Discussion
Must be Zero Plagiarism… Read the attached questions and the documents.Must strictly follow the instructions and APA format attached
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StratSimManagement
The Strategic Management Simulation
Michael Deighan, Interpretive Simulations
Stuart W. James, Interpretive Simulations
Charlottesville, Virginia, USA
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Copyright Notice
This manual and the simulation described in it are copyrighted with all rights reserved by
Interpretive Software, Inc. Under the copyright laws, neither this manual nor the software may
be copied, in whole or in part, without written consent of the authors, except in the normal use
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The same proprietary and copyright notices must be affixed to any permitted copies as were
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not sold. Under the law, copying includes translating into another language or format.
Purchasing the simulation experience gives the owner the right to participate in a unique learning
event. Each student or participant must purchase the simulation to take part in the event or the
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Limited Warranty on Media and Manuals
In no event, will Interpretive Software, Inc. be liable for direct, indirect, special, incidental, or
consequential damages resulting from any defect in the software or its documentation, even if
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This simulation experience is sold, “as is,” and you, the purchaser, are assuming the entire risk as
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For more information about other products from Interpretive Software, please contact:
Interpretive Simulations
1421 Sachem Place, Suite 2
Charlottesville, VA 22901
Phone: (434) 979-0245
Fax: (434) 979-2454
Website: http://www.interpretive.com
Discover a Better Way to Learn. Active Learning through Business Simulations.
Copyright 19952019 Interpretive Software, Inc.
All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner
whatsoever without written permission of Interpretive Software, Inc. Cover image BigStock. Incident images, audio, and video
iStockPhoto, GettyImages, and BigStock. Graphic images used in manuals BigStock and iStockPhoto.
Interpretive Simulations: Real-World Business Simulations for Engaging Learning
iii
Contents
Introduction 1
StratSimManagement Quick Start Guide 3
StratSimManagement Manual 4
StratSimManagement Case 5
Industry Overview 6
Vehicle Attributes 6
Vehicle Classes 7
Consumer Segments 9
Consumer Purchase Process 10
Firm Decisions 11
Company Reports 19
Industry Reports and Tools 22
Next Steps 23
Summary of Decisions 24
Product Class Examples 25
Segment Descriptions 30
Managing for Success in StratSim 31
Fundamentals of Strategy 33
The Profit Equation 36
Monitoring Performance and Pro-Forma 44
Long-Term Planning in StratSim 45
Timelines 45
Operations Guide 53
Simulation Navigation 54
Results & Decisions 56
Decision Analysis 79
Market 84
Competition 93
Tools 100
Simulation 108
Appendix 109
Glossary 110
Index 112
Printed September 11, 2019
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Acknowledgements
We have always considered our customers to be the most important part of our product development
team, and we are fortunate that they put their time and effort into improving our products through their
feedback and experiences. We will continue to incorporate suggested improvements into up-coming
releases of this product, and welcome your comments and suggestions.
There are many people to thank for their assistance on this project and we would like to single out a few
who significantly contributed to the content of this product over the years. In particular, Interpretive
would like to thank Tom Kinnear from the University of Michigan, who provided a great deal of guidance
and feedback with regard to original content of the project and later joined us as coauthor. In addition,
the original B2B module design was derived in part from a customized project with Volkswagen, where
we collaborated with James Thorne of Market Focus and Doug Dean of Volkswagen.
The most recent release of the browser-based version of StratSim was a team effort over several years
and we especially would like to thank the development and support group at Interpretive: Clayton
Shumate, Patrick Neeley, Anne Louque, Caleb Sancken, Matt Travis, Tim Sams, Andrew Roy, and Holly
Miller.
Prior to this latest release, we have been fortunate to have many people provide feedback and advice to
help StratSim get to where it is today. At Interpretive, Erin Simpson, Tony Naidu, Payton James-Amberg,
Susan Christmas, Marjorie Adams, Gabriel Buddenbrock, Mary Deighan, Bill Luers, and Laura Simroth all
contributed their talents and experience along the way. Faculty users have been the source of countless
suggested improvements and StratSim is a significantly stronger product because of their thoughtful
insights. In particular, wed like to thank Paul Arsenault, Torsten Ringberg, Glenn Christensen, Christine
Moorman, Marian Moore, Ron Wilcox, Paul Farris, Jeff Lefebvre, Larry Feick, Marty Roth, Robert Dooley,
Marc Filion, Ujwal Kayande, Rick Leininger, Sam Certo, Sunil Gupta, Gerald Fryxell, and Juan Antonio
Fernandez.
The section on Market-Based Management in the manual has benefited from interactions with many
outstanding faculty colleagues at the Ross School of Business at the University of Michigan, and those
participating in executive programs at General Electric, Kodak, CIM, and many more organizations. We
especially want to recognize Gene Anderson, George Day, Chris Puto, Adrian Ryans, and Jim Taylor. This
section has also been formed from discussions with literally thousands of senior corporate executive
participating in executive education program over many years. We are grateful for the contributions they
all have made to the development of this material.
Finally, we would be remiss if we failed to thank all the students and executives who have experienced
StratSim in one form or another over the years. In particular, we appreciate the executives in programs at
Volkswagen, Michigan EP, and McKinsey & Company. Weve also been fortunate to have some extremely
competitive and insightful students put StratSim through the wringer. The students in the Michigan EMBA,
and Darden MBA and Executive programs are always extremely thorough in their analysis and some of
their questions have led to improvements introduced in this version.
We look forward to hearing your comments and suggestions on our latest release and best wishes for a
great experience with StratSimManagement.
Stu James
Mike Deighan
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Introduction
STRATSIMMANAGEMENT
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StratSimManagement is an integrated strategy simulation game
based on the automobile industry. Needless to say, much of the
complexity of the industry has been simplified to allow
participants to focus their time and energy on strategic issues.
However, we’ve retained as much realism as possible to make it
easier to quickly understand the overall environment.
StratSimManagement addresses the following issues:
Developing a business definition and implementing a profitable long-term business
strategy
Identifying market opportunities and creating product offerings to satisfy them
Analyzing competitors and understanding their strategic intent
Developing the corporate infrastructure necessary to sustain growth
Allocating scarce resources among products, functions, and other investment alternatives
Exploring international market and sourcing opportunities (optional module)
In the simulation, you will be making decisions as part of a
management team and competing directly against other teams.
For up to 10 simulated years, you will make decisions in product
research and development, vehicle pricing, advertising and
promotion, distribution, manufacturing and finance. In
addition, you may have to respond to issues raised by
“incidents” (mini-cases), and complete supplemental
assignments chosen by your instructor. By working together with
your team in each of these areas, you will learn much about
developing and executing a strategic plan.
You will need to understand your business in order to create a
plan and make good decisions. Take time to familiarize yourself
with the case before beginning the simulation. While working
through your decisions, you will find it helpful to refer to the
manual for information and management tips.
To get the most out of the StratSim experience, we recommend
the approach outlined on the following page.
You compete against
your peers in a StratSim
industry for up to 10
simulated years.
As you make your
decisions and evaluate
results, you will gain
experience with
strategic management.
StratSim gives you a
hands on experience
with strategy in a
dynamic setting.
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StratSimManagement Quick Start Guide
PERIOD DECISIONS
Marketing decisions
Distribution decisions
Manufacturing decisions
R&D decisions
Finance decisions
SIM ADVANCES
Check Schedule for times
Complete Decisions BEFORE Deadline
SIMULATION ENDS
Evaluate team performance
Review what you have learned
STARTUP DECISION
Access simulation from course website
Watch introductory video
Enter first period decisions
READ THE CASE
Industry background
Company starting situation
Your instructor may require additional assignments during the simulation.
Check the schedule and messages on your course website for details.
DECISION ANALYSIS
Tools
Timeline
Pro-forma
EVALUATE RESULTS
Company reports
Environment
Competitive reports
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StratSimManagement Manual
The remainder of this manual is divided into sections described below. Understanding and
success in StratSim will be greatly enhanced by reading this manual before you begin the
simulation. The sections listed below will answer most of the questions students typically have
during the simulation experience, and reading them has the added benefit of improving your
competitiveness. Finally, the operations guide and StratSim case are also available on-line in the
simulation software.
Section 1: StratSim Case presents the StratSim industry in a form similar to a business school
case. It also serves as an introduction to the situation when starting the simulation. Following the
case are examples of the various product classes and segment descriptions.
Section 2: Managing for Success provides a basic framework for how to create a strategy and
introduces several approaches to keeping your company on track during the simulation. The
section also provides a number of helpful hints on how to improve your performance.
Section 3: StratSim Operations Guide provides guidance on how to use StratSim, including a
detailed description of each menu option.
Appendix: This section contains several appendices that provide you with information on how
to export data to a spreadsheet, a glossary, and an index.
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StratSimManagement
Case
STRATSIMMANAGEMENT
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Congratulations on your recent appointment to manage one of the firms in the StratSim industry.
Though your primary objective will of course be to learn, you will also be setting specific goals
and objectives for your firm. Those may be to become the market leader, or perhaps to maximize
shareholder return, or possibly to generate the most net income over the course of the game.
Selecting objectives is up to your group and your instructor. However, you will find that the firms
who do best in StratSim are able to operate efficiently, successfully enter new markets while
defending their own position, and prudently manage their financial resources. This is far easier
to say than to achieve, but it is the challenge faced by all managers and executives.
Industry Overview
Firms competing in the StratSim world manufacture and sell cars and trucks. Manufacturers
sell to affiliated automobile dealers in four regions in the domestic market. The dealers in turn
sell cars and trucks to consumers. Firms in the industry start out manufacturing the same kinds
of vehicles, have the same number of dealers in each region, and identical sales. Each firm sold
1.4 million units in the most recent year. Car and truck demand depends on trends in consumer
preferences, changes in GDP and gas prices, as well as competitive dynamics. Based on projected
GDP growth, total vehicle demand is expected to increase somewhat in the next year. For
individual firms, vehicle selection, pricing, advertising and promotion, and dealer coverage will
impact sales relative to the competition.
Vehicle Attributes
Vehicles have attributes that can be measured and compared. In StratSim, these include price,
as wellas size, performance, interior, styling, safety, and quality. Each attribute has a range of
values based on what can feasibly be designed and built by a firm. The interior, styling, safety,
and quality attributes (ISSQ) have a maximum value dependent upon the firm’s technical
capability in that area. Vehicles with higher attributes in these four dimensions are more
appealing to customers, all other things being equal. Customers may find a particular attribute
more important (i.e. consider it a hot button), depending on their needs and preferences. In
evaluating vehicles, customers weigh the ISSQ attributes against the price of the product, while
also considering the size and engine performance of the vehicle. Exhibit 1.1 summarizes vehicle
attributes and the range of values associated with each.
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Exhibit 1.1: Vehicle Attribute Descriptions
Note that the ranges for ISSQ attributes are based on firm limits at the start of the simulation,
and investment in technology research can increase the limits.
Vehicle Classes
The industry has historically been broken into seven vehicle classes Economy (E), Family (F),
Luxury (L), Sports (S), Minivan (M), Truck (T), and Utility (U). However, one new class offers future
potential if developed and marketed well the AEV (A) vehicle, which is a new breakthrough in
drive technology. Each of these classes represents a unique configuration that requires a
significant expenditure in R&D to develop. Exhibit 1.2 provides a brief description of each class
of vehicle, along with typical ranges for price, size, and engine at the beginning of the simulation.
The product class examples following the case provide a detailed description of each vehicle
class, along with a sample picture.
See Exhibit 1.2 on the following page.
Attribute Description Range of Values
Price Manufacturers Suggested Retail Price (MSRP). Actual (retail) selling price to customer will vary from MSRP.
Generally ranges
from $10,000
$50,000
Size Length and width of vehicle, which includes passenger and cargo space. Size is measured on a scale of 1100.
1100
(smallest to largest)
Performance Measured by engine horsepower (HP).
50300 HP
(low to high
performance)
Interior Comfort, visibility, instrumentation, music systems, ergonomics.
1 to maximum firm
capability
Styling General curb appeal, styling, handling, finish / workmanship. 1 to maximum firm capability
Safety Structural design, braking systems, safety features. 1 to maximum firm capability
Quality Overall reliability, durability, consistency of products. 1 to maximum firm capability
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Exhibit 1.2: Vehicle Classes
Vehicle Class Description Expected Price Typical Size
Typical
Engine
Economy
Small, basic car that is
inexpensive to buy and
operate.
Under $18,000 130 Under 150 hp
Family
Mid-sized car for reliable,
safe transportation at a
reasonable price.
$15,000 to $25,000 3060 120180 hp
Luxury
High-end vehicle with top of
the line features and
performance.
Above $35,000 4575 Over 150 hp
Sports
Cars emphasizing
performance and style. Size
and price range widely, but
all are fun to drive.
$14,000 to over
$35,000
1560 Over 150 hp
AEV
Alternative-energy-drive
vehicles use new drive
technology that is energy
efficient and low polluting.
Above $20,000 150 70150 hp
Minivan
Family-oriented vehicles
with lots of passenger and
storage room.
$18,000 to $35,000 50100 120240 hp
Truck
Traditionally working
vehicles, trucks are finding
broader appeal as second
vehicles and alternatives to
sport cars.
$12,000 to $40,000
3090
Over 150 hp
Utility
Classified as a truck, but
more passenger room and
style.
$17,000 to $40,000 3090 Over 150 hp
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Consumer Segments
There are two broad approaches to analyzing the StratSim market by vehicle class and
consumer segment. Each approach offers advantages, and both should be considered. There are
five consumer segments in StratSim, numbered 1 through 5. Some consumers in a segment have
a strong preference for a particular vehicle class. For others, there are two or more vehicle classes
that would meet their needs. However, it should be noted that if a consumer finds another
vehicle class that provides a better solution to their needs and budget, they might purchase that
other vehicle class instead. Exhibit 1.3 provides an overview of each consumer segment. More
detailed descriptions are provided in the section following the case.
Exhibit 1.3: Consumer Market Segments
Segment Description
Sales
(000s
Units)*
Preferred Vehicle
Class**
(1) Value Seekers
Value seekers have basic transportation needs,
using their vehicle for commuting or as an all-
purpose vehicle. Quality and safety are
important to these price sensitive buyers.
282
Economy and Truck
(2) Families
Families have somewhat basic transportation
needs, but require flexible vehicles with both
people and cargo-carrying capabilities. Safety
and quality are most important to these fairly
price sensitive buyers.
559
Family, Economy
and Minivan
(3) Singles
The singles market is young, and tends to spend
a fairly high percentage of disposable income on
their vehicles. Singles look for vehicles that are
fun to drive. Styling and performance are
important to this segment.
284
Utility, Truck and
Sports
(4) High Income
This segment includes families, professionals, or
retirees. With high disposable income, they are
willing to spend more for extra features. Interior,
styling, and safety are important attributes.
121
Family, Luxury,
Sports, and Minivan
(5) Enterprisers
Enterprisers see their vehicle as an extension of
their business and personal aspirations. They
use their vehicles for business and also to
impress. Styling and performance are important.
206
Utility, Luxury,
and AEV
*NOTE: Segment unit sales shown are per firm at startup. Actual market size varies with number of firms, and will
change over time based on underlying market conditions and competitive dynamics.
**NOTE: Vehicle classes are listed in order of preference within the segment.
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Promotion
Training/Support
Vehicle
Dealer
Invoice
Vehicle
Selling Price
Advertising Promotion
MSRP
Manufacturer Dealer
The needs of some consumer segments are not being met by the current selection of vehicles on
the market. Customers may be looking for a new vehicle class, such as an AEV, or a significantly
different configuration of an existing vehicle class. Firms must evaluate consumer needs and
competitors products to identify opportunities in the market. If a firm introduces a new vehicle
that satisfies these unmet needs, it may stimulate demand in the marketplace.
Consumer Purchase Process
What vehicle a consumer will ultimately purchase reflects a complex decision making process.
Consumers typically start out looking for a specific kind of vehicle in the right price range, though
they may consider a couple of different kinds of vehicles. For example, a family buyer might
consider both a minivan and a family class sedan in the $25,000-$30,000 price range. When
consumers find a vehicle of the right type, they will then take a close look at the attributes of the
vehicle. Of course, the overall appeal of the vehicle is weighed against the price the customer
will ultimately pay. This trade-off between price and appeal is what creates value in the mind of
the buyer. Each consumer has different needs and also places a different importance on each
need. Some attributes may be very important to the consumer (“hot buttons”) while others are
less important. In some cases, consumers may want more of an attribute, while in other cases,
they may have a particular ideal in mind. Their decision will also be impacted by their knowledge
of the vehicle (awareness), experience at the dealership (dealer rating, dealer coverage), and
special promotional offers and activities.
The diagram in exhibit 1.4 illustrates the consumer purchase process for cars and trucks in
StratSim.
Exhibit 1.4: Vehicle Purchase Process
Consumers
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Firm Decisions
At the start of the simulation, each firm in the industry has developed vehicles for the Economy,
Family, and Truck classes, and is selling them in the domestic market. Exhibit 1.5 shows the
attributes and sales for the vehicles that your firm currently has on the market.
Exhibit 1.5: Firm Vehicles
Vehicle Size/HP ISSQ MSRP Avg. Selling
Price
Domestic Unit Sales (000s)
North South East West Total
Economy 12/120 1/1/1/1 $11,492 $10,916 72 71 78 82 303
Family 28/145 2/2/3/1 $20,350 $19,126 167 181 182 179 708
Truck 70/190 2/2/1/1 $20,498 $19,807 106 127 100 109 441
Marketing
In StratSim you will have to make marketing decisions for the corporation as a whole and for each
product. To make your marketing effective, you must first identify the kind of company you want
to be, then use advertising, promotion, and pricing decisions to project the appropriate corporate
image and generate interest in your products.
Corporate advertising budgets are set on a regional basis. These funds are spent on generating a
corporate identity in support of the dealer network in the regions. A public relations budget is
also set to support publicity events for the firm, corporate, and investor relations. Finally, direct
marketing can be used to generate interest within a particular target segment.
Product advertising plays an important role in establishing vehicle awareness and shaping
consumers’ perceptions of products. In the StratSim world, managers are responsible for setting
an advertising budget and an advertising theme. The majority of the budget is spent on media
buys, with the remainder on the creative input and theme. The theme emphasizes one of the
primary characteristics of the vehicleperformance, interior, styling, safety, or quality. Product
managers attempt to match the advertising theme with the “hot buttons” of their target
customer.
Promotional budgets are set at the product level and include special incentive programs and
general promotional activities. The purpose of special incentive programs is to move product
during slower periods of demand. Examples of incentives include consumer rebates, below
market financing, and dealer-oriented sales incentives. Examples of general promotional
activities include funds for brochures, advertising in support of incentive programs, mailings,
trade shows, and motivational contests.
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Vehicle pricing and costing is complex and requires careful attention to detail. Depending on the
context, price can have several meanings. The manufacturer sets the vehicle MSRP
(Manufacturer’s Suggested Retail Price). This is the price that is posted in the window of the
vehicle, but is rarely the price that the customer actually pays. Average retail price is the average
of all the actual prices that customers pay. This price includes dealer mark-ups, promotional
discounts, haggling with the dealer, etc. The dealer invoice is what the dealer pays for the vehicle
and is the monetary value your firm receives as revenues. Finally, the manufacturing cost for the
vehicle is the cost associated with production of the vehicle. The dealer invoice less the unit cost
is the per unit margin the manufacturer receives for each sale.
Choosing the best marketing mix for a vehicle is a difficult task. Test markets allow marketers to
try different combinations of price, advertising, and promotion to determine their effects on sales
and profitability. In StratSim, test markets can be used with vehicles that have existing sales. A
test market condition is created in a particular city where levels of price, advertising, and
promotion are adjusted from your national levels and the change in the sales in that market is
measured. By extrapolating this change to national levels, a marketing manager can make better
judgments on how much to adjust the marketing mix variables for the coming year.
Dealer Distribution
While the purpose of advertising and promotion is to generate interest, create an image, and
communicate information about the vehicle, it is the automobile dealership that actually makes
the sale and provides follow-up services. In StratSim, each firm has a captive dealership
distribution structure organized on a regional basis. Firms must decide how many dealerships to
open or close in each region each period as well as allocate funds for training and support. You
currently have 480 total dealerships, and are spending $10 million in training and support.
Changes to your dealerships network are limited to 10% of the total established dealers. Since
you currently have 480 dealers, the most you can add in your first decision is 48, though regional
allocation of the openings is up to you.
Note that it takes one year to open or close a dealership.
Exhibit 1.6: Firm Dealerships by Region
Number of Dealers
North South East West Total
Full Coverage 200 250 150 200 800
Established
120 120 120 120 480
The profitability and success of a dealership depends to a large extent on the popularity of the
manufacturer’s vehicles. However, the number of dealerships also plays a role. In StratSim, this
is referred to as dealer coverage, the number of dealers divided by the number of sales
territories in a region. Having too few dealerships can leave smaller cities and towns uncovered.
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On the other hand, if coverage in a region exceeds 100%, sales can be spread too thinly across
dealerships and lead to overly competitive pricing within the region. Management often looks
to the sales, gross profit per dealer, and coverage as indicators of the proper balance. Dealer
ratings can also provide insight into the success of dealerships. A strong dealer gross is expected
to translate into a successful dealership, but training, support, and service revenues all
contribute as well.
Manufacturing
Having good products, effective marketing, and a strong dealership network are all essential to
creating demand for your products, but you must also produce enough vehicles to meet demand.
In the short term, managers have to decide how to use plant capacity to produce the best mix of
vehicles. Longer term, the firm must increase capacity to produce new vehicles and adjust to
changing demand for existing vehicles.
Capacity for each firm is fixed for a given year. However, changes of up to 50% of your current
capacity may be initiated at any time. The increase or decrease takes one year to take effect.
Thus, if you build additional capacity this year, next year you will be able to set production levels
based on the new plant capacity. It is important to coordinate capacity increases with the launch
of new products. In StratSim, firms may choose to set production levels above capacity in the
short-run by running extra shifts and paying overtime. An over-capacity charge will be incurred
if capacity utilization is over 100%.
If the international module is enabled, you have the ability to open a plant in one of the foreign
regions and produce vehicles there when the capacity becomes available. Each region has
associated costs and benefits. Added costs might include shipping and tariffs, while the benefit
may be lower cost of production. Please note that all production for a particular vehicle must
take place in one locationproduction cannot be split between plants in different regions.
Production within the constraint of capacity is fairly flexible. Firms must decide on production
volume for each product on the market. When the production level on a line is increased from
the previous period, the capacity now associated with that product is upgraded and retooled.
Retooling also occurs when current or new productive capacity is dedicated to a new product
line. Lower plant maintenance costs are likely when the factory is updated.
Firms may choose to use a flexible production option that increases or decreases production by
up to 10% from the firms target production value, depending on demand. If production volume
is insufficient for demand, consumers who are unable to purchase a vehicle at the end of the
period postpone their purchase decision until the beginning of the next year, purchase an
alternative brand, or buy a used vehicle.
Inventory levels should be considered when deciding on production schedules for the coming
year. Too little inventory can mean lost sales, and too much increases costs and puts downward
14
pressure on dealer margins. A reasonable target for inventory is 30 to 60 days. If a product is
being redesigned or discontinued, the current inventory will be sold in markets outside the
StratSim simulation at 90% of cost, so it is especially important to manage inventory levels when
upgrading a vehicle.
The costs for building plant capacity or retooling investment are recorded as an asset on the plant
and equipment line of the balance sheet. The plant assets are depreciated over ten years and the
expense included in the cost of manufacturing products each period. Cumulative depreciation is
shown below plant and equipment on the balance sheet.
Research and Development
Each firm in the StratSim world has technological capabilities that parallel the vehicle attributes
of interior, styling, safety, and quality (ISSQ). To keep measurement relatively straightforward,
these are rated from 1 to the current maximum (where 1 equals a poor rating on that
attribute). All firms in the industry start with initial technology ISSQ capabilities of 4/6/4/6.
Firms have the ability to expand their capabilities up to current industry technology limits
through investments in technology capabilities. These investments provide two advantages
first, the ability to develop cars with enhanced features (e.g. higher ratings); and second,
the lowering of costs to develop a similar set of characteristics. For example, a firm with
technology ISSQ capabilities of 8/8/8/8 would be able to produce a 4/4/4/4 car at a lower unit
cost than a firm with a technology profile of 6/6/6/6. Investing in technology does not
automatically increase product attributes; you must upgrade specific vehicles by initiating a
development project.
As is the case with the automobile industry, product development in StratSim is expensive,
time consuming, and risky. However, the reward of having the leading vehicle within a
product class is often well worth the investment, and falling behind other vehicles in
terms of styling, performance, and appeal is dangerous. Additionally, new products are
needed to take advantage of opportunities in the market. For every development project,
there is also an overall cost for the development process, an estimated unit cost, and a time
to complete.
