1. WELCOME TO CAPSTONE BUSINESS SIMULATION

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

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

4. Why Simulate Risk Free View Alternative Strategies Enjoyable
Compresses Time (1 Round=1Year)
Selectivity <> Integration

5. SENSOR
INDUSTRY
OVERVIEW

6. The Marketplace Customers (OEMs) need sensors for their products
Low Tech
Initially one segment, now breaking into two
Very different customer demands between the two segments
High Tech
Diversification in the use and utility of the sensors

7. The Marketplace
In our industry we track the changing customer demand on a perceptual map
Low
Tech
High
Tech
Over 8 years the customers will demand much faster and smaller sensors
Market Segments will continue to diverge

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

9. And I’m not getting what I want!
High Tech Customers
And I’m not getting what I want!
“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’ll pay more to get what I want.”
“I like a pretty high reliability, but it’s not that important.”

10. 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 20%.”
I hope those companies out there are ready for that kind of expansion!”

11. COMPANY
OVERVIEW

12. SEC ANNOUNCES BREAKUP OF MONOPLOY
FOR IMMEDIATE RELEASE
Christopher Cox, Chairman of the SEC, took dramatic action today by breaking up the monolithic corporation Sensors, Inc.
In a statement to the press Chairman Donaldson 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.”

13. The Competition 6 Companies $40 Million in Sales 1 Product Lines
ANDREWS
DIGBY
6 Companies
$40 Million in Sales
BALDWIN
ERIE
1 Product Lines
Closed Marketplace
CHESTER
FERRIS

14. 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 1st. I expect to see great things from this Executive Team!

15. WELCOME TO YOUR NEW COMPANY!

16. Functional Areas
Production
R&D
Finance
Marketing

17. 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
“Our products
are not well
positioned in
the marketplace.”

18. are not priced optimally.
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
“Our products
are not priced optimally.
And many of our
customers don’t
even know our
product exists.”

19. “We are paying too much for labor costs. will run out of capacity to
Production
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
“We are paying too much for labor costs.
Very soon we
will run out of capacity to
meet demand.”

20. Finance 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
“We have poor cash flow and
substandard financial ratios.
We have no financial policy statement.”

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

22. Scoring the Game Select a minimum of two criteria to be measured by:
ROE
ROS
ROA
CUM PROFIT
STOCK PRICE
MARKET CAPITALIZATION
ASSET TURNOVER
MARKET SHARE
Weight each selection.

23. RUNNING YOUR COMPANY
THINGS TO DO ON AN ANNUAL BASIS

24. To Do List 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.

25. 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

26. Five Generic Strategies
Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differentiation
Broad target
Integrated Cost
Leadership/
Differentiation
Competitive Scope
Five Generic Strategies
Business-Level Strategy (p. 141)
Firms choose from among five business-level strategies (see Figure 5.1 in the text) to establish
and defend their desired strategic position against rivals:
• Cost leadership
• Differentiation
• Focused cost leadership
• Focused differentiation
• Integrated cost leadership/differentiation
Examples of cost leadership and differentiation strategies are discussed on later slides.
Narrow target
Focused Cost Leadership
Focused Differentiation

27. No Clearly Defined Strategy…
MY FIRM HAS
A COMPETITIVE
ADVANTAGE
MY FIRM HAS
A COMPETITIVE
ADVANTAGE
STUCK
IN THE
MIDDLE 14

28. Strategy From where in the organization strategy should emerge?
Michael Porter argues for a top-down view. Strategy is designed at the top of the organization, with the goal of positioning resources and building relationships in a unique way.
Eric Banabeau says strategy should emerge from the bottom-up in a sort of dance with the marketplace, and that the goal of strategy should be to apply simple rules.

29. 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
INDUSTRY AND MARKET
ANALYSIS
S.W.O.T Analysis
Competitor Analysis
Competitive Analysis
PERFORMANCE
ASSESSMENT
Success Measurements
Analyst Report
Round Analysis - Star
Summary
FUNCTIONAL PLANNING
R&D
Marketing
Production HR
Finance
TQM

30. Porter Curve ROI Market Share High Low High
Extensive coverage on Porter’s theories of competitive advantage are easily located on the internet.
Those theories in a Capstone® context are explained in a tutorial on the website.
Low
High
Market Share

31. Porter Curve ROI Market Share High Low High
Firms with High ROI / Low Overall Market Share would likely have a clearly defined focused strategy
High Overall Market Share / High ROI firms would likely have a strong position in all segments –risky, but effective when executed properly
High
Market Share
Low
High

32. Porter Curve ROI Market Share High Low High
Firms in the middle have a less definable identity, and a hard time competing. They might have a number of “sofa-bed” product lines: Not great sofas – not great beds.
ROI
Low
High
Market Share

33. Capstone Strategies
The Situation Analysis generated an overview of the forces at work within the Capstone market place.
Now you must decide how to use that information to gain a competitive advantage.
There are many different approaches - all of which can be successful depending on how well they are implemented tactically.

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. Today’s shift is tomorrow’s nightmare
Strategies Evolve
Today’s shift is tomorrow’s nightmare
Poor tactics undermine a good strategy
Good tactics can overcome a poor strategy

41. 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.

42. Good Luck and Enjoy!