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WELCOME TO CAPSTONE BUSINESS SIMULATION
WELCOME TO CAPSTONE BUSINESS SIMULATION
ProfessorJeffrey E. McGeeProfessorJeffrey E. McGee
The University of Texas at ArlingtonThe University of
Texas at Arlington
• Demonstrate effectiveness of multi-discipline teams working together.
• Use strategic thinking to an advantage.• Test your business acumen.• Understand overall interaction and impact of
various parts of a business on one another.• Grow an awareness of competition.• Take away practical know-how to improve the
effectiveness of your business.
• Demonstrate effectiveness of multi-discipline teams working together.
• Use strategic thinking to an advantage.• Test your business acumen.• Understand overall interaction and impact of
various parts of a business on one another.• Grow an awareness of competition.• Take away practical know-how to improve the
effectiveness of your business.
ObjectivesObjectives
Why SimulateWhy Simulate
• Risk Free
• View Alternative Strategies
• Enjoyable • Compresses Time (1 Round=1Year)
• Selectivity <> Integration
• Risk Free
• View Alternative Strategies
• Enjoyable • Compresses Time (1 Round=1Year)
• Selectivity <> Integration
SENSORINDUSTRYOVERVIEW
SENSORINDUSTRYOVERVIEW
The Marketplace The Marketplace
Customers (OEMs) need sensors for their productsCustomers (OEMs) need sensors for their products
Initially one segment, now breaking into twoInitially one segment, now breaking into two
Very different customer demands between the two segments
Very different customer demands between the two segments
Diversification in the use and utility of the sensorsDiversification in the use and utility of the sensors
High TechHigh Tech
Low TechLow Tech
The Marketplace The Marketplace
In our industry we track the changing customer demand on a perceptual map
In our industry we track the changing customer demand on a perceptual map
Over 8 years the customers will demand much faster and smaller sensors
Over 8 years the customers will demand much faster and smaller sensors
Market Segments will continue to divergeMarket Segments will continue to diverge
LowTech
HighTech
Low Tech CustomersLow Tech Customers
“I want these sensors to be cheap”“I want these sensors to be cheap”
“I want them to have been around for a while – no Beta Testing!”“I want them to have been around for a while – no Beta Testing!”
“The technology doesn’t have to be cutting edge.”“The technology doesn’t have to be cutting edge.”
“They have to be moderately reliable.”“They have to be moderately reliable.”
You’renot giving me what I
want
High Tech CustomersHigh Tech Customers
“These sensors have to be small, like micro, and fast”“These sensors have to be small, like micro, and fast”
“I need them to be right out of R&D, I’m talking ZERO years on the market”
“I need them to be right out of R&D, I’m talking ZERO years on the market”
“I like a pretty high reliability, but it’s not that important.”“I like a pretty high reliability, but it’s not that important.”
“I’ll pay more to get what I want.”“I’ll pay more to get what I want.”
And I’m not getting what I
want!
SENSOR INDUSTRY ANALYST PROJECT ONGOING GROWTHSees the next 8 years as consistent growth. All market segments increase at a nice “clip,” according to market analyst.
“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%.”
I hope those companies out there are ready for that kind of expansion!”
0
1000
2000
3000
4000
5000
6000
7000
8000
Year 1 Year 2 Year 3 Year 4 Year 5
Low Tech High Tech
COMPANYOVERVIEWCOMPANYOVERVIEW
SEC ANNOUNCES BREAKUP OF MONOPLOYFOR IMMEDIATE RELEASE
Christopher Cox, Chairman of the SEC, took dramatic action today by breaking up the monolithic corporation Sensors, Inc.
In a statement to the press Chairman Donaldson outlined the reason and the outcome of this move.
“We cannot allow monopolies of this sort to impact an entire industry!” stated Donaldson. “The customers that utilize these sensors are being held hostage.
“Effective immediately Sensors, Inc will be dissolved into the Andrews, Baldwin, Chester, Digby, Erie and Ferris companies.”
The CompetitionThe Competition
6 Companies6 Companies
$40 Million in Sales$40 Million in Sales
1 Product Lines1 Product Lines
Closed MarketplaceClosed Marketplace
ANDREWSANDREWS
BALDWINBALDWIN
CHESTERCHESTER
DIGBYDIGBY
ERIEERIE
FERRISFERRIS
SHAKE UP IN SENSOR INDUSTRY
Company Fires Management Team
After poor results, lackluster sales and angry customer reports, the Chairman of the Board of Directors has announced the immediate termination of the Management Team.
“This is a black day for our company,” said Chairman Jeffrey E. McGee, “We need to hire a dynamic leadership group who will be able to take this company into the future!”
“Due to this immediate need I have hired the Dream Team to start on January 1st. I expect to see great things from this Executive Team!
WELCOME TO YOUR NEW COMPANY!
WELCOME TO YOUR NEW COMPANY!
Functional AreasFunctional Areas
R&DR&DR&DR&D
MarketingMarketingMarketingMarketing
ProductionProductionProductionProduction
FinanceFinanceFinanceFinance
Research & DevelopmentResearch & Development• Establish the specification of the products to
meet customer demand
• Build the quality and reliability (MTBF) into the products
• Ensure the perceived age of the product meets customer demands
• Create new products to meet the changing marketplace
• Establish the specification of the products to meet customer demand
• Build the quality and reliability (MTBF) into the products
• Ensure the perceived age of the product meets customer demands
• Create new products to meet the changing marketplace
““Our productsOur productsare not wellare not well
positioned inpositioned inthe marketplace.”the marketplace.”
MarketingMarketing
• Set the price of our products in the marketplace
• Build customer awareness through promotion
• Establish a sales force and distribution channels
• Set the sales forecast for our products
• Set Credit Policies AR/AP
• Set the price of our products in the marketplace
• Build customer awareness through promotion
• Establish a sales force and distribution channels
• Set the sales forecast for our products
• Set Credit Policies AR/AP
““Our productsOur productsare not pricedare not priced
optimally.optimally.
And many of ourAnd many of ourcustomers don’tcustomers don’teven know oureven know our
product exists.”product exists.”
• Purchase machinery to automate our facilities
• Buy or sell capacity of product lines
• Schedule production for each line
• Manage the majority of the company’s fixed assets
• Establish your workforce complement
• Purchase machinery to automate our facilities
• Buy or sell capacity of product lines
• Schedule production for each line
• Manage the majority of the company’s fixed assets
• Establish your workforce complement
ProductionProduction
““We are payingWe are payingtoo much fortoo much forlabor costs.labor costs.
Very soon weVery soon wewill run outwill run out
of capacity toof capacity tomeet demand.”meet demand.”
• Acquire capital to fund capital expansions– Issue Stock– Short Term Debt– Issue Long Term Bonds
• Issue dividend to our shareholders
• Balance our debt portfolio
• Manage our proformas
• Acquire capital to fund capital expansions– Issue Stock– Short Term Debt– Issue Long Term Bonds
• Issue dividend to our shareholders
• Balance our debt portfolio
• Manage our proformas
FinanceFinance
““We have poorWe have poorcash flow andcash flow andsubstandardsubstandard
financial ratios.financial ratios.
We have noWe have nofinancial policyfinancial policy
statement.”statement.”
• Balance Sheet
• Profit & Loss
• Cash Flow
• Financial Ratios
• Balance Sheet
• Profit & Loss
• Cash Flow
• Financial Ratios
ProformasProformas
A great management tool driven by forecasts and projections. Allows “What if” Scenarios by the company.
A great management tool driven by forecasts and projections. Allows “What if” Scenarios by the company.
Scoring the GameScoring the Game• Select a minimum of two
criteria to be measured by:– ROE– ROS– ROA– CUM PROFIT– STOCK PRICE– MARKET
CAPITALIZATION– ASSET TURNOVER– MARKET SHARE
• Weight each selection.
• Select a minimum of two criteria to be measured by:– ROE– ROS– ROA– CUM PROFIT– STOCK PRICE– MARKET
CAPITALIZATION– ASSET TURNOVER– MARKET SHARE
• Weight each selection.
RUNNING YOUR COMPANYRUNNING YOUR COMPANY
THINGS TO DO ON AN ANNUAL BASISTHINGS TO DO ON AN ANNUAL BASIS
• Establish business strategy for your company• Analyze Capstone Courier to see industry results• Make tactical decisions across each functional
area (aligned to strategy!)• Upload official results and confirm on the website• Await results when Professor processes• Rejoice in your superior capitalistic acumen• Begin the process again by confirming alignment
of your results with your company’s strategic goal.
• Establish business strategy for your company• Analyze Capstone Courier to see industry results• Make tactical decisions across each functional
area (aligned to strategy!)• Upload official results and confirm on the website• Await results when Professor processes• Rejoice in your superior capitalistic acumen• Begin the process again by confirming alignment
of your results with your company’s strategic goal.
To Do ListTo Do List
Types of Business-Level Strategies• Business-level strategies are intended to create
differences between the firm’s position relative to those of its rivals
• To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals
Five Generic StrategiesCompetitive Advantage
Co
mp
etit
ive
Sco
pe
CostCost Uniqueness
Bro
ad
targ
etN
arro
w
targ
et
Cost Cost LeadershipLeadership
DifferentiationDifferentiation
Focused Cost Focused Cost LeadershipLeadership
Focused Focused DifferentiationDifferentiation
Integrated CostIntegrated CostLeadership/Leadership/
DifferentiationDifferentiation
STUCKIN THEMIDDLE
MY FIRM HASA COMPETITIVE
ADVANTAGE
MY FIRM HASA COMPETITIVE
ADVANTAGE
No Clearly Defined Strategy…
Strategy
•Michael Porter argues for a top-down view. Strategy is designed at the top of the organization, with the goal of positioning resources and building relationships in a unique way.
•Eric Banabeau says strategy should emerge from the bottom-up in a sort of dance with the marketplace, and that the goal of strategy should be to apply simple rules.
From where in the organization strategy should emerge?
CAPSTONE STRATEGIES• Strategies are declared in
corporate mission statements
• Capstone firms may develop and execute any strategy (or none at all - though that isn’t advisable). Basic strategies include:– Overall Cost Leader– Cost Leader with Focus
(Low Tech or Product Life-Cycle)
– Differentiator– Differentiator with Focus
(High-Tech or Product Life-Cycle)
STRATEGYSTRATEGYMission StatementMission Statement
PERFORMANCEPERFORMANCEASSESSMENTASSESSMENT
Success MeasurementsSuccess MeasurementsAnalyst ReportAnalyst Report
Round Analysis - StarRound Analysis - StarSummarySummary
INDUSTRY AND MARKETINDUSTRY AND MARKETANALYSISANALYSIS
S.W.O.T AnalysisS.W.O.T AnalysisCompetitor AnalysisCompetitor AnalysisCompetitive AnalysisCompetitive Analysis
FUNCTIONAL PLANNINGFUNCTIONAL PLANNINGR&DR&D
MarketingMarketingProductionProduction
HR HR FinanceFinance
TQMTQM
Porter Curve
ROIROI
Market ShareMarket Share
HighHigh
HighHighLowLow
Extensive coverage on Porter’s theories of competitive advantage are easily located on the internet.
Those theories in a Capstone® context are explained in a tutorial on the website.
ROIROI
Market ShareMarket Share
HighHigh
HighHighLowLow
Porter Curve•Firms with High ROI / Low Overall Market Share would likely have a clearly defined focused strategy
•High Overall Market Share / High ROI firms would likely have a strong position in all segments –risky, but effective when executed properly
Porter Curve
ROIROI
Market ShareMarket Share
HighHigh
HighHighLowLow
Firms in the middle have a less definable identity, and a hard time competing. They might have a number of “sofa-bed” product lines: Not great sofas – not great beds.
Capstone Strategies
The Situation Analysis generated an overview of the forces at work within the Capstone market place.
Now you must decide how to use that information to gain a competitive advantage.
There are many different approaches - all of which can be successful depending on how well they are implemented tactically.
OVERALL COST LEADER An overall cost leader will attempt to be the low-cost producer in
every segment of the market. They will have good profit margins on all sales while keeping prices low for price-sensitive customers.
• Firm Profile:
– More likely to re-position products than introduce new ones to the market
– Capacity improvements are unlikely to be undertaken (may run overtime instead)
– Automation may be pursued to increase margins
– Investments will be financed with debt and/or stock issues
– Tend to spend less on promotion and sales
– Focus on Market Share, Profits, and Stock Price
COST LEADER WITH LOW-TECH FOCUS
A low-tech focused cost leader seeks to dominate the price sensitive market segments. Their aim is to set prices below all competitors - and still be profitable.
• Firm Profile:
– Multiple product lines in the low-tech segments (Low & Traditional)
– Invest heavily in automation
– Spend heavily on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects)
– Investments financed with debt and/or stock issues
– Focus on ROS, ROE, and Profits
COST LEADER WITH PRODUCT LIFE-CYCLE FOCUS
A product life-cycle focused cost leader will seek to minimize costs through efficiency and expertise. Products will be allowed to age and change in appeal from high-tech, to traditional, and eventually low end buyers.
• Firm Profile: Minimum presence in “specialty” segments (Size & Performance) Low R&D spending (very little re-positioning & new product every 2-3
years) Invest in automation early in the product’s life-cycle High spending on promotion and sales Focus on ROE, ROS, and Profits
DIFFERENTIATOR A Differentiator will seek to create maximum awareness and
brand equity. They want to be well known as makers of high quality/highly desirable products.
• Firm Profile: – High R&D spending to keep products fresh– Maintain a presence in all market segments– Spend heavily on advertising and sales to create maximum
awareness and accessibility– Prices tend to be higher– Focus on Market Share, Profits, and Stock Price
DIFFERENTIATOR WITH HIGH-TECH FOCUS
A high-tech differentiator seeks to be known far and wide as the top producer of the best performing state-of-the-art products.
• Firm Profile: – Multiple product lines in high-tech segments (High, Performance,
and Size)– Minimum focus in other segments– High promotion and sales investments to create maximum
awareness and accessibility– High R&D expenditures to continually introduce new product lines
and keep existing products fresh– Unlikely to invest in increased automation or production capacity– Focus on ROA, Asset Turnover, and ROE
DIFFERENTIATOR WITH PRODUCT LIFE-CYCLE FOCUS
A product life-cycle differentiator seeks to be well-known as a top producer of good performing products in each of the targeted segments.
• Firm Profile:
– Multiple product lines in targeted segments (High, Traditional, and Low)
– Minimum focus in other segments
– High promotion and sales investments to create maximum awareness and accessibility
– High R&D expenditures to continually re-position product lines and keep products fresh
– Unlikely to invest in increased automation or production capacity
– Focus on ROA, Stock Price, and Asset Turnover
Strategies EvolveToday’s shift is Today’s shift is
tomorrow’s tomorrow’s nightmarenightmare
• Poor tactics undermine a good strategyPoor tactics undermine a good strategy• Good tactics can overcome a poor strategyGood tactics can overcome a poor strategy
SUMMARY
There is no "magic bullet," guaranteed winning strategy. Each simulation has a unique competitive dynamic.
Successful firms will focus on planning, strategic alignment, teamwork, competitor analysis, and tactical adjustments.
Good Luck and Enjoy!Good Luck and Enjoy!