1. S I M U L A T I O N M A R K E T I N G M G T. University of Alaska-Anchorage * College of Business & Public Policy * Marketing Management Simulation * Course Intro & Overview

2. S I M U L A T I O N M A R K E T I N G M G T. Professor Ed Forrest Telephone: (cell) 854-8784 Email: ejforrest@ uaa.alaska.edu

3. S I M U L A T I O N M A R K E T I N G M G T. Overview: of Course –Organize Companies/ Register w/ Capstone Overview: Market Structure & Demand * Segment Positioning & $Value Overview: Financial Situation Analysis

4. S I M U L A T I O N M A R K E T I N G M G T. Your “study” of business … piece-meal & in isolation!

5. S I M U L A T I O N M A R K E T I N G M G T. Finance Production HR R&D Marketing

6. S I M U L A T I O N M A R K E T I N G M G T. Lecture-Learning

7. S I M U L A T I O N M A R K E T I N G M G T. Learning & Retention 5% 75 + %

8. S I M U L A T I O N M A R K E T I N G M G T.

9. THE CAPSTONE SIMULATION Adopted by major Fortune 500 companiesAdopted by major Fortune 500 companies..General Motors, General Electric, Honeywell, Dell, John Deere, Citibank, Alcoa, BP, Allstate, Samsung, Goldman Sachs, Microsoft… Most widely used Business – Simulation Program in the World

10. S I M U L A T I O N M A R K E T I N G M G T. the ten big ideas Strategic Thinking the ten big ideas Strategic Thinking the ten big ideas Strategic Thinking the ten big ideas Strategic Thinking Simulation proffers you opportunity to experience every key dimension of strategic thinking developed to date:

11. M oderate growth, L ow inflation, A veraged interest rates No outside competitors or product substitutes No economic downturns or other surprises... M oderate growth, L ow inflation, A veraged interest rates No outside competitors or product substitutes No economic downturns or other surprises... Economic Environment

12. Whatever happens will be result of your-tactical execution of strategies… not by external factors! Sim designed this way for one reason:

13. You Da’ Boss … run a $100M business ….

14. Your Product Line: SENSORS:

15. YOUR JOB: Make every decisionMake every decision In every Functional DomainIn every Functional Domain to create, produce & successfully market your products…to create, produce & successfully market your products…

16. S I M U L A T I O N M A R K E T I N G M G T. …success contingent on strategic integration of decisions across all domains:

17. S I M U L A T I O N M A R K E T I N G M G T. You will Compete against other members of this class –running 5 other Corp’s …. AndrewsAndrews BaldwinBaldwin ChesterChester DigbyDigby ErieErie FerrisFerris

18. S I M U L A T I O N M A R K E T I N G M G T....your decisions & performance will be compared against 1000+ other teams competing at other universities… around the world Plus-- You will Compete Against Everyone Else in the World

19. S I M U L A T I O N M A R K E T I N G M G T. & How –to date-- have we fared in this World-Wide Competition??

20. S I M U L A T I O N M A R K E T I N G M G T. Your Industry C65757 was ranked: with 1057 Capstone teams completing round 8 - by Nov 21, 2014 Your Industry C65757 was ranked:  with 1057 Capstone teams  completing round 8  by Nov 21, 2014.  ROE for Round 8 - Mean - - 3.63% Top Ten Active Teams ProfessorSchool/CourseSimidTeamValue 1Peter Hosie Curtin Business School - Main Bentley (Sem 2-2014)C64703Baldwin268.30% 2Edward Forrest University of Alaska- Anchorage - Main Marketing ManagementC65757Ferris252.05% 3James Belohlav DePaul University - Main Management Strategy--EveningC65729Andrews160.99% 4Anne Woolstenhulme Brigham Young University - Main Strategic Management - 002C67336Baldwin156.23% 5Craig Citron Southern Connecticut State University - Main MG450C66602Erie153.28% 6Jason Harkins University of Maine - Main Strategic ManagementC66183Baldwin133.31%

21. S I M U L A T I O N M A R K E T I N G M G T. #1 Fall 2014 Cumulative Profit for Round 8 - Mean - $ 57,143,445 Top Ten Active Teams ProfessorSchool/CourseSimidTeamValue 1Edward Forrest University of Alaska-Anchorage - Main Management SimulationC65883Chester$ 423,479,998 2Montchai Pinitjitsamut Kasetsart University - Main AgStrategy1C63414Erie$ 379,323,878 3Erin Nelson DePaul University - Main GSB 599C66845Erie$ 369,501,687 4Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- CC65322Chester$ 332,453,310 5Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- AC65316Baldwin$ 317,334,112 6Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- CC65324Chester$ 309,297,102 7Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- AC65318Chester$ 290,130,349 8Veer Mehta SCMHRD ExEd - Main SCMHRD ExEdC67080Baldwin$ 287,625,419 9Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- AC65316Ferris$ 269,713,684 10David Brokaw UIndy - Carmel MBA 690 - Strategic Analysis - WednesdayC66529Digby$ 265,975,495 13Edward Forrest University of Alaska-Anchorage - Main Management SimulationC65883Digby$ 253,412,984

22. S I M U L A T I O N M A R K E T I N G M G T. #1 Fall 2014 Profit for Round 8 - Mean - $ 16,856,185 Top Ten Active Teams ProfessorSchool/CourseSimidTeamValue 1Edward Forrest University of Alaska-Anchorage - Main Management SimulationC65883Chester$ 179,894,270 2Montchai Pinitjitsamut Kasetsart University - Main AgStrategy1C63414Erie$ 150,718,034 3Erin Nelson DePaul University - Main GSB 599C66845Erie$ 117,376,727 4Veer Mehta Great Lakes PGPM - Main Great Lakes PGPMC66539Chester$ 102,062,415 5Michael Stoica Washburn University - Main Strategic AnalysisC66272Baldwin$ 100,603,573 6Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- CC65322Chester$ 99,817,375 7Igor Gvozdanovic Zagreb School of Economics and Management - Main Maximizing and Measuring Corporate Value_CAPSTONEC67613Andrews$ 97,578,131 8Veer Mehta IIM Shillong - Main IIM ShillongC61259Chester$ 97,216,158 9Erin Nelson DePaul University - Main GSB 599C66845Chester$ 96,520,602 10Dharam Pal BIMTECH India - Main BIMTECH IndiaC65546Chester$ 95,719,172

23. S I M U L A T I O N M A R K E T I N G M G T. #1 Fall 2014 Stock Price for Round8 - Mean - $ 105.49 Top Ten Active Teams ProfessorSchool/CourseSimidTeamValue 1Edward Forrest University of Alaska-Anchorage - Main Management SimulationC65883Chester$ 407.95 2Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- CC65322Chester$ 372.73 3Al Lovvorn The Citadel - main BADM 740: Fall 2014C65655Andrews$ 320.94 4Montchai Pinitjitsamut Kasetsart University - Main AgStrategy1C63413Andrews$ 317.55 5Jeffrey McGee University of Texas - Main Strategic Management Fall 2014C66078Baldwin$ 307.51 6Veer Mehta Great Lakes PGPM - Main Great Lakes PGPMC66540Chester$ 307.47 7Montchai Pinitjitsamut Kasetsart University - Main AgStrategy1C63413Chester$ 303.80 8Robyn Rodier Melbourne Business School - Main Integrative Business Capstone - FT August 2014C66127Baldwin$ 297.36 9Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- CC65324Chester$ 295.82 10Vasant Sivaraman S.P. Jain Institute of Management and Research - Main Decision Analysis (Business Simulation)- AC65318Chester$ 291.90 13Edward Forrest University of Alaska-Anchorage - Main Management SimulationC65883Digby$ 280.96

24. S I M U L A T I O N M A R K E T I N G M G T. OVERALL “Top 10” RECORD : Spring : 2001- 5 th Profit Spring : 2003- 9 th Cum Profit Fall : 2005- 1 st Profit Spring : 2006 - 5 th Cum Profit & 8 th Profit Spring : 2007- 3 rd Profit Fall : 2009- 1 st Cum Profit & Stock Price Spring : 2010- 9 th Asset Turnover; 1 st, 6 th & 8 th ROE Fall : 2010- 6 th Cum Profit Spring : 2011- 3 rd & 9 th ROE; 8 th ROS; 9 th Cum Profit Fall : 2013- 4 in & # 10 in profit #5 in Stock Price #6 in ROE #3 & #7 in ROA #8 in Asset Turnover

25. S I M U L A T I O N M A R K E T I N G M G T.

26. S I M U L A T I O N M A N A G E M E N T You are now the C aptain…... How’s your Company doing?

27. The Big Picture C ompanyC ompany C onsumersC onsumers C ompetitorsC ompetitors C onditionsC onditions PEST PEST Growth & Competitive Strategies Finance HR Production R&D Marketing Functional Integration  Profits  Mrkt Share  ROA  ROS  ROE  Asset T/O  Stock  Mrkt Cap Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment

28. 1 st Organize Companies Register @ http://ww2.capsim.com/login/

29. S I M U L A T I O N M A R K E T I N G M G T. 7. Corporate culture & 8. Leadership craft... Leaders responsible for assuring strategy links values & vision... Strategic ThinkingStrategic Thinking- the ten big ideas Strategic Thinking Strategic ThinkingStrategic Thinking- the ten big ideas Strategic Thinking Prof Thomas/ Penn St. able to predict final standings w/in 1 place 90% of time –after observing initial group interaction...

30. S I M U L A T I O N M A R K E T I N G M G T. Overview: of Course –Organize Companies/ Register w/ Capstone Overview: Market Structure & Demand * Segment Positioning & $Value Overview: Financial Situation Analysis

31. Strategic Plan Answers 3 Critical Q’s: 1.Where are we now? 2.Where do we want to go 3.How do we get there? = Situation Analysis

32. proven sensors w/ current tech Big, old & cheap cutting-edge in both size & performance high-reliability & performance advanced sensors w/ focus on small size Market Segments: Market Segments:

33. Consumer Buying Criteria

34. 5 SEGMENTS

35. DEMAND ANALYSIS: How Many Sensors / Segment want to buy across next 8 years : Multiply the Round 0 demand by the growth rate and add the result to the Round 0 demand. This will give you a close approximation of Round 1 demand. Copy this number into the Demand cell for Round 1. If you prefer, you can use the following shortcut. For example, assume the Traditional growth rate is 9.2%. Convert the percentage to a decimal (9.2% = 0.092) and add 1 to it (1.092). Multiply the Round 0 Traditional demand by 1.092 then round to the nearest whole number. This will give you a close approximation of Total Industry Demand for Round 1.

36. SENSOR INDUSTRY ONGOING GROWTH..the entire market growing at around 14 - 15% per year.

37. S I M U L A T I O N M A R K E T I N G M G T. Complete Demand Analysis @ CapSim Intro | Perceptual Map 1 | Perceptual Map 2 | Demand Analysis | Capacity Analysis | Margin Analysis | Consumer Report

38. Cheaper too-$.50 drop in price/year Drift Demo Cheaper too-$.50 drop in price/year

39. Intro | Perceptual Map 1 | Perceptual Map 2 | Demand Analysis | Capacity Analysis | Margin Analysis | Consumer Report Calculate each Segment's IDEAL SPOT LOCATION -- rounds 1 thru 8 ( @ Getting Started/ Complete Online Situation Analysis/ Perceptual Map 2) MARKET SEGMENT DYNAMICS

40. Herein- is an example of relative dollar value of each segment at present (year 0) and 5 years out. MARKET SEGMENT VALUE

42. S I M U L A T I O N M A R K E T I N G M G T. Overview: of Course –Organize Companies/ Register w/ Capstone Overview: Market Structure & Demand * Segment Positioning & $Value Overview: Financial Situation Analysis

43. M A N A G E M E N T S I M U L A T I O N

44. M A N A G E M E N T S I M U L A T I O N Ascertain Financial Health of Your Company

45. M A N A G E M E N T S I M U L A T I O N Key Financial Q’s: 1.Are You Making Enough Profit ? 2.Liquidity ? Enough Money on hand to run/grow your co. 3.Leverage? ideally proportioned betw. Debt & Equity? 4.How effectively are you utilizing your assets? A/T 5.R U providing your investors an Adequate Level of Return? 6.How close are you to Bankruptcy? 7.How’s those Bond Ratings ? 8.Do you have Adequate Levels of Investment in your Company's Plant, People & Processes ?

46. NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million CUM PROFIT General Range: $20 to $100 M CUM PROFIT General Range: $20 to $100 M

47. M A N A G E M E N T S I M U L A T I O N

48. Various Measures of Your PROFITABILITY Profitability Ratios: ROS --- Profit/ Sales ROA — Profit/ Assets ROE – Profit/ Equity  Net Profits  Cum Profits

49. M A N A G E M E N T S I M U L A T I O N

50. Return on Equity = net profit equity Profitability * Asset Mgt * Leverage As measured by ROE Encompasses the 3 main levers used by mgt to generate return on investors equity

51. Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx Value Chain

52. Du Pont Formula Return on Equity = net profit equity salessalesassetsassetsequity xxxx Value Chain

53. Ratio World Class Top 10 cut MeanPoor ROE* 600%+100%+ ~20%<15%

54. Return on Equity = net profit equity Profitability * Asset Mgt * Leverage As measured by ROE Encompasses the 3 main levers used by mgt to generate return on investors equity

55. net profit salessalesassetsassetsequityxxxx Value Chain Profitability * Asset Mgt * Leverage Improve ROE by: Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

56. M A N A G E M E N T S I M U L A T I O N

57. ……. below 30%, Problem = Marketing (customers hate your products) Production (your labor & material costs too high), &or Pricing (you cut price too much). Contribution Margin IF: Contribution Margin (Sales- variable costs) / sales

58. Contribution Margin is above 30%…but Net Margin is below 20% … Contribution Margin is above 30%… but Net Margin is below 20% … Net Margin = Sales - (Variable Costs + Period (Fixed) Costs) / Sales Problem = heavy expenditures on Depreciation (perhaps you have idle plant) & or heavy expenditures on SGA (perhaps you’re pushing into diminishing returns on Promo & Sales Budgets). IF:

59. Net Margin above 20%, ROS (net profit) below 5%.. -- Net Margin above 20%, but ROS (net profit) below 5%.. -- you either experienced some extraordinary "Other" expense like a write-off on plant you sold or you are paying too much Interest (…you may also have spent heavily on TQM initiatives ). IF:

60. 7-17%

61. net profit salessalesassetsassetsequityxxxx Value Chain Profitability * Asset Mgt * Leverage Improve ROE by: Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

62. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

64. Asset Turnover Reveals how effective assets are at generating sales revenue. The higher the better = more efficient use of assets Asset Turnover = sales assets sales assets Currently you are generating $1.05 in sales for every $1 assets

65. net profit salessalesassetsassetsequityxxxx Value Chain Profitability * Asset Mgt * Leverage Improve ROE by: Increase sales &/or reduce &/or eff. work assets Improving Margins Increasing Leverage

66. M A N A G E M E N T S I M U L A T I O N

67. Assets/Equity – simulation takes owner's perspective. A Leverage of 3.0 says, "For every $3 of Assets there is $1 of Equity Leverage Assets Debt Equity 1.0 $1 $0 $1 2.0 $2 $1 3.0 $3 $2 $1 4.0 $4 $3 $1 LEVERAGE: 1.8to2.8 Optimal Corp assets fin.w/ debt

68. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

69. How effective will you be in building your Co’s asset base? At outset should be spending ~$10-25M / round on plant improvement By end should expand asset base to min $140M to $160M +

70. How effective/aggressive R-U in building your Co’s asset base… It takes $$ to Make $$ &-why not make it using somebody else's…. To help you make even more…

71. AAA/AA/A/BBB/ … BB & beyond is Junk… B/CCC /CC/C/D = default As your debt-to-assets ratio increases… Your short term interest rate increases… For each additional.5% increase in interest -You drop one category The More Assets you have the better your Bond Ratings

72. Page 3

73. Stock Price Profit$

74. STOCK PRICE Function of: 1. Earnings per Share Net Profit / # Shares 2. Book Value Equity / # Shares 3. Dividend Policy Good Dividend Policy Good Dividend Policy

75. S I M U L A T I O N M A N A G E M E N T Questions ?