1. CapSim Simulation Introduction
Diane M. Sullivan, Ph.D., 2014
Some Sections Modified from Management Simulations, Inc.
Some Sections Modified from Gentner (2008)

2. 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

3. 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

4. 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.”

5. Welcome to your New Company! Teams, Segments & Products
You have been assigned the following industry:
C61431
There are 6 teams in the industry—4 student teams, 2 computer teams:
Traditional
Low End
High End
Performance
Size
Andrews
Baldwin
Chester
Digby
Erie
Ferris
Each industry includes five product segments:
Able
Baker
Cake
Daze
Eat
Fast
Acre
Bead
Cedar
Dell
Ebb
Feat
Adam
Bid
Cid
Dixie
Echo
Fist
Aft
Bold
Coat
Dot
Edge
Foam
Agape
Buddy
Cure
Dune
Egg
Fume
30 initial products in the industry
You are in competition with the other 5 teams in your industry

6. 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?
Think of Cell Phones

7. 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
Thus, the Threat of New Entrants is extremely low/nonexistent!
Highly competitive – 6 identically endowed teams with no one being given an initial advantage
Thus, the Intensity of Rivalry is very high!
Somewhat turbulent – the market demands more every year (better performance, lower costs)
Thus, the Power of Buyers/Customers is very high!
There are multiple “sub-markets” or segments that exist within the industry

8. 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:
Performance: customer perceptions of how well the product performs
Size: the product's dimensions and weight
Reliability: expressed as Mean Time Before Failure (MTBF)
Price: price of product
Age: age of product
In each segment, the relative importance of these criteria are different
Positioning

9. The Market Segments: Buying Criteria Importance
Traditional Importance:
Age 47%
Price 23%
Positioning 21%
MTBF 9%
Low-end Importance:
Price 53%
Age 24%
Positioning 16%
MTBF 7%
High-end Importance:
Positioning 43%
Age 29%
MTBF 19%
Price 9%
Performance Importance:
MTBF 43%
Positioning 29%
Price 19%
Age 9%
Size Importance:
Positioning 43%
Age 29%
MTBF 19%
Price 9%

10. The Segments & The Perceptual Map
Rough Cut
Fine Cut
Positioning
Just beyond fine cut, appeal drops 1%
½ way between fine and rough cuts appeal drops 50%
Just inside rough cut, appeal drops 99%

11. Fine Cut Criteria Changes Over Rounds Example: Traditional Segment
Important Points to Remember:
Price ranges decline $0.50 in each round
Positioning ideal spots change each round and are segment specific
Age preferences always remain constant
MTBF ranges always remain constant
Growth rates always remains constant

12. The Perceptual Map: Segment Drift and Ideal Spots

13. Selling Your Products: Visualizing the Rough & Fine Cut

14. Company Functional Areas You Will Manage
R & D:
Revise product attributes
Positioning (size and performance)
Reliability
Age
Introduce new products
Production:
Add capacity
Automation
Labor costs
Inventory costs
Marketing:
Set prices
Set spending on promotions (Awareness)
Set spending on sales force (Accessibility)
Finance:
Issue and retire stocks and bonds
Set credit policies
Dividend policy
Manage cash flow

15. The two most important, critical decisions you can make
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.
Articulate, and define a coherent strategy
Coherence means individual decisions (e.g. finance and marketing) reinforce the overall strategy

16. There are 3-6 distinct strategies that work very well in this class
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

17. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Focused Differen-
tiation
Differen-
Focused Low Cost
Cost
Leadership
Broad
Target
Market
Narrow
Breadth of Competitive Scope

18. 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

19. Points to Consider for Your Strategy
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%
It takes time and maintenance to build a solid product offering. Try to get the maximum benefit from R&D.
Invest routinely in awareness and accessibility.
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!

20. Practice Rounds Suggested activities in practice rounds:
Close at least one product
Launch at least one product
Goals for Practice Rounds:
Achieve 30% contribution margin
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 dates indicated in the itinerary

21. Next Step…
Go to it!!