Friday, August 30, 2019

Dear Board of Directors Essay

Upon implementing a Broad Differentiation strategy, Andrews Company desired to have highly demanded products in each of the market segments, hold the majority market share compared to our competitors and increase the value of our firm by the year 2021. We believed that this strategy could get us to that point and we have successfully done so. The start up of Andrews Company proved to be more difficult than anticipated due to high costs in marketing and R&D, investing in automation of sensors and due to our decision to take out most of our loans in the early stages of our product, leading to negative profits for the first two years. However, Broad Differentiation lucratively brought Andrews market share up to 30.93% outweighing the competition (Exhibit 1). Andrews Company will continue to implement this strategy with the goal to hold high demand, continue cutting costs with total quality management initiatives and by reevaluating our capacity and production issues, which will be discussed throughout the course of our analysis. Research and Development Proper allocation of funds towards research and development proved to be of high importance, allowing customers to have access to better-quality products. Andrews Company effectively adjusted each product to their proper ideal spot on the perceptual map by using the segment centers and ideal spot offsets annually. This allowed Andrews to gain optimal market demand, leading to us being able to charge a higher price than competitors later on, thus obtain higher profit among other initiatives. Our high demand was essential in offsetting the costs associated with investing in marketing and promotional budgets, buy/sell capacity and automation of products. Marketing By investing insistently in promo and sales in all the market segments, we were able to increase accessibility and market demand. It was Andrews’s goal to have our products be in the minds of customers of all types and charge a premium for our excellent designs. Another advantage Andrews had over our competitors was that we forecasted at our potential market share, rather than our actual, based on the presumption our customers will be loyal to our brand and we would continue to invest in marketing expenditures. Once we feel comfortable that we hold enough market share, we can then start to cut costs in this department. Finances Monitoring spending and Andrews finances was perhaps the most vital part of our success. In the earlier years of our company we took out large quantities of long-term debt to help finance investment in automation and lowering the cost of producing sensors. Each year Andrews experienced a steep increase in sales, while variable costs gradually increased (Exhibit 2). The extra debt we took out early on we believe to have assisted with the dramatic increase in profits each year (Exhibit 3). One thing Andrews could have done to also assist with the increase in profits was to issue stock, which would have helped raise more capital to invest in capacity capabilities. However, we felt that issuing stock would have diluted the price. We successfully raised our stock price to $281.95 by the end of 2021 (Exhibit 4). A 723% increase from the start of 2014. Production A barrier for further success of Andrews Company was production versus capacity. While production was upwards of 18,000+, capacity only resulted in roughly 11,000. Each year we gradually invested more and more in automation and capacity due to our rising profits, which allowed us to improve our margins (Exhibit 5). We should have properly invested in capacity in the earlier rounds to help bridge the gap between capacity and production. However, Andrews’s strategy was to focus on correctly adjusting our products on the perceptual map to their ideal spots and we planned to never invest so much so that this could not happen. TQM and Human Resources In 2017, Andrews met labor demands and we paid our employees a higher rate than competitors. This tactic was able to put some of the other employees in competitive firms to go on strike for several days, resulting in a higher market share and a better reputation among customers and potential employees. Andrews also spent money each year on training employees for a maximum of 80 hour and recruiting spend of about $4.5 million each year, increasing our productivity index to 129.9% by the end of 2021. At the beginning of 2016, Andrews made an executive decision to invest in total quality management. Of a budget of $4 million, we allotted $1.5 million in 2016 and 2017, then another $600 thousand in 2018. After this amount was spent, we would have seen diminishing returns and opted to cap out at $3.6 million. The substantial investment allowed us to reduce labor and material costs, while increasing demand, thus allowing us to steadily increase profits each year, especially during this three-year span when competitors did not spend enough in TQM. The Future of Andrews Andrews Company will continue to use its method of broad differentiation in the upcoming years and plans to issue stock in order to help with investing in capacity issues that we’ve had in the past. We will continue to spend on marketing, research and development and compensating our employees adequately in order to keep our high market share. Distinguishing our products will continue to be of the utmost importance, offering clientele a superior design. Appendix

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