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1. 5 246 276 5 r O28 U A 12 148 4ra a 6 253 160 3 6 245 186 3 e 958 382 7 BEEBE REE 102 447 4 002 3 Mote Cost of Focus Group Study is 50 thousand per report The detailed view of the FOCUS GROUP study shows the unit share actual vehicle characteristics and customer opinions for the top selling vehicles purchased by the particular customer during the most recent period Their responses provide descriptive measurements about the attractiveness of various vehicles to aid in R amp D and competitive analysis The columns marked hot indicate the most important attributes for that customer Below is a sample focus group study Focus Group Study 1E Value Seekers Economy Unit Class Size Cost Sate Qu Share Fit Hot Hot Delite B1i Economy 7 hil 4k 3 2 good good best worst worst Alec 22 Economy 18 168k 4 4 good big avd good good DaEcon 15 Economy 25 18k F 5 gogg big worst good best best StratSim User s Manual Page 60 Tools Vehicle Sales by Customer Instructor Selected Option The Vehicle SALES BY CUSTOMER tool allows you to see which customers are buying a particular vehicle This information is helpful to identify those customers who are most interested in your vehicle or in your competitor s vehicle This data is collected through a consumer survey of car buyers and cross referenced with the customer group This report only has information on the consumer market and does
2. StratSimManagement The Strategic Management Simulation Michael Deighan Interpretive Simulations Stuart W James Interpretive Simulations Wterpretivesimulations Charlottesville Virginia USA COPYRIGHT NOTICE This manual and the simulation described in it are copyrighted with all rights reserved by Interpretive Software Inc Under the copyright laws neither this manual nor the software may be copied in whole or in part without written consent of the authors except in the normal use of the simulation for educational purposes and then only by those with a valid license for use The same proprietary and copyright notices must be affixed to any permitted copies as were affixed to the original This exception does not allow copies to be made for others whether or not sold Under the law copying includes translating into another language or format Purchasing the simulation experience gives the owner the right to participate in a unique learning event Each student or participant must purchase the simulation to take part in the event or the institution sponsoring the event must purchase for the entire group participating in the event Limited Warranty on Media and Manuals In no event will Interpretive Software Inc be lable for direct indirect special incidental or consequential damages resulting from any defect in the software or its documentation even if advised of the possibility of such damages In particular the authors s
3. 792K units safety are most important to these price sensitive buyers Vehicle classes that may be of particular interest include economy and truck Families 2 Families have flexible but somewhat basic transportation needs They need a combination of Sales 1 663K units people and cargo carrying capabilities Safety and quality are most important to these fairly price sensitive buyers Vehicle classes of particular interest include family economy and minivan Singles 3 The singles market is young and this segment has more disposable income to spend on Sales 851K units transportation Singles have a wide variety of transportation needs Styling and performance are most important to this segment Vehicle classes that may be of particular interest include sports and truck High Income 4 People with high incomes have more elaborate transportation needs This segment may include Sales 363K units families professionals or retirees Since they have more disposable income to spend on transportation they are likely to purchase vehicles with extra features and good performance Vehicle classes that may be of particular interest include family and luxury Enterprisers 5 Enterprisers see their vehicle as an extension of their business and personal aspirations They use Sales 614K units their vehicles for business transportation and also to impress potential clients People with careers in real estate investments and sales are likely to f
4. Firm A Period 1 Results Period 2 Decisions User 32 StratSim lt aA ED r eb Period 1 cae StratSimMan agement Welcome to StratSim Before you begin the simulation please read the case You may then view the reports and Technology enter your first period decisions Product Development Domestic Marketing Pacific Marketing Atlantic Marketing Distribution Pacific Sourcing Atlantic Sourcing hlanutacturing Financing Decision Summary Decision Analysis Simulation The pages that follow review each of the decision options available within any particular region StratSim User s Manual Page 104 Decisions Region Marketing Enter Region At the beginning of the simulation none of the domestic firms operate in the foreign markets Therefore one of your first decisions is whether or not you want to market vehicles in a region and if so do you want to go it alone by entering the region with your own marketing and distribution network or through an alliance with a local partner who is already established in one of the international regions As noted previously your firm has a limited number of deals it can make in each region a total of 4 deals for both Sourcing and Marketing options So make sure your firm recognizes that it has limited resources with regard to negotiations and choose your partner and offer terms carefully Choosing to enter the region on your own will prevent you from negotiating an all
5. Sequencing of these expansion decisions What needs to happen first When do I need to expand capacity in order to meet demand for a new product initiative Economic Logic How will returns be obtained Lowest costs through scale advantages Lowest costs through scope and replication advantages Lowest costs through design and process improvement Staging Differentiators Image Lowest costs through international eee sourcing or partnering g cence Premium prices due to service Lowest prices due to proprietary product features Product quality Speed to market The above provides a brief overview into the process of designing a successful strategy Your instructor will likely provide additional resources for you to learn more about strategic planning To summarize make sure your firm has the following l A good grasp of the business situation through internal and external analysis 2 An agreed upon vision and mission for your company gt An established process for group analysis and decision making Regardless of the framework used the objective of strategy is to leverage a firm s capabilities and resources in the context of the external environment to create a sustainable competitive advantage over both the short and long term The remainder of this chapter will be devoted to helping you improve your performance in StratSim Managing for Success in StratSim Page 83 Importance
6. Your instructor will provide specific information regarding the timing of the international module Though there are a myriad of ways to take advantage of international opportunities StratSim provides four general types of international decisions e Marketing International Market Entry Distribution and Marketing Controlled by Firm International Alliance Distribution and Marketing Controlled by Partner e Sourcing Direct Foreign Investment Production Facilities Owned by Firm International Alliance Production Facilities Owned by Partner Market and competitive reports are not as detailed as in the domestic market but do provide you with enough information to make informed strategic decisions The goal with the international module of StratSim is to allow students to experience some of the most relevant aspects of international business without too many options which might be somewhat overwhelming The screen for the international menus is displayed below StratSim Management SEE Fie Edit Simulation Options Team Help StratSim Management Industry test Firm A Period 1 Results Period Decisions Firm 4 StratSim lt N ED r Period 1 Industry test User 3s Startup Internal SIMULATION Market Competition sm MARAAAMmaANe f Taak SCIU elcome to StratSim International International Market Pacific Segments Pacific Competitors Pacific Results Atlantic Segments Atlantic Competitors Atlantic Resu
7. distribution production and financials These reports are available to all participants The screen below shows the reports available under the COMPETITION menu A stratSim EEx Fie Edit Simulation Options Team Help StratSim Industry test Firm A Period 1 Results Period 2 Decisions Suni lt As 2 R Products Market Share Technology Marketing Comm Distribution Manufacturing Financial Summary The overall goals of competitive analysis are Firm amp Period 1 Industry test User ss Welcome to StratSim Before you begin the simulation please read the case You may then view the reports and enter your first period decisions Each page of the StratSim site contains an easy to use menu system consisting of three parts 1 specific menu options and links to decision making tools and input screens found on the left side of the StratSim browser window 2 green navigation and general control buttons across the top and 3 the current period with industry user and firm names displayed in the upper right hand corner e Identify the firms that are competing for your target markets segments e Analyze their strengths and weaknesses e Attempt to determine the competitor s strategy and what potential moves may be the result of that Strategy Determine the best approach for your firm to use to defend against the competitor s strategy while remaining consistent with your own strategy
8. e Economic e Product Fit e Industry e Price Dynamics e Relative Spend e Quality of Spend e Service Distrib e Preference All of these issues are drivers of your market share What makes it difficult to diagnose is that there are normally changes in all of these factors each year which can lead to very reactive decision making Your firm s strategy is what provides you with the long term direction as to how best to alter your tactics as the game progresses Which target markets should receive our limited resources Do our products meet our target customer needs Which competitors do we need to understand and monitor most closely What will be the most effective methods levers to use to drive market share Utilization of tools to help you better understand the customer and competition such as the test market focus group and others is critical for success Unit Sales Forecasting Sales for a Product Now that we have discussed the drivers of demand and market share it is a good time to consider how one might forecast unit sales Why is this important In StratSim you will be asked to enter a production plan for each vehicle Though this can be adjusted by up to 10 each year by selecting the flexible production option it 1s important for your production decision to be as accurate as possible to avoid either stockouts where there is insufficient production to satisfy demand or having unsold StratSim User s Manual Page 86 invento
9. regarding product pricing and performance Product Detail Alec WWanufacturer Firm A WSRP 15 351 Platform Mo Change Dealer Invoice 13 970 Model Class Economy Avg Retail Price 14 572 Engine HP 135 Advertising imill p40 Size Position 14 Advertising Theme Styling Interior Rating 2 Promotion imill 20 0 Styling Rating 1 Units Sald O00 s 5a Safety Rating 3 Value Wkt Share 4 0 Hiuality Rating 2 Share of Class 63 5 You may find this same information on your competitors under the COMPETITION MARKETING COMMUNICATIONS menu StratSim Operations Guide Page 39 Internal Distribution The INTERNAL DISTRIBUTION report summarizes information relating to your dealer network including the coverage ratio planned openings sales and support per dealer and dealer ratings Full coverage represents the number of sales areas in each region Thus coverage of 45 would imply that 45 of the sales areas are covered in a particular region Gross Dealer represents the amount of money gross that the average dealer in a region has to operate their business This equals the difference between the dealer invoice what the dealer pays for the vehicle and the actual retail price for all vehicles sold in their dealership These are in effect the revenues for the dealership The more revenues for the dealership the better salespeople and support staff they can hire the more they can reinvest in their facilities etc Thus this gros
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11. 981 Total Liabilities 1 198 Market eae 5 389 iti Stock 1 par 425 Retained Earnings Total Equity Total Liab and Equity History Printing to a Spreadsheet File To print a group of reports to a spreadsheet file click on PRINT REPORTS in the FILE pull down menu Check the box next to the Output to Spreadsheet File in the PRINT REPORTS window then check the box next to any or all of the four groups of reports Company Reports Market Reports Survey Reports and Current Decisions The reports will output to individual files regardless of whether you choose to output one or more groups of reports File Edit Simulation Options Team Hai unaD on farzin Print Reports Firm A Period 4 em Summary Income Statement Balance Sheet Cash Flow Statement Product Contribution Marketing Distribution Reports Industry News Income Statement Balance Sheet Cash Flow Statement Product Contribution Economy Vehicle Classes Regional Sales Consumer Segments J Products Market Share by Class Technology Capabilities Marketing Communications Distribution J Manufacturing Financial Summary 4 _ Report Period Output to Spreadsheet File Appendix Page 115 StratSim User s Manual Page 116 Appendix C Glossary of Terms Advertising Any paid form of non personal presentation and promotion of ideas goods or services by an identified sponsor Advert
12. Dealers j 520 Firm B 250 Firm 365 Firm D 420 Firm E 395 Firm Training mill 30 25 25 25 25 Days 0 0 0 0 From here historical data of distribution variables can be viewed by period History or analyzed over time Graph Additionally each firm s distribution details are available by clicking on the firm link e g Firm A Firm E as shown below in the DISTRIBUTION DETAIL report Distribution Detail Firm North South Full Coverage 243 Established Dealers 100 Coverage 42 Planned Openings 0 Support Dealer 000 s 362 6 318 5 pob2 6 baal Onits Dealer SalesiDealer tmill Serice Dealer imill Gross Dealer mill Dealer Rating 1 475 1 236 41 7 fa6 0 8 0 7 40 9 bod fai m4 52 51 65 1 606 iE ieee 1 347 pod 4 0 8 fa B3 Merkt Graph Print The DISTRIBUTION DETAIL report provides specific regional information on a firm s dealership network including their coverage ratio planned openings sales and support per dealer and dealer ratings Full Coverage represents the number of sales areas in each region Thus coverage of 45 would imply that 45 of the sales areas are covered in a particular region Gross Dealer represents the amount of money gross that the dealer has to operate their business on average Next displays the next firm in the list Graph displays dealerships by region and Print will print the report StratSim User s M
13. Economy 10 100hp Class Economy Size 1 1 00 10 Engine HP 100 Attributes int StwSatiqiual 2f2f2s2 Est Base Cast 100k units 9 970 Development Cost imill 461 Development Time 2 WPS The estimated unit cost is based on 100 000 units of production base cost If actual production is less than 100 000 units actual unit costs will be higher than the estimate If actual production is greater than projected actual unit costs will be lower than estimated In general unit costs decrease with greater production volumes due to the experience effect see Section 3 for a more in depth discussion of experience effects and economies of scale Technology Capabilities Each firm in the StratSim world has technological capabilities that parallel the vehicle attributes of interior styling safety and quality To keep measurement relatively straightforward these are rated from 1 to the current maximum where 1 equals a poor rating on that attribute Firms also have the ability to expand their capabilities up to current technology limits through investments in technology capabilities These investments provide two advantages first the ability to develop cars with enhanced features e g higher ratings and second the lowering of costs to develop a similar set of characteristics For example a firm with technology capabilities of 8 8 8 8 interior styling safety quality would be able to produce a 4 4 4 4 car at a lo
14. Industry test User ss Welcome to StratSim Before you begin the simulation please read the case You may then view the reports and enter your first period decisions Each page of the StratSim site contains an easy to use menu system consisting of three parts 1 specific menu options and links to decision making tools and input screens found on the left side of the StratSim browser window 2 green navigation and general control buttons across the top and 3 the current period with industry user and firm names displayed in the upper right hand corner e Identify the various market segments their needs and their attractiveness e Decide the segments your firm should serve based on attractiveness and your firm s positioning and resources e Determine the key success factors for gaining market share in your target segments e Identify the actions necessary for your firm to take in order to achieve your objectives StratSim User s Manual Page 42 Market Industry News INDUSTRY NEWS highlights significant events that occurred during the most recent simulated period This includes product launches new customers identified in the market licensing agreements drastic changes in stock prices and other news of general interest Less important information is not included in the report such as minor fluctuations in stock prices Links to important information such as new product attributes are embedded in the
15. N AITE Co nv EAEN AOAO EAEN A TEA 11 C a O E E EEE N 13 a n EE 3 5a E A E A E E N E E A E E E E EAE E E TE 13 Pao we ean E a EER 15 Be enacted porous A E enee spare ee 21 Section 2 StratSim Operations Guide sercsssecin ieee 25 6 ci ES Silo 5 i Uo 6 UmMEe rennet ene raven EnTTT Sean Mr TeU ene Pat Te venTT ner nearest terre ret rte ereemrT Terres Teter rer Tt att rrr errr rer tt ree 2S S N A aE EEE 28 Derd or Memi OPOS prena ra EEE EEE E E 32 E r E E A E A E A R 33 LS OT E LI EAE A EE AIEEE A E VEEE AE PEI AE eee IE EE LEE PEIEE E T N E AT AA 42 LE a E EAEE AEE EE ENE AAEE A E AE ee Te 51 ease esas pena epee aa ts na ia ec a NAE SEERE AE nada aa 59 BIE T a ee EIN ee ON N ee E EA EEE 66 Section 3 Managing for Success in StratSim ccccsssrsssssssssssssccsccccccccccsssssssssssssssssssssssscccccsssssssees 81 Ponocna S Be Up fcc 2 Seen ee ere RAE 82 Theroni ann een me eee oe ee enone Meet eeeee rye Cerro eee a Peer nn ne Terre terme Peery eee tear 85 Oe E E E EAE AE 91 belated Wa gic ml cel eve try OMe i SEA esere anr EE E EE EAE EA a 92 T E E 99 Appendix A Optional International Mod Gera isceisscreoncaiannnsannianinunesnanunuaneareea 99 Append B Exporting Dala to a Spr CASH siesena ibien AE EAEE ae Pa C Glossary of Termi anaE AEE eens 117 Tee jaan Aina 119 Print Date 4 12 2011 Acknowledgments We have always considered our customers to be the most important part of our product development team and we are fortunate that
16. StratSim Operations Guide Page 51 Competition Products The PRODUCTS report provides side by side comparisons of the main characteristics of each product in the market Each vehicle s class price size engine interior styling safety and quality are displayed along with its overall market share Clicking on a link sorts the report by Vehicle Name Class Units Sold Price or Size A sample screen is shown below Int Styl Safe Qual 13 252 22 696 21 499 37 022 31 855 32 496 28 428 23 065 44 359 24 743 11 080 19 299 21 716 25 870 24 668 History Spe se 342 N BN Be Bw KH Sm w Nne NWU amp Ww Nee UNAN NAW u neee NONNEN N e N e In depth information on a vehicle is viewed in the PRODUCT DETAIL report by clicking on the vehicle name such as Alec or Boffo A sample product detail screen is shown below This report includes all relevant information on a particular vehicle including all the attributes prices and marketing data Clicking on Trend displays the PRODUCT CHARACTERISTICS HISTORY for that product Product Detail Baffo Manufacturer Firm B MSRP 31 855 Platform Mo Change Dealer Invoice 25 0353 Model Class Family Avg Retail Price 24 050 Engine HF 200 Advertising mill 60 0 Size Position 49 Advertising Theme auality Interior Rating 4 Promotion imill 40 0 Shiling Rating 3 Units Sold 000 s 102 Safety Rating Value Mkt Share 3 0 Quality Rating 2
17. a requirement if you have sufficient capacity to produce all your product lines For a new product where you already have developed a vehicle in the same class the decision to add capacity should be done in the same period that you start product development as shown below New Product Round Round Round Create concept Available to sell Name product Modify specs Results Add capacity Set production impacted if needed Set marketing mama Uses 1 Development Center for 2 Periods Rounds 2 3 StratSim User s Manual Page 94 New Product in a New Class Launch after 2 Advances New product in a new class works much the same way as a new product same class except that it takes one additional period to complete In this situation capacity 1f needed would be added the period after the product development project is initiated Also note that a development center will be occupied for three rounds So it is important to plan accordingly Development costs will be spread equally over the three periods it resides in the development center Available to sell Modify specs Results Modify specs Build capacity Name product if needed Set production impacted Set marketing Create concept Uses 1 Development Center for 3 Periods Rounds 2 3 4 Development Centers Center available after 1 advance If you find the need to add a development center you must think ahead as it takes one period befor
18. also the firm s cash flow Certain fixed costs that are charged to the fixed cost part of the profit equation are amortizations of investment in capacity development centers etc The cash required for these investments is often expended earlier than the full charges to the profits equation Thus the firm will need to be concerned with both the profit and cash flow aspects of fixed costs Your firm will want to try to make sure that it has sufficient funds from operations available early in the simulation to fund any long term projects and weather any challenging periods This may not be possible and thus the appropriate use of the debt and equity markets to satisfy the firm s cash needs may be necessary Last there are some hidden costs of doing business that you should try to control These include on going inventory write offs high retooling costs and the like Generally this is due to poor forecasting which as was discussed earlier 1s not a simple issue However as you gain experience and make better use of the tools you ll find you can improve your ability to manage these operational issues Monitoring Performance and Pro Forma The best way to analyze the profit equation during the decision making process is by using the pro forma analysis The pro forma reports use your forecasts and the cost of your decisions and allow you to calculate financial statements based on these assumptions It is important to recognize that your
19. and an attribute which represents a competitive advantage for the vehicle In general the majority of the advertising budget is spent on media buys with the remainder on the creative input and theme StratSim User s Manual Page 72 Decisions Distribution The DISTRIBUTION DECISIONS screen is where you may open or close dealerships on a regional basis and set a training and support budget for the dealerships The main distribution screen is shown below Distribution Decisions Dealerships Noth South Full Coverage 164 243 Established 100 120 Coverage 53 4 49 9 SalesiDealer milli 50 8 53 7 Sched change 0 i Dealer Inc Dec T Training and Support Click on the Dealer Inc Dec or Training and Support link to enter distribution decisions as shown below Enter changes to the number of dealers in each region along with training budget Firm E Dealer Inci Dectmax 40 Training rill fi Morth 25 South East west Cancel For each region enter the change in dealerships This may be positive or negative The maximum allowable change is 10 of your current dealerships So if you have 600 dealerships and you add 30 in one region and decrease by 30 in another region you have reached your maximum allowable change Note It takes I year to open or close a dealership For example if you make the decision to add dealerships in the first period results for period 1 it will not impact results until the r
20. and implement a strategy that will provide a long term return manufacturer and covers for your shareholders over the next 6 10 years Though you must have a long term vision it will also be topics such as the Internal important to manage for the near term to ensure cash flow and generate positive customer and reports performance shareholder expectations In addition competition is likely to be fierce as there are several other firms summary income statement with fresh management teams that have similar objectives This clearly will be a challenging task butyou Palance sheet cash flaw have full control over all the major functional areas of your company including product development and production Cori grery marketing mix operations human resources and financial management The board has provided you the Industry market a A no A analysis reports and with this basic briefing but also suggests reading the more in depth StratSim Case E E RT detailed competitor analysis and Tools and Research specialized StratSim screen display and user info rnational Help for Decisions Decision Analysis Simulation current report Note The case will launch in your browser The links on the left of the StratSim window lead to all the information St r a E S1 m and tools you will need to analyze your current position plan a strategy Sy and input your decisions These links are divided into nine
21. attention and priority Decisions should be the end result of your analysis Use the following points to guide your decision making process e Decide on change or revisit your strategy e Use the problems and opportunities that are within your strategic framework to guide where to focus time and resources Understand your financial resources and your competitors strategies Identify the actions necessary for your firm to achieve your objectives Check the Decision Alerts report to make sure you did not miss anything important Use the pro forma under Decision Analysis as a check on your assumptions All your decisions will be saved to the server so you must be on line to make decisions Anyone else on your team will be able to see your decisions after you have left a particular decision screen Important Everyone on your team is sharing one decision file so you will need to decide how best to divide the decision responsibilities Please note that as a safeguard against overwriting each other s decisions no two people will be able to enter the same decision screen at the same time StratSim User s Manual Page 66 Decisions Technology These decisions consist of investing in the four basic technical capabilities of the firm Click on the Curr Expenditure link to invest in one or more of these areas using the checkboxes provided The cost of each of these enhanced capabilities is presented in the Technology Capabilities t
22. attributes have a maximum value dependent upon the firm s technical capability in that area In StratSim vehicles with higher attributes in these four dimensions are more appealing to customers all other things being equal Customers may find a particular attribute more important i e hot button depending on their needs and preferences Customers weigh these attributes against the price of the product and also consider the size and engine performance of the vehicle which is typically a personal preference Price Generally ranges from 5 000 50 000 Size 0 100 smallest to largest Performance 50 300 Horsepower low to high performance Interior 1 to the maximum value dependent on firm capability Styling 1 to the maximum value dependent on firm capability Safety 1 to the maximum value dependent on firm capability Quality 1 to the maximum value dependent on firm capability Pricing Vehicle pricing and costing is complex and requires careful attention to detail Depending on the context price can have several meanings The manufacturer sets the vehicle MSRP Manufacturer s Suggested Retail Price This is the price that is posted in the window of the vehicle but is rarely the price that the customer actually pays Average retail price is the average of all the actual prices that customers pay This price includes promotional discounts haggling with the dealer dealer mark ups etc The dealer invoice is what the dealer pays for the v
23. choose from each with different characteristics and costs Your firm s job if you choose to use this sourcing approach is to find a good partner firm level and a good vehicle product market level There are three important rules to consider in StratSim when negotiating these alliances First your firm has a limited number of deals it can make the 4 of 4 remaining message per period in each region The number of deals is a total number of deals for both Sourcing and Marketing options So make sure your firm recognizes that it has limited resources with regard to negotiations and choose your partner and offer terms carefully Second any agreement even if it has not been accepted uses one of your available deal slots during the period in which it was initiated Third each agreement is for one year at the end of which you may choose to renew Thus accepted deals will use one of your available slots in the next period as well However once a deal has been accepted by a partner a renewal will be agreed to without further negotiation as long as you do not change the price too dramatically beyond the expected change due to inflation Additionally should you forget to renew an alliance and the simulation is advanced that alliance is broken and must be completely renegotiated and begun anew There are two aspects the potential partner will want to consider First is the potential match with your firm Are you a good strategic pa
24. debt On this report the top line will show short term debt paid followed by the projected short term loans required and interest rate paid for the upcoming year The next two items Bonds Issued and Stocks Issued show any funds raised via a stock or bond offering Alternatively if bonds are called repurchased this will show up as an additional line item If your firm decides to buy back stock the estimated price paid and capital raised will be displayed on the Stocks Issued line StratSim User s Manual Page 80 Section 3 Managing for Success 1n StratSim Introduction StratSim is designed to be a challenging and realistic learning experience We hope that you will enjoy the challenge The idea behind a simulation is that by striving to improve your performance in an active way you will better understand how to operate a business This section of the manual will provide you with some insights that will help you prosper during your tenure as managers in StratSim The first goal of StratSim is to allow you to develop implement and potentially adjust a strategy in a dynamic environment over multiple years What exactly does dynamic environment mean in the context of business It means that we can expect customers competition and macro economic conditions to change as time progresses A good strategy must reflect current realities while also assessing future paths to success in an ever changing world The secon
25. firm and firm preference Clicking on the firm links Firm A through Firm E produces detailed marketing reports for each firm including product marketing mix decisions shown below Marketing Detail Firm D Consumer Regional Corp Adv Direct Mail Public Relations Total Val Mkt Share 5 6 8 333 8 8 25 261 7 2 12 957 Budget mill MSRP Dealer Disc Avg Sell Price 9 0 7 861 13 0 23 580 12 0 12 557 Company Owned Fleet Direct Sales Force Direct Mail Total Adv Adv mill Theme 40 Quality 80 Styling 60 Styling 180 Budget mill Links to the product detail e g Alec are also available in the MARKETING DETAIL report for a particular firm StratSim Operations Guide Page 55 Competition Distribution The DISTRIBUTION report summarizes information relating to the dealer network for all the firms number of dealerships previous number of dealerships scheduled openings spending on dealer training support dealer ratings inventory and days left in inventory The Dealer Rating is a customer satisfaction index from a leading market research company and ranges from 1 100 where 100 corresponds to highest satisfaction Dealer ratings provide insight into the success of dealerships A sample screen is shown below Distribution ln 000 s Dealer Rating Prev Planned Dealers Openings 520 280 365 420 395 Graph History Curr
26. forecasts are what drive unit sales in the pro forma analysis the simulation does not forecast sales for you However the pro forma analysis will allow you to test your assumptions about the profit equation Managing for Success in StratSim Page 91 and basically answer the question If we make these decisions and achieve our forecasts what will be the financial outcome Once you have made your decisions and the simulation is advanced compare your estimate of results from the pro forma sales market share net income etc with actual results If there is a significant difference between the two you should find out why Sometimes results will be better than expected Other times and probably more often results will be less than you hoped Use downturns as motivation to better understand your business Long Term Planning in StratSim In StratSim and strategy in general decisions often take time to implement and to have an impact in the marketplace This section discusses some of the most important timing and staging issues in StratSim to allow you to plan your timeline accordingly Some decision impacts are immediate that is a decision 1s made and after the simulation is advanced it impacts the results while the initial impact of other decisions may be delayed for up to two additional advances In addition some decisions have longer term effects New products sell for multiple periods advertising has both an immediate and long t
27. in the market before making decisions for the next year The simulation does not specifically tell which strategies worked and which did not Instead you must compare your results with those of your competition and consider how well your strategy 1s working You may find some of the comparative graphs helpful in your analysis Review Results Repeat the decision making process until all periods have been completed At the end of the simulation you will be able to see how your firm performed over the entire game Repeat You may find it helpful to print out some reports and step back from the computer from time to time Analyzing information and determining an integrated business plan 1s a complex task It is important to take time and reflect on the information especially when working in groups You may also find it useful to refer to sections 3 and 4 of the manual to help design a framework for analyzing the environment and making decisions For many of you using StratSim will be a unique learning experience From the simulation you will gain a practical understanding of business strategy and how various factors interact and affect one another By analyzing information making decisions and observing the results you will experience first hand the challenges and rewards of strategic management Introduction Page 3 The StratSimManagement Manual The remainder of this manual is divided into five sections 1 The StratSim Case T
28. much greater margin for error in the forecast However upgrades and new products same class are not announced in advance and these will also impact sales By analyzing historical trends available development centers and competitor past behavior and intent you may be able to gain some insight as to what the competitor is likely to do with regard to upgrades There are two final considerations when deciding on production volume First is your assessment of the risk of losing sales due to under production against the cost of holding inventory due to over production Some of the factors to take into consideration when weighing these factors are the margin on the product your plans to upgrade the product in the future and thus obsolete current inventory and the cost of capital used to build inventory The second consideration is the potential cost of retooling Remember that anytime production is increased from the previous period a retooling charge is assessed Therefore a steady production volume over time is preferable to one with significant variation all things being equal Managing for Success in StratSim Page 87 Unit Margin Unit margin is defined as the difference between your selling price which in StratSim is your MSRP less your dealer discount and the unit variable cost or cost of goods sold COGS Unit margin is how much your firm makes on each vehicle sold In a business where the variable costs are a high percentage of your
29. or your team compares with others competing in your simulation event StratSim User s Manual Page 26 Installation You may open and run the installation file directly from the Internet or download the archive exe file to a folder The StratSim software is in a self extracting installation file If you choose to open the file follow the installation instructions to extract the programs If you choose to save the file to a folder on your hard drive save the file then go to the folder double click on the exe file and follow the installation instructions StratSim may be installed on multiple computers work and school for example but you should refresh the data or login again anytime you change locations Login to StratSim The installation process will allow you to create a StratSim icon on your desktop and on the Start menu To run the program either double click on the StratSim icon on your desktop or click on the Programs Simulations StratSim icon from the Start menu The following login screen will appear F stratSim File Help StratSim Login Welcome to StratSim please login Login Help Interpretive When you login to the program make sure you have an active Internet connection You will also need your user ID and password which should have been sent directly to you by the simulation administrator From this screen choose the Login button You ll now be prompted for your user ID and password see Login s
30. sell off overall firm capacity click on Capacity Change and enter the change in capacity positive or negative The estimated cost of an additional 100 000 units of production is displayed though you are not restricted to blocks of 100 000 units These costs are depreciated over ten years The following period the additional capacity is available for production decisions You can decrease capacity by entering a negative number Increases and decreases are limited to 50 of your current capacity Once the decisions are entered click on the OK button Enter changes to your firm s plant capacity Firm E Current Capacity Capacity Inc J Dec Cancel Alternatively you may choose to produce over capacity at a charge dependent upon the number of units produced beyond the firm s base capacity This value is shown in the plant capacity section of the screen as Over capacity Charge M StratSim Operations Guide Page 75 Decisions Financing The FINANCING DECISIONS report is where decisions involving cash flow and investor relations are entered Often these decisions will be made after you have used the pro forma analysis to forecast your cash flow and financing needs When there are not enough funds to cover all cash needs a short term loan is automatically issued However you have the option of replacing the short term loan with long term debt and or issuing stock This decision screen is also where your firm declares the di
31. selling price pricing and unit cost savings are especially important This is certainly the situation in StratSim where COGS is often between 60 80 of revenues or on a per unit basis of the selling price Therefore pay close attention to the impact of pricing and variable costs on the profitability of your business Let s explore these two areas in more detail Unit Margin Selling Price Pricing is one of the most critical issues facing a firm This is because the pricing decision influences all parts of this performance equation In the profit equation pricing affects the revenue inflow side of the margin what the firm receives when it sells a product or service But the pricing decision also impacts 1 your market share 2 pricing by your firm and your competitors in the market influences overall demand and 3 pricing may also have an indirect impact on COGS if a change in price drives the volume sold and produced Let s briefly consider how important this margin is Let s say your business currently sells a product for 100 and COGS is approximately 80 or 80 If you decide to reduce your price by 10 and the COGS remains the same you have also reduced your margin by 10 On a percentage basis however you have cut your margin by 50 20 reduced to 10 This means that unless unit sales doubles your profits will decrease So tactically at least in the short term your firm should be asking whether a 10 reduction in price w
32. ss Each page of the StratSim site neues i Pech CoH Ite ae ee Welcome to StratSim 1 specific menu options and links ash rlom Sttemeni to decision making tools and input NEE Before you begin the simulation please read screens found on the left side of Product Contribution the case You may then view the reports and the StratSim browser window 2 Marketing i enter your first period decisions green navigation and general Distribution 7 control buttons across the top and Manufacturing 3 the current period with Market industry user and firm names Competition y displayed in the upper right hand Tools y corner Decisions i Decision Analysis Simulation Second monitor the status of the firm s resources Is there enough cash to fuel the strategy If not consider alternative sources of additional funds Recognizing this need early in StratSim is a benefit as short term borrowing is generally more expensive than long term debt or stock offerings Part of the simulation experience should be setting objectives that will measure whether your firm is achieving its strategy These may be goals of profitability levels market share stock price growth etc Use these objectives as markers to compare your actual path to your planned path If you find you are not meeting these objectives you must realistically face why this is happening and adjust as necessary Use these objectives as markers to compare your actual path to y
33. text New vehicle class launch plans of your competitors are announced in industry news during the period before the launch Industry News Gas prices and economy fairly stable which should provide a good environment for vehicle sales Firm D s market share fell from 28 0 to 26 3 Firm E s stock price rose 7 to 50 Industry marketing expenditures were flat at 1 894 million Print Though the INDUSTRY NEWS report is rather brief at the beginning of the simulation you can be assured this screen gets considerably longer as the game progresses Market Economic Outlook The ECONOMIC OUTLOOK report provides a very brief overview of the general economic conditions for the current year past year and a forecast for the coming year Economic strength as measured by GDP growth and low interest rates typically have a positive impact on car sales The inflation rate should be taken into consideration when analyzing costs and adjusting prices as the COGS of a vehicle will increase by the inflation rate without taking into consideration other factors The cash rate is the interest rate paid on short term cash balances As the economy changes and interest rates change the rates on short term loans and new long term loans will also change Economic Outlook Period 1 Per 0 Per 1 Per 2 Indicator Last Current Forecast Feal GDP Growth Inflation Prime Rate Cash Rate Materials Cost Labor Cost Gas Price Nigal D
34. the upgrade For example firm A currently markets a family car Alfa with characteristics 2 1 3 and 2 Upgraded characteristics might be 4 1 3 4 with changes to the horsepower and size as well The maximum change for a major upgrade in the first year is 2 on each of the four vehicle specifications 20 on HP and 10 on size These may be adjusted in the second year 3 New Product Existing Class Based on a New Vehicle Concept 2 Advances The third development option is for a firm to develop a new vehicle in a class where it has experience but to start from a new concept rather than upgrading an existing vehicle This option is completed and launched in the year following when it is begun and normally costs between 250 million and 1 5 billion to complete again depending on the particular characteristics For example Firm A currently markets a family car Alfa with characteristics 2 1 3 2 Firm A decides to come out with a totally new higher end family class vehicle named Aphid There will be no brand awareness for the product since it will have a new nameplate 4 New Product New Class Based on a New Vehicle Concept 3 Advances The fourth development option is for a firm to develop a new vehicle in a class in which it has no experience making it necessary to start from a totally new concept This option is completed and launched in the second year following when it is begun and normally costs in excess
35. to add more dealers or adjust your marketing expenses budget for the region click back into the Marketing Support link to adjust these numbers as shown at right below Be sure to adjust the production schedule for the vehicle based on your estimated sales in the region MM x i inate Di x Pacific Pacific Enter the number of distributors to add along with marketing support Select a vehicle the selling price and an estimate ofthe unit sales IV Distribute in Region uncheck to exit region Vehicle x Add Distributors Price o Marketing Support mit f Est Units 000 s Cancel Cancel The screen below shows a vehicle being distributed in a region Region Decisions Atlantic Marketing Options Add Vehicle to Market Exit Region Marketing Decisions Curr Distributors Mew Distributors Marketing Support mill Cast mill Vehicles Marketed Vehicle Est Shipping Delrvered Selling Est Units Unit Cost Tantt Cost Price O00 s Alec j a J a StratSim User s Manual Page 106 Decisions Region Marketing Negotiate New Alliance An alternative approach to building a marketing and distribution presence on your own is to partner with a local manufacturer who will import distribute and market your vehicles in the international market Using this approach allows you to get your vehicles to market faster by using the local firm s existing distribution and marketing network Each marketing
36. to be their primary mode of transportation and should hold up well under the normal wear and tear of everyday family life Volumes for this class are significant so it is important to create a vehicle with wide appeal Price and promotional deals have a significant impact on buyers of these vehicles Examples of family vehicles are the Honda Accord and Toyota Camry Luxury Luxury vehicles are high priced cars with top of the line features and performance Price is typically in excess of 35 000 Engine horsepower is likely to be over 150 Luxury vehicles come in a wide array of models including sedans coupes and even wagons A luxury car can usually seat 5 adults comfortably Legroom and storage space are ample In StratSim this corresponds to a size of approximately 45 70 Features on a luxury car are normally numerous Interior styling safety and quality are all likely to be quite high Customers who are in search of a luxury vehicle want the best and are willing to pay for it StratSim User s Manual Page 16 Though volumes in this class are less per vehicle profit margins are high These vehicles are also often the flagship brand for the company and help create showroom traffic Examples of luxury vehicles are Mercedes Cadillacs Lexus and some BMWs Sports Sports vehicles emphasize performance and come in a range of prices and sizes Typically they appeal to the young and the young at heart An economy sports car
37. yearly and can be seen in the overhead item in the region s income statement Region Plant Decision Fa Pacific Select the type of plant you would like to build C Single Line Plant takes 1 year 200 mill year C Multi Line Plant takes 2 years 300 mill tyear Cancel StratSim User s Manual Page 108 Decisions Region Sourcing Add Vehicle into Production After you make your decision to open a plant the plant status will display on the Sourcing Decisions screen for the region When the plant is available for production one year for a single line plant two years for a multi line plant you may choose a vehicle to produce in the plant For a single line plant you will also have the option to upgrade to a multi line plant allowing you to produce more than one vehicle but with a higher overhead cost The upgrade takes one year to complete Region Sourcing Decisions Pacific Sourcing Options Single Line Plant Available 200 millvear Upgrade to Mult Line Plant 320 millear Negotiate Mew Alliance f4 of 4 deals remaining this period in this region You may select a vehicle to produce in your plant by clicking on the link above To begin production on a vehicle in your new plant select the Plant Available link A vehicle selection dialog box opens as shown below at left Use the drop down menu to select the vehicle you want to put into production in your new plant If you begin production in an
38. you organize your group How will you make decisions Consensus Delegation Can you come to a shared vision and mission for your company Will you embrace your strategy or will you second guess others if faced with obstacles Managing people and organizations is indeed a challenge Your team should develop a written charter that describes the operating process that the team will use to do analysis divide labor and make decisions Use StratSim as an opportunity to gain experience in this group process Before we jump into analysis for success in StratSim let s begin with a quick review of the fundamentals of strategy because a team with a well reasoned strategy has a better chance of succeeding than a team without one Then we will discuss some points regarding execution of strategy in the context of StratSim These include measures that provide strategic insights and helpful tips that should improve performance Managing for Success in StratSim Page 81 Fundamentals of Strategy A successful strategy is based on two foundations First is a good understanding of the business situation achieved from thorough internal and external analyses Internal analysis is focused on knowing the capabilities and resources of your organization External analysis focuses on the environment where your company chooses to do business This will include both industry level considerations markets channels competition suppliers etc as well as macro con
39. 30 gwill be written off at a cost of 38 27 Scheduled Production 351 Flexible Production W plusiminus 10 of scheduled Cancel In general the car industry aims to have 30 60 days of inventory available but may have less if a firm is planning to upgrade or discontinue a vehicle It is important to note that when upgrading a vehicle the current inventory will not be sold in the market but will instead be written off at a loss to the company By default the Flexible Production checkbox is enabled In this case if demand is greater than supply the simulation will automatically increase production up to 10 to sell the unmet demand If the supply is greater than 120 days the simulation will automatically decrease the supply by up to 10 to meet the 120 days of inventory If inventory levels are between O and 120 days production remains unchanged If the checkbox is disabled your firm will produce exactly what you have entered in the Scheduled Production field Note that if the sum of all production including flexible exceeds capacity you will be charged any over capacity charges that apply Retooling costs are based on new platforms or increases in the production of an existing model where existing capacity needs to be changed from one model to another Thus careful planning with regard to forecasting demand and production helps keep retooling costs lower StratSim User s Manual Page 74 Capacity Adjustments To build or
40. 87 r 626 af H 377 Awesome 11 275 12 148 476 3 473 Catfay fo 4r 6253 160 3 157 Climas 5 540 B 243 136 a 183 Beaut 3 078 8 956 382 r 390 Euro E Customer JES 174 2E f ZFS 2M 35 5 Th aud AF f aL i DL a aug Total 94 261 102 447 4 502 3 4 826 Mote Dollar amounts are in millions units in thousands Cost of Customer Detail is 25 thousand per report History You can choose a customer link 1E through 5U to display customer detail information described on the following page This detail costs 25K per customer but provides important market information about customer needs and product preferences It will be up to your team to decide which studies are worth purchasing Once a study has been purchased the will be deleted to indicate that it has been purchased it can be viewed again anytime that period at no charge Alternatively some of this information can be gathered using the marketing research tools as in CONJOINT ANALYSIS StratSim User s Manual Page 48 Market Consumer Customers Customer pick one The CUSTOMER DETAIL report contains all of the information relevant to a particular customer s purchase decisions in one report and costs 25K per customer In addition to the customer units purchased growth rate and expected size price and engine ranges this report also provides customer hot buttons and price sensitivity Below the customer description is a grid of the le
41. Financial Operations link the detail of your pro forma financial decisions and implications will be displayed as shown below Pro Forma Detail Stock price 48 Shares outstanding 530 million Bond rating BB Shortterm rate BB 8 0 Long term rate BB 6 0 Financial Operations Firm A Amount Comment Mill Short Term Debt Paid 10 818 Short Term Loans 4 102 7 0 est Bonds Issued 1 000 5 5 est Stock Issued 2 000 sell 45 3 44 per share est Interest Earned 149 Interest Paid 337 Dividends Paid 100 0 17 per share 1 111 SSS The top of the screen contains information on how the financial markets assess your company The shares outstanding will remain constant unless your team chooses to sell or buy back stock The bond rating will vary based on the financial position of your company and the short and long term interest rates will vary based on your bond rating and general interest rates Bonds are rated from D lowest to AAA highest where higher ratings correspond to lower interest rates If your bond rating improves the interest rate the market requires from your debt issues will decrease all other things being equal The second half of the screen shows the cash flows from financial operations At the top of the list are cash flows from short term debt All outstanding short term debt is paid off each year Any cash deficits based on your current decisions will automatically be filled by short term
42. H Velicle Ofer Price Tari Cast is Shins 7 Co Ow atio ace ant Acting s waiting Tor your 23 acceptance AM agreements with your alliance parner ars Tor one year and will nedd to be renegotiated when they tariis apir The pinati pire is the amount you pay your pariner you are bl Sourcing Alliances Partner Contract Shipping Delhrered Units Vehicle Offer Price Tait Cost 000s Shamus Ang Mihuan al agreement accepted All agreements with your alliance padiner are for one year and will need ta bere merited aari they espire The contract peice is the amount you pay your ariney You are responsible for chipping and tariis l NOTE After clicking Accept the status changed to agreement accepted StratSim User s Manual Page 112 Once you have accepted the alliance you must then set pricing dealer discount and establish an advertising and promotional strategy for your new imported vehicle Below is a sample screen of the home region Consumer Marketing Report Consumer Marketing Decisions Corporate Marketing Budget imill Regional Corp Ady 100 Direct Mail he Public Relations hE Total 108 Direct Wail Targets Value Seekers Familia st Product Marketing NOTE The selling price Dealer Adv Adv Promo dealer discount percent Vehicle Platform MSRP Disc imill Theme imill e gt a advertising theme and A Aig
43. Mail Public Relations Total Product Marketing Dealer Adv Adv Promo Vehicle Platform MSRP Disc Mill Theme Mill Estruck PET1 22019 12 0 60 Perform 20 Euro REWI eae 12 05 40 Styling 30 Evan PEM1 25 047 12 0 80 Styling Total 180 B28 Marketing SF Mail Segment mill Once the simulation has been advanced to the next year your course website will be updated with results and you can choose either to REFRESH DATA under OPTION from the drop down menu or just login again The simulation will now be in the next period reflected at the top of the StratSim program window StratSim Operations Guide Page 77 Decision Analysis Decision Alerts This screen will display timely messages to your firm alerting you to decisions that have not yet been entered They may pertain to your team not entering changes to your product decisions not entering launch information for new products having unused concepts that were not put into development production of zero units and no changes in firm decisions non product decisions Some of these may be your intent but it is always worth checking these messages and then entering any necessary adjustments to your decisions before the simulation 1s advanced StratSim User s Manual Page 78 Decision Analysis Pro Forma The PRO FORMA section of the decision analysis menu is used to project your inventory contribution income and balance sheet items for the upcoming
44. NCE SHEET shows the current account balances for assets and liabilities at the most recent year end A sample screen is shown below Asset Categories Cash Receivables e Inventory Plant and Equip Depreciation e Balance Sheet Firm B Assets Liabilities Mill Cash Accounts Payable 495 Receivables Short Term Debt 1 109 Inventory Long Term Debt 0 Plant and Equip Total Liabilities 1 604 Depreciation Stock 1 par 340 Retained Earnings 2 434 Total Equity 2 774 Total Assets 4 378 Total Liab and Equity 4378 History In StratSim cash represents the funds currently available to you for investment The current balance in cash equals last year s cash balance plus income from operations less plant investments plus any adjustments from financial operations and any changes in receivables and payables Invoices still not paid by dealerships Current value of finished inventory Original value of the plant and equipment used in production of the vehicles This includes retooling investments Plant equipment and retooling costs are spread over 10 years using straight line depreciation This is the accumulated depreciation on the assets Liability and Equity Categories Accts Payable e Short Term Debt Long Term Debt Stock Retained Earnings Amount currently owed to vendors Outstanding short term lines of credit used to fund on going operations Normally these loans result from under
45. Peay 0 0 0 po Alec NoChange 15 351 9 0 40 Styling advertising budget have Alfa Mo Change p24 1084 11 0 fol Interior 40 Awesome No Change 21 149 14 0 60 auality fal not been allocated for the 180 an new A Xing vehicle El To enter your marketing decisions for this new vehicle simply click on the vehicle name link and the marketing decision screen will open as shown below Product Marketing Decision X Enter marketing decisions for the vehicle below Vehicle A xing MSRP Promotion mill Dealer Disc Advertising mill Adv Theme V Sellin Consumer Market Interior a Styling Safety After the simulation has been advanced and the alliance is open for renewal you can adjust the terms of the alliance if you want For example you may want to renegotiate a higher price to adjust for inflation In order to adjust your alliance agreement click back into the vehicle name link and enter your new negotiation price and proceed as described previously Should you want to discontinue the alliance with your partner simply do not renew the alliance after the simulation has been advanced If you have inventory remaining from this alliance the inventory is yours and you may continue to sell it through your own dealers Appendix Page 113 SOURCING Open Plant Single line 200 mill year SOURCING Open Plant Multi line 300 mill year SOURCING Partnership Negotiate Alli
46. Share of Class To StratSim User s Manual Page 52 Competition Market Share The MARKET SHARE report displays firm market share by vehicle class Units sold and sales growth for the past year are also displayed by class A blank spot in the grid indicates that a firm does not currently offer a vehicle in that class Click on Graph to display a graph of unit sales by class The History button allows you to view past period reports Market Share by Class Period 1 Chg Firma 63 5 21 9 Graph History The link to a vehicle class such as Economy provides detailed information on marketing issues within that class including share of class overall share for the vehicle MSRP advertising budget and theme and promotional budget A sample screen for the Economy class MARKET SHARE DETAIL is below Market Share Detail Economy Class description Vehicle Share of Overall MSRP Adv Adv Promo Share imill Theme mill 16 15 252 40 Styling 20 a 11 080 40 Quality 20 Graph provides a graph of market share by vehicle over time for that class Map creates a positioning map of size and price for the vehicle class and shows the expected price and size ranges for that class Print will print this report Next will take you to the next vehicle class listed on the VEHICLE CLASSES report Clicking on the vehicle name link will provide more detailed information about the vehicle StratSim Opera
47. Sim Operations Guide Page 25 After logging in and placing your order if you haven t yet done so you will go to your course website where you can access the simulation and student guide comparative results and other pertinent information as shown below simulations My Order View your order information Your Schoo M y Setti n gs z Cha nge you r Welcome Welcome Student User ID dt9101 paSSwo o rd Welcome Once you have registered by using an access code or School Your School Student a debit or credit card you will be able to access the i Course Your Course simulation Name My Team View information Home Mv Order Find Your Way Around Semester Current i Semester about your team members My Settings Register for the Simulation v Faculty ne Facil Se My Team Read the Manual Resources Simulation sie see are related materials manual Help PowerPoints flash tours etc Logout Practice Schedule Help Help and FAQs schedule Click on the active Download Simulation link in the home page to access StratSimManagement From this screen click the StratSim Installation Program link to open or save the program to your hard drive simulations Access simulation by first clicking the active Download Simulation i n k Ownload the StratSimManagement Installation Program and then clicking the Se e ee a i N 2 5 3 Once the simulation software is installed start the program by double click
48. The International Results report provides a detailed description of each vehicle in the regional market and their sales A sample of this report is shown below Clicking on a heading link will sort the listing by vehicle name class unit sales price or size You may also click on a vehicle name to see a history of sales for the vehicle Pacific Results Period 1 Class hlinivan Economy 54 Economy T3 Economy 105 MSRP 15 400 pa 800 5 700 4 000 14 400 Styl Safe Gual Family 5 Truck 28 17 300 tinivan 11 15 600 When you sell a vehicle into a region either through a partner or using your own distribution network the sales will appear on the Internal Product Contribution report shown below as well as the International Results report Clicking on a vehicle link in the Product Contribution report will take you directly to that vehicle s sales history in its associated sales region Product Contribution Gross fiib Vehicle ale COGS Margin Promo imiy eval rvallls Exports to partners are counted as direct sales on the firm s domestic income statement as shown here Mate Dollar amounts are in millions Per init Contribution for Domestic Sales Per Unit Per Una Per Unit COGS Maigii Adv Per Unit Contrib Prom Conirib Pet Mole Dollar amounts are per unii Sales through the firm s own distribution network in a region will show on the Vehicle income statement for the re
49. UP through ANALYSIS is described on the following pages along with a sample screen display for most The order of the descriptions corresponds to the order of the main menu and secondary menu options within each main menu heading Startup Menu The STARTUP menu contains helpful overview and navigational information Briefing StratSim Case and Glossary to review at the beginning of the simulation Click on one of the menu options on the right to activate that option For example click on Briefing to pull up the StratSim briefing which offers a quick introduction to your company s situation Analyzing the industry and the case will help prepare your team for the internal and external environmental factors in the simulation Briefin The BRIEFING provides an overview of g your role as member of the s R management team for a major Welcome to your first day in your new job as a member of the management team for a major automobile automob e manufacturer and covers manufacturer You ve been hired to design and implement a strategy that will provide a long term return topics such as the Internal reports for your shareholders over the next 6 10 years Though you must have a long term vision it will also be performance summary income important to manage for the near term to ensure cash flow and generate positive customer and statement balance sheet cash flow shareholder expectations In addition competition is likely to be fierce as there are s
50. Utility vehicles offer a little bit of fun and utility for those who need more passenger room than a truck but don t want to have the minivan family image Price starts at around 17 000 for small utility vehicles but fully loaded large ones will sell for over 40 000 Engine horsepower is likely to exceed 150 Legroom and storage space are excellent on larger models which can also seat 5 adults In StratSim sizes of utility vehicles range from 30 90 Features on utility vehicles usually are related to styling and performance Many of the high end models come with leather seats and other amenities normally found in luxury cars Most customers prefer the 4 wheel drive models Examples of utility vehicles include the Ford Explorer Chevy Blazer and Isuzu Trooper Truck At one time trucks were reserved for farmers and handymen but no more Truck sales have taken off in recent years thanks to their broadening appeal as an alternative to sports cars and a great second vehicle Truck prices start at around 12 000 for small ones but fully loaded larger trucks will sell for 25 000 or more Engine horsepower also has a wide range depending on the size of the truck Leg and headroom is ample and most trucks seat 2 or 3 though some new models are adding back seats In StratSim sizes of trucks correspond to a range of approximately 30 90 The StratSim Case Page 19 Features on trucks usually relate to styling and performance Four w
51. a 21435 13861 7573 381 7193 Awesome 18188 13992 4197 290 3906 Total 17005 12256 4748 224 4525 Note Dollar amounts are per unit There are four additional reports available Income Statement Balance Sheet Cash Flow Report and Product Contribution corresponding to the internal company reports but on a projected basis Choose Select Report to view one of these four additional reports The Cash Flow and related Financial Operations reports are shown on the following page Note These values are derived directly from your decisions and forecasts It is important to understand that the pro forma values do not attempt to measure the impact of changes in your marketing decisions nor those of your competitors It only uses your forecasts You may change your forecasts at any time StratSim Operations Guide Page 79 Decision Analysis Pro Forma Cash Flow Report In addition to analyzing pro forma net income and inventory another essential pro forma report to check is the projected cash flow and financial operations A sample Cash Flow report is shown below Pro Forma Firm Cash Flow Starting Cash Income from Operations Plantinvestment Financial Operations Adjustments Ending Gash The report summarizes the primary activities that impact your cash position Income from Operations Plant Investment Financial Operations and Adjustments changes to inventory A R and A P levels If you click on the
52. able The estimated annual benefit of the increase in capability is also displayed Note that the simulation uses the decisions you are in the process of making to estimate the benefits For example an increase or decrease in your scheduled production of a particular vehicle will be reflected in the estimated annual benefit You may undo any changes to these decisions until the simulation decision deadline Technology Decisions Technology Capabilities Interior Styling Safety Quality Maximum 2 11 E Firm Maximum 4 5 4 Cost mill to Increase by 1 405 t395 455 Est annual benefit mill 3 of increase 20 hed 51 Curr Expenditure 0 0 0 StratSim Investing in your firm s development capabilities can be an important long term decision Higher technical capabilities bring two significant competitive advantages First your firm is able to develop vehicles with better characteristics which 1s likely to be important to some customers Secondly the base cost of projects is lower if you have greater technical capabilities In other words a vehicle with attributes of 2 2 2 2 interior styling safety and quality costs less on a per unit basis for a firm with greater technical capabilities given the same production levels StratSim Operations Guide Page 67 Decisions Product Development The PRODUCT DEVELOPMENT decision screen provides a helpful summary of all that is going on in your development centers The sample scre
53. ables thus making the options more manageable For instance Add Distributors is a single value in each region representing the entire number of regional distributors Similarly the amount you enter for Marketing Support is for all brand advertising promotion and corporate advertising expenses in that region You will want to view the International Competitors report to help you decide on the number of distributors and the amount of marketing support It takes one year to build your dealership network and set up your international marketing presence Appendix Page 105 After you have entered the region and the simulation has been advanced your firm will have the opportunity to launch your own products into this market as shown in the screen displayed below Note the new Add Vehicle to Market link Region Decisions Pacific Marketing Options NOTE Entering a region by Add Vehicle to Market a ae Exit Region building your own distribution network will preclude any future enone agreements with a partner in the Mew Distributors region The negotiation link 1S Marketing Support mill aae Cost mill 7 no longer is displayed Marketing Decisions You may now select vehicles to distribute in the region To add a vehicle to sell in this market click the Add Vehicle to Market link Select a vehicle then enter the selling price and the number of production units in the window as shown at left below If you want
54. acific Select a vehicle and enter the units and price Vehicle xing Units O00 s Price pe mm cae Some feedback status messages you may receive are listed below Agreement accepted Not what we re looking for in a partner Value of deal not high enough Good offer need to think about it Starting negotiations Negotiating renewal Waiting for your acceptance A sample screen with one vehicle in failed negotiation is shown below Note the status message states that the value of the deal was not high enough Region Sourcing Decisions Pacific Sourcing Options Open a Plant Single Line 200 mill jvear 1 year Multi Line 300 mill jyear 2 years Negotiate New Alliance 3 of 4 deals remaining this period in this region Your sourcing options include direct foreign investmentto produce one or more vehicles and an alliance with a foreign partner to source a vehicle Sourcing Alliances Partner Contract Shipping Delivered Units Vehicle Offer Price Tariff Cost 000s Status Aing xihuan a value of deal not high 13 enough All agreements with your alliance partner are for one year and will need to be renegotiated when they expire The contract price is the amount you pay your partner you are responsible for shipping and tariffs Appendix Page 111 To renegotiate with this same partner click back into the vehicle name and a dialog box will open as shown at left below Use this window to a
55. ade 8 9 93 mission and vision 82 MSRP 7 44 53 71 72 N naming your product 70 navigation index 31 net contribution 64 net income 35 36 118 new class 95 new concept 69 new customers 43 50 new platform 9 74 new product 8 94 development 62 O objectives 33 42 66 operations guide 4 25 opportunities 14 P password and ID 27 performance financial 31 33 58 summary 34 vehicle 6 7 11 PESTEL 82 plant maintenance 13 35 58 platform 8 development 54 portfolio analysis 65 positioning 45 positioning map 49 price 38 52 118 See also MSRP range 49 pricing impacts of 88 strategy 88 primary vehicle class 49 product 7 advertising 11 class 15 contribution 38 detail report 52 development 8 launch 43 portfolio 65 price 7 52 production 13 product development 68 69 product name 70 production 13 57 87 capacity 13 costs 10 35 58 67 flexible 74 volume 10 products report 52 profit equation 85 pro forma 3 66 analysis 91 promotion 11 35 38 44 53 55 58 71 72 118 public relations 11 35 58 71 pull down menu 29 purchase decision 7 13 49 Q quality 6 7 10 11 49 52 54 67 118 R R amp D 8 35 58 118 radio buttons 30 ranges 45 receivables 36 regions 11 46 71 73 registering software 27 relative market share 65 retained earnings 13 36 retooling 36 37 87 r
56. ading competitors for that particular customer This grid contains all vehicles in the primary or secondary class or vehicles with greater than 5 of market share Customer Detail Customer 1E Desired Class Economy Units Purchased 0000 s 427 Chg fram Prev Year 1 Projected Demand s505 Expected Price Range 9 000 13 000 Preferred Size Range 1 15 Preferred Engine hpi 75 125 Hot Buttons Quality Safety Price Sensitivity High Unit Eng Ad Ady Ac Promo Vehicle Class Share Size MSRP HP Aware mill Theme mill Delite Economy oe 5 11 080 65 46 40 Quality Alec Economy 48 13 13 252 130 50 40 Styling Other TEs Taking a closer look at the CUSTOMER DETAIL report above provides some valuable information As you may recall from the case description a 1E customer is a value seeker with a desired class of economy cars Units purchased are the number of vehicles purchased by the customer The size price and engine ranges provide some guidance as to what the customer expects on those dimensions The hot buttons and price sensitivity help you understand more about what the customer looks for in a car and how much they are willing to pay Region allows you to display the information by selected region Map creates a positioning map of size and price for the customer and shows the customer preferred area or consideration set and the location of the vehicles competing in that space This is similar to the positi
57. age 88 long run Second consider the possible impact on the scale of your business Is it appropriate to assume that fixed costs will remain the same or will a price reduction require new investments in productive capacity A third strategic consideration 1s how you want to position yourself in the marketplace Is it important to have a consistent message as being a high end or value provider Price points send a message to consumers about what they might expect from your company and vehicles just make sure you deliver if you are high end You may want to frame the question of reducing or increasing price as one of many alternative investments For example you might estimate that cutting price will cost 50 million in lost margin Are there better uses for that investment Can you instead capture that value and reinvest it in either product or service enhancements or cost reduction opportunities Or conversely would your target customers be willing to pay more for product improvements The main point is to think carefully about pricing Consider the impact on your profitability and the potential for competitors to match the price Think about consistency across your product lines with regard to positioning Always understand the financial implications of your pricing choices The pro forma contribution and pro forma income statement can be of great value in trying out different scenarios Unit Margin Cost of Goods Sold COGS Th
58. all in this category Vehicle classes that may be of particular interest are luxury utility and other high end vehicles depending on their uses New Opportunities Market research has also identified some potential new customers in the market whose needs are not yet satisfied by the current vehicles New customers may be looking for a new vehicle class such as a AEV or a significantly different configuration of an existing vehicle class If a firm introduces such a vehicle that excites these customers the new customer may pop creating new demand in the marketplace As a rule in StratSim at most one new customer can pop each period Additional new customer opportunities may be identified as the simulation progresses It ts important to understand that there are no guarantees with introducing products into new markets and StratSim reflects this risk StratSim User s Manual Page 12 Capacity and Production Capacity for each firm is fixed for a given year However changes of up to 50 of your current capacity may be initiated at any time The increase or decrease takes one year to take effect Thus if you build additional capacity this year next year you will be able to set production levels based on the new plant capacity See Exhibit 1 4 for how increasing capacity fits into the new product launch timetable The original costs for the capacity are shown on the balance sheet under plant and equipment while the ap
59. alliance agreement is for a one year term and each will need to be renegotiated when they expire Note that the contract price is the amount you receive for each unit your partner pays for shipping and tariffs Similar to the international Sourcing option with a partner your firm is making offers to local firms in a specific international region Choose Negotiate New Alliance and then make an offer to a potential partner as shown in the screen below Pacific Select a vehicle a price and a partner fir Vehicle Prita Firm Cancel The potential partner will evaluate your offer and either accept or give you feedback about your offer Note that negotiation messages will appear on the right side of the screen under Status as can be seen on the sample screen shown below The types of negotiation messages you might receive are the same as those listed in the previous section describing international regional Sourcing options Region Decisions Pacific Marketing Options Enter Region voids all future contracts MHegotiate New Alliance 3 of 4 deals remaining this period in this regions To market in This region you Can enter the region and sian your own distribution mebwork oF form an alliance with a foreign partner to distribute vehicles Marketing Alliances Partner Contract Est Units Vehicle Ofer Price Shipping 000s Status Z Alec Zao b FOB 3 negotiating renewal w3 Dornestic All agree
60. ance MARKETING Enter Market Establish distribution network MARKETING Partnership Negotiate Alliance Results for Result for Result for f Period N Period N 1 Period N 2 La Decisions for N 17 Decisions for N 2 Decisions for N 3 Single line plant begins development Multi line plant begins development Negotiate Alliance with Partner Accept agreement and set marketing mix decisions for sourced vehicle Consumer Marketing decisions input Enter Market Add distributors and establish budget for marketing support Negotiate Alliance with Partner Accept agreement Single line plant now available select vehicle to produce offshore Multi line plant remains in development Results impacted review sales of imported vehicles and renew agreement if desired Add vehicle to market modify distributors and marketing support if desired Results impacted review units sold to partner and renew agreement if desired Results impacted vehicles sold this period were produced offshore Plant available select vehicles to produce offshore Results impacted if agreement was renewed Renew agreement if desired Results impacted review sales of vehicles sold in foreign region foreign results Results impacted if agreement was renewed Renew agreement if desired Offshore production continued Results impacted vehicles sold this period were produced offshore Results impac
61. anual Page 56 Competition Manufacturing The MANUFACTURING report displays production capacity actual production capacity utilization sales and inventory in 000s and days for each firm A comment is also displayed to show how production compares with demand From here historical data of manufacturing variables can be viewed by period History or analyzed over time Graph Manufacturing Firm Capacity Produced Util Sales Inv Days 000 s 000s My 000 s 000 s Inv Comment 1 696 395 525 1 363 oF The MANUFACTURING DETAIL report is viewed by clicking on the firm name Firm A through Firm E It provides additional information by product line such as actual production sales inventory and days inventory Days Inventory is an estimate of the number of days of inventory available at year end based on yearly sales and is derived by the formula 365 x units inventory sales A sample MANUFACTURING DETAIL screen is shown below Manufacturing Detail Firm B Capacity 000 s 350 Coming on Line fO00 s O Prod Sales lit ays 000 s 000s 000 s Comment 122 122 8610 g 14 32 Graph Pririt In the comment field there are a number of messages that may appear some shortages means less than 10 lost sales significant shortages are 10 30 and extreme shortages are over 30 In addition you may see a note if a product is upgraded or new or if sales have exceeded planned production S
62. ations However the drawback is dilution The StratSim Case Page 13 of the shares of stock that may lower the share price at the time of issuance The second option for raising capital is to issue 10 year bonds callable after 3 years The interest rate will reflect the current credit rating for the company AAA rated bonds offer the lowest investment risk and therefore the lowest interest rate The third option is to take on a revolving line of credit which if neither of the first two options is exercised will be the default case Short term credit typically demands a higher interest rate than long term bonds The Objective The task of the management team is to maintain long term profitability in the context of an increasingly competitive and changing environment Customer needs and tastes will evolve Competitors will be battling for market share and entering new product classes Technologies and cost structures for the firms will change over time Every simulated year each firm will perform a situation analysis identify problems and opportunities and generate alternative options for decisions Finally based on careful consideration persuasive presentation of competing ideas and probably some arm twisting your team will come to a consensus as to which set of decision 1s best and implement them Once your firm has a thorough understanding of the StratSim world one of the first tasks should be to define a strategy A successful firm
63. atrix 65 H hidden costs 91 high income segment 12 22 StratSim User s Manual Page 120 history button 29 horsepower HP 6 7 9 hot buttons 11 49 i ID and password 27 ideals 11 income 58 from operations 13 35 36 37 income statement 13 35 income taxes 58 industry news 43 inflation 43 117 input screens 28 installation 27 interest expense 13 35 37 58 penalty calling bond 76 rates 14 76 80 interior 6 7 10 11 49 54 67 internal analysis 33 82 internal menu 31 33 Introduction 1 inventory 13 36 37 56 74 87 117 days 56 74 write offs 35 58 investment 8 36 alternatives 13 risk 14 investments 10 37 plant 37 technology 54 ISSQ 84 K key success factors 42 L legends on graphs 45 65 likely to purchase 62 list boxes 30 login 27 luxury vehicle 6 7 16 M major upgrade 8 9 94 map 49 53 positioning 45 margin 7 118 See also gross margin market analysis 42 attractiveness 42 definition 65 growth rate 5 44 53 segments 12 42 47 share 31 55 58 65 118 share by class 6 share by customer 49 share by region 46 share by segment 47 value 58 market menu 31 market share 64 86 effects on 86 marketing communications 39 55 decisions 71 expenditures 35 58 mix 72 research 118 menus brief descriptions of 28 pull down 28 minivan vehicle 6 7 18 minor upgr
64. below market financing rates consumer rebates additional discounts off the price and dealer incentives such as an additional discount to the dealer if certain sales goals are met In addition some of the promotional budget will be used to generate awareness about the special promotional programs as well as items such as product brochures mailings contests etc Product advertising plays an important role in establishing vehicle awareness and shaping customers perceptions of products The role of advertising serves three primary purposes in StratSim First is to create general awareness for the vehicle and establish brand product identity In general this aspect corresponds to whether or not the consumer knows the product name and its general positioning in the market Second is to create top of mind awareness that loosely can be interpreted as a share of voice measure For example if consumers are asked to name a utility vehicle the utility vehicle s they are most likely to mention have the greatest awareness and share of voice The third aspect of advertising relates to the content of the advertising message In StratSim this corresponds to what aspect of the vehicle is emphasized in advertising interior styling safety quality or performance Product managers typically attempt to match the advertising theme with what is most important to their target customer s So the theme chosen should be something that is both important to the customer
65. but the additional capacity cannot be used until the following decision period Remember there is a maximum change of 50 of current capacity in any period When selling off capacity the loss shows up as an extraordinary item after the advance and there is a cash inflow of the sales price of the plant 50 of book value Increase Capacity Round Round Round Round Cash used to build but new capacity not available Capacity available Product Development Decision Timelines Immediate to 3 years For all upgrades and new products shown below a simple rule to remember is that A brand will become available for sale in the last year it is in the development center On the development center screen it will show a message such as launch now Now we will review each of the product development options in more detail Minor Upgrade Launch Now Minor upgrades are the fastest way to get product changes into the market Basically the same period you initiate the minor upgrade is the period you also prepare for the upgraded brand s introduction into the market for sale A minor upgrade is in a development center for one period Also remember that any existing inventory will be written off at a cost of approximately 15 and that production must be adjusted immediately upon initiating the minor upgrade Minor Upgrade Round Round Round Round Available to sell Adjust production Results Adjust marketing impacted Dispose inve
66. categories Startup Internal Market Competition Tools International Decisions Analysis and Simulation One of the easiest ways to find out more about an option is just to try it out If you need more information use the on screen HELP button to consult the student guide Each part includes menu links that correspond to different reports decisions or actions For example under Startup there are links for the Briefing Case and Glossary The menu system is expandable and collapsible For instance click on the button to the left of Startup and the Briefing Case and Glossary will collapse back into Startup The navigation and general control buttons found at the top of the simulation screen are Back Home Spreadsheet Print Help and Logout The Print button applies to the report currently on the screen For instance if you click on the Print button when viewing the Balance Sheet the report will be sent to your default printer Clicking on the Spreadsheet button will allow you to download data to a spreadsheet Clicking on the Help button will open the operations guide The Back button lets you reach the last page you visited and the Home button brings you to the homepage of the simulation Firm The area in the upper right hand corner of the simulation screen Industry ind1 displays the current period along with firm industry and user User sstest101 names StratSim User s Manual Page 28 Pull down Menu Fie E
67. cked over time at the customer e g LE 2F etc level Separate from intrinsic trends would be the impact of the economic environment on demand The automobile industry historically has been extremely cyclical During recessions new auto sales almost always slump as people put off purchasing new vehicles if they are not immediately needed Also rising or declining gas prices can negatively or positively impact the overall demand for vehicles and cause a shift in the demand of specific customer groups or for specific vehicle classes So one must consider how changes in the economy and gas prices will impact demand Finally how all the firms compete in particular markets also has an impact on overall demand or demand within a segment If all the firms innovate advertise expand distribution etc this will generally stimulate demand overall Industries where there is less investment in these areas will grow less all other things remaining equal Managing for Success in StratSim Page 85 So how do changes in demand impact profitability In general the more a company s costs are fixed rather than variable the more dramatic the impact on profitability will be when demand falls or rises As an example for a firm with 100M of revenues if variable costs are running at 60 of revenues 60M and fixed costs constitute 30 of revenues 30M profit will be 10 of revenues 10M If demand falls by 10 resulting in revenues of 90M the fir
68. class examples section for a more detailed description of each product class and a sample picture Exhibit 1 2 Sales and Market Share by Vehicle Class Vehicle Class Sales 000s Units Vehicle Market Share units Economy E 914 Alec 63 Delite 37 Family F 1 439 Alfa 22 Boffo 7 Cafav 13 Defy 29 Efizz 29 Luxury L Beaut 59 Climax 41 Sports S AEV A Minivan M Utility U Truck T Buzzy 100 No vehicles introduced yet Camini 100 Awesome 49 Euro 51 Detonka 56 Estruck 44 Vehicle Attributes and Prices Each vehicle has attributes that can be measured and compared These can be briefly described as follows Price Manufacturer s Suggested Retail Price MSRP though actual retail selling price to the customer will vary from the MSRP S1ze Length and width of vehicle which includes passenger and cargo space Consumer perceptions are scaled from 0 smallest to 100 largest Performance Measured by engine horsepower Interior Comfort vision instrumentation music systems ergonomics Styling General curb appeal styling handling finish workmanship Safety Structural design braking systems safety features Quality Overall reliability durability consistency of products StratSim User s Manual Page 6 Each attribute has a range of value based on what can feasibly be designed and built by a firm The interior styling safety and quality
69. costs and development time frames An overview of these five product development paths is illustrated in Exhibit 1 4 below and described in more detail on the following page Exhibit 1 4 Product Development Timelines Minor Upgrade 100 300 Million in current year Major Upgrade 250 750 Million Spread over 2 years New Product Existing class 250 1 500 Mill Spread over 2 years New Product New class 500 2 500 Mill Spread over 3 years Results for Period N Decisions for N 1 Modify Specs In Dev Center Adjust Marketing Mix Adjust Production Inventory disposed Modify Specs In Dev Center Build Add Capacity Create Concept Name Product Modify Specs In Dev Center Build Add Capacity Create Concept Name Product Modify Specs In Dev Center Results for Period N 1 Decisions for N 2 In Market Results impacted Including sales retooling inventory write off Modify Specs In Dev Center Adjust Marketing Mix Adjust Production Inventory disposed Modify Specs In Dev Center Set Marketing Mix Set Production Modify Specs In Dev Center Build Add Capacity Results for Period N 2 Decisions for N 3 Results for Period N 3 In Market In Market In Market Results impacted Including sales retooling inventory write off In Market In Market Results impacted Including sales retooling In Market In Market Results impacted Including sa
70. creen below You must have these two unique pieces of information to start the simulation Enter your userid and password User ld Password OK Cancel After entering your unique sign in information and clicking on the OK button you may be asked to register first time logging in only Please make sure you enter the registration information accurately The registration information is especially important so that the simulation support staff can contact you if necessary StratSim Operations Guide Page 27 Simulation Navigation Each page of the StatSim site contains an easy to use menu system consisting of three parts 1 specific menu options and links to decision making tools and input screens found on the left side of the StatSim browser window 2 green navigation and general control buttons across the top and 3 pull down menu to show the current period in the upper right hand corner A stratSim DAR StratSim Industry test Firm A Perina sauna aad 2 Decisions Sei lt a d SOs Menu system main categories amp sub menu choices Navigation buttons Firm name Period 1 Industry User ss a The BRIEFING provides an lt lt lt 123456 gt gt gt overview of your role as member of the management Welcome to your first day in your new job as a member of the management team for a major automobile team for a major automobile manufacturer Youve been hired to design
71. curate information Another area to consider is the definition of competitive arena both how the arena is defined and where a company chooses to compete There are several different ways to define the competitive arena Should it be vehicle class e g utility minivan Segment e g singles rental fleets Customer e g 1E 2F Region e g North South Each approach has its merits but focusing on one arena definition alone may lead to an incomplete analysis For example one can leverage experience in vehicle class as it is less expensive and faster to develop another vehicle of the same class than invest in an entirely new class of vehicle But that may lead to cannibalization of the current product line A second example might be pursuing opportunities in the truck class without having thought through how the alignment of dealerships in particular regions factors into your ultimate success These are examples of how arena definition needs to support one s strategic assessments In terms of choice of arena consider two companies one which focuses on low end economical vehicles and another that has been making high end luxury and sports cars Which do you think would be more successful launching a high end sports utility vehicle for 50 000 Would customers wonder if the low end company is capable of designing this vehicle Is this potential customer also looking for an element of the prestige associated with owning a particular brand
72. d goal of the simulation is to give you experience in strategic planning and making decisions in an ambiguous environment You will be leaving behind the comfort of structured exercises and entering a situation where the road to success is not so clearly defined Although a company s strategy is planned and implemented based on knowledge of the current situation a strategy is also based on certain assessments and judgments about the future Furthermore decisions in StratSim are interrelated Decisions should not be based solely on how one decision in isolation will impact an outcome but also take into consideration the context of your other decisions as well as those of your competitors How these decisions will interact is difficult to predict Remember as the simulation progresses that even if you do not win in the simulation gaining the experience of wrestling with these difficult decisions in an ambiguous environment is an important part of the learning process In fact many participants of the simulation will say that their greatest learning occurred when challenges were the greatest The third goal of StratSim is to give you experience in making decisions as a group where your teammates will likely have different opinions about what your company should do If this is your first time experiencing a group decision making process it requires new skills in addition to knowledge and judgment that focus on group and managerial processes How will
73. d then unit sales occur The amount of fixed cost per unit 1s just the division of the amount of fixed cost by the number of units sold It is not an allocation of the amount per unit a priori Unit Sales Unit Margin Demand Market Share Selling Price COGS Intrinsic e Competition e MSRP e Size HP e R amp D e Economic e Product Fit e Value ISSQ e Capacity e Industry e Price e Price Sensitivity e Upgrades e Tech Invest Dynamics Relative Spend e Positioning e Technology e Distrib e Quality of Spend e Cost position in e Volume e Adv Service Distrib industry e Interest e Preference e Tooling etc StratSim User s Manual Page 90 Strategic and tactical questions your group should discuss pertain to which of the fixed cost investments should be made to positively influence the rest of the profit equation Should the focus be on product improvement corporate infrastructure technology cost reduction marketing distribution etc Generally over the course of the simulation your firm will likely invest in all of these areas but the questions of priorities direction and financial benefit must be reviewed in the context of your overall strategy and objectives As a group you will also have to find the proper balance between short term and long term perspectives Obviously the best way to maximize profit in the short run is to not invest in any long term projects that have no immediate impact The related corollary is also t
74. der to benefit most from the StratSim experience we recommend the following approach Read the StratSim Case Learn How to Operate the Program Use Reports to Analyze the Current Situation Make Decisions StratSim User s Manual Page 2 Section of this manual presents a description of the market and the industry s current situation A thorough understanding of the market customers and competitors will help you make better decisions Section 2 provides information on how to use the simulation software as well as a detailed description of each menu option In order to quickly learn the functions of the menu commands and become familiar with operating the program it will be helpful to have access to a computer as you work through this section Internal company reports and external reports on consumers and competitors are available by clicking on links similar to using a web browser The reports and research tools provide key information about customer needs and buying behavior consumer perceptions of your product potential target markets and competitive analysis of products and firms From this information you will devise and implement an appropriate long term strategy Just as in real life however some information and reports will prove more useful than others Part of your decision making process will include deciding which information is most useful to your firm After reviewing information about your compa
75. ding on the scenario your administrator chooses there may be a different configuration of competitors and vehicles Some scenarios have firms starting in the same position while others are unique start such as described in this case In an even start scenario there may or may not be one competitor played by the computer Each industry will develop uniquely based on how the competitors interact what new products are introduced and how these products are supported Please make sure to use the data in your simulation if the values are different than those in the case The international module is optional and may not be part of your simulation experience and described separately in the appendix In addition some of the tools and reports described in the operations section of the manual may not have been selected by your instructor or may be introduced later in the simulation The StratSim Case Page 5 Vehicle Classes The industry has historically been broken into seven vehicle classes Economy E Family F Luxury L Sports S Minivan M Truck T and Utility U However one new class offers future potential if developed and marketed well the AEV A vehicle which is a new breakthrough in drive technology Each of these classes represents a unique configuration that requires a significant expenditure in R amp D to develop Exhibit 1 2 shows sales for each vehicle class and market share for each vehicle Please see the product
76. dit Simulation Options Team Help The main pull down menu bar across the top of the screen consists of menus more focused on logistics than content For instance FILE PRINTER SETUP allows you to select a default printer The FILE PRINT REPORTS option allows you to select an assortment of reports to print simultaneously You also have the option to output reports to a spreadsheet Enter the report period in the Report Period box Click on a report link to display a brief description of the report EDIT COPY will copy the currently displayed report to the clipboard that may then be pasted into a spreadsheet or word processing program SIMULATION allows you quickly logout OPTIONS REFRESH DATA allows you to refresh your screen LOCK DECISIONS allows the team leader to lock all decisions from this location HELP HELP GUIDE displays the operations guide from the student manual You will probably find the context sensitive Help on the right hand side of the screen easiest to use Control Buttons Control buttons on Report and Decisions forms perform specific actions Control buttons are usually found at the bottom or right hand side of screens Click on a button to perform the appropriate action Two particularly useful and common control buttons are Graph and History both used to analyze data trends These are explained below Many reports may be graphed to gain historical perspective and to identify important trends Af
77. djust the number of units and or the price Note you cannot change the vehicle at this stage without beginning a completely new alliance Click OK to activate your revised offer Ws lttttt aOSOCS StratSim Ea Pacific Select a vehicle and enter the units and price 1 Your partner has agreed to the terms It is now Up to you to accept the Vehicle AING if ag reement Units 000 s Price ooo Cancel When a partner firm has accepted your offer a message alerts you as shown at right above NOTE Clicking OK in this message box only means that you acknowledge their acceptance of your offer it does not finalize the agreement To finalize the agreement you must click back into the hyperlink for the associated vehicle listed on the Region Sourcing Decision screen as shown below and then click the Accept button in the message window that opens Note You cannot undo this once you have accepted the offer Region Sourcing Decisions Pacific S40 Cig Options Open a Piant Single Like 200 mill Fear i yearn Multi Line 300 millfpear 2 years Hegga a Allar La Gi 4 deals maming This pened in his region Agrecmernit Acecptance Fi Tour Sourcing Goons Include diti Foreign ineesimeni io produbi gig Gr more vohis and an akame A a foreign patner lo source a vehile Pache sourcing Allia nees Parner Contract Shipping Delivered Unis AlhiUan hae Ok d the agreement tor ak units g
78. e High Incomerdi Winivan 150 230 26 3ok 55 75 Interior High Incomerdi Sports 20 40 oO Fk 45 65 Styling Enterprisers AEW 0 100 he2 34k 30 50 Styling New customers may be looking for a new vehicle class such as an AEV or a significantly different configuration of an existing vehicle class If a firm introduces such a vehicle that excites these customers the new customer may pop creating new demand in the marketplace As a rule in StratSim at most only one new customer can pop or emerge each period Additional new customer opportunities may be identified as the simulation progresses It is important to understand that there are no guarantees with introducing products into new markets and StratSim reflects this risk In order for one of these emerging customers to generate significant sales the vehicle must be designed to meet the needs for that customer If there s not enough differentiation in the offering or support of the new vehicle it will not create the necessary buzz in the marketplace It is the combination of the unmet needs and the successful development and marketing of a vehicle that makes a customer emerge as a viable market The links to segments and vehicle class will provide a detailed description StratSim User s Manual Page 50 Competitive Analysis COMPETITION reports contain detailed information about your competitors products market share technology marketing communications
79. e dividends paid to stockholders Though dividends are a use of cash they might also improve stock price StratSim User s Manual Page 76 Decisions Decision Summary When you have completed all the decisions screens it is recommended that you review the decision summary and print it out The decision summary provides a record of the current set of decisions on the simulation server and should be checked before the decision deadline for errors Once the simulation is advanced you will not be able to correct any input errors so take the time to double check your entries before the deadline Important The top of the decision summary screen may display some basic decision error warnings These warnings may pertain to your team not entering changes to your product decisions not entering launch information for new products having unused concepts that were not put into development production of zero units and no changes in firm decisions non product decisions Please check these before the decision deadline The first part of a sample decisions summary screen is shown below Current Decisions Technology Capabilities Interior Styling Safety Quality Curr Expenditure 0 0 0 0 Product Development Dev Curr Ctr Project Class Status Size HP Int Sty Saf Qua Exp 1 Enigma Economy new launch per 4 aE ies ae i Ae Jee 2 Estruck Truck upgr launch per 2 ba ete A A Total Consumer Marketing Regional Corp Adv Direct
80. e it is available to be used for development projects However the cash used to build the center will be used and expensed immediately The firm needs to make an assessment as to the number of development centers that will be needed when they will be needed and how to raise the funds necessary to build them Only one new development center may be added in a given period and there is a maximum of five total centers for any firm Build Center Round Round Round Round Cash used to build Development but development center center not available available Managing for Success in StratSim Page 95 Technology Investments New Limits available after 1 advance Investing in technology works much the same way It will take one year to increase that capability Remember that investing in technology only increases your ability to design a vehicle with higher specifications It does not automatically implement those changes to your existing vehicles You must explicitly use upgrades to accomplish this So again it is important to plan ahead Technology Investment Round Round Round New tech limit available Impact on COGS Cash used to increase capability but higher technology not available Dealership Decision Timeline Dealerships also take a year to build This delay makes sense as it takes time to build new buildings and hire personnel to expand your channel presence Add Dealer Round Round Round New N
81. e other half of the margin equation is your cost of goods sold COGS also sometimes referred to as your variable cost What impacts these costs How can your firm strive to lower the unit cost of a product The cost of your vehicle is based on the specifications of the vehicle of size HP and ISSQ which is an abbreviation for interior styling safety and quality the technology capabilities of your firm and the volume produced of that vehicle and vehicles in the same class experience effects All firms in the industry are also impacted by changes in labor and materials costs over time Unit Sales Demand Market Share Selling Price COGS Intrinsic e Competition e MSRP e Size HP e Economic Product Fit e Value ISSQ e Industry e Price e Price Sensitivity e Upgrades Dynamics e Relative Spend e Positioning e Technology e Quality of Spend e Cost position in e Production e Service Distrib industry Volume e Preference There are several drivers of cost savings in StratSim including learning curve effects cost savings through product design and investments in technology capabilities Experience Curve Effects The experience effect shows that with each doubling of cumulative volume there is a fairly consistent percentage decrease in unit costs In StratSim there are experience curve effects present at both the brand level and the class level Therefore all things being equal a firm that has higher production volume of a
82. e purpose of special incentive programs is to move product during slower periods of demand Examples of incentives include consumer rebates below market financing and dealer oriented sales incentives Examples of general promotional activities include funds for brochures advertising in support of incentive programs mailings trade shows and motivational contests Distribution While the purpose of advertising and promotion is to generate interest create an image and communicate information about the vehicle it is the automobile dealership that actually makes the sale and provides follow up services In StratSim each firm has a captive dealership distribution structure organized on a regional basis Firms must decide how many dealerships to open or close in each region each period as well as allocate a budget for training and support The profitability and success of a dealership depends to a large extent on the popularity of the manufacturer s vehicles However the number of dealerships also plays a role Having too few dealerships can leave smaller cities and towns uncovered but having too many dealerships can lead to poor results due to sales being spread too thinly across dealerships and overly competitive pricing within regions In StratSim this 1s referred to as dealer coverage Management often looks to the sales gross profit per dealer and coverage as indicators of the proper balance Dealer ratings can also provide insight into the
83. ealer Car Sales 000 s Dealer Truck Sales 000 s Car Sales equals the total sales of economy family luxury sports and AEV classes Truck Sales equals the sales of minivan truck utility and delivery classes Sales by vehicle class can be found under the VEHICLE CLASSES menu choice under MARKET The Graph button displays a graph of selected economic data from this report The History button allows you to view the report for past periods StratSim Operations Guide Page 43 Market Vehicle Classes The VEHICLE CLASSES report displays industry sales information broken down by vehicle class Sales at the manufacturer and retail level are provided in dollars Units sold and sales growth for the past year are also displayed Basic competitive information such as the number of vehicles within a class and the sales leader are provided Click on the Graph button for a graph of unit sales by class Vehicle Classes Period 1 Mfr Sales 11 544 31 218 10 154 4 204 0 3 010 13 164 12 252 0 ob 436 Retail Sales 12 034 35 491 11 449 4 654 po 4 036 14 719 13 460 0 45 914 Unit Sales 14 1 439 Chg Num units Veh 4 5 291 8 141 4 0 MA 181 4 B40 Brr 0 4 263 mn OM mee oF eo eh _ Leader Alec Efix Beaut Burry camini Euro Detonka Alec Mote Dollar amounts are in millions units in thousands Graph History The link to a vehicle c
84. ecific ei options Ais links to decision making tools and input Before you begin the simulation please read screens found on the left side of the case You may then view the reports and the StratSim browser window 2 enter your first period decisions green navigation and general Focus Groups Sales by Customer Concept Tests Competitive Mapping control buttons across the top and Test Market f 3 the current period with Portfolio Analysis industry user and firm names Decisions displayed in the upper right hand Decision Analysis y corner Simulation y There are a number of tools to help you convert data into knowledge and to improve your ability to make good decisions These are organized under the Tools reports Some tools will help you with product design others will help you with resource allocation and others may offer competitive insights not available from public secondary sources The exact tools that will be available to your team will depend on the configuration of your game New tools may also be introduced as the game is advanced so be aware of possible additions to this menu Many of these tools will cost money to use just as ordering and designing market research studies would in the real world So you should spend some time knowing when and where these tools will be of the most value to you Important Since everyone on your team is sharing the same decision file when there are a limited number
85. ectives Marketing Research The systematic and objective approach to the development and provision of information for marketing decision making Net Contribution The contribution after marketing less fixed costs Net Income The profit remaining after all costs are subtracted from revenues Price The amount of money required for a product or brand in order for an exchange of ownership to take place Product Mix All of the individual products available from an organization Promotion The communication mechanism of marketing designed to inform and to persuade consumers to respond Quality The totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs In the automobile industry quality is sometimes more narrowly defined and measured by defects per 1000 cars or reliability Research and Development Portion of a firm designated to research analyze and design products to meet consumer and market needs Segmentation The process of dividing large heterogeneous markets into smaller homogeneous segments of people of businesses with similar needs and or responsiveness to marketing mix offerings Unit Sales The total volume of units sold by a manufacturer in a market Variable Costs Costs directly tied to production including direct labor and raw materials charges StratSim User s Manual Page 118 Index A accounts payable 13 36 37 accumulated depreciat
86. ehicle Class Range Range Range Range Growth 000 S Percent Economy 327 to 394 3to13 BB to 80 6 045 to 6 847 63 to 56 Family 176 to 216 23 to 33 108 to 132 11 733 to 12 929 49 to 51 Luxury 24 to 30 48 to 58 199 to 239 38 986 to 42 938 685 to af Sports 12to 15 17 to 27 180 to 216 21 779to 24 067 40 to 42 Minivan T2 to 58 32 to 42 145t0 175 12 270 to 13 518 24 t0 26 Truck 113 to 1349 86 to 98 146 to 184 18 394 to 20 422 23 to 25 tility ato 10 3a to 43 104 to 129 22 473 to 24 761 A4 toe AEW 13t0 15 13 to 23 91 t0113 14 317 to 15773 AE to 68 Several market research firms were hired to run studies on customer preferences The ranges represent the results from this study Each year the market research is surveyed with a new sample of potential buyers Demand range indicates Underlying potential demand but much depends on the product offerings pricing distribution and support of the products History The Demand Range is based on potential sales of a particular vehicle class if the products meet the needs of the customer the products are priced appropriately and the products are supported well distribution and marketing The 5 Year Growth rate is the projected annual growth rate over the next five years based on economic forecasts and market research for a particular vehicle class Appendix Page 101 International Region Competitors The International Competitors report provides an overview of all the companies that sell v
87. ehicle and is the monetary value your firm receives as revenues Finally the manufacturing cost for the vehicle is the variable cost associated with production of the vehicle The dealer invoice less the manufacturing cost is the per unit margin the manufacturer receives for each sale The current vehicle attributes and manufacturer s suggested retail price MSRP are summarized in Exhibit 1 3 ordered by vehicle class Exhibit 1 3 Vehicle Attributes Characteristics by Class and Name Class Name MSRP Size Interior Styling Safety Quality Horsepower Economy Family Luxury Sports Minivan Utility Truck Alec Delite Alfa Boffo Cafav Defy Efizz Beaut Climax Buzzy Camini Awesome Euro Detonka Estruck 15 351 11 293 24 084 35 003 31 361 25 921 18 869 38 385 45 997 34 652 24 144 21 149 26 528 19 572 21 843 14 135 85 165 200 165 165 140 240 240 190 1 The StratSim Case Page 7 Product Development As is the case with the automobile industry product development in StratSim is expensive time consuming and risky However the reward of having the leading vehicle within a product class is often well worth the investment performance and appeal is dangerous Additionally the risk of falling behind the times in terms of styling There are five options for product development and product launch in StratSim each with different
88. ehicles in the chosen region as shown below Once your firm enters a region you will be able to review your income statement for that region by clicking into the link for your company name These same regional figures are also accessed by clicking the region link in your Internal Income Statement Pacific Competitors Period 1 Units Reve Market Net Mkting Sold nues Share Income Expend Dealers Alliances 000 s mill t of mill imill 145 1444 36 3 141 Ze 150 155 1 674 44 4 10 24 150 34 65 17 4 131 21 120 Clicking on one of the company links will bring up a more detailed income statement as shown in the detail screen below Note that this is a much simpler income statement than in the domestic region Pacific Competitors Period 1 Alhuan Per 0 Per 1 Revenue 1144 1444 COGS 946 1 187 Gross Margin 198 p25 Marketing far far Development badd 0 Overhead a par Met Income 590 141 Technology WANG MANA Distributors 150 150 Awareness 20 31 Mote dollar amounts are in millions Print After entering a region or building a plant offshore the Company Income Statement will show a line item with the net income for the region You may click on the link provided there to access the detailed statement of your activity in the region Note Several screens in this section have smudged areas to conceal decision inputs StratSim User s Manual Page 102 International Region Results
89. en below contains in progress information shows a situation where a firm has two active development centers one of which is being used to develop a new Economy class vehicle that will be called the Enigma when it is released into the market The specifications of the Enigma are listed to the right as well as the cost this period only for developing the product The second development center is currently available for another project and could be used for a major or minor upgrade or for another new product Product Development Decisions Product Development Dev Ctr Project Class Status Size HP Int Sty Saf Qua hax 100 300 4 5 4 4 1 Enigma Economy new launch per 4 10100 2 2 2 2 2 unused Total Products Upgrade Concepts If you would like to add more development centers choose the Dev Center button This will allow you to increase your centers by a maximum of one each period Of course there is a one time cost associated with building a new development center and it takes one year to become operational You may view your current product specifications and costs at any time by using the Products button The Concepts button will take you to the create concept screen allowing you either to create a new concept or move a new concept into development The Upgrade button will allow development of either a minor or major upgrade to one of your current vehicles as shown below Product Development Decisions Upgrade Estruck T
90. er return or possibly to generate the most net income over the course of the game Selecting objectives is up to your group and your instructor However you will find that the firms who do best in StratSim are able to leverage their core competencies successfully enter new markets while defending their own position and prudently manage their financial resources This is far easier to say than to achieve That is the challenge faced by all managers and executives Industry Overview Your firm is one of five competitors in the StratSim environment Revenues are generated through sales of cars and trucks to automobile dealers in the StratSim world Additional revenues are possible through sales into other markets Industry sales in the most recent year were 4 3 million units and some growth is expected in the next year An overview of the five firms and the vehicles they manufacture is provided in Exhibit 1 1 below Each of the competitors starts in a different position with unique strengths and weaknesses Note that the first letter of each vehicle matches the first letter of its manufacturer for easy identification Exhibit 1 1 Company and Vehicle Summary Firm Name Sales Billions Vehicles Amazing Cars A 20 5 Alec Alfa Awesome Best Motor Works B 12 9 Beaut Boffo Buzzy Cool Cars C gt 13 7 Cafav Camini Climax Driven Motor Co D 19 3 Defy Delite Detonka Efficient Motors E 20 1 Efizz Estruck Euro Depen
91. erm effect through building brand equity investment in technological capability development centers dealer capacity plant capacity etc have longer term impacts Finally remember that costs and cash flows do not always match up with these effects so one must also take into consideration availability of funding for various investments It is essential that you understand the staging of various decisions for planning purposes The graphics below should help you with this staging process You may also want to review the table in the case that covers product development The following graphics also show related issues that should also be considered such as disposing of inventory and adjusting production when a minor upgrade is implemented Timelines Note All of the examples below are for a simulation that is in the 2 round In other words teams are reviewing period 2 results and making decisions for period 3 Marketing Mix Decision Timeline Immediate Marketing mix decisions pricing advertising promotion have immediate impact on results and therefore production should be adjusted based on the expected impact of the revised decision as shown below Price Adv Promo Round Round Round Round Results impacted Adjust production StratSim User s Manual Page 92 Capacity Decision Timeline Capacity Available in the Following Year When adding capacity cash is used to build the additional productive capacity immediately
92. erprisers 5 567 Total 4882 History There are also links to descriptions of each segment Value Seekers through Enterprisers Please refer to segment descriptions for more information on each segment but a sample screen is shown below MM Value Seekers Value Seekers have basic transportation needs They use their vehicle to commute to work of perhaps as a basic all purpose vehicle However they dont have as much disposable income as other segments and are therefore more price sensitive Safety and quality are especially importantto these buyers Vehicle classes that may be of particular interest to value seekers include economy and truck StratSim Operations Guide Page 47 Market Consumer Customers The CONSUMER CUSTOMERS report summarizes customer detail information displaying the overall sales to each customer the percent change in sales during the most recent period the forecast for next year and the leading product unit basis The information in this report helps you gauge the relative demand by each customer segment so that you can make a more informed decision about who to target Consumer Customers Mfr Retail Unit Chg Forecast Sales Sales Sales units units Leader 5 041 6 045 527 1 505 Delite r 989 6 750 4236 H 434 Estruck r 296 r or 608 1 553 Alec 17 900 19 263 Ber 3 B64 Defy 8 546 9 583 4236 3 416 Evan 4195 4 55 7 172 3 168 Buzzy b4 far 5 246 276 5 278 Detonka r 0
93. es in an unbiased environment Thus only use the likely to purchase result as a Starting point in your product launch production forecast Concept Test 1E Economy 10 100hp 15 000 1E Value Seekers Economy Class Size Cost Pert Int Styl Safe Qua Likely Fit Hot Hot toBuy Economy 10 Economy 10 155k best 2 2 2 i 46 100hp gaod good worst best best avd best StratSim User s Manual Page 62 Tools Competitive Mapping Instructor Selected Option The COMPETITIVE MAPPING tool allows you to track competitive movement on key decision variables over time You may create up to 20 maps per year at a cost of 25 000 each Competitive Mapping Previously Run Competitive Maps Map 1 Alec Delite Price Advertising Select the Parameters for the Competitive Map Please select two vehicles and two dimensions to use when creating the map You may create up to 20 maps per year ata cost of 25 000 each Products Dimensions 1 Alec Price r 1 2 Delite 2 advertising hi Create Map On the first screen you will select two products and two dimensions to display In some cases you may want to choose two competitors In others you may wish to display your product and its primary competitor There are 13 different dimensions you may choose from including all the important marketing decision variables and product development dimensions Clicking on Create Map will charge you for the map and display t
94. estimating cash needs in the current year Face value of long term bonds that were issued Original value of any stock issued Accumulated net income from previous years Please refer to DECISIONS FINANCING in this section of the manual for more information on debt and stocks StratSim User s Manual Page 36 Internal Cash Flow Statement The CASH FLOW STATEMENT shows the sources and uses of the firm s cash The changes in the amount of cash in the firm can be calculated based on changes in income from operations investments financial operations and adjustments from changes in the balance sheet Income from Operations Plant Investment Financial Operations Adjustments Cash Flow Statement Firm E Starting Cash Income from Operations Plant Investment Financial Operations Adjustments Ending Cash History Comes from the Income from Operations item on the Income Statement Includes any outlays for increases in capacity and retooling costs Include proceeds from short term loans and bonds or stock issues less interest and dividends paid see following page Includes changes in the following asset and liability accounts accounts receivable inventory plant depreciation and accounts payable All four of these categories can be viewed in detail by clicking on the corresponding underlined link As an example a sample Adjustments report 1s shown below that illustrates the impact of changes in receivab
95. esults for period 3 Pending dealership openings and closings will appear on the Sched Change line in the decision screen shown at the top of this page Enter your training and support budget here as well This allocation of resources is targeted to improve the experience the customers will have at the dealership in the long run Select OK to accept the changes made when completed StratSim Operations Guide Page 73 Decisions Manufacturing MANUFACTURING DECISIONS consist of building or selling off capacity and setting planned production levels for each vehicle Previous sales and current inventory levels are noted to help in your planning process as are retooling costs 1f applicable The main production screen is shown below Manufacturing Decisions Plant Capacity Current Capacity Capacity Change 00 s Est Cost of Add 100k imill Vehicle Production Vehicle Previous Current Scheduled Flexible Retooling Sales Inventory Production Production Costs 000 s 000 s 000 s imill 367 30 351 328 2r 301 200 16 209 a45 T 851 Vehicle being Upgraded this inventory is old model and will be written off Be sure to produce enough to meet forecast To enter the production for a vehicle and set whether or not flexible production will be allowed click on the product name A sample of this input screen is shown below Enter your production decision Vehicle Estruck Previous Sales 36T Current Inventar
96. evenues 5 13 38 Index Page 121 S safety 6 7 10 11 49 54 67 sales 6 35 43 58 awareness relationship 49 by customer 48 by region 46 units 38 46 52 sales forecast 86 secondary vehicle class 49 segmentation 118 segments 12 14 21 42 shortages 41 57 short term debt 33 36 37 76 80 simulation manual 26 singles segment 12 22 size 6 7 50 range 49 sports vehicle 6 7 17 staging 82 Startup menu 31 32 stock 13 33 36 37 58 76 80 buy backs 76 stockouts avoiding 86 strategic analysis 84 business unit SBU 65 planning 81 strategy 14 33 66 StratSim case 4 styling 6 7 10 11 49 54 67 SWOT analysis 82 T taxes 13 35 58 technology StratSim User s Manual Page 122 capabilities 10 54 96 maximum feasible limit 54 test market 64 timeline capacity increase 93 dealerships 96 development center 95 major upgrade 94 marketing mix 92 minor upgrade 93 new class 95 new product 94 technology 96 tools decision making 28 menu 31 tools menu 59 training and support 11 56 73 truck vehicle 6 7 19 U unit cost 9 10 35 58 unit margin 88 upgrade 9 68 74 effects on cost 90 utility vehicle 6 7 19 V value seekers segment 12 21 variable costs 7 35 58 118 vehicle attributes 7 9 52 60 67 classes 6 15 44 53 detail 52 names 5 7 52 sales by customer 61 vehicles
97. ever is greater Up to 5 studies per year may be ordered ata cost of 100 000 each Product Test Price Advertising BO Promotion Create Test On the first screen you will select a product and enter the price advertising and promotion levels as if done nationally There is a maximum change in price of 10 Advertising and promotion can be run at levels representing 50 million or double the current levels whichever is greater Clicking on Create Test will charge you for the test run the test market and display the results as shown below Test Market Alec Baseline Test Price 14 are 614 000 Advertising imill 40 al Fromotion mill 20 40 Awareness 46 a Unit Market Share 10 1 11 6 Value Warket Share T 32 T9 Met Contribution Impact imill t 495 The baseline represents the current levels of spending on price advertising and promotion and shows results in the test market based on those levels The baseline results in the test market may vary from national conditions The Test column will show the test market conditions and results You can quickly see the impact of the change in the marketing mix on awareness market share and net contribution Note that these results are only estimates based on the test market and don t factor in other changes in the market or competitive landscape that may occur in the decision period StratSim User s Manual Page 64 Tools Portfolio Analy
98. everal other firms and production contribution the with fresh management teams that have similar objectives This clearly will be a challenging task but you Industry market analysis reports and have full control over all the major functional areas of your company including product development research Competition detailed marketing mix operations human resources and financial management The board has provided you competitor analysis and Tools and with this basic briefing but also suggests reading the more in depth StratSim Case Research specialized analysis techniques to better understand customers In addition there is a Next discussion of the Decisions your team will make StratSim User s Manual Page 32 Internal Analysis The INTERNAL menu contains reports applicable only to your firm and includes the performance summary income statement balance sheet cash flow statement and product contribution Additional reports applicable to your firm such as marketing distribution and manufacturing can also be accessed here In general internal analysis should start with comparing actual performance with planned performance Did the results meet expectations If not begin searching for the reasons The outcome of this analysis may signal a need for a change in strategy F StratSim Ef StratSim Industry test Firm A Period 1 Results Period 2 Decisions Firm A StratSi m lt Ea 5 Period 1 Industry test User
99. g option the Atlantic Region is known for vehicles with excellent styling and features However as a more developed region it does tend to have higher labor and materials costs for production Pacific Region The Pacific Region with its large population base and rapidly growing economy offers high growth possibilities However people in this region still have a fairly low per capita GDP measure of a standard of living relative to the domestic market and Atlantic region Economists in the region expect this to rise considerably in the coming years along with vehicle ownership Labor costs of production are lower in this region and labor is a little less skilled but improving rapidly especially as experience grows Overall the Pacific market offers some great long term potential but be aware the competition 1s likely to be fierce in this more price sensitive market StratSim User s Manual Page 100 International Region Segments The SEGMENTS report provides an overview of the market opportunities within a particular region based on vehicle class This includes an estimate of the potential demand for different vehicle classes a long term projected growth rate and a summary of market research that measures average customer preferences Each simulated year these values will be updated based on the range of results from several regional market research firms Pacific Segments Period 1 Demand Size HP Price 5 Year V
100. gion as displayed here Allant Sales Alege Mote Dollar amounts are in millions Appendix Page 103 International Decisions StratSim provides multiple international decisions for your firm in the areas of marketing and sourcing Be aware that when your firm decides to expand internationally the choices you make may limit other international options Entering a region by building your own distribution network will preclude any future agreements with a partner in the region Other decisions such as building a plant may not prevent you from forming alliances but may make them more difficult For example if you formed an alliance with company X to source an economy vehicle and then you want to source a family vehicle from company Y in the same region your existing relationship with X may make it difficult to reach an agreement with Y Thus it is important to consider the strategic ramifications of the various decisions with regard to sourcing marketing and partnerships There are four decision menus available in StratSim accessed by clicking on DECISIONS main menu as shown on the screen below Pacific Marketing Atlantic Marketing Pacific Sourcing Atlantic Sourcing For each marketing or sourcing decision in a region you will need to decide if you will partner with one of the existing firms in that region or go it alone D StratSim Management BA File Edit Simulation Options Team Help StratSim Management Industry test
101. hall have no liability for any programs or data stored in or used with the computer products including the cost of recovering such programs or data This simulation experience is sold as is and you the purchaser are assuming the entire risk as to its quality and performance The warranty and remedies set forth above are exclusive and in lieu of all other oral or written express or implied For more information about other products from Interpretive Software please contact Interpretive Simulations 1421 Sachem Place Suite 2 Charlottesville VA 22901 Phone 434 979 0245 Fax 434 979 2454 Website http www interpretive com Discover a Better Way to Learn Active Learning through Business Simulations Copyright 1995 2011 Interpretive Software Inc All rights reserved Printed in the United States of America No part of this book may be used or reproduced in any manner whatsoever without written permission of Interpretive Software Inc Table of Contents A T 1 PAEA ET ET aren ne eee eens ori 1 Geine Shred wih Sirol SI ceaiin iA oe ere nme ee ae See epee een erry er wee pi The Strat5imManagement Manual oi isos casas cheeses hearted cc cesses 4 ee entra T ae ate ere ee ee eee 5 Mama OT E aa EEEE E EER 5 Vehicle Attributes and 8 sg si aressencacszasctaretesenennrccmiartianaesarensreyennennaesiardiannsenndennnnasndemaas 6 Ngee 4 1c ca O ee re ent eree mr nT errr TT 8 Bic s TE a i eee en ene een tenet PAETE EIEEE
102. he consumer market set production and build capacity maintain and grow your dealership network and ensure you have sufficient resources to accomplish your goals and enter international decisions if that module is selected by your instructor Once all decisions are made use DECISIONS ANALYSIS PRO FORMA to project your firm s financial performance A StratSim DER StratSim Industry test Firm A Period 1 Results Period 2 Decisions StratSim lt A ER 5 Period 1 Lae User ss Each page of the StratSim site contains an easy to use menu system consisting of three parts Welcome to StratSim 9 specific oar options ste links to decision making tools and input Technology Before you begin the simulation please read screens found on the left side of Produ Davelonmari the case You may then view the reports and the StratSim hrowser window 2 P enter your first period decisions green navigation and general Marketing i control buttons across the top and Distribution 4 3 the current period with Manufacturing 7 industry user and firm names Financing h displayed in the upper right hand Decision Summary corner Decision Analysis Decision Alerts Pro Forma Simulation Making decisions is the implementation of strategy If the strategy 1s clear the decisions should follow fairly easily It may take some time to work out the details but with a strategy in place it is easier to recognize those areas that need
103. he greatest impact because we tend to learn best by doing not solely by reading or hearing about other people s experiences However experience has its drawbacks as well The well known story about the employee who makes a mistake costing a company millions of dollars is a classic example of the possible high expense of on the job training The employee enters the manager s office expecting to be fired and instead hears why would we fire you now we ve just invested 10 million dollars in your training Simulations represent a sensible balance between the two Though clearly not as rich as reality simulations can capture the essence of reality and help us practice implementing business theory without the potentially large costs of errors StratSimManagement is an integrated strategy simulation game based on the automobile industry Needless to say much of the complexity of the industry has been simplified to allow participants to focus their time and energy on strategic issues However we ve retained as much realism as possible to make it easier to quickly understand the overall environment StratSimManagement addresses the following issues Developing a business definition and implementing a profitable long term business strategy Identifying market opportunities and creating product service offerings to satisfy them Analyzing competitors and understanding their strategic intent Developing the corporate infrastructure necessary to su
104. he grid as shown below Competitive Mapping Alec and Delite Competitive Mapping Alec and Delite o Alec Delite mao a mna oP Each product has its own shape and the location of the shape is based on the value associated with the dimension chosen in a particular period 1 2 3 etc The area of the shapes represents the quantity of sales in units in that period So at a glance you can see both the change in a decision the location of the shape and the sales associated with that decision the size of the shape StratSim Operations Guide Page 63 Tools Test Market instructor Selected Option The TEST MARKET tool allows you to experiment with different combinations of price advertising and promotion You may run up to 5 test markets at a cost of 100 000 each A test market condition is created in a particular city where levels of price advertising and promotion are adjusted from your national levels and the change in the sales in that market is measured By extrapolating this change to national levels a marketing manager can make better judgments on how much to adjust the marketing mix variables for the coming year Test Market Select the Parameters for new Market Test Please select a product then enter a price advertising and promotion levels to test Your test price can be 10 ofthe current price while test advertising and promotion can be no more than 50 million or double your current level which
105. heel drive models are very popular as well Truck buyers are quite brand loyal Ford Chevy Dodge and Toyota all make several popular truck models StratSim User s Manual Page 20 Segment Descriptions The following pages provide a brief description of the five consumer segments in StratSim Value Seekers 1 Value Seekers have basic transportation needs They use their vehicle to commute to work or perhaps as a basic all purpose vehicle However they don t have as much disposable income as other segments and are therefore more price sensitive Quality and safety are especially important to these buyers Vehicle classes that may be of particular interest to value seekers include economy and truck Families 2 Families have flexible but somewhat basic transportation needs They need a combination of people and cargo carrying capabilities with perhaps a bit of family fun built in However they don t have as much disposable income as other segments and are therefore somewhat price sensitive Safety and quality are especially important to these buyers Vehicle classes that may be of particular interest to families include family economy and minivan The StratSim Case Page 21 Singles 3 The singles market is young with more disposable income to spend on transportation and a wide variety of transportation needs Styling and performance are most important to this segment Vehicle classes that may be of particular i
106. her companies who are vying to satisfy similar consumer needs This includes analyzing competitors strategy product pricing and channels of distribution Dealership The retail distribution outlet where consumers purchase the product automobiles Demand The desire of consumers for a certain product Fixed Costs Financial obligations of a firm that remain at the same level no matter how many units of a product are produced and marketed Amortization charges for capital equipment and plant plus such charges as rent executive salaries property taxes and insurance are examples Gross Margin Total revenue less product manufacturing costs materials labor plant and equipment Inflation A general rise in the prices that people must pay for goods and services Inventory Stock of a product that is already produced but not yet sold Appendix Page 117 Margin The difference between the price of a product and its per unit cost Market People or businesses with the potential interest purchasing power and willingness to spend the money to buy a product or service that satisfies a need Market Share The percentage of sales of a certain product in a market in relation to other products in that market 1 e Brand X Total sales in market Marketing The process of planning and executing the conception pricing promotion and distribution of ideas goods and services to create exchanges that satisfy individual and organizational obj
107. hipping or tariffs when selling in a foreign market The costs may be shipping costs to domestic or other foreign markets and tariffs The single line plant only allows production of one vehicle but the plant will be available in one year The multi line plant takes two years but has higher overhead expenses than the single line plant Please note that all production for a particular vehicle must take place in one location either foreign plant or domestic plant So your firm will have to make a decision about the best single location for production of a vehicle Region Sourcing Decisions Pacific Sourcing Options Open a Plant Single Line 200 millear 1 year Multi Line 300 millear 2 years Negotiate Hew Alliance f4 of 4 deals remaining this period in this region Your sourcing options include direct foreign investmentto produce one or more vehicles and an alliance with a foreign partner to source a vehicle Click on the Open a Plant link in the appropriate region and the plant choice dialog box will appear as shown below You may change your selection at any time during the decision period but once the simulation is advanced the plant will be built and your firm will be charged the full overhead whether it is in use or not So be sure to think through this decision carefully as part of your overall strategy The plant costs 200 million year for a single line plant and 300 million a year for a multi line plant The costs are expensed
108. his section presents the StratSim industry in a form similar to a business school case It also serves as an introduction to the situation when starting the simulation Note The exhibits in the case may or may not exactly match reports you will view in the simulation software depending on the scenario your simulation administrator chooses 2 StratSim Operations Guide This section provides guidance on how to use the StratSim software including hardware requirements installation of the software interaction with the program and a detailed description of each menu option 3 Managing for Success in StratSim Tackling the simulation is quite an undertaking This section provides a basic framework for how to create a strategy and introduces several frameworks to help keep your company on track during the simulation The section also provides a number of helpful hints on how to improve your performance 4 Appendix The last section of the manual contains several appendices that provide details on the optional international module exporting to a spreadsheet a glossary and an index StratSim User s Manual Page 4 Section 1 The StratSim Case Congratulations on your recent appointment to manage one of the five firms in the StratSim industry Though your primary objective will of course be to learn you will also be setting other goals and objectives for your firm Those may be to become the market leader or perhaps to maximize sharehold
109. iance with a partner The first time you choose to market in a region you will see the following screen with the options of Enter Region and Negotiate New Alliance as shown in the screen shot below Let s start by discussing how to enter a region on your own without a partner ecisions O pack index print help Region Decisions Pacific Marketing Options Enter Region voids all future contracts Negotiate New Alliance 4 of 4 deals remaining this period in this region To market in this region you can enter the region and start your own distribution network or form an alliance with a foreign partner to distribute vehicles g To enter the market region without a partner click the Enter Region link and an entry screen opens as shown below Here you will need to enter the number of distributors to add and a budget amount for marketing support expenses For ideas on establishing your budget and number of dealers to add refer to the International Competitors report This report displays the amount each competitor is allocating to marketing expenses and the number of dealers each maintains in the region Region Marketing Decision Pacific Enter the number of distributors to add along with marketing support M Distribute in Region uncheck to exit region Add Distributors Marketing Support rill fo Cancel Decisions for the international module are made at a very high level limiting the number of vari
110. ill double your sales Alternatively consider a 10 increase in price with the corresponding increase in margin of 10 unit On a percentage basis you have increased your margin by 50 20 increased to 30 To maintain or increase product contribution your sales can decrease by 33 and be no worse off with regard to contribution Examining the price sensitivity at the customer level and utilizing tools such as focus groups and the test market can help you evaluate these trade offs Basically these tools are provided to help you understand the price sensitivity or price elasticity for your target market So that is the tactical nature of the pricing decision but pricing has far greater strategic implications Unit Sales Demand Market Share x Selling Price COGS e Intrinsic e Competition e MSRP e Economic e Product Fit e Value e Industry e Price e Price Sensitivity Dynamics Relative Spend e Positioning e Quality of Spend e Cost position in e Service Distrib industry e Preference Let us consider some of the more strategic aspects to this pricing decision Most of these have to do with the dynamic nature of strategy First price advantage is often temporary A competitor can easily and quickly drop or increase prices if their cost position is equivalent Is this a dynamic that you want to engage in with your competition or would other ways to compete be more effective over the StratSim User s Manual P
111. ing the StratSim Installation link StratSimManagement icon on your desktop or choose Programs Simulations from the Start menu student site StratSim Management Trial Fall 2007 Installing StratSimManagement on your PC Click the Login button and enter your user ID and password the same one you used to access this Note that you need to be connected to the Internet whenever you use the simulation Installing StratSimManagement on a memory stick flash drive sert the flash drive into the computer Uownload the StratSimManagement Installation Program to your flash drive After the download is complete double click the StratSimManagement installation program on your flash drive When you reach step 2 Destination a click the Browse button and select the drive for the flash drive Click next to start installat When the installation is complete you u will see an options screen to add a rain to your desktop and create a new program group UNCHECK both of these options and click r After installation is complete go S dd Computer and open the drive for the aire drive There will be a folder named StratSimManagem 7 Open the folder and double click the Launch StratSimManagement icon to start the simulation D ye et eat Note that you need to be connected to the Internet whenever you use the simulation Remember to refer back to the Comparative Results screen on your class website to see how you
112. inition to customer Growth The position of the SBU on the vertical axis is determined by the market growth of the product class where the brand competes Growth rates for each product class are found in the MARKET SHARE report Relative Share One measure of a product s strength in the marketplace is its relative market share Relative Share is calculated by dividing a product s market share by the market share of its largest competitor Share of each brand for a product class is found in the MARKET SHARE report by clicking on a product class For example if a utility vehicle has 47 of the utility class and its largest competitor has 19 of that same class its relative market share is 47 19 2 47 placing it to the left of the vertical line representing a relative share of 1 Thus those products that are centered to the left of the vertical line are market leaders those to the right are market followers based on this definition of market Choose the Customer button to change your market definition from vehicle class to customer This option will re generate the analysis based on the market definition of which customer purchases the most of the vehicle Growth and relative share are also based on this more refined market definition as well StratSim Operations Guide Page 65 Decisions The DECISIONS screens are where you will enter technology investments create concepts develop products decide on your marketing expenditures for t
113. international region all production for that vehicle moves to the international plant This will be reflected in your Company Production report Region Sourcing Decisions Pacific Pacific Sourcing Options Select a vehicle to produce offshore Single Line Plant Available 200 mill year Upgrade to Mult Line Plant Vehicle fa e 320 millear Negotiate New Alliance 3 of 4 deals remaining this period in this region IV Produce Vehicle Offshore 9 p gon Offshore Production Cancel Production Shipping Delivered Units Vehicle Cost Tariff Cost 000 s pa 0 e E Alec You may select a vehicle to produce in your plant by clicking on the link above This decision only affects where your vehicle is produced Remember to change the vehicle s production schedule on the Manufacturing decision screen in the Home Region If you decide to move production back to the domestic plant click on the vehicle link and uncheck the Produce Vehicle Offshore box A screen showing a vehicle being produced in an offshore plant is shown above right Appendix Page 109 Decisions Region Sourcing Alliance An alternative approach to internal product development and domestic production is to source an existing vehicle from a firm in another region for import to the domestic region There are several firms in each region to choose from and each firm produces multiple vehicles Thus there are many potential vehicles to
114. inventory sales Generally auto companies aim for approximately 30 days of inventory but this may vary based upon development upgrade plans for a particular vehicle Manufacturing Detail Firm A Capacity 000 s 1 200 Coming on Line 000 s 0 Prod Sales Irv Days 000 s 000s 000 s Im Comment s40 581 242 aila 311 310 1 207 In the comments field there are a number of messages that may appear some shortages means less than 10 lost sales significant shortages are 10 30 and extreme shortages are over 30 In addition you may see a note if a product is upgraded or new or if sales have exceeded planned production You may find this same information on your competitors under the COMPETITION MANUFACTURING menu StratSim Operations Guide Page 41 Market Analysis The MARKET menu options provide information about general economic conditions and customers The report includes several tools that will help you sort through consumer preferences and needs This information is available to all participants The market analysis menu structure is shown below A stratSim EEx File Edit Simulation Options Team Help StratSim Industry test Firm A Period 1 Results Period 2 Decisions Suri lt A ss 2 R Industry News Economic Outlook Vehicle Classes Regional Analysis Consumer Segments Consumer Customers New Customers Competition The overall goals in market analysis are to Firm 4 Period 1
115. ion 36 adding a development center 68 adjustments 37 administration 35 58 advancing the simulation 77 advertising 11 35 38 55 58 71 72 117 awareness 49 budget 11 44 53 corporate 11 71 message 117 theme 11 44 53 71 AEV vehicle 6 17 Amazing Cars 5 10 appendix 4 arenas 82 average retail price 7 117 awareness 11 64 72 117 B balance sheet 13 36 37 base cost 67 Best Motor Works 5 10 bond rating 80 bonds 14 36 37 76 80 breakeven analysis 117 briefing 32 C calling bonds 76 cannibalization 117 capabilities and resources 82 capacity 13 37 57 74 75 change 75 over capacity charge 75 utilization 57 117 cash 13 33 36 37 76 cash flow 13 statement 37 cash rate 43 channel See distribution class detail report 44 competition menu 31 51 competitive advantage 67 analysis 60 arena 84 mapping 63 competitive advantage 14 competitive analysis 51 117 competitors 63 concept 9 68 creation 62 test 62 consumer customers 48 segments 47 consumer perceptions 6 11 consumer segments 12 contribution 38 118 control buttons 29 Cool Cars 5 10 cost of goods sold COGS 13 35 38 58 impacts on 89 cost structure 14 customer 11 31 49 54 60 72 demand effects on 85 detail report 49 customer needs 6 10 14 D dealer coverage 11 discount 71 invoice 7 35 marku
116. ising Message The point that an advertisement is trying to make whether to build a particular image stress the benefits of the product compare with other brands or maintain awareness Average Retail Price The average price for a product charged by retailers including both those dealerships with higher prices due to increased personal service exclusive merchandise lines attractive showroom atmosphere special promotions convenient location or special services and those who offer a no frills low price approach Awareness The level of consumer familiarity with a product brand name or advertisement Breakeven Analysis An attempt to determine the volume of sales necessary at various prices for the manufacturer or merchant to cover his or her costs or to break even between revenue and costs Breakeven analysis is useful to help set prices estimate profit or loss potentials and to help determine the discretionary costs that should be incurred Cannibalization Sales of a new product that take away sales of another product in the product line Capacity Utilization The extent to which the physical production ability of a plant facility is being used Normally described as a percent of total capacity 1 e 50 of capacity Channel of Distribution Any firm or individual who participates in the flow of goods and services as they move from producer to ultimate user consumer or industrial Competitive Analysis The process of studying ot
117. k seat in a pinch Legroom and storage space are minimal In StratSim this corresponds to a size of approximately 0 30 Features on an economy car are also likely to be basic in order to keep the costs down Some consumers are willing to pay more for these features but one should be careful not to provide too many driving up costs and eroding profitability It is difficult to make significant money in the economy segment though production volumes are significant Also for many consumers an economy vehicle is their first car purchase and therefore is an important part of your vehicle line up Examples of economy vehicles are the Toyota Yaris Ford Focus Saturn Ion Volkswagen Beetle Honda Civic and Chevy Cobalt Family Family vehicles are mid sized medium priced cars with mid range engines Price in the early periods is between 15 000 25 000 Engine horsepower is likely to be 120 180 Most family vehicles will have several different model offerings and most will have four doors A family car can usually seat 5 adults though those in the back seat may be a bit cramped Legroom and storage space are reasonable In StratSim this corresponds to a size of approximately 30 60 The StratSim Case Page 15 Features on a family car are likely to focus on safety and flexible storage Customers who are in search of a family vehicle want a reliable safe means of transportation for their families at a reasonable cost This vehicle is likely
118. kets outside the StratSim simulation at a price dependent on the level of inventory compared to last year s sales Financial Situation Financial management in StratSim is essential In addition to choosing among investments in technology manufacturing capacity retooling and platform development a firm must also manage cash flow and investor expectations The income statement in StratSim summarizes revenues and expenses for the company Revenues consist of vehicle sales to the dealer and other sources of revenues Cost of goods sold is then subtracted to generate a gross margin Non direct costs such as advertising research and development administration and overhead plant maintenance and depreciation are then subtracted to create income from operations Net corporate income is calculated once extraordinary items and interest are applied Finally taxes are applied at the appropriate rate for your environment leaving income after taxes There is no provision for tax loss carry forward in StratSim The balance sheet shows assets of cash receivables inventory and plant and equipment less depreciation Liabilities consist of short and long term debt and accounts payable Equity consists of original value of stock at par any additional paid in capital and retained earnings A firm running low on cash has three options First it may sell or issue shares of stock This has the benefit of not creating an interest expense or additional oblig
119. l we be active Vehicles How will we get there Differentiators How will we win in the marketplace Staging What will be our speed and sequence of moves Economic Logic How will we obtain our returns These questions must be answered in the context of your internal and external analysis and your organization s vision and mission Remember to be specific when addressing these questions Establishing well defined and agreed upon directives will improve your group s decision making process in StratSim just as having a clearly articulated strategy improves the likelihood of an organization s strategy being executed successfully In the following graphic these five questions are expanded and applied to StratSim to help guide your team s strategic planning process StratSim User s Manual Page 82 The Elements of Strategy Applied to StratSim Staging Arenas What will be our speed and sequence Where will we be active and with of moves how much emphasis Speed of expansion of product Which vehicle classes Which segments customers Which domestic regions to emphasize Which international regions Which technologies to emphasize Which value creation strategies Vehicles How will we get there Internal development International sourcing or partnering Differentiators How will we win development centers productive capacity dealerships new product introductions international
120. lass such as Economy provides detailed information on marketing issues within that class including share of class overall share for the vehicle MSRP advertising budget and theme and promotional budget A sample screen for the CLASS DETAIL is shown below Vehicle Class Detail Economy Class fdescriptionm Vehicle Share of Crverall Class Share 16 14 252 a 11 080 MSRP Adv Ach imill Theme 40 Styling 40 Guality Promo imill 20 20 Bi oo 33 Graph provides a graph of market share by vehicle class over time History allows you to view the report from past periods Map creates a positioning map of size and price for the vehicle class and shows the expected price and size ranges for that class as described on the following page Print will print this report Next takes you to the next vehicle class listed on the VEHICLE CLASSES report Trend displays the PRODUCT CHARACTERISTICS HISTORY for that product Current displays current product detail StratSim User s Manual Page 44 Market Vehicle Classes Choose Class MAP The POSITIONING MAP provides a visual representation of expected size and price ranges for a particular class as well as how vehicles in that class are positioned on these two dimensions Position Map Position Map Economy A Alec D Delite A 0 10 20 30 40 50 60 70 80 90 100 Size Detail Next Print In the above example the box denotes
121. les retooling Modify Specs In Dev Center Set Marketing Mix Set Production Period N is the period just completed for which you are now currently reviewing results e g Period 1 Period N 1 is the period for which you are now making decisions It is the period for which results will be created as the simulation is advanced after the current decisions are completed e g Period 2 StratSim User s Manual Page 8 1 Minor Upgrade Based on Existing Product Immediate Uses Dev Center for 1 Advance The first option is a minor upgrade to an existing vehicle A minor upgrade is completed and launched in the current decision period and normally costs in the range of 100 to 300 million depending on the significance of the upgrade A minor upgrade will have lower unit cost and or enhanced product attributes For example firm A markets a family car Alfa with characteristics 2 1 3 and 2 Upgraded characteristics might be 3 1 3 3 with changes to the horsepower and size as well The maximum change for a minor upgrade is 1 on each of the four vehicle specifications 5 on HP and 2 on size 2 Major Upgrade Based on Existing Product 1 Year Uses Dev Center for 2 Advances The second option is a major upgrade to an existing vehicle A major upgrade is completed and launched in the year following when it is begun and normally costs in the range of 250 to 750 million depending on the significance of
122. les payables and inventory on cash flow Adjustments Firm E Prey Receivables Curr Receivables Receivables Adj Prev Inventory Curr Inventory Inventory Adj Prev Accounts Payable Curr Accounts Payable Accounts Payable Adj Depreciation Total Mote Amounts in milions Frint StratSim Operations Guide Page 37 Internal Product Contribution The PRODUCT CONTRIBUTION report provides financial results at the product level This report provides insights into pricing and costing issues at the product level Note however that it does not include any allocated overhead costs only variable costs COGS and marketing costs directly attributable to a product Product Contribution Firm A Dealer Direct Gross Adv Vehicle Units Sales Sales COGS Margin Promo 000 s mill mill mill mill mills Alec 581 8118 6028 2090 60 Alfa 315 6756 4326 2430 120 Awesome 310 5642 4286 1356 90 Total 1 207 20516 14640 5877 270 Note Dollar amounts are in millions Per Unit Contribution Per Unit Per Unit Per Unit Per Unit Contrib Vehicle Revenue COGS Margin k Contrib Pct Alec 13970 10373 3597 3494 25 Alfa 21435 13724 7710 7330 Awesome 18188 13817 4371 4081 Total 17005 12134 4871 4647 Note Dollar amounts are per unit Graph History There are two different analyses within this report The top box is overall contribution based on total revenues for the produc
123. lop a concept under DECISIONS PRODUCT DEVELOPMENT CONCEPT TESTS Once the concept is created your firm can then test the concept Run Study with one customer group at a particular price point Each price point and customer group is a new study even if run using the same concept After a study is run it will be available until the simulation is advanced as a link under Previously Run Concept Tests as shown in the sample screen below However the first time you use the tool there won t be any previously run concept tests listed Concept Test Previously Run Concept Tests Study 1 1E Economy 25 125hp 15 000 Select the Parameters for a New Concept Test Please select a target customer a concept upgrade or on going development project and a target selling price Up to 10 studies per year may be run ata cost of 100 000 each Customer Concept Economy 12 120hp Family 35 150hp Sports 25 270hp Clicking on Run Study will generate a table similar to the focus group feedback on existing products However instead of market share it will show the percent of people in this customer segment who are likely to purchase your product based on the current competitive products and pricing Do note however that this does not take into account competitive differences in distribution advertising preference etc The study only measures your concept vehicle at a particular price point against other competitive product choic
124. lts Decisions Decision Analysis Simulation Before you begin the simulation please read the case You may then view the reports and enter your first period decisions Appendix Page 99 International International Markets The Atlantic and Pacific regions offer good long term potential for sourcing and or selling However if pursuing international opportunities through a strategic partner one has to consider the fit of your company to the potential market potential sourcing advantage and potential partner Please note that although these regions may bear some resemblance to actual regions one should carefully analyze the market information and not rely on perceived similarities with actual countries or regions An example of the INTERNATIONAL INTERNATIONAL MARKETS report is shown below International Market Period 1 Pacific Atlantic Population imillj 144 Wa Per Capital GDP fe 205 p26 66r GDP Growth Fer 1 icurrent 1 5 GOF Growth Per 2 forecast 1 5 Inflation i 3 0 Vehicle Ownership Vehicle Sales 000 s Humber of Competitors Shipping Cast per Unit Import Tarif Export Tarif Production Cost Index History Atlantic Region The Atlantic Region has fewer consumers and is a more mature market based on current and expected growth rates However with higher per capita income and_ vehicle ownership the Atlantic Region also offers good potential for a company with the right vehicles As a sourcin
125. m s profits will decline to 6 of revenues 6M or 90 54 30 This represents a 40 decline in profit or four times the magnitude of the sales decline Had all costs had been fixed 90M there would have been no profit with a 10 sales decline Generally if overall demand is down all firms will see their profits fall but weaker firms firms without a cost or differentiation advantage will be hurt the most as their gross margins are typically smaller Unit Sales Market Share If overall demand is stable but your share of the market declines a similar drop may be seen in unit sales After recognizing that your market share has dropped analyze changes in share at the vehicle class or customer level to find the root cause What caused the drop in market share in the family class or the 2F customer Was it a new product launch by a competitor Did a competitor upgrade a product Was it due to a change in the marketing mix by either your firm or one of your competitors pricing advertising or promotion Was it due to insufficient production or perhaps a competitor finally increasing their production to meet demand If you see that all of your vehicles are losing market share perhaps the cause was more at the corporate level due to distribution or firm preference Usually problems in these areas will impact all your product lines more or less equally Unit Margin Demand x Market Share x Selling Price COGS Intrinsic e Competition
126. ment are the costs associated with product and technology development including process improvement costs General and Administration include non direct costs otherwise not included on this statement Plant overhead includes fixed production fixed plant costs and depreciation Licensing fees interest expense plant and inventory write offs and income taxes Income after taxes Current per share market value of the firm Stock price times the number of shares outstanding Each firm has a different number of shares outstanding and can issue new shares so this is a better indicator of the relative value of the company than stock price alone Combined long and short term debt GRAPH displays historical graphs on key performance data for all firms StratSim User s Manual Page 58 Tools Data points are everywhere Information is what comes out of well organized data Knowledge is having the right information for the issue at hand If used properly the tools in StratSim can help turn data into knowledge Of course powerful tools don t come cheap but then that cost must be weighed against the value of having the right information at the right time A StratSim StratSim Industry test Firm A Period 1 Results Period 2 Decisions Firm amp Strat Si m lt amp ERS 5 ob Period 1 industry test User ss Each page of the StratSim site contains an easy to use menu n system consisting of three parts Welcome to StratSim t sp
127. ments with your alliance panner are for one year and will need to be renegotialed when they expire The contract price is the amount you receive for each unit your partner pays for shipping and tariffs If the potential partner refuses your offer you can try to renegotiate with this partner or select Negotiate New Alliance to begin negotiations with another partner Once your partner has agreed to the export agreement and you have accepted it be sure to adjust your production schedule to include the estimated vehicle sales To drop a partner alliance simply do not renew the contract when the offer is up for renewal after the simulation has been advanced Appendix Page 107 Decisions Region Sourcing Open a Plant At the beginning of the simulation all production takes place in domestic plants Capacity is divided among current vehicles based on the production as designated by your firm With the international module your firm has the option of opening a plant in a foreign region In addition your firm has the option of opening a single line plant where only one vehicle can be produced or a multi line plant where more than one vehicle may be produced Thus in the Open a Plant decision for sourcing there are two steps e Decide on a region for your plant e Build a single line or a multi line plant Each of these choices has different associated costs and benefits The benefits may be a lower cost vehicle and no s
128. might be priced as low as 14 000 whereas a high end sports car may well be in excess of 35 000 Engine horsepower is likely to be over 150 Sports cars normally are coupes or hatchbacks Some sports cars have only two front seats while others may have small back seats for additional cramped seating Legroom in the front is reasonable but there is typically little storage space In StratSim this corresponds to a size of approximately 15 60 Features on sports cars usually are related to styling and performance Customers who are in search of a sports car want to be noticed and are willing to spend a good chunk of their disposable income to that end Though volumes in this class are less per vehicle profit margins are pretty good These vehicles are also often high awareness brands for the company and help create showroom traffic Examples of sports cars are Ford Mustang Mazda Miata and Nissan 350Z Alternative Energy Vehicle AEV Alternative Energy Vehicles AEVs have more to do with the technology used to power the vehicle than the style and size of the vehicle AEVs encompass a wide range of technologies that might be used to power the vehicle including electricity only rechargeable batteries fuel cell hydrogen solar or some combination of these Though the technology is more expensive and somewhat untested it does lead to significantly improved energy efficiency and lower pollution Power and or range still remain a challenge Expec
129. navigating key areas of StratSim The simulation menu contains main headings and when clicked into a sub menu appears listing options from which you may select To select one of the options in the sub menu place the mouse arrow on the option and click The on screen menu system is organized much like a situation analysis to provide some structure to your review and planning Review the reports first and then begin making decisions To collapse the options back into the main menu just click on the main heading name at the top of the sub menu list Startup Internal Market Competition Tools International Optional Decisions Decision Analysis STARTUP provides access to the on line documentation and help files The industry briefing and case are a good place to start if you haven t yet read the manual A handy Glossary is available here as well INTERNAL contains reports applicable to your firm and includes financial statements cash flow and product contribution data MARKET provides information about general economic conditions and customers This information is available to all participants and most information is free of charge COMPETITION reports contain detailed information about your competitors products market share technology marketing communications distribution production and financials These reports are available to all participants and are free of charge TOOLS contains several market resea
130. nd labor for the product sold This is based on the R amp D unit cost and the cumulative production volume The difference between sales and cost of goods sold Shareholders often analyze the gross margin year to year as one measure of profitability The sum of corporate advertising public relations product advertising product promotion and sales force Research and Development are the costs associated with product and technology development including process improvement costs General and Administration include non direct costs otherwise not included on this Statement Manufacturing overhead includes fixed production and plant costs The cost associated with depreciating investments in factories over time Results from deducting expenses from gross margin Includes plant and inventory write offs If the licensing or B2B option is enabled this line item displays total licensing fees for your firm Interest on long and short term debt Income from Operations less extraordinary items and interest expense Taxes charged at the rate for your industry environment Net Income less taxes Detailed income statement for the region The dividends paid to stockholders If the International module is enabled this line item displays the consolidated total income after tax of your firm s operations both domestic and foreign The dividends paid to stockholders StratSim Operations Guide Page 35 Internal Balance Sheet The BALA
131. not include B2B customers You may run up to 10 studies at a cost of 25 000 each Vehicle Sales by Customer Previously Run Reports Study 1 Catay Select the Vehicle for the New Study Please select a vehicle to show a report of sales by customer You may run upto 10 studies ata cost of 25 000 each Vehicles Run Study On the initial screen select the vehicle from the list box Clicking on Run Study will charge you for the data and display the report as shown below Unit Share refers to that vehicle s market share in units of the consumer customer listed Units are the unit sales to that customer Percent of Sales equals the sales sold of that vehicle to a particular customer as a percentage of the total sales of that vehicle Vehicle Sales by Customer Cafav Caftay Family Consumer Units Customer O00 s AF 130 ZF 24 36 AL 3l 2h 5 2E A 4L al 1E z 4 4 4 4 aI 2 2 0 im Oy Total Consumer StratSim Operations Guide Page 61 Tools Concept Tests instructor Selected Option Concept testing is an important step in the new product development process This is an opportunity for your firm to get early feedback on your potential product before the costly development cycle begins Spending some time up front with customers can save a tremendous amount of resources down the road Each study run costs 100K However before you may test a concept you must first deve
132. nterest to singles include sports and truck High Income 4 People with high incomes have more elaborate transportation needs This segment may be families professionals or retirees They see their vehicle as an indication of their success in life Since they have more disposable income to spend on transportation they are likely to purchase vehicles with extra features and good performance Vehicle classes that may be of particular interest to the high income segment include family and luxury StratSim User s Manual Page 22 Enterprisers 5 Enterprisers see their vehicle as an extension of their business and personal aspirations Enterprisers use their vehicles for business transportation and also to impress potential clients Their vehicles may be company or privately owned Careers such as real estate investments and sales are likely to fall in this category Vehicle classes that may be of particular interest to enterprisers are luxury sports utility and other high end vehicles depending on their business needs The StratSim Case Page 23 StratSim User s Manual Page 24 Section 2 StratSim Operations Guide StratSimManagement is designed to be easy to use and is compatible with all the recent Microsoft Windows operating systems This operations guide helps you start the simulation and also provides more detailed descriptions of each of the reports and decision screens The StratSim simulation contains all the marke
133. ntless suggested improvements and StratSim is a significantly stronger product because of their thoughtful insights In particular we d like to thank Paul Arsenault Torsten Ringberg Glenn Christensen Christine Moorman Marian Moore Ron Wilcox Jeff Lefebvre Larry Feick Marty Roth Robert Dooley Marc Filion Ujwal Kayande Rick Leininger Sam Certo Sunil Gupta Gerald Fryxell and Juan Antonio Fernandez Finally we would be remiss if we failed to thank all the students and executives who have experienced StratSim in one form or another over the past 10 years In particular we appreciate the executives in programs at Volkswagen Michigan EP and McKinsey amp Company We ve also been fortunate to have some extremely competitive and insightful students put StratSim through the wringer The students in the Duke WEMBA Michigan EMBA and Darden MBA programs are always extremely thorough in their analysis and some of their questions have led to improvements introduced in this version We look forward to hearing your comments and suggestions on our latest release and best wishes for a great experience with StratSimManagement Stu James Mike Deighan July 2009 Introduction Simulations are one of many different methods for learning business skills Reading textbooks teaches the foundations of business theory and real world experience often shows the difficulty of putting those theories into practice The lessons of experience usually have t
134. ntory lt Uses 1 Development Center for 1 Period Round 2 Only Managing for Success in StratSim Page 93 Major Upgrade Launch after 1 Advance Major upgrades take one period longer than minor upgrades but also allow you to make more significant changes to the product They occupy a development center for two periods rather than one period as in minor upgrades Because major upgrades take an extra period you will be charged half of the total development cost in the first period of development and the remainder in the second period Also note that you may make additional changes to the specifications in the second year of development and that any existing inventory will be disposed in the second period when the major upgraded vehicle is offered for sale in the market Major Upgrade Round Round Round Design specs Available to sell Modify specs Adjust production Adjust marketing Dispose inventory Results impacted mamam Uses 1 Development Center for 2 Periods Rounds 2 3 New Product in the Same Class Launch after 1 Advance New product in the same class has the same timing as a major upgrade but without the complication of potentially disposing of inventory A development center will be occupied for two decision periods and the development costs will be divided equally between the two periods The one additional consideration here may be adding capacity if needed it is not
135. ny the competition and the market you will decide how to manage your firm in terms of product development marketing manufacturing distribution and financing Consider the amount of time necessary to analyze the information and make decisions This process requires an average of 2 hours although one should allow extra time at first to get acclimated to the simulation Make sure you allow sufficient time to analyze your resources thoroughly and make well planned decisions This is especially important in the periods when you launch new products Use the PRO FORMA option in the DECISIONS menu to run a financial check on your input decisions This option Use the Pro Forma uses your decisions and forecasts to develop an estimate of next year s results Once you have reviewed the PRO FORMA you may want to change some of your decisions Decisions are always saved to the web so once you are satisfied with your decisions you are done It is recommended that you print out and review your decisions each period using DECISIONS DECISION SUMMARY Advance to the _ PRINT Next Period Your simulation administrator will use your decisions along with those of your competitors to advance the simulation to the next year He or she will then update the website and your firm will have access to the updated results Once the simulation has been advanced select REFRESH DATA or just login again to view the updated results Review the results
136. o impact dealers available Results impacted StratSim User s Manual Page 96 Conclusion To summarize what was covered in this section here are six key points to review with your group as you work through the simulation Understand the business situation through internal and external analysis Create an agreed upon vision and mission for your company Establish a process for group analysis and decision making Use the concept of the profit equation to better understand the dynamics and financial implications of your alternative decisions Use the pro forma reports to check your sales and financial assumptions 6 Make sure part of your long term planning process takes into account the time required to complete various strategic decisions oe GN Using this strategic checklist will help your group stay on track strategically and help you avoid many of the reactive pitfalls that naturally occur as competition intensifies Best of luck managing your company Managing for Success in StratSim Page 97 StratSim User s Manual Page 98 Appendix A Optional International Module In most courses StratSim is only concerned with the domestic market However your instructor may have chosen to include the international component of StratSim that adds several new management and marketing issues to consider In some cases the international module will be introduced later in the simulation in others it will be available from the beginning
137. of 1 billion As an example Firm A currently markets products in the economy family and sports product classes They decide to develop a product in the truck category There will be no brand awareness for the product since it will have a new nameplate Product Development Centers Each firm has a limited number of product development centers that affects its ability to work on multiple development projects upgrades new products concurrently Building and funding new centers can increase a firm s ability to develop more products at the same time This investment corresponds to hiring more product development engineers and expanding the R amp D facilities This will allow a firm to work on more new vehicles or upgrades at the same time Product Development Centers Maximum number of product development projects a firm can work on concurrently in a given year The StratSim Case Page 9 Product Concepts The initial stage in the product development process is to create a concept A concept is created by your development engineers and costs nothing until you decide to develop it by moving the concept into one of the development centers Each concept and product development project is defined by its attributes class size performance engine HP interior styling safety and quality There is also an overall cost for the development process an estimated unit cost and a time to complete A sample concept is shown below Concept 1
138. of Strategic Assessment and Judgment The quality of strategic analysis is an essential part of success in StratSim Be sure to take the time and effort to fully understand the industry and your firm s position within that industry An example where a firm could be taken in a non optimal direction would be where your analysis of the industry causes you to believe that your firm is a high end provider of vehicles when in fact your firm 1s more of a volume producer That is different than saying that although our company is currently positioned as a volume producer we want to reposition ourselves as a high end provider This latter statement at least acknowledges the strategic challenge Then the question becomes how does the company reposition itself and is it viable to do so A second example might be concluding that your firm enjoys a cost advantage over its rivals when in fact the company does not have a true cost advantage where it can produce the same product at a lower cost Instead it has low per unit costs due to poor product specifications e g the design has poor ISSQ Interior Styling Safety and Quality In both of these examples the decisions your firm will make will reflect these underlying strategic assessments which in the above examples were not accurate Poor assessment will often lead to poor performance So it is worthwhile to take the time to question important assessments to make sure your strategy 1s based on ac
139. of studies that can be run this total is for your ENTIRE team not just you as an individual So be sure to coordinate purchase of research studies Once someone on your team purchases a study or tool your entire team will have access to the results of that research StratSim Operations Guide Page 59 Tools Focus Groups Instructor Selected Option One method of finding out more about how a particular customer segment thinks about a product service or company is by arranging for a focus group discussion A focus group 1s typically a gathering of six to ten people in a moderated session with the purpose of discovering how participants feel about particular product service attributes how they make purchase decisions or anything else that may be relevant to the company who has paid for the session In StratSim FOCUS GROUP data is organized on a customer basis e g 1E 1T etc When you first choose to view the report you will see a list of all current customers ordered by class A sample of this screen is Shown below To view a focus group for a particular customer just click the customer link You will be charged 50 000 for each customer chosen which represents a market research company facilitating multiple focus group discussions throughout all regions of the StratSim world Focus Groups Customer Retail Unit Chg Sales Sales units 6 045 527 1 a rai 428 6 F or BOS 1 19 263 SGT 3 4 593 428 3 4 557 r2 a
140. of vehicle Remember that your company will have a perceived positioning in the marketplace which should be taken into account when considering alternative strategic options So when you move into new market spaces remember that it may take more time and money to gain success in areas that are far from your core experience It can be done but requires resources and patience Performance Success and Shortfalls Most of the sources of poor financial performance fall into one of three areas 1 not having enough sales to sustain the on going costs of running the business 2 failing to understand the financial structure of your company e g too high product or fixed costs and 3 failure to have a long term plan that takes into consideration the proper staging of actions and investments The remainder of this section will help you identify and diagnose sources of common performance successes and shortfalls StratSim User s Manual Page 84 The Profit Equation Because long term profitability is one of the measures of financial performance for your company you should understand the drivers of profit As the graphic below shows unit sales multiplied by unit margin less fixed costs equals your company s profit Put another way if your unit sales multiplied by your unit margin does not cover your fixed costs your profit will be negative So generally you will find that if your profit is negative your unit sales are low your margin is low or you
141. omers find higher values in these areas more appealing than lower values Should a firm consider the investment worthwhile increases in ratings can be achieved through investments in technology capabilities Definitions e Interior Flexibility of the cargo space e Styling General curb appeal styling handling finish e Safety Structural design braking systems safety features e Quality Overall reliability durability consistency of product StratSim User s Manual Page 54 Competition Marketing Communications The MARKETING COMMUNICATIONS report provides information on marketing expenditures at the firm level Brand advertising and brand promotion are the total of advertising and promotion of individual products Market shares and firm preference are also displayed to aid in analysis Marketing Communications Corp Firm MKting Firm 108 Firm B 109 Firm 106 Firm O 105 Firm E hii Brand Brand Ach Promo 180 190 150 150 150 f 490 pal ro 40 Mote Dollar amounts are in millions Graph History Total Comm 358 374 parh boo 302 Val Mkt Share 28 6 12 4 14 4 24 3 20 3 Unit Share 34 7 8 1 10 5 28 0 18 7 Firm Pref 20 9 21 7 19 8 17 3 20 2 View previous MARKETING COMMUNICATION reports by clicking History and entering the desired time period Graph creates historical graphs of communications variables such as marketing expenditures by
142. oning map already discussed for the VEHICLE CLASSES report but now focused on a particular customer rather than a vehicle class Price Sales will display the relationship between price and the number of units sold for vehicles competing for this customer Awareness Sales will display the relationship between units sold and advertising awareness for the vehicles preferred by the selected customer Print will print this report Be careful not to use any one of these relationship maps as the single predictor of sales All must be considered along with other factors such as the various vehicle characteristics interior styling safety and quality distribution and others to fully understand the sales results However the maps can be quite helpful in visualizing some of the key variables that impact market share by segment StratSim Operations Guide Page 49 Market New Customers The NEW CUSTOMERS report provides some initial data on 3 potential emerging customers as shown below In the example below the High Income segment that would like to purchase a minivan 4M is estimated to be the largest potential new customer in terms of units sold The expected price range vehicle size range and most important attribute are also listed New Customers Period 1 Research has identified the top 3 potential new customer segments Vehicle Est Units Exp Price Approx Most Important segment Class 000s Range Veh Size Attribut
143. our planned path If you find you are not meeting these objectives you must realistically face why this is happening and adjust as necessary StratSim Operations Guide Page 33 Internal Performance Summary The PERFORMANCE SUMMARY shows the results on many performance measures for the four most recent years for the firm starting from period 1 This report provides an easy way to compare your firm s progress on some key indicators Performance Summary Firm D Sales fh Sales 000 s units Market Share ifi Market Share units Met Income Cum Met Income Stack Price hlarket Value Return on Sales Return on Assets Firm Preference Dealer Rating COGS Capacity Utilization Debt Stack Issue Purch Sales e Total manufacturer sales for the firm in dollars not retail Sales Units Total unit sales for the firm Market Share e Your firm s sales divided by total industry sales in dollars Market Share units e Your firm s sales divided by total industry sales in units Income after taxes e Total Net Income after taxes Cumulative Net Income Total Net Income after taxes generated since the start of simulation Stock Price e Current stock price in Market Value e Total market capitalization of the firm in Return on Sales e Net Income divided by firm sales Return on Assets e Net Income divided by total assets Firm Preference e Current firm preference Dealer Rating e Current average dealer
144. p 7 rating 11 40 56 sales 38 training 56 73 dealership 11 36 56 73 96 117 debt 58 long term 36 76 decisions 1 2 3 14 67 79 concept creation 69 consumer marketing 71 decision alerts 78 decisions summary 77 distribution 73 financing 76 manufacturing 74 product development 68 production 74 pro forma 79 pro forma cash flow 81 technology 67 decisions menu 31 66 Index Page 119 demand 13 57 74 117 depreciation 13 35 36 37 58 development capacity 9 development center 68 95 differentiators 82 direct mail 71 distribution 11 40 46 56 dividend 37 76 Driven Motor Co 5 10 dynamic environment 81 E economic conditions 31 43 outlook report 43 economic conditions 42 economic logic 82 economies of scale 10 economy 43 economy vehicle 6 7 15 Efficient Motors 5 10 engine 6 7 range 49 enterprisers segment 12 23 equity 13 experience curve gt 10 experience curve effect 89 external analysis 82 F families segment 12 21 family vehicle 6 7 15 financial implications 13 summary report 58 financial statements 31 33 35 36 37 58 firm preference 55 58 fixed costs 90 117 flexible production 13 74 focus groups 60 forecast 3 43 50 79 G getting started 25 graph button 29 gross margin 13 35 117 group decision making 81 growth 33 44 49 53 65 growth share m
145. particular brand or of a particular vehicle class will enjoy a cost advantage over those products or firms with lower production For example if experience effects of Managing for Success in StratSim Page 89 90 are present and the unit cost of the 100 000 vehicle is 10 000 the cost of the 200 000 vehicle produced will be 9 000 10 000 x 90 Savings through Product Design It 1s important to recognize that the product design process has an impact on unit variable costs Part of this is determined by the specifications of the product with higher values increasing the unit costs all other things being equal However one of the major sources of lowering unit costs is provided through the upgrade process When a vehicle is upgraded along with creating the new product design the engineers working on the product also attempt to find ways to lower the cost of the product without sacrificing the value that the customer perceives in the brand Your firm can calculate the impact of the cost savings of an upgrade by choosing to upgrade a product and making no changes to the design Compare the base cost on the original previous product design with the upgrade Savings through Investment in Technology Capabilities Finally a firm may invest in technology capabilities allowing a firm to create vehicles with higher specifications while also decreasing costs on existing vehicles An estimate of the savings based on your current product
146. portfolio and projected sales is provided on the technology capabilities input screen More specifically a firm with higher capabilities in ISSQ is able to produce an identically specified vehicle at a lower cost than a firm with lesser capabilities in ISSQ It is essential that your firm considers the effectiveness of using these cost savings techniques in the context of your overall strategy Cost savings are a net positive whether they improve your profit margin or are passed on to the customer in hopes of gaining more sales However remember that it is implementation of smart cost savings that is ultimately rewarded Having the largest production capacity is only an effective cost savings if that capacity is used in production and sold Having a low cost vehicle is only effective if consumers still want to purchase it Thus the successful manager is always looking for ways to lower cost but keeps an eye on whether that cost savings is ultimately rewarded by affecting the bottom line Fixed Costs Fixed costs are costs which do not fluctuate based on units sold even if those costs are discretionary Thus investments in upgrades new products technology capabilities development centers new capacity distribution advertising etc generally are the same regardless of the level of unit sales in the market This is not to say these investments will not have an impact on unit sales The firm makes these investments in the aggregate an
147. propriate depreciation 1s expensed each year on the income statement Firms may choose to set production levels above capacity in the short run by running extra shifts and paying overtime An over capacity charge will be incurred as an extraordinary item on the income statement if capacity utilization is over 100 Production within the constraint of capacity is fairly flexible Firms must decide on production volume for each product on the market When the production level on a line is increased from the previous period the capacity now associated with that product is upgraded and retooled Retooling also occurs when current or new productive capacity is dedicated to a new product line The retooling investment is reflected in an increase in the plant and equipment on the balance sheet Lower plant maintenance costs are also likely when the factory is updated Firms may choose to use a flexible production option that increases or decreases production by up to 10 from the firm s target production value depending on demand If production volume is insufficient for demand consumers who are unable to purchase a vehicle at the end of the period postpone their purchase decision until the beginning of the next year purchase an alternative brand or buy a used vehicle Inventory levels should be considered when deciding on production volume for the current year If a product is being redesigned or discontinued the current inventory will be sold in mar
148. r fixed costs are high relative to industry standards This should be straight forward to business students but easy to forget as the dynamics of your industry play out Unit Sales x Unit Margin 7 PROFIT Demand x Market Share x Selling Price COGS z PROFIT We can further define unit sales as overall market demand multiplied by a company s share of the market We can also further define unit margin as the selling price less the cost of goods sold COGS We will refer to this formula as the profit equation Therefore poor profit performance is caused by some combination of low overall demand low share poor margins the difference between selling price and COGS or high fixed costs Let s look at each of these factors in more detail for potential causes of performance successes or shortfalls Unit Sales Demand What are some of the factors that influence overall or segment or customer demand Three are presented in graphic below underlying or intrinsic changes in demand the impact of economic changes and the impact of how the competitors themselves compete in the industry UnitSales x Unit Margin Fe Demand x Market Share x Selling Price COGS Fc e Intrinsic e Economic e Industry Dynamics Let s consider some examples of each of these factors Intrinsic changes would be underlying trends based on long term changes in population the environment or customer preferences In StratSim these can be tra
149. rch studies that will help you sort through customer preferences and needs All of these studies cost money however so you will have to decide how much to spend to get this information INTERNATIONAL provides information about options for sourcing and selling in the international regions This information is available to all participants and 1s free of charge DECISIONS is where your firm will enter choices for investments in technology concept creation product development consumer and B2B marketing production distribution and financial resources Once all decisions are made use the Pro Forma to project your firm s performance Then modify your decisions as necessary The decision summary displays all of your current decisions that can be used to confirm your choices ANALYSIS contains Decision Alerts that displays timely messages to your firm and the Pro Forma analysis tool you can use to help you project your inventory contribution income and balance sheet items for the coming year StratSim Operations Guide Page 31 Selecting any of the main menu choices opens up a more detailed sub menu for access to the individual reports Examples of these detailed menus are provided on the following pages along with sample reports Please note that the values in the reports do not always correspond to the starting situation in the software They are for demonstration purposes only Detail of Menu Options Each menu option from START
150. rporate advertising budget across regions a direct mail campaign budget and a public relations budget The product level marketing decisions include setting the MSRP dealer discount promotional budget advertising budget and theme The main marketing screen is Shown below Marketing Decisions Corporate Marketing Regional Corp Ady Direct Mail Public Relations Total Product Marketing Dealer Ach Aah Vehicle Platform MSRP Disc iMill Theme Estruck PET1 227 0149 12 0 60 Perform Euro PEL 25 115 13 0 40 Stvling Evan PEM 25 047 12 0 80 Stvling Total 180 To change the corporate advertising direct mail or public relations budget click on Corporate Marketing A sample screen is shown below Enter your plan for creating overall awareness ofthe firm among consumers Firm E Corp Adv mill Direct Mail mill 0 North Mail Targets South T Value Seekers 1 25 26 ae os E Familigata 7 M Singles 3 West M High Income 4 1 2 Enterprisers 5 Public Rel mill Cancel Corporate advertising is allocated on a regional basis and helps to create overall firm awareness preference for your firm and provide advertising in support of dealerships Public relations expenditures help to stimulate interest in your firm s new and future product offerings Direct mail allows you to target particular consumer segments telling them about special promotional offers available for new vehicle purcha
151. rtner for this company Are there other potential sourcing marketing options that you both might find mutually beneficial Does your potential partner see you as a long term strategic partner or do your actions make it appear that the partnership is more likely to be a short term alliance of convenience The second aspect is the actual terms of the deal Will your potential partner make a profit on the agreement Does it have significant enough volume to make the alliance with your firm worthwhile To begin the sourcing alliance process click on the Negotiate a New Alliance link in the screen as shown below Region Sourcing Decisions Pacific Sourcing Options Cpena Plant ere h Hear ii year Multi Line 300 millear 2 years Negotiate Mew Alliance f4 of 4 deals remaining tfs period in this region Your sourcing options include direct foreign investment to produce one or more vehicles and an alliance with a foreign partner to source a vehicle Products StratSim User s Manual Page 110 After selecting the new alliance link a dialog box will appear as shown below allowing you to make an offer to a firm to source a vehicle from them at a specific price and volume In choosing a price keep in mind that shipping and tariff fees will be added to the contract price in calculating the delivered cost of the vehicle The potential partner will evaluate your offer and either accept or provide feedback for rejecting the offer P
152. ruck Upgrade Previous Size 1 100 64 Ha Engine HF 2r 2r Attributes int StwSatiauay 2 1f2al2 1711112 Base Cost 100k units 13 051 13 264 Development Cost imill 254 Launch per 2 Test Modify Cancel Project Development An upgrade allows you to tweak any of the product specifications and will attempt to reduce your cost of goods sold Do note that if you choose to upgrade a vehicle any current inventory will be sold off at a loss and you will also incur a retooling charge in addition to the cost of developing the upgrade StratSim User s Manual Page 68 Decisions Product Development New Concept The first step in new product development is the creation of product concepts A concept in StratSim is a set of potential specifications for a vehicle to give to the R amp D department for further study Concept creation is not used to upgrade or change an existing vehicle only for new vehicles Once a concept has been created you may want to run one or more concept tests on it before moving the concept into development Please see the CONCEPT TEST section of the operations guide for more details New Concept Period 2 Create a New Concept Select a vehicle class for your concept then click the Create Concept button You will be able to select the attributes and test your concept before using itto develop a product Create Concept On the initial NEW CONCEPT screen you will be asked to selec
153. rue that a company that only makes short term investments will face long term challenges StratSim reflects this need for balance in time horizons The above discussion relates to the strategic nature of alternative fixed investments However there are also important operational elements to manage as well For example your firm may find that fixed expenses are consistently running high and putting pressure on profits How does this occur One fairly common source of trouble is having too large an operation for your level of sales To check for this compare your sales with your capacity If your sales are less than 70 of your capacity you have a large fixed asset that is not productive and only adding to your on going costs depreciation and plant maintenance If this is an on going concern you may want to consider selling writing off some of your plant capacity Although resulting in a one period loss it may improve overall future performance You also may want to check your expenditures on R amp D and marketing versus the industry averages If you are significantly out of line and it is not part of your strategy you may want to rethink this level of expenditures Typically firms that are struggling with high fixed costs relative to their total gross margin will find themselves going into debt The associated debt interest payments then become another fixed cost to manage The cost structure of the firm not only impacts the profit equation but
154. ry where production that exceeds demand A stockout will result in lost sales and presumably lost contribution Unsold inventory ties up cash and runs the risk of becoming obsolete resulting in an inventory write off if the product is upgraded or discontinued So avoiding these conditions should be one of your company s goals Of course the production level for a vehicle should take the current level of inventory available for sales of that brand Because the production plan should be based on expected sales for next period less any existing inventory the key to making an accurate production decision is having a good estimate of sales for next year This is not a trivial process and the techniques one would use in StratSim are different for an existing product than for a new product For both situations however the drivers of the Demand x Market Share part of the profit equation are the basis for the forecast What varies is the level of uncertainty and the tools one would use For an existing product there is the big advantage of knowing current sales as a base to start the process For purposes of this example let us state that the product had achieved sales of 100 000 units The first question to ask is whether or not there were any special circumstances regarding production levels that impacted these sales For example was there a stockout situation either for this product or one of its direct competitors Check the manufacturing detail for yo
155. s Alec Delite North 244 riw 25 South 205 1 29 Total 1 201 1 514 306 122 443 TAT r49 4 582 of vehicles by region as shown Click on a product name link 1 e Delite to display the Product Detail report as shown below Trend displays the PRODUCT CHARACTERISTICS HISTORY for that product StratSim User s Manual Page 46 Product Detail Delite Manufacturer Platform Model Class Engine HP Size Position Interior Rating Styling Rating Safety Rating uality Rating Firm D Mo Change Economy 84 5 MSRP Dealer Invoice Avg Retail Price Advertising imill Advertising Theme Promotion mill Units Sold 00 s Value bikt Share Share of Class 11 080 10 083 10 412 40 0 duality 20 0 399 4 1 33 2 Market Consumer Segments The CONSUMER SEGMENTS report provides the overall units sold to each consumer segment the percent change in sales during the most recent period and the percent of each segment captured by each firm In StratSim there are five consumer segments labeled 1 5 and three business to business or fleet segments labeled 6 8 Within each segment there are multiple customers with somewhat different needs More information on these customers is available in the CONSUMER CUSTOMERS report that is also described on the following page Consumer Segments Units Segment 000s Value Seekers 1 955 Families 2 1 904 Singles 3 820 High Income 4 637 Ent
156. s dealer is a good indicator of their success as a business which along with training and support will likely translate into higher dealer ratings Distribution Detail Firm A North South Full Coverage 200 250 Established Dealers 120 120 Coverage BO 46 Planned Openings 0 0 Suppo Dealer 000 s farig 270 8 nits Dealer Af al ie 2 924 SalesiDealer mill 46 5 427 SsernicefDealer imill 0 4 0 4 GrossiDealer mill 3 6 fa 4 Dealer Rating 614 51 The dealer rating is a customer satisfaction index from a leading market research company and ranges from 1 100 with 100 corresponding to highest satisfaction Dealer ratings provide insight into the success of dealerships The success and coverage of your dealerships is an important aspect of your overall firm s success Your firm should think of your dealership network as a key strategic partner who shares in your success Generally the more successful your dealerships are the more successful you will be and vice versa You may find this same information on your competitors under the COMPETITION DISTRIBUTION menu StratSim User s Manual Page 40 Internal Manufacturing The INTERNAL MANUFACTURING report provides additional information by product line such as actual production sales inventory and days inventory Days inventory is an estimate of the number of days of inventory available at year end based on yearly sales and is derived by the formula 365 x units
157. satisfaction results COGS e Cost of Goods Sold as a percent of manufacturer s sales Capacity Utilization e Production as a percent of total capacity Debt e Current short and long term debt outstanding Stock Issued Purchased Percent of shares issued or purchased net divided by total shares outstanding at the start of the simulation StratSim User s Manual Page 34 Internal Income Statement The INCOME STATEMENT shows the firm s overall results for the most recent year with major expenditures broken out Each item is also displayed as a percent of manufacturer sales not retail sales for year to year comparative purposes Sales COGS Gross Margin Marketing R amp D General amp Admin Manufacturing OH Depreciation Inc from Operations Extraordinary Items Licensing Fees Interest Inc Expense Net Income Tax Income After Tax Region Income Dividends Consolidated Income Dividends Income Statement Firm E Sales COGS Gross Margin Marketing Research and Development General and Administrative Manufacturing Overhead Licensing Fees Depreciation Income from Operations Extraordinary Items Interest Income Expense Net Income Tax Income after Tax Dividends Sales are recognized at the time of purchase by the customer The dollar amount is based on dealer invoice not retail price or MSRP Cost of goods sold COGS is the total variable manufacturing costs materials a
158. ses at the dealerships StratSim Operations Guide Page 71 To change the marketing mix of one of the products on the CONSUMER MARKETING screen click on the product name e g Alec This is also where you may take a vehicle off the consumer market or discontinue drop a vehicle by removing the checkmark in the Sell in Consumer Market checkbox This will not automatically sell off the inventory unless you have discontinued the vehicle from the manufacturing screen as you may choose to continue to sell it through other channels if applicable Enter marketing decisions for the vehicle below Vehicle Alec MSRP h 3725 Promotion Dealer Discount E Advertising Adv Theme W Sellin Consumer Market Interior Safety The MSRP is important in two ways One is that it sets price expectations in the mind of the consumer positioning and the other is that the MSRP is the basis for setting the actual revenues to your company after the dealer discount is taken For instance if the MSRP is set at 20 000 and the dealer discount is set at 10 your actual revenues will be 20 000 x 1 10 18 000 Typically the retail price what the customer actually pays for the vehicle will be somewhere between the price to the dealer 18 000 and the MSRP 20 000 but that will vary depending on promotional programs demand inventory target markets etc The promotion budget is used for special dealer or consumer promotions such as
159. siderations political economic socio cultural technological environmental and legal sometimes referred to as PESTEL The goal here is to understand the forces at work that impact your company One framework that is often used to organize internal and external insights is SWOT analysis Strengths Weaknesses Opportunities and Threats The second foundation of a strategy is the formulation of a shared mission and vision that the leadership sets for the company This defines where and how it chooses to do business and also provides the directive for setting corporate goals and objectives and the measures that should be used to evaluate performance and acceptable outcomes Mission and vision are also the primary drivers of corporate culture and organizational structure and must be chosen with key stakeholders in mind Stakeholders are the people and organizations that stand to gain or lose something based on the success of the organization Typical stakeholders include owners employees customers partners and suppliers Internal and External Analysis az IZ gt Strategy Shared Vision and Mission o In their 2001 article from the Academy of Management Executive Are you sure you have a strategy Donald Hambrick and James Fredrickson provide an excellent framework that defines five necessary elements of a strategy The authors propose that an organization defines its strategy by answering five questions Arenas Where wil
160. sis Instructor Selected Option The PORTFOLIO ANALYSIS tool displays your current product portfolio in a 2 x 2 growth share matrix using the standard Boston Consulting Group BCG terminology of star cash cow dog and question mark This tool is designed to provide your firm with an overview of your competitive position in your target markets Though some may use this information in a prescriptive sense to help allocate resources it may be more appropriately used in a descriptive way to see both relative importance of products to your company size of circle relative strength in the marketplace where the product is placed horizontally and relative attractiveness of the market class where the product competes where the product is placed vertically This analysis can be done either using vehicle class as the market definition free or customer 100K if instructor selected option is chosen Portfolio Analysis Portfolio Analysis by Car Class Firm A 20 0 Star A Alec Economy B Alfa Family C Awesome Utility 10 0 Cash Cow 5 1 Relative Share Customer History Market Definition The legend on the right side of the chart shows the Strategic Business Units SBUs for a particular firm In the StratSim environment each SBU corresponds to a product Markets are defined as one of the product classes as shown in the MARKET SHARE menu choice under COMPETITION Choose the Customer button to change your market def
161. stain growth Allocating scarce resources among products functions and other investment alternatives Exploring international market and sourcing opportunities optional module In the simulation you or your group will be competing directly against other teams either in your class or possibly at other universities Decisions are made once each simulated year Once all competitors have made these annual decisions the simulation will be advanced and the results will be updated These results will be dependent upon your decisions those of your competitors and the evolution of the general industry environment Each industry will develop uniquely based on how the competitors interact what new products are introduced and how these products are supported As you will soon see StratSim provides a very dynamic learning experience Customers and competitors will change new products will be introduced and the economy will have its ups and downs The simulation is designed to be a fun but challenging experience Competing in the StratSim environment will require complex analysis and decision making Therefore take some time to familiarize yourself with the program and manual before beginning the exercise While working through the simulation you will find it helpful to refer to the manual for information and strategy tips Section 3 of the manual contains helpful reference material Introduction Page I Getting Started with StratSim In or
162. success of dealerships A strong dealer gross 1s expected to translate into a successful dealership but training support and service revenues all contribute as well Purchase Decision What vehicle a customer will ultimately purchase reflects a complex decision making process First of all customers consider the attributes of the vehicle Of course the overall appeal of the vehicle is weighed against the price the customer will ultimately pay This trade off between price and appeal is what creates value in the mind of the customer Each customer has different needs and also places a different importance on each need Some attributes may be very important to the customer hot buttons while others are less important In some cases customers may want more of an attribute while in other cases they may have a particular ideal in mind Their decision will also be impacted by their knowledge of the vehicle awareness experience at the dealership dealer rating dealer coverage and special promotional offers and activities The StratSim Case Page 11 Consumer Market Segments There are five consumer segments in StratSim numbered 1 through 5 Exhibit 1 6 provides an overview of each segment with units sold and Appendix B provides further detail Exhibit 1 6 Description of Consumer Market Segments Segment Description Value Seekers 1 Value seekers have basic transportation needs that include commuting to work Quality and Sales
163. t a vehicle class Then select the Create Concept button to allow you to set the vehicle specifications as shown below Firm A Enter values for your vehicle s attributes Vehicle Economy Size o 4 35 HP Oo 0 150 Interior o Ga Styling o a5 Safety o 1 4 iu ality Cancel Select OK to create the concept Once created you will get feedback from R amp D regarding the expected unit cost at 100 000 units of production the overall cost of the development project if you decide to move it from concept to development and the number of years required for development This screen is shown on the next page StratSim Operations Guide Page 69 New Concept Concept 1 Economy 10 100hp Class Economy Size 1 100 10 Engine HP 100 Attributes dntStwSatiGiuay PRETEN Est Base Cost 100k units 0 Development Cost imill y 461 Development Time 2 rS Develop Mote In order to move your concept into development you must click the Develop button Test Modify Delete Concepts From this screen you may choose to see what the market thinks about your concept using the Test button Please see the TOOLS CONCEPT TEST description earlier in this guide for more details on how to run and interpret concept tests Based on the results from the concept testing process you may decide you should change the concept To do this just select the Modify button that will take you back to the specifica
164. t rather than a per unit basis Thus Dealer Sales equals the price of the product to the dealer multiplied by the number of units sold The sum of the Dealer Sales column equals the Sales value from the income statement Sales made other than through your own dealers will appear in the Direct Sales column The cost of goods sold COGS and expenditures on advertising and promotion are then subtracted to calculate the overall contribution of each product The lower box analyzes the products on a per unit basis Any direct sales will be included in these figures so remember that this analysis looks at your average revenue and margin over all sales The Margin Pct and Contrib Pct columns are helpful measures for pricing StratSim User s Manual Page 38 Internal Marketing The INTERNAL MARKETING report provides a summary of your marketing expenditures for your company along with value market share and days inventory Marketing Detail Firm A Consumer Company Owned Fleet Regional Corp Adv Direct Sales Force Direct Mail Direct Mail Public Relations Total Total Val Mkt MSRP Dealer Avg Sell Adv Adv Promo Days Share Disc Price mill Theme mill Inv 9 0 15 351 9 0 14 572 40 Styling 20 7 8 24 084 11 0 23 121 80 Interior 40 6 7 21 149 14 0 20 426 60 Quality 30 180 90 Links to the product detail e g Alec are also available as shown below which provide more detail
165. ted if agreement was renewed Renew agreement if desired Continued sales of vehicle in foreign region Results impacted if agreement was renewed Renew agreement if desired Period N is the period just completed for which you are now currently reviewing results e g Period 1 Period N 1 is the period for which you are now making decisions It is the period for which results will be created as the simulation is advanced after the current decisions are completed e g Period 2 Note that all production for vehicle s selected takes place offshore StratSim User s Manual Page 114 Appendix B Exporting Data to a Spreadsheet Copying to a Spreadsheet File To copy a report to a spreadsheet file select COPY from the EDIT pull down menu This will copy the contents of the current screen The contents may then be pasted into another application such as a spreadsheet word processor or graphics program File Edit Simulation Options Team Help Stra Copy Ctri C stry ind2 Firm A Period 4 Results Period 5 Decisions cs bd Firm A COPY menu Rena A os S OR se ee option Startup Internal Balance Sheet Period 4 Performance Summary Income Statement Balance Sheet Liabilities Internal produ Contouton Cash 3 030 Accounts Payable 1 198 Receivables 3 063 Short Term Debt 0 Financial report lami 147 Long Term Debt 0 Manufacturing Pant and Equip 8
166. ted prices are from 20 000 and up Engine horsepower is likely to be 70 150 and size in StratSim ranges from 0 50 depending upon the application The StratSim Case Page 17 Minivan Minivans are family oriented vehicles that have lots of passenger and storage room but drive more like a car than a truck These are perfect for families who need more space than a family vehicle can offer Price is typically between 18 000 35 000 Engine horsepower is likely to be 120 240 Most minivans will have several different model offerings which mainly vary seating capacity and cargo area A minivan can usually seat 7 adults possibly more depending on the seating configuration Legroom and storage space are excellent In StratSim this corresponds to a size of approximately 50 100 Like family vehicles features on a minivan are likely to focus on safety and flexible storage Customers who are in search of a family vehicle want a reliable safe means of transportation for their families at a reasonable cost This vehicle is likely to be their primary mode of transportation and should hold up well under the normal wear and tear of everyday family life Price and promotional deals have a significant impact on buyers of these vehicles Examples of minivans include the Dodge Caravan Toyota Sienna and Honda Odyssey StratSim User s Manual Page 18 Utility Combine the attributes of a truck minivan and sports car and you get a utility vehicle
167. ter the graph is displayed you will often have the option to select a different variable to graph A sample graph of market share by firm from the COMPETITION FINANCIALS report is shown below Financial Summary Firm Market Share Dollars x Fim 2 o Firm B Firm C Firm D A Firm E l eo 01 2 3 4 5 6 8 9 10 11 Period Select Print The History button is another way to see a report on data from past periods This feature is extremely useful for discovering trends or calculating the impact of particular decisions or competitor actions StratSim Operations Guide Page 29 List Boxes with or without Scroll Bar A list box contains a list of choices with or without a scroll bar Click on the scroll bar to view all your choices and select by clicking the mouse on the items to include In some cases you may be able to select more than one choice To do this hold down the Ctrl key while making your choice Vehicle z Evan Check Boxes and Radio Buttons Check boxes and radio buttons allow you to select an option usually yes or no true or false If you have a mouse click on the check box or radio button Dimensions icheck 3y Radio buttons Minor Upgrade Check boxes m Class choose one A major Undrade Choose one or more Price Engine HF Specs Size StratSim User s Manual Page 30 Navigation System The SIMULATION MENU 1s a user friendly menu structure for
168. the expected price and size ranges for the economy class The two economy class vehicles Alec and Delite are marked A and D and are listed in the legend in the order of sales Thus the sales leader for this class 1s Alec Based on this plot one can say that Alec is larger and higher priced than the Delite that the expected price of an economy vehicle appears to be under 20 000 and that the expected size of an economy vehicle is less than 30 Detail will return you to the CLASS DETAIL report Next will take you to the next positioning map for vehicle class listed on the VEHICLE CLASSES report Print will print this report Note Positioning maps can also be viewed at the customer level which provides more specific information for that customer rather than for the class overall StratSim Operations Guide Page 45 Market Regional Analysis The REGIONAL ANALYSIS report provides an overview of sales in units broken out by region This information is useful when deciding on distribution issues A sample screen is shown below Click on a vehicle class link such as Economy to show market shares Regional Analysis Unit Sales 0000 s by Region North Class Economy amil below in the REGION DETAIL report Region Detail 244 314 5 23 115 193 ile 1 South 205 325 r 29 111 10 226 256 3154 aaf oo 35 105 151 195 1 257 Unit Market Shares by Region Economy Vehicle Total Unit
169. they put their time and effort into improving our products through their feedback and experiences We will continue to incorporate suggested improvements into up coming releases of this product and welcome your comments and suggestions There are many people to thank for their assistance on this project and we would like to single out a few who significantly contributed to the content of this product over the years In particular Interpretive would like to thank Tom Kinnear from the University of Michigan James Thorne of Market Focus and Doug Dean of Volkswagen all of whom provided a great deal of guidance and feedback with regard to original content of the project We have been very fortunate for the past few years to be working with Mason Carpenter of the University of Wisconsin and Gerry Saunders of Rice University while they have crafted their strategic management textbook for Pearson They ve provided invaluable feedback on the simulation and how to integrate the experience with their textbook Over the past 10 years we have been fortunate to have many people provide feedback and advice to help StratSim get to where it is today At Interpretive Clayton Shumate Erin Pringle Tony Naidu Payton James Amberg Susan Christmas Marjorie Adams Gabriel Buddenbrock Mary Deighan Bill Luers and Laura Simroth all contributed their talents and experience Bill Womack and Tony Naidu designed this latest cover Faculty users have been the source of cou
170. ting competitive and financial reports for your industry After reviewing these reports you will make decisions that are automatically saved on the Interpretive website Once your decisions and those of your competitors are completed Interpretive will advance the simulation update the results and you will be able to view the outcomes Getting Started StratSim is compatible with all the recent Microsoft Windows operating systems and requires a hard drive and Internet connection The minimum requirements are e Windows Vista or XP e MAC compatible e Internet access Broadband recommended dial up acceptable and a web browser e 4 MB of hard disk space or zip drive memory stick Accessing the Simulation To use StratSim first point your internet browser to the home page login at www interpretive com You will receive your login information either from your instructor or directly from Interpretive PC Interpretive Simulations gt A r http Anterpretive com rd5 index php Riterpretive simulations Simulations me X Support About Us Contact Us t Discover a better way to learn Da f Active learning through business simulations Today s students need to understand complex problems experience working ir nake dedsions in the fa gt set Soe ecm Enter User ID and Password nately make decisions in ula ons provide valuable practice in a highly engaging Strat
171. tions Guide Page 53 Competition Technology The TECHNOLOGY CAPABILITIES report summarizes the current technological capabilities of each company These values represent the maximum level the firm can achieve in the current period using platform development on interior styling safety and quality The maximum feasible limit for each of these characteristics is also shown The maximum limit may change over time if new breakthroughs are discovered in the particular technology and represents the highest value any firm can achieve through investments in technology capabilities Clicking on the links to one of the firms Firm A through Firm E in the sample screen below displays historical information about a firm s investments in technology capability and may give insight as to possible future generations of vehicles from that firm Technology Capabilities Firm Ratings low capability Interior Styling Safety Quality Max Feasible z 11 Firm A Firm E Eimi Firm D Firm E Tech Dim Considerations Interior flexibility of cargo space Styling general curb appeal streling handling finish Safety structural design braking system safety features Quality overall reliability durability consistency of products History In the example above the most appealing product Firm A can create is one with interior of 4 styling of 5 safety of 4 and quality of 5 out of a maximum of 9 11 8 and 10 respectively All cust
172. tions input screen There is no additional expense to modify a concept at this stage Therefore get it right before moving ahead to the product development stage Once you are satisfied with your concept and have decided it is worth the investment to put it into development choose the Develop button Doing this will move the concept into development and occupy one of your development centers for two or three years depending on the length of the project When you move a concept into development you will be asked to name the project This will ultimately become the name of your product in the market and is limited to 12 characters The product name has no impact on the sales of your product although civility is appreciated in playing the game Important You must choose the Develop button to move a product from the concept stage into the development center otherwise the product will never come to market Ready to start development on concept Economy 15 100hp Please enter a oK vehicle name Cancel Ariba You may choose to cancel development at any time if you change your mind about the viability of the project Remember that development centers are limited and product development is a time consuming and costly process so choose wisely StratSim User s Manual Page 70 Decisions Marketing CONSUMER MARKETING decisions include both corporate and product components The corporate level decisions consist of allocating a co
173. tratSim Operations Guide Page 57 Competition Financial Summary The FINANCIAL SUMMARY report provides some key performance data for all the competitors market share firm preference sales COGS income stock price and debt level A sample screen is shown below Val Mkt Share Unit Share Preference Sales COGS Marketing R amp D G amp A Manufacturing Other Income Stock Price Mkt Value Total Debt Financial Summary Val Mkt Share Unit Share Preference sales COGS Marketing hlanutacturing Other Income Stock Price Mkt Value Total Debt Mote Dollar amounts fexcept stock price are in millions Graph History Firm sales divided by total industry sales at the manufacturer s level not retail A firm s vehicle sales in units divided by industry unit sales Firm preference 1s a measure of customers surveyed who show a decided preference for a particular firm This is based on overall vehicle offerings dealership reputation and firm awareness Sales are recognized at the time of purchase by the end customer The dollar amount is based on dealer price not retail price or MSRP Cost of goods sold COGS is the total variable manufacturing cost for the product sold This is based on the R amp D unit cost and the cumulative production The sum of corporate advertising public relations product advertising product promotion and sales force Research and Develop
174. ur company and the competitors to find this information Read the message some shortages lt 10 significant shortages 10 30 or extreme shortages gt 30 to get an idea of the magnitude of the production shortfall If for example you saw a message that stated significant shortages you may want to adjust your base to 120 000 units as an estimate of what you would have sold had you produced sufficient volume to meet demand In the same way if a direct competitor s sales were affected by insufficient production you may want to adjust your base downward Next consider what decisions you are considering for the marketing mix The potential impact of changes in price advertising and promotion may be measured using the test market tool to help you estimate the sensitivity to adjustments in these variables Of course this tool assumes that there are no other changes to either your product or competition This brings us to the most difficult assessment you must make what will the competition do and how might this affect next period s market share for the product The most important issue to note is whether a new competitor is entering into the same market or vehicle class as the product In the industry news report all new products new class entries are announced one period before the vehicle is sold in the market This information is important to consider as it will impact your sales forecast and perhaps as importantly create a
175. vidend amount each year Financing Decisions Financing Amount 4 Mill Bonds Issued Stack Issued Dividends Paid Click on Bonds Issued or Stock Issued to issue either stocks or bonds in the CAPITAL DECISION input screen as shown below Note that values are entered in millions Thus 2000 equals 2 Billion Firm A Use this form to raise capital by selling stock or issuing bonds Enter the dollar amount fin millions Sell Stack 2000 oo Sell Bonds 0 cane Issuing bonds or selling stock is done to raise money for operations Long term bonds have lower interest rates than short term loans Stock carries no interest but will dilute shareholder value If your firm needs cash and doesn t issue stocks or bonds StratSim will automatically issue a short term loan necessary to cover capital liens at the current short term rate Bonds are callable after 3 years and there is an interest penalty of 1 year on the bond to call it A checkbox will appear on the CAPITAL DECISION screen on any bonds eligible to be called and the entire amount originally issued must be called no partials If the instructor has selected the stock buy back option cash may be used to purchase shares on the open market by entering a negative number under Sell Stock You may buy back up to 20 of the current stock if the stock buyback option has been selected by your instructor The Dividend Paid link will open the input screen used to set th
176. wer unit cost than a firm with a technology profile of 6 6 6 6 The current technology profiles with the maximum limitations are displayed below Exhibit 1 5 Technology Capabilities of Firms Interior Styling Safety Quality Maximum 9 1 9 1 Amazing Cars A Best Motor Works B Cool Cars C Driven Motor Co D Efficient Motors E StratSim User s Manual Page 10 Advertising and Promotion Product advertising plays an important role in establishing vehicle awareness and shaping consumers perceptions of products In the StratSim world firms are responsible for setting an advertising budget and an advertising theme The majority of the budget is spent on media buys with the remainder on the creative input and theme The theme emphasizes one of the primary characteristics of the vehicle performance interior styling safety or quality Product managers attempt to match the advertising theme with the hot buttons of their target consumer Corporate advertising budgets are set on a regional basis These funds are spent on generating a corporate identity in support of the product advertising A public relations budget is also set to support publicity events for the firm corporate and investor relations Finally direct marketing can be used to generate interest within a particular target segment Promotional budgets are set at the product level and include special incentive programs and general promotional activities Th
177. will likely have a strategy that is well thought out and executed Creating a sound strategy is the most important process your firm will undertake because your strategy is the framework for all decision making and firm organization The strategy should be a long term vision for your firm that every member of your team can reference when making decisions and analyzing data Strategy is defining segments served and creating a sustainable competitive advantage It 1s your road map Itis where and how your firm chooses to compete It is essential Enjoy your tenure as a management team in the StratSim world It should be an exciting and challenging learning experience Good luck and have fun StratSim User s Manual Page 14 Product Class Examples The following pages provide a sample picture of a vehicle in each product class in StratSim as well as a brief description of some of the features one can expect to find in each class Please note that the specifications are approximate and meant as a general guide to distinguishing product classes Economy Economy vehicles typically are small low priced cars with less powerful engines Price in the early periods is under 18 000 Engine horsepower is likely to be under 150 Most economy vehicles will have a hatchback and sedan model option and some may also offer a small wagon An economy car can usually seat 4 adults though probably not comfortably A child may be able squeeze in the middle of the bac
178. year If the estimated values do not meet your expectations you may want to reconsider your decisions or forecasts or possibly your expectations On the first screen you will be asked to enter a forecast for each product The forecasts represent your sales estimate in units for the consumer market for the coming year When setting these forecasts remember to consider factors such as changes in your product upgrades price MSRP or discounts marketing support advertising and promotion expected demand and of course don t forget about the competition Additionally review any qualifying direct sales Pro Forma Firm A Consumer Sales Forecast Prev Sales Vehicle Sales Forecast Alec 803 0 Alfa 479 T Awesome 411 The sales forecast links on this report allow you to enter sales forecast figures for the pro forma calculations When you click on the OK button you will see a report that calculates your projected inventory and retooling costs if any based on your forecasts and production levels Pro Forma FirmA Firm A Dealer Gross Adv Vehicle i Sales COGS Margin Promo mill mill mill mills Alec 8118 6078 2040 60 Alfa 6756 4369 2387 120 Awesome 5642 4340 1302 90 Total 1 207 20516 14787 5729 270 Note Dollar amounts are in millions Per Unit Contribution Per Unit PerUnit PerUnit Margin Adv Per Unit Vehicle Revenue COGS Margin Promo Contrib Alec 13970 10459 3511 103 3407 Alf

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