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  1. 1. The Business Strategy Game TM
  2. 2. Hands-On Learning Opportunity <ul><li>Look for Ways to Secure Competitive Advantage </li></ul><ul><li>Evaluate Different Courses of Action </li></ul><ul><li>Chart a Course for Your Company </li></ul><ul><li>Assess Changing Industry and Competitive Conditions </li></ul><ul><li>Diagnose the Strategies of Competitors and Anticipate Their Moves </li></ul>
  3. 3. What You Can Learn <ul><li>Proficiency in Using Strategy Tools </li></ul><ul><li>Reinforce Functional Course Learning </li></ul><ul><li>Stronger Understanding of How Functional Disciplines Fit Together </li></ul><ul><li>Improved Insight Into Global Competition </li></ul><ul><li>Enhance Understanding of Revenue/ Cost/ Profit Relationships </li></ul><ul><li>Challenging and Fun! </li></ul>
  4. 4. The Business Strategy Game TM The Industry: Athletic Footwear
  5. 5. Market Segments Europe 10 - 25% Asia 15 - 35% Latin America 15 - 35% North America 5 - 20% Geographic Market Projected Annual Growth
  6. 6. Industry Sales Projections (000’S Pairs Per Company) Year 11 12 N.A. 1,500,000 1,650,000 Asia 450,000 575,000 Total 3,225,000 3,950,000 Private Label 650,000 700,000 L.A. -- 300,000 Branded Europe 625,000 725,000
  7. 7. The Role of the S&P 500 Index <ul><li>Year to Year Changes In Index Effect Next Year's Industry Demand </li></ul><ul><li>Maximum Impact Is +/-10% </li></ul>
  8. 8. The Role of Competitive Aggressiveness <ul><ul><li>Prices </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Service to Retailers </li></ul></ul><ul><ul><li>Number Models in Product Line </li></ul></ul><ul><ul><li>Product Image </li></ul></ul><ul><li>Actual Numbers Are Influenced by Industry Marketing Efforts </li></ul><ul><li>Industry Demand Forecast Assumes Year 10 Levels of: </li></ul>
  9. 9. The Weapons of Competitive Rivalry <ul><li>Product Quality </li></ul><ul><li>Service to Retailers </li></ul><ul><li>Number of Retail & Company Owned Outlets </li></ul><ul><li>Annual Advertising </li></ul><ul><li>Number of Models </li></ul><ul><li>Customer Rebates </li></ul><ul><li>Product Image </li></ul><ul><li>Wholesale Selling Price </li></ul>
  10. 10. Branded Footwear Sales <ul><li>Combination of All Competitive Weapons for Your Company As Compared to Competition by Geographic Market </li></ul>
  11. 11. North American Private-Label Sales <ul><li>Offer Price at Least $2.50 Below Average of Branded Wholesale Prices in North America </li></ul><ul><li>Lowest Price Wins </li></ul><ul><li>Ties Go to Higher Quality Company </li></ul><ul><li>Offered in Multiples of 50,000 Pairs </li></ul><ul><li>Minimum Acceptable Quality and Models Levels </li></ul>
  12. 12. Demand Forecasts <ul><li>Getting good estimates gives you a reliable profit forecasts </li></ul><ul><li>Conservative estimates are better </li></ul>The Business Strategy Game TM
  13. 13. The Business Strategy Game TM Operations Decisions
  14. 14. Product Quality Quality Driver Impact % Long-Wear Materials 0 - 90 points Current QC/Pair 0 - 45 points Cumulative QC/Pair 0 - 80 points Styling/Features Expenditures Per Model 0 - 90 points
  15. 15. Material Prices <ul><li>Drop If Industry Capacity Utilization Falls Below 90% </li></ul><ul><li>Rise When Industry Capacity Utilization Exceeds 100% </li></ul><ul><li>When Total Usage of Long-Wear Materials Goes Above 25% </li></ul><ul><ul><li>Long-Wear Prices Rise / Normal-Wear Prices Fall </li></ul></ul><ul><li>When Total Usage of Normal-Wear Materials Goes Above 75% </li></ul><ul><ul><li>Normal-Wear Materials Prices Rise / Long-Wear Prices Fall </li></ul></ul>
  16. 16. Labor Force Decisions <ul><li>Number of Workers to Hire </li></ul><ul><li>Annual Wages </li></ul><ul><li>Incentive Pay </li></ul>
  17. 17. Labor Productivity Drivers <ul><li>Incentive Pay As Percentage of Total Compensation </li></ul><ul><li>Total Compensation (Without OT) Compared to Rivals’ Local Plants </li></ul><ul><li>Automation Options Installation </li></ul><ul><li>Cumulative Production Methods Improvement Spending </li></ul><ul><li>Percentage Increase in Annual Wage </li></ul>
  18. 18. Reject Rate Drivers <ul><li>Current Quality Control Expenditures Per Pair Produced </li></ul><ul><li>Piece Rate Incentive/Pair </li></ul><ul><li>Number of Models </li></ul>
  19. 19. Production Methods Improvement (PMI) <ul><li>Reduce Materials Costs by As Much As 25% </li></ul><ul><li>Improve Worker Productivity by up to 500 Pairs Per Worker </li></ul><ul><li>PMI Spending Effectiveness Drivers: </li></ul><ul><ul><li>Cumulative Spending at Plant Per Pair of Plant Capacity </li></ul></ul><ul><ul><li>Greatest Impact at Texas Plant Due to its Older, Less Efficient Layout </li></ul></ul><ul><li>Reduce Supervision Costs by up to 25% </li></ul>
  20. 20. Number of Styles/Models Number of Models Production Run Set-Up Cost 50 100 150 200 250 $1 million $2 million $3 million $4 million $5 million
  21. 21. The Business Strategy Game TM Plant Decisions
  22. 22. New Plant Construction <ul><li>Maximum of 4 Plants </li></ul><ul><li>Texas: 1 Million Pairs Current Capacity </li></ul><ul><li>Asia: 3 Million Pairs Current Capacity </li></ul><ul><li>Europe: Potential Construction Site </li></ul><ul><li>Latin America: Potential Construction Site </li></ul>
  23. 23. New Plant Construction Size Capacity in Pairs Small 1 million Medium 2 million Large 3 million
  24. 24. Expansion <ul><li>In Millions of Pairs </li></ul><ul><li>Up to 4 Million Pairs at a Time </li></ul><ul><li>As Many Times As You Want </li></ul>
  25. 25. Automation Options <ul><ul><li>Increase Labor Productivity And/Or </li></ul></ul><ul><ul><li>Reduce Production Run Setup Costs And/or </li></ul></ul><ul><ul><li>Plant Supervision Costs And/or </li></ul></ul><ul><ul><li>Production Capacity </li></ul></ul><ul><li>Up to 3 Options Per Plant </li></ul><ul><li>Six Options Available… Basically for </li></ul>
  26. 26. Other <ul><li>Permanent Capacity Shutdown </li></ul><ul><ul><li>Entire Plant or Portion </li></ul></ul><ul><li>Temporary Plant Shutdowns </li></ul><ul><ul><li>Approximately 90% Productivity Upon Recall </li></ul></ul><ul><li>Purchase and Sale </li></ul><ul><ul><li>Entire Plant or Portion </li></ul></ul><ul><ul><li>Require Advance Instructor Approval </li></ul></ul>
  27. 27. The Business Strategy Game TM Marketing Decisions
  28. 28. Private Label Market <ul><li>Bid Price </li></ul><ul><li>Number of Pairs to Offer </li></ul><ul><ul><li>50,000 Pair Lots </li></ul></ul><ul><li>Number of Unsold Pairs to Convert for N.A. Branded Market </li></ul>
  29. 29. Branded Markets <ul><li>Wholesale Price </li></ul><ul><li>Advertising Expenditures </li></ul><ul><li>Retail Dealers </li></ul><ul><li>Customer Rebates </li></ul><ul><li>E-tailing is an increasing % of Market </li></ul>
  30. 30. Service Rating <ul><li>Delivery Time Achieved in the Previous Year </li></ul><ul><li>Stockouts the Previous Year </li></ul><ul><li>On average you should spend $500 per representative </li></ul><ul><li>High of 80 for Not Stocking Out </li></ul><ul><li>Low of -170 If Stockouts Exceed Branded Sales by 100% or More </li></ul>
  31. 31. Service Rating Delivery Time Cost per Pair Service Points 4 0.00 0 3 0.20 20 2 0.50 60 1 1.00 100
  32. 32. The Business Strategy Game TM Financial Decisions
  33. 33. Financial Strategy <ul><li>Significant Element in Determining Company Performance </li></ul><ul><li>Financing Will Be Required To Expand With Industry </li></ul><ul><li>Maximize Shareholder Wealth </li></ul><ul><li>Search For Optimal Capital Structure </li></ul>
  34. 34. Short-Term Loans <ul><li>Rates Determined by: </li></ul><ul><ul><li>Current Year's Bond Rating </li></ul></ul><ul><ul><li>Current Year's Interest Rates </li></ul></ul><ul><li>Maximum Issue/Year $100 Million </li></ul><ul><li>Automatic Loans to Meet Cash Requirements </li></ul><ul><ul><li>2 Point Interest Rate Penalty </li></ul></ul><ul><li>Interest Received On Cash Balances </li></ul><ul><ul><li>3 Points Below Prime Rate </li></ul></ul><ul><li>One Year Term </li></ul>
  35. 35. Bonds <ul><li>Rates Determined by : </li></ul><ul><ul><li>Previous Year's Bond Rating </li></ul></ul><ul><ul><li>Current Year's Interest Rates </li></ul></ul><ul><li>Maximum Issue/Year $100 Million </li></ul><ul><li>Require 2.0 Times Interest Coverage </li></ul><ul><li>Early Re-Payment Possible </li></ul><ul><ul><li>2% Prepayment Penalty </li></ul></ul><ul><li>Maximum of 8 New Bond Issues </li></ul><ul><li>Ten Year Term </li></ul>
  36. 36. Common Stock <ul><li>Maximum Issue/Year $200 Million </li></ul><ul><li>Currently 5 Million Shares Outstanding </li></ul><ul><ul><li>Minimum of 3 Million Shares </li></ul></ul><ul><ul><li>Maximum of 50 Million Shares </li></ul></ul><ul><li>Issued/Retired at a Discount/Premium From the Current Price </li></ul><ul><ul><li>Price Shown on Screen </li></ul></ul>
  37. 37. The Business Strategy Game TM <ul><li>Backups Can Save You Time & Effort </li></ul><ul><li>SCAN Your Disk Before and After Use </li></ul><ul><li>If Disk Goes Bad, Have it Restored </li></ul>Computer Operations
  38. 38. Bad Data Entry No Excuse <ul><li>Company Data Disks Have Year 10 Decisions </li></ul><ul><li>Program Checks for Data Entry Errors </li></ul><ul><li>Invalid and Out-of-Range Decisions are Exposed </li></ul><ul><li>Player's Manual and Screen Instructions Explain Correct Data Requirements </li></ul>
  39. 39. Winners <ul><li>Develop a Unique Strategy and Stick With It </li></ul><ul><li>Understand Company Operations </li></ul><ul><li>Analyze Their Competition </li></ul><ul><li>Are Proactive </li></ul>
  40. 40. Losers <ul><li>Fail to Develop a Unique Strategy </li></ul><ul><li>Typically Change Strategies Significantly Several Times As They Try to Copy Successful Competitor's Strategies </li></ul>
  41. 41. Losers <ul><li>Don't Analyze What’s Going on & Consequently Mis-Guess Competition </li></ul><ul><li>Are Always Trying to &quot;Catch-up&quot; </li></ul><ul><li>Don't Understand Company Operations </li></ul><ul><li>Don't Understand How to Run the Game </li></ul>
  42. 42. Strategic Issues <ul><li>How to Position the Company in the World Footwear Market </li></ul><ul><li>Where Should Additional Production Capacity Be Located </li></ul><ul><li>What Competitive Strategy to Follow and What Kind of Competitive Advantage to Try to Build </li></ul>
  43. 43. Operating Issues <ul><li>Whether Cost Savings Can Be Realized in Any Portion of the Value Chain </li></ul><ul><li>Whether to Continue Comparable Offerings in All Market Segments </li></ul><ul><li>Employee Compensation in Texas & Asia </li></ul><ul><li>What to Do in Year 11 to Prepare for the Expected Demand in Year 12 </li></ul><ul><li>What to Do About Texas Plant's High Costs </li></ul>
  44. 44. The Business Strategy Game TM Questions