Simulation of Capsim

University of Nottingham Ningbo China

Business School

Academic Year 2016/17 Spring Semester

Strategic Management

Young Un Kim

Computer Simulation

Peilin DU

Student ID: 6511699

Word Count: 1243

• Introduction

In this essay, I will first demonstrate our group’s mission statement and explain the reason why we change it after Round 2. Then, I will focus on how SWOT analysis affects our basic strategy together with data analysis after Round 4. After that, good experiences that should be memorized during this simulation will be mentioned. Finally, I will elaborate on knowledge acquired from this simulation and then give a conclusion.

• Mission statement

In the first formal meeting, our group decided to use Differentiator with Product Lifecycle Focus as our basic strategy and regarded “Premium products for mainstream customers: Our brands withstand the test of time. Our primary stakeholders are customers, stockholders, management and employees.” as our mission statement. In the first 2 Rounds, we did our best to provide premium products. For example, Ferris spent $2,729,000 in Round 1 and $1,237,000 in Round 2 on Research and Development (R&D) part. We used these vast expenses to change the character of five products according to customers’ buying criteria. Though we successfully made perfect products for every segment, it took our company longer time to invent the product than our competitors. Besides, financial expenditures and interests from long-term debt also restricted our company’s development. In this situation, our group chose to change our strategy from Differentiator with Product Lifecycle Focus to Broad Differentiator. This means that we give up our initial thought for providing premium products and turn into high quality products. Teammates all accepted this decision and then we turned part of our attention from R&D to marketing and promotion.

• SWOT Analysis and strategy

A company’s external environment creates both opportunities and threats. According to Volberda (2011), opportunity is a condition in the general environment that, if exploited effectively, helps a company achieve strategic competitiveness. While a threat is regarded as a condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness. And for better analyzing the general environment of Capsim, we need to use four components: scanning, monitoring, forecasting and assessing. Since the general environment is composed of segments which degree of impact varies to the firm. PEST model should be considered while recognize and evaluate opportunities and threats.

According to Lester (2008), the political and legal environment can be regarded as the arena in which six companies compete for profits, resources and attention among various local governmental agencies as well as firms. For example, in this simulation, firms must carefully analyze labor training laws, taxation laws and employment laws. Pavlou (2008) stated that the economic environment refers to the nature and direction of the economy in which a firm competes or may compete. In terms of this specific economic environment, companies need carefully evaluate Next Year’s Segment Growth Rate, industrial structure and the interest rate. The social-cultural segment is concerned with a society’s attitudes and cultural values. Studies on living consumer psychology and influencing factors of customers are essential to the development of company. The technology segment refers to the activities that create new knowledge and translate the knowledge into new products, processes and outputs. During simulation, all firms should continually identify distribution channels, life cycle of products and market size.

In Round 7, when comparing Next Year’s Segment Growth Rate among five products, we noticed that both Size and Performance products’ growth rate rose dramatically. Next Year’s Segment Growth Rate of Foam (performance product) increased from minus 0.1% in Round 5 to 18.6% in Round 7. Meanwhile, Growth Rate of Fume (size product) in Round 7 increased by 20.2% then in Round 5. Considering Size and Performance statistics from Round 1 to Round 6, our group forecasted that this growth trend might remain unchanged in Round 8. Besides, most of our competitors chose high-end market as the best choice for building their core competence. After comparing all these factors, Ferris regarded this an opportunity to bridge a gap on market shares and sales in Fume and Foam. Therefore, we improved Fume and Foam in R&D to get ideal position in the last two Rounds.

As the above table shows, our group increased promotion and sales budget in these two products as to achieve higher customer awareness and customer accessibility. Through implementing this strategy, our company successfully raised market share in Fume from 3% in Round 5 to 13% in Round 8.

Then referring to threats of external environment. In high-end market, firms should carefully evaluate the size and performance of high-end products, budgets of promotion and sales, price as well as a profit margin. In Round 5 and 6, our firm was struggling to save our company from bankruptcy. Though we invented FFF as the new product and put it in high-end market on October 16th 2021 (Round 4), the dramatically drop of Next Year’s Segment Growth Rate of FFF in Round 4 and 5 made Ferris got it wrong in forecasting market trend and left high-end to low-end market.