BUS599 MOD04 SLP Feedback Loop and Organizational Learning

BUS599: Strategic Management
Module 4 SLP: Feedback Loop and Organizational Learning
Derick Lewis Sr.
University:
Professor:
Date:
Introduction
Over the years, new solar power companies continues to enter into the solar power industry, hence increasing the intensity of competition. For this reason, each of chief management officers will try to come up strategic policies to retain their market coverage, position , increase profitability levels as well as their sustainable competitive advantages regardless of whether the the competitors had adopted the low pricing approach or not. In addition, basing on the market situation at hand, the CFO always has a duty to make strategic decisions that will ensure the company more strength in terms of competition despite the continues entry of new players in the market with low pricing business level policies. Pricing strategy is a critical approach that is employed by new firms joining the market as a way of penetrating the market. The logic behind the approach is to a gain a wide market share, reduce the cost of production, which will in turn increase of reduce revenue collection depending on whether the firm of enjoying the economies of scale or not. For example, when a firms set its price above the equilibrium price in the market, this would imply that a significant change in price increase would led a decree in demand of the products. On the hand, when the prices are set below equilibrium price, this will automatically increase the demand of the products, however, a firms is bound to experience a relatively lower profits than a firm that set its price above the equilibrium price. As a solar power company, the firm can be producing products such as photovoltaic panel, a product that is known to have low demand. Therefore, the CFO has to strategies a policy that will ensure such a product gets a position into the market as it has has a gap posed by the consumer’s reluctance to shift from using traditional electrical energy to the the modern solar energy. Consequently, an operative strategic decision and high levels of high-tech inventions and innovations would boost the firm’s profitability capacities.
Key Metrics and Decision Points
Even as decisions are made after the 2-year interval, there will be four decisions points. 2007 still remains the first year of the simulation covering the 18-year period and the next decision is 2012 and in the first simulation the module price is $ 0.13 kWh for both simulations (Sterman, 2014). As such, in 2012 in simulation 1 and 2 the company had 4.85% market share, but the information then differed in 2011 when the module price was $ 0.11 and $0.10 in simulation 1 and 2 respectively (Sterman, 2014). The solar energy users are sensitive to price and lowering the module price increased the demand for company’s solar energy compared to the competitor.
In the year 2025, under simulation 1 the market share was 45.90%, the consumer net price was 0.07 lower than the other solar firm when the module price was 0.07, while the unit direct cost was $0.03 lower than both the competitor and new entrants (Sterman, 2014). The cumulative profit had increased to $ 94.23 Billion in simulation 1, compared to $ 74.22 B for the other solar (Sterman, 2014). In the second decision made the cumulative price was negative in simulation 2, likely because the total unit costs were higher. However, in the last decision made, in simulation 2 the firm had the largest market share the company and cumulative profits in simulation compared 1.
Similarly, in simulation 2 the module price in the last year of simulation was % 0.06, while the market share had increased to 73.39 %, while consumer net price was $0.09 lower than the rivals (Sterman, 2014). The other solar’s module price was $0.09, but the new firm entrants price was also $0.07, indicating that they were equally competitive (Sterman, 2014). The unit direct cost in the second simulation was $0.03, and this was the best compared to the competitors and new firm. The cumulative profit had increased to $293.24.05 B, which was higher than the combined cumulative profits of the other solar and 5 new entrants (Sterman, 2014).
Under decision 1, the company can chose to adopt the manual pricing module price of $ 0.13, as well as process the improvement of the revenue at 5% within period of 5 years, which is between the years 2008 and 2012. As indicated in the simulation table, the 5 year run would generate a revenue of $626.82 million while the competitors in the market are predicted to generate only 14.60 billion, Furthermore, the firm cumulative profits and annual income will be $ 51.84 and be $35.85 million respectively. Comparing between the year 2008 and the year 2012 performance, it is justifiable to assert that the power company will increase its revenue as well as cumulative profits in the long run. Similarly, the simulation trend reveals that the competitors revenues and net income as well. In an interpretation, this would mean that many consumers are beginning to shift from using electrical energy to the solar energy
Under decision 2, the company has an option to hold unto the module price $0.11, revenue to process improvements at 5% and 5 years period to advance. When the company reduces its prices with a slight deviation, a change in the price would lure a proportionate percentage of the customers towards the consumption of the company products. It would mean that when the customers’ preferences changes in favor of the product, the company would be bond to increase its sales capacity. With the increase sales, the the company will obtain annual revenue of $1.71 billion while the other solar companies will obtain annual revenue of $25.02 billion and the new companies will generate an annual income of $778.53 million. Based on the trend, the the firm has increased its annual revenues, other solar companies and the new firms,
Basing on decision, 3 the firm would adopt the pricing model $ 0.09 and an income that will improve revenue generation by 5% in the next five year. For this reason, the company ought to lower its prices, thus triggering changes in the income statement. As a result as the company annual turnover will increase to $28.9 billion, whereas the competitors will generate a revenue of of $77.13 billion and the new firms standing at $9.00 billion by the fiscal year ending 2022. Operating with the price module $0.09, the firm will have projected a 25% of the total income in the market. Similarly, the annual revenue income will also increase to $5.98 billion whereas rivals net annual income will be $23.29 billion and $2.32 billion for the following financial years, thus, a change in annual income annual net income, and cumulative profits would would imply that the firm is progressively attaining the market share a s well as enjoying high demands on its products.
Under decision 4, the firm will maintain the manual pricing with a module price of $0.08 and a revenue to process improvements at 5% as well as a period to the end, the company’s strategic decision that is focused on enhancing the pricing strategy, more consumers are likely to consume the products as a result of changes of the prices by $0.01 and therefore, turning the customers’ preferences in favor of the firm products. It will be anticipated that the company will increase the cost of goods sold, gross profit and quantity of goods demanded. With the increased quantity of goods sold, the annual revenue for firm would be $137.26 billion by 2025 while the other companies will obtain annual revenue of $175.20 billion while the new firms will obtain annual revenue of $42.05 billion. Similarly, the annual net income and cumulative profit will be bound to increase simultaneously
As Comparative Analysis of Simulation Run #1 vs. Simulation Run #2
Comparing the first and the second simulation, lowering the price increased the market share substantially, but this also affected the cumulative profit. In simulation 1 the company reported positive cumulative profits for the whole period of simulation. However, the cumulative profit in simulation was negative in the Years 2013-2017. The goal of the simulation is to achieve the highest cumulative profit and increase the market share, and simulation 2 meets both decision criteria. Even as the company would experience cumulative profit when the module price is lower than $15 when making the first decision, these changes take place in the short run, but over years the cumulative profits are higher.