WELCOME TO CAPSTONE ® BUSINESS SIMULATION

Professor Jeffrey E. McGee Professor Jeffrey E. McGee The University of Texas at Arlington

Demonstrate effectiveness of multi-discipline teams working together.Demonstrate effectiveness of multi-discipline teams working together. Use strategic thinking to an advantage.Use strategic thinking to an advantage. Test your business acumen.Test your business acumen. Understand overall interaction and impact of various parts of a business on one another.Understand overall interaction and impact of various parts of a business on one another. Grow an awareness of competition.Grow an awareness of competition. Take away practical know-how to improve the effectiveness of your business.Take away practical know-how to improve the effectiveness of your business. Demonstrate effectiveness of multi-discipline teams working together.Demonstrate effectiveness of multi-discipline teams working together. Use strategic thinking to an advantage.Use strategic thinking to an advantage. Test your business acumen.Test your business acumen. Understand overall interaction and impact of various parts of a business on one another.Understand overall interaction and impact of various parts of a business on one another. Grow an awareness of competition.Grow an awareness of competition. Take away practical know-how to improve the effectiveness of your business.Take away practical know-how to improve the effectiveness of your business. Objectives

Why 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

SENSOR INDUSTRY OVERVIEW SENSOR INDUSTRY OVERVIEW

The Marketplace Customers (OEMs) need sensors for their products Initially one segment, now breaking into five Very different customer demands developing between the segments Diversification in the use and utility of the sensors

The Marketplace 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 Market Segments will continue to diverge Low Tech Traditional High Tech Performance Size

Low Tech & Traditional Customers “I want these sensors to be cheap” “I want them to have been around for a while – no Beta Testing!” “The technology doesn’t have to be cutting edge.” “They have to be moderately reliable.” You’re not giving me what I want

High Tech, Size & Performance Customers “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 like a pretty high reliability.” “I’ll pay more to get what I want.” And I’m not getting what I want!

SENSOR INDUSTRY ANALYST PROJECT ONGOING GROWTH Sees 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 16%.” I hope those companies out there are ready for that kind of expansion!”

COMPANY OVERVIEW COMPANY OVERVIEW

SEC ANNOUNCES BREAKUP OF MONOPLOY FOR IMMEDIATE RELEASE Mary L. Schapiro, Chair of the SEC, took dramatic action today by breaking up the monolithic corporation Sensors, Inc. In a statement to the press Chairman Schapiro 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 Competition 6 Companies $100 Million in Sales 5 Product Lines Closed Marketplace ANDREWS BALDWIN CHESTER DIGBY ERIE FERRIS

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 1 st. I expect to see great things from this Executive Team!

WELCOME TO YOUR NEW COMPANY!

Functional Areas R&DR&D MarketingMarketing ProductionProduction FinanceFinance

Research & 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 products are not well positioned in the marketplace.”

Marketing 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 products are not priced optimally. And many of our customers don’t even know our 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 Production “We are paying too much for labor costs. Very soon we will run out of capacity to 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 Finance “We have poor cash flow and substandard financial ratios. We have no financial policy statement.”

Balance Sheet Profit & Loss Cash Flow Financial Ratios Balance Sheet Profit & Loss Cash Flow Financial Ratios Proformas A great management tool driven by forecasts and projections. Allows “What if” Scenarios by the company.

Scoring the Game Performance criteria is measured by: –ROE –ROS –ROA –CUM PROFIT –STOCK PRICE –MARKET CAPITALIZATION –ASSET TURNOVER –MARKET SHARE –Each reflects 12% except Market Capitalization which reflects 16% of overall performance Performance criteria is measured by: –ROE –ROS –ROA –CUM PROFIT –STOCK PRICE –MARKET CAPITALIZATION –ASSET TURNOVER –MARKET SHARE –Each reflects 12% except Market Capitalization which reflects 16% of overall performance

RUNNING YOUR COMPANY THINGS 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 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 Strategies Competitive Advantage Competitive Scope CostUniqueness Broad target Narrow target Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Integrated Cost Leadership/Differentiation

STUCK IN THE MIDDLE MY FIRM HAS A COMPETITIVE ADVANTAGE MY FIRM HAS A COMPETITIVE ADVANTAGE No Clearly Defined Strategy…

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) STRATEGY Mission Statement PERFORMANCEASSESSMENT Success Measurements Analyst Report Round Analysis - Star Summary INDUSTRY AND MARKET ANALYSIS S.W.O.T Analysis Competitor Analysis Competitive Analysis FUNCTIONAL PLANNING R&DMarketingProductionHRFinanceTQM

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

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.

Comp-XM ® ‏After competing in the Capstone ® Business Simulation game, each student will be required to complete Comp- XM ® individually. ‏This exercise entails participating in an additional four similar, yet different rounds (years) of another simulation. After each simulated year, you will complete a short quiz, called a “Board Query,” that contains questions tailored to your specific situation. ‏Although every student in the course will use the same software, the environment, rules and competitive environment change. Consequently, each examination is unique, because each student is tested on the decisions and results in his/her own company — decisions and results that will be different from those of any other company.

Comp-XM ® ‏The Comp-XM ® industry has four market segments. Each individual participant is the sole decision maker for the Andrews company. Andrews competes against three computer companies, Baldwin, Chester and Digby. ‏The Comp-XM ® simulation runs four rounds. ‏Simulation performance is judged using a Balanced Scorecard. Each round, a score is generated based on performance measures in these categories: ‏ Financial ‏ Internal Business Process ‏ Customer ‏ Learning and Growth ‏At the end of Round 4, a fifth score is generated using a different set of measures that evaluate the cumulative performance for Rounds 1-4.

Good Luck and Enjoy!