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CapsimGlobal | User Guide | 1

USER GUIDE

CapsimGlobal | User Guide | 2

Table of Contents Introduction Training Market Segments Region Outlines Business Environment What is my goal? Strategy

How do I make decisions? R&D Marketing Production Finance Additional Modules

Scoring/Grading Balanced Scorecard Debrief Tool Where can I see my results?

Glossary/Formulas

Introduction

CapsimGlobal is Capsim’s newest international business strategy simulation, focusing on introducing you to the numerous challenges that come along with running a company in a global setting. Your company creates and sells genetic testing devices to the medical industry. Your devices can determine whether a particular gene, or combination of genes, is present in the patient. The devices can even tell a physician whether the gene is switched on or off. They are useful in diagnosing diseases like cystic fibrosis, Crohn’s disease, and certain types of cancer. The devices also determine risk profiles that help people avoid the development of a disease towards which they might be predisposed.

The companies were created when the government split up one company which previously held a monopoly on the genetic testing device market into identical competitors. Due to the monopoly, some issues in the company were left unresolved. Now that the market has opened and competition will rise, your company must focus on four key areas of a business. At the start of the simulation, each company in your industry will begin from the exact same financial position. You can view your current status through the report, which is hosted under Reports on your dashboard and in the simulation interface. In each round, which lasts one year, you will need to make decisions in four areas: Research and Development (R&D), Marketing, Production, and Finance. In some cases, you may have additional modules turned on. For example, HR (Human Resources) and TQM (Total Quality Management).

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Market Segments The genetic diagnostic test market has two clear segments: Low Tech and High Tech.

Low Tech Segment – Buyers are looking for a product that is inexpensive but still fulfills their primary needs.

High Tech Segment – Buyers in this segment are looking for the most up-to-date, technologically advanced products and don’t mind paying a premium to get what they need.

There are, however, other criteria on which customers also base their purchase decision. To see detailed buying criteria for each segment, you will need to look at the updated Industry Report, published at the end of each simulation round.

Research & Development (R&D) Your R&D Department designs your product line(s). The department invents new products and revise existing ones to

appeal to your customers’ changing needs.

Marketing Your Marketing Department prices and promotes your products. It interacts with your customers via its sales force and distribution system. Marketing is also responsible for

setting sales forecasts.

Production Your Production Department determines how many units will be manufactured during the year. It is also responsible for

buying and selling production lines.

Finance Your Finance Department makes sure your company has the financial resources it needs to run through the year. The department can borrow money or pay it back through a few different options.

At the end of each round, the simulation will process, and you will be able to see how your company performed against the competition through the Report which gets updated each time a round has been processed.

Round 1 Round 8Drift to Round 8

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Regional Outlines Within the simulation, there are three geographical regions: USA, Germany, and China. For the period of the simulation, the following assumptions about the cultural and economic landscape in each country apply:

USA | Currency - $ This is where your company is headquartered and managed. In CapsimGlobal, this country represents a mature economy with a stable political environment. As the genetic diagnostic testing industry is well established, the Americas are considered a saturated market moving forward.

Germany | Currency - € In CapsimGlobal, Europe represents a highly developed, technologically advanced and relatively high-income economic country. It is experiencing steady economic growth that your company hopes to capitalize on.

China | Currency - ¥ This country includes emerging economies, constituting relatively low income communities, increasing economic growth, and significant demand for improved health care. The country has a zero-tariff policy which makes it an attractive market moving forward.

Business Environment The market for genetic diagnostic test equipment is expanding, but in each geographical region there are different growth rates for each market segment. These growth rates are specific to the industry, however, and may not reflect the regional economy as a whole. Each year, the two market segments will be demanding an improvement in the current technology of your products. Addressing these demands will be vital to maintaining a competitive edge.

Each year, the two market segments will be demanding an improvement in the current technology of your products. Addressing these demands will be vital to maintaining a competitive edge.

ROUND

ROUND

3195

3610

4080

4610

5209

5887

6652

7517

8494

5838

6188

6560

6953

7370

7813

8281

8778

9305

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

747

1008

1361

1838

2481

3350

4522

6105

8241

911

1093

1312

1574

1889

2267

2720

3264

3917

263

347

458

605

798

1054

1391

1836

2424

823

1193

1730

2509

3638

5275

7649

11091

16082

GROWTH RATE

GROWTH RATE

DEMAND

DEMAND

13%

6%

35%

20%

32%

45%

Germany

Germany

China

China

USA

USA

HIGH TECH SEGMENT DEMAND

LOW TECH SEGMENT DEMAND

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Strategy A business strategy creates a vision and direction for the whole organization. It is important that all people within a company have clear goals and are following the direction, or mission of the organization. A strategy can provide this vision and prevent individuals from losing sight of their company’s aims.

The three questions you need to answer to determine your Strategy:

1. Will your company be Local or Global? 2. Will your company be Niche or Broad? 3. Will your company be a Cost Leader or a Differentiator?

LOCAL BROAD COST LEADER LOCAL NICHE DIFFERENTIATOR

Whole Foods Apple

GLOBAL BROAD DIFFERENTIATOR GLOBAL NICHE DIFFERENTIATOR

Walmart Rolls-Royce

What is my goal? In CapsimGlobal, your company will be evaluated based on the four pillars of the Balanced Scorecard. Your goal in the simulation is to outperform the competition. A successful company will use the tools available to analyze the market and implement a dominant strategy. Ideally, you will manage a healthy and profitable company.

The goal of the Balanced Scorecard is not only to ensure that you have a healthy company across all disciplines, but also to facilitate long-term growth. It’s important to keep in mind that the implementation of a strategy may take several years as the investments made by the company begin to pay off.

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How do I make decisions? In CapsimGlobal, you will be responsible for making company decisions across four primary areas: Research & Development (R&D), Marketing, Production, and Finance. If you are working on the simulation as part of a team, you may choose to divide up your work by department, product line, or in some other way. No matter how you divide up the work, it will be important that all members know how decisions are made so they can better work together and communicate across departments. Every decision that you make in the simulation can impact multiple areas of the business, so it is crucial to understand each area. Below, you can read about the most important things to consider when making decisions in each area.

Research & Development The R&D department page is where the following decisions are made:

• Creating new products to meet customer demands

• Managing existing products to keep them relevant in the marketplace

• Retiring products from the market that no longer fit your strategic direction

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While making these changes, the following areas will need to be considered:

1. THE CUSTOMER BUYING CRITERIA The Customer Buying Criteria represents the different product features that customers consider when buying a product. Criteria include the following: product price, positioning (Speed and Accuracy), perceived Age and Service Life of the product.

Just as in real life, different segments place different levels of importance on each factor. For example, an American customer seeking a High Tech product places positioning above all other things, however an American customer seeking a Low Tech product considers the price and age of the product above positioning.

For a detailed look into the Customer Buying Criteria, see the Customer data tabs on the R&D and Marketing pages, or the segment analysis pages in the report.

2. CREATE NEW PRODUCT In CapsimGlobal, your company will start off with one existing product line with the ability to create up to three additional products for a total of four. To get started with creating a new product, click the ‘+ New Product’ tab to open the new product development decisions. You can select the name, specifications, and Region Kit(s) to best position your product. A Region Kit is an upgrade that customizes the product to meet local requirements making it more appealing to customers in that country.

Considerations before starting a project: • Where do I want my product positioned on the Perceptual Map

when the project ends? • What length of Service Life should my product have? Is it within

the required range of the segment? How much do my customers care about service life in this segment/country?

• Do I want to add any region kits to tailor my product to a specific area?

• Do I want to make multiple product updates within this calendar year?

Creating new product designs in R&D is the start of your new product release, but there are still a few more steps before you can formally launch your new product. In order to actually produce units of the product for sale, you need to set a Capacity and Automation level in the Production department one year prior to the products release. If you forget to add Capacity or Automation in that round, you will not be able to sell the product the following year, because it takes one year for any investments into capacity and/or automation to be implemented.

3. REVISION DATE Your revision date represents the day when your product is updated or released. At this point, all units of inventory are updated to reflect the latest version of the product. The revision date is based upon three factors: how highly automated the production line is, how drastic of a change is being made to the product, and other product updates. It will take longer for your company to make updates to a product line if they are drastic and/or if the automation rating is high. If you are making updates to multiple products, this can also impact your revision date as your R&D staff becomes tied up in other projects.

4. SPEED The time it takes the device to analyze a sample and display results. The speed of your product(s) is directly correlated to your material cost. This represents the “X” axis of the perceptual map.

5. ACCURACY The likelihood of the testing device to provide a correct result. Devices with a higher Accuracy rating are less likely to give a false positive or false negative result. The accuracy of your product(s) is directly correlated to your material cost. This represents the “Y” axis of the perceptual map.

6. SERVICE LIFE Expressed in hours, as the average time before the device is likely to fail. Increasing Service Life increases material cost per unit. Decreasing Service Life decreases material cost per unit. The Service Life rating for existing products can be adjusted up or down. Each 1,000 hours of Service Life adds $0.30 to the material cost. Customers prefer products towards the top of the range.

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7. REGION KITS Region Kits are region-specific product additions that increase a product’s attractiveness to customers. Conceptually, our genetic diagnostic test performs several genetic tests at once. For example, given a biopsy, it can test for several varieties of cancer. Since cancer incidence varies by country, the genetic test can vary by country. However, it is possible to tailor your product to test for additional country-specific diseases. For example, a cholera test may be considered for Asian customers, but would not be relevant to European customers.

In CapsimGlobal, adding a Region Kit boosts demand by 10% over your competitors (i.e. adding a USA region kit will add 10% demand in the USA). If your competitors choose to add a Region Kit, as well, then your demand boost will be reduced. In the case that all six companies are offering Region Kits to a specific country, there will be no advantage in customer demand for any team.

Adding a Region Kit to a product adds three months to the R&D project timeline as well as a 15% material cost increase in the country where the product is sold. For example, team Andrews decides to put a German Region Kit on the Able product. There will be a 15% increase in material cost for all products that are shipped to Germany. However, no products in the USA or sent to China will incur any additional material costs. You can have up to three Region Kits on each product.

8. AGE A new product starts with an age of zero. However, modified products are considered to be new and improved, which cuts the perceived age of the product in half. Only decisions changed for Speed or Accuracy cut the age in half. Changes to Service Life and Region Kits have no impact on the perceived age. The perceived age is constantly changing; a product that was released in January will be perceived as an older product in each month following its release.

9. PERCEPTUAL MAP The Perceptual Map displays your products’ Accuracy and Speed coordinates and where your product falls compared to where customers are located. On the Perceptual Map, there are two circles. Each circle is a market segment, (Low Tech and High Tech) which represents a group of customers with similar preferences for Speed and Accuracy.

10. R&D EXPENDITURES View how much you are investing in creating new products and modifying existing offerings.

11. RETIRE PRODUCT Sometimes a product becomes obsolete and needs to be retired. Click the icon to eliminate the product from your portfolio and sell off the remaining units. Upon doing so, you will see the product’s specifications and capacity levels, which will be sold off at 65% of the original purchase price. Any inventory on hand is sold at 50% of the production value. (Labor Cost + Material Cost) As you must remain selling at least one product to remain in the industry, you cannot retire all of your products at once.

12. R&D CHARTS Additional information regarding the company and business environment, including your investments, material costs and perceived age of products in the market. These will update as you make changes so you can track how the age and material costs of your product(s) will change throughout the year given your updates.

13. SEGMENT MOVEMENT Customers in each market segment — Low Tech and High Tech — continuously expect faster and more accurate products, but at different rates of change. Therefore you will find that there is a great deal of overlap between the Low Tech and High Tech segments at the start of the simulation, but this will shrink each round. We map those increasing demands on the Perceptual Map. The circles defining the product segments will move a little each month, drifting towards the top right- hand corner of the map as customers look for faster and more accurate devices.

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Each company must innovate and update products to keep up with segment movement and remain competitive.

Within each segment there is an ‘ideal spot’. These are the coordinates for the customers’ desired Speed and Accuracy of the product at that point in time. The ideal spot drifts an equal distance each month, but is different for each segment. The Low Tech segment moves slower, and customers do not expect frequent changes to their products. The High Tech segment, however, moves at a faster pace so customers expect frequent updates to their products.

Each company must innovate and update products to keep up with segment movement and remain competitive.

Within each segment there is an ‘ideal spot’. These are the coordinates for the customers’ desired Speed and Accuracy of the product at that point in time. The ideal spot drifts an equal distance each month, but is different for each segment. The Low Tech segment moves slower, and customers do not expect frequent changes to their products. The High Tech segment, however, moves at a faster pace, and customers expect frequent changes to their products.

14. DRIFT RATES In the simulation, the rate that the segments move is called ‘drift rate’, and it is different for each market segment. Drift rates reflect what we experience in real life — the next version should be faster and more accurate. See Market Conditions Report for the actual drift rate in each segment.

15. IDEAL SPOT As you know, the ideal spot is that point in the segment where, all other things being equal, demand is highest. In the example to the right, it’s represented as the black dot within each segment circle. The perceptual map helps you to calculate the Ideal Spot for each round of the simulation.

IDEAL SPOT

Perceptual map

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Marketing The Marketing department is responsible for forecasting sales, promoting both the products and brand, as well as pricing and selling your products. Forecasting sales for each product is critical because your Production Department uses these forecasts to determine how much of each product line to manufacture. Additionally, your Finance Department uses these forecasts to generate a projected cash position.

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While making these changes, the following areas will need to be considered:

1. PRODUCT DECISIONS This is where product level forecasts and marketing investments are made. As new products are invented, you can click the product tabs. Click the product tabs to move to the next product decisions, while viewing a summary of all Marketing decisions in the table below the product area.

2. COUNTRY TABS The importance that customers place on each aspect of the product is different in each country, reflecting the subtle influence of culture. Decisions are made on a regional basis and clicking on a new country will display the products and information for that country.

3. MARKETING CHARTS This section contains additional information regarding the company and the business environment.

4. PRICE In the Products panel, you set the price per unit in local currency while viewing the conversion to dollars. The price range listed in the customer buying criteria reflects local currency, so be aware of the impact of currency fluctuations over time.

5. PROMOTION BUDGETS AND AWARENESS Each product’s promotion budget determines its level of awareness. A product’s awareness percentage reflects the number of customers who know about the product.

An awareness of 50% indicates half of the potential customers know it exists. While your product can still sell to potential customers that are unaware of it, a product’s awareness is directly correlated to its demand. From one year to the next, a third (33%) of those who knew about a product forget about it. This creates the formula below:

Last Year’s Awareness - (33% * Last Year’s Awareness) = Starting Awareness

50%

40%

30%

20%

10%

0%

$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $3,000,000$2,500,000

Promo Budget Awareness Curve

You can view your estimated Awareness within the Marketing department interface. However, you can calculate exactly what your Awareness will be through the following calculation.

Starting Awareness + Additional Awareness from Promo Budget Curve = New Awareness

Finally, new products are newsworthy events. The buzz creates 25% awareness at no cost. The 25% is added to any additional awareness you create with your promotion budget.

6. SALES BUDGET AND ACCESSIBILITY Each product’s sales budget contributes to segment accessibility. A segment’s accessibility percentage indicates the number of customers who can easily interact with your company via salespeople, customer support, delivery, etc. Like awareness, if your sales budgets drop to zero, you lose one third of your accessibility each year. Unlike awareness, accessibility applies to the segment, not the product. If your product exits a segment, it leaves the old accessibility behind. When it enters a different segment, it captures that segment’s accessibility.

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Your accessibility calculation is exactly the same as the awareness calculation. However, the contributions for Sales and Promo budgets differ. You can view the estimated Accessibility within the Marketing interface, but if you want to calculate Accessibility use the following calculation:

Starting Accessibility + Additional Accessibility from Sales Budget Curve = New Accessibility

In the case of your Sales budgets, products in the same segment will have the same Accessibility. This is because your field specialists selling your products focus on specific segments rather than individual products selling to that market. For instance, if you have two products selling to the German Budget segment, your contributions to the Sales Budget for each product will both contribute to their Accessibility. For example: if each of these products have a sales budget of $1,500 they would receive a boost in accessibility as though you had spent $3,000. (The sum of both sales budgets)

Think of awareness and accessibility as “before” and “after” the sale. The promotion budget drives awareness, which persuades the customer to look at your product. The sales budget drives accessibility, which governs everything during and after the sale. The promotion budget is spent on advertising and public relations. The sales budget is spent on distribution, order entry, customer service, etc. Awareness and accessibility go hand in hand towards making the sale. The former is about encouraging the customer to choose your product; the latter is about closing the deal via your salespeople and distribution channels.

7. FORECASTS The sales forecasts are used by the Production department to set production levels for the year and the Finance department to calculate the Proformas, or projected cash position. Accurate sales forecasting is a key element to company success.

There are two different primary methods to forecast in the simulation:

1. Use last year’s actual market share and multiply by the current round’s segment size.

2. Use last year’s potential sales and multiply by the growth rate.

Potential Sales represents the number of total units you would expect to sell in a perfect market. This takes into account product stock-outs from your company and your competitors. Keep in mind that the forecasting methods outlined above assume demand is consistent. Be sure to account for changes you’re making to your products as well as what changes you anticipate your competition to make.

8. CUSTOMER SATISFACTION SCORE (CSS) The customer satisfaction score starts by evaluating each product against the buying criteria. Next, these assessments are weighted by the criteria’s level of importance. For example, the German High Tech segment assigns a higher importance to positioning (43%) than the German Low Tech segment (21%). A well-positioned product earns a higher score in the Customer Satisfaction Score in the High Tech than in the Low Tech segment. From there, the Customer Satisfaction Score takes into account your product’s Awareness and Accessibility.

9. PRICE & CURRENCY FLUCTUATIONS What is the right price for your product? Well, it depends. Customers in each market have a different view of price as you can see in the customer buying criteria. To the Low Tech buyer, price is the most important thing. For a buyer looking for top quality, however, it is less important. Even if your products are very reasonably priced, if all other things are equal, you will lose market share to a competitor with lower prices.

40%

30%

20%

10%

0%

$0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000

Sales Budget Accessibility Curve

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Be sure to pay attention to what your customers want and what the competition is delivering in order to price your products effectively.

It’s important to know that in each country, Price listed in the Buying Criteria reflects Local Price. Local Price is your translated sales price after currency exchange rates.

In Germany and China, the price you enter will translate into Local Price based on the current exchange rate to US dollars. You can find the exchange rate at the beginning of the year in the top right of the Marketing interface under the Regional tab or in the segment pages.

10. EFFECT OF EXCHANGE RATE There is a 1% transaction fee assessed for converting foreign currencies to US Dollars, which appears on the Cash Flow Statement as the line item ‘Effect of Exchange Rate Changes.’ At year’s end, all income is converted automatically into US dollars for the financial statements.

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Production Your Production Department is responsible for manufacturing enough products to meet customer demand, as per your marketing forecasts for each country. In addition, Production determines the level of capacity and automation on your production lines and must manage the cost of upgrading the plant.

Production Plant Move Your first decision running your company will be a big one. Recent world developments have opened the genetic testing device market, and your company will now be able to operate in additional countries outside of the USA – Germany and China. Due to this, you will be given the option to move your production facility to one of these foreign nations or to stay put in the USA.

You will have access to information that will help you make this decision, and ultimately you must choose whether to move your plant or stay put. This decision is only available to your company in Round 1, and you will see the option at the top of your Production Department page.

If you choose to move your plant from America to Germany or China, your company will incur a relocation fee of $2 million. This will cover all costs related to hiring/firing employees, shipping equipment, plant and equipment assembly, and the property lease. Your capacity and automation levels will remain the same after the move, as you will ship all your equipment to the new plant location.

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The move will occur on January 1 of Round 1. Each location offers different pros and cons; for instance, moving your plant to Germany may take advantage of lower product defect rates, but could also cost more; due to higher average hourly wages for workers. Alternatively, staying in your current production facility will allow you to avoid additional costs of terminating employees, but may not provide long-term benefits for your company’s strategy.

Wherever you choose to manufacture your products, make sure you have done your research. Your decision will take place in Round 1 and last through the entire simulation.

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While making these changes, the following areas will need to be considered:

1. PLANT INFORMATION Plant information displays each product’s capacity and automation level. You can purchase additional capacity and raise your plant’s automation level to produce more units at a higher efficiency, but this comes at a cost. Keep in mind that any changes to your plant capacity and/or automation take one year to go into effect. Each year, you have a maximum allotted investment that you cannot exceed.

2. CAPACITY Capacity determines how many units the plant can produce. Each new unit of capacity costs $6.00 for the floor space plus $4.00 multiplied by the automation rating. For each unit of capacity, you can schedule second shift workers work equal to 100% of your Plant Capacity. With the 2nd shift, you can produce double your capacity. The second shift labor costs are 50% higher than producing in your first shift. Your product starts with 1,700 units of capacity, meaning you can produce 1,700 units in your first shift and an additional 1,700 units in second shift.

3. AUTOMATION Automation refers to the level of production processes for the machinery that can be done without manual human labor – the higher the automation rating, the fewer workers are needed to operate the plant.

As automation levels increase, the number of labor hours required to produce each unit falls. The lowest automation rating is 1.0; the highest rating is 10.0. At an automation rating of 1.0, labor costs are highest. Each additional point of automation decreases labor costs approximately 10%. At a rating of 10.0, labor costs fall about 90%. Automating comes at a cost, however. The higher your automation level, the longer it takes your products to be revised by Research & Development. Due to the massive costs of tailoring product development to robotic manufacturing, at an automation level of 10.0, any changes to your product(s) in R&D will take

at least one year to complete. For each point that automation is changed, there is a $4 charge per unit of capacity. At 1000 units of capacity, increasing automation by 1 point will cost $4,000.

4. ACTUAL This is the actual number of units produced. It will always be slightly less than your production schedule to accommodate any defective products.

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Finance

Your Finance Department is primarily concerned with four issues:

1. Acquiring the capital you need to expand your company’s assets

2. Driving the financial structure of the firm and its relationship between debt and equity

3. Selecting and monitoring performance measures that support your strategy

4. Establishing a dividend policy to maximize the return to shareholders

Finance decisions should generally be made after all other departments have entered their decisions. After the management team has decided what resources it needs in Marketing, R&D and Production, the Finance Department determines where and how to find the funds.

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While making these changes, the following areas will need to be considered:

1. ADD FUNDS/ RAISING CAPITAL There are three ways to acquire capital, each with advantages and disadvantages. Capital can be acquired through:

Current Debt (Bank Loans) – these are one-year loans that are paid off on January 1 of next year. The yearly interest rate applies to current debt.

Stock Issues – selling common stock to the public.

Bond Issues (Long-term Debt) – the amount of money that the bond markets will issue you. You are capped at having up to 80% of last year’s fixed assets in Long-term debt.

2. SUBTRACT FUNDS/ RETIRING DEBT OR STOCK If you’re flush with cash you can choose to retire stock or bonds.

Retire Stock – You can buy back up to 5% of your outstanding shares each round.

Retire Bonds – You can retire any of your long-term debt, or bonds, earlier than the 10-year period if you want to. You must pay a small, 1.5%, brokerage fee to retire bonds early, and these will be settled at the closing price listed in the Outstanding Bonds box in the Finance interface.

3. ISSUING DIVIDENDS TO SHAREHOLDERS Sometimes the owners of a company like to see some return on the money they invested in the enterprise. You do that by paying dividends. Paying dividends can impact the stock price. A healthy stock price increases your ability to raise capital for investments, which in turn can return further profits, these profits can be passed onto shareholders as further dividends.

4. EMERGENCY LOANS An emergency loan is a one-year loan from an emergency lender. If your company runs out of cash during the year, you will require an emergency loan to keep your company afloat. Because of the “quick fix” nature of the emergency loan, interest rates to repay emergency loans are extremely high (7.5% above the current interest rate). Try to avoid these at all costs!

5. STOCK PRICE Stock price is a function of four things:

• Book value, defined as total equity. • Earnings per share (EPS), defined as profits divided by shares

outstanding. • Dividends per share, set directly by you. Dividends set higher than

the year’s EPS negatively impact stock price. • Emergency loans also negatively impact the stock price.

6. EFFECT OF EXCHANGE RATE There is a 1% transaction fee assessed for converting foreign currencies to US Dollars, which appears on the Cash Flow Statement as the line item ‘Effect of Exchange Rate Changes.’ At year’s end, all income is converted automatically into US dollars for the financial statements.

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Additional Modules

Human Resources The Human Resources module has been added to your course, so you now have the ability to invest in the people that run your company. When the Human Resources module is active, you will see decisions appear in a new department, aptly titled Human Resources.

With Human Resources active, you have the opportunity to invest in three areas of your company: Research & Development, Marketing, and Production. There are three total decisions that you can choose to invest in.

Decisions

Manufacturing – Training & Assembly Teams Determine the investment in training your manufacturing employees to work in assembly teams. Assembly teams are known to increase productivity and quality, which increases production after adjustment. Employees also prefer to work in teams, which reduces turnover.

Each round you can invest up to $2 million to train your manufacturing staff to work in a more effective manner.

Scientists – Recruitment & Retention Determine how much you will spend to recruit and retain scientists to work on new R&D projects for your company. This will impact how quickly you release new products and product updates, as well as how customers perceive the quality of your products.

Each round you can invest up to $2 million to attract and retain scientists to work on your sensors. The more you spend, the better the return will be.

Sales – Compensation Determine how much you will compensate your sales force. This decision will impact how accessible your products are to customers and your employee turnover.

Each round you can invest up to $2 million in additional compensation for your sales force.

Total Quality Management The Total Quality Management (TQM) module has been added to your course, so you now have the option to invest in the people that run your company. When the TQM module is active, you will see decisions appear in a new department – Total Quality Management.

With TQM active, you can reduce material, labor, and administrative costs, shorten the length of time required for R&D projects to complete and increase demand for the product line. The impacts of the investments produce returns in the year they are made and in each of the following years. There are ten total TQM initiatives that you can choose to invest in, which you can see below.

Your company needs to determine which initiatives best serve its purposes. If you are keeping automation levels low so R&D projects complete more quickly, you might want to invest in areas that lower labor costs (for example, Quality Initiative Training). If your company is competing in the high technology segments, with high material costs, you might consider initiatives that reduce material costs (for example, Continuous Process Improvement). To maximize the effect, companies should find complementary initiatives and invest in each of them. For example, to reduce material costs, companies should consider investing in both CPI Systems and GEMI TQEM Sustainability.

Decisions

Process Management Initiatives The impacts of these initiatives improve business procedures, resulting in improved efficiencies and cost structures:

CPI (Continuous Process Improvement) Systems Reduces material cost and to a lesser degree labor costs.

Vendor/JIT (Just in Time [Inventory]) Reduces Material costs and Administrative overhead.

QIT (Quality Initiative Training) Reduces labor costs.

Channel Support Systems Increases the effectiveness of the sales budget, and therefore demand.

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Concurrent Engineering Reduces R&D cycle time, the time needed to move sensors on the Perceptual Map and to change MTBF specifications. R&D costs are determined by the length of time they require, therefore Concurrent Engineering also lowers R&D costs.

UNEP Green Program The United Nations Environment Program increases the effectiveness of the sales budget (customers prefer products made by socially responsible manufacturers), and therefore increases demand. Green programs also reduce waste and therefore material costs.

TQM Initiatives

The impacts of these initiatives improve product quality while reducing the time and resources required to design, manufacture, warehouse and ship products.

Benchmarking Reduces Administrative overhead.

Quality Function Deployment Effort Reduces R&D cycle time and enhances the effectiveness of the Promotion and Sales Budgets.

CCE (Concurrent Engineering)/6 Sigma Training Reduces material costs and labor costs.

GEMI TQEM Sustainability The Global Environmental Management Initiative Total Quality Environmental Management initiative reduces labor costs as it minimizes environmental risks. These include production methods which protect employee health and redesign of products to have fewer toxic by-products. The initiative also reduces material costs, as it promotes recycling and other material use efficiencies.

For each impact, complementary initiatives combine to increase the total effect. You should bundle your investments in multiple initiatives that have an impact important to your company’s strategy. By spreading your investment among complementary initiatives, you can invest more in each impact than the limit of $2,000,000 for an individual initiative.

You can target multiple impacts, such as both material and labor cost reduction; this can be a substantial investment in any given year. As you fine tune your decisions, keep an eye on the Projected Cumulative Impacts to ensure that your investments are creating cost-effective returns.

Companies that invest in the same initiatives over two or three rounds (depending on the amount of money) will experience decreasing and eventually no additional returns for their investments.

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Scoring / Grading Balanced Scorecard In CapsimGlobal your company’s performance will be evaluated based on the four pillars of the Balanced Scorecard as given below.

Financial Profit – 10 points

Return on Assets – 5 Points

Market Cap Percentage – 5 Points

Debt/Asset Ratio – 5 Points

Customer Product Design Score – 10 points

Awareness – 5 points

Accessibility – 5 points

Market Penetration – 5 points (Number of Region of Sales)

Internal Business Process Contribution Margin – 10 Points

Capacity Utilization - 5 points

Market Share - 5 points

Market Share Growth - 5 points

Learning & Growth Employee Turnover - 10 points

Profit/Employee - 5 points

Market Price/Employee – 5 points

Sales/Employee – 5 points

Each round, new goals are set for each item that makes up the four pillars. Points will be allocated based upon how close your company came to those goals. The specifics for point allocation can be found on the Balanced Scorecard section of the dashboard after selecting your company name. Each metric that makes up the four pillars can be selected in order to get a more detailed break-down of the point allocation.

Debrief Tool The debrief tool is only available if your instructor has provided the class with access. The debrief tool provides a concise overview of the industry and key performance indicators. This can be used to quickly identify areas for improvement. If you have been provided access to the debrief tool, you will find it broken up into six sections; Overview, Financial, Customer, Internal Business Process, Learning & Growth, and Report. The four pillars of the Balanced Scorecard encompass various metrics (as seen above) which are evaluated relative to the prior year’s performance. Areas for strong performance, average performance, or needs improvement are highlighted.

Where can I see my results? When a round is processed, you can view your scoring results through your dashboard.

For more detailed analysis of your results, click the Reports tab within the dashboard or interface. Here, you can assess your performance, broken down in each area of the simulation.

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Glossary/Formulae

1. IDEAL SPOT These are the coordinates for the customers’ desired Speed and Accuracy of the product at that point in time. The ideal spot drifts an equal distance each month, but is different for each segment. The Low Tech segment (represented by the black circle on the perceptual map) moves slower, and customers do not expect frequent changes to their products. The High Tech segment (represented by the blue circle on the perceptual map), however, moves at a faster pace, and customers expect frequent changes to their products.

2. DRIFT RATE TABLE In the simulation, the rate that the segments move is called ‘drift rate’, and it is different for each market segment. Drift rates reflect what we experience in real life — the next version should be faster and more accurate.

3. SEGMENT GROWTH RATES These are the rates at which each demand increases. Growth rates will vary by segment and country.

4. REGION KITS a feature that tailors products to the specific country they will be sold in. Region Kits boost demand in an area by 10% compared to the competition, but add 3 months of development time to add/remove and 15% in material cost per unit.

4. AWARENESS Each product’s promotion budget determines its level of awareness. A product’s awareness percentage reflects the number of customers who know about the product. While your product can still sell to potential customers that are unaware of it, a product’s awareness is directly correlated to its demand. From one year to the next, a third (33%) of those who knew about a product forget about it.

4. ACCESSIBILITY Each product’s sales budget contributes to segment accessibility. A segment’s accessibility percentage indicates the number of customers who can easily interact with your company via salespeople, customer support, delivery, etc. Like awareness, if your sales budgets drop to zero, you lose one third of your accessibility each year. Unlike awareness, accessibility applies to the segment, not the product. If your product exits a segment, it leaves the old accessibility behind. When it enters a different segment, it captures that segment’s accessibility.

5. FORECASTING FORMULA There are two different primary methods to forecast in the simulation:

• Use last year’s actual market share and multiply by the current round’s segment size.

• Use last year’s potential sales and multiply by the growth rate.

Perceptual map

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6. SERVICE LIFE COSTS The Service Life rating for existing products can be adjusted up or down. Each 1,000 hours of Service Life adds $0.30 to the material cost. Customers prefer products towards the top of the range.

9. BUY/SELL CAPACITY Capacity determines how many units the plant can produce. Each new unit of capacity costs $6.00 for the floor space plus $4.00 multiplied by the automation rating. For each unit of capacity, you can schedule second shift work equal to 100% of your Plant Capacity. Therefore, you can produce double your capacity. Second shift labor costs are 50% higher than producing in your first shift. Your product starts with 1,700 units of capacity, meaning you can produce 1,700 units in your first shift and an additional 1,700 units in second shift.

10. PERCEIVED AGE A new product starts with an age of zero. However, modified products are considered to be new and improved, which cuts the perceived age of the product in half. Only decisions changed for Speed or Accuracy cut the age in half. Changes to Service Life and Region Kits have no impact on the perceived age.

11. AUTOMATION As automation levels increase, the number of labor hours required to produce each unit falls. The lowest automation rating is 1.0; the highest rating is 10.0. At an automation level of 1.0, labor costs are highest. Each additional point of automation decreases labor costs approximately 10%. At a rating of 10.0, labor costs fall by about 90%. Automation costs $4.00 per point of automation. Raising automation from 1.0 to 10.0 costs $36.00 per unit of capacity. Conversely, lowering automation from 10.0 to 1.0 also costs $36.00 per unit of capacity. As you raise automation, it becomes increasingly difficult for R&D to reposition products short distances on the Perceptual Map. For example, a project that moves a product 1.0 on the map takes significantly longer at an automation level of 8.0 than at 5.0. When you’re making a large move on the perceptual map, it will be less affected by a higher automation level. You can move a product a long distance at any automation level, but the project will take between 2.5 and 3.0 years to complete.

12. BONDS All bonds are 10-year notes. Your company pays a 5% brokerage fee for issuing bonds. The first three digits of the bond series number reflects the interest rate. The last four digits indicates the year the bond is due. The numbers are separated by the letter S, which stands for “series.” For example, a bond with the number 12.6S2017 has an interest rate of 12.6% and is due December 31, 2017. Bond issues are used most often to fund long-term investments in capacity and automation. Bondholders will lend total amounts up to 80% of the value of your plant and equipment (the Production Department’s capacity and automation). Each bond issue pays a coupon, the annual interest payment, to investors. If the face amount or principal of bond 12.6S2017 were $1,000,000, then the holder of the bond would receive a payment of $126,000 every year for ten years. The holder would also receive the $1,000,000 principal at the end of the tenth year. When issuing new bonds, the interest rate will be 1.4% over the current debt interest rates. If your current debt interest rate is 12.1%, then the bond rate will be 13.5%. You can buy back outstanding bonds before their due date. A 1.5% brokerage fee applies. These bonds are repurchased at their market value, or street price, on January 1 of the current year. The street price is determined by the amount of interest the bond pays and your credit worthiness. It is therefore different from the face amount of the bond. If you buy back bonds with a street price that is less than its face amount, you make a gain on the repurchase. This will be reflected as a negative write-off on the income statement Bonds are retired in the order they were issued. The oldest bonds retire first. There are no brokerage fees for bonds that are allowed to mature to their due date. If a bond remains on December 31 of the year it becomes due, your banker lends you current debt to pay off the bond principal. This, in effect, converts the bond to current debt. This amount is combined with any other current debt due at the beginning of the next year

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13. BOND DUE DATE Assume the face amount of bond 12.6S2018 is $1,000,000. The $1,000,000 repayment is acknowledged in your reports and spreadsheets in the following manner: Your annual reports from December 31, 2018 would reflect an increase in current debt of $1,000,000 offset by a decrease in long term debt of $1,000,000. The 2018 spreadsheet will list the bond because you are making decisions on January 1, 2018, when the bond still exists. Your 2019 spreadsheet would show a $1,000,000 increase in current debt and the bond no longer appears.

14. BOND RATINGS Each year your company is given a credit rating that ranges from AAA (best) to D (worst). In CapsimGlobal, ratings are evaluated by comparing current debt interest rates with the prime rate. If your company has no debt at all, your company is awarded an AAA bond rating. As your debt- to-assets ratio increases, your current debt interest rates increase. Your bond rating slips one category for each additional 0.5% in current debt interest. For example, if the prime rate is 10% and your current debt interest rate is 10.5%, then you would be given an AA bond rating instead of an AAA rating.

15. BUYING CRITERIA AND THE CUSTOMER SATISFACTION SCORE The customer satisfaction survey starts by evaluating each product against the buying criteria. Next, these assessments are weighted by the criteria’s level of importance. For example, the High Tech segment considers product age and specs very important, while the Low Tech segment concentrates primarily on price. A well-positioned product in a segment where positioning is important will have a greater overall impact on its survey score than a well-positioned product in a segment where positioning is not important. A perfect customer satisfaction score of 100 requires that the product:

• Be positioned at the ideal spot (the segment drifts each month, so this can occur only one month per year);

• Be priced at the bottom of the expected range; • Have the ideal age for that segment;

• Have a Service Life specification at the top of the expected range. The customer satisfaction score drives demand for your product.

Your demand in any given month is your score divided by the sum of all of the scores in a respective market. For example, if your product’s score in April is 20 and your competitors’ scores are 27, 19, 21 and 3, then your product’s April demand is: 20 / (20+27+19+21+3) = 22%. Assuming you had enough inventory to meet demand, you would receive 22% of segment sales for April. What generates the score itself? Marketers speak of “the 4 P’s”– price, product, promotion and place. Price and product are found in the buying criteria. Together they present a price-value relationship. Your promotion budget builds “Awareness,” the number of customers who know about your product before purchasing. Your sales budget (place) builds “Accessibility,” the ease with which customers can find and purchase your product. To the 4 P’s we can add one additional elements –availability. Availability addresses inventory shortages. These are all considered to be part of the Customer Satisfaction Score.

16. CURRENT DEBT Your bank issues current debt in one-year notes. The Finance page in your interface displays the amount of current debt due from the previous year. Last year’s current debt is automatically paid off on January 1. The company can “roll” that debt by simply borrowing the same amount again. There are no brokerage fees for current debt. Interest rates are a function of your debt level. The more debt you have relative to your assets, the greater risk you present to debt holders and the higher the current debt rates. As a general rule, companies fund short term assets like accounts receivable and inventory with current debt offered by banks. Bankers will loan current debt up to about 75% of your accounts receivable (found on last year’s balance sheet) and 50% of this year’s inventory. They estimate your inventory for the upcoming year by examining last year’s income statement. Bankers assume your worst-case scenario will leave three- to four-months in inventory and they will loan you up to 50% of that amount. This works out to be about 15% of the combined value of last year’s total direct labor and total direct material, which is displayed on the income statement. Bankers also realize your company is growing, so as a final step bankers increase your borrowing limit by 20% to provide you with room for expansion in inventory and accounts receivable.

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17. EMERGENCY LOANS Financial transactions are carried on throughout the year directly from your cash account. If you manage your cash position poorly and run out of cash, the simulation will give you an emergency loan to cover the shortfall. The loan comes from a gentleman named Big Al – a loan shark who charges very high interest rates. Big Al lends you the exact amount of your shortfall. You pay one year’s worth of current debt interest on the loan and Big Al adds a 7.5% penalty fee on top to make it worth his while. For example, suppose the current debt interest rate is 10% and you are short $10,000,000 on December 31. You pay one year’s worth of interest on the $10,000,000 ($1,000,000) plus an additional 7.5% or $750,000 penalty. You do not need to do anything special to repay an emergency loan. However, you need to decide what to do with the current debt (pay it off, re-borrow it, etc.). The interest penalty only applies to the year in which the emergency loan is taken, not to future years. Emergency loans are combined with any current debt from last year and automatically taken out of your projected closing cash position. Emergency loans depress stock prices; even when profitable. Stockholders take a dim view of your management performance when they witness a liquidity crisis.

18. EXCESS WORKING CAPITAL Excess working capital is calculated as follows: Working Capital = Current Assets - Current Liabilities, 90 Days of Sales = 90/365 Sales, Excess Working Capital = Working Capital - 90 Days of Sales

19. MAX INVEST Max Invest is the maximum dollar amount you can invest in your production plant in a given year. This number is calculated depending on your capital budget limit. The capital budget limit is determined by the maximum amount that can be raised through stock and bond issues plus excess working capital, minus the total amount of stock dividends to be paid in the current year.

20. PROFIT SHARING Your company shares 2% of Net Profit by country with your employees.

21. RETIRING BONDS EARLY A bond with a face amount of $10,000,000 could cost $11,000,000 to repurchase because of fluctuations in interest rates and your credit worthiness. A 1.5% brokerage fee applies. The difference between the face value and the repurchase price will reflect as a gain or loss in the income statement’s fees and write-offs.

22. SEGMENT MOVEMENT Each segment moves across the Perceptual Map a little each month. In a perfect world, R&D would use iterative design to position your product in front of the ideal spot as many times as possible throughout the year.

23. SERVICE LIFE FINE CUT Within the segment’s Service Life range, the customer satisfaction score improves as Service Life increases. However, material costs increase $0.30 for every additional 1,000 hours of Service Life. Customers ignore Service Life above the expected range — demand plateaus at the top of the range.

24. SERVICE LIFE ROUGH CUT Demand scores fall rapidly for products with Service Life hours beneath the segment’s guidelines. Products with a Service Life of 1,000 hours below the segment guideline lose 20% of their customer satisfaction score. Products continue to lose approximately 20% of their customer satisfaction score for every 1,000 hours below the guideline down to 4,999 hours, where the customer satisfaction score is reduced by approximately 99%. At 5,000 hours below the range, demand for the product falls to zero.

25. STOCK Stock issue transactions take place at the current market price. Your company pays a 5% brokerage fee for issuing stock. New stock issues are limited to 20% of your company’s outstanding shares in that year. As a general rule, stock issues are used to fund long-term investments in capacity and automation. Stock price is driven by book value, the last two years’ earnings per share, (EPS) and the last two years’ annual dividend.

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26. BOOK VALUE The calculation for book value is equity divided by shares outstanding. Equity equals the common stock and retained earnings values listed on the balance sheet. Shares outstanding is the number of shares that have been issued. For example, if equity is $50,000,000 and there are 2,000,000 shares outstanding, book value is $25.00 per share.

27. DESIGN SCORE The design score evaluates the following: products positioning, reliability, and age. This evaluates R&D decisions relative to the customer buying criteria.

28. DEFECT RATE This is the rate at which units ordered through the production schedule show up defective. Each location for production plants have a different defect rate.

CapsimGlobal MarketConditionsReport.pdf

CapsimGlobal R&D Help Sheet.pdf

Research & Development Help Sheet

The R&D Department is responsible for creating, maintaining and revising the company’s products.

What type of product does the company sell?

Genetic testing devices. These are used to quickly test a person’s blood

to determine DNA sequencing and identify any potential diseases or

genetic problems.

What makes up a genetic testing device?

A product’s positioning specifications, which includes Speed (how fast)

and Accuracy (how precise), Service Life (how many hours the device

will work for), and Region Kits (a feature tailored to specific areas).

Who buys genetic testing devices?

The genetic testing devices the company creates are purchased by other businesses (hospitals,

clinics, universities, etc.). This is known as a Business to Business industry (B2B). Within the industry,

there are two different types of customer groups: Low Tech and High Tech.

How do I know how what my customers want?

Each customer group, or segment, prefers different things. Listen to your customers in the

Customer Buying Criteria section of your R&D page, or view their preferences in the Report.

These expectations vary across other countries, so be sure to look at the Customer Buying Criteria

for each area.

How many different markets (or countries) can I sell to?

Three: United States of America, Germany and China. Customers in each area will have different

ideas of what an ideal product is to them.

Can a product sell to multiple segments?

Absolutely. While a product can temporarily sell in two segments, eventually you should decide

which segment your product will primarily belong to, because preferences change in each segment.

Can a product sell to multiple countries?

Yes. You can sell in different regions, but remember, each region might have different requirements/

currency/criteria.

Does the criteria for each round change?

Yes; for Positioning and Price only. Customers demand faster and more accurate testing devices

each year, so adjust your product specifications to stay competitive.

USA Germany China

How do I increase or decrease the age of a product?

If you revise a product’s Speed or Accuracy, customers will perceive your product as an upgrade,

and the age will be cut in half. Revising Service Life or adding a Region Kit does not affect the

age of your product.

Quickly, summarize how to update my product(s).

1. Observe your current product(s) and compare it to what customers are seeking.

2. To do so, use the Perceptual map (upper right of the R&D interface), and the Customer Buying

Criteria chart (lower left of your R&D interface). The Perceptual Map shows you where your

products are in relation to the market segments. If your products are in the shaded areas your

products are desirable to those customers.

3. Adjust the Speed and Accuracy sliders based on where you want to position your product(s).

4. Adjust the Service life slider based upon the needs and desires of your customer. Higher

service life will raise the cost of the product, but can increase the demand for the product.

5. Determine if you want to add a Region Kit to any of the countries you sell your product to.

6. Observe the revision date (when your product will be updated) and the age of your product.

R&D updates should generally finish within the calendar year, unless you are creating a new

product or repositioning to a new customer segment.