I’ve noticed blogs and youtube videos describing strategies on how to win this simulation, but the results usually aren’t that high; just high enough to beat their class. Our team ended up with 34.04 percent market share, $229 million in cumulative profit, $87 million in round eight profit, and $503 million in sales, which are the best results I could find just googling around.
General strategy: Be aggressive as it’s a zero-sum game. I think the first pitfall comes from teams who listen to the professor and treat it as a friendly competition, or take the advice to be a quality niche player. It’s possible to take over the market and grab every segment, which has the benefit of choking revenue from other companies while making yours look better. Since you’re trying to be first, your scorecard will establish the class curve and automatically give your team an A. Yes, for probably the only opportunity you will have in college, you receive an A by lowering the grades of your fellow classmates. Enjoy the ride.
Round 1: Borrow long term debt to the hilt, and issue max stock and you should have around $56 million to play with. You’ll zoom ahead of your classmates as they’re too timid to fully commit and go all-in. College students in their early twenties have this misconception that low debt is a good thing, probably because they’ve been traumatized by student loans. Companies use debt for positive things such as growth and plant investment, similar to homeowners who take on a mortgage or take out equity on their home; it shouldn’t be seen as a bad thing.
Before starting your practice rounds, read your capstone student guide a couple times to familiarize yourself with the game. It’s a desperate situation when you try to intuit or “feel” your way through the game. We had a few teams who didn’t do the research and lost their shirts. Remember what it felt like to lose in Monopoly or Risk? Yeah, like that.
You will be at a crossroads when choosing how to invest. Either go heavy on automation, or introduce products in high end, performance, and size. It’s possible to balance things out and do both, but decide now which option you like more. Automation increases the contribution margin and thus profitability, while new products rob your opponents of market share. Don’t bother with introducing new traditional and low end due to automation and capacity requirements. Traditional should be near the 8-8.5 automation range, low end 10 towards the end of the game, and the high end offerings can be anywhere from 6-8, depending on how you R&D. Remember to ramp up automation slowly as you need TQM to kick in over three rounds: 1500, 1500, and 1000. Employees need to be hired with $5000 and 80 hours. These are weaknesses you can exploit in your enemies, since they’ll be too timid to go all-in. When you see their thatched-roof cottages burn and hear the lamentations of their women, you’ll know you’re on the path of capitalist enlightenment. =)
Marketing and promotion have sweet spots. If you couldn’t afford it in previous rounds, try and catch up with $3000 spending, although there are diminishing returns. For other rounds, $2500 is the best compromise. When you hit 100% awareness, $1400 is the maintenance amount for promotion, $2500 for accessibility, and $3500 accessibility if you have two products in the same category. When you’re bringing up two products, it’s $4500 per segment instead of $3000 for one product. Split the spending to $2500 for the new product, $2000 for the old. Note the marketing department will emphasize one product over the other depending on your spending.
Automation is an interesting one. I recommend 8.5 for traditional, 10 for low end, and 6.5 for the rest. It’s possible to push traditional to 10, but time it so you’re no longer R&Ding at the end; this applies to low end too. Figure out the product drift and complete R&D for the ideal spot by round 7. For low end, R&D doesn’t matter so long as you’re within the circle of product desirability. For high, performance, and size, you can push to about 7.5 automation. I’d be careful about high automation. The key is to ramp up your TQM to have 47 percent R&D reduction.
For projections, 1.2 is your baseline. You calculate this by going to your potential market share page in the Capstone Courier, and multiplying current market size from the segment analysis page, by the growth rate, by your potential market share percentage found on the right side. That’s your worst-case scenario projection. Then multiple by 1.2 in the production section for what you’ll actually make. In round 4, you’ll experience a recession, so pull projections back to 1.15 or 1.10. In situations where your three new products are coming on-line, push projections way beyond potential market share, such as 1.3 or 1.4. You’ll probably stock out and deal with capacity issues as that’s expensive when expanding your product portfolio. When the market settles down and you stop taking market share, give yourself a 1.15 to 1.20 production schedule to avoid stock outs, while staying away from high inventory carrying costs. Note that your new products will cannibalize your old products by about 2 percent, but it’s not a big deal considering what you gain. You can scale back old production by 2 percent to compensate.
For such high-risk projections, take out additional long-term loans to cover your cash position. Near the beginning, I used my intuition by suggesting we give ourselves a $5 million cash buffer just in case. Sure enough, we were left with $4 million when the round processed, meaning we would have taken an emergency loan and sunk our growth model. Over time, increase your buffer as your projection risk goes up: $10 million, $15, $20, and about $30 by round 8. That gives you about 10 percent protection assuming a $300 million sales year, and if you make $503 million, emergency loans won’t be an issue.
Stay away from current debt as commercial paper become due the next year. It’s better to pay 1 percent more in interest to have essentially free money since it has a ten-year maturity. Note some long-term debt becomes due because of previous debt incurred before the game started.
Remember this is a zero-sum game. I’ve read and heard from previous teams that it’s impossible to take all segments so you have to concede some of your products. I offer a different look, where it’s possible to have a stranglehold over the sensor industry. In our game, two player industries were essentially bankrupt with negative earnings, while the other was a small fraction of our size by market cap. The two computer teams were under maximum-security prison lockdown as our products choked theirs from making money. Yeah, we had fun dominating. =)
CompXM: I had similar results in the class final. With knowledge gained from capsim, I immediately R&D’ed for three products in the core, nano, and elite categories. It’s helpful to just name them Axe2, Art2, and Ant2 after your regular products to avoid confusion. Don’t bother with a thrift product as it’s an analog to traditional and low end. The automation and capacity requirements are too extreme, so focus on high-end offerings that can hit the ground running. I ended the game with 46.46 percent market share, two companies in default, and another in second place. The game is similar to capsim, but on an accelerated four round simulation. Get TQM, workers, automation, and capacity up, and you’ll perform fine.
My one complaint about the game is the lack of merger and acquisition activity. If it were possible to light their defeated corporate buildings on fire with gasoline and matches, we would have. In our minds, we bought out the troubled companies we crushed in order to gain a monopoly. For obvious reasons, this is too cruel in the Care Bear Share world of college. It’s supposed to be a learning environment; although I argue they would learn plenty when they experience a hostile takeover. We could open up the simulation to set up golden parachutes and poison pills to balance out M&A.