Budgeting Basics and Beyond

25.2. Business Scenario

Capstone can be run as a solo exercise, but it is typically organized as a team-based competition. Teams of four to six students compete against each other in an electronic sensor manufacturing industry.

At the outset, students face an unusual situation—all of the firms have an identical history. There is no differentiation between the companies. As they study the landscape of the external environment and how it is projected to evolve—via a Situation Analysis exercise and tutorials conducted early in the project—students discover several key dynamics at work in the industry:

• The market is segmented into five groups of customers—Low End, Traditional, High Tech, Size, and Performance—each with its own requirements and priorities.

• Customer demand is increasing in all segments of the market, with fastest growth rates occurring in the High Tech market segments.

• Customers expect product designs to improve over time, which implies higher production and increasing design costs in the future, and they want prices to fall, which also puts profit margins under constantly increasing pressure.

• Customers aren't very happy with the current portfolio of product offerings.

Through the introductory exercises, students learn that shareholders were unhappy with the financial performance of the previous management team. Exhibit 25.1. shows some of the key financial ratios reported in Round 0 (before students begin managing the firm), and Exhibit 25.2 depicts a typical company's ...