How To Win The BSG

2/4/2015
HOWTOWINTHEBSG
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HOWTOWINTHEBSG(BSGONLINE)BUSINESSSTRATEGYGAME
ASHORTTUTORIALONBECOMINGACORPORATEBEHEMOTHIN12WEEKSORLESSTHE
EXPERIENCESOFSEVERALHUNDREDTEAMS,INCLUDINGADOZENGLOBALCHAMPIONSANDTOO
MANYTOP20TEAMSTOCOUNT
Note:Sincefirstpublishingthisaccountin2005,Ihavereceivednumerousreplies,accounts
andinquiriesfromotherswhohaveplayedthegameandexcelled,andhaveincludedtheir
suggestionshere.Itwasoriginallywrittenin2005andwaslastupdatedinOctober,2014.
ThispagehasnoconnectionwhatsoeverwithMcGrawHill.Itissimplyonegroupof
studentsprovidinginformationtootherswhocomeafterthem.Everysemester/termsince
thispagewasfirstposted,studentshavewrittentogivetheirowninputontheBSG,andyou
arewelcometogiveusyouradditionsalso.Wewillpostallnewinsights.Pleasedonotthink
thatyouwillautomaticallybecomeglobalchampionsbyfollowingtheadviceonthispage.
That'ssometimesasimplefeat,inregionswhereone'sneighborsaregenerallyboneheads.
It'samuchmoredifficultaffairwheredetachedobservationofthestrategyofone'sopponent
issecondnatureforall.
TheBSGonlinegameisverycomplex,withnumerousvariablesandadeceptivelysimple
frameworkwhichleavesmanystudentsstrugglingtofindastrategycapableofwinningthe
game.Grades,andforthoserelyinguponemployerpaidtuition/bookscostsdependenton
thosegrades,cansufferhorribly.Often,theclassisonlyofferedSpringtermofasenior
year.Flunkit,andyouwillatbestbeafiveyearsenior,andthelikelihoodofnotbeingable
foronereasonoranothertoreturntocompleteadegree,isverygreat.Toacertainextent,
eventhe"winners"ofthisgamearesimplythosewhoseopponentsfindthemselvesmore"at
sea".Moststudentsaresimplygiventheurlofthegame,andtoldtobeginwithverylittle
preliminaryexplanationsonthepartofaprofessor.Ifthatistrueforyou,thenyouhave
comeuponwhatwilllikelybeyourbestresourceforexplainingthegame'smechanismin
everydaylanguage.
Butthispageisnotsuperiortothegamemanual,availableatyour"CorporateLobby"
(althoughthelookofthelobbyshiftsfromyeartoyear)undertheheadingofPlayer's
Manual,whichyoushouldreadthoroughly.Atleasttwice.Ifyourinstructorgivessomefew
http://corvallistoday.com/bsgimages/bsgrev2.html
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prefatoryremarksaboutthegame,listenverycarefullytoyourinstructor'sintroductiontothe
game.Doit,notbecauseyoubelieveheorshehasathoroughknowledgeofthegame.He
orsheusuallydoesNOT.Infact,fewinstructorshaverarelyplayedthegamethemselves
exceptforaninitial"dabbling"whichMcGrawHillused,tosellittothem.Infact,asthegame
goeson,manyofyoumayalreadyhavefoundwhichiswhyyou'rereadingthispagethat
theadvicegivenbyyourinstructorsisarecipeforcatastrophe.Instructorsareoftenas
deludedaboutthenatureofbusinessintheageofglobalization,asarethestudentslearning
thegame.Thoseinstructorsmaybelievethatbycarvingthisorthatnicheout,offeringa
uniqueproductwithhighqualityandlowoverhead,youwillhavebuiltaaprofitable
enterprise.Aswillbeexplainedbelow,a"profitableenterprise"isn'tgoingtocutitinthe
BSG.YouneedtohavetheMOSTprofitableenterprise.Andthat,DearReader,willcostyou
anypersonalcharacteryoumayhavemanagedtoclutchonto,after4yearsinaninstitution
whichisdedicatedtocloningcorporatevalues(youwouldn'tbeplayingthisgameifthat
wereNOTtrue)inyou.Youwillneedtoatleastpretendtosurrenderintegritytowinthis
game.
FIRSTROUND
Onemoretime,thisdoesnotmeanthatyoushouldnotlistentoyourinstructor'sremarks
becauseyoucanbankon50%oftheotherstudentsintheroomfollowingslavishlyany
recommendationsheorshemakes,eveninferentially,inthefollowinground.Andyoucan
makeyourmovesaccordingly.OurinstructorsuggestedraisingS/Qapoint"perhaps",
loweringthepriceadollar"maybe"inRound1.Doinglittleelse.Teamsmadeslight
variationshereandthere.Ofthe6otherteamsintheroom,onlytwo(TeamAandTeamF
intheexamplesbelow)madesome"radicalmove"andraisedthemodelnumbersomewhat,
alongsidechangesinS/Q,andthoseteamsdidwellintheround.ButRound1is,aboveall,
acrapshoot,asyouandyouropponentsfeelthegame,andoneanother,out.And,believe
itornotitisaroundsomechoosetolosedeliberately,tolowerstockpricesforpurchase
thefollowinground).Round1wastheonlyroundmyteam(TeamBbelow)lost
(unintentionally).Ourpricesandthusourprofitmarginswerecomparativelylowandwe
cameinfourthinEPS/ROE.Consequentlyourstockpricetanked(allowingustobuyitback
atbargainpricesthefollowinground,althoughtherearemoreprofitableapproaches),even
thoughwetookthelion'spricesinthemarket.Wetookfourth,andnotlast,place,despite
keepingourmodelnumbersataridiculouslylowlevel.Wedidn'tknowanybetteratthat
point.
ImportantConsiderationsBeforeYouCommencetheGame
McGrawHill'sonlineBusinessStrategyGameisincreasinglyapartofmanybusinessand
businessinformationcourses,worldwide.Thosewhoworkinmodernindustrieswill
recognizeitforwhatitisastrategygame,oneofseveral,suchasGloBus,allwith
remarkablysimilaralgorithms.Asastrategygame,itismostexpertlyplayedbypreteens
whospecializeinstrategygameslikeWOWorStarCraft.Businessmajorswhohavenever
workedinamoderncorporationareapttodopoorlyunlesstheyforgetmuchofwhatthey've
beentaughtinclassandrelyupontheobservationsofteammatesatworkplacesinstead.
Thosewhohaveneitherworkedforamoderncorporation,orspenttimegaming,willbeata
disadvantage.Winnerswillbethosewhofocusonthegamescores,ratherthanupon
"buildingarespectablebusiness".McGrawHilldoesnotrevealthealgorithmusedto
determineOverallScoresbutalittleanalysiswillshowtheindividualcategoriescanbe
dividedinto2categoriesbytheirweightintheoverallperformanceranking(seebelow).
Thewinningstrategyforthegameisasonestudent,andaprofessionalfromalarge
industrialcorporationbasedinTexas,notedentirelysituationalitdependsuponyour
opponents'movesaswellasyourown.Themostsuccessfulcompetitoristhusactually
planningTWOmovesatanygiventimeyourownmove,andthatofyouropponent,and
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devisingmethodsofinducingtheopponenttobelieveheorsheismaking"theirmove"of
theirownvolition.Forthemostpart,thelatterwilllikelybedonebyexampleifyouare
successful,otherswilltrytocopyyourmethods,anditbecomesessentialthentomakeit
appearthattheunderlyingreasonsforyoursuccessarenotasyouknowthemtobe.Thatis
notanunrealsituationintherealbusinessworld.MOSTCEOsareincapableofdevising
originalstrategiesandinsteadspendalifetimetryingtoapeothersor"outape"thosewho
are.Benchmarking,it'scalledintherealbusinessworld.Corporationspayforasetof
statisticsalsosuppliedtoyouintheBSGofindustryaveragesandindustrylowsforcosts.
CEOswillscanacrossthisandsetatargetbelowcompetitors'costs.Onequarter,itwillbe
say,1%.Another,say3%.Infact,youcouldsitachimpatakeyboardwithnumbersonly,
andimitatethemost"brilliant"ofcorporateCEOs.Theproblemwithsuchanapproachis
that,forthenationonly,itimpliesaneverdownwardspiralofwagesandbenefitsasthe
averagekeepsfallinginthewakeoftenthousandsuchdecisionsbytenthousandsuch
chimpanzees.Andofcourse,profitmarginskeepfallingbecauseamongthese"benchmarks
tobeat"areprices.Ifyouropponentsareastute,youwillfindyourprofits/scores(andtheirs)
driftingdownwardeachround.Iftheyareidiots,youwillbecomeaGlobalChampion.So
strikeearlyandstrikehard.
Theusualbusinessmodel,evenformanufacturingcorporations,isWalmart:makeorsell
shoddygoodsatlowprices,withthelowestpossibleshareoftheprofitsmetedoutto
anyonebutmanagersandstockholders.TheidealCEOtodayhasaspirationswhichdiffer
littlefromthevisionsofaplantationowneroftheantebellumDeepSouthwhoreliedon
gangsofslavestoproduceasizableincomeforthemasterinexchangeforabowlofcorn
mush.Andtheendthatliesaheadforhimorherwilllikelydifferlittle.Peoplegenerallywill
recovertheirdignityandlivelihoodsbysomemeans,usuallyinfitsandstarts,sometimesin
cataclysm.Butinthemeantime,themasterwilllivewell,sometimesverywellindeed.That's
yourgoalinthisgame.Livingwell.Andsqueezingotherssoyouandyourmajorstock
holdersmaydoso.Ifyoucandosowithouthesitation,withoutthatmomentaryclutchingdue
toasenseofresponsibilitytoandforoneother,youarelikelytosucceedinthecorporate
worldaswellasinthisgame.Yes,you'recorrectthatIStheclinicaldefinitionofa
sociopath,butatthemoment,thelivelihoodsoftheentireplanetarecontrolledbyan
organizedbandofsociopaths,asisevidencedbythebehaviorofbankingofficialswhohave
donemoreharmtomillionsinthiscountrythananyterroristshavedreamedofdoing,and
yetbelievewithalltheirheartsthattheyarefullyentitledtotheirmilliondollarbonuses.And
thesesociopathscontinuetowalkfree,withwadsofcashintheirpockets.They're
considered"normal",andinfacttheBSGholdsthemuptoyouasrolemodels.
StrategicConsiderations
Disguiseeverysuccessfulmovewithatleast2changes,whichwillleaveyouropponents
unsureofwhichtoemulate.UsecommonbulletinboardstoVERYSUBTLY,becausethere
arethoseintelligentenoughtoguessyourgameifit'soverttolet"slip"somemishintof
thisorthatplan,orslightmisexplanationofpastsuccess.Headleftbeforedoublingback
nextmovetogorightforexample,uppingS/Q(seebelow)onenotch,onemovebefore
droppingit2notchesthefollowinground.Therearemanywaystowinthisgame,andyou
mustbeversatileifyouhaveableopponents.Thispage,asearlyas2009,wasdrawing
some3000hitsdaily180,000hitsamonth,andyoucanbetthatatleastoneisfromoneof
yourcompetitors.Ifseveralare,yourgameisgoingtobecomeverymeanveryquickly
unlessyoumakeitseemasthoughyouarecontinuallychangingyourstrategy.Every
term/semester,Icorrespondwithacoupleofdozenteamsplayingthisgame.Invariably,the
questionarises:whathappensif2ormoreteamsadoptthisstrategy?Theanswerisalso
unchanging:thegamewillgetverygrimforyouindeed,butnotnearlyasgrimasifonlyone
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teamadoptsit,andthatteamisn'tYOURS.
Butneveroverestimateyouropponents:ifyouareawomanplayingmales,asknaive
questions,leadingopponentstobelieveyouareabouttodotheoppositeofwhatyouare
actuallyplanning.Letthemassumeyoursubsequent"error"isbaseduponyour"naivet"or
"hormones"ratherthanbeingabrilliantstrategicmove.Thesameistrueforethnicgroups,
whateverthenature.ThoseofEuropeanancestryinaclassdominatedbyAsiansor
Hispanics,mightplaytothehilttheideaofanignorant,arrogantjackass,whichispretty
muchhowLAandAPseethem,ratherthanofonedoingpiercingandcalculatedanalysis.
ThoseofAsianbackgroundmightplaytotheracismoftheirownEuroopponentsbyposing
asacalculatingmachineincapableofflexibleorganizationorofchangingdirection,by
insistinginpublicforumsonthecorrectnessofaparticularlypoormovebysomeotherteam,
forexample.HispanicsmightplaytotheracismofbothAsianandEuroopponentsby
pretendingtobelazyandunconcernedwithoutcomeswhileshrewdlycalculatingevery
possiblemove.Olderopponentscanplaythesamegamewithyoungerones,thelatter
assumingalackofcomputerandgamingskillsonthepartoftheformer.Findoutthe
prejudicialassumptionsheldbyyouropponentsandactverysubtlyasthoughyouare
meetingtheirexpectations.Leadthembyallusion,byseduction,orbyleavingthemonlyone
choice,upthepathtoCannae,whereyouwillplayaningenioushandandthencutout.Hide
youroccupation,ifneedbeneverletanyoneoutsideyourownteamknowthatyour
livelihood,forexample,comesfromdesigningbusinessstrategygamesforMcGrawHill.
Instead,letdropahintthatyoutinkerwithtoys,withoutbeingtoospecific.If,ontheother
hand,youareaWOWchampbutapianoteacherinyoursparetime,leadyouropponentsto
believethatallyouknowand/orareconcernedwith,isChopin.NeverforgetthatBSGisa
strategygame,anditisonyourstrategy,notyourbusinessskillsexceptinsofarasthey
areweightedbythegameitselfwhichwillyieldyourscores.
Therearemanywaystowinthisgame,butfollowingarethesomelessonslearnedfromour
experience,andfromthosewhohavesubsequentlysentustheirconclusions.Iftheirname
comesup,speakwellofthem.Thefiguresusedarethosefrommyownteam'sexperience,
buttheyarenotthebestseenincorrespondencewithotherstudents.ROEof35%earlyin
thegamearenotuncommonandoneteamfromThailandconsistentlyhitanROEof45
50%inagameof12teams.ROEintherangeof100%isnotrare.
Thegreatestmistakeyoucanmakeinthisgameistotrytorunyourfirmasarational
"business",assumingthatifyoumarketaqualityproduct,keepcostsundercontroland
showamodestprofit,withreasonabledividendsforyourshareholders,goodwagesforyour
employees,andkeepyourcreditclean,thatyouwilldojustfine.WRONG!That'sagreat
formulafora"momandpop"shop,butthefirmswhowinthisgamearethosewhohaveput
the"momandpop"shopsoutofbusiness.Theyarehugemultinationalfirmswhose
stockholdersdon'tcareonewhitaboutdividends,forexampleexceptastheyincrease
ROE/EPS.Multinationalfirmsintherealworldrarelypaydividendseither.Stockholdersin
therealworldareinterestedonlyinthepriceofstock,stockwhichtheyholdforanaverage
ofonlyoneyear,andthensellforatidyprofit.Thefutureofthefirm,beyondthatoneyear,
theyhavenointerestin,andtheyarepreparedtosacrificethefutureofthefirmandits
employeesforthevalueofthestockattheendoftheyear'stime.AnyCEOwhofailsto
sharethatviewwillsoonbeinthesameunemploymentlineasthosewhosejobstheyhave
slashedtofattenthestockprice.Thelengthofyourgame,howevermanyrounds,shouldbe
seenasequivalenttothatyearlongtermintherealworld.Ironically,losingteamswill,atthe
endofthegame,sniffdisappointedlyandpointproudlytotheirsqueakycleancreditrecord,
orsomeother"solidbusinesspractice"whichwascentraltotheirlosingthegameasa
justificationoftheirdecisions.Theywillneverunderstandthatwinningthisgamemeans
consumingeveryassetforthesakeofthecurrentsetofstockholders,andonlyforthem.
"Everyasset"includescredit.Onthispage,youwillfindemphasizedagainandagain:ifyou
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playthisgameforanA+creditandamodestprofit,youWILLLOSETHISGAME.In
declaringyourstrategytoyourprofessor,rememberthis:yourgoalshouldbereturning
maximumvaluetothestockholders(Ifthatmeansholdingabakesaleintheparkinglot,you
shouldbewillingtodoso.Ifitmeansslaughteringandsellingthecarcassesofyour
accountingstaff,doso.)
STEP1
Gotothebsgportal(theappearancechangesfromyeartoyear).Youwillsee"Create
StudentAccount",whichyouwillneedtodothefirsttimeyougotothesite(http://www.bsg
online.com/).Fromthenon,youwillneedonlytologinwithyourusernameandpasswordat
thetopofthepage.Seebelow.
Ifyouarealreadyloggedin,theloginbuttonwillnotbevisibleandinsteadthelink,"Return
toYourCorporateLobby"willappear(remember,theuserinterfacecanvaryfromtermto
term).
OnthispageyouwillfindafewinterestingitemssuchasGlobalTop25,HallofFame,etc.
butforthemostpartyouwillwanttosimply"ReturntoYourCorporateLobby".
THECORPORATELOBBY
Onthe"corporatelobby"page(seebelow),youwillfind3areasmostimportanttoyou.The
firstisyourmessagesanddeadlines.Thesecondisthecurrentexchangerate.Thethirdis
usedcapacityforsaleafteraround.
Thedeadlinesareselfexplanatory.Readthemsincetheyareassignedbyyourinstructor.
Theusedcapacitywillnotapplytothefirstround.Itreferstodecisionsbyotherteamstosell
offcapacityatthebeginningofanewroundandthisinformationwillonlybeavailabletoyou
attheendofaround,whenresultsareavailable.Youwillfinditworthyourwhiletostayup
untiltheseresultsareavailable(usuallyaftermidnight)andsnatchupallusedcapacityinLA
andofteninAPsinceitishalfprice.Seebelow.Purchasedusedcapacityisavailable
immediatelyinthefollowinground.
EXCHANGERATES
Theexchangeratesareusefulinformation,althoughtheyrelatetogeopolitical
developmentsbeyondyourcontrol.Therewasatimewhenthesefluctuationswere
unpredictable,anditwastemptingtoestablishplantsinmostregionssimplyasahedge
againstthem.Thatcanbequiteexpensive.Butcurrencyratesinthegamearebasedonreal
ratesintheworldmarket.BecausetheU.S.nationaldeficitcontinuedtoriseafteritbloated
tripled,actuallyundertheBushadministration(anaveragecommunity's2008shareofthat
indebtednessevenin2005was$2billionforatownof50,000,moredebtthanthecountry
hashithertoaccumulatedthaninitsentirehistory,andtherewereyearsofdeficitsaheadas
thecountrytriedtoleverageoutofthe2ndofBush'srecessionsbyfurtherborrowing)and
personaldebthasshotthroughtheceiling(asthecurrency'spurchasingpowerhas
plunged),youcangenerallydependuponU.S.currencyhavingacumulativelossinvalueif
thethelengthofyourgameissufficientlylong(individualinstructorscansetthelengthat
will).Toacertainextent,thisdebasementoftheAmericancurrencyisdependentupon
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politicaleventsintheU.S.butRepublicanadministrationsofthepast40yearshave
successivelyrunuprecorddeficitsandyetkeepprintingmoneylikegrocerychaincoupons.
Butwitha10trilliondollardebt,theU.S.haspassedthepointofreturnforcurrencystability.
TheObamaadministrationhashaltedtheaccumulationofdebtbutfartoolateinthehistory
ofthecountry'sdebttohavemuchofanimpactoncurrencyrates.
BecausetheindependentFederalReserveBoardregulatestheamountofcashflowing,
throughinterestrates,thetendencyforinflationaeuphemismforyourfallingstandardof
livingthroughthevacuumingupofyourcashforfewergoodsandservicesthrougha
mechanismofrisingpricestooccur,issomewhatkeptincheck.Butinaneraofstaggering
personal(especiallystudent)debt,currencydevaluation(anotherphraseforinflation)is
inevitable.Today,aU.S.dollarisworthlessthanthepostagerequiredtomailitinan
envelopetomanycountries.SinceLyndonJohnson,Democratsontheotherhand,have
tendedtoletpricesreflectanyindebtedness(inflation),andthepoliticalrepercussionshave
beenimmensewhenthesearenotreinedin.TheonetermpresidencyofJimmyCarterwas
theextremeexample.Thereis,since,arecognitiononthepartofDemocratsthatprices
directlyaffectedbythegovernment'soutputofdebtandcurrencymustbecontrolledexcept
intheeventofnationalcatastrophe.NationalcatastropheisaeuphemismforPearlHarbor
or8yearsofcorporateplunderunderRepublicanrule,aswasrecentlyendedin2008.Asa
consequenceboththevalueofthedollar,andinterestratestendtofluctuatelessunder
Democrats,outofselfinterest.Republicanadministrationsfunctionmorelikethe"corporate
raiders"orthemutualfundswhoownyourowncompany,caringlittleaboutthelongterm
affectsastheysiphonofftheresourcesintothepocketsofcorporateraidersoverthevery
shortterm.GeorgeBushwasn'tjokingwhenhetoldagatheringofbillionairesthat"some
peoplecallyoutheelitistrichIcallyoumybase".Andtheendresult,ofRepublicanfortunes
fallingtothelowpointsof,say,theNixonorBushadministration,doesnotleavethem
sleepless.Notonmattressesstuffedwithmillionsofdollarsdonatedbytheirmentors.They
knowAmericansarerestless,willbecomeboredwithmundanelifeunderDemocratsandwill
comeback"formore".Thehumormagazine,theOnion,headlinedthe"election"of
RepublicanGeorgeBush:"Atlast,thislong,unbrokennationalnightmareofpeaceand
prosperityhasended"Asuncomfortableasthismayleaveyou,itisessentialtoyour
understandingofthegame:theAmericandollarwillbetrashedfarmoreseverelyunder
Republicanadministrationthanotherwise.
Theexceptiontothefallingvalueofthedollarisinmomentsoftotalfinancialcollapseinthe
U.S.,whenthemultinationalsfinditnecessarytopulloverseasassetsintotheU.S.inorder
topaydowndebt.Thisisapurelytemporarydevelopmentandwillbefollowedbymorelows
fortheU.S.dollarastheeconomyrecovers,evenslightly.Theselows,ofcourse,translate
intoadeclininglivingstandardforAmericansingeneral,astheyareunabletopurchasethe
samequantitiesofgoodsasheretofore.
Thedollar'svalueisnowatthelowestithasbeeninnearly30years,sincetheReagan
administration.Thismeansyourpricesaregoingtobeveryvolatile:moreexpensiveraw
materials,andfinishedshoesfromLA,NA,andEAwillcostmoreintheUS.Itmeansthe
profitsofyourproductsmadeinplantsabroadwillbelower.Andinelectionyears,theycould
beveryvolatileasthemarketsanticipateresults.
TherelativedropoftheU.S.currency,however,willaffectonlythevalueofthedollarversus
theJapaneseyen/Singaporedollar/Chineseyuanandtheeuro.Thevalueofthedollar
relativetotheBrazilianrealdependsalmostentirelyuponeventsinBrazil,whichare
increasinglylesspromisingthan,say,adecadeago.Thedevelopmentofcivilwarbetween
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thegangs,whodominatetheincreasinglydesperatefavelas(slums),andthearmy,seriously
disturbstherealwhenmajoroutbreakswhichattimesareonthebrinkoflargescale
warfareoccur.ThisfluctuationinBraziliancurrency,uponwhichalltradewithLAinthe
gameisbased,isastrongargument(alongsidelowerwagespaidtoLatinoworkers
comparedtotheU.S.orEuropebymultinationalfirms),forplanningafactoryinLAwitha
capacity,eventually,ofatleast3000.ThecurrentpartyinBrazilistryingtoremedythe
situationsinthefavelas,andthereiscurrentlyanexpansionoftheBrazilianeconomy.It
wouldbedifficulttopredicttheeffectofthisoncurrencyexchangerates.
Donot,then,buildsmallerplantsineveryregiononthepremisethatwidecurrency
fluctuationswilljustifytheinvestment.FocusonlargeplantsinAP/LAandavoidbuildingin
theU.S./EA.Infact,youshouldnotbuildsmallerplantsinANYregion.Anyteamwitha
dreamofbuildingasmallcustomplantturningoutcustomized"nicheshoes",ofverygood
quality,say,willbeveryquicklydisabusedoftheworkabilityofsuchascheme.Thegame,
asdoescorporatereality,shutsoutsmalleroperationswhichdonotfocusonproducinglow
qualitygoodsatverylargefacilitiesi.e.,atthelowestpossiblefixedcostpershoe.Ifyou
can'taffordtobuildthesemegafacilities,youcan'taffordtobeintheshoebusiness.So
borrow,borrowborrow(seebelow),oryourfirmwillsurelydie.
Thisis,ofcourse,areflectionoftheBSG'sobsolescence.Intherealbusinessworldtoday,
thecostsofmaintainingplantcapacity,after40yearsofcorporationsusing"Benchmarks"to
shedcosts(andprofitmargins,incidentally),havecometobecompletelyavoidedby
outsourcingproductiontoothers.AdidasandNikescanbemadeatthesamemanufacturing
plantinAsiaorevenintheCzechRepublic.Factoriesarenotownedbythecorporations
identifiedwithaproduct.Ifmoreproductionisneeded,alargerorderissimplyplaced.This
isanotherpartofthegamewhichisafossilfromanearliereraofdoingbusiness.Today,a
farsightedlargecorporationwhichhasseenprofitsslide,doesnotfocusonlyoncutting
costsandwatchingothersapethem,withsubsequentfallsinprofit.Suchafirmwillinstead
expand(usuallyvertically,tobuy,forexample,afirmspecializingindyesforshoes
subsequentmergingofmarketing,maintenance,informationetc.allowingslighteconomies
ofscale.Moreimportantly,theycreateanewssplashwhichbooststhepriceofstock
slightly.Shareholdersthusseeaslightincreaseintheirprofitwhensellingthestock,andit
reallydoesn'tmatterifthefutureofthefirmisrelinquishedbythesizeofthenewdebttaken
ontobuythefirm.Onlytheshorttermtheperiodbetweenstockpurchaseandsale
matters.)
DECISIONENTRIES
Afterlogginginandchoosing"ClickHereToEnterY...Decisions",youwillbetakentothe
secondaryportalwhereyouwillchoosetheDecisionEntriesPage.
ThispageisactuallytheRESULTofyourmostimportantdecisions.Itisnottheplaceto
enterthem.First,goinsteadtotheFinanceandcashflowpage(youcangetthereusingthe
tabatlowerleftonyourBrandedSalesForecastpage).
THEFINANCEANDCASHFLOWPAGE:BORROWING,STOCKDIVIDENDS
Thisiswhereyouwillborrowmoney.Inthefirstfewrounds,youwillborrowthemaximumin
longterm(10year)loans(usually$250million).Don'tallowyourfiscalconservatismtogetin
thewayofyourwinningthegame.Byfocusingonthosescoreswhicharemostimportant,
youwillinevitablyyieldgroundoncreditratinginallbutthelateroundstothoseneophytes
whoarefocusedonperformingtheirroleasconservativefinancialofficers(CFOs),tothe
detrimentoftheirteam'soverallperformance.Mostinstructorsmakeuseofabulletinboard
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whichyouwillfindworthsnickeringoverattheendofthegame,withlosingteams
congratulatingthemselvesonmaintainingtheirsuperiorcreditratingaswellasadozen
otherdeficienciesintheirgame.Borrowingheavilyisessentialtothewinningofthisgame.
YouwillNOTwinthisgameifyouyourgoalisanA+creditrating.YouSHOULDtrytonever
planforaroundwithacreditratinglessthanB+,althoughyoumayfindthat,inthegame
itself,yourcreditmayfalleventoConanoccasion.Youwillnotbefocusinguponrational
investmentdecisionsbutuponpredatoryones.Sleazebagshouldbecomeyourmiddlename
forthedurationofthegame.Saveyourmoraloutrageandfiscalresponsibilityfortheday
whenyouaredonewithyoursillydegreeandcanmakeyouroutrageknownelsewhere,in
thestreets,inthewayyouliveyourlife.
Inearlyrounds,youwillbeborrowingtoexpandcapacityandupgradeequipment,aswellas
tobuystockback.Inroundone,youshouldtrytoexpandyourstartingcapacityinAP,and
expandthemaximumallowedforanewplantinLA(usually2000capacity,sometimes
1000).Sincenewplantcapacityfor1000isgenerallyintherangeof35million,youwillbe
abletostartanewplantinLAandusetheremaindertoincreasethesizeofyourAPplant
aswellasupgradeforsetupsandbuybacksomestock.Yoursuccessdependsuponyour
productioncapacity.Letmerepeatthat,sinceit'ssoimportantinthegame:yoursuccess
dependsuponyourproductioncapacitywithoneproviso,addedbyastudent/senior
managerinTexas:productioncapacityneedstobehingedon"economyofscale":by
increasingyourcapacityinspecificenvironments,younotonlyincreasetheabilitytosatisfy
anymarketdemand,butalsolowerthecostofyourshoes,sincefixedcostsarespreadover
everlargernumbersofshoes.Thus,asingleplantof8,000inoneregionisvastlysuperior
toplantsof2500ineachof4regions,despitetheseeminginferiorityinnumbers.Eachplant
operatesindependently.Thatis,your4plantsdonotoperateasasingle10,000unitplant,
andfixedcostsarespreadonlyoverthenumberofshoesproducedinaregion.To
understandtheroleoffixedcosts,imaginethatthecostofmaintaining,ataplantoffixed
dimensions,atemperatureof68degreesis$1000,spreadoutover100shoes.Thepriceof
eachshoemustbethensaddledwithanaverageof$10forheatingcosts.If,instead,the
sameplantproduces10,000shoes,eachshoemustbearacostofonedimeforheating.
Thelatterplant'sshoecosts,andthusprices,willreflectcostsnearly$10lessthanthe
former.Thesameistrueoflandscaping,roadmaintenance,powerlines,keepingaCEOin
thestyletowhichheorshehasbecomeaccustomed,etc.
Inround1,yourcreditratingisasgoodasitwilleverbeinthegame.Youwillwantto
borrowextensivelytotakeadvantageofthisrelativelylowinterestrate.Useonlylongterm
(10year)loanswhenpossible.Butborrow.Extensively.Eachround.Therewillbethose
businessmajorswhohaveneverworkedinthecorporateworldwhoarguethatthisrepeated
borrowingsaddlesthecompanywithlongtermdebtswhichwillultimatelydoomitto
extinction.They'reright.Whocares?Yourgame,andthusyourfirmhasalimitedlife
anyway.Pillagingit,isyourkeytosuccess.Whenyouwalkaway,asthestockholdersinthe
financialsectorhavedoneundertheBushadministration,youwilllookoveryourshoulder
andseewhattheydoacarcasswherethefirmoncestood.
Andthisisreality,inasense.IntheAmericanbusinessworldtoday,companyownersare
nolongerthecompanyownersofyourgrandmother'sday.Theydonotgiveahangabout
thelongtermviabilityofthecompany.TheycareonlyaboutthestockpricenextThursday
sotheycansellitonFriday.IfthecompanycollapsesonSaturday,throwingeveryoneelse
outofwork,andallthesmaller,orlatepurchasing,stockholdersintobankruptcycourt,
today's"owners"willyetsleepwell.Legally,acorporatedominatedSupremeCourthas
twicedeclaredthatcorporationsare"individualhumanbeings"andhaveallthe"rights"that
peopledo,withtheownershavingnoresponsibilityfortheirdeedsoftheircreation,orforits
employees'(CEOs')malfeasance.Theirony,ofcourse,isthatmanyoftheselargestock
holdersaregenerallymutualfundswhosecapitalisbeingprovidedbythepensionfundsof
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theveryworkerstobetossedoutoftheirjobsnextweek.They,andweasanation,arethus
committingcollectivesuicidebysquirreling401Kfundsintotheseinstitutions,butthat'sthe
realityofthingstoday.UndertheBushadministration,corporationshadunchallengedrule,
andasaconsequenceof8yearsofsucharegime,themostbasicofhumanneeds
housing,foodandfuelarenowinjeopardyforthecountry.Wehavebeenusedupand
squeezeddry.WemakenothingintheU.S.anymoreandwehavenomoneylefttosiphon
offtothelikesofHalliburton,MonsantoorWachovia.Asaconsequence,itisthewealthof
futuregenerationsdebt,whetherprivateorpublicthattheyarelefttofocusupon.
Besidesmutualfunds,theothermajorplayersintheworldtodayarepooledfundsunderthe
tutelageofasinglepersonalitysuchasWarrenBuffet,andtheyalsohavelittleconcernfor
thefutureofthecompaniestheydivestthemselvesof,aftertakingaprofitonthepriceof
stockoneofthemoreimportantscoresinthegame.That'sreality,andthat'sreflectedin
thegametosomeextent.Buffethimselfseemstobeaverydecentperson,buthe'sworking
agamewhichisnothonest.Andhe'sworkingitverywellindeed.Itis,afterall,currentlythe
onlygameintownforhimtoplay.
Somestudentsobjecttotherealityof"banks"extendingloanstocompaniesexpanding
rapidlyinamarketwherecapacitycanoftengreatlyexceeddemand,asitusuallywill.That
isoflittleconcerntoyou,andthefactofthematteristhatalargecorporationwillalwaysfind
waysofraisingmoneyfromunwittingshillswhenneeded.Itmaybefromissuingvarious
sortsofquestionablenotesbackedbylittlemorethanthe"vision"spewingfromapower
drunkenCEO,orgovernmentbailouts,butitwillcomefromsomewhere.Itmaybefrom
fraud,orfromfromlegislationpassedby"friendly"(corrupt)legislators,granting"taxbreaks".
Forexample,hereinOregon,Abillpassedbythelegislature,ostensiblyintendedtofund
windenergy,allowedWalmarttobuy$40millionintaxcreditswhichallowedthecorporation
toevade$90millionintaxes,givingthema$50millionwindfalltouseforequallyprofitable
investments.SimilarfundingmaycomefromboostingATMfeesoroffshorebanking
schemes(Googleforexample,shipsitsprofitsthroughIrelandtoBermudawithataxrateof
amere2%.That'scalled"moneylaunderingwhengangstersdoit.Whencorporationsdoit,
it'scalled"offshoring".).Infact,ifthebankingpoliciespermittedbytheBushadministration
provednothingelse,theyprovedthatbanksarejustasliabletosacrificethelongterm
viabilityofafirmforprofitsandstockpricesrisingoveraveryshortterm.Likeother
corporationstheyareresponsibleonlytothecurrentcropofshareholders.
Asaconsequence,themoneywillcomefromsomewhere,foraperiodoftime,and
coincidentallythisgamehasafiniteperiodofplay.Inthegame,allsuchsourcesare
collectivelylabeled"thebank".Andtheworstpunishmenttobeincurredforlargedebtshort
ofbankruptcyisincrementalinterestrises,whichhopefullywillbringthecompanytoits
welldeserveddeaththeweekafteryourgameendswithyourwin.Meantime,borrow.
Borrow.Borrow.
Again:inthefirstround,youwillwanttogreatlyincreasecapacityinAPifyoupossiblycan.
StayoutofEA.Oncemore:STAYOUTOFEA.Youwillalsowanttoborrowtoinvestforthe
maximumcapacityallowedinLA,whichinourgamewas1000initially,butwhichcanbe
increasedbyyourprofessor.Ifyoursisa1000limit,thenthefollowinground,theshoesin
LAwillbeveryexpensive,asthefixedcostsoftheplantwillbespreadoverasmallnumber
ofproducts,andprofitmarginswillbethinifyoukeepthepricescompetitive.However,in
subsequentrounds,asothersfollowyouintoLAandsomewillfollowyou(thesheep
instinct,again)youwillhaveafullplantinoperationasthey,inturn,openalimitedfacility
andyouwilltrouncethemintheregion.Thecurrencyfluctuations,andaccompanying
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exchangerates,inLA,canbesovolatilethatthepresenceofalargeplantintheregionis
essential.Andwagesaresooppressivelycheap,andworkingconditionsandenvironmental
lawssoweakandpathetic,thatanLAplantisimmeasurablycheapertooperate.In
subsequentrounds,youarepermittedtoexpandonlyby50%afigurewhichcanbe
adjustedbythepowersthatbe)soRound2,youwilladd50%totheLAregion,andin
Round3,50%again(50%of1000+500inourgame).Atthatpointyourplantisfully
operational,thoughfurtherexpansionisdesirableatleastto3000.InAPand
subsequentlyinLAtooyoumaywanttoexpandcapacityineveryregionby1000each
roundinthebeginning,ifyoucan,afterincreasingAPcapacityinthefirstround.Alwayspick
upusedAP/LAcapacityothersofferforsale.FromthecalculationsofastudentinBangkok,
theidealyouareshootingforearlyistohaveatleasttwicetheaveragemarketshare
averageforateambytheendofthegame,andtwicethecapacityofyournearest
competitorineachregionpreferablyfromthefirstroundforward.Forexample,if6teams
areplaying,thenyouwouldexpectanaverageteamtohave16.7%averagemarketshare.
Youareshootingforcapacitywhichwouldallowyoutohave33%then,ifyouchosetoputit
allinthebrandedmarket.Alternatively,if10teamsareplaying,eachshouldaverage10%of
themarket,andyouareshootingfor20%.Projectedmarketdemandsforfutureyears(which
canbevariedbyindividualinstructors)willprovideyouwiththecapacitynumbersneededto
giveyouthesenumbers.Alwaysplanforaslightlygreatercapacitythanthesenumbers
indicate,sinceactualmarketdemand(whichappearstobedeterminedbyaprobability
algorithmbuiltintothegame)willattimesexceedprojections.Butplantheseincreases
"reasonably",althoughyoucanalwayssellcapacityasyouwillyourNAplantinaglut.
Axiom:Yoursuccessinthegamewillbedirectlylinkedtoyourpracticeofeconomyofscale
andyourbreadthofline(modelnumber:seebelow)aswellaslimitedstockownership.
REPEATTHAT:youwillwinonlyifyouhavealargerplantthanyouropponentinaregion,
haveasmanyormoremodelnumbers,andnomoreorfeweroutstandingsharesofstock
thanyouropponent.
Sayitagain.
Again:inthefirstround,youwillwanttoincreasecapacityinAPifyoupossiblycan.Stayout
ofEAasaproductionsource(althoughtheEAmarketislucrative).Oncemore:STAYOUT
OFEAasamanufacturingsource.ASouthAfricanstudentpointedoutthatthegameis
Eurocentricinthisrespect.ThewagesinBurundi,forexample,havelittletodowiththe
wagesinBritain,yettheEAfactoriesareorientedtowardthelatter.ArgumentsthatAfricais
toosmalltomerititsownregionarefacetious.Thereare1billionAfricans,whichdwarfsNA
insize.AsimilarcontradictionexistsinAP.Japaneseworkersearnwagesfarhigherthan
theMalaysianorVietnameseworkersthegameenvisions(Infact,Japaneseautoworkers
makeadollaranhourmorethanAmericanautoworkers.It'sinthebenefitpackageonlythat
JapaneseautomanufacturershavelowercoststhaninNA,becauseofNationalHealth
Insuranceandthelike,whichpushapartofthecostsontothepublicasawholeratherthan
ontothecorporation).
BigDeal:thegameissimplyracistandethnocentric.Livewithit.Itwasdesignedin
Alabama.Youwereexpectingsomethingelse?
Thiscapacityexpansionmaywellcometoahaltwithaninstructor'sinterventionatsome
point,onoccasionwithaninstructorabsolutelyforbiddingfurtherexpansion,andforothers,
withprofessorialpenaltiesforexcesscapacity.Morefrequently,aninstructorintervenesby
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increasingmarketsizewhichwilleffectivelyshrinkyourmarketshare.Sincemarketshareis
halfthedeterminingfactorinimage,italsoaffectsyourimagerating.Soexpandrapidlyearly
on.
Marketshareinearlystagesofthegameisaliabilityasmuchasanassetifyousetyour
priceslow.Ifyouselleveryshoeyouhave,ataprofitof,say$7,andyournextbest
opponenthasa"deal"forthepublicatadollarhigher,ataprofitof$8,andyoucanonly
produceenoughshoestomeethalfthedemand,theotherhalfwillfalltoyourcompetitorby
default.Eachofyouwillhavehalfofthemarket,withtheirhalfyieldinghigherprofits.They
willwineveryroundplayedinsuchafashion.Inreality,therearemoreteamsandmore
factorsinvolved,butyougetmydrift.YourROEandEPSwilldriftlower,andyourstock
pricewillsufferthroughoutthegameunlessyoucanbegintomeetdemandforyourshoes.
Andbecauseyouaren'tabletodeliver,thenumberofretailerswillingtohandleyour
productsnextroundwillshrinkthenumberofretailersisnotamajorfactor,butafactor
nonetheless.
Inborrowinginround1(andeveryroundthereafter),youwillwanttocompareyourcurrent
interestratewiththatontheoutstandingloansassignedyourcompanyatthebeginningof
thegame.Youmayfinditcheapertorefinancecalled"EarlyRepaymentofLoan"onthe
financepage)theoutstandingpartofthoseloansalongsidenewloansforexpansionand
inRound1youwillwanttoborrowprimarilyforrapidexpansionandbuyingstockback.If,
forexample,yourcompanyhasbeenassignedanoutstandingprinciplewhichis30%ofthe
maximumallowedforlongtermloans,atahigherinterestratethanonalongtermloanyou
cancurrentlytakeout,youwillnotwanttoborrowthatamountonly,topaydowntheloanat
alowerinterestrate.Youwillwanttoborrowthemaximumallowedinlongtermloansand
useittoincreaseyourAPproductioncapacitybyatleast25%ifatallpossible.Yourstock
priceisatapremiumontheeveRound1too,andyoumaynotwanttowinthisroundina
largeway.Infact,youmaywanttoloseit,sothatyourstockpricetanksandyoucanuse
the2ndroundtobuyitbackmuchmorecheaply(seebelow).Borrowthemaximuminlong
termloanstostartaplantinLA,andtoincreaseyourcapacityinAPinRound1,anddo
thesetupupgradeintheAP.InRound1,wemadethemistakeofborrowingearlyonto
investinvariousplantupgradesalongsideexpandingcapacity,ratherthanfocusingonlyon
thelatter.Youcandotheupgradesinlaterrounds,whichisabetteridea.
Theexceptionistheproductionsetupupgrade.Asplantsandmodelnumbersexpand,this
upgradebecomesprohibitivelyexpensive,andyetthesavingsbecomeevermoreimmense.
Dothisupgradeasrapidlyaspossible(seeplantcapacitybelow).Byinvestinginitwhile
plantsaresmall,thebenefitisinheritedasplantsgrowandcostoftheupgradeisnothing
additional.
StockDividends:Thegamedoesnottrackthesizeofthedividends(exceptaspartof
EPS/ROEandequity),onlywhetheritincreasesordecreases.Setthestockdividendlowat
thispoint.Weputitat$.05annuallyandaddedapennyeveryyearsothatattheendofthe
6thround,wewereshellingoutadime.Thatgaveusascore(+/)of5/1inraising/lowering
thedividends.Otherteamswhichtriedtoimpressthe"investors"werepayingout$12in
Round1butnecessarilydroppingthemeveryroundfollowingforascoreof1/5,orroughly
25timeslowerthanours.TheincreasedROEyoupostwillmorethancompensateforthe
smallsizeofthedividend.However,it'simportanttorememberthatlowerdividendsmean
thatprofitsarebeingplowedbackintothebusiness,whichmeanshigherequityforthefirm,
andthisequityisadenominatorinoneofthefinancialscores(netprofitdividedbyequity).If
youhaveinvestedheavilybutstillhaveatonofcashlayingaroundandexpecttodosofor
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futurerounds,increaseyourdividendpayments.Otherwise,simplyincreasethemeach
roundbyaminimalamount,inourcaseapenny.
EXCEPTION:Thelastround,bywhichtimeyoushouldhaveyourearlyloanslargelypaid
off,youcanborrowthemaximumallowedyouin10andeven5yearloansprovidedyour
creditdoesn'tfallbelowaB+asaresultandhanditouttostockholders.Itwillgreatly
increaseyourROEandswingaclosegameyourway.Ofcourse,thiswillleavefuture
stockholders/generationswithastaggeringdebtthatwillsurelydragthecompanytoits
death.Meantime,thestockwillsurge,andtheCURRENTstockholderswillrewardYOUwith
yourbonusandbothyouandtheycanwalkawaybeforethepyramidschemecrumbles.
That'showbusinessisdonethesedays.Ifyou'veanydoubts,youcanexaminethehistory
ofthemortgagecompaniesrecently.
StockBuybacks
Ifyourstockpricetanksafterthefirstroundyouareinluck,ifyouaresmartandmake
arrangementstobuystockback.Weinplanningthefollowingroundscouldborrow
enoughtobuybackallthestocksharespermitted(2,500,000of10,000,000shares)in2
roundsandtherestofthegameweweredividingby3(theremaining7,500,000shares)
whileothersweredividingby4(theoriginal10millionshares)inROE/EPScalculations
givingthemanautomatic33.3%disadvantageinscoringuntil2otherteams"caughton"late
inthegameanddidlikewise.3of7teamsactuallysoldshares,increasingthenumberby
20%andfurtherdisadvantagingthem.Thus(seebelow),itmaybetoyouradvantageto
ensurethatyourstockDOEStankinround1.HoweveritisNEVERtoolatetobuystock
back.If,lateinthegame,yourstockhasrisensignificantlyinprice,andyoucan'taffordto
buybackallofitinacoupleofrounds,rememberthatthebulkofacompany'sequityisin
thestockvalue.Buyingupevenafewhundredsharesatveryhighpricesreducestheequity
considerable.ROEisreturn/equity.DecreasingthesizeofthedenominatorincreasesROE.
ThesameistrueofEPS=Earnings/numberofshares.Decreasingthedenominatoralso
increasesEPS.IhaveseenlatebuyoutofexpensivestockresultinROEofhundredsofper
cent.BUTNEVERSELLSHARES.Toidiots,sellingshareslookslikefreemoney.Butyou
don'tneedto"dothemath"toseeit'samistake.Thegamewilldothemathforyou.You
needonlytobeABLEtodoit,toseetheerrorinsuchamove.
PLANTCAPACITY
Havingsetyourstockdividendandarrangedyourloansasmentionedabove,gotothePlant
Capacitytab:
Useyourmoneytoincreaseyourcapacitydramaticallyanddothe"facilitiesupgradeto
reduceproductionrunsetupby50%"onlyontheAPlineinRound1,insofarasyoucan
withthemoneyavailabletoyou.OncetheLAlineisupafterthe2ndor3rdroundthen.,
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dependinguponthesizeofthemarket(whichisafunctionofthenumberofteamsina
game),youlikelywillsellofftheNAplant.That,ofcourse,entailscatastropheforallthose
workingattheplant,butthegameisdesignedtoimmunizeyouagainstanyfeelingsof
remorseorempathy.Whenyougotoworkforglobalcorporations,youwillneedthat
immunity.Youwillnotbeusingsuchverbosephrasessuchas"sellingoffcapacity"instead
youwillbeusingacronymsdesignedtoevenfurtherremoveyoufromrealities."Westroveto
reduceXPCandDGRby80%butweonlymanaged65%"orsomesuch,whichistranslated
from"managementspeak"intoPlainEnglishas"wefailedtointroducethemiseryand
hardshipweplannedinto12,000ofthe35,000householdswehadplannedto"(impliedis:
"butwewillmakethemsufferthenextquarterinstead").
Whenyou'vefinishedenteringthesedecisions,moveontotheBrandedProductionpage.
PercentageofSuperiorMaterials:
Ostensibly,thecostofsuperiormaterialsissetbyworldcommodityprices,buttheexact
natureandsourceofthesepricesinthegameisasecretknownonlytoMcGrawHill.We
couldneverfigureouttheexactalgorithmalthoughsupplyanddemandamongtheteams
involvedinyourclassisahugefactor.Leatherisinvolved,asyoucanseebytrackingthe
weeklycostincommoditymarketsandlookingatthegame'sprices.Barringsomedisaster
suchasmadcowdiseaseorahoofandmouthoutbreakresultinginthemassslaughterof
thousandsofcows,thesecostswillfluctuateslightlyfromweektoweek(dueto
supply/demandfluctuations)forplantsoutsidetheU.S.,solongastheyarebuyingU.S.beef
(beefproductionisincreasingworldwide)andtheAmericandollar'sdebasementcontinues
unchecked.Thiswillbeoffsetsomewhatbytheincreasing"cultivation"ofcattleintoChina
(AP)andtheincreasingwillingnessofIndia(AP)tosendcowstoslaughterinspiteof
religiousimpulses(thehypocritically"devout"uppercasteHindussimplyoutsourcethe
"taboo"jobtoothers).Butthatoffsettingisalllikelytounravelascattlefeedcorn,primarily
goestobiofuel.Itmayevenbeundonecompletelybythetrend.LAhasalwaysbeena
largecattleproducingregionandtheongoingrazingoftherainforestbycattlebaronsonly
promisesmoreofthesame.Yet,heretoo,thebiofueldemandbyoilcompaniesis
threateningcattleproduction.Regardless,thepriceswillrisediscerniblyoverthecourseof
thegameasteamsincreasetheirS/Q(andmanywill),providedaworldwideeconomic
recessiondoesnottakeplace,asinevitablywilloccur.That'fluctuationwillespeciallybetrue
ascapacityexpandsamongyourcompetitors.Yeteachregionwillneedtobeconsidered
separately.Insomeregions,youwillfindthepercentageofrawmaterialsaremost
effectivelysetashighas35%,onoccasioneven50%,butasageneralrule,10%20%is
adequateforanS/Qof,say,5,dependinguponthechoicesyoumakeelsewhere.On
occasion,6%willbesufficientandeven0forverylowS/Q.Needlesstosay,theshoddier
andcheaperthematerialsyoucangetawaywith,thebetterforyourpricesandprofits.
Neverthinktwiceaboutthefactthatyourshoeswillfallapartonfirstwearing.That'snota
reallifebusinessdecision,anditdoesn'tfactorintothegameeither.Thereisnoscorefor
thesustainabilityoftheplanetinvolvedinmakingfewershoesofgreaterlongevity.The
CorporateResponsibilityscoresarewindowdressing.Thesocalledgreendecisionspage
hasnoimpactonyourscorewiththeexceptionofconservingelectricity(seebelow).
Generally,then,afigureof1218%isused.ItshouldNEVERexceed20%exceptin
exceptionalcases.
Findingthispageuseful?Donateafewbuckstokeeptheservergoing
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EnhancedStyling:
Theimpactofenhancedstylingoneachofthe4marketregionsvaries.Inround1,youwill
wanttoexperimentwithvaryingtheenhancedstyling/features,percentageofsuperior
materials,thechangeinannualbasewages,andincentivepaytoseewhichsetoffigures
resultsinthelowestpossibleTotalCostofManufacturesShoesatthebottomofthepage.
Thesepercentageswillnotonlyvaryfromregiontoregion,butfromroundtoround.Insome
regions,enhancedstylingwillbemosteffectiveat0,andinothers,from10to15,depending
uponyourchoicesfortheothervariables.Initially,itwilllikelytakeyouanhour,atleast,to
trythevariouspermutationspossibleineachregion,butasthegameprogresses,youillfind
ittakesnomorethanafewminutes.Thisgamewilloftenbedecideduponpenniesso
initiallyputthebulkofyourtimehere.Bychangingthevariouscombinations,youwillfindthe
TotalManufacturingCostofBrandedShoesatthebottomofthepageshifts.Getthisfigure
downaslowaspossible.Andrememberthatintheageofglobalization,shoddygoodsare
notaliability.I'vecorrespondedwithteamswhosemembersinsisttheydon'twanttheir
namesassociatedwithlowqualityproducts.Ifyoufeelthatwaytoo,thenpleaseanswerme
this:"where,peuttre,areyouplanningtoworkaftergraduation?Qualitytodayisnothing
morethanamarketingslogan.Itdoesn'texistinthecorporateworld.Youdon'tbelongin
shoemanufacturing.Insteadofbeingenrolledinthisinstitution,youshouldbeworkingwith
anorganicgardenerorahandcrafttoymaker.Youwouldfindmoresatisfactionandfeel
betteraboutyourwork.Andyou'llcomeclosetobeingstarvedtodeath.Therearesevere
negativeconsequencesforqualityandintegrityintoday'smarketplace.
TQM/SixSigma,BestPracticesTraininginRound1:
SpendingthemaximumonTQMandespeciallyBestPracticesisa"must".Theseare
cumulativeinvestmentsandbytheendofthegame,BestPracticesinvestmentswillbe
saving$12apair.ThemaximumonTQMisusually$2.50.$5,000isusuallyasgoodasyou
candowithBestPractices.KeepspendingthemaximumonBestPracticesuntilthefinal
rounds,whenthecumulativevalueforthenonexistentfutureisofnopurpose.InRound1,it
willappearasthoughtheyaresimplyincreasingyourcosts.Theyare,buttheyarean
investmentinthefuturewhichisjustifiedbythereturnsdowntheroad.Ifyouhaveto
sacrificeoneortheother,lowerTQM.
Thisis,bytheway,themostunrealisticpartofthegame.TQMcircleswerea"buzzword"in
theNinetieswhenthegamecameofage.ThesuccessofTQMdependsuponaneducated
workforcecapableofanalyzingproductioncostsandfailuresstatistically,andalsoupon
therebeingnolessexpensivemeansofcuttingcosts.TheAmericanworkforceisfrombeing
trainedbyemployerstobemathematicallyliterateanddependsentirelyuponmanagement
producedstatisticalanalysis.Ratherthandevotetheconsiderablelaborcostsinholding
regularmeetingstotrainemployeestoanalyzetheseresultsviaTQM,itisfarlesscostlyto
simplyimplementanychangesbyfiat.ThegaininworkermoraleviaTQMtoutedbythe
method'sproponentsiseasilyoffsetbyhiringimmigrantsorrecentcollegegradsdesperate
forworkatevenminimalwages,workingthemtodeathandthenriddingoneselfofthem
whentheyareburnedout.Andthequalityoflifeofotherhumanbeings,ontheprioritylistof
CEOs,ranksaboutthesameastheideaofpersonallyrecyclingcoffeegroundsintheflower
potsonthewalkwaystotheirsuites.Theyaredevoidofempathy,andthegameisdesigned
toridyouofyours,asisthecurriculumyou'refollowingorelseyouwouldn'tbeplayingthis
game.YoucouldtaketheheartofmostCEOs(anduniversityprofessorsandpresidentsfor
thatmatter)andstickitinthebellybuttonofanantandstillhaveampleroomforhisorher
brain.Ifyougettothisstagetoo,congratulationsyou'veshakenyourstatusasmere
sociopath.Theinabilitytofeelempathyistheclinicaldefinitionofthemuchmoreserious
psychopath.
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Butthisaspectofthegameisrealisticinthatitshowsthatthefocusofacompany'sfinancial
investmentinbetterproductionisalwaysintermsofoverhypedprocess,ratherthan
focusingontheactualjobsatisfactionofemployees.Collegebusinessclassescontinueto
pretendasthoughQualityCirclesorevenanemphasisonqualityarearealityin
Americanbusinesslife.Theyarenot.You'dfinditdifficulttofindasinglefirmwith"Total
Quality"circlesthesedays.Getcostsdown,gettheshoddiestpossibleproductsoutthe
door.It'saWalmartera:move'emin,slop'emdown,move'emout.Butthecollegebiasin
thegamewillbeaccommodatedbytheastuteplayer.SospendsomeonTQMand
squanderthemaximumononBestPractices(say,$5000).Itfitsthegame'sdesign.
Wages
Asthemanualpointsout,currentstandardsoflivinginAPandLAareonly20%ofthosein
NAandAP,andthecorporationsinvolvedabroadwilldowhateverisnecessarycoup
d'etats,faked"elections"boughtandpaidfor,etc.tokeepthoseratios.Thecurrent
destructionrampantinHaiti,forexample,beganasasimpleattempttoraisewagesata
baseballfactory.Thesuccessiveattemptstoisolatetheregimefavoringsuchattempts,and
thesuccessivecoupsandcountercoups,havecombinedwithanearthquaketobringthe
countrytoruin.Andbecauseofit,wagesatthebaseballfactoryarelowerthaneverbefore.
AndtheironyofitallisthatAmericanswhoseownbaseballfactorieshaveclosedintheface
oftheselowwages,wereprobablythefirsttosignupforthearmyandjoinintheinitial
occupationofthecountry.Andjoyfully.Howeveryoufeelaboutitasanethicalorself
preservationissue,youhavetoadmitit'sastrokeofbrillianceonthepartofUScorporations
tohaveeffectedsucharemarkablescenario.Similarscriptshaveplayedthemselvesoutin
theUSoverCuba,Venezuela,andelsewhere.Atthemoment,forexample,theChinese
governmenthasinstitutedaseriesoflaborreformstopermitmigrantworkersatAmerican
factoriesinChinatoseebetterwagesandworkingconditions.Americancorporationsissued
aseriesofthreatsthatledtotheguttingofapartofthesereforms.Andthosesame
Americanworkerswhosejobsarebeingexportedabroadbecauseofsubstandardwages,
workingconditionsandenvironmental/healthregulations,wouldbeshovingtobefirstinline
tomanthewarshipsdockingatChineseportsinavainattempttoenforceAmericansuper
power.Athirdofthepopulationwouldbedrivingaround,encouragingthesechumpswith
"VetsareHeroes"bumperstickers.Childlaborethicsbedamned.Quaintsustainability
issuesbedamned.Thelongtermconsequences,creatingadeepandabidingresentmentof
theU.S.aroundtheworldculminatingindevelopmentslike"9/11",isofnomoreconcernto
youinthisgamethanitistothe"owners"ofsimilarcompaniesintherealworld.NoCEOsor
BoardMembersdiedinNewYork.Onlypeoplewho"don'tmatter".Peoplelikeyou.
Theeffectivenessofraisingwageswillvaryradicallyfromregiontoregion,andwillshiftfrom
roundtoround,dependinguponsuchseeminglyunrelatedfactorsascapacityormodel
numbers.Itwillusuallybelessthan5%andmaybezeroincases.Incentivepayfollowsthe
sameruleofthumb,with.20.40usuallyyieldingthelowestcostforshoes.Playwithas
manypermutationsaspossibleamongthese2,andwithmaterialsandstylingtoachievethe
lowestpossiblecostperpairatthebottomofthepage.Remembertokeeptheglobal
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politicaleconomyinmind.Thegamequiteopenlyputsmoreemphasisonpieceworka
meansforcorporationstoeffectivelycircumventminimumwagelawsandthustodepress
theincomeofemployees.Thatmeansbiggerprofits.APislargelydrawingfromrural
reservesoflabor,andinsomeplaces,forexampleinChina,thesereservesarenearly
absorbedintothemanufacturingeconomy.McGrawHill'salgorithmsonlaborineachofthe
4regionsissecret,butisevidentlytiedtocurrentrealconditionsinthe"labormarket"
(humanexistencebeingthecommodityfor"sale"insuch"markets").IfAPcomestotheend
oftheircheaprurallaborreservesasispredictedinChina,forexample,by2015atthe
latestyouwillfindradicallydifferentconditionsthanthoseprevailinglastweek,andthe
laboralgorithmswillnodoubtreflectthattighteninginthegameintheinterveningyears.
S/Q
Asyoumanipulatetheabovefactors,youwillseetheS/Qchangeonyourpage.Youshould
determineinadvancewhatS/Qyouwanttohavebeforeyouevenbeginplayingwiththese
numbers.Asageneralrule,anS/Qof5ismorethanadequate,andlowerwillusuallyprove
moreprofitablealthoughIwouldrecommendnotgoingbelowa3unlessthecompetition
getsfierce.It'srisky.Globalchampionshipteamsoftengoaslowas0.Butoneshould
certainlynotgothereimmediately.Thestrategicadvantageofdisguisingintentionsisalways
immense.S/Qisactuallygivenamisleadingprominenceonthegame'spages.Farmore
importantinthealgorithm,thanraisingS/Q,formarketshare,isthenumberofmodels
"breadthofline",butthiswillnotbeapparentasitwasnottousuntillaterinthegame.
Youwillwanttoincreasethisambiguityforotherteams,aboutthecrucialroleofmodel
number,byregularlyraisingandloweringS/Q,loweringpriceoraddingcelebrityappealat
thesametimeyouGRADUALLYraisethenumberofmodelsinfuturerounds.Itwilldisguise
thereasonsforyoursuccesswhichultimatelyliein:economyofscale,breadthofline,and
restrictedstockownership.
LA,alternatively,hasyettosoakuptheirurbanunemployed.AlthoughasinAsiathereis
amigrationfromthecountrysidetothecities,itisoffsetbythemigrationnorthward.Ifyou're
planningonpullingupallyourstakes,cuttingtieswithallyouknow,whywouldyoustopat
TegucigalpainsteadofMiami,wherewagesare10timesashigh?Thus,forallpractical
purposes,thereserverurallaborforceinLAisnonexistentatpresent.IftheflowtoMiami
andotherpointsnorthshouldeverbeinterdicted,youcanexpectthealgorithmsaffecting
labortobeskewedtoaccommodatetheresultinglaborsurplus(amildphrasetodescribe
themassiveunemploymentandsocialunrestinLAwhichwouldresult).
WholesaleMarketingofBrandedFootware
YouwillwanttouseALLofyourcapacityeveryround,includingthemaximumallowedfor
overtime.Period.Repeatthattoo:useeverypossibleshoeineveryround.WHEREyouuse
itisamorecomplexmatter.Initially,youwilllackthecapacitytodominatethebranded
market,andingameswithlargenumbersofteams,oraprofessorcontinuallyinterveningto
expandmarketsizeinordertosavefailingteams,youmayNEVERhavethecapacityto
dominate.Inbothinstances,youwilldumpoffagoodpartofyourproductionintothePrivate
LabelmarketATNEARCOSTinordertocreateartificialshortagesforyourproductinthe
BrandedMarket,allowingyoutoraisepricesandstillbeabletofaceshortfallsinsupplying
thedemandforyourproduct.Thismayseemunethicaltoyou,sinceitmeanstherewillbe
childreninLAorAPwhocannolongeraffordshoesbecauseofsuchpricingpractices.Yes,
that'strue.ItISunethical,butlookaroundyou.Thesesamefirms,intherealworld,are
ALSOunabletodeliverhousing,food,orfuel,theVERYBASICOFLIFEtoAMERICANS
ataffordableprices.Getreal.Thisisbusinessonthecorporatescale.Theonlyjustification
foranyeconomicmodelisitsabilitytodelivergoodsandservicestothosewhoneedthem,
andthecorporatemodelceaseddoingthatacenturyago.Tossthescoundrelsoutonyour
owntime.ThisistheBSG.It'sagamenotjustGrandTheftAuto,butTHEGrandTheft
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Auto.Andyou'reit.
Intheearlyrounds,theprivatelabelmarketmayyieldatidyprofit,butasthegame
proceeds,youwillbedumpingintothismarketatveryclosetoyourcosts.Ifyoufailto
recognizethis,youwillfindyourselfunderbidandstuckwithmillionsofshoesandalosing
roundyoumayneverrecoverfrom.Theprofitswill,commencingearly,comeexclusively
fromthebrandedmarket.Experimentwithhowmuchtodumpoffinordertomaximize
EPS/ROE,butageneralruleofthumbisthatitwillneverpaytoputsmallnumbersineither
thebrandedorprivatelabelmarket.Thefixedcostsdistributedacrossasmallnumberof
shoesaretoohighbecausethegametreatsasingleplantdistributedacrossboththe
BrandedandPLmarketsastwosmallplants.YoucangetawaywithdividinganAPplantof
4000into2equalplantsof2000devotedtoeachmarket,barely.Butdividingaplantof2000
orlessinto2isapoordecision.Intime,youwilllikelybecomealowcostleader",andfindit
mostprofitabletoputallyourshoesinthebrandedmarket.Thatwillresultinlower
ROE/EPSforeveryone,somakesureyoutakeadvantageofthefirsfewroundstomaximize
pointsforthefuture.Thesearethe7yearsofFat,tobefollowedbythe7yearsofLeanas
Mosesforecast.
Aspointedout,thePrivateLabelarenaisalsousefulforpreservingcapacitywhilecreating
artificialshortagesinthebrandedmarket.Butbeware:thePrivateLabelisgenerallya
digital,versusanalogmarket.Yourbidiseitheracceptedoritisnotinmostinstances.You
sellordon't,whereasinthebrandedmarket,youcanusuallysellsomeshoes.Itisa
commonmistaketobelievethatbymakingshoesabovetheminimumS/Qsetbytheretail
chains,thatabiddingadvantageinPLishad.Itisnot.Onlypricecounts,solongasthe
minimumS/Qismet.Ifyou'rehavingdifficultyunderstandingthis,putyourselfintheplaceof
theretailchain.Ifgiventheopportunitytobuya$17pairofshoesthatlasts3months,ora
$25pairofshoesthatlasts6months,andtackingyour$3profitontothepriceofeither,
whichwillyouchoose?Ashoethatwillneedtobereplacedwithanother$3profit,in3
months,oronethatneedsreplacedalsowitha$3profitin6months?It'stwiceas
profitabletobuythejunkshoes.There'snothreatoflostsales,really,sincethehandfulof
otherretailchainsaredoingthesamething.Environmentalsustainabilityandcustomer
satisfactionareimageslogansyouplaceinyourads,usingcelebritiestomouththem,and
notsomethingtobetakenseriously,ineitherthegameorreallifecorporatestrategy.Ifyou
findadoptingthisstrategylookstoyouasthoughyou'rerippingyourneighborsoff,thenvery
quicklyfindamirrorandlookyourselfintheeyes.Repeatthistothemirror:
"Congratulations."After4yearsofhavingsandflungrepeatedlyinyoureyestoconfuse
them,thoseeyesyetserveyouwell.
Itistheincompletenessofthiscollusiveaspectofthegame'sstructurewhichmostreflectsit
obsolescence.Thegamewasdesignedinanerawhenthehiringoftemporaryworkersby
thethousandswasgivingwaytotheeraofU.S.corporationsshiftingfactoriesabroad.That
wastheeraoftheCelticTiger,oftheTaiwanMiracle.TheBSG's"SelfConstructionof
Capacitytabreflectssuchanera.Subsequently,thosesamefirmsceasedfoundingfactories
andinsteadassistedlocalbusinessownersinsettinguptheirownfactories.Atfirst,these
factoriesmanufacturedcomponentsofproductsandthentheproductsthemselves.This
allowedthe"parent"firmtorelinquishresponsibilityforhiringandfiring,forenvironmental,
safety,andallotherlocallaws.Eventually,thefactoriesweregivenresponsibilityforthe
completeproductandtoday,afactoryinMalaysiawillmanufacturetheproductsoffirms
competinginthemarket.Intime,ofcourse,theseoutsourcersmakingalltheproductswill
beginmarketingthemundertheirownbrandaswellasothers,andthatspellsdoomforthe
originalbrands,butthinkshorttermhere.ONLYshortterm.
Meantime,thedifferencebetweenproductsisamatterofbrandingonly.Themostmarked
sectorofemploymentexpansioninAmericanindustryisinMarketing,becausethesole
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differentiationamongmanufacturersisinsuperficialities:"Ourgarbageisbetterthantheir
garbage",eventhoughallthegarbagecomesfromthesamefactories.Anditbecauseofthe
homogenousnatureoftheproductsthatnoneofthefirmsisthreatenedbythelackof
quality.Theanswertoconsumerdissatisfactionisalways:"Whereareyougoingtogo?"
Onceyou'vefinishedtheabove,moveontotheWholesaleMarketingtab
WholesaleMarketing
ThispageisascomplexastheBrandedProductionPageabove,withslightlyfewer
variables.Thegoalistosellyourshoesatapricecreatingademandwhichresultsina
shortfallof,say,15to25ineachofthe4marketingregions.Youdothisbyadjusting
price,Retailsupport,Deliverytime,rebatesandusingthePrivateLabelmarket(see
elsewhereonthispage.YouwillwanttogofromthispagetotheBrandedDistributionPage
toseeclearlytheimpactonthemarket:
Theideahereissimplytoshipallyourshoes,focusingonthemostprofitableregionsand
completelyshortingtherest.
PrivateLabel
StayoutofthePrivateLabelMarketexcepttocreatetheshortagesinthebrandedmarket
mentionedabove.Initially,moneycanbemadeonbidsinthePL.Overtime,theother
teamsmaybegintreatingtheprivatelabelmarketlikea"milkcow",anditwillbetempting.
Butasthegameproceeds,thepriceswillfalldramaticallyinthePL.Atthepointforus,the
lastroundwhereyourcapacitypermitsasingleplanttobedevotedtothePrivateLabel
market,andtaketheentirething,doso.Itwouldbebestifyouhadn'tputanythingintothe
PLmarkettheprecedingrounds.Itwillcomeasashock,andtheotherteamsmayhavebid
highpricestoincreasetheprofitabilityofthemarket.ThatallowsyourbidstosweepthePL.
Formyteam,wesweptthePLthelastround.Weunexpectedlydropped10,000,000shoes
inthePLfromourNAplant,whichwepickedupasusedandwhichproducedshoesonly
forthePLmarket,andwetookitall,usingtheother2plantstofeedthebrandedlabel
market.Itlefttheotherteamswith10,000,000shoesfromPLthattheycouldn'tmove,and
halfouroppositionendedwithnegativeROE/EPS,withstockprices,creditratingand
investorconfidenceflounderingasbadly.Ourtwostrongestcompetitorswentbankrupt.
Periodically,ifyou'veestablishedyourreputationaslowcostleader,youcanthrowafew
hundredthousandshoesintotheprivatelabelmarketatalittleabovecosttowatchthe
pricesandprofitsofpanickedteamsdropdrasticallyintheprivatelabelmarket,butit
shouldbeastrategicmoveonly.Inrecentgames,pricepressuresinthePLhave
increasinglybroughtprofitstheretonilearlyoninthegame,andinthatinstance,ifnoprofit
istobemade,youwillsimplydumpanyunprofitableplantcapacity(likelyNA)inthePLat
cost.Inisolatedinstances,verystrongteams,withcapacitiesexceeding25,000,haveeasily
dominatedtheentirePLmarketbydevoting2entirefactoriestothePL,withsubstantial
profitsoverseveralturns.Earlyinthegame,youwillfaceasituationwhereyourcapacityis
largerthanthebrandedmarketandyouwillwanttopawnofftheexcesstothePLmarket
justtoprotectyourcapacityuntilthebrandedmarketexpands.
Celebrities
YouwillwanttobidoncelebritiesfromRound1.AlthoughOprah(andthenamesofthe
starsvarybyprofessor)ismoreappealingforhernumbers,Anikaismoreofanassetforher
longevity.Oprahwascontracted,inRound1ofourgame,for$8millioninitially,Anika(the
namesofcelebritiescanbealteredbyprofessorsAnikaisusedbecauseher6yearcontract
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islongterm)for$1.5million.Forpurposesofcomparison,bytheendofthegame,1team
wasbidding$42millionforacelebritywithlowernumbersthaneitherAnikaorOprah,but
youwillnotwanttosetoutonsuchanexpensiveroadatthebeginningofthegame.The
addedcostof34dollarsperpairensuingfromsuchasinglebidisquestionablyworthit.
Keepthebidsreasonable,buthighenoughtowinatleast1celebrityinRound1,preferably
onewithalongtermcontract,ifyoucan.Ihavewrittenasmallapplicationforusein
calculatingthevalueofacelbritytoyourteam,here.Ithaslittleerrorchecking,sofollowthe
instructionsfaithfully.Ifinitialwinningbidsbeginat$2025million,forgetthecelebrities
altogetheruntilpricesfall,astheywill.Inreportsfromstudentsplayingrecentgames,the
costofcelebritiesissoaringinsomeregionsoftherealworld,andthepricesofshoesare
risingtoreflectit.Youdon'twanttobeleadingthatpack.Youcangetaroughideaofthe
worthofacelebritybyusingtheforecastscreen,althoughincreasesinfuturecapacityneed
toaccountedfor.AstudentfromIndonesia,playinginAustraliasummeditup:"Let'ssay
that,ifweputacelebrityundercontract,itgivesusanadditional0.5%marketshareinall
regions.Andthenwefindoutwecanalsoget0.5%moremarketshareifwereducethe
priceofeveryshoesby$0.50.Ifthetotalnumberofextrashoeswesellis10millionpairs,
thenthecelebrityisapproximatelyworth10million*0.5=5million.Themorecapacitywe
have,themorevaluableacelebrityis."That'sonlytrueiftheprofitmargindoesnotfallwith
theincreaseinmarketshare.Thevalueofacelebrityistheprofitmarginmultipliedbythe
numberofextrashoessoldineachregion.Sincetheprofitmarginvariesfromregionto
region,thevalueofacelebritydoestoo,INADDITIONtothevarianceinregionalappeal.
Onceyouhavefinishedmanipulatingtheabovenumbers,gobacktotheSalesForecasttab.
Youwillseemuchoftheworkyouhavealreadydoneisreflectedonthispagenow.Setyour
internetshoepricehere,slightlyabovetheretailprice.Themanualtellsyouthatretailerswill
fallawayifyousellshoesontheinternetforlessthan40%abovetheretailprice.That'strue,
butthenumberofretailersshouldbeyourlastconsideration(unlessyou'veignoredthemfor
solongthattheshrinkagehasbecomeconstricting).Thenumberofshoesindemandwillbe
handledbytheremainingretailersprovidedyoukeepitreasonable.Ifitseemsthatyour
retailersarefallingawayalarmingly,upyourinternetpricessomewhat.OntheSales
Forecastpage,youcanfinetunesuchthingsasadvertising.Somehardnumbersmaybe
usefulhere,sincestudentsseemtogenerallyapproachtheseareaswithnoideaofwhat
theyshouldbe.Youradvertisingbudgetinthevariousregionsshouldbesetinitiallyat
somethinglike$9000forNAandEA,and5000forAPandLA.Thesewillclimbto1520,000
forNA/EAand750010,000forAP/LA.SeewhatisneededtogivetheshortfallsinBranded
shoesupplythatyouwant.Rebatesshouldbesetto0,deliverytimeto3.Retailsupport
shouldnotexceed250350andthenumberofretailersshouldnotexceed2500forNA/EA
(and1500isacceptable).ForLA/APitcanbe1500and1200isacceptable.Theadditional
moneyspentonretailersupport,multipliedbytheadditionalnumberofretailers,canbe
expensive.IfyoulowerS/Q,sellingoffinventorymakesnosense.Ifyourcurrenttargeted
S/QforNAisa7,andyouhavelargenumbersofshoesintheregionleftfromlastdecision
whicharean8,thenyoucanmanufactureshoesinNAata6toreachyourtargetof7,since
theS/Qisanaverage.Italmostneverpaystoselloffinventoryinaregionfromapreceding
decisionofthatinventoryisahigherS/Qthanthecurrentplannedtarget.
Insettlingonthenumbersforthispage,youshouldtrytwoversions:
1)Theversionwherethe"industryaverage"issetbytheBSG.
2)Theversionwherethe"industryaverage"issetatthedecisionsofyourstrongest
opponent,withtheassumptionthatyouropponentwillonlytrytobecomestronger(lower
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prices,higheradsupport,etc.).Thiswillgiveyoutheworstcasescenario.
ANOTEONIMAGE:
Imageisprobablytheareayoushouldworryleastabout.Itshouldfollowmarketshare
anyway.But,perhapsasaresultofthispageandthewinningstrategieswhichhaveensued,
McGrawHillhasintroducedanoptioncalled"corporatecitizenship".Thepageisdesignedto
boostimageratingsforyourteam,ostensibly,butactuallyisdesignedtoboosttheimageof
globalcorporations.TheoptionsonthepagerarelyaffectEPS/ROEpositivelyexceptforthe
energyinitiatives,andthatonlyirregularly.Thispage,incidentally,isnotFantasyland,since
thesectionisonlydesignedtoboostimage,nottocontributeinanymeaningfulwaytoa
responsibleroleforyourcorporation.That'sactuallythefunctionof"greenness"inthe
corporateworld.Itisamarketingtoolandlookingbeneaththecoversofanycorporate
"greeninitiative"willinvariablyrevealagrimierreality.Forexample,themandatesofthe
EPAortheEUareoftenportrayedasacorporate"greeninitiative"incompanyadvertising.
Inreality,theyaremandatedbylaw,andinmostcaseswerefoughtbitterlybytheverysame
corporationsnowboastingofthem.
ROUNDBYROUNDOUREXPERIENCE
Note:thenumberofroundsinthegameissetindividuallybyeachprofessor.Ihaveseen
verylonggamesinclasseswhereprofessorsspentayearonthecourse.ButIhavealso
seenprofessorswhohadtheirstudentsstartthegameanewseveraltimes,eachwithonly4
rounds,playedrepeatedlythroughoutthecourse.Followingaretheactualresultsforour
team.Remember,thiswasaFIRST,ineptattemptatputtingtheaboveprinciplesintoplay.
Since,wehavecollaboratedwithhundredsofteamsandhaverefinedthestrategyas
outlinedabove.
ROUND1:DONOTWINSMASHINGLY
Ifyouchoosetolosethisroundsoyoucanbuyupyourstock2ndround(therearelimitson
theamountofstockyoucanbuybackinthegame),prepareyourself.Itisashockforevery
teamwhichsetsoutonsuchacoursewhenitactuallyoccurs.Andprofessorstendto
becomealarmedaswell.OneteaminSouthAfricareceivedasummonsfor"counseling"
fromaninstructorafterRound1,gravelyinformingthemthattheyhaddoneworsethana
placeboteamwithnooneinit,andthathewasalarmedandconcernedfortheirfuturewell
beinginlife.Recoveryfromagrandlosscanbeslow,althoughagreatdealofmoneycanbe
savedinbuyingupthestock.
Round1resultsforourteam(ThepricesinNAwerereflectiveofpricesinallregions.We
wereTeamB)
Team PriceofshoesinNA
S/Q
MN
A
50
7
249
B
34.70
7
52
C
50
6
200
D
48.50
6
249
E
49
6
200
F
50
7
249
G
52
7
217
*MN=ModelNumber
AlthoughyoudonotwanttogobankruptinRound1,youmaywanttoloseit,sothatyour
stockpricefalls(although,astrafficonthispagehasincreasedtosome200newusers
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HOWTOWINTHEBSG
daily,thegameisgettingtighter,andforfeitingthefirstroundbadlymayputyouatadistinct
andfataldisadvantageforseveralrounds).Ifyouselectaminimumnumberofmodel
numbersforyourshoes,andkeepyourpriceslowenough,andyoucanalmostbe
guaranteedofthatresult,dependinguponthechoicesyouropponentsmake.However,ifthe
stockrises,youshouldstillbuyitupsinceequitywillfall,leadingtoahigherROE
(Return/Equity)thanifyoudidnot.
Alwaysspendtimeonthedecisionsandresultsofothers.Especiallyearlyinthegame,
whenslightdifferencesinotherteams'approacheswillillustratewhatisworkingbest.The
instructorcansetmanyoftheparametersinthegame,andyouwillwanttotailoryour
movesaccordingly.Youarepermittedtoseethesameresultsforotherteamsthatyousee
foryourown,withaclickhere,aclickthere.Itwilldeterminetheoutcomeofthegame.
Lookforslightvariationsinthedecisionsmadebytheseotherteamseven,andmaybe
especiallythosewhodonotwintheroundfromweektoweekandlookattheoutcome.At
times,youropponentswillnotthemselvesbeawareoftheserelationshipsamongtrailing
teams,becausetheywillbecomparingthemselvestotheleaders.Youcanlearnfromthem.
Forexample,ateam(TeamDbelow)whichdeclinedtoraiseS/Qdidrespectably,though
makingerrorselsewheretheirpriceswerehigher,theirmodelnumberslower.Asa
consequence,theyplaced3rd.Buttheirsavingsinexpenseslargelycancelledthemistakes.
Becausetheydidnotfareaswellastheleaders,theychangedcoursethefollowinground
anduppedtheirS/Q,withtheresultthattheyfellfurtherbehind.Butevenaninexperienced
observercouldspotthedistinctionbetweenthisteamandateamwhosedecisionwere
exactlyalike,exceptfortheS/Q(theotherhadraisedS/Q).Andtheotherteamdidpoorlyby
comparison.ThereasontheotherteamsdidnotspotthedifferencesandquitpursuingS/Q
isbecausetheywerefocusedonlyonthemovesoftheteamwhichledafterthefirstround.
Thatwillnot,ifyoufollowouradvice,beyours.
Aboveall,rememberthatthisisagameovertime,nota"suddendeath"playoff.Keepyour
SherlockHolmeshaton,throughoutthegame.LookattheStrategicGroupMapforeach
region.Ifalltheothercompaniesarecuttingoneanother'sthroatsintheupperendofthe
market(andvanitybeingasitis,theywillmostlikely,unlessthey'realsoreadingthis),head
forthelowend,butnotallatonce.Drifttheresoasnottomakeitevidentwhatyou'redoing.
Ifthey'reinthelowend,headslightlyhigherbutbeattheminpriceswithyourhigher
productioncapacityEconomyofScale.Studyyouropponentscarefully.Getafeelfortheir
foiblesaswellastheirsuccesses.
Theinverseisalsotrue.Therewillbeatleastoneotherteamlookingatyourresultsunder
thesamemicroscopeyouareturningonthem,andespeciallyifyouconsistentlyaredoing
well,asyoushouldbe,laterinthegame.Asaconsequence,itisbestthat,whenyoumake
decisionsshiftingyourpositioninthemarket,thatyoudosowithatleast2changes.Ifyou
dowellintheround,eventhoughyoubelieveyouknowwhichofthe2changeswascrucial,
youropponentsmaynot.Andthereisa50%chancethattheywillchoosethewronganswer
whentryingtoguesswhichwasresponsibleforyoursuccess.Trustinthe"sheepmentality"
prevailing.Themajorityofthose"intheroom"willlookforsafetyintheherd.Theywilltry
repeatedlytoapeyou.Yourbestadvantageinthegamearetheelementsofconfusionand
surprise.Rememberthisisagame,astrategygame,andlikesimplerstrategygames,such
asrockpaperscissors,agoodpartofthegameisinleadingyouropponentstobelieveyou
willbemakingmovesinadirectionexactlyoppositeofwhereyouaretrulyheaded.
Ifyourstockpricetanksafterthefirstround,thenifyouaresmart,youwillmake
arrangementstobuynearlyallofyourstockback.Weinplanningthefollowingrounds
couldborrowenoughtobuybackallthestocksharespermitted(2,500,000of10,000,000
shares)in2roundsandtherestofthegameweweredividingby3(theremaining7,500,000
shares)whileothersweredividingby4(theoriginal10millionshares)in4inROE/EPS
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HOWTOWINTHEBSG
calculationsgivingthemanautomatic33.3%disadvantageinscoringuntil2otherteams
"caughton"lateinthegameanddidlikewise.3of7teamsactuallysoldshares,increasing
thenumberby20%andfurtherdisadvantagingthem.
Thefirstround,andtherestofthegame,willbecatandmouseor,rather,lionandmouse
sinceyounowhaveanadvantageincapacitywhichotherswillbeunlikelytomatch
throughouttherestofthegameprovidedyoustayapaceofthem.Butyouwanttomakeit
uncleareachturnwhatyouwillbedoingnext.MyteamwentfromS/Q6atthebeginningof
thegametoS/Q7inRound1,thentoS/Q8inRound2.Wetooktheround,butfailedto
meettheminimumof15%inROEbyhalfapointbecauseweidlyspenttoachievean8S/Q
alongwithincreasingcapacityanddoingupgrades.ButourraisingtheS/Qandretainingthe
leadhadtheadvantageofpropellingtherestoftheteamstowardchasinganelusiveand
expensiveS/Qof10whichateamachieved,fornopurposereally,inthelastroundwhilewe
droppedtoS/Q7inRound3andstayedtherebeforedroppingtoS/Q6inthefinalround.At
nopointwerepeoplematchingourinvestmentinproduction,andfollowingsuggestions
madebytheinstructorinthebeginningofthegamemanysoldoffexcessproductionstock.
Westayedupuntiltheresultsofeachroundwaspostedsothatwecouldpurchaseany
capacityforsaleimmediately,beforeotherscould(thesepurchasesaremadeontheportal
page)refreshingthepageeveryfewsecondsasinanebayauction.Itwascrucialtothe
outcome.NewbutUsedcapacityisboughtata20%discount.Manyteamshavehad
successsellingoffALLtheirNAcapacityoncetheLAplantiscapableofsupplyingbothNA
andLAdemand.Howeveralltheotherteamsareusuallydoingthesameandsuccesshas
alsobeenenjoyedbysomeofthosewhotookadvantageofthedumpingandbuiltupanNA
monolithcheaply.DoNOTletanyethicalconcernsaboutwipingoutyourfather'sjob
concernyouhere.Incaseyouhaven'tfigureditout,agoodpartofyourbusinesscourses
aredesignedtoinureanddesensitizeyoutosuchhumandilemmas,toreduceyoutoan
automatoncapableoffocusingonlyonmonetaryreturnsconfinedto"your"company.Ifyou
buyintothat,inyour"reallife",youarenotonlyachumpbutadangertoyourcountry
(whereverthatmightbe),butforthepurposesoftheGame,pretendyoudo.
Round2
Round2inNA
Team PriceinNA
A
49
B
42.13
C
55
D
49
E
50
F
48.99
G
47.77
S/Q
7
8
8
7
7
8
7
MN
250
150
244
240
200
344
206
Inretrospect,ourS/Q8inRound2wasagoodideabecauseitcreatedconfusionasto
wherewewereheadedwhen,nextround,wedroppedbacktoS/Q7(weshould,perhaps,
havegoneto5),butweshouldhaveandIexpectyoutoincreasemodelnumberto350
500andwelikelywouldhaveexceededinvestorexpectations.WedidthatinRound3and
thereafter.TheonlyteamwhichwoncelebritybidsbeforethisroundwereTeamA.Despite
verysimilarprices,S/Q,etc.,TeamAsold50%moreshoesthanTeamD,whichbrought
hometoustheimportanceofwinningsomeendorsements.WethusbidonandwonTiger
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HOWTOWINTHEBSG
for$6.2million.YoualsowillwanttobidoncelebritiessothatbyRound4youhave
superiorityinthisfieldifitcanatallbejustifiedeconomically.
Team
A
B
C
D
E
F
G
MS
17.1
21.8
9.3
12.3
9.7
16.1
13.8
ROE
5.1
14.8
.2
4.5
.6
9.5
7.5
EPS
.85
2.76
.03
.83
.09
1.68
1.48
SP
15.84
29.80
17.55
21.89
10.89
33.28
12.63
Thepatternwasthesameformarketshare,EPSandROEasinthenextfewrounds:Our
team'sprimaryopponentswereTeamFandGinthefightformarketshare.TeamA'sstrong
marketsharewasbasedstrictlyonitscelebritiesandwedeterminedtokickthosesupports
outintime.Inround2andeveryroundthereafter,youwillwanttoadjusttheproduction
numberstomaximizeprofitabilityperpairofshoes,bidoncelebrities,increaseyourdividend
byapennyassuggestedabove,etc.
Round3
Round3
Team PriceinNA
A
50
B
44.90
C
49.99
D
47
E
48
F
51.45
G
46.24
S/Q
7
7
9
7
7
9
8
MN
250
319
343
331
244
333
200
Bythe3rdround,myteamhaddevelopedapatternwhichwouldlargelybecomeroutinefor
usandwhichyoushouldmakeroutinetoo:addcapacity,playwithnumbersonthe
productionpagetoachievethecheapestshoe,workingourwayup,eventually,tothe
maximumof500models,withTQMandBestpracticesatamaximum,adjustingwages,
styling,percentageofsuperiormaterials,incentives,etc.toachievethelowestpriceshoes.
Ifyouhaveanystockoutstandingwhichyoucanpurchase,doso.Alwayscomparecurrent
interestrateswithpastloans.Borrowtopaythemdown.Borrowtoincreasecapacity.
Borrowtobuybackstock.Borrowforplantupgradesiftheyprovepromising.Thenturnto
thepricingpage.Lookingateachofyouropponents'priceslastturn,calculateasifyour
opponentswill,nextturn,droppricesby$1.50$2andmakesureyoubeatthatprice.Add
themaximumallowableforLA(750,000foranexistingplantof1,500,000inourcase).The
onlyotherteamtoaddcapacityinourgamethatyearopenedaplantof1000inEA,which
provedtobeoflittlevaluetherestofthegame.Celebrityappealcan,bytheway,overcome
adifferenceinpricestosomedegree.Image,aspointedoutabove,consistsof2
components:S/Qandmarketshare.Thelatter,inturn,consistsof3separatespheres:the
internet,thebrandedmarket,andtheprivatelabelmarket.The3appeartoact
independentlyofoneanother.Thus,totaldominanceinthePLmarketwhichyoucannot
possiblyachieveatthispointinthegamecangiveanimageof100,largelyindependentof
whathappensinthebrandedmarket.SinceS/Qisexpensivecostsmoneywhilemarket
shareyieldsmoney,wefocusedhenceforthlittleattentiononS/Qandmoreonmarket
share.
23/29
2/4/2015
Team
A
B
C
D
E
F
G
HOWTOWINTHEBSG
Capacityatonsetof4thRound
7000
9050
6000
6600
6000
7000
8000
Attheendoftheroundwepickedup400,000usedcapacityinNA(usedcapacityis
availableforuseimmediatelyandyouwillalmostinvariablyfindNAcapacityisthefirsttobe
givenup).TheresultsforRound3were:
Team
A
B
C
D
E
F
G
MS*
16%
21.6
12.4
14.7
10.3
13.5
11..7
ROE
10.9
22.5
0
6.2
.5
12.9
.6
EPS
1.97
4.43
.01
1.16
.08
2.26
.10
SP
17.82
59.30
10.83
12.70
6.87
23.73
8.12
*MS=MarketshareinNA
Webidon,andwonNatalieKwanat$13millionandSergioat$9million.Wealsopickedup
Paytonat$3millionsimplytoknockoutTeamA'ssolesupportits2celebrities(wewould
pickupOprah,the2nd,later).Remember,you'renotfocusingonrunningsomesortofideal
"goodbusiness"here.You'refocusingonruiningyouropponents.It'sessentialthatinthe
antepenultimateround(theroundbeforethenexttolastround,whichforus,Round4was,
althoughmanyinstructorsshortenthegamebyaroundortwo,sometimesunexpectedly,
andothersdragthegameoutoverasemester,orevenanentireyear),youhavesuperiority
incelebrityappeal.Inthatround,youcanthenlocksuperiorityincelebrityappealin,at
minimalexpenseforthefollowing2roundsbybiddingunexpectedlyhighforALLthe
celebrities(Forourteamthatmeantbidding$20,156,000foreachapproximately50%
higherthanpreviousbids.Youwillwinthemall,thencancelallbutwhatyouneedto
maintainsuperiorityatthebeginningofthepenultimate(nexttolast)round.Theotherteams
willseenoneofthecancellationsuntiltheeveofthelastroundinwhichcaseitwillbeofno
valuesincetheywouldonlybidoncelebritiesforanonexistentfutureround..Itwillcostyou
10%ofthecontractstocancelnextround(forourteam,thiswasatotalof$10millionand
change)whichisnegligiblecomparedtothecostofcompetingagainstthemorofactually
biddingonallofthemandespeciallyoflosingthecelebrities.Thefollowinground(the
penultimate),therewillbethosewhoseeyourbidstheprecedingroundandactuallytryto
outbidyouwithoutknowingyou'recancelingasthey'rebidding.Inourcase,oneteambid
thus$42millionforaminorcelebrity.Mostteamswillsimplygiveup.You'llrepeatthe
processinthenext(penultimate)roundofcourse,biddingslightlyhigherthanthelast(we
bid22,500,000foreachandwononlyoneofthe3availablewithouropponentsbidding
astronomicalsumstotrytoemulateour"success",sincewealreadyhadandwere
cancelingtheothers.Wethusalreadyhadsuperiorityofcourse,andcancelledthenewly
wononetoo,inthelastround.Theother2were"won"byteamswhichnowhadtoraise
pricesonshoesalreadytooexpensive,cancellingneverhavingoccurredtothem,andnot
reallyanoptiongivenoursuperiority.Onewasaprimarycompetitorandbecauseweshut
downtheprivatelabelmarketbyfloodingitwithcheapshoes,webankruptedthemthelast
24/29
2/4/2015
HOWTOWINTHEBSG
round.Havinganexpensivecelebritybilldidn'thelpthemeither.).
Ifthisseemscomplex,perhapsthefollowingmakesthingsclearer:
LockinginCelebrityDominance
Whenthereare4roundsleftinthegame,then:
Round1(ofthelast4):Ensureyourteamhascelebritydominanceforthisroundonly.It
needn'tbeagreatadvantage.
Round2(ofthelast4):Bid50%higherthanhaseverbeenbidforanycelebrity,oneach
oneavailable.Thiswillbeanastronomicalsumbutitwilldenyyouropponentsanychange
inyourcelebritydominance.Youropponentswillonlyseethesewinningbidsthefollowing
round(3rdRound).
Round3(ofthelast4):Youwillcancelallcelebritycontractsexceptwhatyouneedto
maintaindominance.Youropponentswillnotseethisuntiltheeveofthenextround(Round
4),whichisthelastroundandcelebritydominanceontheirpart,atthatpoint,isuseless
sincethereisnofutureround.Thecostofcancellingthesecontractstoyouis10%,whichis
negligiblecomparedtothecostofgivingthemthecelebrities(allofthisassumesyouhave
followedtheaboveinstructionsandaredoingwellinthegame,andcanthereforeaffordthe
financialpenalty).Atthispointallyouropponentscanseeisthatyouaredoingwellandpart
ofitmustbeattributabletoyourdominanceinthecelebrityfield.Theyaresheep,afterall,in
manycases,andwilltrytoemulateyou,willinfactlikelybidevenhigherthanyouinthelast
round,andlackingdominanceinthearea,willbesaddledwiththosecostsfinalround,when
theycannotcancelcontractsassumingtheyknowthat'sfeasiblewithoutfurthereroding
theirposition.Younowhavethembetweenarockandahardplace.
Round4(ofthelast4):Lastround.Theygobroke.Youwin.Comprendez?
THE3YEARPLAN
Atsomepoint,yourinstructorwilllikelyaskyoutofillouta3yearbusinessplan.Sincea
disproportionatelylargepartofyourgaminggradedependsonit,thisisnotsomethingto
approachedlightly.Inmyclass,itwastheontheeveofthe4throundwhenwewere
requiredtosubmitourplan.Dothisplancarefully,meetingminimumtargetsforinvestor
expectationsandexceedingthemineachyear,butdonotgetcarriedaway.Meetingand
especiallyexceedinglowertargetswillyieldahigherscorethanmissinggoals.
Round4
Team
A
B
C
D
E
F
G
PriceinNA
50.75
47.72
49.5
48.99
48
55
47.75
S/Q
8
7
9
8
8
9
7
MN
250
500
252
301
247
466
200
Results:
25/29
2/4/2015
Team
A
B
C
D
E
F
G
HOWTOWINTHEBSG
MS*
14%
25.5
13.8
14.4
11.3
10.6
10.4
ROE
10.9
22.5
0
6.2
.5
12.9
.6
EPS
1.97
4.43
.01
1.16
.08
2.26
.10
SP
17.82
59.30
10.83
12.70
6.87
23.73
8.12
Round5:Theinstructor'sIntervention
AfterRound4,ourmarketsharewasnearlydoublethatofourclosestcompetitor,and
severalteamswere,asweintended,drowningininventories(oneteamhad6months
inventory)whichtheycouldn'tmoveandwereonthevergeofbankruptcy(defaulton
principle/interestpayments),havingreceivedtoomany1yremergencyloanstocovertheir
cashshortages.Theinstructorhadpreviousrelationshipswithsomeofthosestudents,and
inourestimationintervenedto"savetheirbacon".Sheincreaseddemandshesaiditwas
forthefirsttimein15+years"by10%topermitthemtomovetheirinventoriesandworked
withseveraloftheteamstoimprovetheirscores.Henceforth,wewerenotonlypitted
againsttheotherteams,buteffectivelyagainsttheinstructorherself.She,however,like
theotherteamsthemselves,failedtograspthetrueimplicationsofEconomyofScaleand
advisedthosewithexcessinventoriestosell,ratherthanadd,capacity(thusspreadingfixed
costsoveralargernumberofshoes,permittingpricestobeloweredandthusmarketshare
increased).Otherteamshavehadtheinstructorintervenetofreezecapacityadditionsdueto
excessinventories,inwhichcase,you'dbetterbeleadinginnumbersofshoesproduced.
Atthebeginningoftheround,wepickedup5300(thousands)ofusedcapacityinNAand
Asia.
Team Capacityatonsetof5thRound
A
7000
B
15,950
C
6000
D
6600
E
5000
F
6500
G
5800
Team
A
B
C
D
E
F
G
PriceinNA
49.99
43.66
52.49
50.25
48
56
48.50
S/Q
8
7
9
9
8
9
7
MN
331
500
346
323
250
498
245
Results:
Team
MS*
ROE
EPS
SP
26/29
2/4/2015
A
B
C
D
E
F
G
HOWTOWINTHEBSG
10.1
33.1
12
11.3
10.1
13.4
10
.6
33.4
6.2
6.2
4.5
10.9
5.2
.12
11.47
1.39
1.37
.83
1.90
.95
6.48
223.75
18.90
15.37
9.39
18.96
8.22
*MS=MarketshareinNA,SP=StockPrice
DemandinYear5was49,839thousands)Ouredgeincapacitywouldhavebeensufficient
towinthegamebutnotasdecisively.Youwillwanttodoaswedid,andtakeout1,5and10
yearloanslater,ontheeveofthelastround(forus,Round6),andorderanadditional5600
(thousands)capacityinpreparationforround6.Sinceyouhavenoresponsibilitytopaythe
longtermloansoffinnonexistentfuturerounds,debtatthispointisoflittleconcernsolong
asyoucanmaketheannualpaymentrequireforthelastround.Ournemesis,TeamF,
orderedanother1200(thousands).Wecancelledallthecontractsforcelebritieswhichwe
wonexceptforthenumbernecessarytokeepoursupremacy.Wealsodecidedtorepeatthe
processandbidastronomicallyonthosenewlyavailableat22,500,000apiece,knowingthat
ifwewonthem,wewouldtakethe$8.8millionpenalty(10%forcancellingcontracts),and
knowingitwouldbecheapcomparedtoallowingsometoescapecheaplywhilewebidon
others.However,weexpected12teamstolookatourwinningthepreviousround,believing
ustobepracticalinbusinessmattersandbelievingtheastronomicalpricesmusttherefore
beworthit(itdidnotbecomeapparentuntilthebeginningofRound16thatwehad
cancelledthecontracts)andweexpectedthattheywouldoutbidusonatleastsome.In
truth,ournemesisFbid50%higherthanourownridiculousbidson2celebrities,andTeam
Cdoubledourbid(200%)onanother.Wewishedthemwellnotreally,consideringthe
additionalcostsaddedtotheirshoeprices.TeamGhadcaughtontoourS/Qstrategy,and
severalteamsnowbegantograsptheimportanceofmodelnumber.
Round6
Ourteamhadshunnedtheprivatelabelmarketexcepttotossafewhereandthereto
threatenentryandthusholdpricesandprofitsdownontheotherteams'parts.Wehadnot
doneeventhelatterforseveralroundsandthevariousteamshadbeguntoviewthePL
marketasasourceofgoodprofit,typicallysubmittingonlybidsthatwereashighasthosein
thebrandedmarkets.Onlyapartofthishighpricingwasduetothefactthattheywere
dividingsmallplantsbetween2marketsitwassheergreed.Werealizedthatdevotingour
entireNAplanttothePLpermittedustobidonnearlyallthe9million+shoes,ataprice
radicallylowerthanourcompetitorsandyetmakehugeprofits.Wealsodeterminedthat
doingso,gaveusanimageratingof100,thesameasifwe'dproduceda10withalarge
marketshare.WethereforedroppedtheS/Qandpricesinthebrandedmarketandyou
mayfindthesametacticuseful,todroptheentireNAplant'soutput(pershoe,themost
expensivefactoriesinthebrandedmarket)intothePL.
Thefinalround,'stockingout'(creatingmoredemandthancanbefilled,asaresultoflow
prices)whichinpreviousroundscarriesanuisancepenaltyofreducingthenumberof
retailersavailableandtherequirement(withpenaltyofretailersdroppingawayanarchaic
penaltynolongerapplyingintherealworld,incidentally)inpreviousroundsforaninternet
pricenotmuchlessthantheretailprice+40%foranyregionisofnoconsequencesince
thereisnofutureround.Therefore,theinternetpricecanbesetatanythingandbystocking
outsufficiently,onecanbeprettyclosetothetargetsindicatedbytheforecastspreadsheet,
providedyourpricesarelowest.
27/29
2/4/2015
Team
A
B
C
D
E
F
G
HOWTOWINTHEBSG
PLPriceRound6inNA
(nobids)
31.72
45
48.50
47
43.98
44
#shoessold(000s)
2310
261
218
300
198
137
Needlesstosay,ourbidwasacceptedandnoneoftheotherteams'were
BrandedPricesinNA:
Team
A
B
C
D
E
F
G
PriceinNA
50.25
42.22
53
51.50
49
56
54
S/Q
8
6
10
9
8
9
8
MN
342
500
350
331
250
500
156
Results:
TeamMS*
A
10.7%
B
31.7
C
13.2
D
12.1
E
10.6
F
14.2
G
7.5
ROE
4.6
38.5
8.7
7.4
2.7
10.6
18.9
EPS
.9
19.10
2.07
1.75
.53
1.84
3.22
SP
4.75
392.12
30.19
20.35
6.32
11.15
5.66
*MarketShareinNABrandedMarketwetookallthePL
Round6wasthe"coupdegras".TeamsFandG,our2closestcompetitors,defaultedon
theirinterestpayments,throwingthemintobankruptcy.Theinstructor,whohadplannedon
givingoutgradeswhichwere50%basedonGametoDatePerformancescores,and50%
basedonInvestorConfidencelevels,hadinsteadtoturntoacurvegradeacurvewhose
componentsshedeclinedtoexplainsincetheoriginalplanyielded:
Team
A
B
C
D
E
F
G
Grade
35.5%
100.5%
58%
57.5%
45.5%
54.5%
29.5%
Ineffect,therewouldhavebeenone'A'andsix'F'gradesforthegame.
Hereisanexamplefromaroundmidgame,sentbyateamseveralyearsago.Itmaygive
youafeelforhowthedecisionsaremadeusingthestrategydetailedabove.Ifyouhave
questions,writemeherewiththesubjectheadlineBSG.Andyes,themailaddressisatthe
28/29
2/4/2015
HOWTOWINTHEBSG
bottomofthepagebecauseIdon'tevenwanttotalktoyouunlessyou'vereadthisfar.I've
hadtoomanypeoplewriteme,tellingmetheycan'tflunkthiscourseorelsethey're
doomed,buttheydon'twanttoputintoomucheffortoniteither.Ifyou'vedoneyour
homeworkandarestillbaffled,oraresimplypuzzledorfailinginyourgame,I'mhappyto
talktoyou.Butremember,that'strueonlyforstudentsneedingtopassthiscourse.If,onthe
otherhand,youfindyourselfbeinginvitedtotheGlobalsChampionships,you'reonyour
own.That'sextracurricularactivityasfarasI'mconcernedandyou'reonyourown.
Findthispageuseful?UsePaypaltodonateafewbuckstopayfortheserver
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