CUBE INC. | Management Audit Report |

Executive Summary:
This Management audit report of Cube Inc. and the team that managed it will focus on the various reasons as to why the company fared relatively average in comparison to the other companies in the simulation. It will also look at the ways the management team could have circumvented the blunders that it committed while managing the company and try to come up with a strategy to pull it out of the situation that these slip-ups has put the company in.
Audit Report:
It is very important to have business decisions especially the ones with respect to finance to be as accurately right as possible. However, during the first two periods of simulation it was seen that the CEO of the company did not respect the decisions made by the appointed CFO of the company and went against his recommendations. The CEO put his own decisions and as a result the company suffered loss in these two periods and even ended up taking a bank overdraft. The company carried its after effects throughout the simulation and the stock price of the company never recovered from it. The investors suffered and never got the returns that they deserved from Cube Inc. Taking unnecessary risky debt affected the performance of the company in the stock market (Fama, Vol. 68, No. 3 (Jun., 1978)). I learned that it is very important to get the financials decisions right at every stage as the company grows on these decisions. It is quite essential as it is these decisions that give the direction to the company’s finance. If it takes a wrong direction then it will take no time for the company to fall and it will be very difficult for it to recover. Finance decisions should always be taken by someone who understands it and have a good idea about it.
During the last few periods, the software division of the company came up with a notion that by simply raising prices of its products will shoot up the profit of its division and thus have a positive effect on the companies share prices with only a small minor fall in demand or growth of sale. The division manager had this thought after analysing a few market research reports which indicated that the share prices and profit margin of a competing company shot up considerably after they increased the prices of their products. However, that was not the case when this idea was applied to her division and the plan completely failed. The sales and its profit of the division dropped drastically to never recover again and affected the whole company’s financials negatively. It was against business ethics, to analyse just a few market research reports and put in her decisions without even a proper team meeting (O.C. Ferrell, 2015). A good decision maker would only come to such a conclusion after looking at and studying all the available company reports which would give a better picture of what was the actual cause of such a good performance of the company and analyse it well if such a strategy would work for her own division as well and implement it only after discussing it with the whole team.
All throughout the simulation, Cube Inc. ranked second in terms of sales and profit. However, in the last period we were able to break it and reach to the number one position in terms of profit, which was one of the targets which we as a team wanted to achieve. When I think about it and try to figure out exactly what we did right to get there, I think we did more wrong than right towards the end. But it was probably just that other companies committed a lot more mistakes than what we did that helped us to get to that position. It looked as if SENTIA, who were outperforming us during the major part of the simulation, were making some grave decisions that were pushing up their loss and pulling down their sales and market share. The other company which picked up half way through the simulation was one plus who were also earning more profit than us also saw their profit shrink during the last period.
Another important factor that pulled our company down during the simulation was poor estimation of the right production capacity. John Birge’s article suggest that wrong estimation of production capacity does more harm to a firm than what wrong debt estimation would do to it (Birge, 2004). It was especially towards the beginning and end of the simulation that we got the estimation of the capacity extremely wrong and our profits suffered due to this. During the initial periods it was because the CEO showed distrust in team’s decisions and put in his own decisions he felt was right and towards the end, it was the decisions made without holding team meetings that led to inconsistent production capacity requirement. However, we got the capacity right in between these periods where we had team meetings and decided on it together and I strongly recommend having team meeting before every periods as it helps to get the decisions as right as possible. I also recommend reading the paper by Robin and Robert which talks about such decisions to get a better picture on it (Kaplan, Sep-Oct 1988)
If this company is handed over to a new team they will have a lot of work on their hands to get things right with it. First and foremost they will have to take care of the shareholders by buying back as much as shares as possible and get the debt to equity ratio in order. This should correct the share price and do right with the investors. Secondly, they will have to modify the strategy to increase the sales of the company products especially in software and ventures as there is a lot of room for improvement in both these divisions and get the profits up. Thirdly, I would advise the new team to research the forecast reports thoroughly before putting down any decisions for the next period to avoid making mistakes related to capacity and price of the products. I will also recommend this team to make sure that no decision is taken without a team meeting. This will ensure that the team makes least number of errors in any decisions they make.
As a team we had almost similar goals for the company. The common key objectives were to have a high market share and product innovation index. However, distrust among the team members about the decisions plagued and damaged the team performance. This attribute was mostly seen with the CEO of the company. During the initial few team meetings, it was decided that I will be the CFO of the company and was given the right to take decisions on finance matters of the company. However, after the decisions for the first period was put in by the team members as per their roles in the company. The CEO changed some of the key decisions in the absence of the team and without any discussions. The decisions had adverse effect, especially on the financials of the company. This type of behaviour again continued into the second period and the same effect of the decisions were seen in the period. However, now the CEO realised his mistake and handed over the finance decision back to me after issuing an apology to the team for this behaviour. It is very important to respect the team’s capabilities and have confidence in them. It is always damaging to the team and the project they are working on when there is such distrust issues between the team members (Porter, 1996). Each individual team member need to act more rationally and should be a responsible team player. A team leader should only use his right to reject a decision if he is sure about it and it may lead to conflicts to just apply a decision without the team’s approval (Lencioni, 2003).
One of the key important ritual team members should do before taking any decisions is to have a team meeting with all its members (De Dreu, 2001). Without this, the decisions made by the members tend to be of very poor nature and affects the overall performance of the company adversely. Initially, everyone agreed on the idea and made it a point to meet up before making any final decisions for their respective divisions. Meeting up gave positive results and the company performed quite well during this time. However, towards the end, the team started to give this ritual less priority and stopped meeting up before the decisions citing other priorities. The outcome of this was clearly visible in the performance of the company. There were drop in sales figure and the profit of the company suffered. Team meetings have a very essential role in getting the company strategy in sync with all its members (Hinds, 2003). Meeting up before every decision should be an important clause all team members should agree upon and follow on forming a team.
An important factor that worked for us as a team and the company was our individual experiences and diversity in educational specialization. That is finance, Management, Human resource, etc. This helped us understand the issues faced in each section of the division much better and could discuss a better solution in team meetings than we otherwise could have. For example, in issues related to finance, I could provide a better solution to my teammates than something they would have come up on their own. Similarly, I was helped out in issues related to management and human resource and I could understand these concepts much better. As discussed in the article by Kearney, Gebert and Voelpel, it is very important to form a team with members belonging to different specialization as it would help them support each other whenever they face an issue with any decisions that they might come across during the simulation and overcome it with ease (Kearney, 2009).
Before this simulation, I did not know any of my team members. It was great experience to get to know them and to working on this simulation together. Whenever we met, we hanged out like good friends and it was fun. We all came from different parts of the world and it was valuable to learn about their cultures during the one on one interaction that we had during team meetings. It brought a range of viewpoints on the table, during our decision making process and gave us a variety of options and ideas to choose from and we could execute the best strategy for our firm. We not only helped each other with this unit but also gave valuable advises on matters related to other units and general life problems. Without a good bonding, like the one we had as a team, it would have been very difficult to create a shared sense of purpose and trust between us (Newell, 2004). This experience has enforced the value of team bonding on me yet again and I am sure to take it with me to my work life as well.
As decided by the team, I was given the hardware division to manage and it was truly a challenge to run it as it was not performing in par with the other units of the industry and many firms wanted to get rid of it right from the beginning of the game. But I was on a mission to make it into one of the best hardware unit in the industry. Along with sticking close to my approach to be a differentiator, the key strategy that helped me increase the sale and market share of this unit was buying out one of the competing firm’s hardware unit. Negotiating with Pear and convincing them to sell their hardware unit very close to its book value was good deal with high net present value. The main intention behind this horizontal takeover was to get a quick and direct access to pear’s customers and at the same time reduce the operating cost and improving service capabilities. Pear was lagging with innovation and quality products and there was not much that they brought to the table other than their valuable customers. With an increase in market share from 14% to 20% after the buyout, Cube Inc.’s hardware unit ranked second in the industry. However, we were not able to capture some of Pears customers who preferred low cost products and lost them to our cost leader competitors. This could have been largely avoided if Cube Inc. had an option to continue with a hybrid strategy where both these units will function separately instead of merging into one as discussed in this paper on German automobile industry (Proff, 2000). If the simulation allowed it, one unit would continue with its strategy to produce high quality differentiating products, while the unit acquired from pear would act as a low cost product producing unit of our company. This would have allowed Cube Inc. to cater to the needs of both high profile as well as the middle class clients and thereby reduce the loss of customers to our competition.
I personally, had a very valuable experience throughout this simulation and got an opportunity to learn a quite lot from this simulation. However, I think I could have done a lot better in it if I had read the simulation manual properly. I took the easy way out by asking my team members what the manual said about certain decisions that I was not sure about. I feel this affected the quality of the decision I made during the game. Had I read the manual, I could have probably understood the concepts much better and it would have resulted in a better outcome in the simulation.
Conclusion:
All in all, I think, Cube Inc. performed pretty well in the simulation, enough to earn the recognition of being on the “Honourable Mentions”. I regret the mistakes that we made especially, towards the beginning and end of the simulation and I believe that if we were to avoid them, we could have even made it on the “Best Overall performance” list. This was a fun learning experience and I plan to improve the valuable skills and knowledge that I developed, being on the board of Cube Inc., and hope to reap the benefits of it by applying it wherever required during my management life.

References

Birge, J. (2004, October 4). Joint Production and Financing Decisions: Modeling and Analysis. SSRN Electronic Journal.
De Dreu, C. K. (2001). Minority dissent and team innovation: the importance of participation in decision making. Journal of applied Psychology.
Fama, E. F. (Vol. 68, No. 3 (Jun., 1978)). The Effects of a Firm's Investment and Financing Decisions on the Welfare of Its Security. The American Economic Review, 272-284.
Hinds, P. J. (2003). Out of sight, out of sync: Understanding conflict in distributed teams. Organization science, 615-632.
Kaplan, R. C. (Sep-Oct 1988). Measure Costs Right: Make the right Decisions. Harvard Business Review, 96-103.
Kearney, E. G. (2009). When and how diversity benefits teams: The importance of team members' need for cognition. Academy of Management Journal, 581-598.
Lencioni, P. M. (2003). The trouble with teamwork. In Leader to Leader (pp. 35-40).
Newell, S. T. (2004). Social capital and knowledge integration in an ERP project team: the importance of bridging and bonding. British Journal of Management, S43-S57.
O.C. Ferrell, J. F. (2015). Business Ethics. Cenange Learning.
Porter, T. W. (1996). The effects of conflict, trust, and task commitment on project team performance. International Journal of Conflict Management, 361-376.
Proff, H. (2000). Hybrid strategies as a strategic challenge—the case of the German automotive industry. Omega, 541-553.