StratSim Management

1. StratSimManagement The Strategic Management Simulation

2. StratSimManagement Ties It All Together: • Marketing • Operations • Finance • HR Cross-Functional Long-Term Strategy

3. StratSim Environment • Based on the Automobile Industry • Multiple Markets and Vehicle Classes • Consumer market of 150 million people • Currently, low GDP and inflation growth rates • Demand sensitive to GDP, interest rates, and decisions that you make as an industry • Maximum of 10 yearly decisions

4. StratSim Environment The Products: Cars & Trucks • Principle Characteristics • Vehicle Class • Size • Engine / Performance • Interior • Styling • Safety • Quality …and Price

5. (H)ybrid & (D)elivery StratSim Environment • 7 Product Classes with Existing Vehicles: (E)conomy, (F)amily, (S)ports, (L)uxury, (M)inivan, (U)tility, and (T)ruck • Plus two potential new classes if developed:

6. Industry Overview (teaching note) • Competitors: In the standard scenario, all student team competitors start with 3 of the same vehicles in identical positions. • In some scenarios, there is an additional competitor (firm F) that is played neutrally and is positioned in the other vehicle classes. • In the unique starting positions scenario, each team starts with a unique set of strengths and weaknesses and is positioned differently. This scenario only has 5 firms. • The following slides refer to the 5 student team, even start scenario with “phantom firm” F. • Please see the optional slides for unique starting positions scenario along with slides B2B and Licensing options

7. Industry Overview • 5 Firms (A-E), direct competitors, all start in the same position with 3 vehicles • 1 Firm (F) is neutral and positioned uniquely • Amazing Cars (A) • Best Motor Works (B) • Cool Cars (C) • Driven Motor Co. (D) • Efficient Motors (E) • Fast Cars (F) •  Alec (E)*, Alfa (F), Ace (T) •  Buzzy (E), Boffo (F), Boss (T) • Cameo (E), Cafav (F), Crash (T) • Delite (E), Defy (F), Dusty (T) • Echo (E), Efizz (F), Egad (T) • Fanagan (M), FirstClass (L), Fly (S), Futile (U) * Corresponds to Product Class

8. Industry Overview • Competitors: 5 firms (A-E) identically positioned plus phantom firm F  • Some financial data…

9. Industry Overview

10. Consumer Market • 5 consumer segments (1-5) with different needs and class preferences Segments Value Seekers (1) Families (2) Singles (3) High Income (4) Enterprisers (5) … New customers may emerge

11. Consumer Market Purchase Process • Customers have different needs and expectations with regard to vehicle characteristics • Customer ”consideration set” based on product class, size, and MSRP

12. Consumer Market Purchase Process • Customers prefer a particular size vehicle • Customers prefer a specific engine size due to the trade-off between performance and fuel economy • Customers prefer better (more) Interior, Styling, Safety, and Quality • Customers weigh this bundle of goods against the price charged

13. Decisions • Technology • Concept Creation • Product Development • Consumer Marketing • B2B Marketing (optional) • Manufacturing • Distribution • Finance Cross Functional Long-Term

14. Technology • Each firm has an overall technology capability with regard to Interior, Styling, Safety, and Quality that can be improved through investment in technology • For Example: Firm A’s technology profile is 4, 5, 4, 5, meaning that it can develop and/or upgrade vehicles to these maximum specifications • A firm with greater technology capability can produce vehicles with better features in these areas AND produce vehicles with the same features at lower per unit cost • Weigh benefit against cost of investment Important: Investing in technology does not automatically improve the specifications of your products, only your ability to do so through upgrades.

15. Cost of investment and estimated benefit Click here to change your technology capabilities Technology

16. Concept Creation • To introduce a new product, a firm must first develop a product concept • A concept consists of all the vehicle specifications (class, size, engine, attributes) • Your firm will receive feedback on the unit cost, development cost, and time to develop • Your firm may also run a concept test to see how a customer views your concept.

17. Product Development • Product Development takes place in “Development Centers” • New products move from concept to development in one of the centers • Upgrades also take place in the centers • Each firm starts with 2 development centers allowing concurrent development on two products (new products or upgrades) • New development centers can be added over time up to a maximum of five (one per period).

18. Product Development • 4 General Approaches: • Minor Upgrade: Based on existing product, uses 1 center for 1 decision period, prepare launch now (immediate impact after advance). Inventory disposed now. • “tweak” – Max. change of 2 size, 5 HP, 1 other specs. • Major Upgrade: Based on existing product, uses 1 center for 2 decision periods, prepare launch next decision (1 year). Inventory disposed next year. • Max change of 10 size, 20 HP, 2 other specs + “tweak” next year • New Product, Same Class: Based on concept, uses 1 center for 2 decision periods, prepare launch next decision (1 year) • New Product, New Class: Based on concept, uses 1 center for 3 decision periods, prepare launch in two years • Use concept test for new products to measure “quality” of your offering. Balance opportunities, speed to market, cost, and need for change

19. Product Development Product Development Timelines (Exhibit on page 8 in manual)

20. Product Development • Example: • In the 1st decision period, a firm initiates a minor upgrade and a new product in a new class… • If, in the following period, the firm thinks it will want to initiate two more upgrades, what are its options? • Build a new development center in the 1st decision period so they would have 3 operational centers in the 2nd decision period • Only choose one upgrade in the 2nd period (because the new product would occupy one development center) • Choose to discontinue development of the new product to free a development center. Hints: Be sure to plan development time lines and development capacity

21. Product Development Sample development screen showing an upgrade (Alfa), new product (Aphid), and a new development center:

22. Marketing • Corporate Level Marketing: • Budget set by region (North, South, East, West) to create general firm preference and support dealerships • Public relations to create interest in firm • developments • Direct Mail to different consumer segments

23. Marketing • Product Level: Advertising and Promotion • Advertising budget to build and maintain awareness • Advertising theme (performance, interior, style, safety, quality) to appeal to target segment’s “hot button” • Promotion budget to help spur sales during slow periods used for rebates, special financing, attractive leases, etc.

24. Marketing • Product Level: Pricing • MSRP = Manufacturer’s Suggested Retail Price used to position vehicle, set expected price in mind of consumer and dealership • Dealer Discount = % discount off MSRP to dealer • MSRP - discount = Actual revenues to your firm • Actual selling price to consumer (retail price) determined by dealer

25. Marketing Consumer Marketing Decisions Screen

26. Manufacturing Capacity • Total vehicle production must be less than capacity or incur over-capacity charges • Capacity may be increased, but takes one year before available and costs $$$ • Plant investment is depreciated over 10 years • Maximum increase (or decrease) in a year is 50% of current capacity

27. Manufacturing • Product Production • Set production based on YOUR sales forecasts and inventory levels • Retooling costs for initial or increased production • Remember there is a cost to dispose of inventory of old vehicles if upgraded • Set flexible production (+/- 10%)

28. … and Alfa inventory write-off (upgrade) Manufacturing Note over-capacity (1845>1800) and resulting charge

29. Distribution • Dealerships make the actual sale to consumer • Set up on a regional basis (North, South, East, West) • Can open or close dealerships (max of 10% change each year and takes 1 year to open/close) • Dealer ratings (1-100 scale) indicate customer experience at dealership, impacted by: • Profitability and product offerings • Training, education and support • Dealer discounts and servicing

30. Note Coverage (= established / full) … and 20 new dealerships started Distribution

31. Finance • Uses of cash (long-term investment decisions): • Technology, product development, capacity, retooling, advertising, distribution, repurchase of bonds and stock, repayment of loans. • Sources of cash: • Operations, selling bonds and stock, short-term borrowing • Use Pro-Forma to see likely impact on cash position based on YOUR forecasts and decisions

32. Click here to issue bonds and stock Finance To repurchase stock, enter a negative value ($) Bonds are callable after three years

33. Financial Performance • Financial Statements • (Income statement, • balance sheets, cash flow) • Stock price and bond ratings • Use Pro-Forma reports to see • likely impact on performance • based on YOUR forecasts and • decisions. • ** Actual Results Will Vary **

34. Internal Reports Internal Analysis • Performance Summary • Income Statement • Balance Sheet • Cash Flow Statement • Product Contribution • Marketing • Distribution • Manufacturing

35. Market Reports • Market Analysis • Industry News • Economy • Vehicle Classes • Regional Sales • Consumer Segments • Consumer Customers • New Customers • B2B Segments* • B2B Contracts* *B2B reports are optional and will be displayed only if selected

36. Competition Reports • Competitive Analysis • Products • Market Share • Technology • Marketing • Communications • Distribution • Manufacturing • Financials

37. Tools and Research • Tools available • Vehicle Sales by Customer ($) • Focus Groups ($) • Concept Test ($) • Competitive Mapping ($) • Test Market ($) • Portfolio Analysis

38. Decisions Menu • Input Decisions • Technology • Concept Creation • Product Development • Consumer Marketing • B2B Marketing (optional) • Manufacturing • Distribution • Licensing (optional) • Financing • Pro-Forma • Decision Summary

39. Decision Summary Check your decisions on the Decision Summary screen (Decisions menu) before the simulation is advanced to the next period

40. Simulation Process See Sections 3 and 4 of Manual

41. StratSim Logistics • All decisions are saved on the server, so you must be online • Everyone on the same team shares ONE decision file, so when one person makes a change, the whole team makes that change. In addition, when one team member purchases a tool, the whole team purchases the tool. In other words, organize your decision process! • It is recommended that you print out decision summary and pro-forma income statement when your team is done entering your its decisions • Decisions must be completed on time • Results will be available at beginning of next meeting time

42. Final Considerations • Your strategy drives your decisions – make sure you have one! • Focus on how to best serve your target markets through a total offering – product, marketing, service, and price • Importance of team organization - HR • Manage your margins – understand financial implications of decisions • Understand fixed and variable costs • Long term vs. short term • Make wise investments • Use the Pro-Forma for insights BEFORE finalizing decisions • Try new approaches – apply concepts – experiment – have fun!