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.
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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
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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
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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.
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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.
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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
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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.
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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?
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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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