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GlobStrat User Guide

Daniel PAUL, Ph.D. in Management, ITP Harvard Business School

Strategy Definition

Strategy Evaluation

Strategy Execution

GlobStrat

GlobStrat_User Guide -Web 3.0

Table of Contents Overview 3

What is GlobStrat? 3 .................................................................................................................Your mission 3 ..........................................................................................................................GlobStrat simulation flow and agenda 3 ....................................................................................Your Right to Win 4 ...................................................................................................................Your Industry 5 ..........................................................................................................................

Strategy definition 6

Your values and goals 6 ............................................................................................................Industry structure 6 ...................................................................................................................Your Business strategy: creating value for your target audience 6 .............................................Corporate strategy: developing new capabilities 7 .....................................................................Your management 8 ..................................................................................................................Your Business Model 8 .............................................................................................................Share Value creation 11 ............................................................................................................

Strategy Implementation 12

Marketing 13 .............................................................................................................................Sales 14 ...................................................................................................................................R & D 15 ...................................................................................................................................Production 16 ...........................................................................................................................Human resources 17 ................................................................................................................Finance 18 ................................................................................................................................P&L (Income Statement) 19 ......................................................................................................Balance sheet 19 ......................................................................................................................GlobStrat available options 20 ..................................................................................................Decisions cheat-sheet 21 ..........................................................................................................Detailed Profit & Loss Statement 22..........................................................................................

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Overview

What is GlobStrat? GlobStrat is both a Business Game, for fun, and a Global Strategic Management simulation, for learning. The Business Game is built on a competition between teams engaged in a challenge: • You compete against firms ran by your peers, and the best company will emerge on top. • Your team « willing to win » will be a strong motivation, allowing for individual and team engagement . • The game allows you to run a company in a realistic, yet risk-free virtual environment, • This Game setting creates a learning by doing and learning with fun environment.

Yet, the aim of the simulation is experiential learning. Based on corporate strategy practicing and team-work: • GlobStrat simulation looks very much like the actual global competition going on between firms in the real world. • GlobStrat teamwork will train you to communication & cooperation within your Executive Committee.

GlobStrat is a strategic management training tool, aiming at: • Getting the understanding of strategy dynamics in a global competitive world. • Defining and implementing a successful business strategy, on the long-term. • Developing your ability to run a company, acquiring the CEO 360° perspective, • Experiencing team-work within an executive committee, improving you ability to cooperate with your peers.

GlobStrat should demonstrate that a winning strategy is built on a few (yet difficult to obtain) fundamentals: • A clear definition of your business strategy, • A strong team engagement in its execution, • An alignment of every team member, and of all functions, in its implementation. • Coherence should be the key-word explaining, in the final debriefing, the success… or failure of your strategy.

Your mission As a member of the executive team, your mission is to create value on a sustainable basis. Profit is obviously the foundation of sustainable business. Yet social and environmental impacts must also be managed to achieve true business sustainability. To that end, GlobStrat evaluates your company’s performance through an aggregate Value representing the value created for shareholders and stakeholders, on a Triple Bottom Line basis: Profit, People and Planet.

GlobStrat simulation flow and agenda Your first step, having read carefully this manual, is to assemble your team and define your business strategy. We recommend consulting market surveys to better understand the trends of your industry and build your Business Model in the proposed canvas, built on the « Business Model Generation » canvas. A « practice round » may end this preparation process. If that was the case (look at your simulation agenda in your Management tab), take advantage of this opportunity to learn how to use the software and test the first year implementation of your strategy. Note that during this practice round the competitors‘ data and intelligence surveys are not displayed, so that you can really test your own strategy, without any spying opportunity for competitors… You will then go through several simulation rounds, each representing one year of operation. For each round, the recommended method is to go through this decision-making process: • Analysis of your company’s and competitors’ performance (strategic diagnosis), • Decisions for each function and what-if analysis of your budgets (generated by Globstrat), • Coordination, adjustment and arbitrage of your decisions to fit within your strategy and your financial capacity, • Submission of your decisions, so that GlobStrat can compute the results for the year, given competitors’ decisions.

At the end, you will have to prepare your Business Report and probably to present it during the final debriefing.




Your Right to Win When starting, your firm does not have any true strategy: no identity, no original positioning (identical to competitors)… It is your team responsibility to give it a specific identity and, ideally, a unique strategy.

Every business usually have a past, an history, a specific culture, a given strategy…Within GlobStrat this strategic identity is not given. You are free, to choose your own strategy. All competitors are in the same beginning situation: a generalist positioning on its domestic market, with the same resources and market share. The only difference is your domestic market. But the domestic markets look very much the same when starting. They may evolve differently in the future, but these trends are public and available in your Market intelligence survey. So you will be able to take them into account when analyzing your environment.

In Globstrat, the governance (your board) is giving a « carte blanche » to the executive committee (your team), This may not seem very realistic, but from a pedagogical point of view it is very powerful, in terms of strategic freedom and teem empowerment. You may choose your strategy and engage strongly your team in its success… Take advantage of this situation in order to elaborate a potentially winning strategy, allowing your business to build on equal resources to develop a different, and may be unique, strategy, and to execute it better than your competitors. Your team work efficiency will make the difference!

The firm’s « Right to Win » is central to this strategic simulation. There is not any predefined winning strategy in Globstrat, no optimal way to success. What will make the difference looks very much like what Paul Leinwand & Cesare Mainardi, called « the essential advantage* », i.e. a strong coherence among the 3 main elements of your Business model, creating a « Coherence Premium*** », allowing for a better Customer Value and higher Profits:

• A Value proposition and an adapted Portfolio of products & services associated to some value attributes and to the « right » price : your way to create value for your target customers.

• A Value Architecture building your Capabilities System, i.e. your ability to deliver this value to your customers, to create some competitive advantage(s) and to generate an actual differentiation from your competitors.

• A Profit equation, allowing your firm to finance its investments and generate a good Return on Capital employed.

Strategy definition and strategy execution are strongly related, so that what will finally make the difference (in the real world as in GlobStrat) is probably your ability to define and implement a clear and coherent strategy, engaging you, and your team, in the success of your Business strategy.

* Paul Leinwand & Cesare Mainardi, The essential advantage, Strategy&, Harvard Business Press, 2011. ** Re-Invent your Business Model, Laurence Lehmann-Ortega, Hélène Musikas, Jean Marc Schoettl, Odyssey314.com *** Paul Leinwand & Cesare Mainardi,The Coherence Premium, Strategy&, Harvard Business Review, july 2011.




Your Industry

Industry type Your company operates in a high-tech industry, producing and selling tablets similar to iPads. This industry may be changing very fast, on a »life cycle » mode, from Emergence, Growth, Maturity, to Decline (or crisis). You start with one product: the T product. You can opt to innovate by developing up-to 3 new technologies: Storage = S, Communication = C, Image = I, leading to 7 new products combining technologies: • First generation: the T product, sold 1 000 $ (for a bunch of products) • Second generation: three simple products (with one new technology): T-S, T-C, T-I • Third generation: three hybrid products (with two new technologies), T-SC, T-SI, T-CI • Fourth generation: one complex products (with three new technologies): T-SCI So markets’ life cycle, new technologies and new products, new entrants, new strategic positioning, more rivalry between competitors… are probably going to change this industry within the next years. Each new generation of products may be substituting to elder ones and take up to 50% of the preceding generation’s market share and then evolve accordingly to its own life cycle. Anticipating these evolutions and adapting your strategy to this changing environment will certainly be essential to your own success.

Business Scope GlobStrat is a global simulation, with three markets: Americas, EMEA (Europe-Middle East-Africa) and Asia-Australia. You start as a domestic player on one of these markets, and, when this option is activated, you can opt to expand internationally and even become a global player. Your instructor may open this « going international » option from the beginning or delay it to later, depending on his own objectives and course timing. Each geographic area (market) is divided in three market segments with equal volumes but different characteristics: Consumers, Small Business and Enterprise. This creates a business scope of up-to 9 market segments and up-to 72 product-markets combinations, among which your team will have to make strategic choices. Your money is the $, for setting your prices and measuring your unit costs, but most GlobStrat figures (in your reports) will be stated in K: 1 K = 1 000 $.

Competition A GlobStrat simulation contains from 4 to 9 teams competing for market share, revenue, profitability and, last but not least, sustainability. Initially, competitors are distributed across the 3 regions. Each competitor has an identical starting point, providing an equal chance of success. To that end, the 3 markets behave virtually identically, when starting. Market sizes are a function of the number of teams, so that each company starts with an identical market volume and share, regardless of the number of competitors on each market: the «competition» analysis will describe your competitors’ positioning, and tell you where your business is operating in Year 0: its domestic market. In addition, each region contains a set of Small Competitors modeled by the GlobStrat software. Small Competitors have no global ambitions and only act opportunistically, capitalizing on your inefficiencies. Your innovation ability should allow your company to progressively conquer their market shares.

Intelligence Surveys To develop a successful strategy you need to understand, anticipate and react to your environment - the markets and your competitors. GlobStrat contains a number of intelligence reports you can purchase for a 20 K fee (they are free in year 1). They concern every function : Marketing (Market survey), Sales, Production, R&D (innovation), HR, Finance.

Global strategic Arena When the business game begins, your company is identical to all your competitors. Success requires building strategic advantages, which implies differentiating your company from competitors. This of course is achieved through investing in selected areas, given your own strategy. GlobStrat provides, each team, a complete strategic freedom. your own values are welcome and may lead your firm goals. There are no pre-defined winning recipes. Instead, success requires being better than competitors. Easier said than done. To help your strategic thinking and definition, here are a few elements to consider.




Strategy definit ion

Your values and goals Your strategic thinking step consists in defining the values shared by your executive committee, and the weighting of your economic (Growth, Customer Value), financial (Profit), environmental and social goals. Creating competitive advantages requires investments, time, and resources allocation.

Industry structure The first strategic challenge is to understand the industry in which you are competing. There are several frameworks for this analysis, such as the SWOT model or Porter’s Five Forces model. This should lead you to evaluate: • The market trends, through a market intelligence (market survey, free in year 1, shown in appendix 2) • The segments’ key success factors (same Market survey) • The potential intensity of competitive rivalry, given your own scenario and your competitors’ one. • The threat of new competitors’ entry and the opportunity/threat of new technologies & new products launching.

Your Business strategy: creating value for your target audience The second strategic challenge is to differentiate your company. Starting from a generalist positioning on your domestic market, without any competitive advantage, will lead you to build one or many strategic advantage(s) on your target markets. But building a strong and sustainable leadership will take some time. So, we recommend Not leaving any current market too quickly, using these non strategic markets (for you) as a source of revenues for financing your leadership elsewhere.


Teams initial strategic positioning

GlobStrat

Strategic innovation area Customer intimacy ?

Stuck into the middle ?

Cost

Choose a clear strategic direction!

Differentiation!

Cost-Volume!Strategies!

Low-cost!

Progress !Area!

Non viable Area!

Efficiency Frontier

M. Porter ’s « generic strategies » choice, in STRATEGOR !

Customer Value



Starting from a median positioning, without any strategic advantage, you can, and should, choose one generic strategy: remaining a Generalist, preferring a Customer Intimacy focalisation, specializing in Volume-Cost domination, or building a Premium Differentiation.

Generalist: This is your initial positioning. Operating on the three segments of your domestic market, without any differentiation of you customer proposal from one market segment to another. Defending this positioning may be difficult, given the potential specialization of your competitors, and the new entry of international competitors trying to conquer your market share. Building strong Barriers to Entry may not be efficient enough to contain all of them and will probably be very costly: sales agencies, competitive prices, new products covering the whole range of innovation.…The risk of falling into the median positioning trap is high, but may perhaps be managed if you can find the necessary resources.

Cost / Volume domination: High volume - Low cost This cost / Volume domination strategy involves winning market share by appealing to price-sensitive customers. This is achieved by having the lowest prices in the target market segment. To succeed, your company must be able to operate at a lower cost than your competitors. This simultaneously requires achieving economies of scale through high volumes, driving down your costs and improving environmental efficiency.

Customer intimacy: focusing on specific segments This segmentation strategy involves focusing on the unique expectations of target market segments, and customizing your products, services and distribution to optimally serve a selected audience. If targeting multiple market segments, your will need to customize your offer differently for each target audience. This can be achieved by new services adapted to each market segment, but you will have, first, to develop these new service capabilities, and then, to deliver them to your customer.

Premium leadership: differentiating your offer This differentiation strategy involves offering customers with the best product offering, through product innovation, quality and ecological certifications. Innovation implies R&D investments to develop new technologies & products; Quality is a transversal activity (R&D, Production, HR) which can even be rewarded by ISO 9000 certification. Ecology is also a transversal activity which can even be rewarded through ISO 14000 certification.

Corporate strategy: developing new capabilities Whatever your Business strategy, you will have to build the required strategic capabilities: innovation capabilities, and international capabilities, setting the scope of your business: domestic, international or global.

Innovation strategy The third strategic challenge is to define your innovation strategy. As you operate in a high-tech industry, innovation is essential. You will need to decide which technologies to develop, and in which time frame. You will also need to decide on the depth & breadth of your product portfolio. And wether your company is a leader or a follower. The contents and intensity of your innovation strategy can make a substantial difference. A new product may help you conquer more market share, but a new product is also a substitute to an older product. And don’t forget that new services and ISO certifications may help too. You will have to allocate your resources!

Scope of business The fourth strategic challenge is to define the scope of your business. There are 3 markets, 3 segments, leading to 9 market segments. You start as a domestic player operating in all 3 segments. You need to decide wether you want to become a global player, operating on two or more markets. Likewise, you need to decide if you want to be a generalist, operating on all segments, or a specialist operating on selected segments. Again this will take time and resources that you may have to allocate.Whatever your strategy, DO NOT disinvest to quickly, from a given market segment, even if it’s not essential to your strategy: you will need its resources for financing your development elsewhere, and offering your market share to competitors would strengthen them too easily. This kind of strategy divestment should be implemented on several years, time for you to grow on your customer targets…




Your management Your management on-line tools will help you to perform some tasks, such as: • Defining the name of your corporation (A…, B…., C….): the first letter is given, but you may add 5 others. • Organizing your executive committee (team): one CEO, 5 Functional Vice-Presidents, up to 2 functions per VP. • Defining your Business Model (before the end of year 1), for your archives and your instructor information. • Look at your past records: Practice round results + yearly decisions, forecasts & performances (Management tab). • Access to the Agenda of your simulation (Management tab). • Access to your Peer Review team efficiency evaluation, at the end of the simulation and get the team members

feedback on your team efficiency. • Access to your instructor’ debriefing graphs and explanations, after its presentation (Management tab).

Your Business Model The proposed Business Plan, integrated in GlobStrat’s Management tools will take you through a series of questions & optional answers, relying mainly on the Business Model canvas. It is designed in order to help you define your 3 years‘ sales objectives and allocate your main resources… aiming at defining a clear business strategy.

The definition of a clear, sound and coherent business strategy is obviously a first step and a key factor of success, even if, finally, its implementation will probably make the main difference. Defining the coherency between the 3 main elements of you Business Model will be the second step of your starting strategic thinking. Concretely, you will have to set:

1. Your Value proposition to your target customers:Choosing your middle to long-term main customers’ target is essential and a first choice: how could you define your best Value Proposal without targeting the customers for whom it is being built? But be aware of the fact that this choice does not mean abandoning any market where you are operating when starting as a generalist on your


«Business Model Generation» A. Osterwalder et Y. Pigneur

Value architecture! Value Proposition Key Partners !

!Suppliers

!

!Partners

Stakeholders !

Key Capabilities!

!Innovation!Production !Distribution!

CustomerProposal

Products Range

Price

Quality

Services

Certifications

Reputation

Customer!Relations!

"

Agencies Salesmen

Brand Advertising Corporate Reputation

Customer targets Markets!

! Market

segments !!

Consumers,

SMB,

Entreprises!

Key Resources!

Finances !!

Human Resources!

Distribution channels

Large distribution,Dealers,

B2B, Ecommerce

Economic Equation!Growth, Revenues, Cost Structure

Capital invested, Return on capital employed (ROCE) !

GlobStrat Business Model Synthesis!



domestic market. It means allocating you resources in order to become a leader on one or two market segments while exploiting the other(s) one(s) to generate revenues and profits financing your growth elsewhere. Defining the content of your Value Proposition, that will create value for these customer targets (given the market survey available in your Market Intelligence tab), will be the second step of this strategic decision process: • Product range (innovation: which new products?) • Price positioning (low, medium, premium?), • Products’ Quality & differentiating Certifications, • Customer intimacy (Sales Agencies coverage), • Services included in your offer (and in your price), • Brand Reputation (Advertising & Corporate Social Responsibility).

2. Your value Architecture:Investing in differentiating capabilities that will build sustainable competitive advantages (if your competitors are not doing the same choices, in the same time) may follow three main Value Creation processes. Combining them in a unique way that your competitors will have difficulties to copy, is the main target of this strategic thinking step, and the second main element of your Business Model.

3. Your Economic Equation: creating the revenues and mobilizing the ressources needed for financing you business and the investments required to build your Value Architecture and create the Value corresponding to your long-term goals : Profit, People & Planet… are your main challenge, from this economic and social point of view. Concretely, each year you will have to balance two main financial balances : long-term & short-term.




Your main annual challenge will be the financing of the investments required to implement your strategy. Most investments are substantial, and you have a limited long-term financing capacity, as shown in the slide below. But be aware of the fact that you won’t be able to do it all and that you will need to allocate your resources and probably to make tough choices. The software will help you, via the forecasting tool, through the computed financing plan, to make the necessary investment adjustments and arbitrages allowing you to validate your decisions each year: you must balance your investment amounts (left column) and the available financing resources (right column).

The financing of your operations will probably be easier to balance. Your annual expenses may be financed through your available starting cash (shown in your previous year balance sheet, as the ending cash) plus the revenues of the current year, given your working capital requirement (WCR = accounts receivable (current asset) + inventory (current assets) - accounts payable (current liability)). In order to balance this operational (short-term) financing need you can ask for a bank short-term loan (limited to 5 % of your previous annual revenues). A provisional bank overdraft will not be accepted, but, of course, in your actual results (if your revenues were lower than expected) you could be ending with such a (very costly) overdraft. You may also lower your customers’ paiement delays but not renegotiate your suppliers ones (2 months).

Each year, you will be accountable for your annual profit and cash position, and for your Profitability, measured in terms of ROCE : Return on Capital employed, determining the Profit level of your firm. The two other « P » of your « Triple Bottom Line » global Performance (People and Planet) being measured in terms of CSR (Corporate Social (Responsibility) and of Sustainability (ISO 14000 level). All these performances, plus others, being generating your yearly Share(d) Value*.

* Michael Porter & Mark Kramer, Creating Shared Value, Harvard Business Review, January 2011




Share Value creation

Creating value starts with Customer Value. Your own customer value will be displayed in your annual performances. If you want to compare it with your competitors’ customer value, just open the sales’ intelligence report (20K). Each year, GlobStrat assesses the value you created and computes a Share Value, aggregating 4 perspectives: • Customer value (Customers perspective); market share, revenue growth, sales forecast accuracy, • Economic value (Investors perspective): profitability, ROCE, debt ratio, • Financial value (Shareholders perspective): profit per share, dividends per share, capital dilution, • Social value (Stakeholders perspective): CSR index and environmental value (ISO 14000)

This Share value will be displayed, each year, in your « Competition » tab, comparing your Performance with your competitors ‘ones. The components of this value will be displayed in your Customer Value Intelligence tab; measuring each dimension contribution to creating share value and comparing its structure to the global leader ’s one. This Competition performances’ benchmarking may be shown and commented, each year, by your instructor and will be available on line, in Globstrat. They tell you a lot about your business and your competitors, in terms of:

• Sales end Turnover per market (with new entrants arrival). • Market shares and market leadership, on a world-wide basis. • Products life cycles & new products launchings. • Competitors’ Quality-Productivity-Production Capacity-Inventory. • Competitors’ Corporate Social Responsabilité • Competitors’ Balance sheets, Sales Revenues and Profitability • Competitors’ Share Values.

Have a nice simulation!


Stakeholders



Strategy Implementation

The preceding chapters of GlobStrat were mainly an introduction to your executive committee integrative, global and strategic responsibility, driving your business strategy definition. But a strategy is not only an intent. It has to be implemented over time in order to generate an actual performance, i.e generate a superior return on the long-term. The final debriefing will give each team the opportunity to explain its strategy and evaluate its performance. But, from strategy definition to strategy evaluation, the fundamental step is: strategy execution, through five functions and many transversal processes coordinating your decisions. As a matter of fact, over the years, in GlobStrat, we observed a strong correlation between team work efficiency and company performance: a clearly articulated strategy is paramount to success. Yet, implementation seems even more important than the strategy itself. The explanation is simple: to generate high performance, a strategy must be clear and coherent, but also coherently implemented through yearly decisions, managed by the team members. Your team work organisation, decision process, working method, communication between members, coordination and arbitrage processes…will be essential.

This implementation process will train participants to: • Understand that strategy definition and strategy execution are the two faces of the same coin, • Decline the business strategy (integrative & global) into complementary functional policies & roles, • Experience how to coordinate these functions, in order to create a potential synergistic coherence premium, • Understand the secrets of strategy execution: information flows, decision rights + coordination & arbitrage, • Organise the team work & elaborate a decision method leading to efficiency & coherence, • Learn that team work efficiency is not synonymous with collegiality but must be organized and facilitated, • Understand how leadership (CEO or facilitator) may contribute to this team coherence and efficiency.

Simulation Agenda We thus encourage you to actively contribute to the efficiency of your team. This will include: • Clearly defining your roles, in the Management tab of the software menu & download your Mission Letter (Docs), • Defining a decision methodology - analysis, strategic diagnosis, functional decisions, arbitrage and closing, • Designating a CEO or a facilitator to promote productive team-work and enforce the chosen decision methodology, • Practicing active listening, to best understand other’s opinions and benefit from their experience, or ideas, • Putting forth your opinions, even dissenting opinions, yet in a constructive, ethical and responsible way.

Be aware of the fact that you will get an access to decisions corresponding to your function, only after having chosen this function and only within the timing allowed by the instructor (decisions beginning-ending time), time displayed in the bottom line of your screen. You won’t be able to change your colleagues’ decisions but you can view them. • The simulation schedule is displayed in your Management tab. This schedule is defined by your instructor and may

incorporate a practice round, or not, and usually around 5 to 6 decision rounds. • Round 0: organisation, strategic thinking, Business Plan…and quiz 1 (based on your understanding of this manual), • Practice round: take advantage of this round to practice the software and test your first year decisions. Its results will

be available in the Management tab allowing you to adjust your year 1 decisions, without any possible spying, • Rounds 1 to X: take advantage of your Competition benchmarking tab (+ paying Intelligence surveys) to enrich your

decisions. Use the forecast computing capacity of GlobStrat, to find the best financing plan for your investments. • Each year, the CEO will have to submit your set of decisions, on time. This set must be respecting not only the

Globstrat financing rules (LT financing resources allowed + an eventual adjustment by a limited but highly dilutive Capital Risk financing) … but also the international commerce laws ( NOT any collusion between competitors) and usual ethical charts (your University’s one specially). Penalties will be applied in front of any unethical behavior.

• At the end of the simulation, you will have to go through another quiz evaluating your ability to run a strategic diagnosis on two GlobStrat mini-cases, and to evaluate your own team-work within a Peer Review tool,

• Prepare the final debriefing: elaborate and present your final business report, facilitated by and concluded by your instructor’s final presentation, comparing your strategies and explaining the reasons of teams’ successes or failures.




Marketing The Marketing responsibility consists in creating the best conditions for successful sales. This is achieved by building your Market Reputation, Customer Value, and Sales Capacity: • Market reputation reflects the consumers' knowledge of your brand. It results from your advertising efforts, market

by market, but also from your corporate reputation: environmental efforts and CSR recognition. • Customer Value reflects the customer desire to buy your products instead of those of your competitors on a

specific market segment. It is a complex indicator that results from your marketing mix, segment by segment: • Product offering, technology, quality, ecology, • Products pricing • Customer Intimacy: sales agencies coverage, sales reps, payment terms, services • Brand reputation : advertising and corporate sustainability reputation.

• Sales Capacity is impacted mainly by your by the number of sales representatives and the production capacity. Your actual sales can be lower than the demand to your firm, generated by your Customer Value, if your Manufacturing or Sales Capacity is insufficient.

Transversally, your responsibility is to take care of your Market brand reputation ( generated by Advertising but also by your Corporate Social and Sustainable reputation, which is mainly a HR responsibility) and of you Customer Value (per market segment) which requires the contribution of many functions (R&D & Production mainly).

Market strategy Initially, your company business scope is limited to its domestic market - Americas, EMEA or Asia-Australia. You can opt to expand your business scope by going international (when opened by your instructor). This is achieved by installing a representation office on a new market (1000K). The following year, you can install Sales Agencies (500K).

Customer intimacy: Sales agencies coverage (Investment: 500K, annual operating budget: 500K) Once you are implanted in a given market, you need cover the territory with sales agencies. Agencies are required to enable sales in a given region and organise the delivery of your products and services. The number of sales agencies will impact the proximity and intimacy with customers. This, in turn impacts your reputation, which impacts sales. Note that 3 sales reps are assigned to each agency (+ 2 assistants) and serve all segments where you are operating.

Distribution strategy You can sell your products on 3 different segments. The activation of any Distribution network will open (or close) the corresponding market segment. Don’t close too early any network: it would cut immediately this segment revenues…

Advertising strategy In order to develop your brand awareness, you can choose among 6 advertising campaigns, professional or consumer oriented, with costs that vary from 100 K to 1000 K, and have a different impact from one market segment to another.

Intelligence To define in the best way and to adjust your marketing strategy, you should purchase the Marketing surveys from the intelligence reports. The surveys provide, for each market, 3 year data on volumes, growth, sensitivity to pricing, quality, service, advertising, reputation, agencies & sales force, and technology. Each market survey costs 20 K.

Your starting point

Segment Distribution networks Marketing levers: see Marketing Intelligence for Market survey

Consumers Retail stores E-commerce

• Reputation (advertising & Social reputation) • Sales Price, per Product & per market segment. • Product range ( innovation) • Customer intimacy: from 1(minimum) to 12 Sales agencies/Market • Services associated • Quality index and certifications

Small Business Specialty stores E-commerce

Enterprise Direct sales (B2B)E-commerce

• 1 domestic Market, 3 market segments • Brand Reputation of 100 on your domestic market• 3 Salesmen per Agency x 6 Sales Agencies • Customer value of 100 on each segment




Sales The Sales responsibility consists in defining your sales objectives, given your present customer value for this segment, and putting together the means to achieve them: pricing, quality, customer intimacy, services and reputation. Transversally, your responsibility is to take care of Customer intimacy (Agencies) and services (developed by the R&D manager), given that this customer intimacy may contribute to building Customer value on specific segments.

Customer Value per market segment Your customer proposal to the segment targeted will generate Customer Value on the basis of 6 attributes: • Products range (and relevant innovation) • Price per product • Products Quality & certifications (ISO 9000 & ISO 14000) • Customer intimacy (agencies, salesmen, payment terms) • Services associated (and included in your price) • Reputation (advertising and social reputation) The contribution of each attribute to Customer Value is displayed in the Value Creation Intelligence survey. In the right case, the leader has been creating customer value through better Service, Innovation & sales Agencies. This Value Creation study may be available to you, in the intelligence Tab (20K).

Volume forecast Essential to running a business, you must predict your revenue for the upcoming year. Indeed, all your budgetary & financial decisions are based on expected revenue. To that end, you need to forecast your sales volumes for each market segment, and then split the % among the products if you have multiple products. You may estimate the volumes by looking at the previous years sales volumes, and to the market growth data.

Pricing policy ($) Defining prices for each product is also essential to the success of your business. Your pricing policy should be based on sensitivity to price for each segment (available in market surveys), products value and attributes (technology, quality, ecology) and services offered. It is also recommended to verify the product margins by looking at the cost analysis in the Forecast module, and in the Performance module, for the actual costs. Don’t increase your price before having created the Customer Value legitimizing this price increase!

Sales policy: Distribution capacity • Sales commissions: incentives for your reps = 1% of Sales Revenue. Not negotiable. • Payment terms: from 1 to 3 months. Longer terms will increase your sales, especially to large distribution networks.

Services Policy If you have previously invested on new services development (in R&D), you can offer additional services. 0 to 2 options are probably optimal per segment, but the segments very sensitive to Service may appreciate more services.

Once developed (in R&D), each service can be activated for selected market segments, for a cost of 30 per unit sold.

Intelligence To best define and adjust your sales strategy, you should purchase the Sales survey from the intelligence reports.It provides, for each market, competitors’ data on segment volumes, products volumes, pricing, and customer value.

Small Businesses Consumers Enterprise• Hotline support • Extended warranty (2 Years) • Security• Cloud storage • Ecological Recycling • Rapid repair

Starting point Consumers Small Business Enterprise Total/Average

Sales volumes 10 000 10 000 10 000 30 000 units with 6 agencies & 18 repsPrice ($) 1 000 1 000 1 000 1 000Revenue (K) 10,000 K 10,000 K 10,000 K 30,000 K




R & D The R&D responsibility consists in managing innovation (products & services), quality and ecology of your products. In addition, the R&D department is responsible for ISO 9000 (Quality) and ISO 14000 (Ecology) certification. Transversally, your responsibility is to take care of innovation, not only in terms of development but also in terms of adaptation to customers needs, and contribution to you Customer value and Brand reputation…

Innovation Innovation is a very important success factor in a Hi-Tech industry, but requires large investments, made in 3 steps:

Technology development Initially, your company only has the T product. You can opt to bring innovative products to market. The first step of the innovation process is to develop new technologies. You can choose between 3 technologies: • Storage (S): high capacity memory chips, • Communication (C): 4th generation mobile networks, • Image (I): high definition display. Developing a new technology (Research phase) is a requirement for the integration of this technology in a new product, but don’t forget, the following year, to develop the corresponding new product (Product development phase), if you want to be able to sell this new product the subsequent year (Launching phase).

Product development The second step of the innovation process is to develop new products, based on available technologies. With 3 technologies - Storage (S), Communication (C), Image (I) - you can develop as many as 7 new products:

Product development takes 1 year. The subsequent year, you will be able to sell your new products.

Services development New services development will enable further service differentiation. New services are available 1 year after .

Quality differentiation and ISO 9000 certification • Product quality labs improve the quality of your products, which will increase the sales on segments that are

sensitive to quality (as explained in the Marketing chapter). • Quality index reflects your quality culture and the quality of your products. It depends on multiple elements:

your investments in product quality labs, components suppliers’ quality, quality training programs, training budgets, equitable supply relations, and a high level of motivation among your staff (CSR).

• ISO 9000 certification, attests of the quality management systems of your organisation. 4 levels (9001 to 9004) on the basis of 3 criteria (suppliers, labs, training) which are checked in the R&D Forecast

Sustainability differentiation and ISO 14000 certification The «sustainability» culture of your company may progress over years, depending on your efforts to develop among your staff a strong sense of ecological and social responsibility. These efforts depend not only on your investments in ecology labs, on your renewable energy supplying, on the certification level of your suppliers of components, but also on your qualitative efforts in terms of training programs and budgets, supplier relations, or local partnerships, all engaged in this «sustainable» direction. This culture will find a recognition in your ISO 14000 certification: 3 conditions (suppliers, labs, training) checked in your R&D forecast.

Intelligence The R&D intelligence report will provide you with the technologies and products developed by your competitors (20 K).

Your starting point

Step 1: Technology (Research phase) Step 2 : Product (Development phase) Step 3: Selling (Launching phase)

Simple products T-S T-C T-IHybrid products T-SC T-CI T-SI T-SCI

• 1 Product: T No new technologies • No ISO 9000, nor ISO 14000 certification




Production The Production responsibility consists of managing the manufacturing process of your company. Your main mission consists of ensuring that the production capacity quantitatively matches the customer demand. Transversally, your responsibility is to take care of products’ Quality and Competitivity, given that this quality & costs are controlled by many other managers: R&D for Quality labs, HR for wages, quality training and people motivation, Sales for pricing and new products launching, Marketing for advertising, and Finance for financing the required heavy investments… This means a lot of coordination with your peers.. The production process is structured in 2 phases:

Production of semi-finished products The first part of the production process is to build semi-finished products from raw materials. The assembling of the

semi-finished products is externalized.

Production machines You adjust your production capacity by purchasing additional machines. You can choose between 3 machines (M2000, M4000, M8000) the capacity of which varying from 2 000 to 8000 units / year.

Production teams In addition to adjusting the number of production machines, you need to adjust the number of operators teams assigned to the machines. Each machine, regardless of its type, requires 1 team of 6 technicians to operate.

Production regulation Production features an automatic regulation system that adapts to overcapacity or under-capacity, to a certain extent: up to + 10% through overtime, down to - 10% through non worked hours, and under this level through semi-finished products stock. A 110% manufacturing time means an under production capacity, with lost sales.

Production productivity labs Production productivity labs increase productivity by 2 to 5% every year, depending on your productivity labs (0-4).

Assembling your finished products Assembling is outsourced, fully flexible, done on demand, at a 20 $ cost / unit, without any stock of finished products.

Energy supply You can opt to supply your production facility with renewable energy, thus reducing your environmental footprint. It is required to achieve ISO 14000 certification.

Components supply The assembly process combines semi-finished products with technology components to create final products. You can choose component suppliers that are ISO 9000 or ISO 14000 certified, improving the quality or ecology of your products.

Intelligence The Production intelligence survey provides you with the capacity and productivity of your competitors (20 K).

Your starting point • Machines:15 M-2000 • Components quality: 0• Renewable energy: 0% • Production Capacity: 30,000 units • Components ecology: 0




Human resources The Human Resources responsibility consists in managing the human dimension and the corporate social responsibility (CSR) of your company. The overall performance of Human Resources is computed through the CSR index. A high CSR index results in higher productivity, higher quality and higher employee motivation. A low CSR index results in lower productivity, lower quality and can even lead to strikes. Transversally, your responsibility is to take care of your corporate sustainability and of your social responsibility, but, of course, this means involving many other managers for coordinating with them your training efforts and your social initiatives.

Staffing Hiring and dismissal of employees is a functional decision. Human resources are in charge of managing and controlling the overall staffing level of your company.

Wages You can increase wages for each personnel category: operations, sales & administration. this will improve CSR index. Your reps are getting the defined salary plus a non negotiable 1% commission on your sales revenues.

Training budget You can define the overall training budget as a % of the wage bill. It impacts your productivity, quality & CSR index.

Training programs You can choose from 1 to 4 training programs. Training programs impact productivity, quality, service and CSR.

Employee benefits

Corporate social Responsibility (CSR) Your HR policy and your CSR initiatives will contribute to creating among your staff a corporate culture consisting of social (internal) and societal (external) factors concerning the responsibility of the firm toward its stakeholders.

Corporate social responsibility initiatives (4 initiatives)

Local communities cooperation initiatives (4 initiatives)

CSR culture index Your CSR performance will be measured by a CSR index (base 100) taking into account all your preceding efforts.

Intelligence The social survey will provide you with the social data about your competitors: staffing, wages, training, CSR (20 K).

Your Staffing starting point

Employee Profit sharing % of operating profits redistributed to employeesHealth insurance % of your payroll to improve the health of your employees Retirement plan % of your payroll allocated to employee retirement plans

• Local employment priority • Internal Promotion priority• Handicapped persons employment • Individual coaching associated to restructuring plans

• Local programs of public health • Equitable partnerships with local suppliers

• Local programs of Education cooperation • Local ecological system preservation Program

Operations Sales Administration Salary Total Count Wage bill

6 Executives 200 K 6 1,200 K3 R&D Managers 3 Engineers

6 Agency Managers 12 Sales Reps

0 Training Manager 0 Recruitment Manager 100 K 24 2,400 K

94 Production Operators 12 Agency Assistants 14 Assistants 50 K 120 6,000 K100 30 20 150 9,600 K




Finance The Finance responsibility consists in managing the investments and cash flow of your company: it implies a good understanding of its initial financial situation ( Profit & Loss, Balance Sheet) and of the international financing rules being used in the GlobStrat simulation.If your company generates healthy profits, you can also distribute a portion of them to shareholders through dividends, buy-back shares previously issued and decide extra loan repayment. Transversally, your responsibility is to take care of your global profitability and capacity to finance the strategic investments required by the implementation of your strategy, but also to have a particular view on the costs and profitability of your different products (measured in the Forecast and Performance cost analysis, product by product).

Funding sources

Self financing capacity The primary mean of financing investments is to use your cash flow, calculated as follows: cash flow = retained earnings + depreciation (based on N-1 data)

Long-term loans If your self financing capacity is insufficient to finance your investments, you may solicit long-term loans from the bank within the limit of the bank allowances, shown in the associated « ? ». They are repaid over 5 years, and incur interest.

Capital increase A capital increase means issuing new shares. You can raise up to 1,500 K. This will dilute your share value.

Venture capital As a last option to finance investments, you can raise 1,000 K per year from venture capital, with a strong dilution risk

Short-term loans You can solicit a short-term loan to finance your working capital needs. To control the risks associated with short-term debt, the maximum amount banks loan is 5% of your previous year revenue. Short-term loans are repaid over 1 year, and incur interest. Interest rates are available in the Environment section. In the unpleasant event of negative cash position on your bank account, your banker will automatically cover it with very expensive overdraft (3 times the short-term interest rate!). Short-term loans cannot be used to finance investments

Chapter 11 protection If your company is in trouble, you can put it under the protection of chapter 11, and suspend your debt payments for one year, and only one. This will temporarily increase your financing capacity, but will durably impact your share value.

Cash usage If your company generates healthy profits, you can also distribute a portion of them to shareholders through dividends, or opt for share buy-back and/or extra loan repayment.

Dividends distribution You can opt to distribute dividends to your shareholders to stimulate your share value. The dividends distribution is limited to your previous year earnings.

Shares buyback If you previously issued shares from capital increase or venture capital, you can repurchase them at the current market price. The reduction of outstanding shares will mechanically reduce your capital dilution and increase your share value. Your buying back capacity is limited to your cash at hand in your last balance sheet.

Extra loan repayment You can opt to perform extra loan repayment to reduce the debt of your company, thus improving your balance sheet.

Intelligence The Finance intelligence provides the balance sheets of your competitors, and costs 20 K.




Financial rules • Financing investments is achieved by mobilizing funds from retained earnings, long-term loans and capital increases.

The rule here is that all your investments must be financed by long term financing. • Financing your expenses is achieved through your revenues and by mobilizing funds from short-term loans, if

needed. Yearly expenses must be financed by your revenues with the complement of short-term loans within the limit authorized by the bank (»?»).

• Decision submission is not allowed is the above rules are not met.

Your starting point At the beginning of year 1, all competitors have the same situation (Income Statement & balance Sheet), the same financial resources, and the same financing rules (whatever their geographical origin).

P&L (Income Statement)

Balance sheet

Sales (Revenues) 30 000 KCost of goods sold : Semi-finished manufacturing cost: . Purchases = 6900K . Technical staff = 5000K

-11 900

Finished products production cost: . Components = 3 000K . Assembling = 1500K . Technical R&D staff = 300K

-4 800

Sales and Distribution: . Advertising = 1200K . Services = 900K. Distribution:agencies+delivery = 900K . Sales staff = 2700K

-5 700

Overheads & administrative staff -1 900EBITDA = 5 700 KDepreciation -2 300EBIT : Operating Result = 3 400 K Financial expenses -400Tax (25%) -750Net Result = 2 250 K

ASSETS Creation Year 0 EQUITY & LIABILITIES

Creation Year 0

Cash 0 K 0 K Short-term debts 0 K 2,450 KCustomer Accounts 0 K 5,000 K Long-term debts 10,000 K 8,000 K

Liquid assets 0 K 5,000 K Liabilities 10,000 K 10,450 KSales Agencies 3,000 K 2,700 K Annual net profit 0 K 2,250 KLaboratories 3,000 K 2,700 K External holdings 0 K 0 KEquipments 15,000 K 13,500 K Incorporated profits 0 K 0 KBuildings 4,000 K 3,800 K Share capital 15,000 K 15,000 K

Fixed assets 25,000 K 22,700 K Equity 15,000 K 17,250 KTOTAL 25,000 K 27,700 K TOTAL 25,000 K 27,700 K


Cost analysis of T product (per unit) Budgets (K) / 30 000 units, Depreciation included

Weighted average price 1 000Raw materials (5400K) ,energy (1500K) 230Production : Staff (5000K) depreciation: Building (100K) factory (1500K)

220

Unit cost of semi finished product = 450Components (T) 100Assembling outsourced (1500K) 50R & D Staff (300K), depreciation (300K)

20

Advertising (1200) 40Services (legal warranty: 900) 30Distribution: Agencies (300K), delivery (600K) staff (2700K) depreciation (300K)

130

Total direct unit cost = 820Overhead charges : admin staff (1900K), financial charges (400K) Building depreciation (100K)

80

Tax 25

Total unit cost = 925Unit margin 75Margin (% Revenue) 7.5%



GlobStrat available options

Marketing & Sales: Installed on one domestic market (Americas, EMEA, Asia-Australia) with 6 Sales Agencies (18 salesmen), Generalist operating on the 3 market segments (Consumers, SME, large Enterprises), your firm is making 30 000 K$ of Revenues with a unit price of 1000 $ x 30 000 units of sales: Consumers = 10 000, SME = 10 000, large Enterprises = 10 000. Competing in a Hi-Tech industry, manufacturing and selling Tablets, your firm is a start-up aiming at developing its business in many strategic directions: product & service innovation, internationalization, Value proposition differentiation (price/cost, quality, sustainability, customer intimacy, reputation…). Your main objective here should be to increase your Customer Value, potentially building market share and leadership, on specific market segments. Implanting your business on a new international market will cost 1000 K (Investissement) + 3 managers x 100K. Each new sales Agency requires a 500 K investment + an operating budget of 500 K per year. The E-commerce option available per market requires a 500 K investment + an operating budget of 500 K per year.. A new distribution network will generate an operational cost of 500 K The advertising campaigns incur an operating annual cost varying from 100 K to 1000 K, each year. For each market segment on which you are operating, you will have to set the Sales objectives, the Price per Product, the Paiement delay, and the services associated to your Price, per segment.

R&D: 3 technologic competencies may be acquired (Storage, Communication, Image) in order to develop 7 possible new (simple or hybrid) products. Innovation will change products life cycles and stimulate market growth, but allow your firm to differentiate its Value proposition from competitors while creating value for target customers. Getting a Quality and/or Sustainability differentiation, is another strategic option that you may also consider. Quality and/or Sustainability labs will cost 500 K (Investment) + 1 engineer each year. A 3rd direction consists in developing 6 new service capabilities that you will be able to integrate in your Value proposition next year.

Production: Your manufacturing capacity of 30 000 units with 15 machines (M2000) and 15 teams of operators is perfectly suited to your sales, but will need new investments in new machines (M2000, M4000, M8000) with more productivity, but with a reverse impact on the quality of your production. Your semi-finished manufacturing cost will be determined by your equipment choices and the number of Productivity labs (costing a 500 K Investment + 1 engineer each year) that you will be adding.

Human Resources: Starting with 150 persons, you can set your HR policy (in terms of employment, wages, training budgets and programs) but also invest on your Corporate Social Responsibility (CSR options including Profit sharing, Health and Retirement plans, Stakeholders internal or external initiatives). These options will not only improve the motivation of your staff toward Productivity or Quality, but will also create CSR value, measured by an index, and contribute to you social reputation on certain markets, where this CSR index may create Customer Value.

Finance: You will have to engage several huge investments in the next years. Finding the Long-term resources ti finance them on a sustainable basis, will be a challenge given that your resources are limited: your sep-financing capacity (4550 K) is substantial, but the development of a new product (Technology + Product) alone will need 3 000 K in one or two years. You may add a limited capital increase of 1 500 K (in one or many years) which will create an additional LT debt capacity, given that this capacity is limited to 2/3 of your capital (Equity). Exceptional Venture Capital may be available but will strongly dilute your Capital and penalize your Share Value. A Chapter 11 suspension of the reimbursement of your Long-term debt is possible (once) but again will penalize durably your Share Value. So be aware of the limitation of your financial Resources and manage your investments carefully. Balance sheet: Initial Assets : 25 000 K financed through Share Capital (10 000 K) plus a long-term loan ( 15 000K).




Decisions cheat-sheet Marketing

Decision Investment Staff Cost ImpactRepresentation Office 1,000 K 3 managers 300 K Total available marketSales Agencies 500 K 1 Mgr + 2 Reps 500 K Customer intimacy, Customer valueDistribution Networks - - 500 K Total available markete-Commerce 500 K 1 Mgr + 2 Reps 500 K Sales volumes, ReputationAdvertising Campaigns - - 100 - 1,000 K Brand image

SalesSales objectives / Segment - Volume - Sales Forecast, Revenues forecastPrice / Product - $ Sales RevenueCommission - - 1 % of revenue Reps motivationPayment terms - - Cash flow Sales volumes; Customer intimacyServices - 30 $ per unit Customer value

R&DTechnology Development 2,000 K 5 engineers 500 K Ability to develop new productsProduct Development 1,000 K 5 engineers 500 K Ability to sell new productsService Development - 2 engineers 200 K Ability to add new services

Product Quality Labs 500 K 1 engineer 100 K Product quality ISO 9000 certification

Product Ecology Labs 500 K 1 engineer 100 K Product ecology, ISO14000 certification

ProductionRenewable Energy - - +12.5% per level ISO 14000 certificationQuality Components - - +10% per level ISO 9000 certificationEcology Components - - +10% per level ISO 14000 certificationM2000, M4000,M8000 Machine 1000 to 3000K 1 team= 6 ops 300 K 2,000, 4,000, 8,000 units per machineProductivity Labs 500 K 1 engineer 100 K Production capacity, Production cost

HRHiring/Firing - - 50% of salary CSR indexWage Increase - - increase % CSR index, quality, productivityTraining Budget - - % of wage bill CSR index, quality, productivityTraining programs - - 100 K CSR index quality, productivity

Benefits: Health Retirement - - % of payroll CSR indexEmployee benefits: Retirement - - % of payroll CSR indexProfit sharing - - % of EBIT CSR indexLocal CSR initiatives - 1 manager 100 K CSR index

FinanceDecision Conditions Limits Cost Impact

Long-term loan 5 years loan 2/3 of capital 5-8% per year Investment financingCapital increase - 1,500 K 10% discount Investment financingVenture Capital funding - 1,000 K 50% discount Investment financingShort-term loan 1 year loan 5% of revenue 4-6% per year Cash financingDividends distribution Profit. Cash Cash available Amount in K Share value




Detailed Profit & Loss Statement

Revenues . Sales of finished products = 30 000 units x 1 000 $

30 000 K

Cost of goods sold (based on products sold, not including inventory)Semi-finished manufacturing cost: . Purchases (Raw materials (180 $ x 30 000) = 5 400 K . Energy (50 $ x 30 000) = 1 500 K . Technical staff : 94 technicians (6 x 15 teams + 4 logisticians) x 50 k = 4 700 K . Technical staff : 3 Engineers x 100 K = 300 K

-11 900

Finished products production cost: . Components = 100 $ / unit sold x 30 000 = 3 000 K . Assembling = 50 $ per unit sold x 30 000 = 1 500 K . Technical R&D staff = 3 R&D engineers x 100 K = 300 K

-4 800

Sales and Distribution: . Advertising: TV = 1 000 K + Exhibitions = 200 K = 1 200 K . Services: 30$ (legal warranty) per unit sold x 30 000 units = 900 K. Distribution: agencies expenses ( 50 K x 6 agencies) + delivery (20$ x 30 000 units ) = 900 K . Sales staff: 18 Salesmen x 100 K + 12 assistants x 50 K = 2 400 K + 1% Commissions (30 000 K x 1%) = 300 K

-5 700

Overheads & administrative staff (fixed costs) . 6 Executives x 200 K = 1 200 K . 14 Administrative assistants x 50 K = 700 K

-1 900

EBITDA = 5 700 KDepreciation . Machines = 1 000 K x 10% x 15 M2000 = 1 500 K . R & D Laboratories = 1 000 K x 10% x 3 labs = 300 K . Agencies = 500 K x 10% x 6 Agencies = 300 K . Buildings = 4 000 K x 5% = 200 K

-2 300

EBIT : Operating Result = 3 400 K Financial costs (interest over 8 000 K of Long term debts x 5%) -400Employee Profit sharing = 0Non recurring expenses (Manufacturing Restructuration costs = 40 % of Net Assets sold) = 0Tax ( EBIT - Financial expenses - Employee Profit sharing - Non recurring expenses) x 25% -750Net Result = 2 250 K



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