Report related to Capsim Simulation

This is usually a one-page introduction that addresses the shareholders and highlights the valuable aspects of the company, its performance, and its future. It also acts as a summary of the report by providing the important details of the company’s activities in a nutshell.

Our team strategy was derived after the first couple of weeks of trial and error. Obviously, when we first got into our simulation, we weren’t necessarily knowledgeable about the current market and how many different factors would affect our products. I think every starting company has this same kind of mindset when starting out on their new business venture. The goal of any company, including ours in the simulation, is to approach the market with the best strategy as possible and learn from mistakes and other competitors. When making our first decisions, we wanted to see how certain factors and decisions would match with our competition. Once we saw how our decisions played out against our competition, we decided to start implementing our strategy.

Our overarching strategy was to make decisions that would benefit us the most in the long run, in other words, we had a cost-leadership strategy. When we first started making decisions, we were so worried about staying within the budget and not going over the recommended amount of money spent. Soon enough, we realized that that was not getting us anywhere and would keep us on the same level as our competitors. We ultimately realized that to make money in the long run, we needed to spend money. This worked out to our benefit and allowed us to have greater successes down the road. By doing this, we were able to strengthen our business sustainability. However, this type of strategy caused us to almost disregard our top-end product completely, Echo. We couldn’t find a way to make decisions for Echo that would correspond well with our full market strategy with our other products. We relied heavily on making the best decisions possible for Edge, Ebb, Eat, and Egg. Allowing ourselves to spend less money on Echo, no matter what sector it was in, allowed us, financially, to try and completely maximize the profit and success of our other products. This fits well in our cost-leadership strategy as it allowed us to really spend money for long-term decisions and get ahead of our competition as often as we could.

As stated in the corporate strategy, we had to almost disregard Echo, our high-end segment, completely. We kept money in it, holding onto the hope that we could somehow figure out a way to use it in a way that corresponded well with our other products. We also kept money in it to try and see if our minor, cheaper decisions would show any sort of progress which result we could add more money to the product. We could never find the right balance between Echo and our other products to keep a strong competitive advantage in the market. However, for Eat, Ebb, and Edge, our traditional, low-end, and performance segments, we were able to make decisions that complimented them perfectly and helped keep our company in the running for a long time. For those three segments, we came up with a strategy that we would put more money into promoting the product and creating a demand for it within the market. We also always made sure we had enough inventory of each of those products in case our strategy of increasing demand worked, and we were selling our desired amount. Then, when we started implementing TQM, we were able to allocate some of the money in the marketing department into TQM which helped us still increase demand and reduce our material and labor costs even though we weren’t spending the same amount of money on our marketing budget. Lastly, Egg, our size segment, was the most competitive product within the market. We, as a team, tried to make decisions to keep it as competitive as possible but had trouble keeping it within a good radius on the perceptual map. We made decisions that were aa part of our strategy to keep it competitive and strive for progression.

Our functional strategy was developed based on our choice to be a company using a cost leadership strategy and staying very competitive in the long run. Starting with R&D decisions, we realized that it was okay to spend a little more money than recommended on our R&D costs. We would adjust each decision to satisfy the needs of the industry reports in the most cost-effective and efficient ways. We would use these decisions to adjust our spots on the perceptual map and our drift. When it came to marketing decisions, early on, we decided to spend a lot on the promo budget and our sales budget. By doing this we were able to increase our demand for our products and focus on making sales, therefore, increasing our profit. Next, when making financing decisions we always made sure to have enough inventory to cover the first shit capacity and would buy finance a bit more materials to cover most of the 2nd shit. With the decisions made during the financing section, we usually did not have to buy any sort of capacity for our products. Finally, during our HR decisions, we always made sure to have 80 hours of training for new HR employees. We did this because it would save us money in the long run. We knew that it would cost money to train people in HR but we were alright with that cost because of the benefits it would bring us.

Overall, our strategy was aimed at keeping our company functioning in the long run while still being competitive. Even though that is a vague description, and most companies intend to have that same goal, we made decisions that truly made that happen and kept us in the running with our competitors. Just like any business, we used different aspects of trial and error to truly establish what type of strategy we wanted our company to use. With the decisions we made and the approach that we took, our strategy worked out well through all of the rounds. The strategy we decided upon made our company very successful and taught us many things about running a company in the future.

Your report should provide details of the financial ratios and proformas. A well-written report would also compare the company’s financial aspects with those of the closest competitor or the industry. Specifically, information on the following ratios should be provided for round 8:

- Profitability ratios: These are metrics to assess a company’s ability to generate earnings compared to its expenses and other relevant costs. Some examples of profitability ratios are profit margins, return on assets (ROA), and return on equity (ROE).

- Liquidity ratios: These are metrics that measure a company’s ability to pay its debt obligations, and include several measures such as current liabilities, liquid assets, short-term debts, working capital (i.e., the difference between current assets and current liabilities), and current ratio (i.e., current assets divided by current liabilities).

- Equity ratio: The equity ratio determines how much would shareholders receive in an event of a company-wide liquidation. The ratio is expressed as a percentage and is calculated by dividing the total shareholder’s equity by the total assets of the firm. Both these values are derived from the balance sheet of the company. Shareholder’s equity is calculated as total liabilities subtracted from total assets.

We experienced several lessons learned in the last ten years as a company. Some we learned through making conscious decisions, and others were made through not understanding the full cause and effect of some of our decisions. So, let’s dive in.

To stay competitive in other segments, we decided to abandon the high-performance segment in round 3. At the time, we thought it would help us stay competitive while avoiding the high cost of trying to compete in that market. In hindsight, that was a bad decision as it cost us to lose market share by year three.

By abandoning the product, we lost significant market share, the market share that needed to compete. We seemed to be doing well in the first and second years, finishing number one in market share. However, by the fifth year, we had fallen to third place as the overall percentage of total market share, a ranking we would carry for the next five years. Our analysis is that this has to do with abandoning that segment of the market.

Another lesson learned is we did not manage capacity as well as we should have. Our production exceeded capacity in year one. We did make some adjustments in year two, which resulted in about even production and capacity. However, for years 3 – 8 production exceeded capacity, sometimes by a little amount and sometimes by a significant amount.

Reviewing the decisions and looking at historical data, we can only conclude that we just did a terrible job of managing it. I think we misunderstood how capacity was calculated and did not purchase enough, even after knowing we needed more of it.

If we could do it over again, we would have purchased more capacity each round until we just started to exceed production. Then, if in the next year if the delta between production and capacity continued to fall, we could have sold the excess capacity at .65 on the dollar. If it continued to rise, we would continue purchasing more. If he had to sell capacity, we could have at least recouped some cost for excess capacity, and we would have the needed capacity to manufacture enough sensors to meet market demand. We most certainly left some sales out in the marketplace that were picked up by our competitors.

We started years one and two with a decent strategy, but over time we started to drift away from it. As we moved into years three and four, we started managing the company year to year (round-to-round) instead of sticking to our long-term strategy. This was important as a lot of the decisions made at the moment had multiple downstream effects. They were made without the foresight of how they would affect later rounds (see the lesson learned about capacity above).

So, instead of sticking to our multi-year long-term strategy, we started managing the company year-to-year, using the balanced scorecard as our guide instead of a check on our long-term strategy.

In conclusion, abandoning the performance sector after several years, not properly managing our capacity, and moving away from our long-term strategy caused our performance to suffer in later years.

The last eight years have provided us with a lot of information and experience. We have learned a great deal about our company, products, and their markets. The first couple of years in business were dedicated to finding the best strategies that worked for our company and our products, we had a few general ideas and a basic plan for how we wanted to operate and were able to determine through trial and error how we wanted to proceed. The last few years were spent attempting to maximize the strengths and advantages of each of our products to keep our company profitable.

During our first few years in business, we started with a cost-leadership strategy being conscious about how much money we were spending and attempting to stay within our budget. After a period of trial and error, we switch to a more aggressive approach. We believe that in the future, it would be in our best interest to continue with the approach to stay in competition with our competitors. One of the most effective strategies we implemented was to increase the sales and promotional budgets. This increase helped bring more customer awareness to our products and increase our market share. We will continue to be aggressive in our strategy, especially within our performance market segment.

As stated previously, our traditional product (Eat), low-end product (Ebb), and performance product (Edge) performed the best over the last eight years. While our high-end product (Echo) fell out of the high-end market segment, meaning our company could not hold a competitive advantage in this market. Going forward we believed it would be in Erie’s best interests to retire this product and reallocate those funds and resources to focus on our better-performing products or to strengthen Egg, the product in the size market segment. While we started to fall behind in the high-end market segment, we believe with the surplus of funds coming from the Echo, we can improve our Egg’s position in the market. These funds can also be used to enhance our other products. Our best performing product was Edge, in the performance segment, which had the second-highest market share at 30% in year eight. Since this is our best-performing product, we believe it would be beneficial to assign part of the funds from the high-end product to Edge to not only keep but strengthen our competitive advantage.

Another option would be to introduce another product. This can allow us to further expand our market share in another market segment. The best option would probably be adding another product to one of our more successful market segments, such as Edge (performance product). This could help us accomplish this since this is a market segment in which we have the best competitive advantage. While we were unable to compete effectively in the high-end market segment, we have the opportunity to accommodate for the loss of our high-end product.

Even though we have made several mistakes over the last eight years, we have also gained enough knowledge to successfully continue expanding and growing our company and we believe that by implementing these plans we can improve our company’s market share in each segment.