Delivered Cost and Differentiation Applied to Threshold 3rd Ed Developments in Business Simulation and Experiential Learning, Volume 33, 2006 DELIVERED COST AND DIFFERENTIATION APPLIED TO THRESHOLD 3RD ED Don M. Parks Southwestern University parksd@southwestern.edu ABSTRACT The templates shown in the appendices illustrate one application of cost chain and differentiation concepts to Threshold Competitor. This interactive session explores an application of the concepts of Delivered Cost and Differentiation to Threshold Competitor, 3rd ed.. Delivered Cost and Differentiation were articulated by Porter (1980, 1985), and Hall (1980). They are described in many strategy texts; e.g., Thompson, Gamble, and Strickland (2006) and Hitt, Ireland, and Hoskisson (2005). The concepts can provide significant understanding of one’s competitive situation, and guidance in strategic decision making; and at least as importantly, help students better understand the concepts. REFERENCES Anderson, Beveridge, Hofmeister, and Scott, (2003) Threshold Competitor: A Management Simulation, 3rd ed., 2003 Prentice Hall,. Hall (1980) “Survival Strategies in a Hostile Environment.” Harvard Business Review, Volume Fifty-Eight, Issue Five, Sep/Oct 1980, 75-85. Hitt, Ireland, and Hoskisson (2005) Strategic Management, 6th ed., Thompson Southwestern, 2005. OVERVIEW Porter, Michael, (1980) Competitive Strategy, Free Press, 1980. This interactive session explores an application of the concepts of Delivered Cost and Differentiation to Threshold Competitor, 3rd ed.. Delivered Cost and Differentiation were articulated by Porter (1980, 1985), and Hall (1980). They are described in many strategy texts; e.g., Thompson, Gamble, and Strickland (2006) and Hitt, Ireland, and Hoskisson (2005). The concepts can provide significant understanding of one’s competitive situation, and guidance in strategic decision making; and at least as importantly, help students better understand the concepts. Porter, Michael, (1985) Competitive Advantage, Free Press, 1985. Thompson, Gamble, and Strickland (2006) Strategy: Winning in the Marketplace, 2nd ed., McGraw-Hill Irwin, 2006. I found that many students, even at the end of simulation experiences did not know their cost per unit, much less their cost (value) chain (delivered cost). Nor were they able to articulate their differentiation relative to competitiors. I developed Cost Chain and Differentiation templates, then a Delivered Cost/Differentiation 2x2 to try to help students understand the concepts better, and help their decision making. Students, for the most part, have found they helped understand the concepts better, and made better decisions by using them. These, and similar templates have been used in classes over the years. The templates presented in this interactive session, while adapted for Threshold, may be adapted to any simulation (and have been adapted to others). In the world of business, information is often not in the form needed for decision making. Converting data from reports provided in Threshold to a Cost Chain and a Differentiation Index (see appendices) illustrates and hones analytical reasoning, quantitative and spreadsheet (thus computer) skills, and builds confidence based on capability. 243 mailto:parksd@southwestern.edu Developments in Business Simulation and Experiential Learning, Volume 33, 2006 244 APPENDIX A: THRESHOLD COST CHAIN Threshold Cost Chain Product 1 Product 2 Product 1 Product 2 Quarter 0 Actual Number of Units Produced 6000 5100 6000 5100 Cost of Goods Produced Total $ Total $ Per Unit $ Per Unit $ Raw Material 48000 61200 8.00 12.00 Labor Costs 106537 75463 17.76 14.80 Overhead 49189 41811 8.20 8.20 Improvements 10000 17500 1.67 3.43 Depreciation 10800 9180 1.80 1.80 Total COGP 224526 205154 37.42 40.23 Selling Costs TV Ads 30000 25000 5.00 4.90 News Ads 9000 7000 1.50 1.37 Mag. Ads 24000 21000 4.00 4.12 Admin. Costs Office Expense 6486 5514 1.08 1.08 Market Info. 5405 4595 0.90 0.90 Total Selling & Admin. 74891 63109 12.48 12.37 Delivered Cost Before Whse, Int, Tax, & Profit 299417 268263 49.90 52.60 Finished Goods Ending Balance 0 0 xxxx xxxx Finished Goods Whse. Cost 0 0 0.00 0.00 Net Interest 5625 xxxx 0.49 0.52 Income Tax (payable) 25197 xxxx 2.10 2.47 TOTAL DELIVERED COST (DC) 52.50 55.59 Contribution to Profit (Net Income) 25198 xxxx 11.50 -8.59 Price 64 47 64 47 Developments in Business Simulation and Experiential Learning, Volume 33, 2006 APPENDIX B: THRESHOLD DIFFERENTIATION INDEX Threshold Differentiation Index Qtr 2 Prod. 1 Qual. TV TV News P1 News Mag Mag Price Price Total Co. Quality Z score Z score Z score Z score Z score Z score 1 10000 -1.74 6 0.27 9 1.04 8 0.75 67 -1.54 -1.21 2 27701 0.40 7 0.67 6 0.00 4 -0.80 67 -1.54 -1.27 3 37852 1.63 10 1.86 4 -0.70 10 1.53 64 0.40 4.73 4 24086 -0.04 5 -0.12 9 1.04 8 0.75 63 1.05 2.69 5 20057 -0.53 4 -0.52 2 -1.39 8 0.75 63 1.05 -0.63 6 21524 -0.35 1 -1.71 7 0.35 5 -0.41 64 0.40 -1.72 7 29438 0.61 3 -0.92 7 0.35 8 0.75 62 1.70 2.49 8 24432 0.00 5 -0.12 1 -1.74 3 -1.19 65 -0.24 -3.29 9 25481 0.13 4 -0.52 1 -1.74 3 -1.19 64 0.40 -2.92 10 34324 1.20 5 -0.12 8 0.70 7 0.37 64 0.40 2.54 11 14119 -1.24 4 -0.52 7 0.35 2 -1.58 63 1.05 -1.95 12 20428 -0.48 8 1.07 5 -0.35 7 0.37 66 -0.89 -0.29 13 14893 -1.15 9 1.46 10 1.39 9 1.14 66 -0.89 1.96 14 36996 1.52 8 1.07 4 -0.70 8 0.75 64 0.40 3.05 15 17375 -0.85 4 -0.52 8 0.70 4 -0.80 66 -0.89 -2.37 16 31729 0.89 2 -1.31 8 0.70 3 -1.19 66 -0.89 -1.81 avg. 24402 5.3 6.0 6.1 64.6 StDev 8267 2.5 2.9 2.6 1.5 245 Developments in Business Simulation and Experiential Learning, Volume 33, 2006 APPENDIX C: THRESHOLD DELIVERED COST/DIFFERENTIATION 2X2 DC/Dif P1 Q2 -3.50 0.50 4.50 54 55 56 57 58 DC 6 11 9 8 5 16 15 2 12 7 4 1314 10 3 1 246 Table of Contents Volume 33, 2006 Learning Assurance Using Business Simulations Applications To Executive Management Education Team Teaching In An Integrated Business Course Using Critical Problem Based Learning Factors In An Integrated Undergraduate Business Curriculum: A Business Course Success Personality Type And Strategic Planning Business Games As Strategic Management Laboratories The Relationship Between Students' Success On A Simulation Exercise And Their Perception Of Its Effectiveness As A PBL Problem Forecasting Accuracy And Learning: The Key To Measuring Simulation Performance The Business Strategy Game: A Performance Review Of The New Online Edition Using The Socratic Method And Bloom's Taxonomy Of The Cognitive Domain To Enhance Online Discussion, Critical Thinking, And Student Learning Using Negotiation Exercises To Promote Critical Thinking Skills Effective Leadership Experiences For Management Majors In A Futures Class The Role Of Learning Versus Performance Orientations When Reacting To Negative Outcomes In Simulation Games Is Pay Inversion Ethical? A Three-Part Exercise Simulations And Experiential Exercises - Do They Result In Learning? Have We Figured It Out Yet? Examining Program Management In Business Simulations: Student And Faculty Views Validating Business Simulations: Do Simulations Exhibit Natural Market Structures? Characterizing Business Games Used In Distance Education Utilizing Games In A Graduate Level Instructional Game Course Employment Interview Preparation: Assessing The Writing-To-Learn Approach Simulations - Bridging From Thwarted Innovation To Disruptive Technology Creating An Authentic Cultural Lens Using Case Dialogue Learning By Fire: Reflections Of A First Time Online Instructor An International Internship With A Service-Learning Focus Learner Participation In The Online Learning Experience: Help Or Hindrance? Any Given Sunday: Intervention In Pursuit Of Simulation Team Parity Beginning With The End: Creating An Experiential Exercise From Assessment Criteria Simulating Life Cycles: Life Span As The Measure Of Performance In Business Gaming Simulations It's Puzzling: Communications, Competition, And Cooperation Balanced Scorecard Implementation For Strategy Management: Variation Of Manager Opinion In Real And Simulated Companies Cases And Business Games: The Perfect Match! Three-Attribute Interrelationships For Industry-Level Demand Equations Using A Web-Based Module To Teach Information Literacy Decision Support System For Demand Forecasting In Business Games The Invalidity Of Profit=F(Market Share) PIMS Validation Of Marketing Games Online Market Test Laboratory With The MINSIM* Program The Gas Mileage Game - A Policy Simulation Delivered Cost And Differentiation Applied To Threshold 3rd Ed. The Effect Of Team-Leadership Modes On Team Performance: A Preliminary Study The Design And Use Of A Macroeconomics Simulation Using Maple Software: A Pilot Study The Instructor's Toolbox: A Meaning-Centered Framework For The Social Construction Of Experiential Learning Incorporating Strategic Product-Mix Decisions Into Simulation Games: Modeling The 'Profitable-Product Death Spiral' Group Composition And Groupthink In A Business Game A Direct Approach To Teaching Business Ethics A Decision Support System For Planning Sales, Production, And Plant Addition With Manager: A Computer Simulation Polish - American Entrepreneurial Business Cooperation Workshop Utilizing The Income/Outcome Simulation Student Leader Training Exercise Student Preference To Mode Of Learning In Hong Kong Experiential Learning For Technology-Based And Management Programme In Hong Kong: A China Study Tour A Price Game With Product Differentiation In The Classroom Discrete Event Modeling In A New Transportation Simulation Supply-Side Modeling In A Total Enterprise Simulation The Quality Game Towards A Massive Multiplayer Online Business Simulation Making The Connection: Improving Virtual Team Performance Through Behavioral Assessment Profiling And Behavioral Cues Individual Learning Producing A Learning Organization: 'Playing Dice With Polar Bears' Narratology and Ludology: Competing Paradigms or Complementary Theories in Simulation Framework For Evaluating Internet Research Using Children's Games To Illustrate Strategy Concepts: Is Less Better?