"TELL ME AND I'LL FORGET.  SHOW ME AND I MAY REMEMBER.  INVOLVE ME AND I WILL UNDERSTAND.

"

CAPSTONE® 
Business Simulation
Compete. Learn. Execute. LEAD

CAPSTONE® Business Simulation

Workshop

GIM, GOA

(Mar ’12)

A Business Simulation for Leaders

Facilitator:

Prof. Hemant Kumar Padhiari

www.capsim.com www.sansrisk1.com

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 Program Details

Pre-Simulation Homework

1. Register on www.capsim.com
2. Download Capstone.xls and complete ‘SOLO Rehearsal Rounds”
3. Complete various Tutorials under ‘Help’
4. Complete reading the ‘Student Guide PDF’

Workshop Schedule

Pre-simulation briefing Day one forenoon (about 3 hrs.)

Success Measurement Prior to Round 1, option to change as

many times, until round 6.

Simulation Exercise Two/Three hours to a round.

Post-simulation debriefing After round 8 (about 3 hrs.)

(Presentation by each team to the stock-
holders. It will capture how they ran the
business over the last 8 years of their
stewardship of the business and their plan
for the next four years.)

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Simulation check list

1. Please assign, through discussion within your Team, Success Measurement Criteria
(under Home Work>Success Measurement Criteria>Input) before commencing
simulation. These are your business’ financial objectives.

2. Please arrive at a Business Strategy, through discussion within your Team, to achieve
your financial goals as set out. You may/may not have an overarching strategy for your
entire company and may have sub-strategy for each market segment.

3. Please write out your Team’s Mission Statement.

4. Please check and use ‘Email’ and ‘Conference’ facility.

5. Always check the Welcome page- here professor will post new announcements etc.

6. We recommend that you assign individual roles among Team members by rotation,
across rounds. Individual members can be assigned following roles:

a. Function head (R&D, Marketing, HR, Finance etc.).

b. Market Segment Manager. There are five market segments (Traditional, Low,
High, Performance and Size).

c. Competitive Intelligence Officer. Here it is recommended that each team

member analyses one competitor.

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Important points
Please read following points carefully before you start Simulation.

1. There are total 6 teams. Please try to figure out other teams’ financial and business strategy as
soon as, latest by second/third round, possible to do well in the Simulation. The overall Industry
grows at 14% pa.

2. New production capacity and increase in automation level is available NEXT YEAR, though you
pay this year. Please plan accordingly. You want to carry only so much plant capacity that you
need next year.

3. Each segment needs a unique R&D plan based upon significance attached to the Positioning (as a
buying criteria). In High, Size and Performance segments, please complete the R&D project on
existing products within the SAME YEAR. Every time a product undergoes R&D, its Age is
reduced by half.

4. In Advance module of marketing, please allocate promo/sales dollar according to the segment.

5. Most teams fumble while making sales forecast. A forecasting error above/below 10% (+ or -) is
bad enough. You neither want to end up having large unsold inventory nor stock out. Therefore,
before making sales forecast please look at production capacity across industry, demand for each
market segment next round and your product positioning vis-à-vis your competitors.

6. Avoid, repeat AVOID: Emergency Loan, Unsold Inventory, Stock Out and Idle Cash

7. Discontinuing a product, you get:

Only 50% of cost of production, for unsold inventories, when entire production capacity is sold.
Full market value of the inventory, when at least one unit of production capacity is retained.
65% of original purchase price when you sell a plant capacity.

8. Depreciation - straight line over 15 years i.e. 6.67% pa

9. TQM is a cost; benefits accrue immediately and stay until round 8.

10. Overtime vs. Automation vs. Buying new capacity, please weigh it over.

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Segment Buying criteria:-

Traditional: customers seek proven products at a modest price

Age, 2 years – importance – 47%
Price, $20-$30 – importance – 23%
Ideal Position, performance 5.0 size 15.0 – importance – 21%
MTBF, 14,000 – 19,000 – importance – 9%

Low: customers seek low prices and well proven products

Price, $15 - $25 – importance – 53%
Age, 7 years – importance – 24%
Ideal Position, performance 1.7 size 18.3 – importance – 16%
MTBF, 12,000 – 17,000 – importance – 7%

High: customers seek cutting edge technology in size/performance and new designs
Ideal Position, performance 8.9 size 11.1 – importance – 43%
Age, 0 years – importance – 29%
MTBF, 20,000 – 25,000 – importance – 19%
Price, $30 - $40 – importance – 9%

Performance: customers seek high reliability and cutting edge performance technology
MTBF, 22,000 – 27,000 – importance – 43%
Ideal Position, performance 9.4 size 16.0 – importance 29%
Price, $25 - $35 – importance – 19%
Age, 1 year – importance – 9%

Size: customers seek cutting edge size technology and younger designs
Ideal position, performance 4.0 size 10.6, importance – 43%
Age, 1.5 years – importance – 29%
MTBF, 16,000 – 21,000 – importance – 19%
Price, $25 - $35 – importance – 9%

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Ideal Spot, Positioning, is dynamic
- Ideal Spot positions mentioned on the next page are at the conclusion of each round i.e. as on 31st Dec.
- You may choose to offer May Ideal spot (inferior product) to come earlier to the market or offer November
Ideal spot (superior product) and come a little later to the market. You want to achieve suitable balance
between product’s Ideal spot and its entry into the market place.
- Ideal spot is the spot where largest number of customers are concentrated.
- Ideal spot ensures that your product is viewed by largest number of customers. Transition from ‘Visibility-
to-Sale’ shall depend upon other attributes of the product i.e. Age, Price, MTBF, Awareness and
Accessibility

Age range is static

Traditional- demand peaks at 2; peak age zone 1.5 to 2.5
Low- demand peaks at 7; peak age zone 6 to 8; min age zone 4 to 9
High- demand peaks at 0; peak age zone 0 to 1
Performance- demand peaks at 1; peak age zone 0.5 to 1.5
Size- demand peaks at 1.5; peak age zone 1 to 2

Price range is dynamic and it falls by $0.50 every year in all segments. You may go up to
$4.99 above the range in case of sellers’ market, where supply runs short on the demand. In a buyers’
market please stay within the price range for that year.

MTBF range is static through the rounds. Please determine MTBF of a product based upon
buying criteria and your strategy in that segment.
--------------------------------------------------------------------------------------------------------------------------------

Annual segment growth rate:

Traditional – 9.2% Low – 11.7% High – 16.2% Performance – 19.8% Size – 18.3%
Industry (all five segments combined) growth rate 14% pa.

Market share:

Segment Market share Round 0 Segment Market share Round 5

Traditional – 32.4% Traditional – 27.5%
Low – 39.3% Low – 37.3%
High – 11.2% High – 12.9%
Performance – 8.4% Performance – 11.3%
Size – 8.7% Size – 11%

Financial Targets:

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 Current by Round 8
Market Share 17% Min 18%
Asset Turnover 1.05 1 - 1.20
Profit $4mil Min $100mil
ROS 4% Min 10%
ROA 4% Min 10%
Stock Price $34/- Min $100/-
Market Cap $69mil Min $200mil
Leverage 2 1.8 to 2.8
Plant Utilization 75% Min 150%
Profit/ Depreciation 0.53 Min 2
Sales/Depreciation 13.5 Min 15
Cash 3% of sales Max 5% of sales
Inventory 9% of sales Max 10% of units sold
EBIT% of sales 12% Min 20%
MarketCap/Sales 0.70 Min 1
Sales/Current Assets 5 Min 5
Labor cost % of sales 28% Max 20%
Stock price / Book value 1.43 Min 3
Contribution margin 28% Min 30%
Debt : Sales 1:2.5 Min 1:5

Above mentioned are minimum targets. A good number of teams do achieve a Cumulative profit (at the
end of round 8) of over $250mil, Stock Price above $250/- etc.

Three requirements of running a great business

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 STRATEGY: It is important that teams make a strategic plan of the business. The market is divided into
five segments. Each segment has customers with unique aspirations. Each segment has different growth
rates. Segments have varying market share in the Industry today. You want to decide on segment focus. In
certain segments more than one product and in some other segment you may not want to be there. Again in
each segment who do you want to be…a cost leader or a differentiator or… An early knowledge on how
eight products are going to be distributed across the segments in round 6 to 8 will be a huge advantage.
Once that is known it will be easier to align various functions of the business. All businesses shall have it.

TOOLS: Having set the strategic part on track, now you want to pick up the tools of doing business. That
would require investments in Automation, Awareness/Accessibility, Product Design, TQM/Training etc.
These are basic requirements of running a business. Most businesses, sooner or later, shall get them.

LAST MILE: Now that the strategy is set, and tools are in place. Business is ready for a marriage to the
market. Here a business interacts with the customer and competition. It will entirely depend upon quality of
intelligence that we extract from the data that comes along year after year. It will involve, inter-alia,
competition analysis, great forecasting, top plant utilization, top price realization and minimum inventory
return. Only winners shall have it.

A complete ORCHESTRA!

                     

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Following are Ideal Spot positions for each round for each segment as on 31st December. You
should be able to calculate Ideal Spot positions for any given DATE. You want to decide which DAY’s Ideal
Spot position your product shall carry when it is launched in the market.

Rounds
Segment Co-ordinates 0 1 2 3 4 5 6 7 8
                     
Traditional Performance 5 5.7 6.4 7.1 7.8 8.5 9.2 9.9 10.6
Size 15 14.3 13.6 12.9 12.2 11.5 10.8 10.1 9.4
                     
Low Performance 1.7 2.2 2.7 3.2 3.7 4.2 4.7 5.2 5.7
Size 18.3 17.8 17.3 16.8 16.3 15.8 15.3 14.8 14.3
                     
High Performance 8.9 9.8 10.7 11.6 12.5 13.4 14.3 15.2 16.1
Size 11.1 10.2 9.3 8.4 7.5 6.6 5.7 4.8 3.9
                     
Performance Performance 9.4 10.4 11.4 12.4 13.4 14.4 15.4 16.4 17.4
Size 16 15.3 14.6 13.9 13.2 12.5 11.8 11.1 10.4
                     
Size Performance 4 4.7 5.4 6.1 6.8 7.5 8.2 8.9 9.6
Size 10.6 9.6 8.6 7.6 6.6 5.6 4.6 3.6 2.6
                     

Automation levels – Recommended for each segment - must happen asap

Traditional – 8, Low – 10, High – 5, Performance - 6, Size - 6

Sales Turnover – Minimum for each Round

1 - $115mil, 2-131mil, 3-150mil, 4-170mil, 5-195mil, 6-221mil, 7-252mil, 8-287mil

Highest Performances so far, at the end of round 8:

Cumulative Profit: over $400 mil, Stock price: over $600/-,

Market Capitalization: over $1bil, Average Market share: over 30%