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HOW TO WIN THE BSG (BSG-ONLINE) BUSINESS STRATEGY GAME
A SHORT TUTORIAL ON BECOMING A
CORPORATE BEHEMOTH IN 12 WEEKS OR LESS - THE EXPERIENCES OF SEVERAL HUNDRED TEAMS,
INCLUDING A DOZEN GLOBAL CHAMPIONS AND TOO MANY TOP 20 TEAMS TO COUNT
Note: Since first publishing this account in 2004, I have received numerous replies, accounts and inquiries from others who have played the game and excelled, and have included their suggestions here. It was originally written in 2005 and was last updated in November, 2013.
This page has no connection whatsoever with McGraw Hill. It is simply one group of students providing information to others who come after them. Every semester/term since this page was first posted, students have written to give their own input on the BSG, and you are welcome to give us your additions also. We will post all new insights. Please do not think that you will automatically become global champions by following the advice on this page. That's sometimes a simple feat, in regions where one's neighbors are generally boneheads. It's a much more difficult affair where detached observation of the strategy of one's opponent is secondary for all.
The BSG-online game is very complex, with numerous variables and a deceptively simple framework which leaves many students struggling to find a strategy capable of winning the game. Grades, and for those relying upon employer-paid tuition/books - costs dependent on those grades, can suffer horribly. Often, the class is only offered Spring term of a senior year. Flunk it, and you will at best be a five year senior, with the likelihood of not being able - for one reason or another - returning to complete a degree, is very great. To a certain extent, even the "winners" of this game are simply those whose opponents find themselves more "at sea". Most students are simply given the url of the game, and told to begin with very little preliminary explanations on the part of a professor. If that is true for you, then you have come upon what will likely be your best resource for explaining the game's mechanism in everyday language.
But this page is not superior to the game manual, available at your "Corporate Lobby" (although the look of the lobby shifts from year to year) under the heading of Player's Manual, which you should read thoroughly. At least twice. If your instructor gives some few prefatory remarks about the game, listen very carefully to your instructor's introduction to the game. Do it, not because you believe he or she has a thorough knowledge of the game. He or she usually does NOT. In fact, few instructors have rarely played the game themselves except for an initial "dabbling" which McGraw Hill used, to sell it to them. In fact, as the game goes on, many of you may already have found - which is why you're reading this page - that the advice given by your instructors is a recipe for catastrophe. Instructors are often as deluded about the nature of business in the age of globalization, as are the students learning the game. Those instructors may believe that by carving this or that niche out, offering a unique product with high quality and low overhead, you will have built a a profitable enterprise. As will be explained below, a "profitable enterprise" isn't going to cut it in the BSG. You need to have the MOST profitable enterprise. And that, Dear Reader, will cost you any personal character you may have managed to clutch on to, after 4 years in an institution which is dedicated to cloning corporate values (you wouldn't be playing this game if that were NOT true) in you. You will need to at least pretend to surrender integrity to win this game.
However, one more time, this does not mean that you should not listen to your instructor's remarks because you can bank on 50% of the other students in the room following slavishly any recommendations he or she makes, even inferentially, in the following round. And you can make your moves accordingly. Our instructor suggested raising S/Q a point "perhaps", lowering the price a dollar "maybe" in Round 1. Doing little else. Teams made slight variations here and there. Of the 6 other teams in the room , only two (Team A and Team F in the examples below) made some "radical move" and raised the model number somewhat, alongside changes in S/Q, and those teams did well in the round. But Round 1 is, above all, a crap shoot, as you and your opponents feel the game, and one another, out. And, believe it or not - it is a round some choose to lose deliberately, to lower stock prices for purchase the following round). Round 1 was the only round my team (Team B below) lost (unintentionally). Our prices - and thus our profit margins - were comparatively low and we came in fourth in EPS/ROE. Consequently our stock price tanked (allowing us to buy it back at bargain prices the following round, although there are more profitable approaches), even though we took the lion's share of the market. We took fourth, and not last, place, despite keeping our model numbers at a ridiculously low level. We didn't know.
Important Considerations Before You Commence the Game
McGraw Hill's online Business Strategy Game is increasingly a part of many business and business information courses, worldwide. Those who work in modern industries will recognize it for what it is - a strategy game, one of several, such as Glo-Bus, all with remarkably similar algorithms. As a strategy game, it is most expertly played by pre-teens who specialize in strategy games like WOW or StarCraft. Business majors who have never worked in a modern corporation are apt to do poorly unless they forget much of what they've been taught in class and rely upon the observations of team mates at workplaces instead. Those who have neither worked for a modern corporation, or spent time gaming, will be at a disadvantage. Winners will be those who focus on the game scores, rather than upon "building a respectable business". McGraw Hill does not reveal the algorithm used to determine Overall Scores but a little analysis will show the individual categories can be divided into 2 categories by their weight in the overall performance ranking (see below).
The winning strategy for the game is - as one student, and a professional from a large industrial corporation based in Texas, noted - entirely situational - it depends upon your opponents' moves as well as your own. The most successful competitor is thus actually planning TWO moves at any given time - your own move, and that of your opponent, and devising methods of inducing the opponent to believe he or she is making "their move" of their own volition. For the most part, the latter will likely be done by example - if you are successful, others will try to copy your methods, and it becomes essential then to make it appear that the underlying reasons for your success are not as you know them to be. That is not an unreal situation in the real business world. MOST CEOs are incapable of devising original strategies and instead spend a lifetime trying to ape others or "out-ape" those who are. Benchmarking, it's called in the real business world. Corporations pay for a set of statistics - also supplied to you in the BSG - of industry averages and industry lows for costs. CEOs will scan across this and set a target below competitors' costs. One quarter, it will be say, 1%. Another, say 3&. In fact, you could sit a chimp at a keyboard with numbers only, and imitate the most "brilliant" of corporate CEOs. The problem with such an approach is that, for the nation only, it implies an ever downward spiral of wages and benefits as the average keeps falling in the wake of ten thousand such decisions by ten thousand such chimpanzees. And of course, profit margins keep falling because among these "benchmarks to beat" are prices. If your opponents are astute, you will find your scores (and theirs) drifting downward each round. If they are idiots, you will become a Global Champion. So strike first and strike hard.
The usual business model, even for manufacturing corporations, is Walmart: make or sell shoddy goods at low prices, with the lowest possible share of the profits meted out to anyone but managers and stockholders. The ideal CEO today has aspirations which differ little from the visions of a plantation owner of the antebellum Deep South who relied on gangs of slaves to produce a sizable income for the master in exchange for a bowl of corn mush. And the end that lies ahead for him or her will likely differ little. People generally will recover their dignity and livelihoods by some means, usually in fits and starts, sometimes in cataclysm. But in the meantime, the master will live well, sometimes very well indeed. That's your goal in this game. Living well. And squeezing others so you may do so. If you can do so without hesitation, without that momentary clutching due to a sense of responsibility to and for one other, you are likely to succeed in the corporate world as well as in this game. Yes, you're correct - that IS the clinical definition of a sociopath, but at the moment, the livelihoods of the entire planet are controlled by an organized band of sociopaths, as is evidenced by the behavior of banking officials who have done more harm to millions in this country than any terrorists have dreamed of doing, and yet believe with all their hearts that they are fully entitled to their million dollar bonuses. And these sociopaths continue to walk free, with wads of cash in their pockets. They're considered "normal" these days, and in fact the BSG holds them up to you as role models.
Disguise every successful move with at least 2 changes, which will leave your opponents unsure of which to emulate. Use common bulletin boards to - VERY SUBTLY, because there are those intelligent enough to guess your game if it's overt - to let "slip" some mis-hint of this or that plan, or slight mis-explanation of past success. Head left before doubling back next move to go right - for example, upping S/Q (see below) one notch, one move before dropping it 2 notches the following round.There are many ways to win this game, and you must be versatile. This page, in 2009, was drawing some 3000 hits daily - 180,000 hits a month, and you can bet that at least one is from one of your competitors. If several are, your game is going to become very mean very quickly unless you make it seem as though you are continually changing your strategy. Every term/semester, I correspond with a couple of dozen teams playing this game. Invariably, the question arises: what happens if 2 or more teams adopt this strategy? The answer is also unchanging: the game will get very grim indeed, but not nearly as grim as if only one team adopts it, and that team isn't YOURS.
But never overestimate your opponents: if you are a woman playing males, ask naive questions, leading opponents to believe you are about to do the opposite of what you are actually planning. Let them assume your subsequent "error" is based upon your "naiveté" rather than being a brilliant strategic move. The same is true for ethnic groups, whatever the nature. Those of European ancestry in a class dominated by Asians or Hispanics, might play to the hilt the idea of an ignorant, arrogant jackass, which is pretty much how LA and AP see them, rather than of one doing piercing and calculated analysis. Those of Asian background might play to the racism of their own Euro- opponents by posing as a calculating machine incapable of flexible organization or of changing direction, by insisting in public forums on the correctness of a particularly poor move by some other team, for example. Hispanics might play to the racism of both Asian and Euro- opponents by pretending to be lazy and unconcerned with outcomes while shrewdly calculating every possible move. Older opponents can play the same game with younger ones, the latter assuming a lack of computer and gaming skills on the part of the former. Find out the prejudicial assumptions held by your opponents and act - very subtly - as though you are meeting their expectations. Lead them by allusion, by seduction, or by leaving them only one choice, up the path to Cannae, where you will play an ingenious hand and then cut out. Hide your occupation, if need be - never let any one outside your own team know that your livelihood, for example, comes from designing business strategy games for McGraw Hill. Instead, let drop a hint that you tinker with toys, without being too specific. If, on the other hand, you are a WOW champ but a piano teacher in your spare time, lead your opponents to believe that all you know and/or are concerned with, is Chopin. Never forget that BSG is a strategy game, and it is on your strategy, not your business skills - except insofar as they are weighted by the game itself which will yield your scores.
There are many ways to win this game, but following are the some lessons learned from our experience, and from those who have subsequently sent us their conclusions. If their name comes up, speak well of them. The figures used are those from my own team's experience, but they are not the best seen in correspondence with other students. ROE of 35% early in the game are not uncommon and one team from Thailand consistently hit an ROE of 45-50% in a game of 12 teams. ROE in the range of 100% is not rare.
The greatest mistake you can make in this game is to try to run your firm as a rational "business", assuming that if you market a quality product, keep costs under control and show a modest profit, with reasonable dividends for your shareholders, good wages for your employees, and keeping your credit clean, that you will do just fine. WRONG! That's a great formula for a "mom- and- pop" shop, but the firms who win this game are those who have put the "mom- and- pop" shops out of business. They are huge multinational firms whose stockholders don't care one whit about dividends, for example. Multinational firms in the real world rarely pay them either. Stockholders are interested only in the price of stock, stock which they hold for an average of only one year, and then sell for a tidy profit. The future of the firm, beyond that one year, they have no interest in, and they are prepared to sacrifice the future of the firm and its employees for the value of the stock at the end of the year's time. Any CEO who fails to share that view will soon be in the same unemployment line as those whose jobs they have slashed to fatten the stock price. The length of your game, however many rounds, should be seen as equivalent to that year-long term in the real world. Ironically, losing teams will, at the end of the game, sniff disappointedly and point proudly to their squeaky clean credit record, or some other "solid business practice" which was central to their losing the game - as a justification of their decisions. They will never understand that winning this game means consuming every asset for the sake of the current set of stockholders, and only for them. "Every asset" includes credit. On this page, you will find emphasized again and again: if you play this game for an A+ credit and a modest profit, you WILL LOSE THIS GAME. In declaring your strategy to your professor, remember this: your goal should be returning maximum value to the stockholders (If that means holding a bake sale in the parking lot, you should be willing to do so. )
Go to the bsg portal (the appearance changes from year to year). At the left, you will see "Create Student Account", which you will need to do the first time you go to the site (http://www.bsg-online.com/). From then on, you will need only to login with your user name and password at the top of the page. See below. All images are compressed for bandwidth-deprived areas worldwide. Follow on your own pages and the areas circled in red will become apparent.
If you are already logged in, the login button will not be visible and instead the link, "Return to Your Corporate Lobby" will appear.
On this page you will find a few interesting items such as Global Top 25, Hall of Fame, etc. but for the most part you will want to simply "Return to Your Corporate Lobby". See below.
THE CORPORATE LOBBY
On the "corporate lobby" page (see below), you will find 3 areas most important to you. The first is your messages and deadlines. The second is the current exchange rate, at lower left. The third is used capacity for sale after a round, at the right side of the page.
The deadlines are self-explanatory. Read them since they are assigned by your instructor. The used capacity will not apply to the first round. It refers to decisions by other teams to sell off capacity at the beginning of a new round and this information will only be available to you at the end of a round, when results are available. You will find it worth your while to stay up until these results are available (usually after midnight) and snatch up all used capacity in LA and often in AP since it is half price. See below. Purchased capacity is available in the following round.
The exchange rates are useful information, although they relate to geo-political developments beyond your control. There was a time when these fluctuations were unpredictable, and it was tempting to establish plants in most regions simply as a hedge against them. That can be quite expensive. But currency rates in the game are based on real rates in the world market. Because the U.S. national deficit has continued to rise after it bloated - tripled, actually - under the Bush administration (an average community's 2008 share of that indebtedness even in 2005 was $2 billion for a town of 50,000, more debt than the country has hitherto accumulated than in its entire history, and there are years of deficits ahead as the country tries to leverage out of the 2nd of Bush's recessions by further borrowing) - and personal debt has shot through the ceiling (as the currency's purchasing power has plunged), you can generally depend upon U.S. currency having a cumulative loss in value if the the length of your game is sufficiently long (individual instructors can set the length at will). To a certain extent, this debasement of the American currency is dependent upon political events in the U.S. but Republican administrations of the past 40 years have successively run up record deficits and yet keep printing money like grocery chain coupons. But with a 10 trillion dollar debt, the U.S. has passed the point of return for currency stability.
Because the independent Federal Reserve Board regulates the amount of cash flowing, through interest rates, the tendency for inflation - a euphemism for your falling standard of living through the vacuuming up of your cash for fewer goods and services through a mechanism of rising prices - to occur, is somewhat kept in check. But in an era of staggering debt, currency devaluation (another phrase for inflation) is inevitable. Today, a U.S. dollar is worth less than the postage required to mail it in an envelope to many countries. Since Lyndon Johnson, Democrats on the other hand, have tended to let prices reflect any indebtedness (inflation), and the political repercussions have been immense when these are not reined in. The one term presidency of Jimmy Carter was the extreme example. There is, since, a recognition on the part of Democrats that prices - directly affected by the government's output of debt and currency - must be controlled except in the event of national catastrophe. National catastrophe is a euphemism for Pearl Harbor or 8 years of corporate plunder under Republican rule, as was recently ended in 2008. As a consequence both the value of the dollar, and interest rates tend to fluctuate less under Democrats, out of self interest. Republican administrations function more like the "corporate raiders" or the mutual funds who own your own company, caring little about the long term affects as they siphon off the resources into the pockets of corporate raiders over the very short term. George Bush wasn't joking when he told a gathering of billionaires that "some people call you the elitist rich; I call you my base". And the end result, of Republican fortunes falling to the low points of, say, the Nixon or Bush administration, does not leave them sleepless. Not on mattresses stuffed with millions of dollars donated by their mentors. They know Americans are restless, will become bored with mundane life under Democrats and will come back "for more". The humor magazine, the Onion, headlined the "election" of Republican George Bush: "At last, this long, unbroken national nightmare of peace and prosperity has ended" As uncomfortable as this may leave you, it is essential to your understanding of the game: the American dollar will be trashed far more severely under Republican administration than otherwise.
The exception to the falling value of the dollar is in moments of total financial collapse in the U.S., when the multinationals find it necessary to pull overseas assets into the U.S. in order to pay down debt. This is a purely temporary development and will be followed by more lows for the U.S. dollar as the economy recovers, even slightly. These lows, of course, translate into a declining living standard for Americans in general, as they are unable to purchase the same quantities of goods as heretofore.
The dollar's value is now at the lowest it has been in nearly 30 years, since the Reagan administration. This means your prices are going to be very volatile: more expensive raw materials, and finished shoes from LA, NA, and EA will cost more in the US. It means the profits of your products made in plants abroad will be lower. And in election years, they could be very volatile as the markets anticipate results.
The relative drop of the U.S. currency, however, will affect only the value of the dollar versus the Japanese yen/Singapore dollar/Chinese yuan and the euro. The value of the dollar relative to the Brazilian real depends almost entirely upon events in Brazil, which are increasingly less promising than, say, a decade ago. The development of civil war between the gangs, who dominate the increasingly desperate favelas (slums), and the army, seriously disturbs the real when major outbreaks - which at times are on the brink of large scale warfare - occur. This fluctuation in Brazilian currency, upon which all trade with LA in the game is based, is a strong argument (alongside lower wages paid to Latino workers compared to the U.S. or Europe by multinational firms), for planning a factory in LA with a capacity, eventually, of at least 3000. The current party in Brazil is trying to remedy the situations in the favelas, and there is currently an expansion of the Brazilian economy. It would be difficult to predict the effect of this on currency exchange rates.
Do not, then, build smaller plants in every region on the premise that wide currency fluctuations will justify the investment. Focus on large plants in AP/LA and avoid building in the U.S./EA. In fact, you should not build smaller plants in ANY region. Any team with a dream of building a small custom plant turning out customized "niche shoes", of very good quality, say, will be very quickly disabused of the workability of such a scheme. The game, as does corporate reality, shuts out smaller operations which do not focus on producing low quality goods at very large facilities - i.e., at the lowest possible fixed cost per shoe. If you can't afford to build these mega-facilities, you can't afford to be in the shoe business. So borrow, borrow borrow (see below), or your firm will surely die.
This is, of course, a reflection of the BSG's obsolescence. In the real business world today, the costs of maintaining plant capacity, after 40 years of corporations using "Benchmarks" to shed costs (and profit margins, incidentally), have come to be completely avoided by outsourcing production to others. Adidas and Nikes can be made at the same manufacturing plant in Asia. Factories are not owned by the corporations identified with a product. If more production is needed, a larger order is simply placed. This is another part of the game which is a fossil from an earlier era of doing business. Today, a far- sighted large corporation which has seen profits slide, does not focus further on cutting costs - and watching others ape them, with subsequent falls in profit. Such a firm will instead expand (usually vertically, to buy, for example, a firm specializing in dyes for shoes; subsequent merging of marketing, maintenance, information etc. will allow slight economies of scale. More importantly, they create a news splash which boosts the price of stock slightly. Shareholders thus see a slight increase in their profit when selling the stock, and it really doesn't matter if the future of the firm is relinquished by the size of the new debt taken on to buy the firm. Only the short term matters.)
After logging in and choosing "Click Here To Enter Y... Decisions", you will be taken to the secondary portal where you will choose the Decision Entries Page.
This page is actually the RESULT of your most important decisions. It is not the place to enter them. First, go instead to the Finance and cash flow page (you can get there using the tab at lower left on your Branded Sales Forecast page).
THE FINANCE AND CASH FLOW PAGE: BORROWING, STOCK DIVIDENDS
This is where you will borrow money. In the first few rounds, you will borrow the maximum in long term (10 year) loans (usually $250 million). Don't allow your fiscal conservatism to get in the way of your winning the game. By focusing on those scores which are most important, you will inevitably yield ground on credit rating in all but the late rounds to those neophytes who are focused on performing their role as conservative financial officers (CFOs), to the detriment of their team's overall performance. Most instructors make use of a bulletin board which you will find worth snickering over at the end of the game, with losing teams congratulating themselves on maintaining their superior credit rating as well as a dozen other deficiencies in their game. Borrowing heavily is essential to the winning of this game. You will NOT win this game if you your goal is an A+ credit rating. You SHOULD try to never plan for a round with a credit rating less than B+, although you may find that, in the game itself, your credit may fall even to C- on an occasion. You will not be focusing upon rational investment decisions but upon predatory ones. Sleazebag should become your middle name for the duration of the game. Save your moral outrage and fiscal responsibility for the day when you are done with your silly degree and can make your outrage known elsewhere, in the streets, in the way you live your life.
In early rounds, you will be borrowing to expand capacity and upgrade equipment, as well as to buy stock back. In round one, you should try to expand your starting capacity in AP, and expand the maximum allowed for a new plant in LA (usually 2000 capacity, sometimes 1000). Since new plant capacity for 1000 is generally in the range of 35 million, you will be able to start a new plant in LA and use the remainder to increase the size of your AP plant as well as upgrade for setups and buy back some stock. Your success depends upon your production capacity. Let me repeat that, since it's so important in the game: your success depends upon your production capacity - with one proviso, added by a student /senior manager in Texas: production capacity needs to be hinged on "economy of scale": by increasing your capacity in specific environments, you not only increase the ability to satisfy any market demand, but also lower the cost of your shoes, since fixed costs are spread over ever-larger numbers of shoes. Thus, a single plant of 8,000 in one region is vastly superior to plants of 2500 in each of 4 regions, despite the seeming inferiority in numbers. Each plant operates independently. That is, your 4 plants do not operate as a single 10,000 unit plant, and fixed costs are spread only over the number of shoes produced in a region. To understand the role of fixed costs, imagine that the cost of maintaining , at a plant of fixed dimensions, a temperature of 68 degrees is $1000, spread out over 100 shoes. The price of each shoe must be then saddled with an average of $10 for heating costs. If, instead, the same plant produces 10,000 shoes, each shoe must bear a cost of one dime for heating. The latter plant's shoe costs, and thus prices, will reflect costs nearly $10 less than the former. The same is true of landscaping, road maintenance, power lines, keeping a CEO in the style to which he or she has become accustomed, etc.
In round 1, your credit rating is as good as it will ever be in the game. You will want to borrow extensively to take advantage of this relatively low interest rate. Use only long term (10 year) loans when possible. But borrow. Extensively. Each round. There will be those business majors who have never worked in the corporate world who argue that this repeated borrowing saddles the company with long term debts which will ultimately doom it to extinction. They're right. Who cares? Your game, and thus your firm has a limited life anyway. Pillaging it, is your key to success. When you walk away, as the stock holders in the financial sector have done under the Bush administration, you will look over your shoulder and see what they do - a carcass where the firm once stood.
And this is reality, in a sense. In the American business world today, company owners are no longer the company owners of your grandmother's day. They do not give a hang about the long term viability of the company. They care only about the stock price next Thursday so they can sell it on Friday. If the company collapses on Saturday, throwing everyone else out of work, and all the smaller, or late-purchasing, stock holders into bankruptcy court, today's "owners" will yet sleep well. Legally, a corporate-dominated Supreme Court has twice declared that corporations are "individual human beings" and have all the "rights" that people do, with the owners having no responsibility for their deeds of their creation, or for its employees' (CEOs') malfeasance. The irony, of course, is that many of these large stock holders are generally mutual funds - whose capital is being provided by the pension funds of the very workers to be tossed out of their jobs next week. They, and we as a nation, are thus committing collective suicide by squirreling 401K funds into these institutions, but that's the reality of things today. Under the Bush administration, corporations had unchallenged rule, and as a consequence of 8 years of such a regime, the most basic of human needs - housing, food and fuel - are now in jeopardy for the country. We have been used up and squeezed dry. We make nothing in the U.S. anymore and we have no money left to siphon off to the likes of Halliburton, Monsanto or Wachovia. As a consequence, it is the wealth of future generations - debt, whether private or public - that they are left to focus upon.
Besides mutual funds, the other major players in the world today are pooled funds under the tutelage of a single personality such as Warren Buffet, and they also have little concern for the future of the companies they divest themselves of, after taking a profit on the price of stock - one of the more important scores in the game. That's reality, and that's reflected in the game to some extent. Buffet himself seems to be a very decent person, but he's working a game which is not honest. And he's working it very well indeed. It is, after all, currently the only game in town for him to play.
Some students object to the reality of "banks" extending loans to companies expanding rapidly in a market where capacity can often greatly exceed demand, as it usually will. That is of little concern to you, and the fact of the matter is that a large corporation will always find ways of raising money from unwitting shills when needed. It may be from issuing various sorts of questionable notes backed by little more than the "vision" spewing from a power-drunken CEO, or government bailouts, but it will come from somewhere. It may be from fraud, or from from legislation passed by "friendly" (corrupt) legislators, granting "tax breaks". For example, here in Oregon, A bill passed by the legislature, ostensibly intended to fund wind energy, allowed Walmart to buy $40 million in tax credits which allowed the corporation to evade $90 million in taxes, giving them a $50 million windfall to use for equally profitable investments. Similar funding may come from boosting ATM fees or off shore banking schemes (Google for example, ships its profits through Ireland to Bermuda with a tax rate of a mere 2%. That's called "money laundering when gangsters do it. When corporations do it, it's called "off shoring".). In fact, if the banking policies permitted by the Bush administration proved nothing else, they proved that banks are just as liable to sacrifice the long term viability of a firm for profits and stock prices rising over a very short term. Like other corporations they are responsible only to the current crop of share holders.
As a consequence, the money will come from somewhere, for a period of time, and coincidentally this game has a finite period of play. In the game, all such sources are collectively labeled "the bank". And the worst punishment to be incurred for large debt - short of bankruptcy - is incremental interest rises, which hopefully will bring the company to its well-deserved death the week after your game ends - with your win. Meantime, borrow. Borrow. Borrow.
Again: in the first round, you will want to greatly increase capacity in AP if you possibly can. Stay out of EA. Once more: STAY OUT OF EA. You will also want to borrow to invest for the maximum capacity allowed in LA, which in our game was 1000 initially, but which can be increased by your professor. If yours is a 1000 limit, then the following round, the shoes in LA will be very expensive, as the fixed costs of the plant will be spread over a small number of products, and profit margins will be thin if you keep the prices competitive. However, in subsequent rounds, as others follow you into LA - and some will follow you (the sheep instinct, again) - you will have a full plant in operation as they, in turn, open a limited facility and you will trounce them in the region. The currency fluctuations, and accompanying exchange rates, in LA, can be so volatile that the presence of a large plant in the region is essential. And wages are so oppressively cheap, and working conditions and environmental laws so weak and pathetic, that an LA plant is immeasurably cheaper to operate. In subsequent rounds, you are permitted to expand only by 50% - a figure which can be adjusted by the powers- that- be) so Round 2, you will add 50% to the LA region, and in Round 3, 50% again (50% of 1000 + 500 in our game). At that point your plant is fully operational, though further expansion is desirable - at least to 3000. In AP - and subsequently in LA too - you may want to expand capacity in every region by 1000 each round in the beginning, if you can, after increasing AP capacity in the first round. Always pick up used AP/LA capacity others offer for sale. From the calculations of a student in Bangkok, the ideal you are shooting for early is to have at least twice the average market share average for a team by the end of the game, and twice the capacity of your nearest competitor in each region -preferably from the first round forward. For example, if 6 teams are playing, then you would expect an average team to have 16.7% average market share. You are shooting for capacity which would allow you to have 33% then, if you chose to put it all in the branded market. Alternatively, if 10 teams are playing, each should average 10% of the market, and you are shooting for 20%. Projected market demands for future years (which can be varied by individual instructors) will provide you with the capacity numbers needed to give you these numbers. Always plan for a slightly greater capacity than these numbers indicate, since actual market demand (which appears to be determined by a probability algorithm built into the game) will at times exceed projections. But plan these increases "reasonably", although you can always sell capacity - as you will your NA plant - in a glut.
Axiom: Your success in the game will be directly linked to your practice of economy of scale - and your breadth of line (model number: see below) as well as limited stock ownership.
REPEAT THAT: you will win only if you have a larger plant than your opponent in a region, have as many or more model numbers, and no more or fewer outstanding shares of stock than your opponent.
Say it again.
Again: in the first round, you will want to increase capacity in AP if you possibly can. Stay out of EA as a production source (although the EA market is lucrative). Once more: STAY OUT OF EA as a manufacturing source. A South African student pointed out that the game is Eurocentric in this respect. The wages in Burundi, for example, have little to do with the wages in Britain, yet the EA factories are oriented toward the latter. Arguments that Africa is too small to merit its own region are facetious. There are 1 billion Africans, which dwarfs NA in size. A similar contradiction exists in AP. Japanese workers earn wages far higher than the Malaysian or Vietnamese workers the game envisions (In fact, Japanese autoworkers make a dollar an hour more than American autoworkers. It's in the benefit package only that Japanese auto manufacturers have lower costs than in NA, because of National Health Insurance and the like, which push a part of the costs onto the public as a whole rather than onto the corporation).
Big Deal: the game is simply racist and ethno-centric. Live with it. It was designed in Alabama. You were expecting something else?
This capacity expansion may well come to a halt with an instructor's intervention at some point, on occasion with an instructor absolutely forbidding further expansion, and for others, with professorial penalties for excess capacity. More frequently, an instructor intervenes by increasing market size which will effectively shrink your market share. Since market share is half the determining factor in image, it also affects your image rating. So expand rapidly early on.
Market share in early stages of the game is a liability as much as an asset if you set your prices low. If you sell every shoe you have, at a profit of, say $7, and your next-best opponent has a "deal" for the public at a dollar higher, at a profit of $8, and you can only produce enough shoes to meet half the demand, the other half will fall to your competitor by default. Each of you will have half of the market, with their half yielding higher profits. They will win every round played in such a fashion. In reality, there are more teams and more factors involved, but you get my drift. Your ROE and EPS will drift lower, and your stock price will suffer throughout the game unless you can begin to meet demand for your shoes. And because you aren't able to deliver, the number of retailers willing to handle your products next round will shrink - the number of retailers - is not a major factor, but a factor nonetheless.
In borrowing in round 1 (and every round thereafter), you will want to compare your current interest rate with that on the outstanding loans assigned your company at the beginning of the game. You may find it cheaper to refinance - called "Early Repayment of Loan" on the finance page) the outstanding part of those loans alongside new loans for expansion - and in Round 1 you will want to borrow primarily for rapid expansion and buying stock back. If, for example, your company has been assigned an outstanding principle which is 30% of the maximum allowed for long term loans, at a higher interest rate than on a long term loan you can currently take out, you will not want to borrow that amount only, to pay down the loan at a lower interest rate. You will want to borrow the maximum allowed in long term loans and use it to increase your AP production capacity by at least 25% if at all possible. Your stock price is at a premium on the eve Round 1 too, and you may not want to win this round in a large way. In fact, you may want to lose it, so that your stock price tanks and you can use the 2nd round to buy it back much more cheaply (see below). Borrow the maximum in long term loans - - to start a plant in LA, and to increase your capacity in AP in Round 1, and do the setup upgrade in the AP. In Round 1, we made the mistake of borrowing early on to invest in various plant upgrades alongside expanding capacity, rather than focusing only on the latter. You can do the upgrades in later rounds, which is a better idea.
The exception is the production set-up upgrade. As plants and model numbers expand, this upgrade becomes prohibitively expensive, and yet the savings become ever more immense. Do this upgrade as rapidly as possible (see plant capacity below). By investing in it while plants are small, the benefit is inherited as plants grow and cost of the upgrade is nothing additional.
Stock Dividends: The game does not track the size of the dividends (except as part of EPS/ROE and equity), only whether it increases or decreases. Set the stock dividend low at this point. We put it at $.05 annually and added a penny every year so that at the end of the 6th round, we were shelling out a dime. That gave us a score (+/-) of 5/1 in raising/lowering the dividends. Other teams which tried to impress the "investors" were paying out $1-2 in Round 1 but necessarily dropping them every round following for a score of 1/5, or roughly 25 times lower than ours. The increased ROE you post will more than compensate for the small size of the dividend. However, it's important to remember that lower dividends mean that profits are being plowed back into the business, which means higher equity for the firm, and this equity is a denominator in one of the financial scores (net profit divided by equity). If you have invested heavily but still have a ton of cash laying around and expect to do so for future rounds, increase your dividend payments. Otherwise, simply increase them each round by a minimal amount, in our case a penny.
EXCEPTION: The last round, by which time you should have your early loans largely paid off, you can borrow the maximum allowed you in 10 and even 5 year loans - provided your credit doesn't fall below a B+ as a result - and hand it out to stockholders. It will greatly increase your ROE and swing a close game your way. Of course, this will leave future stockholders/generations with a staggering debt that will surely drag the company to its death. Meantime, the stock will surge, and the CURRENT stockholders will reward YOU with your bonus and both you and they can walk away before the pyramid scheme crumbles. That's how business is done these days. If you've any doubts, you can examine the history of the mortgage companies recently.
If your stock price tanks after the first round you are in luck, if you are smart and make arrangements to buy stock back. We - in planning the following rounds - could borrow enough to buy back all the stock shares permitted (2,500,000 of 10,000,000 shares) in 2 rounds and the rest of the game we were dividing by 3 (the remaining 7,500,000 shares) while others were dividing by 4 (the original 10 million shares) in ROE/EPS calculations - giving them an automatic 33.3% disadvantage in scoring until 2 other teams "caught on" late in the game and did likewise. 3 of 7 teams actually sold shares, increasing the number by 20% and further disadvantaging them. Thus (see below), it may be to your advantage to ensure that your stock DOES tank in round 1. However it is NEVER too late to buy stock back. If, late in the game, your stock has risen significantly in price, and you can't afford to buy back all of it in a couple of rounds, remember that the bulk of a company's equity is in the stock value. Buying up even a few hundred shares at very high prices reduces the equity considerable. ROE is return/equity. Decreasing the size of the denominator increases ROE. The same is true of EPS = Earnings/number-of-shares. Decreasing the denominator also increases EPS. I have seen late buyout of expensive stock result in ROE of hundreds of per cent. BUT NEVER SELL SHARES. To idiots, selling shares looks like free money. But you don't need to "do the math" to see it's a mistake. The game will do the math for you. You need only to be ABLE to do it, to see the error in such a move.
Having set your stock dividend and arranged your loans as mentioned above, go to the Plant Capacity tab:
Use your money to increase your capacity dramatically and do the "facilities upgrade to reduce production run set up by 50%" only on the AP line in Round 1, insofar as you can with the money available to you. Once the LA line is up - after the 2nd or 3rd round - then., depending upon the size of the market (which is a function of the number of teams in a game), you likely will sell off the NA plant. That, of course, entails catastrophe for all those working at the plant, but the game is designed to immunize you against any feelings of remorse or empathy. When you go to work for global corporations, you will need that immunity. You will not be using such verbose phrases such as "selling off capacity"; instead you will be using acronyms designed to even further remove you from realities. "We strove to reduce XPC and DGR by 80% but we only managed 65%" or some such, which is translated from "management-speak" into Plain English as "we failed to introduce the misery and hardship we planned into 12,000 of the 35,000 households we had planned to" (implied is: "but we will make them suffer the next quarter instead").
When you've finished entering these decisions, move onto the Branded Production page.
Percentage of Superior Materials:
Ostensibly, the cost of superior materials is set by world commodity prices, but the exact nature and source of these prices in the game is a secret known only to McGraw-Hill. We could never figure out the exact algorithm although supply and demand - among the teams involved in your class - is a huge factor. Leather is involved, as you can see by tracking the weekly cost in commodity markets and looking at the game's prices. Barring some disaster such as mad cow disease or a hoof and mouth outbreak resulting in the mass slaughter of thousands of cows, these costs will fluctuate slightly from week to week (due to supply/demand fluctuations) for plants outside the U.S., so long as they are buying U.S. beef (beef production is increasing world wide) and the American dollar's debasement continues unchecked. This will be offset somewhat by the increasing "cultivation" of cattle into China (AP) and the increasing willingness of India (AP) to send cows to slaughter in spite of religious impulses (the hypocritically "devout" upper caste Hindus simply outsource the "taboo" job to others). But that offsetting is all likely to unravel as cattle feed - corn, primarily - goes to biofuel. It may even be undone completely by the trend. LA has always been a large cattle- producing region and the ongoing razing of the rain forest by cattle barons only promises more of the same. Yet, here too, the biofuel demand by oil companies is threatening cattle production. Regardless, the prices will rise discernibly over the course of the game as teams increase their S/Q (and many will), provided a world- wide economic recession does not take place, as inevitably will occur. That' fluctuation will especially be true as capacity expands among your competitors. Yet each region will need to be considered separately. In some regions, you will find the percentage of raw materials are most effectively set as high as 35%, on occasion even 50%, but as a general rule, 10%-20% is adequate for an S/Q of, say, 5, depending upon the choices you make elsewhere. On occasion, 6% will be sufficient and even 0 for very low S/Q. Needless to say, the shoddier and cheaper the materials you can get away with, the better for your prices and profits. Never think twice about the fact that your shoes will fall apart on first wearing. That's not a real-life business decision, and it doesn't factor into the game either. There is no score for the sustainability of the planet involved in making fewer shoes of greater longevity. The Corporate Responsibility scores are window dressing. The so-called green decisions page has no impact on your score with the exception of conserving electricity (see below).
Generally, then, a figure of 12-18% is used. It should NEVER exceed 20% except in exceptional cases.
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The impact of enhanced styling on each of the 4 market regions varies. In round 1, you will want to experiment with varying the enhanced styling/features, percentage of superior materials, the change in annual base wages, and incentive pay to see which set of figures results in the lowest possible Total Cost of Manufactures Shoes at the bottom of the page. These percentages will not only vary from region to region, but from round to round. In some regions, enhanced styling will be most effective at 0, and in others, from 10 to 15, depending upon your choices for the other variables. Initially, it will likely take you an hour, at least, to try the various permutations possible in each region, but as the game progresses, you ill find it takes no more than a few minutes. This game will often be decided upon pennies so initially put the bulk of your time here. By changing the various combinations, you will find the Total Manufacturing Cost of Branded Shoes at the bottom of the page shifts. Get this figure down as low as possible. And remember that in the age of globalization, shoddy goods are not a liability. I've corresponded with teams whose members insist they don't want their names associated with low quality products. If you feel that way too, then please answer me this: "where, peut-être, are you planning to work after graduation? Quality today is nothing more than a marketing slogan. It doesn't exist in the corporate world. You don't belong in shoe manufacturing. Instead of being enrolled in this institution, you should be working with an organic gardener or a handcraft toy maker. You would find more satisfaction and feel better about your work. And you'll come close to being starved to death. There are severe negative consequences for quality and integrity in today's marketplace.
TQM/Six Sigma, Best Practices Training in Round 1:
Spending the maximum on TQM and especially Best Practices is a "must". These are cumulative investments and by the end of the game, Best Practices investments will be saving $1-2 a pair. The maximum on TQM is usually $2.50. $5,000 is usually as good as you can do with Best Practices. Keep spending the maximum on Best Practices until the final rounds, when the cumulative value for the nonexistent future is of no purpose. In Round 1, it will appear as though they are simply increasing your costs. They are, but they are an investment in the future which is justified by the returns down the road. If you have to sacrifice one or the other, lower TQM.
This is, by the way, the most unrealistic part of the game. TQM circles were a "buzzword" in the Nineties when the game came of age. The success of TQM depends upon an educated workforce capable of analyzing production costs and failures statistically, and also upon there being no less expensive means of cutting costs. The American workforce is from being trained by employers to be mathematically literate and depends entirely upon management- produced statistical analysis. Rather than devote the considerable labor costs in holding regular meetings to train employees to analyze these results via TQM, it is far less costly to simply implement any changes by fiat. The gain in worker morale via TQM touted by the method's proponents is easily offset by hiring immigrants or recent college grads desperate for work at even minimal wages, working them to death and then ridding one self of them when they are burned out. And the quality of life of other human beings, on the priority list of CEOs, ranks about the same as the idea of personally recycling coffee grounds in the flower pots on the walkways to their suites. They are devoid of empathy, and the game is designed to rid you of yours, as is the curriculum you're following or else you wouldn't be playing this game. You could take the heart of most CEOs (and university professors and presidents for that matter) and stick it in the belly button of an ant and still have ample room for his or her brain. If you get to this stage too, congratulations - you've shaken your status as mere sociopath. The inability to feel empathy is the clinical definition of the much more serious psychopath.
But this aspect of the game is realistic in that it shows that the focus of a company's financial investment in better production is always in terms of over-hyped process, rather than focusing on the actual job-satisfaction of employees. College business classes continue to pretend as though Quality Circles - or even an emphasis on quality - are a reality in American business life. They are not. You'd find it difficult to find a single firm with "Total Quality" circles these days. Get costs down, get the shoddiest possible products out the door. It's a Walmart era: move 'em in, slop 'em down, move 'em out. But the college bias in the game will be accommodated by the astute player. So spend some on TQM and squander the maximum on on Best Practices (say, $5000). It fits the game's design.
As the manual points out, current standards of living in AP and LA are only 20% of those in NA and AP, and the corporations involved abroad will do whatever is necessary - coup d'etats, faked "elections" bought and paid for, etc. - to keep those ratios. The current destruction rampant in Haiti, for example, began as a simple attempt to raise wages at a baseball factory. The successive attempts to isolate the regime favoring such attempts, and the successive coups and counter coups, have combined with an earthquake to bring the country to ruin. And because of it, wages at the baseball factory are lower than ever before. And the irony of it all is that Americans whose own baseball factories have closed in the face of these low wages, were probably the first to sign up for the army and join in the initial occupation of the country. And joyfully. However you feel about it as an ethical or self- preservation issue, you have to admit it's a stroke of brilliance on the part of US corporations to have effected such a remarkable scenario. Similar scripts have played themselves out in the US over Cuba, Venezuela, and elsewhere. At the moment, for example, the Chinese government has instituted a series of labor reforms to permit migrant workers at American factories in China to see better wages and working conditions. American corporations issued a series of threats that led to the gutting of a part of these reforms. And those same American workers whose jobs are being exported abroad because of substandard wages, working conditions and environmental/ health regulations, would be shoving to be first in line to man the warships docking at Chinese ports in a vain attempt to enforce American super power. A third of the population would be driving around, encouraging these chumps with "Vets are Heroes" bumper stickers. Child labor ethics be damned. Quaint sustainability issues be damned. The long term consequences, creating a deep and abiding resentment of the U.S. around the world culminating in developments like "9/11", is of no more concern to you in this game than it is to the "owners" of similar companies in the real world. No CEOs or Board Members died in New York. Only people who "don't matter". People like you.
The effectiveness of raising wages will vary radically from region to region, and will shift from round to round, depending upon such seemingly unrelated factors as capacity or model numbers. It will usually be less than 5% and may be zero in cases. Incentive pay follows the same rule of thumb, with .20-.40 usually yielding the lowest cost for shoes. Play with as many permutations as possible among these 2, and with materials and styling to achieve the lowest possible cost per pair at the bottom of the page. Remember to keep the global political economy in mind. The game quite openly puts more emphasis on piecework - a means for corporations to effectively circumvent minimum wage laws and thus to depress the income of employees. That means bigger profits. AP is largely drawing from rural reserves of labor, and in some places, for example in China, these reserves are nearly absorbed into the manufacturing economy. McGraw Hill's algorithms on labor in each of the 4 regions is secret, but is evidently tied to current real conditions in the "labor market" (human existence being the commodity for "sale" in such "markets"). If AP comes to the end of their cheap rural labor reserves -as is predicted in China, for example, by 2015 at the latest - you will find radically different conditions than those prevailing last week, and the labor algorithms will no doubt reflect that tightening in the game in the intervening years.
As you manipulate the above factors, you will see the S/Q change on your page. You should determine in advance what S/Q you want to have before you even begin playing with these numbers. As a general rule, an S/Q of 5 is more than adequate, and lower will usually prove more profitable although I would recommend not going below a 3 unless the competition gets fierce. It's risky. Global championship teams often go as low as 0. But one should certainly not go there immediately. The strategic advantage of disguising intentions is always immense. S/Q is actually given a misleading prominence on the game's pages. Far more important in the algorithm, than raising S/Q, for market share, is the number of models - "breadth of line", but this will not be apparent - as it was not to us - until later in the game. You will want to increase this ambiguity for other teams, about the crucial role of model number, by regularly raising and lowering S/Q, lowering price or adding celebrity appeal at the same time you GRADUALLY raise the number of models in future rounds. It will disguise the reasons for your success which ultimately lie in: economy of scale, breadth of line, and restricted stock ownership.
LA, alternatively, has yet to soak up their urban unemployed. Although - as in Asia - there is a migration from the countryside to the cities, it is offset by the migration northward. If you're planning on pulling up all your stakes, cutting ties with all you know, why would you stop at Tegucigalpa instead of Miami, where wages are 10 times as high? Thus, for all practical purposes, the reserve rural labor force in LA is nonexistent at present. If the flow to Miami and other points north should ever be interdicted, you can expect the algorithms affecting labor to be skewed to accommodate the resulting labor surplus (a mild phrase to describe the massive unemployment and social unrest in LA which would result).
Wholesale Marketing of Branded Footware
You will want to use ALL of your capacity every round, including the maximum allowed for overtime. Period. Repeat that too: use every possible shoe in every round. WHERE you use it is a more complex matter. Initially, you will lack the capacity to dominate the branded market, and in games with large numbers of teams, or a professor continually intervening to expand market size in order to save failing teams, you may NEVER have the capacity to dominate. In both instances, you will dump off a good part of your production into the Private Label market - AT NEAR COST - in order to create artificial shortages for your product in the Branded Market, allowing you to raise prices and still be able to face shortfalls in supplying the demand for your product. This may seem unethical to you, since it means there will be children in LA or AP who can no longer afford shoes because of such pricing practices. Yes, that's true. It IS unethical, but look around you. These same firms, in the real world, are ALSO unable to deliver housing, food, or fuel, the VERY BASIC OF LIFE - to AMERICANS at affordable prices. Get real. This is business on the corporate scale. The only justification for any economic model is its ability to deliver goods and services to those who need them, and the corporate model ceased doing that a century ago. Toss the scoundrels out on your own time. This is the BSG. It's a game - not just Grand Theft Auto, but THE Grand Theft Auto. And you're it.
In the early rounds, the private label market may yield a tidy profit, but as the game proceeds, you will be dumping into this market at very close to your costs. If you fail to recognize this, you will find yourself underbid and stuck with millions of shoes and a losing round you may never recover from. The profits will, commencing early, come exclusively from the branded market. Experiment with how much to dump off in order to maximize EPS/ROE, but a general rule of thumb is that it will never pay to put small numbers in either the branded or private label market. The fixed costs distributed across a small number of shoes are too high because the game treats a single plant distributed across both the Branded and PL markets as two small plants. You can get away with dividing an AP plant of 4000 into 2 equal plants of 2000 devoted to each market, barely. But dividing a plant of 2000 or less into 2 is a poor decision. In time, you will likely become a low cost leader", and find it most profitable to put all your shoes in the branded market. That will result in lower ROE/EPS for everyone, so make sure you take advantage of the firs few rounds to maximize points for the future. These are the 7 years of Fat, to be followed by the 7 years of Lean as Moses forecast.
As pointed out, the Private Label arena is also useful for preserving capacity while creating artificial shortages in the branded market. But beware: the Private Label is generally a digital, versus analog market. Your bid is either accepted or it is not in most instances. You sell or don't, whereas in the branded market, you can usually sell some shoes. It is a common mistake to believe that by making shoes above the minimum S/Q set by the retail chains, that a bidding advantage in PL is had. It is not. Only price counts, so long as the minimum S/Q is met. If you're having difficulty understanding this, put yourself in the place of the retail chain. If given the opportunity to buy a $17 pair of shoes that lasts 3 months, or a $25 pair of shoes that lasts 6 months, and tacking your $3 profit onto the price of either, which will you choose? A shoe that will need to be replaced - with another $3 profit, in 3 months, or one that needs replaced - also with a $3 profit - in 6 months? It's twice as profitable to buy the junk shoes. There's no threat of lost sales, really, since the handful of other retail chains are doing the same thing. Environmental sustainability and customer satisfaction are image slogans you place in your ads, using celebrities to mouth them, and not something to be taken seriously, in either the game or real-life corporate strategy. If you find adopting this strategy looks to you as though you're ripping your neighbors off, then very quickly find a mirror and look yourself in the eyes. Repeat this to the mirror: "Congratulations." After 4 years of having sand flung repeatedly in your eyes to confuse them, those eyes yet serve you well.
It is the incompleteness of this collusive aspect of the game's structure which most reflects it obsolescence. The game was designed in an era when the hiring of temporary workers by the thousands was giving way to the era of U.S. corporations shifting factories abroad. That was the era of the Celtic Tiger, of the Taiwan Miracle. The BSG's "Self-Construction of Capacity tab reflects such an era. Subsequently, those same firms ceased founding factories and instead assisted local business owners in setting up their own factories. At first, these factories manufactured components of products and then the products themselves. This allowed the "parent" firm to relinquish responsibility for hiring and firing, for environmental, safety, and all other local laws. Eventually, the factories were given responsibility for the complete product and today, a factory in Malaysia will manufacture the products of firms competing in the market. In time, of course, these outsourcers making all the products will begin marketing them under their own brand as well as others, and that spells doom for the original brands, but think short term here. ONLY short term.
Meantime, the difference between products is a matter of branding only. The most marked sector of employment expansion in American industry is in Marketing, because the sole differentiation among manufacturers is in superficialities: "Our garbage is better than their garbage", even though all the garbage comes from the same factories. And it because of the homogenous nature of the products that none of the firms is threatened by the lack of quality. The answer to consumer dissatisfaction is always: "Where are you going to go?"
Once you've finished the above, move onto the Wholesale Marketing tab
This page is as complex as the Branded Production Page above, with slightly fewer variables. The goal is to sell your shoes at a price creating a demand which results in a shortfall of, say ,-15 to - 25 in each of the 4 marketing regions. You do this by adjusting price, Retail support, Delivery time, rebates and using the Private Label market (see elsewhere on this page. You will want to go from this page to the Branded Distribution Page to see clearly the impact on the market:
The idea here is simply to ship all your shoes, focusing on the most profitable regions and completely shorting the rest.
Stay out of the Private Label Market except to create the shortages in the branded market mentioned above. Initially, money can be made on bids in the PL. Over time, the other teams may begin treating the private label market like a "milk cow", and it will be tempting. But as the game proceeds, the prices will fall dramatically in the PL. At the point - for us, the last round - where your capacity permits a single plant to be devoted to the Private Label market, and take the entire thing, do so. It would be best if you hadn't put anything into the P-L market the preceding rounds. It will come as a shock, and the other teams may have bid high prices to increase the profitability of the market. That allows your bids to sweep the PL. For my team, we swept the P-L the last round. We unexpectedly dropped 10,000,000 shoes in the P-L from our NA plant, which we picked up as used and which produced shoes only for the PL market, and we took it all, using the other 2 plants to feed the branded label market. It left the other teams with 10,000,000 shoes from PL that they couldn't move, and half our opposition ended with negative ROE/EPS, with stock prices, credit rating and investor confidence floundering as badly. Our two strongest competitors went bankrupt. Periodically, if you've established your reputation as low-cost leader, you can throw a few hundred thousand shoes into the private label market at a little above cost to watch the prices - and profits - of panicked teams drop drastically in the private label market, but it should be a strategic move only. In recent games, price pressures in the P-L have increasingly brought profits there to nil early on in the game, and in that instance, if no profit is to be made, you will simply dump any unprofitable plant capacity (likely NA) in the PL at cost. In isolated instances, very strong teams, with capacities exceeding 25,000, have easily dominated the entire PL market by devoting 2 entire factories to the PL, with substantial profits over several turns. Early in the game, you will face a situation where your capacity is larger than the branded market and you will want to pawn off the excess to the PL market just to protect your capacity until the branded market expands.
You will want to bid on celebrities from Round
1. Although Oprah (and the names of the stars vary by professor) is more appealing for her numbers, Anika is more of an asset
for her longevity. Oprah was contracted, in Round 1 of our game, for $8 million
initially, Anika (the names of celebrities can be altered by professors; Anika
is used because her 6 year contract is long term) for $1.5 million. For purposes of comparison, by the end of
the game, 1 team was bidding $42 million for a celebrity with lower numbers than
either Anika or Oprah, but you will not want to set out on such an expensive
road at the beginning of the game. The added cost of 3-4 dollars per pair
ensuing from such a single bid is questionably worth it. Keep the bids reasonable, but
high enough to win at least 1 celebrity in Round 1,
preferably one with a long term contract, if you can. I have
written a small application for use in calculating the value of a celbrity to
your team, here. It has little error checking, so
follow the instructions faithfully. If initial winning bids begin at
$20-25 million, forget the celebrities altogether until prices fall, as they
will. In reports from students playing recent games, the cost of celebrities is
soaring in some regions of the real world, and the prices of shoes are rising to
reflect it. You don't want to be leading that pack. You can get a rough idea of
the worth of a celebrity by using the forecast screen, although increases in
future capacity need to accounted for. A student from Indonesia, playing in
Australia summed it up: "Let's say that, if we put a celebrity under contract,
it gives us an additional 0.5% market share in all regions. And then we find out
we can also get 0.5% more market share if we reduce the price of every shoes by
$0.50. If the total number of extra shoes we sell is 10 million pairs, then the
celebrity is approximately worth 10 million * 0.5 = 5 million. The more capacity
we have, the more valuable a celebrity is." That's only true if the profit
margin does not fall with the increase in market share. The value of a celebrity
is the profit margin multiplied by the number of extra shoes sold in each
region. Since the profit margin varies from region to region, the value of a
celebrity does too, IN ADDITION to the variance in regional appeal.
Once you have finished manipulating the above numbers, go back to the Sales Forecast tab.
You will see much of the work you have already done is reflected on this page now. Set your internet shoe price here, slightly above the retail price. The manual tells you that retailers will fall away if you sell shoes on the internet for less than 40% above the retail price. That's true, but the number of retailers should be your last consideration (unless you've ignored them for so long that the shrinkage has become constricting). The number of shoes in demand will be handled by the remaining retailers provided you keep it reasonable. If it seems that your retailers are falling away alarmingly, up your internet prices somewhat. On the Sales Forecast page, you can fine tune such things as advertising. Some hard numbers may be useful here, since students seem to generally approach these areas with no idea of what they should be. Your advertising budget in the various regions should be set initially at something like $9000 for NA and EA, and 5000 for AP and LA. These will climb to 15-20,000 for NA /EA and 7500-10,000 for AP/LA. See what is needed to give the shortfalls in Branded shoe supply that you want. Rebates should be set to 0, delivery time to 3. Retail support should not exceed 250-350 and the number of retailers should not exceed 2500 for NA/EA (and 1500 is acceptable). For LA/AP it can be 1500 and 1200 is acceptable. The additional money spent on retailer support, multiplied by the additional number of retailers, can be expensive. If you lower S/Q, selling off inventory makes no sense. If your current targeted S/Q for NA is a 7, and you have large numbers of shoes in the region left from last decision which are an 8, then you can manufacture shoes in NA at a 6 to reach your target of 7, since the S/Q is an average. It almost never pays to sell off inventory in a region from a preceding decision of that inventory is a higher S/Q than the current planned target.
In settling on the numbers for this page, you should try two versions:
1) The version where the "industry average" is set by the BSG.
2) The version where the "industry average" is set at the decisions of your strongest opponent, with the assumption that your opponent will only try to become stronger (lower prices, higher ad support, etc.). This will give you the worst case scenario.
A NOTE ON IMAGE:
Image is probably the area you should worry least about. It should follow market share anyway. But, perhaps as a result of this page and the winning strategies which have ensued, McGraw Hill has introduced an option called "corporate citizenship". The page is designed to boost image ratings for your team, ostensibly, but actually is designed to boost the image of global corporations. The options on the page rarely affect EPS/ROE positively except for the energy initiatives, and that only irregularly. This page, incidentally, is not Fantasyland, since the section is only designed to boost image, not to contribute in any meaningful way to a responsible role for your corporation. That's actually the function of "green-ness" in the corporate world. It is a marketing tool and looking beneath the covers of any corporate "green initiative" will invariably reveal a grimier reality. For example, the mandates of the EPA or the EU are often portrayed as a corporate "green initiative" in company advertising. In reality, they are mandated by law, and in most cases were fought bitterly by the very same corporations now boasting of them.
ROUND BY ROUND - OUR EXPERIENCE
Note: the number of rounds in the game is set individually by each professor. I have seen very long games in classes where professors spent a year on the course. But I have also seen professors who had their students start the game anew several times, each with only 4 rounds, played repeatedly throughout the course. Following are the actual results for our team. Remember, this was a FIRST, inept attempt at putting the above principles into play. Since, we have collaborated with hundreds of teams and have refined the strategy as outlined above.
ROUND 1: DO NOT WIN SMASHINGLY
If you choose to lose this round so you can buy up your stock 2nd round (there are limits on the amount of stock you can buy back in the game), prepare yourself. It is a shock for every team which sets out on such a course when it actually occurs. And professors tend to become alarmed as well. One team in South Africa received a summons for "counseling" from an instructor after Round 1, gravely informing them that they had done worse than a placebo team with no one in it, and that he was alarmed and concerned for their future well-being in life. Recovery from a grand loss can be slow, although a great deal of money can be saved in buying up the stock.
Although you do not want to go bankrupt in Round 1, you may want to lose it, so that your stock price falls (although, as traffic on this page has increased to some 200 new users daily, the game is getting tighter, and forfeiting the first round badly may put you at a distinct and fatal disadvantage for several rounds). If you select a minimum number of model numbers for your shoes, and keep your prices low enough, and you can almost be guaranteed of that result, depending upon the choices your opponents make. However, if the stock rises, you should still buy it up since equity will fall, leading to a higher ROE (Return/Equity) than if you did not.
Always spend time on the decisions and results of others. Especially early in the game, when slight differences in other teams' approaches will illustrate what is working best. The instructor can set many of the parameters in the game, and you will want to tailor your moves accordingly. You are permitted to see the same results for other teams that you see for your own, with a click here, a click there. It will determine the outcome of the game.
Look for slight variations in the decisions made by these other teams - even, and maybe especially those who do not win the round from week to week - and look at the outcome. At times, your opponents will not themselves be aware of these relationships among trailing teams, because they will be comparing themselves to the leaders. You can learn from them. For example, a team (Team D below) which declined to raise S/Q did respectably, though making errors elsewhere - their prices were higher, their model numbers lower. As a consequence, they placed 3rd. But their savings in expenses largely cancelled the mistakes. Because they did not fare as well as the leaders, they changed course the following round and upped their S/Q, with the result that they fell further behind. But even an inexperienced observer could spot the distinction between this team and a team whose decision were exactly alike, except for the S/Q (the other had raised S/Q). And the other team did poorly by comparison. The reason the other teams did not spot the differences and quit pursuing S/Q is because they were focused only on the moves of the team which led after the first round. That will not, if you follow our advice, be yours.
Above all, remember that this is a game over time, not a "sudden death" playoff. Keep your Sherlock Holmes hat on, throughout the game. Look at the Strategic Group Map for each region. If all the other companies are cutting one another's throats in the upper end of the market (and vanity being as it is, they will most likely, unless they're also reading this), head for the low end, but not all at once. Drift there so as not to make it evident what you're doing. If they're in the low end, head slightly higher but beat them in prices with your higher production capacity - Economy of Scale. Study your opponents carefully. Get a feel for their foibles as well as their successes.
The inverse is also true. There will be at least one other team looking at your results under the same microscope you are turning on them, and especially if you consistently are doing well, as you should be, later in the game. As a consequence, it is best that, when you make decisions shifting your position in the market, that you do so with at least 2 changes. If you do well in the round, even though you believe you know which of the 2 changes was crucial, your opponents may not. And there is a 50% chance that they will choose the wrong answer when trying to guess which was responsible for your success. Trust in the "sheep mentality" prevailing. The majority of those "in the room" will look for safety in the herd. They will try repeatedly to ape you. Your best advantage in the game are the elements of confusion and surprise. Remember this is a game, a strategy game, and like simpler strategy games, such as rock- paper- scissors, a good part of the game is in leading your opponents to believe you will be making moves in a direction exactly opposite of where you are truly headed.
If your stock price tanks after the first round, then if you are smart, you will make arrangements to buy nearly all of your stock back. We - in planning the following rounds - could borrow enough to buy back all the stock shares permitted (2,500,000 of 10,000,000 shares) in 2 rounds and the rest of the game we were dividing by 3 (the remaining 7,500,000 shares) while others were dividing by 4 (the original 10 million shares) in 4 in ROE/EPS calculations - giving them an automatic 33.3% disadvantage in scoring until 2 other teams "caught on" late in the game and did likewise. 3 of 7 teams actually sold shares, increasing the number by 20% and further disadvantaging them.
The first round, and the rest of the game, will be cat-and-mouse or, rather, lion and mouse since you now have an advantage in capacity which others will be unlikely to match throughout the rest of the game provided you stay apace of them. But you want to make it unclear each turn what you will be doing next. My team went from S/Q 6 at the beginning of the game to S/Q 7 in Round 1, then to S/Q 8 in Round 2. We took the round, but failed to meet the minimum of 15% in ROE by half a point because we idly spent to achieve an 8 S/Q along with increasing capacity and doing upgrades. But our raising the S/Q and retaining the lead had the advantage of propelling the rest of the teams toward chasing an elusive and expensive S/Q of 10 which a team achieved, for no purpose really, in the last round while we dropped to S/Q 7 in Round 3 and stayed there before dropping to S/Q 6 in the final round. At no point were people matching our investment in production, and - following suggestions made by the instructor in the beginning of the game - many sold off excess production stock. We stayed up until the results of each round was posted so that we could purchase any capacity for sale immediately, before others could (these purchases are made on the portal page) - refreshing the page every few seconds as in an ebay auction. It was crucial to the outcome. New but Used capacity is bought at a 20% discount. Many teams have had success selling off ALL their NA capacity once the LA plant is capable of supplying both NA and LA demand. However all the other teams are usually doing the same and success has also been enjoyed by some of those who took advantage of the dumping and built up an NA monolith cheaply. Do NOT let any ethical concerns about wiping out your father's job concern you here. In case you haven't figured it out, a good part of your business courses are designed to inure and de-sensitize you to such human dilemmas, to reduce you to an automaton capable of focusing only on monetary returns confined to "your" company. If you buy into that, in your "real life", you are not only a chump but a danger to your country (wherever that might be), but for the purposes of the Game, pretend you do.
2 in NA
In retrospect, our S/Q 8 in Round 2 was a good idea because it created confusion as to where we were headed when, next round, we dropped back to S/Q 7 (we should, perhaps, have gone to 5), but we should have - and I expect you to - increase model number to 350-500 and we likely would have exceeded investor expectations. We did that in Round 3 and thereafter. The only team which won celebrity bids before this round were Team A. Despite very similar prices, S/Q, etc., Team A sold 50% more shoes than Team D, which brought home to us the importance of winning some endorsements. We thus bid on and won Tiger for $6.2 million. You also will want to bid on celebrities so that by Round 4 you have superiority in this field if it can at all be justified economically.
The pattern was the same for market share, EPS and ROE as in the next few rounds: Our team's primary opponents were Team F and G in the fight for market share. Team A's strong market share was based strictly on its celebrities and we determined to kick those supports out in time. In round 2 and every round thereafter, you will want to adjust the production numbers to maximize profitability per pair of shoes, bid on celebrities, increase your dividend by a penny as suggested above, etc.
By the 3rd round, my team had developed a pattern which would largely become routine for us and which you should make routine too: add capacity, play with numbers on the production page to achieve the cheapest shoe, working our way up, eventually, to the maximum of 500 models, with TQM and Best practices at a maximum, adjusting wages, styling, per centage of superior materials, incentives, etc. to achieve the lowest price shoes. If you have any stock outstanding which you can purchase, do so. Always compare current interest rates with past loans. Borrow to pay them down. Borrow to increase capacity. Borrow to buy back stock. Borrow for plant upgrades if they prove promising. Then turn to the pricing page. Looking at each of your opponents' prices last turn, calculate as if your opponents will, next turn, drop prices by $1.50 - $2 and make sure you beat that price. Add the maximum allowable for LA (750,000 for an existing plant of 1,500,000 in our case). The only other team to add capacity in our game that year opened a plant of 1000 in EA, which proved to be of little value the rest of the game. Celebrity appeal can, by the way, overcome a difference in prices to some degree. Image, as pointed out above, consists of 2 components: S/Q and market share. The latter, in turn, consists of 3 separate spheres: the internet, the branded market, and the private label market. The 3 appear to act independently of one another. Thus, total dominance in the P-L market - which you cannot possibly achieve at this point in the game - can give an image of 100, largely independent of what happens in the branded market. Since S/Q is expensive - costs money - while market share yields money, we focused henceforth little attention on S/Q and more on market share.
|Team||Capacity at onset of 4th Round|
At the end of the round we picked up 400,000 used capacity in NA (used capacity is available for use immediately and you will almost invariably find NA capacity is the first to be given up). The results for Round 3 were:
*MS=Market share in NA
We bid on, and won Natalie Kwan at $13 million and Sergio at $9 million. We also picked up Payton at $3 million simply to knock out Team A's sole support - its 2 celebrities (we would pick up Oprah, the 2nd, later). Remember, you're not focusing on running some sort of ideal "good business" here. You're focusing on ruining your opponents. It's essential that in the antepenultimate round (the round before the next-to-last round, which for us, Round 4 was, although many instructors shorten the game by a round or two, sometimes unexpectedly, and others drag the game out over a semester, or even an entire year), you have superiority in celebrity appeal. In that round, you can then lock superiority in celebrity appeal in, at minimal expense for the following 2 rounds by bidding unexpectedly high for ALL the celebrities (For our team that meant bidding $20,156,000 for each - approximately 50% higher than previous bids. You will win them all, then cancel all but what you need to maintain superiority at the beginning of the penultimate (next to last) round. The other teams will see none of the cancellations until the eve of the last round - in which case it will be of no value since they would only bid on celebrities for a nonexistent future round.. It will cost you 10% of the contracts to cancel next round (for our team, this was a total of $10 million-and-change) which is negligible compared to the cost of competing against them or of actually bidding on all of them - and especially of losing the celebrities. The following round (the penultimate), there will be those who see your bids the preceding round and actually try to outbid you without knowing you're canceling as they're bidding. In our case, one team bid thus $42 million for a minor celebrity. Most teams will simply give up. You'll repeat the process in the next (penultimate) round of course, bidding slightly higher than the last (we bid 22,500,000 for each and won only one of the 3 available with our opponents bidding astronomical sums to try to emulate our "success", since we already had - and were canceling - the others. We thus already had superiority of course, and cancelled the newly won one too, in the last round. The other 2 were "won" by teams which now had to raise prices on shoes already too expensive, cancelling never having occurred to them, and not really an option given our superiority. One was a primary competitor and because we shut down the private label market by flooding it with cheap shoes, we bankrupted them the last round. Having an expensive celebrity bill didn't help them either.).
If this seems complex, perhaps the following makes things clearer:
|Locking in Celebrity Dominance|
|When there are 4
rounds left in the game, then:
Round 1 (of the last 4): Ensure your team has celebrity dominance for this round only. It needn't be a great advantage.
Round 2 (of the last 4): Bid 50% higher than has ever been bid for any celebrity, on each one available. This will be an astronomical sum but it will deny your opponents any change in your celebrity dominance. Your opponents will only see these winning bids the following round (3rd Round).
Round 3 (of the last 4): You will cancel all celebrity contracts except what you need to maintain dominance. Your opponents will not see this until the eve of the next round (Round 4), which is the last round and celebrity dominance on their part, at that point, is useless since there is no future round. The cost of cancelling these contracts to you is 10%, which is negligible compared to the cost of giving them the celebrities (all of this assumes you have followed the above instructions and are doing well in the game, and can therefore afford the financial penalty). At this point all your opponents can see is that you are doing well and part of it must be attributable to your dominance in the celebrity field. They are sheep, after all, in many cases, and will try to emulate you, will in fact likely bid even higher than you in the last round, and lacking dominance in the area, will be saddled with those costs final round, when they cannot cancel contracts - assuming they know that's feasible - without further eroding their position. You now have them between a rock and a hard place.
Round 4 (of the last 4): Last round. They go broke. You win. Comprendez?
THE 3 YEAR PLAN
At some point, your instructor will likely ask you to fill out a 3- year business plan. Since a disproportionately large part of your gaming grade depends on it, this is not something to approached lightly. In my class, it was the on the eve of the 4th round when we were required to submit our plan. Do this plan carefully, meeting minimum targets for investor expectations and exceeding them in each year, but do not get carried away. Meeting - and especially exceeding - lower targets will yield a higher score than missing goals.
Round 5: The instructor's Intervention
After Round 4, our market share was nearly double that of our closest competitor, and several teams were, as we intended, drowning in inventories (one team had 6 months inventory) which they couldn't move and were on the verge of bankruptcy (default on principle/interest payments), having received too many 1-yr emergency loans to cover their cash shortages. The instructor had previous relationships with some of those students, and in our estimation intervened to "save their bacon". She increased demand - she said it was for the first time in 15+ years" - by 10% to permit them to move their inventories and worked with several of the teams to improve their scores. Henceforth, we were not only pitted against the other teams, but - effectively - against the instructor herself. She, however, like the other teams themselves, failed to grasp the true implications of Economy of Scale and advised those with excess inventories to sell, rather than add, capacity (thus spreading fixed costs over a larger number of shoes, permitting prices to be lowered and thus market share increased). Other teams have had the instructor intervene to freeze capacity additions due to excess inventories, in which case, you'd better be leading in numbers of shoes produced.
At the beginning of the round, we picked up 5300 (thousands) of used capacity in NA and Asia.
*MS=Market share in NA, SP=Stock Price
Demand in Year 5 was 49,839 thousands) Our edge in capacity would have been sufficient to win the game but not as decisively. You will want to do as we did, and take out 1,5 and 10 year loans later, on the eve of the last round (for us, Round 6) , and order an additional 5600 (thousands) capacity in preparation for round 6. Since you have no responsibility to pay the long term loans off in nonexistent future rounds, debt at this point is of little concern so long as you can make the annual payment require for the last round. Our nemesis, Team F, ordered another 1200 (thousands). We cancelled all the contracts for celebrities which we won except for the number necessary to keep our supremacy. We also decided to repeat the process and bid astronomically on those newly available at 22,500,000 apiece, knowing that if we won them, we would take the $8.8 million penalty (10% for cancelling contracts), and knowing it would be cheap compared to allowing some to escape cheaply while we bid on others. However, we expected 1-2 teams to look at our winning the previous round, believing us to be practical in business matters and believing the astronomical prices must therefore be worth it (it did not become apparent until the beginning of Round 16 that we had cancelled the contracts) and we expected that they would out bid us on at least some. In truth, our nemesis F bid 50% higher than our own ridiculous bids on 2 celebrities, and Team C doubled our bid (200%) on another. We wished them well - not really, considering the additional costs added to their shoe prices. Team G had caught on to our S/Q strategy, and several teams now began to grasp the importance of model number.
Our team had shunned the private label market except to toss a few here and there to threaten entry and thus hold prices and profits down on the other teams' parts. We had not done even the latter for several rounds and the various teams had begun to view the P-L market as a source of good profit, typically submitting only bids that were as high as those in the branded markets. Only a part of this high pricing was due to the fact that they were dividing small plants between 2 markets- it was sheer greed. We realized that devoting our entire NA plant to the P-L permitted us to bid on nearly all the 9 million + shoes, at a price radically lower than our competitors and yet make huge profits. We also determined that doing so, gave us an image rating of 100, the same as if we'd produced a 10 with a large market share. We therefore dropped the S/Q - and prices - in the branded market and you may find the same tactic useful, to drop the entire NA plant's output (per shoe, the most expensive factories in the branded market) into the P-L.
The final round, 'stocking out' (creating more demand than can be filled, as a result of low prices) - which in previous rounds carries a nuisance penalty of reducing the number of retailers available - and the requirement (with penalty of retailers dropping away - an archaic penalty no longer applying in the real world, incidentally) in previous rounds for an internet price not much less than the retail price + 40% for any region is of no consequence since there is no future round. Therefore, the internet price can be set at anything and by stocking out sufficiently, one can be pretty close to the targets indicated by the forecast spreadsheet, provided your prices are lowest.
Needless to say, our bid was accepted and none of the other teams' were
Branded Prices in NA:
* Market Share in NA Branded Market - we took all the P-L
Round 6 was the "coup de gras". Teams F and G, our 2 closest competitors, defaulted on their interest payments, throwing them into bankruptcy. The instructor, who had planned on giving out grades which were 50% based on Game to Date Performance scores, and 50% based on Investor Confidence levels, had instead to turn to a curve grade - a curve whose components she declined to explain - since the original plan yielded:
In effect, there would have been one 'A' and six 'F' grades for the game.
Here is an example from a round mid-game, sent by a team several years ago. It may give you a feel for how the decisions are made using the strategy detailed above. If you have questions, write me here with the subject headline BSG. And yes, the mail address is at the bottom of the page because I don't even want to talk to you unless you've read this far. I've had too many people write me , telling me they can't flunk this course or else they're doomed, but they don't want to put in too much effort on it either. If you've done your homework and are still baffled, or are simply puzzled or failing in your game, I'm happy to talk to you. But remember, that's true only for students needing to pass this course. If, on the other hand, you find yourself being invited to the Globals Championships, you're on your own. That's extra-curricular activity as far as I'm concerned and you're on your own.