C APSTONE ® I NTRODUCTION

1. CAPSTONE®INTRODUCTION Computer Based Simulation

2. Objectives • Develop critical thinking skills and experience decision-making from a long-term, senior manager’s perspective. • Use strategic analysis and planning to create a competitive advantage. • Understand overall interaction and impact of various parts of a business on one another. • Understand components of competitive intelligence and practice competitor analysis. • Improve financial analysis skills. • Improve team skills.

3. Why Simulate? • Risk Free.Students may innovate with outside the box approaches, not possible in “real” business scenarios. • Emotional Linkage.Students take ownership of the process, creating an emotional link to the subject matter. • Critical Thinking.Students become active participants. They develop critical thinking skills. They must analyze, assess, make decisions, evaluate, and adjust. • Time Compressed.Time is condensed. Simulations allow many years worth of decision-making to play out, rather than one quarter’s worth of decisions in a “real” business environment.

4. The Playing Field • $100M electronic sensor manufacturer. • Market dominated by handful of firms. • No outside competitors or substitutes. • Benign environment.

5. Performance - 10% Low End - 31% Traditional – 32% Size - 11% High End - 15% Markets Defined By Segments Current Market Percentages in Dollars

6. Performance - 13% Low End - 28% Traditional – 28% Size - 13% High End - 17% Markets Defined By Segments Market Percentages in Dollars Five Years Out

7. Large Small Slow Fast Introduction To Perceptual Maps Marketing tool used to depict product positioning. Illustrates how customers distinguish between products that are similar in nature. Size (how big is the sensor?) Performance (how technologically advanced is the sensor?)

8. Segments drift over time Large Low Customer expectations are constantly changing. They expect the sensors to become smaller in size and better in performance. Pfmn Trad Size High Size Small Fast Slow Performance Perceptual Map

9. Segments drift over time Large Low Customer expectations are constantly changing. They expect the sensors to become smaller in size and better in performance. Pfmn Trad Size Size High Small Fast Slow Performance Perceptual Map

10. Segments drift over time Customer expectations are constantly changing. They expect the sensors to become smaller in size and better in performance. Large Low Trad Pfmn Size Size High Small Fast Slow Performance Perceptual Map

11. Size 1. Product must plot within the segment. Adam Adam 2. Product must fall within price guidelines. Performance Price Adam Segments Reli-ability 3. Product must fall within reliability guidelines Segments Two-Stage Purchase Decision Stage 1 - Match Product to Market

12. Two-Stage Purchase Decision Stage 2 - Rank Best Product Reliability 1. Positioning 2. Age 3. Reliability 4. Price Position Ideal Spot AB 0 Yrs 1 Age Price 20000 25000 HIGH END $30 $40

13. Segment Criteria Ranking Traditional Low End High End Pfmn Size Age Price Position Reliability Price Age Position Reliability Position Age Reliability Price Reliability Position Price Age Position Age Reliability Price

14. Functional Areas Production R&D Finance Marketing HR

15. Research & Development • Set Product coordinates (Position) • Set MTBF rating (Reliability) • Drive Perceived Age (Age) • Drive breadth of product line AB AB High High Eight < < < Low Low One Reliability Age Breadth

16. R & D Factors on Existing Products • Cycle time affected by: • Automation level of production line • Number of projects underway • Distance moved on perceptual map High High High Long < < < < Low Low Low Short Automation Level Number of Projects Distance moved Cycle Time

17. AB Size AB Performance + R & D Factors on New Products • New Product Development: • Takes at least 1 year • Development time driven by distance from existing products • Requires new production capacity

18. Marketing • Price • Promotion Budget • Sales Budget • Set Sales Forecast • Set Credit Policies AR/AP

19. Production • Schedule production • Set automation level • Buy or sell capacity • One year lag to add capacity or change level of automaton

20. Human Resources • Wages • Benefits • Profit Sharing • Annual Raise

21. Big Al, Capstone® Loan Shark Finance • Acquire Capital • Issue Stock • Short Term Debt • Issue Long Term Bonds • Set Dividend Policy • Retire Long Term Bonds • Retire Stock • Emergency Loan

22. Proformas • Balance Sheet • Income Statement • Cash Flow • Financial Ratios

23. Job Descriptions • Product Manager. Ensure product meets the demands of the intended segment. Want their product to be given maximum support & resources. • Functional Area Manager. Optimize the efficiency of their functional area, coordinating strategy across functional boundaries. Authority for all simulation rules that apply to their area. • Market Segment Manager.Strategists. Sometimes at odds with Product Managers. For example, if they observe a capacity shortage developing, a Product Manager will request more plant capacity, but a Segment Manager might recommend bringing in a second product to serve the segment. A Product Manager would rarely recommend terminating their product line, but a Segment Manager wouldn’t hesitate to recommend axing a non-competitive product. • Competitive Intelligence Officer.Responsible for predicting the behavior of competitors. Capstone Courier contains all publicly available info on each firm. Students can take multiple roles

24. Success Measurement • Select a minimum of two criteria to be measured by: • ROE • ROS • ROA • CUM PROFIT • STOCK PRICE • ASSET TURNOVER • MARKET SHARE • MARKET CAPITALIZATION • Weight each selection.

25. Student Resources • Team Member Guide • Website (www.capsim.com) - Demo’s - Tutorials - Help Files - Round Analysis - Analyst Report - Tech Support Staff 888-472-7554 or support@capsim.com Student Website