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CapSim Simulation Introduction

Diane M. Sullivan, Ph.D., 2011

Some Sections Modified from Management Simulations, Inc.


Some Sections Modified from Gentner (2008)
What is CapSim and why do we use it in MGT490?

• Strategy essentially deals with making long-term decisions

– Decisions involve multiple functional areas of the firm

– Decisions have long-term effects on the firm’s profitability

• CapSim allows us to practice making strategic decisions in


a risk free environment—a simulation/game
More CapSim Background…
• The simulation is used by companies worldwide to train managers and executives
• You and your teammates are the executives of CapSim: a $100 million sensor
manufacturer.
• Your roles in the company are:
– To formulate, articulate, and execute a strategy
– To organize your team to support your strategy
– To make coherent, functional decisions reinforcing your strategy
• Each round is the equivalent of one year in the life of the firm
• All teams start with identical positions
• We start with 4 practice rounds
• 8 “real” rounds follow the practice rounds
CapSim Context
SEC ANNOUNCES BREAKUP OF MONOPLOY
FOR IMMEDIATE RELEASE

The SEC, took dramatic action today by breaking up the


monolithic corporation Sensors, Inc.

In a statement to the press, the SEC outlined the reason and the
outcome of this move.

“We cannot allow monopolies of this sort to impact an entire


industry! 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.”
Welcome to your New Company!
Teams, Segments & Products

You have been assigned to the following industry: C41375


There are 6 teams in the industry:

Andrews Baldwin Chester Digby Erie Ferris


Each Traditional Able Baker Cake Daze Eat Fast
industry
Low End Acre Bead Cedar Dell Ebb Feat
includes
five High End Adam Bid Cid Dixie Echo Fist

product Performance Aft Bold Coat Dot Edge Foam

segments: Size Agape Buddy Cure Dune Egg Fume

30 initial products in the industry


You are in competition with the other 5 teams in your industry
The Basics: Sensors

• What’s a sensor?
– A device that receives an input and relays information or takes
an action
• Example: a thermometer or a thermostat
– How many types of thermometers can you think of?
– What applications may they be used for?
– Along what characteristics do they differ?
The Sensor Industry

• CapSim’s “sensor” market is similar to microprocessors:


– High growth industry (9-20% annually in different segments)

– Barriers to entry – 6 firms in a market, never any new entrants to the game

– Highly competitive – 6 identically endowed teams with no one being given


an initial advantage

– Somewhat turbulent – the market demands more every year (better


performance, lower costs)

– There are multiple “sub-markets” or segments that exist within the industry
The Market Segments

• 5 “sub-markets” or segments in the sensor industry


– Traditional, low-end, high-end, size, and performance
– Customers have different buying criteria relative to:
1. Performance: customer perceptions of how well the product performs
Positioning
2. Size: the product's dimensions and weight
3. Reliability: expressed as Mean Time Between Failure (MTBF)
4. Price: price of product
5. Age: age of product
– In each segment, the relative importance of these criteria are
different
The Market Segments: Buying Criteria Importance

• Traditional Importance: • Performance Importance:


1. Age 47% 1. MTBF 43%
2. Price 23% 2. Positioning 29%
3. Positioning 21% 3. Price 19%
4. MTBF 9% 4. Age 9%
• Low-end Importance:
1. Price 53% • Size Importance:
2. Age 24% 1. Positioning 43%
3. Positioning 16% 2. Age 29%
4. MTBF 7% 3. MTBF 19%
• High-end Importance: 4. Price 9%
1. Positioning 43%
2. Age 29%
3. MTBF 19%
4. Price 9%
The Segments & The Perceptual Map

Positioning

• Just beyond fine cut,


Rough Cut appeal drops 1%

Fine Cut • ½ way between fine and


rough cuts appeal drops
50%

• Just inside rough cut,


appeal drops 99%
Fine Cut Criteria Changes Over Rounds Example:
Traditional Segment

 Round 1

Important Points to Remember:


• Price ranges decline $0.50 in each round
• Positioning ideal spots change each round and
are segment specific (see pp. 27-29 of student
guide)
• Age preferences always remain constant
• MTBF ranges always remain constant
• Growth rates always remains constant
Round 8 
The Perceptual Map: Segment Drift and Ideal Spots
Selling Your Products:
Visualizing the Rough & Fine Cut
Company Functional Areas You Will Manage

• R & D: • Marketing:
– Revise product attributes – Set prices
• Positioning (size and performance) – Set spending on promotions
• Reliability (Awareness)
• Age – Set spending on sales force
– Introduce new products (Accessibility)

• Production: • Finance:
– Add capacity – Issue and retire stocks and bonds

– Automation – Set credit policies

– Labor costs – Dividend policy

– Inventory costs – Manage cash flow


The two most important, critical decisions you can make

1. Properly organize your team, creating accountabilities


and reporting assignments
• Suggestion 1: Organize your team by creating product or
segment managers,
then
• Suggestion 2: Elect a CEO who is responsible for the overall
direction of the organization (e.g., strategic coherence),
ensuring uploads are complete, etc.
2. Articulate, and define a coherent strategy
• Coherent means individual decisions (e.g. finance and
marketing) reinforce the overall strategy
Generic Strategies

• There are 3-6 distinct strategies that work very


well in this class
– Be sure to look through your CapSim tutorials and
handbooks for help with this
• You should choose performance measurements
that align with each of the strategies
• Each strategy requires giving up something
(Porter’s “tradeoffs”)
– You can’t make one product that meets everyone’s
needs
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness

Broad Cost Differen-


Target Leadership
Market tiation
Breadth of
Competitive
Scope
Focused
Narrow Focused
Target Differen-
Market Low Cost
tiation
Performance Criteria: Your Team Must Determine

• Success Measures / Metrics


– Average Stock price (min 20% of criteria)
– Cumulative Profits (min 20% of criteria)
– Average Market Share
– Average Return on:
• Sales
• Equity
• Assets
– Average Asset Turnover
• Suggestion – not more than 4 metrics total
Points to Consider for Your Strategy

1. Strive to give your customers the top two buying criteria. Sacrifice
what customers do not care about to give them what they want.
• Example: Low-end customers value Price 53%, Age 24%, Positioning
16% and MTBF 7%

2. It takes time and maintenance to build a solid product offering. Try to


get the maximum benefit from R&D.

3. Invest routinely in awareness and accessibility.

4. It does not matter how good your product is if you stock out. A good
product must be backed by production capacity to supply the demand
it generates. But, excess inventory can be a killer!
Practice Rounds

• Suggested activities in practice rounds:


– Close at least one product
– Launch at least one product
– Reposition one product to a different segment
• Goals for Practice Rounds:
– Achieve 30% gross margin
– Get one emergency loan (round 3 or 4)
– Maintain positive cash flow
– Raise stock price by year 4
– Score #1 on at least one of your metrics

• Rounds process at 7:00pm on the dates indicate in the itinerary


Next Step…

• Go to it!!