Corporation: A Global Business Simulation

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Corporation A Global Business Simulation
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The scenario

• Highly competitive information systems industry
• 3 SBUs
• 1 hardware. Located on Caribbean island.
• 2 software. In U.S.
• 3 turnkey systems. In U.S.
• All sales currently in U.S. Exporting is
  possible.
• New lines of business, or ventures can be
  purchased.

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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
• Learn about Managing a Diversified Company

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What You Can Learn

• Proficiency in Using the Tools of Strategy
• 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 Weapons ofCompetitive Rivalry

• Business-level Strategy
• Price
• Marketing
• RD
• Human Resources
• Operational Capacity

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Corporate-level Strategy

• Debt and equity financing
• Dividends
• Buying/selling business units
• Accessing market research
• Responding to managerial events

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Corporation A Global Business Simulation

• Business-level
• Decisions

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Price Decisions

• Price per unit of product/service
• Currently, 500 per unit
• May range between 400 and 800
• Can charge different prices in each SBU to
  reflect different business-level strategies

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Marketing Expenses

• Includes advertising, promotion, and trade show
  expenditures
• Major impact in current period (i.e., limited lag
  effect)

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Operations Technology

• Includes process improvement studies, robotics,
  and automation, but NOT new product development
• Goal is to reduce the cost of sales
• Expenditures will have an effect within a one
  year period (two decision periods)

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Quality Enhancement Programs

• Expenditures on such items as full-time quality
  coordinator, quality circles, an electronic data
  interchange
• Currently, 3 defect rate

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New Product Research

• Longer-term strategy to enable the development of
  new technologies and/or new products
• Product Innovation Index 100, if it is the
  best product in the industry. If 80, then is 80
  as good as the top product being offered.

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Exporting

• Currently, all sales in the U.S.
• Can export to one of three areas Mexico, India,
  European Community, Canada, Brazil
• Level of competition and currency risk varies by
  region
• Venture may export to the U.S.
• One-time cost of 100,000 to SBU to begin to
  export goods

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Human Resources Development

• Currently paying average industry wage and
  average fringe benefit package 30 of sales
• Budget for h.r. development must be entered for
  every decision
• You may budget any percentage of sales (0 to 8)
  for additional h.r. programs
• See page 8 of text for guidelines on typical
  costs

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Production Capacity

• Capacity decreases 5 each period for
  depreciation
• Costs 1,000 per unit. No waiting period
• Can reduce capacity if excess capacity isnt
  consistent with strategy. Receive 1,000 per
  unit less 20 brokerage fee
• Difference between demand and ability to supply
  listed as lost sales
• Offshore production is possible for SBU 1. To
  buy another SBU 1, it must be located in the
  same country as your SBU 1.

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Example
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Cost of Goods

• Currently, 50 of price
• Reduce through investments in operations
  technology
• If buy another similar SBU, will decrease due to
  economies of scale

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Sales Force

• Costs 30,000 per period (salary and fringe)
• Input change the total number of salespersons.
• To maintain the same number of salespeople, enter
  0.
• To lower, -2.

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Service Representatives

• Costs 25,000 per period
• Input changes the number of sales representatives
• To maintain, enter 0

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Overhead

• Includes home office expense, corporate officers
  salaries, insurance, and other relatively fixed
  costs
• As capacity increases, overhead increases (e.g.,
  additional staff and insurance)
• See page 12 for overhead charges

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Corporation A Global Business Simulation

• Corporate-level
• Decisions

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Corporate-level decisions

• 13 decisions regarding
• debt /repayment
• equity issues/repurchases
• dividends
• short-term investments
• buying/selling SBUs
• buying ventures

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Selling and buying SBUs

• Announce your intentions to sell or buy at the
  beginning of class
• If a buyer is found, sale will occur in the same
  period
• Only seller makes data entry

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Ventures

• Recently formed small companies with limited
  histories
• See page 18 for list of potential ventures
• All ventures are available at the beginning of
  the simulation. Certain ventures may not be
  available in later periods
• You may buy a venture and SBU 1,2, or 3 from
  another firm in the same period
• You may export to any standard export area or the
  U.S.

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Market Research Studies

• You may purchase market research studies on
  forecast growth, competitors, and average
  industry operations and expenses
• See page 19 for studies and costs

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Incidents

• Each period has a management incident associated
  with it.
• They will be announced for each period. A is
  the incident for period 1.
• 10,000 fine for not responding

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Winners

• Develop and Implement a Unique Strategy
• 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 Competitors
  Strategies
• Don't Understand Company Operations

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Losers

• Don't Analyze What Is Going on and Consequently
  Miss-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 each of the SBUs
  markets
• How to succeed given the competitors actions

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The Business Strategy GameTM

• Computer
• Operations

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Hints

• Make sure you put in the correct units.
  Examples
• must enter numbers in units of ,000s in many
  cases
• negative numbers
• Manual explains correct data requirements
• Use verification total to check data entry
• You CANNOT buy or sell two SBUs in the same
  period!
• There are diminishing returns

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Additional Information

• Backups Can Save You Time and Effort

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To hand in at the end of class tonight

• Naming Your Business Form (p. 43)
• Corporate Decisions Form (p. 115)
• Incident A Form (p. 53)
• Disk with decisions

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Groups