statements that only you can compare with yourself.

Do you know that debt has some advantages?

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Users of IFRS need to understand the methodology used to generate reports. Under GAAP emphasis is on literature provided. Documentation is the key issue. IFRS is more flexible and even where documentation does not tally facts pattern are analyzed, and a decision is made. To implement IFRS is short and precise. It takes a minimum of one year to be fully setup. To use IFRS we would use direct key as the implementation plan.



Du, N., Alford, R. M., & Smith, P. L. (2016). Do GAAP And IFRS Differ In Collectiblity Judgments Related To Revenue Recognition?. Journal of Applied Business Research (JABR), 32(6), 1675-1686.

Giloz-Ran, E., Gavious, I., & Lev, B. (2014). The Positive Externalities of IFRS: Enhanced R&D Disclosure.


Producer and Consumer Surplus with Price Floors


Suppose that the Gondwanaland Chairman of Production who sets the governmental price floor for gosum berries in an effort to assist the gosum berry producers to have a higher income, set the price floor at $70 per barrel. These berries are a food staple of the Gondwanalandians and contributes directly to their health and long life (average lifespan of 150+ active years).

In that particular year the amount of gosum berries produced at the $70 price floor was 700 barrels per month. To support the price of gosum berries, the Chairman of Production’s Office had to purchase 400 barrels per month.  The accompanying diagram shows supply and demand curves illustrating the market for Gondwanaland gosum berries.


  1. In the absence of a price floor, the maximum price that a few of the consumers are willing to pay up to $100 per barrel of gosum berries. The market equilibrium (E) price is $50 per barrel. How much consumer surplus is created, when there is no price floor? Show your calculations.

Consumer surplus is defined as the area below the demand curve but above the market price(Sun, Delucchi, Lin & Ogden,  2014) In our case the consumer surplus is represented by the area between price of $50 and $100 against quantity of 500.

Consumer surplus        = ½ (50*500)

= 50,000

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  1. How much producer surplus when there is no price floor?

Producer surplus is the area below the price curve but above the supply curve. (Sun, Delucchi, Lin & Ogden, 2014)

Producer surplus         = ½ (50*500)


  1. What is the total surplus when there is no price floor? Show your calculations.


Total surplus    = 50,000 +50,000

= 100,000


  1. d) After the price floor is instituted, the legal minimum price that can be charged by suppliers is $70 per barrel. The maximum price that a few of the consumers are still willing to pay is $100 per barrel of gosum berries. With the price floor at $70 per barrel, consumers buy 300 barrels of gosum berries per month. How much consumer surplus is created with the price floor?

Consumer surplus after the price floor            = ½ (30*300)

= 4,500

How much producer surplus is created with the price floor? Show your calculations.

Producer surplus after price floor       = ½ (70*700)

= 24,500

  1. e) The Chairman of Production’s Office buys any barrels of gosum berries that the producers are not able to sell. With the price floor, the producers sell 300 barrels per month to consumers, but the producers, at this high price floor, produce 700 barrels per month. How much money does the Chairman of Production’s Office spend on buying up surplus gosum berries? Show your calculations.

= 700 barrels  – 300 barrels

= 400 barrels

= 400*70

= 28,000


  1. f) The Emperor of Gondwanaland must collect taxes from the people to pay for the purchases of surplus gosum berries by the Chairman of Production’s Office. As a result, total surplus (producer plus consumer) is reduced by the amount the Chairman of Production’s Office spent on buying surplus gosum berries. Using your answers for parts d, e, and f, what is the total surplus when there is a price floor? Show your calculations.

Total surplus    = 24500 + 4500

= 29000

  1. g) How does this compare to the total surplus without a price floor from part c?

The price floor has reduced the total surplus in the market.



Sun, Y., Delucchi, M. A., Lin, C. Y. C., & Ogden, J. M. (2014). The producer surplus associated with gasoline fuel use in the United States. Working paper, University of California at Davis.