In this two-part assignment, students will examine the capabilities your company needs to develop to deliver its strategy. An important aspect here is to determine the measures that you want to use to determine the success of your efforts. We assume that your team is about to have a meeting to set long range priorities around performance measures. This assignment is pre-work for that meeting.
Part One: Competencies and Competitive Advantage
At this point you have a vision, and you have a strategic direction. For example, you might be saying, “We plan to be a high technology company. We will concentrate our resources upon the High End, Performance, and Size products and the regional markets that make up these segments. We will compete based upon differentiation to respond to the specific market needs in these regional locations (a multi-domestic strategy).” Or you might have decided to be in every segment and compete on price, or any of a dozen other combinations of vision and strategy.
But what capabilities do you need to develop to execute your strategy? For example, it is one thing to say, “We will compete on price” (using an international or global strategy), and another to build a company that can effectively compete on price and still produce a solid return for stakeholders.
Let’s relate two popular ideas, “Core Competence” and “Competitive Advantage”, to your situation. You could develop competencies in awareness, accessibility, product redesign, product invention, automation, plant utilization, human resources, cash flow management, and forecasting. All of these competencies take several years to develop.
You would use these competencies to develop competitive advantages. For example, competencies in automation and human resources could lead to a competitive advantage in cost leadership. Competencies in awareness, accessibility, and design could lead to a competitive advantage built upon differentiation.
With this as background, present a 1-page written argument to turn in to the instructor and to present to your teammates that addresses the following:
1) What are the top three competencies you believe necessary to execute your vision and strategy in the marketplace?
2) What decisions do you need to make to develop these competencies?
3) How will they produce competitive advantage?
Part Two: Performance Measures
What performance measures should be used by your stakeholders to assess your company’s performance? What is their relative importance to each other?
The simulation offers 8 performance measures:
Cumulative Profit
Ending Market Share
Average ROS (return on sale)
Average Asset Turnover
Average ROA (return on asset)
Average ROE (return on equity)
Ending Stock Price
Ending Market Capitalization
You will find a brief explanation for each measure on the Capsim website under “Homework”, “Success Measures”, “Criteria Definition” links. Also read the Overview. Prioritize these measures by applying a weight between 0% and 100%. (I don’t recommend that you choose just one success measure but you can if you want!) I recommend about four but you can have from one to eight. The percentages across all measures must add up to 100%. For example, you might set Cumulative Profit to 30%, Market share to 20%, ROS to 10%, ROE to 10%, Stock price to 10%, and Market Capitalization to 20%. Given your measures, the simulation will score all teams to develop a winner based on each team’s criteria.
The Capsim report “Final Score Relative” tells you how you are doing to your success measures. The report uses a three-step process:
1. The system determines a raw score for each category by dividing the team’s score (“Team's Value”) by the highest scoring team in that category (“Highest Value”). For example, if the “Team’s Value” for Profit is $5,000,000 and the “Highest Value” is $10,000,000, the team receives a raw score of .5 ($5,000,000 ÷ $10,000,000 = 0.5).
2. Next, the system multiplies the raw score by the success measure entry. Continuing with the previous example, if the team’s success measure (“Team Weighting”) is 12.0, multiplying 12 by 0.5 will derive a “Score” of 6.
3. The scores for each category are added, and the resulting sum appears in the Total row.
Write a 1-page explanation for your choices for each performance measure. Be sure to relate your explanation to the concepts introduced in the text. For example:
1. Is this measure appropriate for evaluating your strategy? For example, if you are in every regional segment, market share is appropriate. If you are in only two regional segments, it is not appropriate, even if you have highest overall market share at the moment.
2. Why did you prioritize it with the value you gave it? In particular, if you think it is an appropriate measure, why? Likewise, if you think it is marginally appropriate, why?