Capsim and Capstone Final

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INTRODUCTION An overview of the Capstone® simulation

Unforgettable Business Learning

WHY SIMULATE?

❯ Enjoyable and competitive!

❯ Compressed time to view long-term outcomes

❯ Selectivity vs.

Integration

❯ View alternate strategies❯ Risk free!

OBJECTIVES OF THE CAPSTONE® SIMULATION

� Demonstrate effectiveness of multi-discipline teams working

together.

� Use strategic thinking.

� Take away practical skills in business management.

� Test your business acumen.

� Understand overall interaction and impact of various parts of

a business on one another.

� Grow the awareness of competition.

INDUSTRY OVERVIEW

THE STORY: BACKGROUND ON YOUR COMPANY Started as a single corporation named Sensors, Inc. sold sensors as main product. Corporation was shut down by FTC due to monopolistic operations

FTC required Sensors, Inc. to be broken up into separate companies:

Andrews Baldwin Chester Digby Erie Ferris

YOUR JOB

Sensors, Inc.

� Operate one of the companies and make it successful

THE START When Sensor, Inc. breaks up, each of the new companies start off with the following scenario:

� $100 million in Sales

� 5 Product Lines

� 5 Market Segments

� Closed Marketplace

SENSORS: AN OVERVIEW OF YOUR COMPANY’S PRODUCT

Five market segments:

Customer demands vary between the five segments

� Low End

� Traditional

� High End

� Performance

� Size

� Customers (OEMs) need

sensors for their products to

function.

� Used for diverse applications

THE MARKETPLACE: A LOOK INTO THE SEGMENTS

ROUND 8

Consumer segment expectations

ROUND 1

� Perceptual map used to track changing consumer demands in size and performance.

� Each year, consumers will expect faster (higher performance) and smaller products (smaller size) • This causes the segment circles to drift

to the lower right constantly

� Market segments continue to diverge over time.

Note the drift towards the lower right (expectations of faster and smaller products)

Also note the divergence of the segments.

LOW END CONSUMER CHARACTERISTICS

POSITIONING Prefer less cutting edge products (Bigger Size & Low Performance)

“The technology doesn’t have to be cutting edge.”

PRICE Price sensitive. Prefer prices at lowest possible.

“I want to spend as little money as possible!”

RELIABILITY Ideal MTBF: 12000 – 17000

“They have to be moderately reliable… but not enough to drive up the price!”

AGE Ideal Age: 7 years

“I want them to have been around for a while… no beta testing!”

TRADITIONAL CONSUMER CHARACTERISTICS

POSITIONING “Average” Performance and Size

“I want average sensors.”

PRICE Price sensitive, but willing to spend more than Low End consumers

“I want these sensors to be moderately cheap.”

RELIABILITY Ideal MTBF: 14000 – 19000

“They have to be fairly reliable…but not enough to drive up the price!”

AGE Ideal Age: 2 years

“I want them to have been around for a couple years…no beta testing!”

HIGH END CONSUMER CHARACTERISTICS

POSITIONING High performance and small size

PRICE Not price sensitive, willing to pay higher prices

“Price is not an issue. I want the best sensors in the market!”

RELIABILITY Ideal MTBF: 20000 – 25000

“We need a very reliable package.”

AGE Ideal Age: 0 years

“I want the newest sensors you have!”“Only the most cutting edge products will satisfy me!”

PERFORMANCE CONSUMER CHARACTERISTICS

POSITIONING High performance and small size

PRICE Not price sensitive, willing to pay moderately higher prices

“I am willing to pay for what I need”

RELIABILITY Ideal MTBF: 22000 – 27000

“Reliability is very important and must be high.”

AGE Ideal Age: 1 year

“I prefer new technology!”“I want the highest Performance available!”

SIZE CONSUMER CHARACTERISTICS

POSITIONING Average Performance but maximum miniaturization

“Now that’s small!”

PRICE Not price sensitive, willing to pay moderately higher prices

“I am willing to pay for what I need”

RELIABILITY Ideal MTBF: 16000 – 21000

“We want pretty reliable sensors.”

AGE Ideal Age: 1.5 year

“I prefer fairly new technology!”

According to a Market Analyst, there will be continuous growth in the sensor market.

SEGMENT GROWTH

YOUR GOAL

“I see the entire market growing at around 14% or 15% per year. The high tech market alone will be growing at a whopping 20%.”

Sensor market

� Prepare your company’s products to meet the needs of the growing market.

THE DECISION

MAKING PROCESS

DECISION AREASDECISION AREAS Students need to coordinate strategy and tactics across the following areas of their company:

R&D (Research & Development)

MARKETING

PRODUCTION

FINANCE

ADDITIONAL MODULES

� HR

� TQM (Total Quality Management)

� Labor Negotiations

� Advanced Marketing

R&D

�Ensure the perceived age of the product meets customer demands

�Build the quality and reliability (MTBF) of the products

�Invent new products to address the changing marketplace and take advantage of new opportunities

�Determine the specifications of the products to meet customer expectations

MARKETING

�Set the price of your products

�Build customer awareness through investing in promotion

�Establish a sales force and distribution channels

�Set the sales forecast for your products

�Set credit policies (A/R and A/P)

PRODUCTION

�Purchase machinery to automate them in your facilities

�Buy or sell capacity on your product lines

�Set production schedule

�Manage the majority of the company’s fixed assets

�Staff your facility with workers

FINANCE

�Acquire capital to fund growth and operations •Issue stock •Short-term debt •Issue long-term bonds

�Issue dividends to your shareholders

�Balance your debt portfolio

�Manage your Proformas

PROFORMAS: A LOOK INTO THE FUTURE

�Proformas use decisions made in the current year to project company performance for the next year

�Analyzing them is critical for company success

�The following Proformas are available: • Balance Sheet • Income Statement • Cash Flow Statement • Financial Ratios

SCORING METHODS

BALANCED SCORECARD

�Improving company financial picture in preparation for final debrief

�Point System

�Gauges company performance based on four perspectives: • The Customer • Internal Business Process • Learning and Growth • Financials

�In the simulation, a Proforma Balanced Scorecard is available to project results for the upcoming year.

SUCCESS MEASURES

� In the real world, companies have different goals. Using the same success measures, YOU get to choose the parameters on which your company is measured.

� Some of the Criteria that are used: • Cumulative Profits • Average Market Share • Average ROS (Return on Sales) • Average Asset Turnover • Average ROA (Return on Assets) • Average ROE (Return on Equity) • Ending Stock Price • Ending Market Cap

ANALYST REPORT

Evaluates your company in ten categories: 1. Margins 2. Profits 3. Emergency Loans 4. Working Capital 5. Market Share

6. Customer Satisfaction 7. Financial Structure 8. Wealth Creation 9. Forecasting 10. Productivity

THINGS TO DO ON AN ANNUAL BASIS

Establish business strategy for your company

Begin the process again by confirming alignment of your results with your company’s strategic goal

Rejoice in your superior capitalistic acumen

Await results when professor processes

Upload official decisions and confirm on the website

Make tactical decisions across each functional area (aligned to strategy!)

Analyze Capstone® Courier to see industry results

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DECISION MAKING PROCESS

The general guidelines f the decision making process in Capstone®

THE SIX BASIC STRATEGIES

SIX BASIC STRATEGIES (Click for link) 1. Broad Cost Leader

2. Broad Differentiation

3. Niche Cost Leader

4. Niche Differentiation

5. Cost Leader with Product Lifecycle Focus

6. Differentiation with Product Lifecycle Focus

The “Six Basic Strategies” give you a starting point. Make sure before you start making any decisions to go over the strategies and choose one that you feel comfortable using.

Each strategy is proven to work. If you’re not doing well it’s more likely that you’re executing the strategy incorrectly.

KEEP IN MIND

http://new.capsim.com/guides/capstone2013/the-guide/12-six-basic-strategies.html

What Is Business Level Strategy?

Goal-directed actions:

• To achieve competitive advantage

• In a single product market

“How should we compete?”

• Who: which customer segments?

• What: customer needs will we satisfy?

• Why: do we want to satisfy them?

• How: will we satisfy our customers’ needs?

Strategic Position

Profile based on value creation and cost

• In a specific product market

A valuable and unique position, which:

• Meets customer needs

• At the highest possible product value

• For the lowest possible product cost

Strategic Trade-Offs

Choices between a cost OR value position

Tension between:

• Value creation and

• Pressure to keep cost in check

Purpose to maximize the firm’s:

• Economic value creation

• Profit margin

Generic Business Strategies

Differentiation

• Seeks to create higher value vs. competitors

• Offers unique features

• Charges higher prices

Cost Leadership

• Seeks to create similar value vs. competitors

• Charges lower prices

Bottled Water Market ($150 Billion) 2016 bottled water surpassed carbonated soft drinks

PepsiCo’s Aquafina

Coca-Cola’s Dasani

Low-end

PepsiCo’s Lifewtr

Coca-Cola’s Smartwater

High-end

Three Drivers That Increase Perceived Value

Product features

• Enables differentiation

Customer service

Effective marketing

OXO (patent-protected ergonomically designed soft black rubber grips)

Free shipping both ways

Differentiation Strategy

Focused on adding value

• Unique features

• Customer service

• Effective marketing

Can increase costs

• R&D / innovation needed

Customers willing to pay a premium

Cost Leadership Strategy

Goal:

• Reduce cost below competitors

• Offer adequate value

• Reduce prices for customers

• Optimize the value chain for low cost

On the news … Broker War

Schwab said last week it would scrap commissions to trade stocks, ETFs and options online. While TD Ameritrade Holding Corp. and E*Trade Financial Corp. quickly followed suit.

Strategic Position and Competitive Scope: Generic Business Strategies

SOURCE: Adapted from M.E. Porter (1980), Competitive Strategy. Techniques for Analyzing Industries and Competitors (New York: Free Press).

Focused Business Strategies

Narrower competitive scope

Focused Differentiation

• Ex: Mont Blanc: exquisite pens at several hundred dollars

Focused Cost Leadership

• Ex: BIC: disposable pens and lighters at low cost

DEPARTMENTS � R&D

� Marketing

� Production

� Finance

� Additional Modules

• TQM

• HR

R&D MAIN GOAL Adjust product’s attributes to meet “Customer Buying Criteria.”

STEP 1 Go to: Decisions à R&D

FOR EXISTING PRODUCTS � Change: • Size • Performance • MTBF

FOR NEW PRODUCTS 1. Enter desired name into a void

product space 2. Choose: • Size • Performance • MTBF

3. Purchase Capacity and Automation in Production page • By this year, use it the following year

NOTE � Changes in R&D affect: • Age of Product (current age/2) • Revision Date (date new product will

be available for sale) • R&D and material costs

MARKETING MAIN GOAL Create Price, Promotional Budget, Sales Budget, and Sales Forecast for each product

STEP 1 Go to: Decisions à Marketing

STEP 2 Enter ‘Price’ for each product

STEP 3 Enter ‘Promo Budget’ & ‘Sales Budget’

STEP 4 Enter your ‘Sales Forecast’

STEP 5 Enter Credit Policy (A/R & A/P)

Tools for setting Price, Budgets, and Forecasts Price – Use the segment analyses located in the ‘Capstone Courier’ A price range will be given in the ‘Customer Buying Criteria.’

Promo Budget – Directly affects ‘Customer Awareness.’ Use student guide and your personal strategy to create a budget.

Sales Budget – Directly affects ‘Customer Accessibility.’ Use student guide and your personal strategy to create a budget.

Forecasting – Link to Forecasting Info

A/R & A/P – Link to Credit Policy Info

http://new.capsim.com/guides/capstone2013/the-guide/10-forecasting.html

http://new.capsim.com/guides/capstone2013/-finance/115-what-are-the-ideal-ranges-for-ar-and-ap.html

PRODUCTION MAIN GOAL To determine schedules, capacity, and automation for each product.

STEP 1 Go to: Decisions à Production

FOR EXISTING PRODUCTS � Enter Production Schedule

� Buy or Sell Capacity • Buy: Enter (+) number • Sell: Enter (-) number

� Change automation in: ‘New Automation Rating’ box

FOR NEW PRODUCTS � Buy Capacity • Buy: Enter (+) number

� Choose Automation Level • Enter number in ‘New

Automation Rating’ box

NOTE: In order to produce a new product, capacity MUST be purchased

TO DISCONTINUE A PRODUCT � If 0 inventory à sell all

capacity • EX: if 1000 capacity,

input -1000 in ‘Buy/Sell Capacity’

� If there is inventory à sell all but 1 unit of capacity • EX: if 1,000 capacity,

input -999 in ‘Buy/Sell Capacity’

FINANCE MAIN GOAL To finance the company’s investments and make sure the cash position is positive at the end of the year.

STEP 1 Go to: Decisions à Finance

BORROWING MONEY � Issue Long Term Debt: • 10-year bonds

� Issue stocks: • Selling common stock to

the public

� Issue Current Debt: • Borrow 1-year notes

RETIRING MONEY � Retire Bonds early

� Repurchase shares

DIVIDENDS � Issuing dividends* =

giving money to Shareholders *Issuing dividends is not mandatory

THREE MAIN FUNCTIONS Borrowing Money, Retiring Money, and Issuing Dividends

IMPORTANT

These numbers are only as good as your FORECASTING. The actual results will most likely be different. Your goal is to be as close to the actual results as possible.