Introduction An overview of the Capstone® Simulation Unforgettable Business Learning Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

School: Auburn University Professor: Adams Class: MNGT 4800 Sections: 7-12 Unforgettable Business Learning Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

View Alternative Strategies Why Simulate? View Alternative Strategies Risk-Free Compresses Time (1 Round=1Year) Enjoyable Selectivity vs Integration © 2012 Capsim Management Simulations, Inc.

Objectives of the Capstone Simulation Demonstrate effectiveness of multi-discipline teams working together. Use strategic thinking. Test your business acumen. Understand overall interaction and impact of various parts of a business on one another. Grow the awareness of competition. Take away practical skills in business management. © 2012 Capsim Management Simulations, Inc.

Industry Overview Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

The Story: Background on Your Company FTC required Sensors Inc. to be broken up into separate companies: Andrews Baldwin Chester Digby Erie Ferris Started as a single corporation named Sensors, Inc. Sold sensors as main product Corporation was shut down by FTC due to monopolistic operations Your job: Operate one of the companies and make it successful. © 2012 Capsim Management Simulations, Inc.

Markets Defined By Segments Performance – 8.4% to 11% Low End – 39% to 37% Traditional – 32% to 28% Size – 8.7% to 11% High End – 11.2% to 13% Percentage in dollars ($), change over 5 years

The Start When Sensor Inc. breaks up, each of the new companies starts off with the following scenario: $100 Million in Sales 5 Product Lines Closed Marketplace 5 Market Segments © 2012 Capsim Management Simulations, Inc.

Sensors: An Overview of Your Company’s Product Customers (OEMs) need sensors for their products to function. Used for diverse applications Low End Traditional High End Performance Size Five clear market segments Customer demands vary between the five segments. © 2012 Capsim Management Simulations, Inc.

The Marketplace: A Look Into The Segments Perceptual map used to track changing consumer demands in size and performance Each year, consumers will expect faster (higher performance) and smaller products (lower size) This causes the segment circles to drift to the lower right constantly Market segments continue to diverge over time *Note the drift towards the lower right(expectations of faster and smaller products). Also note the divergence of the segments. Round 1 Consumer Segment Expectations Round 8 Consumer Segment Expectations © 2012 Capsim Management Simulations, Inc.

Customers Go Through a Two-Stage Purchase Decision Process Stage 1 - Match Product to Market 1. Product must be positioned within the segment (performance & size). Able Size Performance 2. Product must fall within price guidelines. Price Segments 3. Product must fall within reliability guidelines Reli-ability © 2011 Capsim Management Simulations, Inc. 8.23.11

Two-Stage Purchase Decision Stage 2 - Rank Best Product Reliability 1. Positioning 2. Age 3. Reliability 4. Price Position Ideal Spot AB 1 Age Price 20000 25000 HIGH END $30 $40 © 2011 Capsim Management Simulations, Inc. 8.23.11

Product Ranking Criteria by Market Segment Traditional Segment Low End Segment High End Segment Performance Segment Size Segment 1 - Age 2 - Price 3 - Position 4 -Reliability 1 - Price 2 - Age 3 - Position 4 - Reliability 1 - Position 2 - Age 3 - Reliability 4 - Price 1 - Reliability 2 - Position 3 - Price 4 - Age 1 - Position 2 - Age 3 - Reliability 4 - Price Listed in order of importance for each market segment. © 2011 Capsim Management Simulations, Inc. 8.23.11

Low End Consumer Characteristics What the customers say Ideal Age: 7 years Ideal MTBF: 12000-17000 Prefer less cutting edge products (Bigger Size & Low Performance) Price sensitive. Prefer price to be lowest possible. Price Positioning Age Reliability I want to spend as little money as possible! I want them to have been around for a while…no beta testing! They have to be moderately reliable…but not enough to drive up the price! The technology doesn’t have to be cutting edge. © 2012 Capsim Management Simulations, Inc.

Traditional Consumer Characteristics What the customers say Ideal Age: 2 years Ideal MTBF: 14000-19000 “Average” Performance and Size Price sensitive, but willing to spend more than Low End consumers Price Positioning Age Reliability I want these sensors to be moderately cheap. I want them to have been around for a while…no beta testing! They have to be moderately reliable…but not enough to drive up the price! I want good sensors… not cutting edge, but reliable. © 2012 Capsim Management Simulations, Inc.

High End Consumer Characteristics What the customers say Ideal Age: 0 years Ideal MTBF: 20000-25000 High Performance and Small Size Not price sensitive, willing to pay highest prices. Price Positioning Age Reliability Price is not an issue. I want the best sensors in the market! I want the newest sensors you have! Only the most cutting edge products will satisfy me! We need the total package. High performance and miniaturized for our products. © 2012 Capsim Management Simulations, Inc.

Performance Consumer Characteristics What the customers say Ideal Age: 1 year Ideal MTBF: 22000-27000 Highest Performance and Less important Size Not price sensitive, willing to pay moderately high prices Price Positioning Age Reliability I am willing to pay for what I need. I want them to have been around for a while…no beta testing! Reliability and Performance are very important and must be high. I prefer newer technology! © 2012 Capsim Management Simulations, Inc.

Size Consumer Characteristics What the customers say Ideal Age: 1.5 years old Ideal MTBF: 16000-21000 Average Performance but Maximum Miniaturization Not price sensitive, willing to pay moderately high prices Price Positioning Age Reliability I am willing to pay for what I need. I want them to have been around for a while…no beta testing! They must be miniature to fit our technology I prefer newer technology! © 2012 Capsim Management Simulations, Inc.

Segment Growth According to a Market Analyst, there will be continuous growth in the sensor market. I see the entire market growing at around 14% or 15% per year. The high tech market alone will be growing at 16%. Your goal: Prepare your company’s products to meet the needs of the growing market. Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

The Decision Making Process Unforgettable Business Learning Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

R&D Decision Areas Marketing Production Finance Coordinate strategy and tactics across the following areas of the company: R&D Marketing Production Finance Additional Modules HR TQM Labor Negotiations Advanced Marketing © 2012 Capsim Management Simulations, Inc.

R&D Ensure the perceived age of the product meets customer demands Build the quality and reliability (MTBF) of the products Invent new products to address the changing marketplace and take advantage of new opportunities Determine the specifications of the products to meet customer expectations © 2012 Capsim Management Simulations, Inc.

Marketing Set the price for each product Build customer awareness through investing in promotion Establish a sales force and distribution channels Set the sales forecast for each product Set Credit Policies (A/R and A/P) © 2012 Capsim Management Simulations, Inc.

Production Purchase machinery to automate production facilities Buy or sell capacity on product lines Set production schedule Manage the majority of the company’s fixed assets Staff your facility with workers © 2012 Capsim Management Simulations, Inc.

Finance Acquire capital to fund growth and operations Issue Stock Issue dividends to shareholders Short-Term Debt Issue Long-Term Bonds Balance debt portfolio Manage Proformas © 2012 Capsim Management Simulations, Inc.

Proformas: A Look Into the Future Proformas use decisions made in the current year to project company performance for the next year Analyzing them is critical for company success The following proformas are available: Balance Sheet Income Statement Cash Flow Statement Financial Ratios Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.

Scoring Methods Unforgettable Business Learning © 2011 Capsim Management Simulations, Inc.

Success Measures Success Measures In the real world, companies have different goals. Using the same success measures, YOU get to choose the parameters on which your company is measured. Some of the Criteria that are used: Cumulative Profits Average Market Share Average ROS (Return on Sales) Average Asset Turnover Average ROA (Return on Assets) Average ROE (Return on Equity) Ending Stock Price Ending Market Cap You or the professor choose the percentage weighting for each selection. © 2012 Capsim Management Simulations, Inc.

Things to do each year (each round) 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 decisions and confirm on the website Await results when Professor processes Rejoice in your superior business acumen Begin the process again by confirming alignment of your results with your company’s strategic goal. Unforgettable Business Learning Unforgettable Business Learning © 2012 Capsim Management Simulations, Inc.