Monday, July 16, 2012

Pc-build case study

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Question 1) Would you rate Bob and Mike as an “A” team? Why or why not?

Ans - Ewing M. Kauffman stated that “people don’t want to be managed, they want to be led” The key ingredient of a successful venture is dependent on the Entrepreneurial team which should comprise of people who should bring more just than money, -- friendship, commitment, motivation, experience, wisdom, know how etc. (Timmons. A, 1, New Venture Creation�Entrepreneurship for 1st century)

The PC Build team has Michel Healy as President, with several years of experience in manufacturing computer systems, has wide contacts, knows well about the product that the company is going to produce. He is ably assisted by Robert P. Lobfold, vice president; an expert in computers, has vivid experience in computer field. Both President and Vice President are qualified Business Administrators. The third member of the team Mr. John Healy is an expert educational programmer. This company has experts from the fields of sales and marketing and from banking as board of directors---making the team an “A” TEAM

Question ) Describe the opportunity in one sentence (as defined in the case)

Ans - The Opportunity to PC Build lies in “ it is entering the computer PC market, where the products are becoming obsolete very fast with technological progresses, switching over costs to the buyers are very high and the companies operating in the market are not sensitive towards customers, ----- by introducing lowly priced, easy to build PCs, targeting the educational and individual segments, not focused by other companies so far”.

Question ) Evaluate this opportunity using relevant screening techniques we

have discussed in class such as PEST, Porter’s 5 forces, etc.

PEST analysis -

1.Politico Legal factors PC Build is aiming at two segments of the market viz Educational Institutions and Individuals

The schools, which are dependent on the Government aid, are effected by the cut back in the Govt. spending at all levels under the existing economic conditions, which may affect the overall intended sales of the company in this segment

.Economic factors Inflation, Unemployment, and Growth rates of USA for the past 6 years are as follows (Source VEC Economic Statistics -annexed)


185/86 .7% 7.% .64%

186/87 .16% 6.% .4%

187/88 4.% 5.4% .76%

188/8 4.51% 5.% .7%

18/0 4.85% 5.% .46%

10/1 5.45% 6.% -0.60%

From the above figures it becomes clear that the rate of inflation is increasing, there are no changes in the unemployment rates and the growth rates of USA are falling down, which shows that the US economy is in the state of Stagflation and showing recession trends. It is one way helpful to the PC Build Company, that the customers may prefer investing money on the PCs (which thy need most) are reliable, cheap, and can be upgraded at cheap costs

. Sociological factors - As Computers have become an indispensable part of the individuals; it is expected to have a positive impact on the PCs of the Company.

4. Technological factors The ever-changing technological improvements in the computer industry may not have much impact on the products of PC Build as it has been decided by the company to play the market follower role by not going for the new inventions, but giving cheap, reliable, easy to assemble PCs with proven technology, which can be upgraded with little costs, and with value added items like toll free service, thoroughly descriptive audio-visuals, may help the company to grow.

Porter’s Five Forces-

PC Build is likely to face threat from

1. Suppliers - The suppliers are tend to be powerful as they are large and concentrated and there are no substitutes to their supplies and the supplied part being an important input to the PCs, it is expected that they may rise the prices. Suppliers will exert power, as their inputs are crucial to the performance of the producer’s final product. Suppliers have an ability to enter the market (forward integration). The company’s contingency plan of procuring supplies through imports will have an effect on the objectivity of the company in marketing low cost PCs. Thus the suppliers are expected to give Very High levels of threat

. Buyers- The bargaining power of the buyers is limited, but the company is expected to perform well to the expectations of the Customers

. Industry rivalry - Is expected to be very high. The existing companies may change the attitudes towards the customers and concentrate on lowering price. Rivalry from the market leaders is not expected in the initial stages as their strategies are different from the strategies of PC Build

4. Substitutes - There wont be any competition from the substitutes

5. New Entrants - There is very high threat from the new entrants especially from the suppliers of computer spare parts itself.

Question 4) Based on the evaluation should Bob and Mike starts the business? Why?

Ans -The company’s marketing strategy of supplying PCs at low delivered costs by adding no frills to the product, by its simple design, by direct marketing, and by its focus strategy of offering products with narrow product line, proper customer segmentation, focused functional capability and by having constant interface with the targeted customers will help Bob and Mike to venture in to the business. But care should be taken by them regarding the suppliers. They should make technologically competent suppliers as partners of their business so that there will be an uninterrupted supply of computer components

Question 5) Would you invest in this business? Why?

Ans - I will invest in the company as the Asset turn over ratio is coming out to be .4%, and Return on Investment to be 11% and the break even analysis shows that the company can get back its investment in less than one year even with conservative sales figs. There is gap in the market and most of the strategies of the company are consistent as shown in the chart

Market StructuralElement Its Effect on Industry Profitability Is it a source of Opportunity/ Threat Strategy Consistent/ inconsistent

Suppliers High Both Limited consistency

Buyers High Opportunity Consistent

Substitutes - - -

Barriers to Entry High Threat Limited Consistency

Industry Trends High Both Consistent

Government High Both Consistent

Question 6) Is there a better opportunity? If YES- what is it? If NO � what should Bob and Mike do next?

Ans - In the prevailing macro- economic, technical environments and where in the society usage of computers is becoming increasingly popular and in the situations where there are two types of market players �one preparing costly computers which are becoming obsolete every year with technological innovations and the other group preparing assembled PCs but not caring the customers, I feel that it is the best opportunity for Bob and Mike to grab the opportunity immediately.

In Future

1. They should think of integrating the technically competent suppliers as partners of their business, for eliminating the future competition or they should start their own production units.

. They can tie up with other companies who are producing Educational aids, Text Books etc. so that they can penetrate the Educational markets with the help of existing players

. They should make necessary arrangements for the Computer up gradation market which will fetch them good returns

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