capsim expert guide

The Capsim Experts Guide

Capsim Experts Guide - April-June 2010 Version. If you are using this guide in a periodother than April-June 2010, the information in this guide is not accurate.

Tired of making all these decisions yourself? Get more helpfrom the Experts! Inquire at [email protected] Page 2

Table of Contents

Table of Contents 2

1. Introduction 6Who are the Capsim Experts 6What is Capsim? 7

2. Before you begin 7A) Understanding the Format 7

Foundation vs. Capstone 7Tournament vs. Footrace 8Participants vs. Computer vs. Inactive 8Number of Rounds 8Advanced Features 8

B) How are you being evaluated? 9I. Balanced Scorecard 9II. Analysts Report 10III. Success Measures 11

a) Weighed Ranking 11b) Weighed Relative 12

IV. Round Analysis 12C) How should we divide the teams responsibilities? 13

3. Overall Strategy 15A) New products 15

Lower Right Limit of High End Fine Cut 15Upper Right Limit of High End Fine Cut 16Lower Right Limit of Traditional Fine Cut 17Center of Traditional Segment 18Other Strategies 18

B) Segment by Segment Strategy 18I. Traditional 19

General Strategy 19R&D 19Reliability 20Price 20Promo 21Sales 21Automation 21Issues 21

II. Low End 22General Strategy 22



R&D 22Reliability 23Price 23Promo 23Sales 23Automation 23Issues 23

III. High End 24General Strategy 24R&D 24Reliability 25Price 26Promo 26Sales 26Automation 26

IV. Performance 26General Strategy 27R&D 27Reliability 27Price 27Promo 27Sales 27Automation 27

V. Size 27General Strategy 28R&D 28Reliability 28Price 28Promo 28Sales 28Automation 28

C) A/R Strategy 29D) A/P Strategy 30E) HR Module 31F) TQM 31G) Advanced Marketing 32H) Labour Negotiations 33

4. Round 1 Strategy 33A) Traditional 34

Analysis 34R&D 34



MTBF 34Price 34Sales and Promo 34Forecast 35Production 36

B) Low End 36Analysis 36

Forecast 36

C) High End 37Analysis 37

D) Performance 38Analysis 38

E) Size 38Analysis 38

F) Capacity 39Traditional 39Low End 39High End 39Performance and Size 39

G) Automation 40Traditional 40Low End 40High End 40Performance 40Size 40

H) Finance 40

5. Round 8 Strategy 41R&D 41Selling off Capacity 41

6. Forecasting Guide 42A) Factors to consider 42

I) Check the Survey Scores 42II) Current State of your product 43III) What is your product doing this year? 43IV) Competitors in the Market 44

Additional Competitors 44Fewer Competitors 44Drifting Products 44



Moving Products 44V) Capacity 45

B) Forecasting Strategies by segment 45Low End 45Traditional 46Performance and Size 46High End 46

7. Finance Guide 47Last Decisions 47The Cushion 47Cost of Capital 47Balancing Risk 48Other Charges 48Ratios 48Limits 49Using the Pro-Formas 49Round-by-Round Strategy 50Distributing Cash 50

8. Important Information and FAQ 51A) Understanding the Survey Score 51B) How do I decide how many units to produce? 51C) Understanding Product Moves with Ideal Spots 51D) Understanding Reliability 52E) Understanding Automation 53F) Understanding Capacity 53G) Using the Marketing Spreadsheet 54H) Cross Sales 55I) Spotting a Product that is Switching Segments 55J) Figuring out where a New Product will be launched 56K) Product Naming Tricks 56L) Price Wars 57M) How many Units will I be Able to produce in my Products First Year? 58N) What does a typical turn look like? 59O) What will the computers do? 60



1. Introduction

In compiling this guide, our experts have gone to great lengths to try and focus on themost important aspects of the game. This might explain why some of your inquiries andnot included, and why so much emphasis is put on certain sections.

Capstone has put together a manual which explains the basic concepts of the game. Theyhave also put together a slightly more detailed online manual which answers to somefurther questions.

It is not our intention to replicate any of the material that can be found in either of thosetwo guides. This Ultimate guide will not only open your eyes to the many unknowns thatCapstone has to offer, but it will also offer a surefire strategy to getting that Elusive A+.

If you want to skip straight to the recommendations for round 1, skip to page 34, for theround 1 decision by decision guide.

If anything is unclear in the guide, please send an email to [email protected] andone of our experts will respond to you within 48 hours. We provide general answers toareas that are unclear in the guide, but if you are looking for more detailed help, you canhire members of our team at the rate of $60 per hour, or $120 for each round of thesimulation. Many of our clients choose this route, and they have been quite pleased withthe results. We routinely score in the 99th percentile for the teams that hire us. We runhundreds of simulations, and as you can expect, we have become the premier experts onall things Capsim related. Drop us an email, it can't hurt to ask!

Finally, as this guide is the fruit of years of research by many different individuals, weask that you refrain from unauthorized distribution of this guide. Rest assured that ourlegal team will aggressively prosecute any illegal redistribution of this guide (includingbut not limited to criminal sanctions and liability for damages including punitive andexemplary damages).

Who are the Capsim Experts?

We are a group of analysts who have studied and dissected thousands of pages of data tobring you the absolute best strategy for Capsim. Our team has several MBA's, a lawyer,an accountant, a stockbroker, an investment banker as well as an actuary. Our CapstoneExperts have run hundreds of Capsim simulations and have routinely placed in the toppercentile in Capstone Challenges. Some of our Capstone Experts have placed in the topspots out during Capstone World Challenges. Quite simply, nobody is better at thissimulation than us.



We have a proven track record of success, and clients who use our product haveconsistently scored in the top few percentiles and routinely get the top marks in theirclass. We continue to be in business because people love our product, and our producthelps them out like no one else can, its that simple!

What is the Capstone Simulation?

By now, you may have read the introductory material about the Capstone Simulation(Use of Capstone and Capsim will be used interchangeably in this guide, and they bothrefer to Capsims Capstone Business Simulation). You probably know that in Capstone,you are running a simulated business in a simulated market. You control one of sixcompanies and you sell electronic sensors. What the product does is completelyirrelevant, but what does matter is that you currently have five products in five differentmarket segments.

Capstone is a very challenging game and requires hundreds of hours of practice andanalysis in order to achieve a complete understanding of the delicate intricacies it has tooffer. We realize that most MBA/Commerce students and most employees who are usingCapstone do not have the time to spend hundreds of hours on a simulated game. This iswhy we have created the Ultimate Experts Guide to Capstone.

2. Before you Begin

Read the two Guides offered by Capsim. Although they are both very long, we stronglyrecommend that you begin by reading these two guides. After doing so, you will noticethat this guide will make much more sense. Please also run at least one 8 round rehearsalsimulation online. This will give you a sense and feel for forecasting and other importantdecisions.

A) Understanding the Format

It is important to know what type of simulation you are engaged in before you begin.There are many different variations as to scoring and as to rules of the game. Dependingon your professor's preference and his/her style, there are many different possibilities forhow your simulation is set up.

Foundation vs. Capstone

We refer to Foundation as Capstone Light. Foundation is a much simpler game with asmaller budget, less products and much less decisions. While this guide will help you in



understanding how to generate a successful business in Foundation, this guide will bestserve those in a Capstone Simulation.

Tournament vs. Footrace

This is an important distinction that each student must understand. In a Tournament,your team will be competing against other real teams from your class in a six-teamindustry. Your competitors are your classmates.

In a Footrace, your team will not be competing in the same industry as your classmates.Each team in your class will have its own industry and computers which will serve ascompetitors in each industry. Footrace results usually then graded on Profit, CumulativeProfit, ROS, ROE, ROA, Stock Price, Asset Turnover, Market Capitalization and MarketShare. Footraces are typically used in large classes.

Participants vs. Computer vs. Inactive

Your professor has the ability to change the number of competitors in each industry up toa maximum of 6 total companies. In the majority of Schools, professors will run thesimulation with 6 teams. Professors will typically try to make it so that the group sizesare 3 to 6 individuals. In a very small class, the professor may only have two or threeteams which will go up against 3 or 4 computer opponents. Very rarely, a professor willset one of the 6 teams to inactive, thus reducing the total number of competitors. It isimportant for you to know how many competitors will be in your industry, as fewercompetitors mean a larger market share and more production for each team.

How many rounds are you playing?

While most professors use the full 8-round simulation, there are some schools that runone or two practice rounds and then reset the simulation after the first or second round.This has the effect of reducing the length of the game. Make sure that you understand theduration of the actual game, so that you can make better decisions.

Advanced Features

Its also important to know which of the advanced features are active, and when they willbe activated. Below is a list of advanced features that may be activated by yourprofessor. Before you begin, its important to know when and if these will be madeactive by your instructor.

Human Resources: The HR module is typically the first one that gets activated, and thisusually gets done in rounds 2 or 3.



Total Quality Management: TQM is a very important component that often getsoverlooked and it usually activated in rounds 3 or 4.

Labour Negotiations: Most instructors choose not to turn the Labor Negotiations on, butsome profs still use this feature. There are usually one or two negotiation rounds duringthe simulation.

Advanced Marketing: This feature may be turned on in the early to mid-rounds andmakes it difficult to maintain high levels of awareness and accessibility. As it is muchharder to maintain high levels of awareness and accessibility when this module is turnedon, drifting products is much tougher if this module is turned on.

B) How are you being evaluated?

The majority of professors evaluate the students based on the Balanced Scorecard. Someprofessors use the Success Measures option, and some use the Analysts Report as aperformance indicator. We've even heard of some profs simply choosing one successmeasure, such as profits to evaluate their students. Some profs will elect to use a hybridof the three main evaluation methods. The World Capstone Challenges use the balancedscorecard. While most of the teachings in here will refer to points scored under thebalanced scorecard, there is so much overlap in scoring methods that they will applyacross the board. Below is an outline of the scoring systems your prof can choose from.

I. Balanced Scorecard

The great thing about balanced scorecard is that mistakes are not penalized as severely asthey are in Analysts Report. For example, an emergency loan of $1 will cost you wellover 100 points in the analysts report, but will cost you fractions of a point in BalancedScorecard. In our opinion, the balanced scorecard does a better job of measuring the truelong term success indicators of a company. It is also quite easy to score relatively well inBalanced Scorecard as there are no surprises.

You need to familiarize yourself with the scoring system of the Balanced Scorecard. Todo this, simply click on the "Pro-Forma" menu in your Capstone Excel Spreadsheet andselect Balanced Scorecard. In some newer versions of Excel, we have seen that thisoption is sometimes greyed out. If this is the case, try using an older version of excel, ortry contacting Capsim. It is primordial that you be able to look at the Balanced Scorecardbefore you submit your final decisions, we cannot understate this enough.

You will note that the total score for an 8-round simulation under the Balanced Scorecardis 1000. The majority of points are awarded on a round per round basis, with fewer pointsare available in the first rounds. Approximately a quarter of the total points are awardedafter the last round as an aggregate score. It should also be mentioned that the points



awarded for different targets change from round to round, and the full point targets alsochange from round to round. Basically, you need to be improving efficiencies on around-by-round basis in order to keep getting full points.

The points are awarded in a linear fashion, meaning that if the goal for profits is $8million and you make $4 million in profit, you will get half the total points awarded forprofits. Take a solid five minutes and review the components of the Balanced Scorecard.To do this, simply click on the highlighted portions of the Scorecard and they willindicate how the scoring is done for each individual metric. Some points are very easy toget, while some you will have a hard time getting early on. It is impossible to get aperfect score of 1000, although some of our experts have scored 900's. Anything over900 is considered a runaway success and anything over 800 will surely get you an A+ inthe course.

Some points are impossible to get. For example, in the early rounds, getting full pointsfor product count is impossible, as you cannot possible have 8 products in the first orsecond round. Awareness and accessibility are also very difficult to get in the earlyrounds. Awareness continues to be difficult to max out even in the later rounds. Finally,if TQM is not turned on, you will not be able to get the learning and growth points.

II. Analyst Report

Although our experts consider the scoring method flawed, some schools still use theAnalysts Report scoring method. Nevertheless, it is important that you understand howthe Analyst Report is scored. There are 10 categories (Margins, Profits, EmergencyLoans, Working Capital, Market Share, Forecasting, Customer Satisfaction, Productivity,Financial Structure, Wealth Creation) and each category is worth 100 points. Somecategories are all-or-none, where you either get 100 points or you get 0, some are linear,where your points are scaled according to how well you did, and some are tiered whereyou can get either a portion of the points, or none (ie you get 0, 50 or 100).

If you are being evaluated on the Analyst Report, it is important that you understand howeach of the metrics is measured and what the limits are to get full points. To see how acategory score was determined, select a category from the select box on the left-handside of the screen. A perfect score is 8000 points, which is effectively impossible to get,but we have seen scores in the high 6000's. Anything over 6000 is considered a verygood score.



III. Success Measures

Success Measures allows the individual teams to decide on how they want to beevaluated among 8 performance measures (Profits, Market Share, ROS, Asset Turnover,ROA, ROE, Stock Price, Market Capitalization). By default, each team has just over 12%assigned to each measure but a team can decide to allow anywhere from 0-50% for eachmeasure, which must total 100%. It is also very important to know which method yourprof is employing. Your prof may allocate points for average, ending or cumulative.Most profs will use cumulative for Profits, ending for Stock Price and Average for allother measurements. For measures selected as Average, instructors may decide whetherto weigh each round's results evenly or prorated to allow for greater emphasis on laterrounds. The prof may also decide to use Weighed relative or Weighed Ranking to scoreyou. Make sure to get all of this information from your prof before you assign values.

The broad strategy that we suggest you employ will make it so that your sales will bevery high, but your margin may not be the highest, meaning that your return on sales maynot be very high, but your return on both equity and assets should be very high. Also,your market share will likely be among the highest as will your overall profits.Depending on what financial structure you used, your stock price and market cap shouldboth be among the highest of your competitors. We recommend a strategy whichsomewhat hedges against a failure in one department and distributes your pointssomewhat evenly among the following:

ROE: 25%ROA: 25%Market Share: 15%Profits: 15%Stock Price: 10%Market Cap: 10%

a) Weighted Ranking

Final Score Ranking: This method displays charts that compare each team's resultsagainst each team's set of weights. Specifically, the Andrews chart will show everyteam's performance based on Andrew's success measures, the Baldwin chart will showevery team's results based on Baldwin 's measures, etc. The final chart, OverallScoring shows each team's performance based on their individual criteria, allowing anacross the board comparison.

Final Score Ranking calculations use a three-step process:The system determines a raw score for each category: Each team gets 1 point for itselfand 1 point for each inactive team however, teams with negative results could fallbeneath this level.



Companies get an additional point for each active (participant or computer) team theybeat. There will be times when the first and second place team for a category are veryclose. Nevertheless, the first place team will always receive a score of 6 and the secondplace team a score of 5.

The system creates an adjusted score for each category by multiplying the team's rawscore by its success measurement weight. For example, if Andrews' ROE weight were20%, and if it were first in that category (scoring 6 raw points), it would receive 1.2points.

The adjusted scores for each category are added together. The resulting score will alwaysbe between 1 and 6.

b) Weighted Relative

With the relative ranking, the system determines a raw score for each category bydividing the team's score (Team's Value) by the by the highest scoring team in thatcategory (Highest Value). For example, if the Team's Value for Profit is $5,000,000 andthe Highest Value is $10,000,000, the team receives a raw score of.5 ($5,000,000 $10,000,000 = 0.5).

Next, the system multiplies the raw score by the success measure entry. Continuing withthe example above, if the team's success measure (Team Weighting) is 12.0,multiplying 12 by 0.5 will derive a Score of 6.

The scores for each category are added, and the resulting sum appears in the Total row.

IV. Round Analysis

Finally, some instructors will use the Round Analysis, which is a very basic method ofevaluating. The Round Analysis is a simplified method for assessing companyperformance. Based on zero to five stars, the Round Analysis returns scores for theseareas: Contribution Margin, Emergency Loans, Inventory, Stock Price and Profits.

The Round Analysis is typically used in High Schools and in Business Introductioncourses. The Star Summary recaps the stars awarded in the Round Analysis .



C. How should we divide the responsibilities among our team?

We feel that it is important to give each team member a segment to work with. Thisallows each team member to focus specifically on their direct competition in theirsegment, and they can run simulations with their segment. Each team member willeffectively become an expert in their own segment. While we are aware that theCapstone Guide has other recommendations, we strongly suggest that your team dividesits members into segments. Each team member will then be responsible for makingdecisions on R&D, Pricing, Sales and Promo, Forecasting, Production andCapacity/Automation for their product. We strongly feel that it is the most effective wayof splitting up the work.

We would also recommend that each team names someone who will be responsible forsubmitting the final decisions and conducting the final review of the decisions beforethey are submitted. The reason for this is to avoid having two people save over eachothers decisions. As the deadline approaches, the entire team knows that only one personcan finalize the decisions, and no one will take on this liberty if they are aware that it'stheir team member's responsibility.

You should also select an individual who will be responsible for finalizing the financialdecisions. We recommend you select an individual who has a financial background orwho understands the implications of the various financing options. While all teammembers can provide input for the financial decisions, one person needs to have thepower and authority to finalize the decisions; otherwise, it could lead to chaos.

We recommend that the person who is charged with making the final review should alsobe charged with the financial decisions (The "CEO"). Otherwise, you will need to gettwo people involved every time a slight adjustment is made to a forecast or a productionnumber. Since this person has the heaviest workload, we would recommend that they begiven a simple segment (size or performance).

This does not mean that each team member has the final say on all decisions in theirsegment. What we recommend is that you set a team deadline to have all decisions savedon the website. Once these decisions are saved, each team member can go over thedecisions and see if there are glaring errors or omissions. These can then be discussedand corrected before the decision deadline. Below is an example of a schedule that atypical team can employ:

Deadline for each team member to submit his/her segment decision: Friday 8:00 pmDeadline for team members to give feedback on teammates decisions: Sunday 11:00amTeam meeting Sunday 2:00pmDeadline for CEO to finalize decisions: Monday 9:00amDeadline to submit decisions for class: Monday 5:00pm



This allows two windows of review if the teammates want to be deeply involved in thedecision making process. It allows an initial review period where each team member cancomment on their teammates decisions. It also allows a secondary period of review afterthe CEO has finalized all decisions. The sample schedule above assumes a team meetingevery week. In reality, what we have seen is that once the team has gone through the firstfew rounds, team meetings can be eliminated. We strongly recommend that all teamsmeet in the first 2 or 3 rounds. If the team feels comfortable doing online meetings andemailing forecasting/production recommendations, they can switch to that format in thelater rounds.

Below are some ways that our experts suggest dividing the responsibilities.

6 MembersMember 1: Low EndMember 2: TraditionalMember 3: High endMember 4: Size and HRMember 5: Performance and TQMMember 6: CEO

5 Members:Member 1: Low EndMember 2: TraditionalMember 3: High endMember 4: Size and CEOMember 5: Performance and HR/TQM

4 Members:Member 1: Low End and HR/TQMMember 2: TraditionalMember 3: High end and CEOMember 4: Size and Performance

3 MembersMember 1: Low End and CEOMember 2: Traditional and High EndMember 3: Size/Performance and HR/TQM

According to our experts, a pattern that will typically develop in most teams is one wheresome team members take over the segments of others. This can be explained by the factthat some of the team members will have more time/energy/enthusiasm with respect toCapstone than other members and will take a larger role in their team's decisions. As thisbecomes evident, we often see team members step aside and others step forward.



4. Overall Strategy

The strategy that is best employed for first time players and people who want to achievesuccess with the fewest variables is a Broad Differentiation Strategy. This means that wewill maintain a presence in every segment and attempt to differentiate the product byfocusing on the important buying criteria for each segment. Most products will be pricedat or near the top end of the fine cut for their segment. This strategy makes for simplemoves during each of the rounds, and allows the team to focus on effective forecastingwhich typically generates a lot of points in all the evaluation methods.

A) New ProductsBecause release dates are so finicky and because it is impossible to know what ishappening in the segments after the first round, we will give you the basic knowledge thatis required to understand the concepts behind launching new products, and we will giveyou a recommendation as to their launch year. However, because of the high number ofvariables, you will have to decide when to launch them and what type of strategy toemploy with them.

If you are concerned that you will not be able to successfully forecast and manage the 7thand 8th products, you can still have much success in only creating one product. If youdecide to only create one product, create the product at the lower right limit of the highend fine cut and allow your current high end product to drift to the traditional segment (ormove it to the traditional segment). This will give you one solid product in the High end,and two in the traditional segment. The downside is that you will not be able to drift yourcurrent traditional product to the low end, thus sacrificing much overall market share.

This is why we strongly recommend that teams that are playing in 8 round games initiateat least 2 new products and preferably 3 in total (ideally one or two should be launched inround two and the others in rounds 3 and 4)

I. Lower Right Limit of High End Fine CutThe first of these products should be a high end product which is initiated at the lowerright portion of the fine cut. Its low age will virtually guarantee huge sales, and willallow you to drift (or move) you current high end product to the Traditional segment.This new product will be a dominant player in the high end segment for the duration ofthe game.

When you are creating this product, it is important to create the product so as to launch itahead of the ideal position (lower and more to the right). For example, if you are creatingthis product at the beginning of round 2 with a release date of August year 3, you shouldaim to release the product somewhere around the ideal spot for December of year 3. Theideal spot in August of year 3 is 11.2/8.8. However if you were to release a product on



this ideal August spot for an August release date, this would cause your product to besignificantly behind the segment drift when it came time to move the product on Jan 1 ofthe following year. Since the ideal position is so important in the High End segment, youmust be aware of the rapid segment drift, and you must plan to launch products ahead ofthe ideal position on launch date.

The ideal move is to position the product with an August release to the December 2012ideal spot. This would mean a positioning of 11.6/8.4. When releasing new productssuch as this, it is especially important to make sure that the products are being releasedwithin the fine cut. It would be a great mistake to release a product far ahead of the idealspot that it would not even be located in the fine cut. To review if products are beingreleased in the fine cut, please review the limits of fine cut and rough cuts in theAppendix.

When you create this product, make sure to have sufficient capacity for the first year. Ifthere are no other competitors in the High end segment, you will likely need 600 units ofcapacity in the first year. It is important to be aware that you will only be able to produceunits for the period after which your product is launched.

Once the product has been created, its management becomes quite simple. Every year,you must simply R&D the product down and to the right, towards the ideal position ofnext year. Spend 1,500-1750 on Promo and spend 1750-2000 on sales until the productapproaches 100% for both of these. Use your basic forecasting skills and produce 125%of your worst case scenario. This product should provide you with a very nice return onyour initial investment.

There are several different viable options for where/how to create/launch your secondnew product. Each option has worked quite well, and each depends on how thecompetition has stacked their cards in the first few rounds.

II. Upper Left Portion of Fine CutOne option is to create a product that will be launched at or near the upper left portion ofthe High end segment and which will drift to a convenient location inside the traditionalfine cut in its second year. This will allow the product to sell units in the high endsegment during its first year when it has a low age, and then it will drift in the traditionalsegment where it will enter and mature to the ideal age.

The location of this product is very important because once it is created, it will not bemoved for several years. Remember that you want this product to complete its first 3/4or half year inside the high end fine cut. Essentially, you want this product to exit thefine cut exactly at the beginning of the year in which it will begin full time sales intraditional. The optimal point to launch your product if you are aiming at having it enterinto traditional in January of the fourth year is 8.4/11.6 and if you are aiming for aJanuary release of the fifth year, you should launch aim for 9.3/10.7. This represents the



upper left limit of the fine cut for High end. Once it exits the High End Fine Cut, you canfocus on selling those units in the Traditional segment.

The added bonus of this strategy is that the product does not need to be moved until muchlater in the simulation, depending on your strategy. Another added bonus of this strategyis that is can be repeated in consecutive years (make sure you adjust your positioning sothe product is launched a full year down and to the right), and when the same strategy isrepeated in consecutive years, you will get a fantastic idea as to the success of yourproduct, and you will know exactly how to forecast for this product.

A product launched in accordance with this strategy after the second year for release inthe fourth year will sell approximately 400 units in its fictitious first full year. Thismeans that for a May 1st release date, it will sell about 266 units and for a July 1st releasedate, it will sell about 200 units. The end of year survey score in the High end will beapproximately 20, and its opening survey score will be approximately 35.

III. Lower Right Portion of Traditional Fine CutAnother possible option is to simply create a product for sale in the traditional segmentwithout worrying about starting it in the High End segment. To do this, you create theproduct somewhere near the bottom right of the traditional fine cut and you let it driftuntil it ages to 2.7 years or so, where you will R&D it again. Ideally, your product wouldpass through the ideal point when it's 1.5-2.5 years old, that way you were certainly havethe best product on the market.

The advantages of this move are that the forecasting should be easier and the costs shouldbe less than starting the product in the High End segment. Among the majordisadvantages are that the product will not have a good first year on the market (due to itslow age). Additionally, the margins will be reduced due to the fact that the product willbe launched so far ahead of the ideal positioning. Every time your strategy is to drift aproduct, you need to be aware that due to its positioning ahead of the ideal point, thematerial costs in production will be higher than if it trailed the ideal position. This mustbe seriously considered every time you are creating and drifting products. You should theadvanced marketing module, because if it is enabled, drifting products has much lesssuccess than starting one in a segment and staying there.

To illustrate, let's pretend you are creating this product in the beginning of the third year.The R&D map tells you that it will take 15 months to create this product, meaning that itwill be released quarter-way through the fourth year. The ideal position in April of thefourth year is 7.3/12.7. You should create the product so that it is two years away fromthe ideal spot when launched. This spot would be 8.7/11.3. This would allow yourproduct to become better and better over the years and would save your company someR&D costs.



IV. Center of Traditional Segment

This strategy is meant to create an eventual 3rd product in the low end segment. Thestrategy is to create a product somewhere in the middle of the traditional segment, have itreleased early on in year 2, and then let it drift for two and three quarter years. After thattime, ideally, it would enter the fine cut of the low end segment, where it would be agedsomewhere around 2.8 years, and would then spend the last 4 full years in the low endsegment, gaining valuable market share in a segment that is difficult to penetrate. If thisstrategy is used, consider placing the product somewhere around 6.2/13.8. This wouldallow the product to enter the fine cut of low end in Jan of year 5.

The major advantages of this strategy is that it takes advantage of the fact that you cansell a lot more units in low end than any other segments, and with max automation, youwill make a lot of money with this product. The biggest money maker in the game istypically the low end segment. The other advantage of this strategy is that the productdoesn't need to be moved at all for the entire game, no R&D will be needed! Thedisadvantage is that it will have a bad first year, and bad fourth year. Overall, this is astrategy that isn't used often, but we see tremendous upside potential in it.

V. Other StrategiesOn occasion, we have recommended adding a second product to one of the wingsegments. This strategy is usually recommended when three competitors have left asegment and you do not anticipate them to return. The problem with this strategy is thatcompetitors think alike. When the players in a segment are down to 3, at least one ofthose three will launch another product and it is quite possible that 2 or 3 new productsinundate the segment, creating an oversaturation of the market and thus making it a badchoice for your new product.

B) Segment by Segment Strategy

This section offers an overview of the strategy for the entire segment (allowing forcrossover analysis when products drift into new segments). This segment does not coverthe specific decision-by-decision strategy that should be used in round 1, which will becovered in the next section, entitled Round 1 Strategy.

Our experts chose to employ a segment by segment strategy instead of opting for aproduct by product strategy because while general strategy for products may change, theoverall strategy for a segment remains the same. If you are looking for the generalstrategy for a new product that will be launched, we recommend that you review the NewProducts section above and refer to the general strategy of the segment where it will beintroduced. This should give you a great portrait of the products path to success. .



I. Traditional

Buying Criteria:Ideal Age: 47%Price: 23%Ideal Position: 21%Reliability: 9%

The Traditional Segment is the most important and often the most complicated inCapstone. Any strategy that is implemented must have at its root the objective of keepingthe product as close as possible to the ideal age since it represents almost half the SurveyScore.

General StrategyThe Overall Strategy for the Traditional Segment is to introduce a second product asearly as possible (most likely by drifting the High end product during round 3 or bylaunching a new product to begin in the segment), to slowly allow the current product todrift to the low end segment which it will enter in the fourth round. You should thenintroduce a 3rd product in round 3 or 4. Since you will be losing one of your traditionalproducts to the low end segment, it is important that you gain at least 2 products, becausethis is a very large segment that is very profitable. To do this, you will need to drift yourhigh end product in year three, and to create another product to enter the traditionalmarket in round 3. This allows you to have two products in each of the two largesegments, Traditional and Low end. Depending on the moves from the other teams, wetypically recommended having a third product in traditional as well.

R&DThe specific year-to-year strategy involves moving all products that are in the segment sothat they get R&D'd when they are in the 2.4-2.9 years range (however, the product thatwill be drifted to the low end segment should not be R&Dd at after the third year) Thisensures that the product vacillates between a range of 1.2-2.9 years (which is less thanone year from the ideal age). You should always strive to have the product R&D'd at 2.7years of age so it splits to 1.35 years and then gets slowly closer to the ideal age. If theproduct will remain in the Traditional segment for the entire game, then you should movethe product down and to the right and try to situate as close to the ideal position aspossible. Remember that the most important buying criterion for this product is the age.

As soon as the second round starts, there can be more clear-cut strategy. Every game isdifferent, and every team will face different opponents who attempt to use differentstrategies. The overall strategy for this turn should again be focused on getting a veryquick R&D cycle which will allow the product to split in age quickly. Keep in mind that



the products you will be creating this turn will not enter the market until 14-18 monthsfrom now. That means that this product must be competitive in this segment for thisentire round and at least one more round before it can begin its move to the low endsegment.

The strategy suggestions below should only be used as guidelines, and when consideringwhat moves to make, you must always consider whether or not new products are beinglaunched, whether products are being moved in or out of your segment.

As long as you are moving a product into this segment by the third round (which we willrecommend you doing with your current high end product), we recommend a move to5.7/14.3 in the second round. If all goes well, this will be this products last move for theduration of the game. The forecasting for the second round must be done while takinginto account all factors. While it is anticipated that you will sell between 1250-1500units, there are many factors which could influence your decision. Your product willhave an end of year December survey score of approximately 50. If you do not anticipatethat any other products will be moved or launched in your segment, you can anticipate toget roughly 1650 units in sales. In the vast majority of situations, there are new productsthat enter the market as of Round 2. These can enter the market in two ways: they can becreated, or they can be moved from another segment. To help you predict if products areentering, please review this section.

By the third year, your product will be situated in both the low end and traditional finecuts (make sure to price accordingly). It will remain in the Traditional fine cut for 6months and will slowly exit it. Priced correctly (approx. $21-$22 your product will sellabout around one thousand units, about 600 in the traditional and 400 in the low end(again, these are rough predictions and depend on a variety of factors which you mustanalyze when coming up with your forecast figures).

For the 4th-8th years, your product will no longer sell any units in the traditional segment.The product will sell many units in the low end and by the 5 and 6th year it will be adominant player in that segment and will be very profitable. There are many factors thatwill affect your sales in the low end segment. Please review the forecasting section toproperly assess the sales potential for this product for these rounds.

ReliabilityIn round 2 or 3, reduce your MTBF to 14000. After the fourth year, when the producthas drifted into the low end segment and will not be getting any traditional sales, drop theMTBF to 12000.

PriceYou will notice when doing Price/Profit comparisons using the Marketing Spreadsheet.that the ideal price appears to always be situated at the top end of the fine cut (ie. $29.50in round 1). In our opinion, price wars are extremely rare in this segment, and there is no



real value in reducing the price much lower than the top end of the fine cut. Ourrecommendation is that you set the price at the top or near the top of the fine cut, andreduce it every turn by 50 cents. You will see that most other teams will price theirproduct at or near the top of the fine cut. Even if they do not, this does not mean that youmust adjust your strategy. We strongly recommend that even in a "price war" in thissegment, the price of your product should never drop below $2 under the upper limit ofthe fine cut. There is absolutely no reason to sacrifice that much margin for minimalgains in sales.

For the product that is being moved to the low end segment, the transition year pricing isimportant. You need to make sure to price it within both fine cuts. We recommendsomewhere between $21-$22. This will make your product attractive in the traditionalsegment and will give you enough sales in the low end to be a profitable product.

PromoThe overall strategy for Promo is to get to 100% awareness in 3 turns without spendingtoo much in the first two rounds (when profits will typically be at their lowest). The firsttwo turns, the promo expense should be $1,750 and in the last round it should be $1,500which will maintain the level at or near 100%. After that, you simply need to maintain alevel of 1,385 to keep the level at 100%.

SalesRemember that Accessibility applies to the segment and not to the product. The overallstrategy for Sales is to spend $2,000 per turn on each of your first 2 products. This willgradually move your accessibility to 100%. If you get to the point where you have threeproducts, the sales budget should not need to exceed 1,500 per product until you hit100%. Once you reach 100% accessibility, drop the Sales level to 3,300 in total for thesegment. This means it should be 1,650 per product if you have two products and 1,100per product if you have three products.

AutomationThis is very important to this segment and it should be automated as soon as possible.We recommend highly automating your initial traditional product as it will be drifting tothe low end segment and will only be moved twice all game. You should automate it to 8in the first turn and to 10 in the second turn. Newer products that enter the segmentshould be automated up to a level of at least 6.5 or 7. See automation section for moredetails.

IssuesThe complications with this segment lay in the fact that the ideal age is 2, and thereforethe product cannot be R&D'd every year. There will come a point in years 4-8 where youwill have to do a three turn analysis to see how best to take advantage of the ideal age.



II. Low End

Buying CriteriaPrice: 53%Age: 24%Ideal Position: 16%Reliability: 7%

The low end is the highest volume of all the segments and must be managed well in orderto achieve success. Students often engage in Price Wars in this segment and attempt totake away sales units from other. However, it's important to note that what yourcompetitors do does NOT affect your product's appeal (but it will affect your sales).

General StrategyThe overall strategy is to invest in Sales and Promo, max out on automation, reduceMTBF, reduce the price, and to make money on volume.

R&DMost teams have absolutely no idea how to maneuver the low end product to maximizeits profitability. Weve seen teams try to move the product really early, only to have aterrible product for the next 4 years. Weve seen teams move the product in the secondor third year, only to have to move it again in the 7 or 8th year (R&D is very expensivewhen the product has a high level of automation). None of these are good strategies.After much research, weve discovered that the proven ideal move (assuming TQM isenabled) is a move to 4.7/15.3 at the beginning of the fourth year. This means that theproduct only needs to be moved once in the entire game. This also means that theproduct can capitalize on a high age when splitting, keeping it close to the 7.0 ideal age.*If TQM is not enabled, you need to move the product in round 3, which will be a 26month move, and the number will not necessarily be 4.7/15/3.

The great thing about the low end segment is that products do not need to be locatedclose to the ideal spot in order to be successful; they must simply be inside the fine cut.When the game begins, the product is located at 3.0/17.0 and is 4.6 years old. Theproduct needs to get older in order to gain appeal. If the product is not moved, it will exitthe fine cut in July of the fifth year. Since we cannot have the product exit the fine cut,we must move it before then. At the beginning of the fourth year, the product will 7.6years old. If your automation is maxed out at 10.0 (which it should be), and assumingTQM is enabled, the R&D project for your product will likely take 16-18 months, whichmeans a perfect release date of June/July of the fifth year. Once it is moved to 4.7/15/3,it will remain in the fine cut until the last few days of the eighth year, where it will verybriefly exit the fine cut. This means that your product will have spent its entire life in thefine cut and will only have been moved once, and optimal strategy if we've ever seenone!



ReliabilityDrop the MTBFs to 12,000 in the first turn and leave it at that level for the duration ofthe game. This is not the segment that you want to be differentiating your product bybeing reliable. Consumers in this segment would rather see less reliable products for saleat cheaper prices. Reduce the price instead and drop the MTBFs.

PriceYou will want to begin with a small price drop to $20.00 or $20.50. You cannot go anylower because it will affect your margins. After the first round your product will haveserious automation, as will most of your competitors. Expect a price drop from yourcompetitors, and be prepared to drop your own price to the $18 range. Similar $1 or 50cent drops over the next few years should not only keep your product competitive, butshould guarantee that your margins are astronomical (well over 50%) and your salesvolume remains high. At some point in rounds 4 or 5, you may see benefits in droppingyour price significantly (use the marketing spreadsheet to learn the effects of price drops).If this is the case, you must make sure to sell out and drop your price accordingly.

PromoThe overall strategy for Promo is to get to 100% awareness in 3 turns without spendingtoo much in the first two rounds (when profits will typically be at their lowest). The firsttwo turns, the promo expense should be $1,750 and in the last round it should be $1,500which will maintain the level at or near 100%. After that, you simply need to maintain alevel of 1,385 to keep the level at 100%.

SalesThe overall strategy for Sales is to spend $2,000 per turn on your product until the secondproduct enters the segment. If you keep spending $2,000, in the year before your secondproduct enters the segment, you will be at or near 70%. In the year after the secondproduct enters the segment, you will see a jump to 80%. In the following year, reduceyour spending to $1,800 in each product, this should get you very near the 100%. Onceyou reach 100%, drop your sales level to $3,300 for the segment, or 1,650 per product.

AutomationAutomate to 10 in the first turn and do not touch for the rest of the game. If you cannoget to 10 in the first round, go to 9, or 8, or whatever number you can afford, and raise itto 10 in year 2.

IssuesThe major issue for this segment is going to be the pricing. You will be tempted to dropyour price significantly in order to gain market share. Run some quick simulations to seehow this will affect your bottom line. Remember that since this unit is costing you littleto produce, every dollar drop in price is a huge hit on the margins, much more so than inhigher priced segments.



III. High End

Buying CriteriaIdeal Position: 43%Age: 29%Reliability: 19%Price: 9%

The high end segment has fewer variables than the traditional and low end segments.The price will be steady throughout, as will the MTBF's. The only thing you mustconcern yourself about is the R&D.

General StrategyThe strategy in this segment is to make small moves in the first two years to keep the agedown and to introduce a new product in the first or second year to be launched at orahead of the ideal spot on its launch date. By making small moves in the first two years,your product will be first to market and will gain from being the best product for asignificant amount of time. This will then allow you to move or drift the current HighEnd product to the traditional segment, where there is a much better chance of sellingmore units. After that, the new product will remain as the only product in the High Endsegment and will be move annually to keep up with the ideal position and the low agerequirements.

R&DMake a very small R&D move in the first year (8.1/11.9) and second year (8.0/12) withyour current High end product. It will sell very well in the first year, and respectablesales in the second year (375-475 units). Create a new product in the first or second year.It is very important that this product gets created at the latest in the second year. Followthe new product guide to see where it should be launched. Once the product is launched,follow the same guidelines to see how it should be R&Dd. The moves should berelatively simple and straightforward. They should involve nothing more than a yearlymove down and to the right to keep up with the drift.

You will notice that since the segment drift is more pronounced in the High End segment,that you will experience difficulty keeping up with the drift. This will especially be trueif your automation is at or near 7. This is not a big cause for concern. Simply move theproduct along as far as you can and do not worry if you arent able to keep up with theideal positioning. Your product will suffer a slight bit because of location, but all yourcompetitors will have the same problems as and you will not lose many sales as a result.

When you create the new product for launch in the third year, this allows you to driftyour original product to the Traditional segment. At the beginning of the third year, yourHigh End product will be about 1.8 years old and will be situated inside the fine cut forboth Traditional and High End segments. It will quickly exit the fine cut for High End,



and as a result it will only sell about 50-75 units in this segment during the third year.During this year, do not R&D the product. The age will go from 1.8 to 2.8 and theproduct will sell a fair amount of units to the traditional segment. Depending on thenumber of competitors that have entered the market, you will sell between 850-1200 unitsin this turn. Assuming 9 or 10 competitors, you will sell about 850 units. If there are stillonly 5 competitors, you may sell up to 1200 units. If you are expecting somewhere inbetween that amount, you can adjust your forecast and your production accordingly.Remember to forecast for your worst case scenario, not the number of units you think youwill sell.

In the fourth year, you will need to make a very slight move (8.1/11.9) to reduce the agequickly. This R&D should take about 3 months to complete. During this year, you willlikely have the best product on the market and will sell well over a thousand units. Yourend of year survey score will be 55-60, and your competitors should be in the dust.Depending on the number of competitors, you will sell from 1150-1600 units. You willsell about 1150 with 10 competitors and 1600 with 5 or 6 competitors. These numbers areguesses which should not be counted on. For proper forecasting methods, please makesure to visit the forecasting section.

In years 5-8, simply move the product along as much as you can down and to the rightwhile keeping in mind that the most important factor is to R&D products when they arein the sweet spot of age 2.4-3.0. This product should be among the best sellers for theduration of the game.

ReliabilityWhen creating the new product, it doesnt need to be ultra reliable, average MTBFs isfine. Once youve set the new products reliability at 2250, do not adjust it for theduration of the game. In fact, some of our experts believe that reducing the MTBF's tothe lower end of the fine cut is an acceptable strategy that will help out your bottom line.Either strategy is good, and choose the one that you prefer.

With the drifting product, it will be very important to adjust your MTBFs in thetransition year. At the beginning of the third year, make sure to adjust your MTBF to14000, which is the lower limit of the traditional segment. Since you will no longer beselling the product to the High End segment, there is no real use in having the MTBFsthat high. Since it will become a traditional product, and since reliability is not importantin the traditional segment, reduce it to the bottom limit of the fine cut.



PriceAlways price the High End products at the upper limit of the fine cut for that segment.

In the third year, when your High End product will be transitioning to the traditionalsegment, make sure to adjust the price to $28.50. This will render the product attractivein both segments and will give you the ever important cross-sales to the High Endsegment, along with maintaining high margins throughout.

PromoThe strategy for this product is to have at least $1,500 in the first year, and to slowlyincrease that in the second and third years to $1,750. This should get you at or near the100% level, which you can then maintain with a yearly expenditure of $1,385.

For the product that you will be launching, you should begin with a $1,750 and continuewith that expenditure until the awareness hits 100% and then reduce it to $1,385.

SalesThe strategy is to begin with $1,750 and to maintain that level for the first three years.Remember that the sales budget depends on the amount spent in each segment. The goalis to spend this amount until there are multiple products. Once the new high end productin on its own (the original product has drifted to the traditional segment), increase thisamount to $2,000 to maintain the high level created by the dual products.

AutomationMake yearly increases to the automation level until it reaches 6.5 or even 7.0 (or evenhigher if TQM is enabled) and then stop automating.

IV. PerformanceBuying CriteriaReliability: 43%Ideal Position: 29%Price: 19%Age: 9%

This wing segment always seems to cause grief to some teams. Almost every singlegame, you will see at least one team leave the segment completely. We stronglyrecommend that you maintain a strong presence in this segment. It is a very easysegment to forecast and maintain. While the profits may be scarce early on, the two wingsegments end up being some of the most profitable in the later rounds, especially onceteams start bailing.



One of the obvious issues with this segment is the fact that Reliability is so important,and as a result, you must increase the MTBF's to the maximum in the first turn. Thismove will eat away at the profit margins, but proper automation, and timely departures ofyour opponents will more than make up for the early troubles.

General StrategyThe overall strategy is to maximize the MTBF, charge at the top end of the fine cut, andto R&D the product every year to next year's ideal spot. It's that simple. A reasonablesales and Promo budget will guarantee you a strong position. Where you will distanceyourself from your opponents in this segment is in your ability to forecast and to predictyour opponent's departure from the segment.

R&DMove the product every year to next year\s ideal spot. However, if the R&D date isAugust or prior, you will need to adjust this strategy, as this means your product isgetting released outside the fine cut.

ReliabilitySet at 27,000 in the first round and do not touch for the rest of the game.

PriceCharge at the top end of the fine cut and reduce by 50 cents per turn.

PromoSpend at least $1,500 in the first turn and then increase to $1,750 for the 2nd and 3rd turns.This should get you to 100% after which you should spend $1,385 annually.

SalesSpend $1,500 in the first year, and increase to $1,750 in the second year and then spend$2,000 on sales for every year after that.

AutomationAutomate to 5 in the first year and then increase to 6.5 or even 7 in year two and 3.

V. Size

Buying CriteriaIdeal Position: 43%Age: 29%Reliability: 19%Price: 9%



General StrategyThe other wing segment has a very similar strategy to that of its partner, Performance.Since the ideal position is the most important criterion, it is very important to makemoves every year to keep up with the segment drift. The major problem with thissegment is that the starting spot is so far away from the ideal spot, and the first year movemust be a big one in order to keep pace. Some teams will surely attempt the first tomarket strategy, and will outsell your team in the first round, but the team who makes abig move in the first round will have the better product for every single round after that,as other teams will not be able to catch up to the segment drift. As a result, werecommend a big move in the first round, even if that means fewer sales for that round.

This segment will also be unprofitable for the first year and perhaps even for the secondyear. At that point, it is quite common to see teams exit the segment, which causes theremaining teams to gain some serious market share followed by some serious profit. Westrongly recommend that you maintain a strong presence in this segment. It is easy toforecast and maintain, and eventually it will reap big profits.

R&D: Move the product every year to next year's ideal spot. However, if the R&D date isAugust or prior, you will need to adjust this strategy, as this means your product isgetting released outside the fine cut.

ReliabilitySit is not necessary to incur costs to reduce the MTBF. However, if the team would liketo cut costs, the MTBFs can be reduced as of the second year.

PriceCharge at the top end of the fine cut and reduce by 50 cents per turn.

PromoSpend $1,500 in the first turn and then increase to $1,750 for the 2nd and 3rd turns. Thisshould get you to 100% after which you should spend $1,385 annually to maintain the100% level of awareness.

SalesSpend $1,500 in the first year, and increase to $1,750 in the second year and then spend$2,000 on sales for every year after that.

AutomationAutomate to 4 in the first year and then increase to 6.5 or even 7 in year two and 3.



C) A/R Strategy

The Accounts Receivable policy is the amount of time you allow your customers to payfor your product. Longer period means increased demand for your product. The defaultperiod when the game begins is 30 days. At 30 days, each of your products' surveyscores are reduced by 8%. At 60 days, the survey score is only reduced by 1.5%. Thismeans that increasing the A/R policy from 30 to 60 days equates to a jump in surveyscores of 6.5%. This does not mean that your sales will increase by 6%, but nevertheless,we strongly recommend that you adjust your A/R/ policy to 60 days in the First or secondround.

Let's take a look at the numbers:

An increase in A/R policy to 60 days ties up an extra $8 million in cash annually. Thiscash is not lost, it is merely tied up in Accounts Receivables. The cost of capital isusually approximately 10% early on. This means that your company's actual cost ofadjusting the policy is about $800,000 per year.

In the first year, increasing each of the products survey score by 6.5% will haveimportant effects.Low end: from survey score of 24 to 25.6, which equates to an increase in sales of 1.3%Traditional: from survey score of 41 to 43.7, an increase in sales of 1.3%High end: from survey score of 18 to 19.2, an increase in sales of 1.1%Performance: from survey score of 42 to 44.7 an increase in sales of 1.4%Size: from survey score of 45 to 47.9, an increase in sales of 1.0%

Overall, this would lead to an increase in sales of approximately 1.3%.

Based on a rough projection of 130 million in sales in the first round, this 1.3% increaseleads to an increase in sales of 1.7 million. At 30% margin, this equates toapproximately $500,000 in profit. While this does not make up for the cost of the policy,we feel that since the sales are being taken away from competitors, that this move makessense. The main reason why we encourage this move is that valuable points can begained in both market share and in product appeal. Another reason that we recommendthe move is that the gains may very well be more significant in future years as productmargins increase significantly. We recommend that you adjust your A/R policy veryearly on, preferably in the first turn or in the second turn, however if you feel the cashposition does not allow it, we strongly recommend making the move in the second year.If you do not adjust youre A/R policy in the first year, make sure to reduce theforecasted numbers in this guide by 1.3%.

The game also allows you to set the A/R Policy at 120 days, but we do not recommendthis strategy. The relative gain in going from 60 days to 120 days is so minimal, and therequired cash for the policy is so high, that it does not make good business sense.



* The forecasted numbers in this guide take into account this 6.5% increase in surveyscore in the first year and every year thereafter. Adjust accordingly ff you change yourstrategy.

D) A/P Strategy

The Accounts Payable policy dictates how long it takes you to pay your creditors. Thelonger it takes you to pay them, the more shrinkage your shipments will suffer and thefewer units you are able to produce. The default period at the beginning of the game is30 days. At 30 days, you lose 1% of your produced units to shrinkage. At 15 days, youlose approximately .11%-.15% of your shipment to shrinkage, or one unit for every 700-900 produced. Again, we strongly recommend that you adjust your A/P policy in the firstround. In fact, if you can only afford to adjust one of the two strategies, you shouldadjust your A/P strategy, it's much better for your bottom line.

Let's look at the numbers:

A change in A/P policy to 15 days ties up an additional $4-5 million in cash per year.Again, this cash is not lost, but it is merely tied up. At 10% cost of capital, the total costto your company is approximately $500,000 per year.

In the first year, the policy change would save approximately 45 units in total. The actualcost of these units is about $20 per unit. Your company is pocketing close to $1 millionwith this move for a net difference of almost half a million in the first year! Thesesavings get bigger and bigger as the game progresses and your production levels increase.This decision really is a no-brainer, and it should be done immediately in the first round.

The game allows you to adjust the A/P policy to 0 days, where there would be absolutelyno shrinkage. We do not recommend that you make this move, because as discussed withthe A/R policy, this would tie up too much cash for the nominal gain.



E) Human Resources Module

In most simulations, the human resources module is turned on in the 2nd-4th rounds.There are only a few decisions that must be made every turn, and they are simple.

Complement: this lets you decide how many workers you want to employ for the year.This decision must be entered at the very bottom of the production sheet. You will see acell entitled needed complement and right next to it, you will have to enter a numbercomplement. What you must do is enter the number that is required in the neededcomplement cell, otherwise you will face additional charges and reduce efficiency. Thisis very well explained in the Capstone manual, but in short, if you do not have the fullneeded complement, you get overtime, which brings on higher turnover, reducedefficiency and higher costs. More importantly, you will lose points for having highturnover.

Recruitment and training: Enter $5,000 for recruitment and 80 for training. Over the nextfew rounds, you will see your turnover rate go down and you will also see yourproductivity increase significantly. This will reduce your labor costs and reduce your HRcosts to replace departing employees. Again, the Capstone Manual does a great job ofexplaining these factors in detail. The effect is cumulative, and if you want to get fullpoints, you need to spend on recruitment and training.

F) TQM

TQM is one of the most forgotten yet important aspects of the simulation. It is usuallyactivated by your profs in the 3-5th years. It allows you to greatly reduce your costs andincrease your demand thus increasing your sales. It also allows you to R&D products alot quicker. There are 10 total initiatives in which you can invest. Every one of them isimportant and will have a beneficial impact. Every one of them represents a very positiveNPV (Net Present Value) Investment Opportunity. The reason that all of them are sopositive is that once the money is spent and the gains are accumulated, they do notdisappear, they remain present for the remainder of the game, even if you do not spendanything further.

The important factor with TQM is that the expenditure is expensed, not capitalized. Thatmeans that every dollar you spend this year will be reflected on your Income Statement.The expenditure is not depreciated over 10 or 20 years, whatever is spent this year goesas an expense against your income.

In the first year, spend $1,500 on each initiative for a total of $15 million. It may seemlike a lot of money to pay up front for a few percentage points in savings, but it must bedone and you will be happy with the results in the long term. In the first year, you will



save about 8.5 million in costs from the TQM investment and you will gain about $3million in sales. You almost get all your money back in the first year alone.

In the second TQM year, spend the same $1,500 across the board (or even increase yourspending to $1,750). This will give you roughly 11.5% savings in material, 13.5%savings on labor, 40% R&D savings time, 60% reduction in admin costs and 14%demand increase! This will generate immediate savings of close to $20 million plusadditional sales of 7-12 million and will allow you to increase your automation up to 7 oreven 7.5 for your wing/high end products. This in turn will generate higher marginswhich will again create more revenue.

In the third TQM year and for every year thereafter, we recommend spending $1 in eachof the initiatives. This will give you a slight increase but nothing significant (spending 0gets you absolutely nothing, but spending $1 surprisingly gives you several hundredthousand dollars in savings!). After two years, you will notice that the returns on theTQM investments have disappeared, you have reaped your rewards and any additionalinvestments would not render themselves profitable. Also, you are getting full points atthis point for reducing your costs, so you can now focus on building profits. The returnsbegin to diminish and there is no value in spending another $1,500 per initiative. Youwill continue to get the very large savings that you have accumulated. After this year,continue spending $1 on each of the 10 initiatives (for a total of $10), you will seenominal gains every year. You will continue to save well over $20 million per year, andget additional sales every year because of the investments.

G) Advanced Marketing

The Advanced Marketing module is usually activated in the 4-th or 5th rounds, but manyinstructors choose not to activate whatsoever. We've seen some profs activate it in thevery first year, which causes all the forecasts in this guide to be inaccurate. It can seemto be quite complicated, but in fact it isnt. What you will notice with this module is thatkeeping awareness in the 90% -100% range will become very difficult. Both theCapstone manual and the online module contain detailed information about AdvancedMarketing. There is nothing much that the Capsim Experts are able to add aside fromwhat you are able to locate in the two guides. Just remember that you should spend yourmoney where it will have the most impact, and you should try to keep the amount ofspending consistent from round to round. Basically, dont feel obligated to make seriousexpenditure increases just because your awareness will go down. You must rememberthat all your competitors will go through the same reduction in awareness as you will, andthe diminishing return concept applies here too. As an example, you should spend thefollowing:

Low end: $700 on print, $800 on direct, $1 on web, $1 on email and $300 on trade showsTrad: $700 on print, $800 on direct, $1 on web, $1 on email and $300 on trade shows



High End: $1 on print, $400 on direct, $250 on web, $500 on email and $300 on tradePerf: $1 on print, $1 on direct, $500 on web, $600 on email and $300 on tradeSize: $400 on print, $1 on direct, $500 on web, $600 on email and $1 on trade

H) Labor Negotiations

Instructors typically activate one or two rounds of labor negotiations, it is thereforeimportant that you know when these will take place. Read both the manual and theonline module, as there is much information with respect to this online. The key toremember in this module is that you will likely have very high automation at the timewhen you enter into negotiations. Therefore, you will want to increase your startingposition to reflect this. Remember that if your price is higher than that of youropponents, you can easily cause a strike, which reduces their production, eliminates mostof their HR gains, and causes them to lose points. In the first round of negotiation, youshould offer a significant increase in your starting price across the board. We're veryhesitant to give advice on what to do in these labor negotiation rounds, because again,there are so many variables in play, and every game is different. However, justremember that if you have the highest automation, your opponents will be hurt muchmore than you will be if there is a wage increase. Also, don't hesitate to raise the offersconsiderably (over $30 is not unheard of). However, if you do so, expect the othergroups to have strikes, which will cause shortages in their products, and increased sales inyours, so forecast extra units and product accordingly!

4. Round 1 Strategy

Before we delve into the round 1 strategy, if is very important that you remember thatthese numbers are based on hundreds of simulations that we've run, and are anapproximation of the worst and best case scenarios. It happens that a team will do worsethat these numbers and it happens that a team will sell out. We cannot make anyguarantees with respect to these projections, but we can tell you that these numbersreflect the most common sales results from the combination of R&D and sales and promodecisions. Feel free to adjust them however you wish, and remember that what yourcompetitors do will greatly impact these numbers. Good Luck!



A) Traditional

R&D product to 5.6 14.4MTBF: Leave at 17,500Price: $29.50Promo: $1,750Sales: $2,000Forecast: 1,300 unitsProduce 1413 units. Since you will lose 2 units to shrinkage and since there are 189 unitsin stock, this will give you a total of 1600 units.

Analysis:

R&DThe current product is very old (3.1 years old). It must be moved as quickly as possibleso we can split that age in half. We also see that positionally, it is situated on the Octoberideal spot. This explains the small and simple R&D. The quick R&D is the best way toget the age down to a manageable number as quickly as possible. You will note thatmany teams will opt for a strategy of moving the product way down and to the right.This is a mistake, as the only thing you need to worry about in year 1 is getting the agedown.

MTBFAlthough we want to drop the MTBF to 14,000, this is not the time to make this move.In this turn, the most important factor is to get the age down as quickly as possible, anddropping the MTBF to 14,000 adds several months to the R&D completion date, meaningthat you have a bad product (3.5+ years old) on the market for that much longer. Leavethe MTBF's as is for now, we will deal with them in round 2 or 3.

PriceAs discussed in the overall strategy, the price in the traditional segment should always benear the upper limit of the fine cut. This allows the product to make a hefty profitmargin, and will not make your product suffer enough for you to notice any losses insales. We suggest about $1 short of the fine cut limit as a great point of reference.

Sales and PromoAs discussed in the overall strategy, your sales budget should be $1,750 this round andyour promo budget should be $2,000. This will raise your awareness to 78% and youraccessibility to somewhere around 70% (remember that this factor depends on totalmoney spent in segment).



ForecastYou may be asking yourself why the sales will jump from 961 in year 0 to over 1300 inyear 1. There are several factors that explain this jump.

1. The segment grows at a rate of 9.2% per year. It will sell 8,067 units in round 1.

2. In round 0, the segment lost 1,620 units to products from the low end segment.Because of the drift of the segments, these products will be less appealing in round 1, andas a result, products from the low end segment will only take 460-600 units in sales. Thisleaves Approximately 7,550 units for the 6 major products (an average of 1,260 perproduct). If all your competitors make the exact same move as you, you will sellapproximately 1260 units in round 1. This will not happen. Teams do not know how toR&D their product in round 1, and teams will make errors. It is possible that one or twoteams make the same moves as you, but we routinely see teams employing our strategysell between 1400-1600 units. Remember, we are the Capstone Experts.

3. Your product will likely be the very first to market. This means that for severalmonths, your product will be significantly better than all of your competitors and you willbe getting a high percentage of sales during these months. This also means that onceyour product splits in age, it will also have a much better age cycle through the ideal age(see chart below)

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec3.10 3.18 3.27 1.72 1.80 1.88 1.97 2.05 2.13 2.22 2.30 2.38 2.47

You will note that your product passes through the ideal age in July, and never getsfurther than half a year away from the ideal spot. This will also ensure that your productwill be among the best on the market for the second half of the year.

Your end of round 1 December survey score will be in the high 30's or low 40's (likely 41or 42), and you will likely have one of the highest scores.

4. Your Sales and Promo expenses will likely be higher than your opponents which willgive you a larger portion of the market.

5. Some of your opponents may make serious calculation errors and you may end upgetting additional stock out sales. When a competitor stocks out their additional sales areproportionally divided among the remaining competitors according to their current surveyscore.

6. You will get some cross sales to the Size segment, approximately 30 units.

There are several factors that may cause you to sell more or less than your forecast, buton average, you will almost always sell 1400-1600 units in round 1.



ProductionAs discussed in the overall strategy, you should produce approximately 1.25 times yourworst case scenario. Since we have compiled much data on the first round, we can adviseyou that it is quite rare for a team to sell more than 1600 units. In this case, werecommend producing for a total of 1600 units.

B) Low End

R&D: noneMTBF: Reduce to 12,000Price: $20.00Promo: $2,000Sales: $2,000Forecast: 1,850 unitsProduce: 2282 units. With shrinkage, this will produce 2279 units, plus the additional 39in stock and this will give you 2318 units (1.25 times your worst case scenario).

AnalysisIt is very important that you understand the risks and rewards and potential dangers inthis segment. For example, we've had customers who've reported to us that the sold lessthan 1850 units in the first round because all of their competitors dropped their prices tothe $18 range. Everyone lost money in this segment, and as a result, they didn't meet theworst case projection. We've also had the opposite happen, where no one dropped theirprice, and the team sold out. This is a very volatile segment that is extremely difficult topredict. If you think your classmates will drop their prices immediately, feel free toreduce the forecast and production. The above numbers are averages and are by nomeans guarantees.

MarginsThe reduction in MTBF will save you 60 cents per unit, which helps to explain why youcan drop the price by a full dollar without seeing your margins change much. Thereduction in price of 50 cents will make you product much more appeali

capsim expert guide

Documents