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Answers from an expert to get you started on the right path
Are you looking to get ahead on the Capsim Foundation Challenge? Do you want to win at Capsim?
Hi, I am Dr. Larry Chasteen, a clinical professor and member of the Organizations, Strategy and International Management Area faculty in the Naveen Jindal School of Management at UT Dallas. During my experience as a professor, I have realized that the best way to teach something is to make it interactive and practical. In my pursuit to find the perfect curriculum, I came across Capsim,a business simulation that allows students to play the roles of the management team of a multi-million- dollar company in a competitive marketplace. Capsim has four or five different simulations. I use Foundation.
Mentoring students in this simulation has been a rewarding experience, and some very successful stories have inspired us to continue working beyond the classroom. In this article, based on all my years and experience working with Capsim, I talk about the impact of the simulation and give you expert advice on six essential decisions to make in the game.
What does Capsim teach you?
I started using the Capsim Foundation Challenge in my classes because it is one of the most popular business simulations in the world, with more than 900 universities participating. It is a key activity of Strategic Management (BPS 4305), the course in which you get to run a company. You get to practice making executive decisions regarding accounting, finance, research, design, and more. Many activities mimic real-life situations and revolve around designing products, pricing them, and finding the perfect marketing strategy to sell them.
At first, when you approach the simulation, everything looks a bit overwhelming because of the number of variables. I encourage you to take on this hurdle, and soon, you will understand how it all works. My piece of advice is not to give up; look to your instructor for help and work with all the materials you can find online. Even though there are lots of things to learn, depending on your learning style, you can find guides, presentations about making decisions, and videos made by university professors and former Capsim students.
Indeed, the best way to master Capsim is to jump in and try it. I recommend reading the guides as you make your way through different decision sets. In my class, students start with the individual practice rounds until they feel confident about the game. The participants have to familiarize themselves with all the rules and tasks before they can pick partners to form teams. I approach the simulation with teams because, in today’s complex business environment, you need the expertise from many points of view to accomplish tasks the best way possible.
The goal of Capsim is to help students relate to what happens in the real world. OneThe secret for winning lies in looking at your competition to see what they are doing, and then adapting and strategizing to do things better and make better decisions— just like in the actual competitive marketplace. There is no one set of “winning decisions,” but you can improve by practicing different strategies.
First, you play eight rounds with your team. Each round represents one year of sales. You try different strategies making decisions, and all your points count toward the grade. Then, I base the class ranking on profits and determine a winning team.
Now, let’s focus on six key aspects I believe will positively impact your outcome in the Capsim Foundation Challenge simulation.
What is TQM in Capsim, and how do you use it?
Total Quality Management (TQM) is an option in the game; it is a way to distinguish your products and make them better. It costs money to use this option, but it could make your product more attractive, reduce the cost of materials, lower the cost of labor, give you faster Research and Development (R&D) upgrades, add “green initiatives” and sustainable options. All of these will increase the demand for your products
Expert Tip: Using this option could potentially increase your total revenue in the long run. Make sure you set a budget for this option, so you don’t overspend
What to do with excess cash
You want to make sure you use cash; remember you are a business, not a bank. Your objective is to grow your company.
On one side, you start with one product; it could be a high-tech or low-tech product. You can invest the cash into developing other products — because you can have up to five and you can optimize with TQM
On the other side, if you already have enough products, you can pay dividends to the shareholders or repurchase your stock. Just like in the real world, your company gains value by showing revenue.
How to increase leverage in Capsim
Leverage is the ratio of equity to debt, and if you look at financial principles, you want to have a balance when it comes to these variables. Depending on the situation, you can take out or pay back loans to increase or decrease your debt, or you can sell or buy back stock to increase or decrease your equity.
How to increase customer accessibility
If you spend money on marketing and sales, you will increase customer accessibility. However, you do not want to spend a lot of money on this because it could have adverse effects.
Expert tip: My go-to advice is to evaluate the competition and match their spending, allot no more than $1,000 per round.
How to increase the stock price
To keep your business profitable, you want high contribution margins. If you are sitting on cash, try to pay dividends to the shareholders. But make sure you only pay dividends after you have had earnings; dividends have to be less than the earnings-per-share.
How to decrease the chance of needing emergency loans
Use forecasting and manage your cash. Plan to have some left-over cash ($5M to- $8M) because you never know exactly how much you will sell. Set the R&D upgrades properly and plan for new products to come out within the next year, so the new product does not miss out on significant sales. Also note that for revisions, the product will sell with the old parameters until the update takes place —so pricing can be tricky.
There are many other aspects to take into consideration. I hope that this guide helps you clear up some things and that you can begin the simulation on a positive track. If you are still wondering how to win at Capsim, enroll one of the Business Policy and Strategy courses here at the Jindal School, or leave a comment below.
