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Management of Innovation in a Sensor Company

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Pulkit Vijayvargiya
Pulkit Vijayvargiya

Team Baldwin participated in a business simulation to learn about innovation management. They produced sensors across different customer segments. Over 8 rounds of decisions, the team invested in research and development, production, marketing, and quality management. While performance improved, high debt levels emerged. The simulation provided valuable experience in integrating business functions for innovation success.

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w DM981 – Management of Innovation Prof. Dr. Nuran Acur Department of Design, Manufacture, and Engineering Management University of Strathclyde Simulation Report – Team Baldwin by Michael Dördelmann Juan Rosenzweig Pulkit Vijayvargiya
DM981 – Management of Innovation Team Baldwin I I Statement of Academic Honesty “I declare that this submission is entirely my own original work. I declare that, except where fully reference direct quotations have been included, no aspect of this submission has been copied from any other source. I declare that all other works cited in this submission have been appropriately referenced. I understand that any act of Academic Dishonestly such as plagiarism or collusion may result in the nonaward of my degree.” Date: 23rd April 2014 Name: Michael Dördelmann (Reg.No.: 201351504) Signature: Name: Juan Rosenzweig (Reg.No.:) Signature: Name: Pulkit Vijayvargiya (Reg.No.:) Signature:
DM981 – Management of Innovation Team Baldwin II III Table of Contents II Statement of Academic Honesty ..................................................................I III Table of Contents..........................................................................................II IV Abstract ........................................................................................................III V List of Figures and List of Tables...............................................................III 1 Introduction...................................................................................................1 2 Business Analysis ........................................................................................2 2.1 Company Profile...................................................................................2 2.2 Business Environment and SWOT-Analysis.........................................4 2.3 Companies Valures and Strategy Explained ........................................5 2.3 Practise Round Content........................................................................6 3 Rounds Decisions, Developments and Strategies.....................................7 3.1 Decisions, Operations and Strategies, Rounds 1 - 8............................7 3.3 Ending Results Analysis .....................................................................14 4 Discussion and Possible Improvements ..................................................16 5 Conclusion ..................................................................................................17 VI References.................................................................................................. VII
DM981 – Management of Innovation Team Baldwin III IV Abstract Being one essential part of innovation management, business processes, market analysis, decision making and financial investments have to be explored and trained. In order to reach this, the Capsim business simulation has been established, covering decisions in R&D, Finance, Production, marketing, HR and Quality Management to enable deeper understanding for the students. In the course of this report, the simulation itself, the purpose and the team constellation will be explained. After that strategy, decisions made and outcome will be analysed critically. The report will end in a discussion and conclusion. Note: Toe total length of this report is in the range of 15 pages as stated in the report constraints. Due to design and flow reasons, some pages are split up so the page count reaches 17. V List of Figures and List of Tables List of Figures Fig. 1: Marketing Decisions Practice Round.............................................................................. 6 Fig. 2: Marketing Decisions Ro1................................................................................................ 7 Fig. 3: Production Investment – Ro2 ......................................................................................... 8 Fig. 4: Andrews Investment in Low-Cost ................................................................................... 9 Fig. 5: TQM Investments and Impacts Ro4 ............................................................................. 10 Fig. 6: Investments in Production Ro4..................................................................................... 10 Fig. 7: Extra Analysis of the Low-Cost Sector ......................................................................... 11 Fig. 8: Production Decisions Ro5 ............................................................................................ 11 Fig. 9: TQM impacts in comparison Ro6 ................................................................................. 12 Fig. 10: Liabilities Ro6................................................................................................................ 12 Fig. 11: Liabilities Ro7 & Ro8 .................................................................................................... 13 Fig. 12: Performance Measurements after Round 8 ................................................................. 14 Fig. 13: Stock Price Development Ro0 – Ro8 and Rating Ro8................................................. 14 Fig. 14: Product Profits and Profit History.................................................................................. 15 List of Tables Fig. 1: Product Overview – Team Baldwin................................................................................. 2 Fig. 2: SWOT Analysis............................................................................................................... 4
DM981 – Management of Innovation Team Baldwin IV 1 Introduction We are living in an experience economy. Innovation should be experienced. It should be seen, it should be heard, it should be smelled, it should be felt and it should be tasted before implementation. Innovation should be learned in all senses. Of course, innovation theory is important: it should be heard. But practitioners should be able to see it working in real life, to experience it. They should know how it tastes like to create a new product and launch it into the market, they should feel the pain that is involved in failure, but also how it feels like to get better afterwards. Innovation is using all our senses. And that’s when simulation came in to picture. A simulation is a virtual medium through which various types of skills can be acquired (Gopinath and Sawyer, 1999). The word simulation implies an imitation of a real-life process, usually via a computer or other technological device, in order to provide a lifelike experience. This has proven to be a very reliable and successful method of training in thousands of industries worldwide (Bill, 1997). They can be used both to allow specializa- tion in a certain area, and to educate individuals in the workings of the sectors as a whole, making training simulations incredibly versatile. It is important to emphasize that training simulations are not just games (Klabbers, 1999); their aim is to educate and inform in an exciting and memorable way, rather than purely to entertain. Since training simulations are available based on such a wide range of different industries, and with thousands of different aims and objectives, it is difficult to outline a specific skill-set that will be improved by taking part in a training simulation. However, skills that every good training simulation should build on include:  Business awareness  Time management and organization  Team coordination  Problem solving  Real like Business experience In order to enable in-depth training in these areas, the Capsim simulation was imple- mented in the Class DM981 – Management of Innovation, to make the students aware of all impacts connected to their business decisions related to innovation. The Capsim Business simulation is the global leader in business simulation and was designed to tech in every learning environment (Capsim, 2014). Created in 1985, the company created several successful business simulation models and has grown over the years, providing comprehensive, expert live support, integrating case studies and business models from all over the world and a growing global user portfolio (Ibid.).
DM981 – Management of Innovation Team Baldwin V 2 Business Analysis 2.1 Company Profile Baldwin, is a Sensor manufacturing company with strong foundation of ethics, manufac- turing process control, and customer service. High sensor volume delivery has been instrumental in the continued growth and success of Baldwin as a company in the sensor industry. We are a high volume manufacturer of high quality sensors at an affordable price. Increasing demand for our sensors in the world market has caused steady growth since the founding of the company. We initially targeted, and then established, our sensors as the sensors of choice in the traditional and low end sensor markets. In this competitive industry we always stay ahead of others by meeting the requirements and expectations of customers with continuous improvement of our products, services, and business processes. Our mission Statement is: “Be the sensor company of choice by providing high quality, easy to use, low cost sensors that meet the customer requirements.” Our Products: Baldwin sensors are developed and manufactured on a customer-specific basis at different production lines. We manufacture sensors for a wide customer base, including different range of customer segments named as traditional, low end, high end, performance and size across the entire globe. We provide five different types of sensors targeting the diverse requirements of each customer segment, which attribute highest importance to quality and integrity on the basis of strategic alignment and production requirements. Our different product verities are: Baldwin Products Target Customer Segment Baker Traditional Bead Low End Bid High End Bold Performance Buddy Size Table 1 – Product Overview – Team Baldwin Our Success story: We are the market leaders in the sensor industry with maximum overall market share. Thanks to our state-of-the-art production facilities; we provide high flexibility and scalability to our customers. Our customers can plan flexible lot sizes to suit their own requirements. At Baldwin, tradition and innovation go hand-in-hand, we are continuously investing in R&D for better results. The production requirements and strategic alignment of our customers attribute great importance to target-oriented working, absolute reliability and integrity. Every day, we successfully meet this challenge head-on. We establish and maintain long-term partnerships with our customers, whose develop- ment and production periods generally last many years. This is precisely why our customers chose Baldwin as their partner: because our competence, size and financial stability make us the ideal companion on the long road ahead.
DM981 – Management of Innovation Team Baldwin VI Executive Board - Baldwin: Michael Dördelmann - Chief Executive Officer Michael was born in Germany in 1989. He made his B.Eng in Germany and gained several years of work experience in the Automotive Engineering Sector and in the Consulting Sector. His core competencies are organisational and analytical thinking. Core Responsibilities: Michael is the driving force behind the company; he is making things happen, by putting together the resources to support the company and taking the product to the market place. As the Chief Executive Officer of Baldwin, Michael is in charge of Strategic Business Development, Investments, as well as Marketing and Sales. Professional Career Juan Rosenzweig - Chief Financial Officer Juan was born in Mexico City in 1987. He studied Civil engineering in Vienna’s University of Technology and managed throughout his carrier to develop a few business ideas. Among which is SOLACERO, a home products manufacturing company. His international background has given him access to international managerial positions as well as a good understanding on the importance and integration of diversity in working environments. Core Responsibilities: As Chief Financial Officer of Baldwin, Juan is responsible for Finance, Purchasing, IT, Investor Relations, Human Resources, Compliance and Risk Management. Professional Career: 2008 Project manager at Metalnica 20010 Co–founder and Vice president Solacero 2008 Project Manager Daimler 2010 Senior Consultant - MD Corp. 2012 Head of Department – Strategy - MD Corp.
DM981 – Management of Innovation Team Baldwin VII Pulkit Vijayvargiya - Chief Operating Officer Pulkit was born in India in 1988. He studied Mechanical Engineering from 2007 through 2011 at UEC-Ujjain. Over the course of his career, which spans around 3 years since his graduation, Pulkit assumed responsibility for the initial set-up, further development, growth and integration of technology companies in a variety of executive management positions or has assisted businesses as a manage- ment consulting engineer. Core Responsibilities: Pulkit makes sure that company operations flow smoothly and economically. He is responsible for making certain that necessary work is done properly and on time. As the Chief Operating Officer of Baldwin, Pulkit is in charge of Research & Development, operations and production and is the creative head of the company. Professional Career: 2008 Co–founder and Vice president at Sunflowers 2011 Process Design engineer at Denso-Toyota 2012 Project management engineer at Denso, Japan 2.2 Business Environment and SWOT Analysis The initial business environment developed after the government’s decision to split a monopoly sensors manufacturer into 6 identical companies with the same market positions. Situation that leads to equally divided competition with well understood market conditions. Such conditions required urgent managerial decisions in marketing, produc- tion, R&D and finance in order to react to the new implied competition. Strengths Weaknesses - Understanding abilities of 3 engineers - Good managerial capabilities - Competitiveness of team members - Teamwork - Lack of understanding on financial aspects - Language and cultural barriers Opportunities Threats - Learn from mistakes on practice rounds - Develop financial understanding - Other teams advantage on financial aspects - Strong competition Table 2 – SWOT Analysis
DM981 – Management of Innovation Team Baldwin VIII In order to understand and make the best possible decisions along the simulation, focus turned into the internal analysis and the competitive environment analysis required recognizing our team advantages and the ones of our competitors. To accomplish this task, a SWOT analysis allowed us to asses our capabilities along with the required market needs in order to approach our competitive environment (Cheverton, 2004) as shown in Table 2. Furthermore a more detailed description of each GIM student was discussed in order to deeply understand personal advantages and disadvantages that each member could bring to their respective teams. Another very important factor that was decisive on the understanding of the initial aspects as well as the market environment, was the situation analysis required in the simulation. After the calculation of some of the values required such as, margin analysis, capacity analysis and industrial demand analysis a clear perception of the team lead to decide that in every round, similar analysis would be concluded through excel tables in order to analyse competitors, forecasts and our position after every year, tools that proved to be helpful in the decision making process through the whole simulation. Subsequently discussions arose on the possibilities and difficulties that the team would probably encounter through the whole process, one of the most debated was the possibility of encountering a crisis in some on the advanced rounds and our need to create enough flexibility and resilience in order to counteract such events, as well as the possible causes. 2.3 Companies Values and Strategy Explained On the early stages of the simulation, the team established a strong set of values to which it would be worked; team members discussed what they personally found important for the development of such a task. Among the most important values discussed were the fair working environment and a clear and fair task division among the team members. Punctuality and responsibility where also highlighted as very important for all team members, and the structure of the project was based on strong and good planned teamwork. Focus turned on a deep understanding on the early stages, through long team meetings in the beginning in order to clarify every important aspect and to explain significant doubts from and to every team mate, further on, when the structure and order of the system was relatively clear, the decision to make targeted mistakes in the practice round, which will be explained in the next section, was made. Furthermore and after the consequences observed in the practice round a defined strategy for the real simulation was developed. After all the accumulated knowledge with continuous learning and deep understanding on the consequences of our planned mistakes the decision was made to develop a strategy that would focus on the long term, which would lead to high investment with smaller profits in the initial stages which would then turn into highly competitive products in the later years. The main aspects targeted for such an strategy were to maximize the market share and simultaneously the growth. Furthermore and due to the complexity and unsustainabil-
DM981 – Management of Innovation Team Baldwin IX ity of a diversified strategy in every sector, the team took the decision to focus on the low cost product market while not losing flexibility in other markets. This approach was taken in order to understand the strategies that other teams would approach after the first round and having the ability to react in consequence. After our general strategy was clear, the team was ready to act internally for the decisions and react externally to our competitors. Detailed strategies and how the flexibility in our team decisions made a difference will be explained in detail in following sections. 2.4 Practise Rounds Content The approach taken to understand and organize the whole Capsim simulation was based on Concurrent Engineering, where a special focus was given to the initial stages of the project considering all possible aspects to generate a greater understanding for the beginning and avoiding problems that could have been avoided in the future (Clausing, 1994). In order to apply these concepts the team decided to meet very frequently and for longer periods until the simulation aspects were fully understood, knowing that if in the beginning the concepts were clear complications and future decision would get easier in every round. Consequently, after the complete business environment, SWOT and Strategy were understood a clearer perspective to approach the practice rounds was defined. This approach intended to create well denoted mistakes to understand the consequences of these. The decisions focused on taking the best approaches possible in the R&D depart- ment, while analysing the effects of over and under forecasting in 2 of the segments which lead to over and under production respectively as shown in Figure 1. Another approach taken was the lack of financial aid that would cause an automatic emergency loan and mistrust from the market that would give us the possibility to try to recover in the next practice rounds. Figure 1 – Marketing Decisions Practice Round The mistakes created in the practice round gave interesting hints and underlined the importance of forecasting in the whole process which got especial attention throughout the game, another important consequence of the practice rounds besides introducing the team formally to the simulation was the possibility to recover the company in the next rounds due to the lack of financial aid in the first round, which turned to be the approach where the most was learned, and that that would be our back up plan in case we would encounter any trouble in the real simulation.
DM981 – Management of Innovation Team Baldwin X 3 Rounds Decisions, Developments and Strategies 3.1 Decisions, Operations and Strategies – Rounds 1 - 8 Round 1 From beginning of round 1 starting, the strategic focus was set on maximum market share and growth. Therefore investments in “Marketing” gain biggest investments in the first rounds, aiming on a maxed out promotion as fast as possible and a reduction to 1400$ Investment starting in Ro4 ongoing to stay at 100%. This enables the maximum advan- tages in terms of promotion with a relatively low investment for the long run. The sales budgets is set to 3000$ to enable big accessibility growth an enable the high market share strategy. These high marketing investments made some product low in the profitability for the first rounds, but very profitable for the long term. Figure 2 shows the Marketing decisions in round 1. Figure 2 – Marketing Decisions Ro1 Due to the concentration on the low-cost product, but also on keeping a diverse portfolio as long as it brings profit to keep market shares, the “R&D” decisions simply aim on the optimum spots for the products on the perceptual map (except for the low-cost). The importance of product attributes show, that the movement to the perfect spot in every round is not always the best option. For the low cost and the traditional product, the R&D investments were planned in combination with retaining the perfect age. Additionally the monthly movement of the perfect sport has been calculated into the perceptual map, so R&D investments don’t aim on the perfect spot stated in the annual reports but slightly above these performances. In terms of “Production” decisions investments are made in the low cost and the tradi- tional sector. Since the price is the most important factor, and the low cost market is only profitable in really big amounts of sales, the strategy is to max out the automation level for low cost as fast as possible and to rise the low cost capacity every round. The production is modified to hit exactly the forecasted sales, which caused high risk in terms of stocking out or calculating from the financial point of view. Further improvements will be made in the following rounds. The “Finances” section is the enabler for growth. The team focussed on long term debts, since current debts had to be repaid in the next round immediately. Starting with 10,000$ in long term debts the company’s investments is financed. Stock issues are not consid- ered as positive, since the stock price was stated as a performance measurement.
DM981 – Management of Innovation Team Baldwin XI Round 2 The risky forecasts and the high investments caused a small minus in profits in the first round, which was expected by the team. Nevertheless, the high rise in market share to 21.44% showed first success for future plans. Also market leadership was gained in traditional, low-cost and performance market. This rounds R&D decisions stay the same as last round, investing in R&D for all products but low-cost, to fit to the perfect spot movement in consideration of the products age. Also in Marketing the decisions for promotion budget and sales budget for low-cost and traditional stay the same. Prices for Bid, Bold and Buddy were set to the maximum, since price is a non-relevant attribute for these sectors. Bead and Baker still remain in a middle priced area. The forecast is chosen very risk and close to the bench mark prediction due to expected advantages of high promotion and sales investments. In future rounds, these decisions were better understood and adopted. In round 2 the Production investments starts to concentrate on the low-cost product only. Figure 3 shows the big investments in low-cost capacity and automation (red circle) to enable higher contribution margins and market share for future rounds. Other sectors had no need for investment due to small utilisation rates and negative effects of automation level on R&D times and contribution margins close to 30% of the products. Figure 3 – Production Investment – Ro2 The new opened HR module is used to invest 1000$ in recruiting and pay for 50 training hours per year. On the long run, these investments will be raised to enable higher productivity. Financing decisions are narrowed down to issuing 7000$ in long term debt to finance the investments and closing with a positive cash position with small safety. The stock price is forecasted to grow again. A/R and A/P Lag days (both 30) and stock issue remain untouched in all rounds from now on.
DM981 – Management of Innovation Team Baldwin XII Round 3 Again the risky forecast and the high investments caused problems in the finance and triggered the emergency loan, but also positive profits again. The market share rose to 22.49% and the companies investments started to impact on performance attributes. The annual report revealed the loss of the buddy product showing the difficulties of a complete diverse product portfolio. To enable further profit growth in the markets the company concentrates on and the high competition in this market sector, the Size-product Buddy will be dropped and only remained inventory will be sold. Performance-product Bold will be kept due to the company’s good market position in this sector and lower competition. Further on, the main competition is seen in Andrews due to their starting investments in the low-cost sector. This is shown in Figure 4. Additionally Erie was set on the “watch list” for the future due to their product portfolio. Therefore, costs are lowered in a big step to 17.00 to catch up in market share in the low cost sector and to cause higher stock at competing companies. The strategy for the long term is to gain complete market domi- nance in this sector and “scare” competitors to invest here. This would enable maximum prices and high demands due to high marked demand and no production from competi- tors. Figure 4 - Andrews Investment in Low-Cost The investments in R&D and Marketing are set as in the last rounds. For promotion this round is expected to be the last round of 2000$ investment, being close to the max out point. The forecast is set lower and less risky than in last rounds. Decisions in Production are 10% overproduction to allow best possible market share and calculate with more security in financial decisions. Additionally investments the automation level of low cost will cause a max out in round 4 and further capacity investments will permit consistent growth for the future in this market. While the investments in HR are raised to 2000$, trainings hours stay the same. On the long run and with better profits of the company, these investments will grow. In the Financial decisions, the ending of the first bond package needs a long term debt issue of 15,000$ to remain in the financial save zone. This time the financial position is considered as more secure and a better result is expected due to forecast adoptions.
DM981 – Management of Innovation Team Baldwin XIII Round 4 While the high issue of long term debts lowered the bond rating to CCC, this necessary step empowered company’s growth with excellent effects. Starting this round, the market share stays nearly unattached, profits raise and stock prices grow. While Chester and Digby are not seen as relevant competitors anymore, Andrews and Erie are doing quite well in performance. With the start of the TQM module this round and the maxing out of promotion budged, this round can be seen as one of the most important rounds of the company. First decision that allowed total dominance in the markets was the huge investments in TQM from the very beginning to gain the maximum outcomes from these investments for as many rounds as possible. The earlier all improvements hit in, the more time the company can profit from them. That’s why a 2,000$ investment over 2 rounds in all factors is considered as best step. The tem expects to be able to repay debts after 2 more rounds of major investments, after maxing out in TQM and adopting the production Investments. Figure 5 shows the TQM investments and the possible impacts on performance. Figure 5 – TQM Investments and Impacts Ro4 While R&D and Marketing strategy and decisions stay the same as in past rounds, second break through investments are the Production investments. Beginning this round, the Performance-product was adopted to retain profitability and major investments in low- cost shall cause market dominance and low costs for the products but retain high contribution margin. Figure 6 shows the Investments in production of Round 4. Figure 6 – Investments in Production Ro4 Decisions in HR stay the same while big investments are supported by the Financing decisions issuing 15,000$ in long term debt again. Beginning this round, the company starts to pay dividends to cause positive effects on the stock price.
DM981 – Management of Innovation Team Baldwin XIV Round 5 The big investments of round 4 started to pay off and the company gained even more market share, higher profits and stock price. The Capstone courier provided an overview of the TQM advantage over all other companies and confirmed the company’s course in this topic. Furthermore, the team did an additional analysis on the low-cost product sector to check the investments of competitors and the 100% secure sales due to market demand and possible competitor maximum productions (neglecting possible stock amounts). Figure 7 provides an overview about the analysis and the results. Figure 7 – Extra Analysis of the Low-Cost Sector Due to the fact the secure sales were really low and competitors started investing higher amounts into the market, the strategy for low-cost products was overthought. In the future, the company aimed on minimal cost, maximal market share to cause total dominance and high stocks on the competitor’s site. This round the only investments on low-cost R&D are made, to remain in the cycle and minimise the effect on the ideal age position of the product. The performance point is set to the ideal position of round 7 to gain maximum positive impact in rounds 6 to 8. While Marketing decisions doesn’t change and the forecast strategy stays the same, big investments are made in the Production site again. Capacity of Low-cost and Perform- ance are raised for 800 and 400 costing 43,400$. Figure 8 provides an overview of these investments. Figure 8 – Production Decisions Ro5 In HR the investment in recruiting is risen to 4,000$ and training hours are set to 60 to enable faster productivity growth for future rounds. The TQM decisions stay the same for this round, maxing out in all attributes to gain the maximum performance. To finance this last round of big investments, long term debts of 30,000$ have to be borrowed by the bank to remain in the save zone. Round 4: Andrews Baldwin Digby Erie Ferris Summary Secure Sales Low Cost Capacity 2200 1600 1400 800 6000 Round Demand Growth Rate Max. Capacity 4400 3200 2800 1600 12000 0 8960 11,70% 1 10008 11,70% 2 11179 11,70% 3 12487 11,70% Round 5: Andrews Baldwin Digby Erie Ferris Summary Secure Sales 4 13948 11,70% Low Cost Capacity 2400 1800 1500 1550 7250 5 15580 11,70% Max. Capacity (2x) 4800 3600 3000 3100 14500 6 17403 11,70% Cap. Investment -200 0 -200 -100 -750 -1250 7 19439 11,70% 8 21714 Low End - Bead 1948 1080
DM981 – Management of Innovation Team Baldwin XV Round 6 While the market share and the profit experienced a very small drop, the stock price grew again for over 20$ per share. Within this stage, the company stabilises its leading position furthermore and empowers the secure leadership position for the future rounds. After 2 rounds of TQM investments the effects maxed out and enabled big advantages to competitors. Figure 9 provides an overview of the TQM impacts of the company (red circle) and its competitors. Figure 9 – TQM impacts in comparison Ro6 In addition to that, the Performance-product became profitable and caused 8,800$ profit and leadership in market share in this sector. Starting this round the TQM investments will be reduced to 1$ per attribute to stay at the current maxed out position. The saving in TQM investment and enlarged performance makes further investments in production capabilities possible and repaying debt at the same time. The decisions in R&D and in Marketing stay the same as in the previous rounds. While the R&D of the Low-Cost product will hit in this round, other R&D projects can be set to the perfect spot with reduced R&D time. This allows further market share and strong positioning compared to competitors in all sectors. The forecasting stays the same: low risk forecast and 10-20% overproduction to enable maximum market share and additional profits. In the Production section the capacity for the Low-Cost product and the Performance product are expanded again. The overall investment of 27,400$ shows a reduction o 40% compared to the last 2 rounds to provide more funds on debt repayment and paying dividends. Due to the current possibilities given bigger investments in production are not necessary. Instead of raising the units sold, small adoptions in the unit’s price will bring higher profits with the same capabilities. With growing profits and lower needed investments in production and TQM the liabilities begin to change. Starting this round, the company is repaying long term depts. Issued during the beginning rounds. The earlier big amounts needed to grow are now rather small amounts, that can be paid back without further problems and negative effects on performance. Figure10 shows the compa- nies liabilities beginning of round 6. Addition- ally, the divided paid to stockholders is raised to 1.50$ per share. HR investments are raised to 5000$ on recruitment and 60 training hours. Figure 10 – Liabilities Ro6
DM981 – Management of Innovation Team Baldwin XVI Round 7 and 8 By reason of the good results of the last rounds decisions the company is stable in its current leading position. The last two rounds the team focussed on repaying long term debts and paying higher dividends to raise rating and stock price. The investments in the Production are lowered and concentrated on the Low-Cost product only. Due to the market growth and the good position of the company, the price can be raised, the production capabilities used for 100% and the margin still hold above 57%. In both rounds combined the Low-Cost production capacity are raised for 500 ending with a total capacity of 5000 after round 8. R&D, Marketing and HR decisions and strategies stay the same in these rounds. R&D still profits from shorter development times and aims on the perfect spots by early market entry, the Marketing and forecast strategies remain at 1400$ promotion, 3000$ sales and secure forecasting. In HR the payment of 5000$ on recruiting and 60 Training hours stays unchanged to allow further productivity growth. Also the TQM investments stay untouched at 1$ per attribute. The Financing activities of the last two rounds minimize the overall debt of the company essentially and elevated the profits made even more. Moreover, the ratings of the companies remaining debts are raised and the higher dividends paid (Ro7: 4.00$, Ro8: 5.50$) let the market price per share grow further more. Figure 11 provides an overview of the last rounds liabilities. Figure 11 – Liabilities Ro7 & Ro8 Round 7 Round 8
DM981 – Management of Innovation Team Baldwin XVII 3.2 Ending Results Analysis After all eight rounds played, the company achievements and performance measurements compared with its competitors are analysed. Figure 12 provides an overview of cumulative profits, market share, average ROA and final stock price stock price in comparison of all competitors. The company is benchmark in all four categories, having big advantages in profits, and stock price and small advantages in market share and ROA average. Figure 12 – Performance Measurements after Round 8 Ending round 8 the company additionally enabled profits of over 53 million $ and closing cash big enough to repay all outstanding debts. Since round 5 the company’s Final Score Relative is 100.0 in overall, meaning that in all performance indicators measured, Baldwin was benchmark and never lost its leadership position in the last 4 rounds played. Also, the stock price development of the last 5 rounds shows the advantage compared to its competitors (see Figure 13). Figure 13 – Stock Price Development Ro0 – Ro8 and Rating Ro8 a) Cumulative Profits b) Market Share, End of Ro8 c) ROA – Average Ro1-8 d) Stock Price, End of Ro8 (in million)
DM981 – Management of Innovation Team Baldwin XVIII Figure 14 – Product Profits and Profit History Taking a closer look on the profits and the profits history (see Figure 14), the investments made in the Low-Cost and Performance sector, which was production red numbers in round 2 and 3) are paying off in the end. Additionally the repaid debt and higher financial ratings lower the interest costs and raise the profits further more. But despite the fact, the company’s success this round, several possible improvements could have been imple- mented, either for the range of these eight rounds or for the case, the game would continue. This will be discussed in the next chapter.
DM981 – Management of Innovation Team Baldwin XIX 4 Discussion and Possible Improvements In the course of this simulation, the team discovered several investments that could have been implemented to enable even higher profits and further company growth. Traditional Sector Investments in the traditional sector automation(level 6-7) and capacity (up to 3000) starting at the point of the TQM module introduction would have caused higher market share due to lower price, no product performance lacks due to TQM and impacts on R&D cycle time and would have risen the contribution margin essentially. When this fact was detected in round 7, the team decided to concentrate on debt repayments and stock price boosts due to the close end of the simulation. Low-Cost Sector In order to gain every point of the customer survey, the team stayed to the MBTF level of 14000 in the Low-Cost sector. Compared to possible improvements in profit and the fact of capacity lacks in the last round, this factor could have been lowered to 12000-125000 without major effects on the market share itself. High End Sector Due to high earnings starting in round 4 the team could have introduced a new product to the high end market, causing higher profits, market share and further growth. Due to high needed investments and the close end of the complete simulation, the team decided to stay with the current products and maximise their outcome. In case the simulation would go on for several more rounds, this decision would have been changed. Forecasting The forecasting decisions in the first 3 rounds were too opportunistic and the missing overproduction caused either stock outs or not calculated missing profits due to stock. This caused the emergency loan once and negative profits for the first two rounds. With right forecasting and calculations, the company’s growth would have been made possible even with higher security.
DM981 – Management of Innovation Team Baldwin XX 5 Conclusion and Reflection The Capsim Business Simulation enabled awareness over a broad range of decisions that have to be considered in management of innovations and in processes implementing innovations in business environment. After the analysis of the team capabilities and market opportunities the team successfully implemented a new product strategy and made decisions in all departments with excellent results. The final results show the Baldwin Company being on top of all competitors in all relevant key performance indica- tors measured. The major time spent in the beginning of the project to empower real program and market understanding and to analyse all possible program capabilities gave essential advantages. This management style could be compared to concepts like concurrent engineering, where more time is spent in the planning and development phase to reduce risk for later project stages. Furthermore the program understanding was accompanied by interdisciplinary learning processes of all team members as for example in financial management or strategic technology management. The project clearly showed that all areas of concern have to be mastered to bring innovation to success. A lack of competencies in one single area can cause overall fail and negative profits.
DM981 – Management of Innovation Team Baldwin XXI VI References Capsim (2014). Capsim Homepage – About, [Online] Available at: http://www.capsim.com/about/ [Accessed: 14.04.2014] Cheverton, P., 2004. Key marketing skills. 2nd ed. ed. London ; Sterling, VA : Kogan Page . Clausing, D., 1994. Total quality development [internet resource] : a step-by-step guide to world-class concurrent engineering. New York : ASME Press . Gopinath, C. and Sawyer, J. (1999). Exploring the Learning from an Enterprise Simulation, Journal of Management Development, Sage Publishing Ellet, Bill (1997). TMR Shortlist of Business Simulations, Training Media Review Publications Klabbers, Jan H. G. (1999). Three Easy Pieces: A Taxonomy of Gaming. In: The International Simulation & Gaming Research Yearbook: Simulations and Games for Strategy and Policy Planning, Saxon Graphics Ldt.

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Management of Innovation in a Sensor Company

  • 1. w DM981 – Management of Innovation Prof. Dr. Nuran Acur Department of Design, Manufacture, and Engineering Management University of Strathclyde Simulation Report – Team Baldwin by Michael Dördelmann Juan Rosenzweig Pulkit Vijayvargiya
  • 2. DM981 – Management of Innovation Team Baldwin I I Statement of Academic Honesty “I declare that this submission is entirely my own original work. I declare that, except where fully reference direct quotations have been included, no aspect of this submission has been copied from any other source. I declare that all other works cited in this submission have been appropriately referenced. I understand that any act of Academic Dishonestly such as plagiarism or collusion may result in the nonaward of my degree.” Date: 23rd April 2014 Name: Michael Dördelmann (Reg.No.: 201351504) Signature: Name: Juan Rosenzweig (Reg.No.:) Signature: Name: Pulkit Vijayvargiya (Reg.No.:) Signature:
  • 3. DM981 – Management of Innovation Team Baldwin II III Table of Contents II Statement of Academic Honesty ..................................................................I III Table of Contents..........................................................................................II IV Abstract ........................................................................................................III V List of Figures and List of Tables...............................................................III 1 Introduction...................................................................................................1 2 Business Analysis ........................................................................................2 2.1 Company Profile...................................................................................2 2.2 Business Environment and SWOT-Analysis.........................................4 2.3 Companies Valures and Strategy Explained ........................................5 2.3 Practise Round Content........................................................................6 3 Rounds Decisions, Developments and Strategies.....................................7 3.1 Decisions, Operations and Strategies, Rounds 1 - 8............................7 3.3 Ending Results Analysis .....................................................................14 4 Discussion and Possible Improvements ..................................................16 5 Conclusion ..................................................................................................17 VI References.................................................................................................. VII
  • 4. DM981 – Management of Innovation Team Baldwin III IV Abstract Being one essential part of innovation management, business processes, market analysis, decision making and financial investments have to be explored and trained. In order to reach this, the Capsim business simulation has been established, covering decisions in R&D, Finance, Production, marketing, HR and Quality Management to enable deeper understanding for the students. In the course of this report, the simulation itself, the purpose and the team constellation will be explained. After that strategy, decisions made and outcome will be analysed critically. The report will end in a discussion and conclusion. Note: Toe total length of this report is in the range of 15 pages as stated in the report constraints. Due to design and flow reasons, some pages are split up so the page count reaches 17. V List of Figures and List of Tables List of Figures Fig. 1: Marketing Decisions Practice Round.............................................................................. 6 Fig. 2: Marketing Decisions Ro1................................................................................................ 7 Fig. 3: Production Investment – Ro2 ......................................................................................... 8 Fig. 4: Andrews Investment in Low-Cost ................................................................................... 9 Fig. 5: TQM Investments and Impacts Ro4 ............................................................................. 10 Fig. 6: Investments in Production Ro4..................................................................................... 10 Fig. 7: Extra Analysis of the Low-Cost Sector ......................................................................... 11 Fig. 8: Production Decisions Ro5 ............................................................................................ 11 Fig. 9: TQM impacts in comparison Ro6 ................................................................................. 12 Fig. 10: Liabilities Ro6................................................................................................................ 12 Fig. 11: Liabilities Ro7 & Ro8 .................................................................................................... 13 Fig. 12: Performance Measurements after Round 8 ................................................................. 14 Fig. 13: Stock Price Development Ro0 – Ro8 and Rating Ro8................................................. 14 Fig. 14: Product Profits and Profit History.................................................................................. 15 List of Tables Fig. 1: Product Overview – Team Baldwin................................................................................. 2 Fig. 2: SWOT Analysis............................................................................................................... 4
  • 5. DM981 – Management of Innovation Team Baldwin IV 1 Introduction We are living in an experience economy. Innovation should be experienced. It should be seen, it should be heard, it should be smelled, it should be felt and it should be tasted before implementation. Innovation should be learned in all senses. Of course, innovation theory is important: it should be heard. But practitioners should be able to see it working in real life, to experience it. They should know how it tastes like to create a new product and launch it into the market, they should feel the pain that is involved in failure, but also how it feels like to get better afterwards. Innovation is using all our senses. And that’s when simulation came in to picture. A simulation is a virtual medium through which various types of skills can be acquired (Gopinath and Sawyer, 1999). The word simulation implies an imitation of a real-life process, usually via a computer or other technological device, in order to provide a lifelike experience. This has proven to be a very reliable and successful method of training in thousands of industries worldwide (Bill, 1997). They can be used both to allow specializa- tion in a certain area, and to educate individuals in the workings of the sectors as a whole, making training simulations incredibly versatile. It is important to emphasize that training simulations are not just games (Klabbers, 1999); their aim is to educate and inform in an exciting and memorable way, rather than purely to entertain. Since training simulations are available based on such a wide range of different industries, and with thousands of different aims and objectives, it is difficult to outline a specific skill-set that will be improved by taking part in a training simulation. However, skills that every good training simulation should build on include:  Business awareness  Time management and organization  Team coordination  Problem solving  Real like Business experience In order to enable in-depth training in these areas, the Capsim simulation was imple- mented in the Class DM981 – Management of Innovation, to make the students aware of all impacts connected to their business decisions related to innovation. The Capsim Business simulation is the global leader in business simulation and was designed to tech in every learning environment (Capsim, 2014). Created in 1985, the company created several successful business simulation models and has grown over the years, providing comprehensive, expert live support, integrating case studies and business models from all over the world and a growing global user portfolio (Ibid.).
  • 6. DM981 – Management of Innovation Team Baldwin V 2 Business Analysis 2.1 Company Profile Baldwin, is a Sensor manufacturing company with strong foundation of ethics, manufac- turing process control, and customer service. High sensor volume delivery has been instrumental in the continued growth and success of Baldwin as a company in the sensor industry. We are a high volume manufacturer of high quality sensors at an affordable price. Increasing demand for our sensors in the world market has caused steady growth since the founding of the company. We initially targeted, and then established, our sensors as the sensors of choice in the traditional and low end sensor markets. In this competitive industry we always stay ahead of others by meeting the requirements and expectations of customers with continuous improvement of our products, services, and business processes. Our mission Statement is: “Be the sensor company of choice by providing high quality, easy to use, low cost sensors that meet the customer requirements.” Our Products: Baldwin sensors are developed and manufactured on a customer-specific basis at different production lines. We manufacture sensors for a wide customer base, including different range of customer segments named as traditional, low end, high end, performance and size across the entire globe. We provide five different types of sensors targeting the diverse requirements of each customer segment, which attribute highest importance to quality and integrity on the basis of strategic alignment and production requirements. Our different product verities are: Baldwin Products Target Customer Segment Baker Traditional Bead Low End Bid High End Bold Performance Buddy Size Table 1 – Product Overview – Team Baldwin Our Success story: We are the market leaders in the sensor industry with maximum overall market share. Thanks to our state-of-the-art production facilities; we provide high flexibility and scalability to our customers. Our customers can plan flexible lot sizes to suit their own requirements. At Baldwin, tradition and innovation go hand-in-hand, we are continuously investing in R&D for better results. The production requirements and strategic alignment of our customers attribute great importance to target-oriented working, absolute reliability and integrity. Every day, we successfully meet this challenge head-on. We establish and maintain long-term partnerships with our customers, whose develop- ment and production periods generally last many years. This is precisely why our customers chose Baldwin as their partner: because our competence, size and financial stability make us the ideal companion on the long road ahead.
  • 7. DM981 – Management of Innovation Team Baldwin VI Executive Board - Baldwin: Michael Dördelmann - Chief Executive Officer Michael was born in Germany in 1989. He made his B.Eng in Germany and gained several years of work experience in the Automotive Engineering Sector and in the Consulting Sector. His core competencies are organisational and analytical thinking. Core Responsibilities: Michael is the driving force behind the company; he is making things happen, by putting together the resources to support the company and taking the product to the market place. As the Chief Executive Officer of Baldwin, Michael is in charge of Strategic Business Development, Investments, as well as Marketing and Sales. Professional Career Juan Rosenzweig - Chief Financial Officer Juan was born in Mexico City in 1987. He studied Civil engineering in Vienna’s University of Technology and managed throughout his carrier to develop a few business ideas. Among which is SOLACERO, a home products manufacturing company. His international background has given him access to international managerial positions as well as a good understanding on the importance and integration of diversity in working environments. Core Responsibilities: As Chief Financial Officer of Baldwin, Juan is responsible for Finance, Purchasing, IT, Investor Relations, Human Resources, Compliance and Risk Management. Professional Career: 2008 Project manager at Metalnica 20010 Co–founder and Vice president Solacero 2008 Project Manager Daimler 2010 Senior Consultant - MD Corp. 2012 Head of Department – Strategy - MD Corp.
  • 8. DM981 – Management of Innovation Team Baldwin VII Pulkit Vijayvargiya - Chief Operating Officer Pulkit was born in India in 1988. He studied Mechanical Engineering from 2007 through 2011 at UEC-Ujjain. Over the course of his career, which spans around 3 years since his graduation, Pulkit assumed responsibility for the initial set-up, further development, growth and integration of technology companies in a variety of executive management positions or has assisted businesses as a manage- ment consulting engineer. Core Responsibilities: Pulkit makes sure that company operations flow smoothly and economically. He is responsible for making certain that necessary work is done properly and on time. As the Chief Operating Officer of Baldwin, Pulkit is in charge of Research & Development, operations and production and is the creative head of the company. Professional Career: 2008 Co–founder and Vice president at Sunflowers 2011 Process Design engineer at Denso-Toyota 2012 Project management engineer at Denso, Japan 2.2 Business Environment and SWOT Analysis The initial business environment developed after the government’s decision to split a monopoly sensors manufacturer into 6 identical companies with the same market positions. Situation that leads to equally divided competition with well understood market conditions. Such conditions required urgent managerial decisions in marketing, produc- tion, R&D and finance in order to react to the new implied competition. Strengths Weaknesses - Understanding abilities of 3 engineers - Good managerial capabilities - Competitiveness of team members - Teamwork - Lack of understanding on financial aspects - Language and cultural barriers Opportunities Threats - Learn from mistakes on practice rounds - Develop financial understanding - Other teams advantage on financial aspects - Strong competition Table 2 – SWOT Analysis
  • 9. DM981 – Management of Innovation Team Baldwin VIII In order to understand and make the best possible decisions along the simulation, focus turned into the internal analysis and the competitive environment analysis required recognizing our team advantages and the ones of our competitors. To accomplish this task, a SWOT analysis allowed us to asses our capabilities along with the required market needs in order to approach our competitive environment (Cheverton, 2004) as shown in Table 2. Furthermore a more detailed description of each GIM student was discussed in order to deeply understand personal advantages and disadvantages that each member could bring to their respective teams. Another very important factor that was decisive on the understanding of the initial aspects as well as the market environment, was the situation analysis required in the simulation. After the calculation of some of the values required such as, margin analysis, capacity analysis and industrial demand analysis a clear perception of the team lead to decide that in every round, similar analysis would be concluded through excel tables in order to analyse competitors, forecasts and our position after every year, tools that proved to be helpful in the decision making process through the whole simulation. Subsequently discussions arose on the possibilities and difficulties that the team would probably encounter through the whole process, one of the most debated was the possibility of encountering a crisis in some on the advanced rounds and our need to create enough flexibility and resilience in order to counteract such events, as well as the possible causes. 2.3 Companies Values and Strategy Explained On the early stages of the simulation, the team established a strong set of values to which it would be worked; team members discussed what they personally found important for the development of such a task. Among the most important values discussed were the fair working environment and a clear and fair task division among the team members. Punctuality and responsibility where also highlighted as very important for all team members, and the structure of the project was based on strong and good planned teamwork. Focus turned on a deep understanding on the early stages, through long team meetings in the beginning in order to clarify every important aspect and to explain significant doubts from and to every team mate, further on, when the structure and order of the system was relatively clear, the decision to make targeted mistakes in the practice round, which will be explained in the next section, was made. Furthermore and after the consequences observed in the practice round a defined strategy for the real simulation was developed. After all the accumulated knowledge with continuous learning and deep understanding on the consequences of our planned mistakes the decision was made to develop a strategy that would focus on the long term, which would lead to high investment with smaller profits in the initial stages which would then turn into highly competitive products in the later years. The main aspects targeted for such an strategy were to maximize the market share and simultaneously the growth. Furthermore and due to the complexity and unsustainabil-
  • 10. DM981 – Management of Innovation Team Baldwin IX ity of a diversified strategy in every sector, the team took the decision to focus on the low cost product market while not losing flexibility in other markets. This approach was taken in order to understand the strategies that other teams would approach after the first round and having the ability to react in consequence. After our general strategy was clear, the team was ready to act internally for the decisions and react externally to our competitors. Detailed strategies and how the flexibility in our team decisions made a difference will be explained in detail in following sections. 2.4 Practise Rounds Content The approach taken to understand and organize the whole Capsim simulation was based on Concurrent Engineering, where a special focus was given to the initial stages of the project considering all possible aspects to generate a greater understanding for the beginning and avoiding problems that could have been avoided in the future (Clausing, 1994). In order to apply these concepts the team decided to meet very frequently and for longer periods until the simulation aspects were fully understood, knowing that if in the beginning the concepts were clear complications and future decision would get easier in every round. Consequently, after the complete business environment, SWOT and Strategy were understood a clearer perspective to approach the practice rounds was defined. This approach intended to create well denoted mistakes to understand the consequences of these. The decisions focused on taking the best approaches possible in the R&D depart- ment, while analysing the effects of over and under forecasting in 2 of the segments which lead to over and under production respectively as shown in Figure 1. Another approach taken was the lack of financial aid that would cause an automatic emergency loan and mistrust from the market that would give us the possibility to try to recover in the next practice rounds. Figure 1 – Marketing Decisions Practice Round The mistakes created in the practice round gave interesting hints and underlined the importance of forecasting in the whole process which got especial attention throughout the game, another important consequence of the practice rounds besides introducing the team formally to the simulation was the possibility to recover the company in the next rounds due to the lack of financial aid in the first round, which turned to be the approach where the most was learned, and that that would be our back up plan in case we would encounter any trouble in the real simulation.
  • 11. DM981 – Management of Innovation Team Baldwin X 3 Rounds Decisions, Developments and Strategies 3.1 Decisions, Operations and Strategies – Rounds 1 - 8 Round 1 From beginning of round 1 starting, the strategic focus was set on maximum market share and growth. Therefore investments in “Marketing” gain biggest investments in the first rounds, aiming on a maxed out promotion as fast as possible and a reduction to 1400$ Investment starting in Ro4 ongoing to stay at 100%. This enables the maximum advan- tages in terms of promotion with a relatively low investment for the long run. The sales budgets is set to 3000$ to enable big accessibility growth an enable the high market share strategy. These high marketing investments made some product low in the profitability for the first rounds, but very profitable for the long term. Figure 2 shows the Marketing decisions in round 1. Figure 2 – Marketing Decisions Ro1 Due to the concentration on the low-cost product, but also on keeping a diverse portfolio as long as it brings profit to keep market shares, the “R&D” decisions simply aim on the optimum spots for the products on the perceptual map (except for the low-cost). The importance of product attributes show, that the movement to the perfect spot in every round is not always the best option. For the low cost and the traditional product, the R&D investments were planned in combination with retaining the perfect age. Additionally the monthly movement of the perfect sport has been calculated into the perceptual map, so R&D investments don’t aim on the perfect spot stated in the annual reports but slightly above these performances. In terms of “Production” decisions investments are made in the low cost and the tradi- tional sector. Since the price is the most important factor, and the low cost market is only profitable in really big amounts of sales, the strategy is to max out the automation level for low cost as fast as possible and to rise the low cost capacity every round. The production is modified to hit exactly the forecasted sales, which caused high risk in terms of stocking out or calculating from the financial point of view. Further improvements will be made in the following rounds. The “Finances” section is the enabler for growth. The team focussed on long term debts, since current debts had to be repaid in the next round immediately. Starting with 10,000$ in long term debts the company’s investments is financed. Stock issues are not consid- ered as positive, since the stock price was stated as a performance measurement.
  • 12. DM981 – Management of Innovation Team Baldwin XI Round 2 The risky forecasts and the high investments caused a small minus in profits in the first round, which was expected by the team. Nevertheless, the high rise in market share to 21.44% showed first success for future plans. Also market leadership was gained in traditional, low-cost and performance market. This rounds R&D decisions stay the same as last round, investing in R&D for all products but low-cost, to fit to the perfect spot movement in consideration of the products age. Also in Marketing the decisions for promotion budget and sales budget for low-cost and traditional stay the same. Prices for Bid, Bold and Buddy were set to the maximum, since price is a non-relevant attribute for these sectors. Bead and Baker still remain in a middle priced area. The forecast is chosen very risk and close to the bench mark prediction due to expected advantages of high promotion and sales investments. In future rounds, these decisions were better understood and adopted. In round 2 the Production investments starts to concentrate on the low-cost product only. Figure 3 shows the big investments in low-cost capacity and automation (red circle) to enable higher contribution margins and market share for future rounds. Other sectors had no need for investment due to small utilisation rates and negative effects of automation level on R&D times and contribution margins close to 30% of the products. Figure 3 – Production Investment – Ro2 The new opened HR module is used to invest 1000$ in recruiting and pay for 50 training hours per year. On the long run, these investments will be raised to enable higher productivity. Financing decisions are narrowed down to issuing 7000$ in long term debt to finance the investments and closing with a positive cash position with small safety. The stock price is forecasted to grow again. A/R and A/P Lag days (both 30) and stock issue remain untouched in all rounds from now on.
  • 13. DM981 – Management of Innovation Team Baldwin XII Round 3 Again the risky forecast and the high investments caused problems in the finance and triggered the emergency loan, but also positive profits again. The market share rose to 22.49% and the companies investments started to impact on performance attributes. The annual report revealed the loss of the buddy product showing the difficulties of a complete diverse product portfolio. To enable further profit growth in the markets the company concentrates on and the high competition in this market sector, the Size-product Buddy will be dropped and only remained inventory will be sold. Performance-product Bold will be kept due to the company’s good market position in this sector and lower competition. Further on, the main competition is seen in Andrews due to their starting investments in the low-cost sector. This is shown in Figure 4. Additionally Erie was set on the “watch list” for the future due to their product portfolio. Therefore, costs are lowered in a big step to 17.00 to catch up in market share in the low cost sector and to cause higher stock at competing companies. The strategy for the long term is to gain complete market domi- nance in this sector and “scare” competitors to invest here. This would enable maximum prices and high demands due to high marked demand and no production from competi- tors. Figure 4 - Andrews Investment in Low-Cost The investments in R&D and Marketing are set as in the last rounds. For promotion this round is expected to be the last round of 2000$ investment, being close to the max out point. The forecast is set lower and less risky than in last rounds. Decisions in Production are 10% overproduction to allow best possible market share and calculate with more security in financial decisions. Additionally investments the automation level of low cost will cause a max out in round 4 and further capacity investments will permit consistent growth for the future in this market. While the investments in HR are raised to 2000$, trainings hours stay the same. On the long run and with better profits of the company, these investments will grow. In the Financial decisions, the ending of the first bond package needs a long term debt issue of 15,000$ to remain in the financial save zone. This time the financial position is considered as more secure and a better result is expected due to forecast adoptions.
  • 14. DM981 – Management of Innovation Team Baldwin XIII Round 4 While the high issue of long term debts lowered the bond rating to CCC, this necessary step empowered company’s growth with excellent effects. Starting this round, the market share stays nearly unattached, profits raise and stock prices grow. While Chester and Digby are not seen as relevant competitors anymore, Andrews and Erie are doing quite well in performance. With the start of the TQM module this round and the maxing out of promotion budged, this round can be seen as one of the most important rounds of the company. First decision that allowed total dominance in the markets was the huge investments in TQM from the very beginning to gain the maximum outcomes from these investments for as many rounds as possible. The earlier all improvements hit in, the more time the company can profit from them. That’s why a 2,000$ investment over 2 rounds in all factors is considered as best step. The tem expects to be able to repay debts after 2 more rounds of major investments, after maxing out in TQM and adopting the production Investments. Figure 5 shows the TQM investments and the possible impacts on performance. Figure 5 – TQM Investments and Impacts Ro4 While R&D and Marketing strategy and decisions stay the same as in past rounds, second break through investments are the Production investments. Beginning this round, the Performance-product was adopted to retain profitability and major investments in low- cost shall cause market dominance and low costs for the products but retain high contribution margin. Figure 6 shows the Investments in production of Round 4. Figure 6 – Investments in Production Ro4 Decisions in HR stay the same while big investments are supported by the Financing decisions issuing 15,000$ in long term debt again. Beginning this round, the company starts to pay dividends to cause positive effects on the stock price.
  • 15. DM981 – Management of Innovation Team Baldwin XIV Round 5 The big investments of round 4 started to pay off and the company gained even more market share, higher profits and stock price. The Capstone courier provided an overview of the TQM advantage over all other companies and confirmed the company’s course in this topic. Furthermore, the team did an additional analysis on the low-cost product sector to check the investments of competitors and the 100% secure sales due to market demand and possible competitor maximum productions (neglecting possible stock amounts). Figure 7 provides an overview about the analysis and the results. Figure 7 – Extra Analysis of the Low-Cost Sector Due to the fact the secure sales were really low and competitors started investing higher amounts into the market, the strategy for low-cost products was overthought. In the future, the company aimed on minimal cost, maximal market share to cause total dominance and high stocks on the competitor’s site. This round the only investments on low-cost R&D are made, to remain in the cycle and minimise the effect on the ideal age position of the product. The performance point is set to the ideal position of round 7 to gain maximum positive impact in rounds 6 to 8. While Marketing decisions doesn’t change and the forecast strategy stays the same, big investments are made in the Production site again. Capacity of Low-cost and Perform- ance are raised for 800 and 400 costing 43,400$. Figure 8 provides an overview of these investments. Figure 8 – Production Decisions Ro5 In HR the investment in recruiting is risen to 4,000$ and training hours are set to 60 to enable faster productivity growth for future rounds. The TQM decisions stay the same for this round, maxing out in all attributes to gain the maximum performance. To finance this last round of big investments, long term debts of 30,000$ have to be borrowed by the bank to remain in the save zone. Round 4: Andrews Baldwin Digby Erie Ferris Summary Secure Sales Low Cost Capacity 2200 1600 1400 800 6000 Round Demand Growth Rate Max. Capacity 4400 3200 2800 1600 12000 0 8960 11,70% 1 10008 11,70% 2 11179 11,70% 3 12487 11,70% Round 5: Andrews Baldwin Digby Erie Ferris Summary Secure Sales 4 13948 11,70% Low Cost Capacity 2400 1800 1500 1550 7250 5 15580 11,70% Max. Capacity (2x) 4800 3600 3000 3100 14500 6 17403 11,70% Cap. Investment -200 0 -200 -100 -750 -1250 7 19439 11,70% 8 21714 Low End - Bead 1948 1080
  • 16. DM981 – Management of Innovation Team Baldwin XV Round 6 While the market share and the profit experienced a very small drop, the stock price grew again for over 20$ per share. Within this stage, the company stabilises its leading position furthermore and empowers the secure leadership position for the future rounds. After 2 rounds of TQM investments the effects maxed out and enabled big advantages to competitors. Figure 9 provides an overview of the TQM impacts of the company (red circle) and its competitors. Figure 9 – TQM impacts in comparison Ro6 In addition to that, the Performance-product became profitable and caused 8,800$ profit and leadership in market share in this sector. Starting this round the TQM investments will be reduced to 1$ per attribute to stay at the current maxed out position. The saving in TQM investment and enlarged performance makes further investments in production capabilities possible and repaying debt at the same time. The decisions in R&D and in Marketing stay the same as in the previous rounds. While the R&D of the Low-Cost product will hit in this round, other R&D projects can be set to the perfect spot with reduced R&D time. This allows further market share and strong positioning compared to competitors in all sectors. The forecasting stays the same: low risk forecast and 10-20% overproduction to enable maximum market share and additional profits. In the Production section the capacity for the Low-Cost product and the Performance product are expanded again. The overall investment of 27,400$ shows a reduction o 40% compared to the last 2 rounds to provide more funds on debt repayment and paying dividends. Due to the current possibilities given bigger investments in production are not necessary. Instead of raising the units sold, small adoptions in the unit’s price will bring higher profits with the same capabilities. With growing profits and lower needed investments in production and TQM the liabilities begin to change. Starting this round, the company is repaying long term depts. Issued during the beginning rounds. The earlier big amounts needed to grow are now rather small amounts, that can be paid back without further problems and negative effects on performance. Figure10 shows the compa- nies liabilities beginning of round 6. Addition- ally, the divided paid to stockholders is raised to 1.50$ per share. HR investments are raised to 5000$ on recruitment and 60 training hours. Figure 10 – Liabilities Ro6
  • 17. DM981 – Management of Innovation Team Baldwin XVI Round 7 and 8 By reason of the good results of the last rounds decisions the company is stable in its current leading position. The last two rounds the team focussed on repaying long term debts and paying higher dividends to raise rating and stock price. The investments in the Production are lowered and concentrated on the Low-Cost product only. Due to the market growth and the good position of the company, the price can be raised, the production capabilities used for 100% and the margin still hold above 57%. In both rounds combined the Low-Cost production capacity are raised for 500 ending with a total capacity of 5000 after round 8. R&D, Marketing and HR decisions and strategies stay the same in these rounds. R&D still profits from shorter development times and aims on the perfect spots by early market entry, the Marketing and forecast strategies remain at 1400$ promotion, 3000$ sales and secure forecasting. In HR the payment of 5000$ on recruiting and 60 Training hours stays unchanged to allow further productivity growth. Also the TQM investments stay untouched at 1$ per attribute. The Financing activities of the last two rounds minimize the overall debt of the company essentially and elevated the profits made even more. Moreover, the ratings of the companies remaining debts are raised and the higher dividends paid (Ro7: 4.00$, Ro8: 5.50$) let the market price per share grow further more. Figure 11 provides an overview of the last rounds liabilities. Figure 11 – Liabilities Ro7 & Ro8 Round 7 Round 8
  • 18. DM981 – Management of Innovation Team Baldwin XVII 3.2 Ending Results Analysis After all eight rounds played, the company achievements and performance measurements compared with its competitors are analysed. Figure 12 provides an overview of cumulative profits, market share, average ROA and final stock price stock price in comparison of all competitors. The company is benchmark in all four categories, having big advantages in profits, and stock price and small advantages in market share and ROA average. Figure 12 – Performance Measurements after Round 8 Ending round 8 the company additionally enabled profits of over 53 million $ and closing cash big enough to repay all outstanding debts. Since round 5 the company’s Final Score Relative is 100.0 in overall, meaning that in all performance indicators measured, Baldwin was benchmark and never lost its leadership position in the last 4 rounds played. Also, the stock price development of the last 5 rounds shows the advantage compared to its competitors (see Figure 13). Figure 13 – Stock Price Development Ro0 – Ro8 and Rating Ro8 a) Cumulative Profits b) Market Share, End of Ro8 c) ROA – Average Ro1-8 d) Stock Price, End of Ro8 (in million)
  • 19. DM981 – Management of Innovation Team Baldwin XVIII Figure 14 – Product Profits and Profit History Taking a closer look on the profits and the profits history (see Figure 14), the investments made in the Low-Cost and Performance sector, which was production red numbers in round 2 and 3) are paying off in the end. Additionally the repaid debt and higher financial ratings lower the interest costs and raise the profits further more. But despite the fact, the company’s success this round, several possible improvements could have been imple- mented, either for the range of these eight rounds or for the case, the game would continue. This will be discussed in the next chapter.
  • 20. DM981 – Management of Innovation Team Baldwin XIX 4 Discussion and Possible Improvements In the course of this simulation, the team discovered several investments that could have been implemented to enable even higher profits and further company growth. Traditional Sector Investments in the traditional sector automation(level 6-7) and capacity (up to 3000) starting at the point of the TQM module introduction would have caused higher market share due to lower price, no product performance lacks due to TQM and impacts on R&D cycle time and would have risen the contribution margin essentially. When this fact was detected in round 7, the team decided to concentrate on debt repayments and stock price boosts due to the close end of the simulation. Low-Cost Sector In order to gain every point of the customer survey, the team stayed to the MBTF level of 14000 in the Low-Cost sector. Compared to possible improvements in profit and the fact of capacity lacks in the last round, this factor could have been lowered to 12000-125000 without major effects on the market share itself. High End Sector Due to high earnings starting in round 4 the team could have introduced a new product to the high end market, causing higher profits, market share and further growth. Due to high needed investments and the close end of the complete simulation, the team decided to stay with the current products and maximise their outcome. In case the simulation would go on for several more rounds, this decision would have been changed. Forecasting The forecasting decisions in the first 3 rounds were too opportunistic and the missing overproduction caused either stock outs or not calculated missing profits due to stock. This caused the emergency loan once and negative profits for the first two rounds. With right forecasting and calculations, the company’s growth would have been made possible even with higher security.
  • 21. DM981 – Management of Innovation Team Baldwin XX 5 Conclusion and Reflection The Capsim Business Simulation enabled awareness over a broad range of decisions that have to be considered in management of innovations and in processes implementing innovations in business environment. After the analysis of the team capabilities and market opportunities the team successfully implemented a new product strategy and made decisions in all departments with excellent results. The final results show the Baldwin Company being on top of all competitors in all relevant key performance indica- tors measured. The major time spent in the beginning of the project to empower real program and market understanding and to analyse all possible program capabilities gave essential advantages. This management style could be compared to concepts like concurrent engineering, where more time is spent in the planning and development phase to reduce risk for later project stages. Furthermore the program understanding was accompanied by interdisciplinary learning processes of all team members as for example in financial management or strategic technology management. The project clearly showed that all areas of concern have to be mastered to bring innovation to success. A lack of competencies in one single area can cause overall fail and negative profits.
  • 22. DM981 – Management of Innovation Team Baldwin XXI VI References Capsim (2014). Capsim Homepage – About, [Online] Available at: http://www.capsim.com/about/ [Accessed: 14.04.2014] Cheverton, P., 2004. Key marketing skills. 2nd ed. ed. London ; Sterling, VA : Kogan Page . Clausing, D., 1994. Total quality development [internet resource] : a step-by-step guide to world-class concurrent engineering. New York : ASME Press . Gopinath, C. and Sawyer, J. (1999). Exploring the Learning from an Enterprise Simulation, Journal of Management Development, Sage Publishing Ellet, Bill (1997). TMR Shortlist of Business Simulations, Training Media Review Publications Klabbers, Jan H. G. (1999). Three Easy Pieces: A Taxonomy of Gaming. In: The International Simulation & Gaming Research Yearbook: Simulations and Games for Strategy and Policy Planning, Saxon Graphics Ldt.