This paper documents the second iteration of a business simulation for a tablet manufacturer, executed in January 2012. Building on observations and cost-volume-profit analysis from the previous cycle, the company implements new strategies: discontinuing the underperforming X7 product and reallocating research and development resources entirely to the X6. The paper compares financial performance across both simulation periods and evaluates the trade-offs between short-term profitability from economies of scale and long-term viability in a rapidly innovating technology market.
It is January 1st, 2012 again, and the time warp has restarted. This iteration differs from the previous cycle in that the results from the last time warp (SLP 4) have been reviewed and new strategies have been developed based on those observations and cost-volume-profit (CVP) calculations. The aim of this paper is to implement the predetermined strategies and compare the results with the last time warp, evaluating whether the strategic adjustments improve overall firm performance.
Several issues were highlighted in the last time warp. The most significant concerned the X7 product, which demonstrated poor performance compared to competing products and carried a high price point. CVP analysis indicated that making this product competitive would require a significant level of investment and acceptance of a lower profit margin. Because the X7 also risked cannibalizing sales of the X5 and X6, the difficult decision was made to abandon the X7 entirely. While this means accepting sunk costs, sound financial decision-making dictates that sunk costs should not bias decisions about the future (Chadwick, 2007).
With the X7 discontinued, the firm now operates with two products: the X5 and X6. The X5 showed good performance in the previous simulation, although its product lifecycle was limited. The X6 was the most profitable and demonstrated strong market performance. Pricing levels remain unchanged at $285 for the X5 and $430 for the X6. However, because the X5 is approaching maturity, additional investment in research and development may be unwise given the limited remaining potential to recoup that investment. Conversely, because the X6 is popular and demonstrates growth potential, it will receive 100 percent of the research and development budget, allowing the firm to capitalize on this product's market opportunity.
The table below compares revenue outcomes across the two simulation periods, showing cumulative financial results for 2012–2015 under both the previous and current strategies.
Table 1: Comparison of revenues for consecutive time warp cycles.
Overall, the firm has operated in a strategic manner, as the decisions have allowed the company to take advantage of economies of scale by gaining a dominant market position, which reduces marginal cost per unit when producing volumes well beyond the break-even point. However, this approach may be characterized as short-term optimization. In technology markets, where continuous innovation is common, the X5 product is approaching end-of-life maturity, and the early elimination of the X7 may have sacrificed longer-term market presence and revenue potential in exchange for near-term profitability. Future iterations should balance the pursuit of immediate portfolio optimization with investment in pipeline products to sustain competitive advantage over multiple product cycles.
Chadwick, L. (2007). Essential Management Accounting. Routledge.
Kotler, P., & Keller, K. (2011). Marketing Management. Prentice Hall.
"Results table across time warp periods"
"Short-term gains versus long-term market positioning"
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