The Business Strategy GameTM

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The Business Strategy GameTM
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Hands-On Learning Opportunity

• Assess Changing Industry and Competitive
  Conditions
• Diagnose the Strategies of Competitors and
  Anticipate Their Moves

• Look for Ways to Secure Competitive Advantage
• Evaluate Different Courses of Action
• Chart a Course for Your Company

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What You Can Learn

• Proficiency in Using Strategy Tools
• Reinforce Functional Course Learning

• Stronger Understanding of How Functional
  Disciplines Fit Together
• Improved Insight Into Global Competition

• Enhance Understanding of Revenue/ Cost/ Profit
  Relationships
• Challenging and Fun!

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The Business Strategy GameTM
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Market Segments
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Industry Sales Projections(000S Pairs Per
Company)
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The Role of the SP 500 Index

• Year to Year Changes In Index Effect Next Year's
  Industry Demand

• Maximum Impact Is /-10

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The Role of Competitive Aggressiveness

• Industry Demand Forecast Assumes Year 10 Levels
  of

• Prices
• Quality
• Service to Retailers
• Number Models in Product Line
• Product Image

• Actual Numbers Are Influenced by Industry
  Marketing Efforts

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The Weapons ofCompetitive Rivalry

• Wholesale Selling Price

• Product Quality
• Service to Retailers
• Number of Retail Company Owned
  Outlets
• Annual Advertising
• Number of Models
• Customer Rebates
• Product Image

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Branded Footwear Sales

• Combination of All Competitive Weapons for Your
  Company As Compared to Competition
  by Geographic Market

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North AmericanPrivate-Label Sales

• Minimum Acceptable Quality and Models Levels

• Offer Price at Least 2.50 Below Average of
  Branded Wholesale Prices in North America
• Lowest Price Wins
• Ties Go to Higher Quality Company
• Offered in Multiples of 50,000 Pairs

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Demand Forecasts
The Business Strategy GameTM

• Getting good estimates gives you a reliable
  profit forecasts
• Conservative estimates are better

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The Business Strategy GameTM

• Operations
• Decisions

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Product Quality
Quality Driver
Impact
Long-Wear Materials
0 - 90 points
Current QC/Pair
0 - 45 points
Cumulative QC/Pair
0 - 80 points
Styling/Features
0 - 90 points
Expenditures Per Model
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Material Prices

• Drop If Industry Capacity Utilization Falls Below
  90
• Rise When Industry Capacity Utilization Exceeds
  100

• When Total Usage of Long-Wear Materials Goes
  Above 25
• Long-Wear Prices Rise / Normal-Wear Prices Fall
• When Total Usage of Normal-Wear Materials Goes
  Above 75
• Normal-Wear Materials Prices Rise / Long-Wear
  Prices Fall

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Labor Force Decisions

• Number of Workers to Hire
• Annual Wages
• Incentive Pay

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Labor Productivity Drivers

• Percentage Increase in Annual Wage

• Incentive Pay As Percentage of Total Compensation
• Total Compensation (Without OT) Compared to
  Rivals Local Plants
• Automation Options Installation
• Cumulative Production Methods Improvement Spending

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Reject Rate Drivers

• Current Quality Control Expenditures Per Pair
  Produced
• Piece Rate Incentive/Pair
• Number of Models

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Production Methods Improvement (PMI)

• Reduce Supervision Costs by up to 25

• Reduce Materials Costs by As Much As 25
• Improve Worker Productivity by up to 500 Pairs
  Per Worker
• PMI Spending Effectiveness Drivers
• Cumulative Spending at Plant Per Pair of Plant
  Capacity
• Greatest Impact at Texas Plant Due to its Older,
  Less Efficient Layout

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Number of Styles/Models
Number of Models
Production Run Set-Up Cost
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The Business Strategy GameTM

• Plant
• Decisions

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New Plant Construction

• Maximum of 4 Plants
• Texas 1 Million Pairs Current Capacity
• Asia 3 Million Pairs Current Capacity
• Europe Potential Construction Site
• Latin America Potential Construction Site

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New Plant Construction
Capacity
Size
in Pairs
Small
1 million
Medium
2 million
Large
3 million
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Expansion

• In Millions of Pairs
• Up to 4 Million Pairs at a Time
• As Many Times As You Want

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Automation Options

• Six Options Available Basically for

• Increase Labor Productivity And/Or
• Reduce Production Run Setup Costs And/or
• Plant Supervision Costs And/or
• Production Capacity
• Up to 3 Options Per Plant

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Other

• Purchase and Sale
• Entire Plant or Portion
• Require Advance Instructor Approval

• Permanent Capacity Shutdown
• Entire Plant or Portion
• Temporary Plant Shutdowns
• Approximately 90 Productivity Upon Recall

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The Business Strategy GameTM

• Marketing
• Decisions

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Private Label Market

• Bid Price
• Number of Pairs to Offer
• 50,000 Pair Lots
• Number of Unsold Pairs to Convert for N.A.
  Branded Market

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Branded Markets

• Wholesale Price
• Advertising Expenditures
• Retail Dealers
• Customer Rebates
• E-tailing is an increasing of Market

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Service Rating

• Delivery Time Achieved in the Previous Year
• Stockouts the Previous Year
• On average you should spend 500 per
  representative

• High of 80 for Not Stocking Out
• Low of -170 If Stockouts Exceed Branded Sales by
  100 or More

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Service Rating
Delivery
Cost per
Service
Time
Pair
Points
4
0.00
0
3
0.20
20
2
0.50
60
1
1.00
100
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The Business Strategy GameTM

• Financial
• Decisions

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Financial Strategy

• Significant Element in Determining Company
  Performance
• Financing Will Be Required To Expand With
  Industry
• Maximize Shareholder Wealth
• Search For Optimal Capital Structure

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Short-Term Loans

• One Year Term

• Rates Determined by
• Current Year's Bond Rating
• Current Year's Interest Rates
• Maximum Issue/Year 100 Million
• Automatic Loans to Meet Cash Requirements
• 2 Point Interest Rate Penalty
• Interest Received On Cash Balances
• 3 Points Below Prime Rate

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Bonds

• Ten Year Term

• Rates Determined by
• Previous Year's Bond Rating
• Current Year's Interest Rates
• Maximum Issue/Year 100 Million
• Require 2.0 Times Interest Coverage
• Early Re-Payment Possible
• 2 Prepayment Penalty
• Maximum of 8 New Bond Issues

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Common Stock

• Issued/Retired at a Discount/Premium From the
  Current Price
• Price Shown on Screen

• Maximum Issue/Year 200 Million
• Currently 5 Million Shares Outstanding
• Minimum of 3 Million Shares
• Maximum of 50 Million Shares

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The Business Strategy GameTM
Computer Operations

• Backups Can Save You Time Effort
• SCAN Your Disk Before and After Use
• If Disk Goes Bad, Have it Restored

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Bad Data EntryNo Excuse

• Player's Manual and Screen Instructions Explain
  Correct Data Requirements

• Company Data Disks Have Year 10 Decisions
• Program Checks for Data Entry Errors
• Invalid and Out-of-Range Decisions are Exposed

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Winners

• Develop a Unique Strategy and Stick With It
• Understand Company Operations
• Analyze Their Competition
• Are Proactive

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Losers

• Fail to Develop a Unique Strategy
• Typically Change Strategies Significantly Several
  Times As They Try to Copy Successful Competitor's
  Strategies

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Losers

• Don't Understand Company Operations
• Don't Understand How to
  Run the Game

• Don't Analyze Whats Going on Consequently
  Mis-Guess Competition
• Are Always Trying to "Catch-up"

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Strategic Issues

• What Competitive Strategy to Follow and What Kind
  of Competitive Advantage to Try to Build

• How to Position the Company in the World Footwear
  Market
• Where Should Additional Production Capacity Be
  Located

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Operating Issues

• What to Do About Texas Plant's High Costs

• Whether Cost Savings Can Be Realized in Any
  Portion of the Value Chain
• Whether to Continue Comparable Offerings in All
  Market Segments
• Employee Compensation in Texas Asia
• What to Do in Year 11 to Prepare for the Expected
  Demand in Year 12

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The Business Strategy GameTM

• Questions