Capstone - A Crowning Simulation
Capstone is a crowning simulation at the end of 18 months is truly an enriching and learning experience with the specific objective of integrating a pieces of relatively fragmented knowledge into a unified whole. It gave us an opportunity to look back on learning we had accomplished, and also to look forward to a professional existence by applying the same to build a sustainable business. Capstones are integrative learning experiences near the end of a curriculum that enhance student learning through reflection, application, and synthesis of previously gained knowledge and skills.
I would like to share few learning and secrets to win Capstone, which we recently completed successfully.
Profit Maximization: Profit maximization is the most important objective of a business entity. It helps to run a business smoothly and successfully and survive continuously while making profits and staying solvent at the same time as providing various benefits. The first and foremost benefit is that the profit becomes a benchmark against which the efficiency and the success of a business are to be judged so as to take necessary steps for the enhancement of profits in case there is no profit generation in a business entity.
Forecasting & production: Regardless of the industry, every company has to include sales forecasting into its greater management strategy. This data set helps establish sales goals in ever-shifting economic climate. Yet this data also involves a bit of guess work: As elements like buying signals and profitability change quite rapidly, businesses must be able to pivot their approach throughout the entire sales season.
Given the unpredictability of most markets, we have practiced blend of few techniques to improve our sales forecasting abilities for capstone simulation. We have used a blend of Exponential smoothing, which involves combining the data from previous years to reach a preliminary forecast of for the next sales period. This technique doesn’t really let us adjust for seasonality, which can drastically shift the figures depending on a variety of events such as recession or no growth scenario. To properly account for seasonality, we have then implement the Holt-Winters seasonal method. We have also used Delphi technique, which rely on a panel of experts to predict sales outcomes. While the Delphi technique does offer opinion by consensus, it’s worth noting there are downsides. Namely, reaching that very consensus can be difficult depending upon the parties involved. Last but not the least, we have applied Time series analysis optimally for capstone simulation, which is much like exponential smoothing, is all about looking at previous data to get a sense of possible future outcomes. Time series analysis helped us identifying patterns, which the forecaster than extrapolates for the next sales period. Within the umbrella of time series analysis, there are three sub-analyses. Trending looks at the larger, more general patterns that occur between each sales period. Seasonal focuses on patterns that occur around holidays or other drivers. Finally, the random factor involves the impact of environmental conditions like storms and floods.
Capital acquisition: In the real world, one can borrow money for a set period of time, pay interest on the loan, and then pay back the principal of the loan after the borrowing period is over. This is where the Capstone game is different from the real world scenario and the Capstone secret comes into play. In the Capstone simulation, Long Term Debt is due to be paid back after 10 years, but the game only lasts for 8 rounds. This means that Long Term Debt principal never has to be paid back for the duration of the game. You are only required to just pay interest each round. Taking advantage of this Capstone Secret can make a huge difference on your balanced scorecard by the end of the game and be the catalyst that gets your team to first place.
Ensure Regular Dividend to Shareholders: Give dividends immediately after 4 rounds of simulation, this will keep shareholders happy and provide you a positive boost to your initial stock prices which will allow it to be sold for a high price. Whenever cash available, give additional dividends. These are key to getting a high score on this simulation.
Periodic R&D Investment: The issue of R&D upgrade timing can be confusing for Capstone players. Remember to keep the product research and development upgrades within the same year, otherwise one can miss out on significant sales. Sensors will continue to produce and sell at the previous old specifications up until the day the project completes (revision date). Unsold sensors built prior to the revision date are reworked free of charge to match the upgraded specifications.
Optimum Use of HR & TQM: Using the TQM section well gives a big advantage in Capstone because it offers benefits such as lower cost of materials, lower cost of labor, faster R&D upgrades, smaller SG&A expense, and increased demand for the products. Best of all these benefits are cumulative... which means that when one purchases a TQM upgrade, it will benefit in every round for the rest of the simulation.
Optimum Use of Promotional & Sales budget: This is really important. Price of products should never be too high or too low. For Low-End segment, make sure you can cover all the cost and not selling at a lost. For High-End, people might attempt to price it at a very high price because only 9% of the market cares about price. We priced these high end products above the range and we still did well as we manage the perform/size as customer wanted. Please remember the customers wants the price to be $0.50 cheaper every year, but price it at a reasonable price to beat your competitors.
Round 0 and 1, we cannot allocate money into different promotions and sales. Start by investing religiously into every promotion and into every sales budget as this investment is very critical for the success in Capstone simulation. Awareness and Accessibility is really important to make the products sell really well. We aimed for 85%+ in Awareness/Accessibility and then, one can take all the market shares. For Promotion, make sure one spent at least $1,500 in each segment to keep it high. Each year, it goes down 15% if you don't put money into promotion. For Sales Budget, one should spend initially $3,000 in each segment and then, if one achieve the brand awareness to 85%+, then one can lower it to about $2,000 total per segment. Don't look at the computer prediction because it's not accurate. It's predicting how much you'll sell if you don't have any good competitions.
Finance: Never! Ever! Take out short term loans unless you have to! That means your company is doing really bad and you're expecting that if you don't, you'll have to take out an emergency loan which has a higher interest. If you are not playing in the Price per Share, then take out max long term debt for the first 2~3 years. It will help you a lot in the long term to have a good head start on promotion, sales and R&D. Shares, it was important to us. You can issue shares when you have a high Price Per Share and Buy back if you have a bad Price Per Share.
If given the opportunity to go through the Capstone simulation again, I would feel better prepared to perform more competitively against our competition because of the mistakes I made during the simulation. A few things I would do differently include:
Cost Focus Strategy. I would choose this strategy versus the cost leadership strategy. This would allow one to: focus on keeping costs low, exit those segments in which few products are underperforming, and focus on those segments which the products have a high market share, high contribution margin, and perform well.
Revision Dates. If given the chance to redo the simulation, I would pay very close attention to revision dates, which can cost your company years of profitability and staying competitive within a segment.
Set Long Term Goals. Due to our failure to produce long term goals, we were only focusing on just performing better than we did the previous year. If you have set goals, you could focus on where you want to be in the future versus where you are at the current moment.
Appropriate Forecasting Based on Growth Rate. We used an excel spreadsheet to determine the forecasts for each segment throughout the entire simulation. However, I did miss a bubble growth in round 3 for one of the product and we made aggressive forecasting decision for traditional end product for round 4, which resulted in huge inventory and emergency loan. The learning was to identify a sudden bubble growth to avoid such circumstances, which leads to heavy losses and therefore, Forecasting is art and science and is the process of making predictions of the future based on past and present data and most commonly by analysis of trends.