Strategic Decision Making: Some thoughts on Capsim Business Simulation Game

Author: Luyang (Jessica) JIANG

Background

Capsim is a popular business simulation game which is recommended or required to play by professors in universities toward undergraduates or even MBA students. Back to 2018, we played this simulation game in group and this is my individual report of some discussion and lessons that I learned from the mistakes we made and success we achieved. Hope this will be helpful for any students who also are playing this game in college, or for managers who are "playing the game" in the real life right now.

There are 6 companies (including your company) in total in the industry and our company is Erie.

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In game or life, to establish and implement a strategy through the development of the company is essential. However, the strategy always rests on unique activities and decisions( Porter, 1996). In this report, a variety of key decisions and activities through 8 rounds simulation will be discussed, some stimulated the growth of company, some dragged the development terribly. Finally, several reflection and lessons will be elaborated.

The most fundamental step ahead of any activity is settlement of mission and vision, which are paid increasing attention by managers during the past few years. It was also crucial part throughout the whole discussion. Such setting of target and goal not only guided us on decision-making on production, finance, TQM, HR, but also helped us to adjust intended strategy and came up with emergent strategy when encountered diversified occasions.

We realized that, to achieve customer’s satisfaction is essential for sales; to protect the interest of shareholders is our responsibility; to satisfy employees is duty of every employer. Therefore,basically, we bear the ambition to focus on the quality and reliability on our products, simultaneously, the satisfaction of stakeholders were laid on importance too. Generally, our vision is to respected and admired throughout the industry for manufacturing the highest quality and most trustworthy sensors in the market. Our dedication to customers, employees, suppliers and business partners is supported by genuine business ethics and proven manufacturing skills. Quality, innovation, customer satisfaction--our life-long pursuit. 

To achieve such ambition, we continued to formulate our mission with innovation of “LOVE” concept, meaning to listen to the customer demand and consumer’s preferences(L), observe market trend and competitors’ strategy (O), value-creating for stakeholders and society(V), and excel over competitors in profit, margin and qualified products(E).

(Figure 1)

We have both potential and problems existing internally and externally based on the SWOT analysis.

Internally, the strengths can be divided into financial and operational aspects. In terms of financial strengths, company’s contribution margin climbs steadily due to the sufficient investment on automation rate. The improvement on automation reduced labor cost and simultaneously increased the contribution margin.(Figure 2) Additionally, due to the first-mover strategy, through designing new products since first rounds, we captured more market shares instantly , especially in round 3 when the new product began to be sold(Figure 3).

(Figure 2)

(Figure 3)

There are also several weaknesses, however. Firstly, shortage of fund. To invest on diversified items including automation improvement, TQM, HR and marketing, these was a financial shortage thus we had to issue numerous stocks to ensure all investment went smoothly and also avoid emergency loan(Figure 4 and Figure 5). Secondly, although issuing a number of stocks allowed company to operate well temperately, the stock price climbed quite slow even though there was a steady increase in market value and operational performance.(figure 6)

(Figure 4, Round 3 3,211,827 shares)

(Figure 5, Round 4 3,626,048 shares）

(Figure 6, the stock price is increasing with a steadily small pace)

Externally, we noticed the chance in size market. Firstly, most competitors especially B, D, F’s focus was not in size market, which is reflected by the low automation investment, few capacity and marketing investment.(Figure 7)

(Figure 7, automation of size product until round 4 is all lower than our company, same as capacity )

Additionally, Group B’(Baldwin) s size product were supposed to be sold best, but B failed to forecast and produce sufficient quantity, which were taken advantage by us(Figure 9 and 10)

(Figure 9, 10)

Therefore, we adjusted strategy to pay more attention to size segment, keeping this advantage by not only increasing the marketing investment, automation investment, but also by designing a new size product in this less competitive segment, capturing more market shares.

As for the threat, however, it is generally from high-end and traditional market(Figure 12). Take high-end as an example, almost all competitors designed at least one new product continuously in high-end market, two previous high-end product from B and D even had not shift from high-end to traditional and thus they still stayed in this segment, taking up with some proportions. Therefore, at this specific point, the threat of existed competitors and new entrants is quite intensive.

(Actually, this analysis turned out to be not entirely right, because we should not only analyze based on the number of product in a segment, but consider all possible elements that would influence the competitiveness and attractiveness. For instance, we should have analyzed, even though there are already multiple new products in high-end, but according to four criteria for high-end, the first two important elements are ideal position and age. Thus if we design and position new product following criteria in this segment, there is large opportunity to be competitive. Additionally, price is regarded as the last important factor in this market, we can even increase price a bit to achieve high profits.)(Figure 11)

(Figure 11)

(Figure 12)

Analysis for Round 5-8

However, from 5-8 round, we adjusted our strategy instantly, and, came up with some emergent strategies to face up with dynamic market trend. Firstly, we invested in automation improvement more, which is the continuing of cost leadership strategy. Our contribution margin increased further, and reached top 1 in round 6(Figure 13)

(Figure 13)

Moreover, noticing that Group B’s pricing strategy that their price are always 0.01 lower than others, which helping them capture more market shares with other factors remained unchanged. Hence, we joined this “price war” by lowing price 0.02 or even 0.5 less than competitors. Due to the low labor cost and high margin from high automation, our profit still experienced a steady incremental with cheaper price. (Figure 14)

(Figure 14)

Furthermore, we invested much more on marketing and sales to get awareness and accessibility, keeping pace with competitors.Especially, since we designed new product in both traditional and size segments, the sale time allocated on these two markets are more than other segments.

In addition, the balance score card was regarded as a guide that directed us to adjust activities and decisions. For instance, working capital days. Due to the emergency loan in the first round, our financial position was quite worrying. Besides, owing to the low stock price and other factors, we were not allowed to issue too much stock to raise money. Therefore, we had to borrow much current debt and long-term debt to survive from “financial crisis”. Moreover, we continued to invest improving automation rate, which was costly and expensive, we needed to borrow loan continuously from round 5-6. Therefore, our score for working capital days are always zero. This reminded us of the unbalance financial structure. In the consequence, we began to seek whether we can save some money. Finally, we analyzed the demand for traditional market and the capacity we bought, we concluded that maybe it is a good decision to sell extra capacity of traditional, which not only allows us to obtain much money so that reduce the loan we will borrow, but also made better use of the 2nd shift production with low labor cost brought from high automation. At last, our score of working capital days is full mark, and plant utilization experienced a increase too.

Through the entire simulation, we made some rational decisions that went well, which is beneficial for the further development of our company,while something also went wrong due to the insufficient consideration of incidents.

On one hand, firstly, again, the investment on automation went quite well, which not only brought us lowest labor cost together with highest contribution margin, but also allows us to utilize the 2nd shift of production without worrying about the high cost of 2nd shift. Additionally, we were enabled to sell the capacity of several products accounting for the low labor cost brought by high automation, also utilization rate was improved as well by using 2nd shift.

Secondly, investing TQM stimulated extra demand for segment, increased total profit by cutting down the administration cost, as well as speeded up the process of R&D which were prolonged by high automation. Such decision helped company develop in a more optimistic way with high efficiency and operational performance.

However, on the other hand, some irrational decisions caused some parts went wrong. First, due to the wrong forecasting for the first round, there was an emergency loan. In detail, we believed that we should produce more than the first round in practice because our company made up large market share, and we were the leader for many segments. Yet, we forgot to make consideration of the truth that we took advantage of competitors due to the insufficiency of their production. It turned out they produced enough this time and thus our prediction based on the practice is not applicable anymore. The mistake forecasting led to loads of inventory and inventory cost in 1st round, which influence directly on our scores and financial position.

Finally, there are several lessons throughout this simulation that may influence me in the future life. Firstly, the importance of the adjusting strategy. Strategy should be dynamic rather than static, which should be adjusted according to the specific occasions and monitoring of the activities of rivals. Managers should take all the variable factors into consideration when made any decisions. Secondly, the importance of appropriate investment, it is worthy investing capacity, automation, HR and marketing, but manager are required to make smart decisions on, when, what and how to invest precisely according to the current situation and future expectation of company. Being rational and smart for a manager is always the key to ultimate success.