PROBLEMS IN POLICY AND MGT
PROBLEMS IN POLICY AND MGT MGT 460
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This 5 page Class Notes was uploaded by Mrs. Cielo Murazik on Monday October 12, 2015. The Class Notes belongs to MGT 460 at Idaho State University taught by J. Street in Fall. Since its upload, it has received 10 views. For similar materials see /class/222190/mgt-460-idaho-state-university in Business, management at Idaho State University.
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Date Created: 10/12/15
Capstone Final Scores Implications amp Grading PREFACE The paragraphs below explain how Capstone Final Points are computed how Capstone Final Points are converted into grades for the course and the implications for decisionmaking Remember 7 teams are playing for Capstone Final Scores as they stand at the end of Round 8 Note however that all of the Performance Measures are either cumulative or averages Hence Round 8 scores re ect teams performance over the entire simulation The purpose of this document is to illustrate how Final Scores are computed so that you might more clearly see the interconnectedness between strategic decision making changes in nancial measures and changes in Capstone Final Scores It is hope that aimed with this understanding you will be able to make better strategic decisions and that you will have a better understanding of how topics you studied in other courses t together to produce a more holistic understanding of organizations HOW CAPSTONE FINAL SCORES ARE COMPUTED Capstone Final Points are a function of 1 Your team s standing on each of the seven 7 Performance Measures relative to other teams and 2 the Weights your team chose in your Strategic Plan Seven Performance Measures The seven Performance Measures are Cumulative Prof1t Average Market Share Average ROS Average Asset Turnover Average ROA Average ROE and Average Market Capitalization Each team was allowed to select how each of these measures will be weighted in order to maximize team s performance based on the team s chosen strategy How Capstone Creates Final Scores Capstone automatically computes Final Scores during round processing Because Final Scores are based on Performance Measures that are either cumulative or averages Capstone Final Scores are a re ection of each team s performance in the current round plus all previous rounds Final Scores are computed in the following manner 0 A raw score for each Performance Point category is determined Each company gets 1 point for itself hence you can not score below 1 Teams get an additional point for each active company participant or computer generated they beat There will be times when the first and second place companies for a category are very close Nevertheless the rst place company will always receive a score of 6 and the second place company a score of 5 0 An adjusted score for each category is created by multiplying the company s raw score by its chosen weight for the Performance Measure For example if Andrews ROE weight was 20 and it was first in that category scoring 6 raw points it would receive 12 points for ROE o The adjusted scores for each of the Performance Point categories are added together The resulting Final Score will always be between 1 and 6 Final Scores are shown in a bar chart like the one below Students can access Final Scores at the CapSim website 600 f 500 400 300 200 100 000 1 quot 39 39 Andrews Baldwin Chester Digby Erie Ferris Overall Andrews Baldwin Chester Digby Erie Ferris Score 535 l 170 l 135 l 530 l 425 l 280 Capstone actually prepares several such bar charts The one of greatest interest to you will be the one labeled Overall Champion This is the one that computes Final Scores based on each team s set of chosen weights This is the chart that will be used to compute grades for the course A similar bar chart will also be produced for each team The difference between each team s chart and the Overall Champion chart is that each team s chart shows Final Scores as if all teams were scored according to that team s set of weights You can click through each team s chart and compare them to the Overall Champion chart to get a feel for the relative importance of each team s set of weights HOW GRADES ARE DETERMINED One of the questions that might pop into your head as you look at the above bar chart is What if my team s scores are like Baldwin s scores in the above example Will we get an F for Capstone The above bar chart was chosen because it illustrates an instance of high variance within the distribution of Final Scores If I allowed high variance to remain then yes you would receive an F or at least a very poor grade for Capstone However I would be guilty of allowing a poor grade in Capstone to exert too much in uence on what might be a strong performance in other portions of the course grade participation exam and nal project Plotting Final Scores from the above example on the linear scale below better reveals the problem of high variance in Capstone Final Scores and explains the need to rescale Final Scores so that Capstone grades are appropriately weighted relative to other grading categories for the course To avoid having Capstone swamp other portions of your course grade Capstone Final Scores are rescaled using the following rules 1 Rescaling will preserve rank and relative distance between teams 2 The upper end ie the highest score will be set to approximate the highest scores in the class on the other portions of the course grades participation exam amp nal project 3 The lower end ie the lowest score will be set to approximate the lowest scores in the class on the other portions of the course grades participation exam amp nal project 4 The new distribution will be forced to a mean that is roughly equivalent to the class mean on the other portions of the course grades participation exam amp nal project I created an Excel spreadsheet to perform rescaling you will receive a printout from it shortly after Round 8 has been processed A typical rescaling might look like the example shown below Once Capstone Final Scores have been converted to percentage scores it becomes a simple matter to assign the appropriate fraction of the possible Capstone points shown in the syllabus to a team D BCF A I I I I I I I IQQQ a L 0 10 20 30 40 50 60 70 80 90 100 S0 WHAT DOES THIS IVIEAN FOR DECISIONMAKING Answering this question requires a little setup to have it make sense All too often students top managers too tend to view high organizational performance as a function of doing two or three things very well An example of this perspective is a company that focuses attention so intensely on markets products and customers that other potential contributors to organizational performance go wanting A FUNDAMENTAL AS SUMPTION IN THIS COURSE IS THAT HIGH ORGANIZATIONAL PERFORMANCE IS A FUNCTION OF A HUNDRED LITTLE DECISIONS Jay Barney Hence it is assumed that there are lots of little opportunities to increase organizational performance ie Capstone Final Scores by creating a well crafted set of the hundred little decisions It is hoped that revealing some of the opportunities and focusing your attention on them 7 and making it worth you will to learn about them via allowing you to assign your own grading weights 7 will translate into seeing the importance of Jay Barney s assertion The second part of the setup requires a short discussion of another aim of the course 7 to link topics you learned in other courses together Recall our discussion of the DuPont formula and how we decomposed ROE into its components and related the components to strategy We showed that a low coster Texas Instruments will have high asset turnover and low ROS Just the opposite was true for a differentiator Hewlett Packard Hence it makes sense for a low cost implementer to put high weight on asset turnover and low weight on ROS The DuPont formula represents only the tip of the iceberg in terms of the opportunities that lie in the interconnectedness between decision making and nancial measures To illustrate consider the basic accounting equation Assets Liabilities 0E owner s equity Now suppose that your company needs cash and is considering two competing approaches to raise it the issuance of stock or the issuance of debt bonds Think about the consequences on the accounting equation 0 Issuing stock 7 increases A from the cash you received increases OE from the new stock 0 Issuing debt 7 increases A from the cash you received increases L from the new bond liability So what Your Finance courses taught you about a hypothetical balance of Debt and Equity that is just right for a company Capstone however creates a special opportunity for a savvy team to capitalize on the relationship between decision making and effects on the Performance Measures Sometimes the opportunity is the result of allowing you to select your own weights and sometimes it is not In the above example suppose you put a high weight on ROA and a low weight on ROE Note that ROA is computed with Aassets in the denominator and ROE is computed with OE owners equity in the denominator A little figuring on some scratch paper should reveal that issuing stock will have the least over adverse effect on ROA and ROE for the company Of course there are other effects as well For example issuing bonds increases debtequity ratio company risk which works it way through stock price and other performance measures You might want to give some thought to how all the financial measures are intertwined and how they relate to strategic decision making The above example of evaluating competing ways to raise cash is just one of many such opportunities to make incremental contributions to your team s scores on the performance points I hope you will take the example I ve provided as a starting point to increase your own understanding of how strategic decision making and financial measures are interrelated If so I will feel that this portion of the course has been a success Low entry barriers Unimportance of economies of scale Few proprietary product differences Low brand identity customer loyalty Low switching costs Low capital requirements Easy access to distribution Few absolute cost advantages ie Proprietary learning curve Access to necessary in uts Proprietary lowcost product design Lack of government polic Low expected retaliation Porter39s Five Forces Model Phrasing expressed so as to strengthen force New Entrants Threat f Industry Competi ors Suppliers Bargaining L Bargaining A f lVIany competitors equal in size Diversity of competitors mavericks Slow industry grow Temptations to cut price to increase volume Exit costs are ig High xed costsvalue added Intermittent overcapacity Few product differences Low brand identity Low switching costs Low informational complexity Diversity of competitors High corporate stakes Low exit barriers Intensity High differentiation of inputs High switching costs of rms in the industry Low presence of substitute inputs Low supplier concentration Low importance of volume to supplier High cost relative to total purchases in the industry High impact of inputs on cost or differentiation Low threat of backward integration High threat of forward integration Power 7 Of Rivalry A l Threatf Substitutes Relative price performance of substitutes Low switching costs High buyer propensity to substitute Power f Buyers High bargaining leverage Few buyers many sellers High buyer volume Low buyer switching costs Ability to backward integrate Many substitute products High price sensitivity Few product differences Little brand identity Small impact on qualityperformance Few decision makers39 incentives Low threat of rival s forward VI High threat of buyer s backward VI
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