CAPSIM Introduction and Overview

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fqrhagen7

Business Finance

Description

APA Format

At Least 3 References

500 Words

Company: ANDREWS


Assignment Objectives:

Demonstrate the integration and utilization of key concepts and knowledge from prior courses to solve the selected problem

Research current trends and utilize program concepts to support the project solution

Assignment Description:

Write 500 words that respond to the following questions with your thoughts, ideas, and comments. Be substantive and clear, and use examples to reinforce your ideas.

Review the Industry Conditions Report and CapStone Courier found in the Reports section of the left hand menu in the CapSim simulation. Also, review the CapStone Team Member Guide. Based on your initial review of the CAPSIM Capstone Business Simulation, what have you have identified as the key business issues that will impact your company? Prepare to discuss this issue with the other members of your team.

Your discussion should include the following:

  • Discuss the current situation in the CapSim simulation and the recent changes to the industry and competitive environment.
  • What competitive challenge is faced by your company? What are the opportunities and threats (Pettus, Ch. 4)?
  • Applying the business level strategies discussed in Pettus, Chapter 4, and market segment strategies discussed on page 24 of the Team Member Guide, explore possible strategic directions for your company and various sensor products. Reading and responding to the posts of your teammates is highly recommended.

Capsim Log in Available if needed

Attached: Industry Report, Capstone Courier, Annual Report, and Chapter Reading Material

Unformatted Attachment Preview

Capstone® Industry Conditions Report For C102832 Your instructor can customize the simulation scenario. The information below is specific to your industry. Printable and Downloadable PDF Version of This Report The sensors your company manufactures are incorporated into the products your customers sell. Your customers fall into five groups which are called market segments. A market segment is a group of customers who have similar needs. The segments are named for the customer's primary requirements and are called: Drift Rates Each year, the segments drift the length of the hypotenuse of the triangle formed by customers' desire for smaller and faster products. Table 1 Segment Circle Drift Rates: Every year, customers demand increased performance (Pfmn) and decreased size. 1 of 8 Capstone® Industry Conditions Report For C102832 demand increased performance (Pfmn) and decreased size. Note that the drift rates vary for each segment. Pfmn Size Traditional +0.7 -0.7 Low End +0.5 -0.5 High End +0.9 -0.9 Performance +1.0 -0.7 Size +0.7 -1.0 Segment Centers Table 2 Segment Centers at the End of Each Round: As shown in the Perceptual Map Form above, size is on the vertical axis and performance (Pfmn) is on the horizontal axis. Traditional Low End High End Performance Size Round Pfmn Size Pfmn Size Pfmn Size Pfmn Size Pfmn Size 0 5.0 15.0 2.5 17.5 7.5 12.5 8.0 17.0 3.0 12.0 1 5.7 14.3 3.0 17.0 8.4 11.6 9.0 16.3 3.7 11.0 2 6.4 13.6 3.5 16.5 9.3 10.7 10.0 15.6 4.4 10.0 3 7.1 12.9 4.0 16.0 10.2 9.8 11.0 14.9 5.1 9.0 4 7.8 12.2 4.5 15.5 11.1 8.9 12.0 14.2 5.8 8.0 5 8.5 11.5 5.0 15.0 12.0 8.0 13.0 13.5 6.5 7.0 6 9.2 10.8 5.5 14.5 12.9 7.1 14.0 12.8 7.2 6.0 7 9.9 10.1 6.0 14.0 13.8 6.2 15.0 12.1 7.9 5.0 8 10.6 9.4 6.5 13.5 14.7 5.3 16.0 11.4 8.6 4.0 The information in Table 2 reflects the segment centers at the end of the round. Therefore, the Round 0 positions can be seen as the Round 1 starting positions, Round 2 positions can be seen as the Round 3 starting position, etc. Each month during the simulation year, the segment drifts 1/12th of the distance from the starting position to the ending position. Ideal Spots Table 3 Ideal Spot Offsets: Customers prefer products located this distance from 2 of 8 Capstone® Industry Conditions Report For C102832 the center of the segment circle. Pfmn Size Traditional 0.0 0.0 Low End -0.8 +0.8 High End +1.4 -1.4 Performance +1.4 -1.0 Size +1.0 -1.4 The information in Table 3 shows the Ideal Spot "offsets" or distances from the segment center. The ideal spot is that point where, all other things being equal, demand is highest. It is different from the segment center. Why are some ideal spots ahead of the segment centers? The segments are moving. From a customer’s perspective, if they buy a product at the ideal spot, it will still be a cutting edge product when it wears out. 2 Segment Sizes and Growth Rates At the beginning of the simulation, Traditional and Low End sell more units than the high technology segments, High End, Performance and Size. Page 10 of the Capstone Courier, the Market Segment Report, displays total industry sales. Each market segment grows at a different rate. Table 4 lists the beginning segment growth rates for your industry. The growth rates might change from year to year. Check the Segment Analysis reports in the Capstone Courier each round for the upcoming year's growth rates. Table 4 Beginning Segment Growth Rates Traditional 9.2% Low End 11.7% High End 16.2% Performance 19.8% Size 18.3% 3 Buying Criteria By Segment These are your products and the primary segments they sell into at the beginning of the simulation. These can change according to your decisions and as the simulation evolves. Able Traditional Acre Low End Adam High End Aft Performance Agape Size 3 of 8 Capstone® Industry Conditions Report For C102832 The buying criteria for each segment, in order of importance, are displayed below. Positioning and Age score information also display. Passing your cursor over an image will enlarge it. See Chapter 3 of the Team Member Guide for explanations of Positioning, Age, Price and MTBF scores. 3.1 Traditional Segment Buying Criteria (Round 0) Traditional customers seek proven products at a modest price. Age, 2 years – importance: 47% Price, $20.00-$30.00 – importance: 23% Ideal Position, performance 5.0 size 15.0 – importance: 21% MTBF, 14,000-19,000 – importance: 9% Industry Conditions Figure 3.1: Traditional Buying Criteria Traditional customers give higher position scores to sensors located in the center of the segment circle. Traditional customers give higher scores to sensors in the 2 year range. 3.2 Low End Segment Buying Criteria (Round 0) Low End customers seek low prices and well proven products. Price, $15.00-$25.00 – importance: 53% 4 of 8 Capstone® Industry Conditions Report For C102832 Age, 7 years – importance: 24% Ideal Position, performance 1.7 size 18.3 – importance: 16% MTBF, 12,000-17,000 – importance: 7% Industry Conditions Figure 3.2 Low End Buying Criteria Low End customers prefer inexpensive sensors with slower performance and larger size. Low End customers give higher scores to sensors in the 7 year range. 3.3 High End Segment Buying Criteria (Round 0) High End customers seek cutting-edge technology in size/performance and new designs. Ideal Position, performance 8.9 size 11.1 – importance: 43% Age, 0 years – importance: 29% MTBF, 20,000-25,000 – importance: 19% Price, $30.00-$40.00 – importance: 9% Industry Conditions Figure 3.3 High End Buying Criteria 5 of 8 Capstone® Industry Conditions Report For C102832 High End customers demand cutting edge sensors with high performance and small size. High End customers give higher scores to newer sensors. 3.4 Performance Segment Buying Criteria (Round 0) Performance customers seek high reliability and cutting edge performance technology. MTBF, 22,000-27,000 – importance: 43% Ideal Position, performance 9.4 size 16.0 – importance: 29% Price, $25.00-$35.00 – importance: 19% Age, 1 year – importance: 9% Industry Conditions Figure 3.4 Performance Buying Criteria 6 of 8 Capstone® Industry Conditions Report For C102832 Performance customers emphasize performance over size. Performance customers want sensors in the 1 year range. 3.5 Size Segment Buying Criteria (Round 0) Size customers seek cutting edge size technology and younger designs. Ideal Position, performance 4.0 size 10.6 – importance: 43% Age, 1.5 years – importance: 29% MTBF, 16,000-21,000 – importance: 19% Price, $25.00-$35.00 – importance: 9% Industry Conditions Figure 3.5 Size Buying Criteria Size customers emphasize size over performance. 7 of 8 Capstone® Industry Conditions Report For C102832 Size customers prefer sensors in the 1.5 year range. 4 Projected Interest Rates Prime Interest Rate Round 1: 7.0% 8 of 8 Round: 0 Dec. 31, 2018 C102832 Andrews Baldwin Chester Digby Erie Ferris Selected Financial Statistics ROS Asset Turnover ROA Leverage ROE Emergency Loan Sales EBIT Profits Cumulative Profit SG&A / Sales Contrib. Margin % CAPSTONE ® COURIER Andrews 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Baldwin 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Chester 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Digby 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Erie 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Ferris 4.1% 1.05 4.4% 2.0 8.7% $0 $101,073,437 $11,996,365 $4,188,507 $4,188,507 8.9% 28.3% Page 1 Stock & Bonds C102832 Round: 0 Dec. 31, 2018 Stock Market Summary Company Close Change Shares Andrews Baldwin Chester Digby Erie Ferris $34.25 $34.25 $34.25 $34.25 $34.25 $34.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 MarketCap ($M) $69 $69 $69 $69 $69 $69 Book Value EPS Dividend Yield P/E $23.97 $23.97 $23.97 $23.97 $23.97 $23.97 $2.09 $2.09 $2.09 $2.09 $2.09 $2.09 $2.00 $2.00 $2.00 $2.00 $2.00 $2.00 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 16.4 16.4 16.4 16.4 16.4 16.4 Bond Market Summary Company Andrews Series# Face Yield Close$ S&P 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B Baldwin Company Digby Series# Face Yield Close$ S&P 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B 11.0S2020 $6,950,000 12.5S2022 $13,900,000 14.0S2024 $20,850,000 11.1% 12.1% 12.6% 99.49 103.70 111.32 B B B Erie Chester Ferris Next Year's Prime Rate7.00% CAPSTONE ® COURIER Page 2 Financial Summary Cash Flow Statement Survey CashFlows from operating activities Net Income(Loss) Adjustment for non-cash items: Depreciation Extraordinary gains/losses/writeoffs Changes in current assets and liablilities Accounts payable Inventory Accounts Receivable Net cash from operations C102832 Round: 0 Dec. 31, 2018 Andrews Baldwin Chester Digby Erie Ferris $4,189 $4,189 $4,189 $4,189 $4,189 $4,189 $7,587 $0 $7,587 $0 $7,587 $0 $7,587 $0 $7,587 $0 $7,587 $0 $3,583 ($8,617) ($307) $6,434 $3,583 ($8,617) ($307) $6,434 $3,583 ($8,617) ($307) $6,434 $3,583 ($8,617) ($307) $6,434 $3,583 ($8,617) ($307) $6,434 $3,583 ($8,617) ($307) $6,434 Cash flows from investing activities Plant improvements(net) Cash flows from financing activities Dividends paid Sales of common stock Purchase of common stock Cash from long term debt issued Early retirement of long term debt Retirement of current debt Cash from current debt borrowing Cash from emergency loan $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 ($4,000) $0 $0 $0 $0 $0 $0 $0 Net cash from financing activities ($4,000) ($4,000) ($4,000) ($4,000) ($4,000) ($4,000) Net change in cash position Balance Sheet Survey Cash Accounts Receivable Inventory Total Current Assets $2,434 Andrews $3,434 $8,307 $8,617 $20,358 $2,434 Baldwin $3,434 $8,307 $8,617 $20,358 $2,434 Chester $3,434 $8,307 $8,617 $20,358 $2,434 Digby $3,434 $8,307 $8,617 $20,358 $2,434 Erie $3,434 $8,307 $8,617 $20,358 $2,434 Ferris $3,434 $8,307 $8,617 $20,358 Plant and equipment Accumulated Depreciation Total Fixed Assets $113,800 ($37,933) $75,867 $113,800 ($37,933) $75,867 $113,800 ($37,933) $75,867 $113,800 ($37,933) $75,867 $113,800 ($37,933) $75,867 $113,800 ($37,933) $75,867 Total Assets $96,225 $96,225 $96,225 $96,225 $96,225 $96,225 Accounts Payable Current Debt Long Term Debt Total Liabilities $6,583 $0 $41,700 $48,283 $6,583 $0 $41,700 $48,283 $6,583 $0 $41,700 $48,283 $6,583 $0 $41,700 $48,283 $6,583 $0 $41,700 $48,283 $6,583 $0 $41,700 $48,283 Common Stock Retained Earnings Total Equity $18,360 $29,582 $47,942 $18,360 $29,582 $47,942 $18,360 $29,582 $47,942 $18,360 $29,582 $47,942 $18,360 $29,582 $47,942 $18,360 $29,582 $47,942 Total Liabilities & Owners Equity $96,225 $96,225 $96,225 $96,225 $96,225 $96,225 Andrews $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Baldwin $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Chester $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Digby $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Erie $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Ferris $101,073 $72,513 $7,587 $8,978 $0 $11,996 $5,421 $2,301 $85 $4,189 Income Statement Survey Sales Variable Costs(Labor,Material,Carry) Depreciation SGA(R&D,Promo,Sales,Admin) Other(Fees,Writeoffs,TQM,Bonuses) EBIT Interest(Short term,Long term) Taxes Profit Sharing Net Profit CAPSTONE ® COURIER Page 3 C102832 Production Analysis Price $28.00 $21.00 $38.00 $33.00 $33.00 Material Cost $11.59 $7.81 $15.98 $15.87 $13.62 Labor Cost $7.49 $7.12 $8.57 $8.57 $8.57 Contr. Marg. 29% 27% 33% 23% 30% 2nd Shift & Overtime 0% 30% 0% 0% 0% 14.5 17.0 12.0 15.5 11.0 $28.00 $21.00 $38.00 $33.00 $33.00 $11.59 $7.81 $15.98 $15.87 $13.62 $7.49 $7.12 $8.57 $8.57 $8.57 29% 27% 33% 23% 30% 0% 30% 0% 0% 0% 4.0 5.0 3.0 3.0 3.0 1,800 1,400 900 600 600 66% 129% 45% 73% 63% 5.5 3.0 8.0 9.4 4.0 14.5 17.0 12.0 15.5 11.0 $28.00 $21.00 $38.00 $33.00 $33.00 $11.59 $7.81 $15.98 $15.87 $13.62 $7.49 $7.12 $8.57 $8.57 $8.57 29% 27% 33% 23% 30% 0% 30% 0% 0% 0% 4.0 5.0 3.0 3.0 3.0 1,800 1,400 900 600 600 66% 129% 45% 73% 63% 17500 14000 23000 25000 19000 5.5 3.0 8.0 9.4 4.0 14.5 17.0 12.0 15.5 11.0 $28.00 $21.00 $38.00 $33.00 $33.00 $11.59 $7.81 $15.98 $15.87 $13.62 $7.49 $7.12 $8.57 $8.57 $8.57 29% 27% 33% 23% 30% 0% 30% 0% 0% 0% 4.0 5.0 3.0 3.0 3.0 1,800 1,400 900 600 600 66% 129% 45% 73% 63% 3.1 4.6 1.7 2.5 2.6 17500 14000 23000 25000 19000 5.5 3.0 8.0 9.4 4.0 14.5 17.0 12.0 15.5 11.0 $28.00 $21.00 $38.00 $33.00 $33.00 $11.59 $7.81 $15.98 $15.87 $13.62 $7.49 $7.12 $8.57 $8.57 $8.57 29% 27% 33% 23% 30% 0% 30% 0% 0% 0% 4.0 5.0 3.0 3.0 3.0 1,800 1,400 900 600 600 66% 129% 45% 73% 63% 3.1 4.6 1.7 2.5 2.6 17500 14000 23000 25000 19000 5.5 3.0 8.0 9.4 4.0 14.5 17.0 12.0 15.5 11.0 $28.00 $21.00 $38.00 $33.00 $33.00 $11.59 $7.81 $15.98 $15.87 $13.62 $7.49 $7.12 $8.57 $8.57 $8.57 29% 27% 33% 23% 30% 0% 30% 0% 0% 0% 4.0 5.0 3.0 3.0 3.0 1,800 1,400 900 600 600 66% 129% 45% 73% 63% Unit Inven Revision Age tory Date Dec.31 189 11/21/2015 3.1 39 5/25/2014 4.6 40 4/19/2017 1.7 78 6/29/2016 2.5 62 5/24/2016 2.6 Name Able Acre Adam Aft Agape Primary Segment Trad Low High Pfmn Size Units Sold 999 1,763 366 358 314 Baker Bead Bid Bold Buddy Trad Low High Pfmn Size 999 1,763 366 358 314 189 11/21/2015 39 5/25/2014 40 4/19/2017 78 6/29/2016 62 5/24/2016 Cake Cedar Cid Coat Cure Trad Low High Pfmn Size 999 1,763 366 358 314 Daze Dell Dixie Dot Dune Trad Low High Pfmn Size Eat Ebb Echo Edge Egg Fast Feat Fist Foam Fume MTBF 17500 14000 23000 25000 19000 Pfmn Coord 5.5 3.0 8.0 9.4 4.0 Size Coord 14.5 17.0 12.0 15.5 11.0 3.1 4.6 1.7 2.5 2.6 17500 14000 23000 25000 19000 5.5 3.0 8.0 9.4 4.0 189 11/21/2015 39 5/25/2014 40 4/19/2017 78 6/29/2016 62 5/24/2016 3.1 4.6 1.7 2.5 2.6 17500 14000 23000 25000 19000 999 1,763 366 358 314 189 11/21/2015 39 5/25/2014 40 4/19/2017 78 6/29/2016 62 5/24/2016 3.1 4.6 1.7 2.5 2.6 Trad Low High Pfmn Size 999 1,763 366 358 314 189 11/21/2015 39 5/25/2014 40 4/19/2017 78 6/29/2016 62 5/24/2016 Trad Low High Pfmn Size 999 1,763 366 358 314 189 11/21/2015 39 5/25/2014 40 4/19/2017 78 6/29/2016 62 5/24/2016 CAPSTONE ® COURIER Round: 0 Dec. 31, 2018 Auto mation Next Round 4.0 5.0 3.0 3.0 3.0 Capacity Next Round 1,800 1,400 900 600 600 Plant Utiliz. 66% 129% 45% 73% 63% Page 4 Traditional Segment Analysis C102832 Round: 0 Dec. 31, 2018 Traditional Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry 7,387 |7,387 |32.4% Next Year's Segment Growth Rate |9.2% Traditional Customer Buying Criteria Expectations Ideal Age = 2.0 $20.00 - 30.00 Pfmn 5.0 Size 15.0 MTBF 14000-19000 1. Age 2. Price 3. Ideal Position 4. Reliability Importance 47% 23% 21% 9% Top Products in Traditional Segment Name Able Baker Cake Daze Eat Fast Acre Bead Cedar Dell Ebb Feat Market Share 13% 13% 13% 13% 13% 13% 4% 4% 4% 4% 4% 4% Units Sold to Seg 961 961 961 961 961 961 270 270 270 270 270 270 CAPSTONE ® COURIER Revision Date 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 5/25/2014 5/25/2014 5/25/2014 5/25/2014 5/25/2014 5/25/2014 Stock Out Pfmn Coord 5.5 5.5 5.5 5.5 5.5 5.5 3.0 3.0 3.0 3.0 3.0 3.0 Size Coord 14.5 14.5 14.5 14.5 14.5 14.5 17.0 17.0 17.0 17.0 17.0 17.0 List Price $28.00 $28.00 $28.00 $28.00 $28.00 $28.00 $21.00 $21.00 $21.00 $21.00 $21.00 $21.00 MTBF 17500 17500 17500 17500 17500 17500 14000 14000 14000 14000 14000 14000 Cust. Age Promo AwareDec.31 Budget ness 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% Cust. Dec. Sales Access- Cust Budget ibility Survey $1,000 54% 18 $1,000 54% 18 $1,000 54% 18 $1,000 54% 18 $1,000 54% 18 $1,000 54% 18 $900 54% 4 $900 54% 4 $900 54% 4 $900 54% 4 $900 54% 4 $900 54% 4 Page 5 Low End Segment Analysis C102832 Round: 0 Dec. 31, 2018 Low End Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry 8,960 |8,960 |39.3% Next Year's Segment Growth Rate |11.7% Low End Customer Buying Criteria Expectations $15.00 - 25.00 Ideal Age = 7.0 Pfmn 1.7 Size 18.3 MTBF 12000-17000 1. Price 2. Age 3. Ideal Position 4. Reliability Importance 53% 24% 16% 7% Top Products in Low End Segment Name Acre Bead Cedar Dell Ebb Feat Market Share 17% 17% 17% 17% 17% 17% Units Sold to Seg 1,493 1,493 1,493 1,493 1,493 1,493 CAPSTONE ® COURIER Revision Date 5/25/2014 5/25/2014 5/25/2014 5/25/2014 5/25/2014 5/25/2014 Stock Out Pfmn Coord 3.0 3.0 3.0 3.0 3.0 3.0 Size Coord 17.0 17.0 17.0 17.0 17.0 17.0 List Price $21.00 $21.00 $21.00 $21.00 $21.00 $21.00 MTBF 14000 14000 14000 14000 14000 14000 Cust. Age Promo AwareDec.31 Budget ness 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% 4.60 $900 52% Cust. Dec. Sales Access- Cust Budget ibility Survey $900 40% 12 $900 40% 12 $900 40% 12 $900 40% 12 $900 40% 12 $900 40% 12 Page 6 High End Segment Analysis C102832 Round: 0 Dec. 31, 2018 High End Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry 2,554 |2,554 |11.2% Next Year's Segment Growth Rate |16.2% High End Customer Buying Criteria Expectations Pfmn 8.9 Size 11.1 Ideal Age = 0.0 MTBF 20000-25000 $30.00 - 40.00 1. Ideal Position 2. Age 3. Reliability 4. Price Importance 43% 29% 19% 9% Top Products in High End Segment Name Adam Bid Cid Dixie Echo Fist Aft Bold Coat Dot Edge Foam Market Share 14% 14% 14% 14% 14% 14% 2% 2% 2% 2% 2% 2% Units Sold to Seg 366 366 366 366 366 366 41 41 41 41 41 41 CAPSTONE ® COURIER Revision Date 4/19/2017 4/19/2017 4/19/2017 4/19/2017 4/19/2017 4/19/2017 6/29/2016 6/29/2016 6/29/2016 6/29/2016 6/29/2016 6/29/2016 Stock Out Pfmn Coord 8.0 8.0 8.0 8.0 8.0 8.0 9.4 9.4 9.4 9.4 9.4 9.4 Size Coord 12.0 12.0 12.0 12.0 12.0 12.0 15.5 15.5 15.5 15.5 15.5 15.5 List Price $38.00 $38.00 $38.00 $38.00 $38.00 $38.00 $33.00 $33.00 $33.00 $33.00 $33.00 $33.00 MTBF 23000 23000 23000 23000 23000 23000 25000 25000 25000 25000 25000 25000 Cust. Age Promo AwareDec.31 Budget ness 1.70 $800 49% 1.70 $800 49% 1.70 $800 49% 1.70 $800 49% 1.70 $800 49% 1.70 $800 49% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% Cust. Dec. Sales Access- Cust Budget ibility Survey $800 48% 21 $800 48% 21 $800 48% 21 $800 48% 21 $800 48% 21 $800 48% 21 $700 48% 2 $700 48% 2 $700 48% 2 $700 48% 2 $700 48% 2 $700 48% 2 Page 7 Performance Segment Analysis C102832 Round: 0 Dec. 31, 2018 Performance Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry 1,915 |1,915 |8.4% Next Year's Segment Growth Rate |19.8% Performance Customer Buying Criteria Expectations MTBF 22000-27000 Pfmn 9.4 Size 16.0 $25.00 - 35.00 Ideal Age = 1.0 1. Reliability 2. Ideal Position 3. Price 4. Age Importance 43% 29% 19% 9% Top Products in Performance Segment Name Aft Bold Coat Dot Edge Foam Able Baker Cake Daze Eat Fast Market Share 17% 17% 17% 17% 17% 17% 0% 0% 0% 0% 0% 0% Units Sold to Seg 317 317 317 317 317 317 2 2 2 2 2 2 CAPSTONE ® COURIER Revision Date 6/29/2016 6/29/2016 6/29/2016 6/29/2016 6/29/2016 6/29/2016 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 Stock Out Pfmn Coord 9.4 9.4 9.4 9.4 9.4 9.4 5.5 5.5 5.5 5.5 5.5 5.5 Size Coord 15.5 15.5 15.5 15.5 15.5 15.5 14.5 14.5 14.5 14.5 14.5 14.5 List Price $33.00 $33.00 $33.00 $33.00 $33.00 $33.00 $28.00 $28.00 $28.00 $28.00 $28.00 $28.00 MTBF 25000 25000 25000 25000 25000 25000 17500 17500 17500 17500 17500 17500 Cust. Age Promo AwareDec.31 Budget ness 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 2.50 $700 46% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% Cust. Dec. Sales Access- Cust Budget ibility Survey $700 37% 20 $700 37% 20 $700 37% 20 $700 37% 20 $700 37% 20 $700 37% 20 $1,000 37% 0 $1,000 37% 0 $1,000 37% 0 $1,000 37% 0 $1,000 37% 0 $1,000 37% 0 Page 8 Size Segment Analysis C102832 Round: 0 Dec. 31, 2018 Size Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry 1,984 |1,984 |8.7% Next Year's Segment Growth Rate |18.3% Size Customer Buying Criteria Expectations Pfmn 4.0 Size 10.6 Ideal Age = 1.5 MTBF 16000-21000 $25.00 - 35.00 1. Ideal Position 2. Age 3. Reliability 4. Price Importance 43% 29% 19% 9% Top Products in Size Segment Name Agape Buddy Cure Dune Egg Fume Able Baker Cake Daze Eat Fast Market Share 15% 15% 15% 15% 15% 15% 1% 1% 1% 1% 1% 1% Units Sold to Seg 307 307 307 307 307 307 24 24 24 24 24 24 CAPSTONE ® COURIER Revision Date 5/24/2016 5/24/2016 5/24/2016 5/24/2016 5/24/2016 5/24/2016 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 11/21/2015 Stock Out Pfmn Coord 4.0 4.0 4.0 4.0 4.0 4.0 5.5 5.5 5.5 5.5 5.5 5.5 Size Coord 11.0 11.0 11.0 11.0 11.0 11.0 14.5 14.5 14.5 14.5 14.5 14.5 List Price $33.00 $33.00 $33.00 $33.00 $33.00 $33.00 $28.00 $28.00 $28.00 $28.00 $28.00 $28.00 MTBF 19000 19000 19000 19000 19000 19000 17500 17500 17500 17500 17500 17500 Cust. Age Promo AwareDec.31 Budget ness 2.60 $700 46% 2.60 $700 46% 2.60 $700 46% 2.60 $700 46% 2.60 $700 46% 2.60 $700 46% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% 3.10 $1,000 55% Cust. Dec. Sales Access- Cust Budget ibility Survey $700 42% 27 $700 42% 27 $700 42% 27 $700 42% 27 $700 42% 27 $700 42% 27 $1,000 42% 2 $1,000 42% 2 $1,000 42% 2 $1,000 42% 2 $1,000 42% 2 $1,000 42% 2 Page 9 Market Share C102832 Actual Market Share in Units Trad 7,387 32.4% Low 8,960 39.3% Able Acre Adam Aft Agape Total 13.0% 3.6% 16.7% 16.7% 16.7% Baker Bead Bid Bold Buddy Total 13.0% 3.6% 16.7% 16.7% 16.7% Cake Cedar Cid Coat Cure Total 13.0% 3.6% 16.7% 16.7% 16.7% Daze Dell Dixie Dot Dune Total 13.0% 3.6% 16.7% 16.7% 16.7% Eat Ebb Echo Edge Egg Total 13.0% 3.6% 16.7% 16.7% 16.7% Fast Feat Fist Foam Fume Total 13.0% 3.6% 16.7% Industry Unit Sales % of Market 16.7% CAPSTONE ® COURIER High 2,554 11.2% Pfmn 1,915 8.4% Size 1,984 8.7% 0.4% 0.1% 1.2% 14.3% 1.6% 0.3% 16.7% 0.4% 14.3% 1.6% 0.3% 16.7% 0.4% 14.3% 1.6% 0.3% 16.7% 0.4% 14.3% 1.6% 0.3% 16.7% 0.4% 14.3% 1.6% 0.3% 16.7% 0.4% 16.7% 14.3% 1.6% 0.3% 16.7% 16.5% 16.7% 15.5% 16.7% 0.1% 1.2% 16.5% 16.7% 15.5% 16.7% 0.1% 1.2% 16.5% 16.7% 15.5% 16.7% 0.1% 1.2% 16.5% 16.7% 15.5% 16.7% 0.1% 1.2% 16.5% 16.7% 15.5% 16.7% 0.1% 1.2% 16.5% 16.7% 15.5% 16.7% Round: 0 Dec. 31, 2018 Potential Market Share in Units Total 22,800 Units Demanded 100.0% % of Market Trad 7,387 32.4% Low 8,960 39.3% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Able Acre Adam Aft Agape Total 13.0% 3.7% 16.7% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Baker Bead Bid Bold Buddy Total 13.0% 3.7% 16.7% 16.7% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Cake Cedar Cid Coat Cure Total 13.0% 3.7% 16.7% 16.7% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Daze Dell Dixie Dot Dune Total 13.0% 3.7% 16.7% 16.7% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Eat Ebb Echo Edge Egg Total 13.0% 3.7% 16.7% 16.7% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Fast Feat Fist Foam Fume Total 13.0% 3.7% 16.7% 16.7% High 2,554 11.2% Pfmn 1,915 8.4% 0.5% 14.3% 1.6% 0.3% 16.7% 16.7% 16.7% 16.7% 15.5% 16.7% 16.5% 16.7% 15.5% 16.7% 1.2% 16.5% 16.7% 15.5% 16.7% 1.2% 16.5% 16.7% 0.5% 14.3% 1.6% 0.3% 16.7% 15.5% 16.7% 1.2% 0.5% 14.3% 1.6% 0.3% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% 16.5% 0.5% 14.3% 1.6% 0.3% 16.7% 1.2% 1.2% 0.5% 14.3% 1.6% 0.3% 16.7% Total 22,800 100.0% 16.5% 0.5% 14.3% 1.6% 0.3% 16.7% Size 1,984 8.7% 15.5% 16.7% 1.2% 16.5% 16.7% 15.5% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% 4.4% 7.7% 1.6% 1.6% 1.4% 16.7% Page 10 Perceptual Map C102832 Andrews Name Able Acre Adam Aft Agape Pfmn 5.5 3.0 8.0 9.4 4.0 Name Daze Dell Dixie Dot Dune Pfmn 5.5 3.0 8.0 9.4 4.0 Size 14.5 17.0 12.0 15.5 11.0 Digby CAPSTONE ® COURIER Size 14.5 17.0 12.0 15.5 11.0 Baldwin Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Name Baker Bead Bid Bold Buddy Pfmn 5.5 3.0 8.0 9.4 4.0 Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Name Eat Ebb Echo Edge Egg Pfmn 5.5 3.0 8.0 9.4 4.0 Size 14.5 17.0 12.0 15.5 11.0 Erie Size 14.5 17.0 12.0 15.5 11.0 Round: 0 Dec. 31, 2018 Chester Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Name Cake Cedar Cid Coat Cure Pfmn 5.5 3.0 8.0 9.4 4.0 Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Name Fast Feat Fist Foam Fume Pfmn 5.5 3.0 8.0 9.4 4.0 Size 14.5 17.0 12.0 15.5 11.0 Ferris Size 14.5 17.0 12.0 15.5 11.0 Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Revised 11/21/2015 5/25/2014 4/19/2017 6/29/2016 5/24/2016 Page 11 HR/TQM Report C102832 Round: 0 Dec. 31, 2018 HUMAN RESOURCES SUMMARY Needed Complement Complement 1st Shift Complement 2nd Shift Complement Andrews 701 700 640 60 Baldwin 701 700 640 60 Chester 701 700 640 60 Digby 701 700 640 60 Erie 701 700 640 60 Ferris 701 700 640 60 Overtime Percent Turnover Rate New Employees Separated Employees Recruiting Spend Training Hours Productivity Index 0.2% 10.0% 70 0 $0 0 100.0% 0.2% 10.0% 70 0 $0 0 100.0% 0.2% 10.0% 70 0 $0 0 100.0% 0.2% 10.0% 70 0 $0 0 100.0% 0.2% 10.0% 70 0 $0 0 100.0% 0.2% 10.0% 70 0 $0 0 100.0% $70 $0 $0 $70 $70 $0 $0 $70 $70 $0 $0 $70 $70 $0 $0 $70 $70 $0 $0 $70 $70 $0 $0 $70 $21.00 2,500 2.0% 5.0% $21.00 2,500 2.0% 5.0% $21.00 2,500 2.0% 5.0% $21.00 2,500 2.0% 5.0% $21.00 2,500 2.0% 5.0% $21.00 2,500 2.0% 5.0% Baldwin Chester Digby Erie Ferris Recruiting Cost Separation Cost Training Cost Total HR Admin Cost Labor Contract Next Year Wages Benefits Profit Sharing Annual Raise Starting Negotiation Position Wages Benefits Profit Sharing Annual Raise Ceiling Negotiation Position Wages Benefits Profit Sharing Annual Raise Adjusted Labor Demands Wages Benefits Profit Sharing Annual Raise Strike Days TQM SUMMARY Andrews Process Mgt Budgets Last Year CPI Systems VendorJIT Quality Initiative Training Channel Support Systems Concurrent Engineering UNEP Green Programs $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TQM Budgets Last Year Benchmarking Quality Function Deployment Effort CCE/6 Sigma Training GEMI TQEM Sustainability Initiatives Total Expenditures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Cumulative Impacts Material Cost Reduction Labor Cost Reduction Reduction R&D Cycle Time Reduction Admin Costs Demand Increase CAPSTONE ® COURIER Page 12 Ethics Report Round: 0 Dec. 31, 2018 C102832 ETHICS SUMMARY Other (Fees, Writeoffs, etc.) Demand Factor Material Cost Impact Admin Cost Impact Productivity Impact Awareness Impact Accessibility Impact Total Other (Fees, Writeoffs, etc.) Demand Factor Material Cost Impact Admin Cost Impact Productivity Impact Awareness Impact Accessibility Impact CAPSTONE ® COURIER The actual dollar impact. Example, $120 means Other increased by $120. The % of normal. 98% means demand fell 2%. The % of normal. 104% means matieral costs rose 4%. The % of normal. 103% means admin costs rose 3%. The % of normal. 104% means productivity increased by 4%. The % of normal. 105% means normal awareness was multiplied by 1.05. The % of normal. 98% means normal accessiblity was multiplied by 0.98. Normal means the value that would have been produced if the problem had not been presented. No Impact Andrews Baldwin Chester Digby Erie Ferris $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% $0 100% 100% 100% 100% 100% 100% Page 13 Annual Report Annual Report Andrews C102832 Balance Sheet DEFINITIONS: Common Size: The common size column simply represents each item as a percentage of total assets for that year. Cash: Your end-of-year cash position. Accounts Receivable: Reflects the lag between delivery and payment of your products. Inventories: The current value of your inventory across all products. A zero indicates your company stocked out. Unmet demand would, of course, fall to your competitors. Plant & Equipment: The current value of your plant. Accum Deprec: The total accumulated depreciation from your plant. Accts Payable: What the company currently owes suppliers for materials and services. Current Debt: The debt the company is obligated to pay during the next year of operations. It includes emergency loans used to keep your company solvent should you run out of cash during the year. Long Term Debt: The companys long term debt is in the form of bonds, and this represents the total value of your bonds. Common Stock: The amount of capital invested by shareholders in the company. Retained Earnings: The profits that the company chose to keep instead of paying to shareholders as dividends. ASSETS Cash Account Receivable Inventory Total Current Assets $3,434 $8,307 $8,617 $20,358 Plant & Equipment Accumulated Depreciation Total Fixed Assets Total Assets LIABILITIES & OWNERS EQUITY $113,800 ($37,933) $75,867 $96,225 Accounts Payable Current Debt Long Term Debt Total Liabilities $6,583 $0 $41,700 Common Stock Retained Earnings Total Equity Total Liab. & O. Equity $18,360 $29,582 $48,283 Cash Flow Statement The Cash Flow Statement examines what happened in the Cash Account during the year. Cash injections appear as positive numbers and cash withdrawals as negative numbers. The Cash Flow Statement is an excellent tool for diagnosing emergency loans. When negative cash flows exceed positives, you are forced to seek emergency funding. For example, if sales are bad and you find yourself carrying an abundance of excess inventory, the report would show the increase in inventory as a huge negative cash flow. Too much unexpected inventory could outstrip your inflows, exhaust your starting cash and force you to beg for money to keep your company afloat. Annual Report Round: 0 Dec. 31, 2018 Cash Flows from Operating Activities Net Income(Loss) Depreciation Extraordinary gains/losses/writeoffs Accounts Payable Inventory Accounts Receivable Net cash from operation Cash Flows from Investing Activities Plant Improvements Cash Flows from Financing Activities Dividends paid Sales of common stock Purchase of common stock Cash from long term debt Retirement of long term debt Change in current debt(net) Net cash from financing activities Net change in cash position Closing cash position $47,942 $96,225 2018 $4,189 $7,587 $0 $3,583 ($8,617) ($307) $6,434 $0 ($4,000) $0 $0 $0 $0 $0 ($4,000) $2,434 $3,434 Page 14 Annual Report Andrews Round: 0 Dec. 31, 2018 C102832 2018 Income Statement (Product Name) $0 2018 Total $101,073 Common Size 100.0% $0 $0 $0 $0 $0 $0 $0 $0 $28,932 $42,546 $1,034 $72,513 28.6% 42.1% 1.0% 71.7% $0 $0 $0 $28,561 28.3% $720 $0 $700 $700 $80 $2,200 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $7,587 $0 $4,100 $4,100 $778 $16,564 7.5% 0.0% 4.1% 4.1% 0.8% 16.4% $899 $0 $0 $0 $11,996 11.9% $0 $11,996 $0 $5,421 $2,301 $85 $4,189 0.0% 11.9% 0.0% 5.4% 2.3% 0.1% 4.1% Able Acre Adam Aft Agape Sales $27,979 $37,027 $13,894 $11,817 $10,356 $0 $0 Variable Costs: Direct Labor Direct Material Inventory Carry Total Variable $7,489 $11,967 $441 $19,897 $12,557 $14,348 $71 $26,977 $3,132 $6,001 $121 $9,254 $3,067 $5,829 $231 $9,127 $2,688 $4,401 $169 $7,258 $0 $0 $0 $0 Contribution Margin $8,082 $10,051 $4,640 $2,689 $3,099 Period Costs: Depreciation SG&A: R&D Promotions Sales Admin Total Period $2,640 $0 $1,000 $1,000 $215 $4,855 $2,427 $0 $900 $900 $285 $4,512 $1,080 $0 $800 $800 $107 $2,787 $720 $0 $700 $700 $91 $2,211 Net Margin $3,227 $5,539 $1,853 $478 Definitions: Sales: Unit Sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost unsold goods in inventory. Depreciation: Calculated on straight-line. 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product. Other: Chargs not included in other categories such as Fees, Write offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last years current debt, including short term debt, long term notes that have become due, and emergency loans, Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing. Annual Report Other EBIT Short Term Interest Long Term Interest Taxes Profit Sharing Net Profit Page 15 Annual Report Annual Report Andrews C102832 Balance Sheet DEFINITIONS: Common Size: The common size column simply represents each item as a percentage of total assets for that year. Cash: Your end-of-year cash position. Accounts Receivable: Reflects the lag between delivery and payment of your products. Inventories: The current value of your inventory across all products. A zero indicates your company stocked out. Unmet demand would, of course, fall to your competitors. Plant & Equipment: The current value of your plant. Accum Deprec: The total accumulated depreciation from your plant. Accts Payable: What the company currently owes suppliers for materials and services. Current Debt: The debt the company is obligated to pay during the next year of operations. It includes emergency loans used to keep your company solvent should you run out of cash during the year. Long Term Debt: The companys long term debt is in the form of bonds, and this represents the total value of your bonds. Common Stock: The amount of capital invested by shareholders in the company. Retained Earnings: The profits that the company chose to keep instead of paying to shareholders as dividends. ASSETS Cash Account Receivable Inventory Total Current Assets $3,434 $8,307 $8,617 $20,358 Plant & Equipment Accumulated Depreciation Total Fixed Assets Total Assets LIABILITIES & OWNERS EQUITY $113,800 ($37,933) $75,867 $96,225 Accounts Payable Current Debt Long Term Debt Total Liabilities $6,583 $0 $41,700 Common Stock Retained Earnings Total Equity Total Liab. & O. Equity $18,360 $29,582 $48,283 Cash Flow Statement The Cash Flow Statement examines what happened in the Cash Account during the year. Cash injections appear as positive numbers and cash withdrawals as negative numbers. The Cash Flow Statement is an excellent tool for diagnosing emergency loans. When negative cash flows exceed positives, you are forced to seek emergency funding. For example, if sales are bad and you find yourself carrying an abundance of excess inventory, the report would show the increase in inventory as a huge negative cash flow. Too much unexpected inventory could outstrip your inflows, exhaust your starting cash and force you to beg for money to keep your company afloat. Annual Report Round: 0 Dec. 31, 2018 Cash Flows from Operating Activities Net Income(Loss) Depreciation Extraordinary gains/losses/writeoffs Accounts Payable Inventory Accounts Receivable Net cash from operation Cash Flows from Investing Activities Plant Improvements Cash Flows from Financing Activities Dividends paid Sales of common stock Purchase of common stock Cash from long term debt Retirement of long term debt Change in current debt(net) Net cash from financing activities Net change in cash position Closing cash position $47,942 $96,225 2018 $4,189 $7,587 $0 $3,583 ($8,617) ($307) $6,434 $0 ($4,000) $0 $0 $0 $0 $0 ($4,000) $2,434 $3,434 Page 1 Annual Report Andrews Round: 0 Dec. 31, 2018 C102832 2018 Income Statement (Product Name) $0 2018 Total $101,073 Common Size 100.0% $0 $0 $0 $0 $0 $0 $0 $0 $28,932 $42,546 $1,034 $72,513 28.6% 42.1% 1.0% 71.7% $0 $0 $0 $28,561 28.3% $720 $0 $700 $700 $80 $2,200 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $7,587 $0 $4,100 $4,100 $778 $16,564 7.5% 0.0% 4.1% 4.1% 0.8% 16.4% $899 $0 $0 $0 $11,996 11.9% $0 $11,996 $0 $5,421 $2,301 $85 $4,189 0.0% 11.9% 0.0% 5.4% 2.3% 0.1% 4.1% Able Acre Adam Aft Agape Sales $27,979 $37,027 $13,894 $11,817 $10,356 $0 $0 Variable Costs: Direct Labor Direct Material Inventory Carry Total Variable $7,489 $11,967 $441 $19,897 $12,557 $14,348 $71 $26,977 $3,132 $6,001 $121 $9,254 $3,067 $5,829 $231 $9,127 $2,688 $4,401 $169 $7,258 $0 $0 $0 $0 Contribution Margin $8,082 $10,051 $4,640 $2,689 $3,099 Period Costs: Depreciation SG&A: R&D Promotions Sales Admin Total Period $2,640 $0 $1,000 $1,000 $215 $4,855 $2,427 $0 $900 $900 $285 $4,512 $1,080 $0 $800 $800 $107 $2,787 $720 $0 $700 $700 $91 $2,211 Net Margin $3,227 $5,539 $1,853 $478 Definitions: Sales: Unit Sales times list price. Direct Labor: Labor costs incurred to produce the product that was sold. Inventory Carry Cost: the cost unsold goods in inventory. Depreciation: Calculated on straight-line. 15-year depreciation of plant value. R&D Costs: R&D department expenditures for each product. Admin: Administration overhead is estimated at 1.5% of sales. Promotions: The promotion budget for each product. Sales: The sales force budget for each product. Other: Chargs not included in other categories such as Fees, Write offs, and TQM. The fees include money paid to investment bankers and brokerage firms to issue new stocks or bonds plus consulting fees your instructor might assess. Write-offs include the loss you might experience when you sell capacity or liquidate inventory as the result of eliminating a production line. If the amount appears as a negative amount, then you actually made money on the liquidation of capacity or inventory. EBIT: Earnings Before Interest and Taxes. Short Term Interest: Interest expense based on last years current debt, including short term debt, long term notes that have become due, and emergency loans, Long Term Interest: Interest paid on outstanding bonds. Taxes: Income tax based upon a 35% tax rate. Profit Sharing: Profits shared with employees under the labor contract. Net Profit: EBIT minus interest, taxes, and profit sharing. Annual Report Other EBIT Short Term Interest Long Term Interest Taxes Profit Sharing Net Profit Page 2 Chapter 4 Business Level Strategy 79 Learning and Assessment Goals 1. Understand the concept of business level strategy. 2. Understand how to make decisions to achieve competitive advantage. Understand what decisions need to be made to maintain competitive advantage. 3. Understand how competitive dynamics can be utilized to maintain competitive advantage. 4. Understand how SWOT analysis can be utilized to capitalize upon competitors’ weaknesses. In addition, understand how SWOT analysis can be utilized to convert opportunities into strengths. 80 Key Success Factors This chapter examines business level strategies. Business level strategies are focused on how a firm achieves competitive advantage within an industry. Key success factors and initial conditions dictate a firm’s initial business level strategy. Key success factors are the set of criteria that determine buying decisions1. Developing a business level strategy to meet key success factors enables a firm to gain competitive advantage. To maintain competitive advantage, a firm will modify its business level strategy based upon changes in key success factors and competitive dynamics. Competitive dynamics are actions and reactions of firms within an industry over time. This general relationship is illustrated in Figure 4.1. Figure 4.1 Using Business Level Strategies to Gain and Maintain Competitiveness H Competitive Advantage Key Success Factors Initial Competitive Position Business Level StrategyT1 Change in Key Success Factors Competitive Dynamics Business Level StrategyTx L Time Key success factors differ on an industry-by-industry basis. For example, taste is a key success factor within the soft drink industry, whereas durability is a key success factor within the athletic shoe industry. Determining key success factors (referred to as key buying criteria in the simulation) is an important component of firm growth. Knowledge of key success factors can help a firm position itself better with respect to competition2. An important element of growth is the ability of a firm’s managers to identify key success factors and to develop resources and capabilities to adapt to these factors as they change over time. Determining Key Success Factors Various stakeholders need to be contacted to effectively determine key success factors. One place to start is with the senior management team. It is the responsibility of the senior management team to identify key success factors in the current time period and to develop resources and capabilities to meet these factors. It is also the responsibility of senior management to monitor key success factors over time. As such, the perspective of senior management is crucial if firms are to utilize 81 key success factors to grow. In many cases, senior managers have substantial industry experience. Therefore, these senior managers cannot only identify the existing set of key success factors but also provide a perspective for how they have changed over time within a specific industry. They have keen insights into how these factors may change in the future. The sales force is an important source of information concerning key success factors. The sales force has responsibility for direct customer contact. They provide the best source, within the firm, of information on customer needs and wants. They are an excellent source of information not only of existing key success factors but also of factors that may be emerging, as consumer needs change. The sales force can also provide an understanding of which factors are more important from the customer’s perspective. The sales force may also obtain information from customers as to which firms are better at satisfying specific key success factors. Utilizing Key Success Factors over Time In order to grow over time, a firm must develop resources and capabilities to meet the key success factors in the current time period and continuously develop new resources and capabilities based upon the direction in which the key success factors evolve over time. Key success factors must be viewed from a longitudinal perspective. A successful stream of strategy decisions over time must be founded on the ability to identify changes in key success factors. Changes in key success factors require the firm to make adjustments in its strategy. Revising a firm’s strategy to focus upon changing key success factors may allow the firm to gain an advantage over rivals. An understanding of the evolution of key success factors over time can provide the basis for an “emergent strategy”3. To capitalize upon changing environmental opportunities, the firm must have the flexibility to develop its resource base to respond to emerging key success factors. This identification and development ability is as important for the future as it is in the current time period. The greater the ability of the firm’s managers to identify the future key success factors better than its competitors, the quicker the firm can develop resources and capabilities to meet these emerging key success factors before its competitors. There are several generic business level strategies that firms can develop to become competitive. Generic Business Level Strategies Business level strategies consist of an integrated set of actions that allow firms to become and remain competitive within an industry4. Porter’s framework provides a foundational matrix for identifying how firms can achieve advantage within an industry. The matrix identifies two primary sources by which firms can achieve advantage: (1) low cost and (2) uniqueness. The matrix is illustrated in Figure 4.2. 82 Figure 4.2: Generic Business Strategies Competitive Advantage Broad Target Competitive Scope Narrow Target Cost Uniqueness Cost Leadership Differentiation Focused Low Cost Focused Differentiation Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive advantage: creating and sustaining superior performance by Michael Porter, 12. 1985. Cost leadership Cost leadership is based on high-volume sales of low-margin items. High volume products are usually no-frills items. However, they must be of acceptable quality and have features that meet consumers’ needs. Superior advantage in a cost leadership position comes from creating a significant and sustainable cost gap, relative to competitors, by managing costs to achieve economies of scale. This cost gap translates into superior margins when the firm maintains prices at or near industry averages. UPS (United Parcel Service) and Wal-Mart are two firms that are the lowest cost producers within their respective industries. These firms would fall into the cost leadership position because their target markets (customers served) are international in scope. Focused low cost Firms that service a narrow target market achieve a focused low cost position. Examples of focused low cost would be Boone’s Farm, Dollar General, and online brokerage firms. Boone’s Farm’s target market consists primarily of those individuals who have little disposable income and enjoy drinking wine. Dollar General focuses upon target markets in selected cities that prefer to shop at small discount stores. Online brokerage firms focus on investors that are heavy users of the Internet. These firms meet the needs of specific target markets. Differentiation A position of uniqueness is based on sales of high-margin items. Customers are willing to pay a premium price for a differentiated product or service because the item satisfies some specialized need. Uniqueness can be achieved through design or brand image, technological features, customer service, specialized dealer networks, product innovations, and a high level of quality, and/or better relations with suppliers than competitors. The key to a successful differentiation strategy is to offer a broad range of customers something for which they are willing to pay substantially more than the cost incurred by the firm creating it. Microsoft and Intel are examples of firms that utilize 83 differentiation strategies. These firms are multinational firms servicing very broad target markets with superior quality products. Focused differentiation Firms that follow a focused differentiation strategy primarily rely on brand image. Rolex, Gucci, and Rolls Royce are examples of firms that follow focused differentiation strategies. These firms focus on special segments of an industry. This strategy is oriented toward providing superior quality to those customers that value uniqueness. The question arises as to whether a firm can occupy a position at the center of the matrix. Porter would view this approach as likely to lead to a “stuck in the middle” position. Such a position may prevent the firm from establishing a distinct advantage over rivals. The resources that are needed to support a cost position (orientation toward efficiency) and a uniqueness position (orientation toward differentiation) are quite different. In addition, different strategies may be needed for broad and narrow markets. These generic strategies help firms to gain competitive advantage. Maintaining the position is as important as gaining an initial position of advantage. Competitive advantage results from gaining a position of superiority versus rivals and maintaining that position over time5. Figure 4.3 is an example of the application of generic business level strategies to the Capstone Simulation. Figure 4.3 Business Level Strategy and Capstone Simulation Competitive Advantage Cost Broad Target Competitive Scope L Uniqueness T H Narrow Target S L = Low end (39% of industry) T = Traditional (32% of industry) H= High End (11% of industry) P = Performance (9% of industry) S = Size (9% of industry) P P H The low-end segment (L) is a cost leadership market representing 39 percent of units produced within the industry. The most important key success factor for the low84 end market is price. To maintain a position of advantage over time, the firm must implement activities that are efficiency-based. The implementation of Total Quality Management (TQM) is one such activity. The implementation of several TQM initiatives will help drive down costs. This action is crucial for success in the low-end market. The traditional segment of the industry is another broad segment of the industry because it represents 32 percent of the industry demand. The key success factors for this segment include both cost and uniqueness criteria oriented to a broad target market. The business level strategy for this segment must include a low cost position coupled with a uniqueness component. One approach to obtaining this position is through the implementation of flexible manufacturing systems. A flexible manufacturing system is a computer-controlled process used to produce a variety of products in moderate, flexible quantities with a minimum of manual intervention. The high end, performance, and size segments are positioned to follow a focused differentiation strategy. Each segment will not be developed with the same focused differentiation strategy. Each segment places different importance on key success factors to maintain advantage. An important key success factor of the high-end segment is new product development. Durability is important to the performance market. Market positioning is a key success factor for the size market. As such, a distinct business level strategy must be developed for each segment. Porter’s generic business strategy model has been challenged because it provides a static perspective6. The incorporation of key success factors introduces a dynamic component into Porter’s generic business strategies. An understanding of the evolution of key success factors over time will allow the firm to be able to continuously meet key success factors as they change. As such, the firm can develop a dynamic strategy to maintain advantage over time. By incorporating the time dimension, firms can alter their positions in response to changing market conditions (e.g. key success factors). By understanding how each market evolves over time, the firm can maintain competitive advantage over rivals. A firm’s business level strategy must take into consideration the action and reaction of competitors. As such, an understanding of competitive dynamics is important for sustaining a firm’s strategy over time. How firms grow over time is important. Walmart’s Expansion Walmart is a firm which has primarily grown by internal development. In the 1960’s Walmart grew by more fully developing its U.S. customer base. The U.S. customer base included all 50 states by 1993. However, this was not Walmart’s primary focus during the mid 1970’s to late 1980’s. This time period was utilized primarily for product development. As shown in Table 4.1, Walmart engaged in a period of new product development. In 1975, Walmart introduced Walmart pharmacy, auto service, and jewelry divisions within its store. These divisions provide Walmart with new products to Walmart customers which generated higher return than Walmart’s traditional business. These businesses also led Walmart to its primary focus of one-stop shopping. From 1991 to 2010, Walmart expanded into international markets. As can be shown from Table 4.1, Walmart has established a significant international presence. 85 Table 4.1 Walmart’s Expansion Year Results st 1962 1 store opened in Rogers, AK 1971 U.S. geographic expansion 1975 Introduced Wal-mart pharmacy, auto service, and jewelry divisions 1983 1 hour photo lab 1987 Developed and introduced satellite communication system 1988 First superstore opened in Washington, MO Introduced bar code scanning 1991 Expansion into Mexico 1993 Stores opened in all 50 states 1994 Opened stores in Hong Kong 1995 Opened stores in Argentina 1996 Opened stores in China 1997 Opened stores in Germany and Korea Early 2000’s Increased international presence 2005 Commitment to environmental sustainability: Created experimental stores that save energy, conserve natural resources and reduce pollution 2006 Opened stores in Japan 2007 Opened stores in Brazil 2009 Significant international expansion 2010 Further international expansion into Brazil, China, and Mexico 86 Has this internal development expansion all been successful? Let us examine Walmart’s current financial data (2010): Revenue ($ Billions) Net Income ($ Billions) Earnings/Share Table 4.2 Walmart’s Financial Data (2006-2010) Year 2006 2007 2008 2009 308 344 373 401 2010 405 11.38 12.19 12.86 13.25 13.25 2.72 2.92 3.16 3.35 3.73 The approach seems to have worked. Revenue has increased from $308 billion in 2006 to $405 billion in 2010. Net income has risen from $11.38 billion in 2006 to $13.25 billion in 2010. Earnings per share have increased from $2.72 in 2006 to $3.73 in 2010. These financial results have occurred primarily through internal development. Competitive Dynamics Winning positions can result from a successful stream of strategic decisions over time or they can result from an exploitation of competitive weaknesses. One technique that is utilized to understand a firm’s position with respect to competition is SWOT analysis. SWOT Analysis SWOT refers to strengths, weaknesses, opportunities, and threats. As shown in Figure 4.4, firms attempt to utilize strengths to capitalize on competitors’ weaknesses and build opportunities into strengths. Figure 4.4: Strengths Strengths refer to capabilities that give the firm an advantage in meeting the needs of its target markets. An analysis of company strengths should be customer focused 87 because strengths are meaningful only when they assist the firm in meeting customer needs. Pfizer’s strength in research and development resulted in the creation and release of Lipitor. Lipitor is a cholesterol-reducing drug that has become the largest selling pharmaceutical drug in history7. Toyota’s strength in lean manufacturing helps to maintain its leadership position in the automotive industry. Weaknesses Weaknesses refer to any limitations that a company faces in developing or implementing a strategy. Weaknesses should also be examined from a customer perspective because customers often perceive weaknesses that a company cannot see. Apple’s operating system became a weakness when the computer industry went to a Windows standard. Until recently, McDonald’s faced a weakness in that the majority of its menu items contain high levels of fat. Today’s society is focusing on more healthy eating alternatives. Opportunities Opportunities refer to favorable conditions in the environment that could produce rewards for the organization if acted on properly. Caterpillar’s capabilities in heavy moving equipment lead to it establishing a leadership position in the reconstruction of Iraq. Dell’s strategy of selling direct to consumers shortened its distribution cycle and reduced costs. Threats Threats refer to conditions or barriers that may prevent the firm from reaching its objectives. For instance, Barnes & Noble’s launching of a website to sell books represented a threat to Amazon.com. New regulations may be threats. Many emerging markets (e.g. India, Brazil) are privatizing many industries. This action can lead to new entrants establishing significant positions within these markets. In many cases, the firms that are entering a deregulated market may have had more experience being successful in deregulated industries. As such, these firms pose significant threats to incumbent firms. A firm’s strategy should determine how threats could be minimized or eliminated. The threat of Johnson and Johnson losing market share as a result of the cyanide poisoning of Tylenol capsules in the 1980’s posed a significant threat. Johnson and Johnson responded to the threat by introducing safety seals; these seals are now industry standards. A SWOT analysis of two U.S. airlines will now be discussed. 88 SWOT Analysis of American Airlines vs. Southwest Airlines (2010) Figure 4.5 depicts a SWOT analysis of American Airlines and Southwest Airlines as of 2010. American Airlines was one of the founding members of the OneWorld alliances. These global airline strategic alliances provided global coverage to its members. Through its membership the OneWorld network it has total global coverage. On the other hand, Southwest is not a partner of any of the three global airline alliances which limits its coverage to North America. American’s debt load is $8.77 billion. In 2010, American Airlines had revenues of $22.17 billion and lost $471 million. American has been losing money for several years, this airline has been too highly leveraged. It has problems from a cash flow perspective. Its high debt load limits its expansion capacity. Southwest Airlines has minimal debt and has been profitable, every year, since the industry was deregulated in 1978. Southwest generated $12.1 billion in revenues and $459 million in net income in 2010. In addition, Southwest is exploiting American new baggage charges through its advertising. Southwest has a fleet composed of all 737 aircraft. These aircrafts are very fuel efficient. In addition, Southwest has fuel prices hedged until 2015. American’s has one of the largest aircraft fleet of all airlines. However, some of these models (e.g. 747) are not fuel efficient. In addition, American does not have jet fuel prices hedged. During the current time period (2010, 2011) jet fuel prices have skyrocketed. These high prices significantly impact American financial statements because jet fuel is a major cost factor for any airline. Southwest can compete more favorably because of its lower fuel costs. American has a small portion of the revenues (less than 5 percent which are generated from its air cargo operations). This business is more profitable than its commercial passenger revenues. Since many of Southwest flights are less than 500 89 miles, Southwest faces more significant competition from other modes (e.g. cars) than does American. Pacific Rim markets are expected to grow significantly over the next few years. American has transpacific and transatlantic capabilities which could positively impact American’s bottom line. On the other hand, Southwest’s aircraft does not have transatlantic or transpacific capabilities. Competitive dynamics over time The achievement of competitive advantage over time will be discussed within the pharmaceutical industry. Firms launch a product (e.g., a new drug) that has been developed through product R&D and then exploit it for as long as possible while the product is shielded from competition. Within the pharmaceutical industry, firms launch new products and these products are protected for seventeen years by patents. Eventually, competitors respond to the action with a counterattack. Within the pharmaceutical industry, this counterattack commonly occurs as patents expire. This creates the need for another product launch by the initial firm to maintain its advantage. Figure 4.6 illustrates this process over time. Figure 4.6 Achieving Competitive Advantage Over Time High Exploitation Firm has already advanced to Advantage No. 2 ROI Counterattack Low Launch Time Source: Adapted with permission of the Academy of Management Executive by I. MacMillan from Controlling competitive dynamics by taking strategic initiatives, 112. 1988 As patents are about to expire, competition enters from generic drug firms. The brand name drug firm would then launch a second product that would be protected by a second seventeen years of patent protection. As this sequence is repeated over time, firms can build a sustainable advantage based upon a series of temporary advantages. The above scenario assumes that the initial firm continues to make a series of successful products sequentially. Most of the time, firms make both good and bad decisions. In addition, Figure 4.6 assumes that the sustaining of advantages occurs for exactly the time period. While this may be true of the pharmaceutical industry, which have specific time parameters (e.g. patents last for exactly the same time period), this assumption is not true for many other industries. In actuality, a firm’s ability to sustain competitive advantage may be a function of successful new products which are initiated by competitors for different time periods. (e.g. iPad) The actual evolution of industries may be more similar to Figure 4.7. 90 Figure 4.7 Competitive Dynamics Over Time Hi gh Exploitation Counterattack ROI Low 1 2 2 3 1 1 Negative Launch Time FIRM Firm 1 develops an initial advantage. Firm 2 develops a similar product which is viewed as more acceptable to the customer base. This is why it has a longer period of maintaining high ROI. Firm 1 then tries to develop another product but this product fails in the market place. Firm 2 learns from Firm 1 and then offers a product which is well received by the customer base. Therefore, it has a longer period of sustainable ROI. Firm 3 then enters the industry with a product which appears to be successful. This process then continues over time. A scenario within an industry is more likely to look as depicted in the following table (Table 4.3) taken from Capstone Stimulation for Years 1 through 3. Table 4.3 Performance on ROE (Percentage Change) Team Andrews Baldwin Chester Digby Erie Ferris Year 1 (5.7) 4.3 (3.3) (2.3) 6.1 (7.2) Year 2 (10.1) 6.7 (4.6) 3.1 (2.9) (1.4) Year 3 (14.7) 9.1 1.2 (4.6) (6.8) 5.9 Assume that the teams in the simulation industry achieved the results in Table 4.1. Andrews does not appear to have a business level strategy because returns are steadily declining. This competitor may not have a clear understanding of key buying criteria. This is a weakness that your firm may be able to exploit. Baldwin does appear to have a business level strategy that is working on a yearto-year basis. What is Baldwin’s business year strategy on a segment-by-segment basis? Will Baldwin be able to sustain this strategy over time? The key to strategy is to have a 91 long-term strategy and properly execute the strategy over time. Does Baldwin appear to have a viable long-term strategy? How can your firm successfully position against Baldwin for long-term success? Examine the statement of cash flows to ascertain if Baldwin is investing in plant improvements. If not, what does this tell your firm? How should your firm position itself in the short and long term with respect to Team Baldwin? Team Chester may not be in as unfavorable a position as it appears for the long term. This team may have heavily invested in plant improvements, automation, or TQM initiatives. These benefits may be realized in subsequent years. Refer to the cash flows statement of the simulation for changes in plant improvements, the production analysis for changes in automation, and the TQM summary for investments in quality improvements. It is quite possible that Team Chester will accrue higher benefits in subsequent years. It would appear as if Team Digby does not have a short-term business level strategy. This team may have accumulated inventory-carrying costs during Year 1 and Year 3. How are this team’s products positioned on a segment-by-segment basis on key buying criteria? This may be a team that your team can take market share from. Develop a short-term strategy to capitalize upon this competitor’s weaknesses. Team Erie appeared to have a solid year 1 and has since had difficulty. What changed for Team Erie? Why were they successful in year 1 and not subsequent years? Did other firms develop strategic changes to capitalize upon Team Erie? If so, what team and what was the action? Erie’s strategy may not have enough flexibility to respond to changing market conditions or to changes in other firm’s strategy that are aimed at exploiting their weaknesses. Similar to team Chester, Ferris may be a team that invested heavily in year 1 (check the cash flow statement, production analysis, and TQM summary). It also appears as if these investments are beginning to pay rewards. How is this competitor positioned on key buying criteria on a segment-by-segment basis? What can your firm do to neutralize Ferris? What is Ferris’ generic business strategy on a segment-by-segment basis? Where are their weaknesses? How can these weaknesses be exploited? While each team should develop a long-term business level strategy for each segment, that strategy must be flexible enough to capitalize upon competitor’s weakness over time. Competitive dynamics requires that firms have enough flexibility to respond to competitors’ threats. The key to competitor analysis is to evaluate each competitor on a segment-by-segment basis. How well is each competitor meeting the key buying criteria? What is each firm’s business level strategy on a segment-by-segment basis? With this information your firm should be able to develop a strategy to gain and sustain competitiveness. 92 Discussion Questions 1. Explain what business level strategy your firm should pursue in the Capstone Simulation on a segment-by-segment basis. Explain why. 2. Which firm would have a more sustainable advantage in the Capstone Simulation: one that concentrates on cost leadership or focused differentiation? Explain why. 3. Why do key success factors need to be viewed over time? What happens if they are not? Provide an example of a firm that has viewed these factors over time and one that has not. 4. Explain why and when SWOT analysis needs to be performed. 5. Explain sustainable competitive advantage. How is this advantage achieved in the Capstone Simulation? 6. Explain the difference between competitive dynamics and business level strategy. Explain why each is important. 7. Explain how one of the teams in your industry has been successful from a competitive dynamics perspective. Explain why teams have not been successful. What would you recommend for this unsuccessful team? Explain. 8. Why has Wal-Mart been successful both before the global economic recession and during the global economic recession (2007-2010)? 93 References 1. Ohmae, K. 1982. The mind of the strategist. McGraw Hill. New York, NY. 2. Vasconcellos, J. and Hambrick D. 1989. Key success factors: Test of a general framework in the mature industrial – product sector. Strategic Management Journal, 10: 367-382. 3. Mintzberg, H. 1978. Patterns in strategy formation. Management Science, 24: 934948. 4. Porter, M. 1985. Competitive advantage: creating and sustaining superior performance. Free Press. New York, NY. 5. Rumelt, R. and Schendel, D. and Teece, D. 1991. Strategic management and economics. Strategic Management Journal. 12 (winter): 5-29. 6. D’Aveni, R. Hypercompetition. 1994. New York, NY. 7. Jain S. 2004. Marketing Planning and Strategy. Thomson. Mason, OH. 94 Dell Mini Case Dell is a technology company. They offer a broad range of product categories, including mobility products, desktop PCs, software and peripherals, servers and networking, and storage. In addition, their services include a broad range of configurable IT and business related services, including infrastructure technology, consulting and applications, and business process services. Competition Dell operates in an industry in which there are rapid technological advances in hardware, software, and service offerings. They compete based on their ability to offer profitable and competitive solutions to its customer base. Dell attempts to build longterm relationships with customers. These relationships may allow them to recognize changing customer needs faster than their competitors. Dell attempts to balance their mix of products and services to optimize profitability, liquidity, and growth. Dell believes this strategy will lead to competitive advantage. Dell has four primary business segments: (1) large enterprises, (2) public sector, (3) small and medium size business, and (4) commercial consumers. Large enterprises consist of multi-national firms would have very broad information technology (IT) needs. Public customers are educational institutions, government, health care, and law enforcement agencies. Small and medium businesses have basic IT needs. Commercial customers are individual customers. Table 1 provides Dell’s financial results from 2006 to 2010. 2010 52.9 Revenue ($ Billions) 1.4 Net Income ($ Billions) Earnings/Share .73 Table 1 Fiscal Year Ended 2009 2008 61.1 61.1 2007 57.4 2006 55.7 2.4 2.9 2.5 3.6 1.25 1.33 1.15 1.50 From Table 1, Dell’s revenues have fluctuated from 2006 to 2010. However, Dell net income has been reduced from $3.6 billion in 2006 to $1.4 billion in 2010. In addition, earnings per share have decreased from $1.50 per share in 2006 to 73 cents in 2010. Discussion Question 1. Why has Dell’s financials decreased significantly over time? 95 Harvard Business Cases for Chapter 4 Cola Wars Continue: Coke and Pepsi in 2010 Product Number 711462 Philips Versus Matsushita: The Competitive Battle Continues Product Number 910410 Professor Case for Chapter 4 Disney 96 Broad Cost Leader Mission Statement Reliable products for low technology customers: Our brands offer value. Our primary stakeholders are bondholders, stockholders, customers and management. Niche Differentiator (High Technology) 12 Six Basic Strategies These six basic strategies can be the starting point for your own custom strategy. Broad Cost Leader A Broad Cost Leader strategy maintains a presence in all segments of the market. The company will gain a competitive advantage by keeping R&D, production and material costs to a minimum, enabling the company to compete on the basis of price, which will be below average. Automation levels will be increased to improve margins and to offset second shift/overtime costs. Mission Statement Low-priced products for the industry: Our brands offer solid value. Our primary stakeholders are bondholders, customers, stockholders and management. Broad Differentiator A Broad Differentiator strategy maintains a presence in every segment of the market. The company will gain a competitive advantage by distinguishing products with an excellent design, high awareness and easy accessibility. The company will develop an R&D competency that keeps designs fresh and exciting. Products keep pace with the market, offering improved size and performance. Prices will be above average. Capacity will be expanded as higher demand is generated. Mission Statement Premium products for the industry: Our brands withstand the test of time. Our primary stakeholders are customers, stockholders, management and employees. Niche Cost Leader (Low Technology) A Niche Cost Leader Strategy concentrates primarily on the Traditional and Low End segments of the market. The company will gain a competitive advantage by keeping R&D, production and material costs to a minimum, enabling the company to compete on the basis of price, which will be below average. Automation levels will be increased to improve margins and to offset second shift/overtime costs. 24 A Niche Differentiator strategy focuses on the high technology segments (High End, Performance and Size). The company will gain a competitive advantage by distinguishing its products with an excellent design, high awareness, easy accessibility and new products. The company will develop an R&D competency that keeps designs fresh and exciting. Products will keep pace with the market, offering improved size and performance. The company will price above average and will expand capacity as it generates higher demand. Mission Statement Premium products for technology oriented customers: Our brands define the cutting edge. Our primary stakeholders are customers, stockholders, management and employees. Cost Leader with Product Lifecycle Focus A Cost Leader with a Product Lifecycle Focus centers on the High End, Traditional and Low End segments. The company will gain a competitive advantage by keeping R&D, production and material costs to a minimum, enabling it to compete on the basis of price. The Product Lifecycle Focus will allow the company to reap sales for many years on each new product introduced into the High End segment. Products will begin their lives in the High End, mature into Traditional and finish as Low End products. Mission Statement Reliable products for mainstream customers: Our brands offer value. Our primary stakeholders are bondholders, stockholders, customers and management. Differentiator with Product Lifecycle Focus A Differentiator with a Product Lifecycle Focus strategy concentrates on the High End, Traditional and Low End segments. The company will gain a competitive advantage with excellent design, high awareness, easy accessibility and new products. The company will develop an R&D competency that keeps designs fresh and exciting. Products will keep pace with the market, offering improved size and performance. The company will price above average and will expand capacity as it generates higher demand. Mission Statement Premium products for mainstream customers: Our brands withstand the test of time. Our primary stakeholders are customers, stockholders, management and employees.
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