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The objective of this simulation is to introduce you to the fundamentals of business strategy. Through computer simulation, we will place you into a very realistic international business setting where you will start up and run a company for a year (four rounds of decision-making). In Marketplace, you will start up and run your own company, struggling with business fundamentals and the interplay between marketing, distribution, manufacturing, human resources, finance, and accounting. You are given control of a simulated business and must manage its operations through several decision cycles. Repeatedly, you must analyse the situation, plan a strategy to improve it and then execute that strategy out into the future. You face great uncertainty from the outside environment and from your own decisions. Incrementally, you will learn to skilfully adjust your strategy as you discover the nature of real-life decisions, including the available options, linkages to other parts of the business, conflicts, trade-offs and potential outcomes. In the Marketplace, you gain tremendous experience by making real business decisions. We compress time and speed up the business cycle, then immerse you in the management of a new business. Rather than start in the middle of the story (a mature firm), we use a new venture situation to start at the beginning of the story. You will see how various strategy tools and ways of thinking become useful as the firm expands its operations and must take on new tasks and responsibilities. In this way, the logic of our business practices will become more intuitive. The consequences of your decisions are quickly revealed in the simulated marketplace. Players learn to adjust their strategy and tactics to become stronger competitors by studying end-user opinions, smart competitive moves, and their own

operational and financial performance. Over the course of the entire exercise, your understanding of the fundamentals of business will grow at an exponential rate. In four decision rounds representing a year of compressed time, you must evaluate the market opportunity, choose a business strategy, evaluate the tactical options and make a series of decisions with profitability in mind. Your decisions are combined with the decisions of your competitors and run through a marketplace simulator. The results are fed back to the players for the next round of decision- making. The learning strategy is to gradually build the business and thus, gradually introduce new issues, which must be mastered by you and the other players. As you work through the business life cycle, new decisions and strategic planning tools are phased in 分阶段进行 as they become relevant to the current decisions. Each quarter's activities not only result in new material being introduced, but also build upon the prior content so that there is considerable repetition. Business activities such as strategic planning, cash flow management, value creation in product design, production scheduling, and profitability analysis require repetitive exercise in order to set them into your natural thinking. Here is a list of what Marketplace players do:  Analyse market, operational and financial data  Develop an initial business strategy  Make a host of tactical decisions: o Plan and roll out 铺展 a marketing campaign o Design and price brands to appeal to different market segments o Select and develop distribution channels o Devise advertising campaigns  Schedule production and manage plant capacity  Manage cash

 Compete head-to-head with other businesses  Adjust strategy and tactics in response to operational and financial performance, competitive tactics, and customer needs. The specific goal of the exercise is to develop your knowledge of strategic management of business by giving you an integrated perspective of the entire business operation. In terms of specifics, the exercise can:  Facilitate learning of important business concepts, principles and ways of thinking  Develop strategic planning and execution skills within a rapidly changing environment  Crystallise the linkages between business decisions and financial performance  Instil a bottom-line focus and the simultaneous need to deliver customer value  Internalise how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics  Promote better decision-making by helping you see how your decisions can affect the performance of each function & the organisation as a whole  Experience the challenges and rewards of creating and managing a strategy over the life cycle of a firm  Build confidence through knowledge and experience

Game Scenario The game scenario revolves around the bicycle industry. The market is the global marketplace and the bicycle industry is in its introductory stage of the product life cycle. Within this new industry, students will form the new venture firms that will be developing the market.

Chronology of Events Here is a brief list of the activities that the players will undertake by quarter or decision period: Quarter 1: invest personal savings to start up the company, analyse market research, establish the firm’s strategic direction and set up shop (build a plant, design brands and open sales outlets). Quarters 2, 3: test market brands, prices, ad copy, media campaigns, sales staffing, and compensation package. Study the market’s response, competitive tactics and one’s own operational and financial performance and make adjustments in strategy. Quarter 4: receive additional R&D projects from your engineering staff, create new products with this technology, and make a strong push to close out the year.

A Balanced Scorecard will be used to measure your firm’s performance. The team’s total business performance will be based upon its financial performance, marketing effectiveness, market performance, human resource management, investments in the firm’s future, manufacturing productivity, asset management, and creation of wealth. A total score will be computed for each firm competing in the Marketplace. The result for the simulation is based on the cumulative balanced scorecard (CBS) number that you achieved. This is an objective measure of performance within the simulation. PERFORMANCE EVALUATION The balanced scorecard is the most important measure of your total performance. It provides a single number that can be compared between companies. As such, it is the main indicator for evaluating your performance in the market. The balanced scorecard is used extensively in industry. Its popularity reflects the fact that it encourages managing executives to properly consider a host of performance criteria at the same time. Below, you will find a detailed description of how the balanced scorecard is derived. It is important that you manage the division to do well in all areas measured. To accomplish this, you need to completely understand how your performance is measured. Then, work your strategy and tactics to enhance your performance across all measurement areas. If you are able to do this, you will be very successful. The Cumulative Balanced Scorecard will be the measure used to evaluate your overall game performance at the end of the exercise. The final evaluation will be based upon an average of your balanced scorecard over the final four quarters.

BALANCED SCORECARD an integrated perspective of the entire business operation an objective measure of performance within the simulation Review your balanced scorecard for each quarter. Check how well you performed relative to your score in the previous quarter, and to the industry as a whole. The industry scores represent your benchmark on how well you should be doing, and will be used to measure your firm's performance in comparison to the other firms participating in the exercise. Your firm should be above average in all areas measured. If not, try to find the weaknesses and correct them. Total Business Performance The Total Business Performance indicator is a quantitative measure of the executive team’s ability to effectively manage the resources of the firm. It considers both the historical performance of the firm as well as how well the firm is positioned to compete in the future. As such, it measures the action potential of the firm. Total Business Performance = Financial Performance * Market Performance * Marketing Effectiveness * Investment in Future * Wealth * Human Resource Management * Asset Management * Manufacturing Productivity * Financial Risk If one of the performance measures is less than zero, then the total overall performance measure will be zero. The index employs what is called a balanced scorecard to measure the executive team’s performance. The most important measure is the team’s financial performance, and thus its ability to create wealth for the investors. However, the focus on current profits has caused many executives to stress the present at the expense of the future.

The long-term viability 可行性 of the firm requires that the executive team be good at managing not only the firm’s profitability, but also its marketing activities, production operations, cash, and financial resources. The management team must also invest in the future. These expenses might depress the current financial performance, but are vital to creating new products, markets, and manufacturing capabilities. In short, top managers must be good at managing all aspects of the firm. The balanced scorecard puts this perspective into practice. It focuses attention on multiple performance measures, and thus multiple decision areas. None can be ignored or downplayed. The best managers will be strong in all areas measured. The Total Business Performance measure is computed by multiplying seven indicators of business performance. This model underscores the importance of all measures. This is because any strength or weakness will have a multiple effect on the final outcome, the Action Potential of the Firm. The following is a summary of the measure of the firm’s Total Business Performance and its key performance indicators. The computational details follow. Financial Performance Measures how well the executive team has been able to create profits for its shareholders. A positive number is always desired and the larger the better. It is computed in three steps. 1. First, the net profit from operations is computed by taking the operating profit shown in the income statement and adding back investments in the future that are expensed in the current quarter. It measures how well the managers are able to create revenue from the current quarter's marketing, sales and manufacturing activities.

Note that the income statement includes expenditures for R&D. However, this money is spent to create future business opportunities. Thus, these expenses are added back to the operating profit so that the financial performance measure is entirely focused on current quarter revenues and expenses. 2． Second, the total number of shares of stock is computed by adding all forms of equity investment. If an emergency loan has been taken out, shares of stock will automatically be issued to the loan shark and they become a permanent part of the equity financing. 3. Third, the net profit from current operations is divided by the number of shares of stock issued to determine the net profit from current operations per share of stock. Financial Performance = Net Profit from Current Operations / Total Shares Issued Market Performance Is a measure of how well the managers are able to create demand in their primary and secondary segments. The firm's market share in two target segments is used to measure this demand creation ability. The market share score is adjusted downwards if there were any stock-outs. This penalty for stock-outs is to underscore强调 two points. First, unnecessary resources have been spent to generate more demand than can be satisfied. Second, ill will 恶意 has been created by having potential customers become frustrated when they do not find the products that they have been persuaded to buy. The score ranges from 0 to 1.0 and will depend upon the number of competitors. If there are 3 firms, a good score would be greater than 0.5. If there are 8 teams, a good score would be greater than 0.35. Market Performance = Average Market Share in Targeted Segments / 100 * Percent of Demand Actually Served / 100

Marketing Effectiveness Is a measure of how well the managers have been able to satisfy the needs of the customers as measured by the quality of their brands. Customer perceptions of the firm's brands in its primary and secondary segments are used to measure customer satisfaction. The two scores are then averaged to obtain the indicator for marketing effectiveness. The score ranges from 0 to 1.0. A good score would be greater than 0.8. Marketing Effectiveness = (Highest Brand Judgment in Primary Segment / 100 + Highest Brand Judgment in Secondary Segment / 100) / 2 Investments in the Firm's Future Reflects the willingness of the executive team to spend current revenues on future business opportunities. They are necessary but risky. In the short-term, these expenditures can cause large negative profits on the income statement. As a result, the retained earnings may become highly negative, thus indicating that a substantial portion of the stockholder's investment has disappeared into the operations of the firm. In the long-term, these investments are absolutely necessary if the firm is to be competitive. Thus, there is a need to balance the loss of stockholder's equity against investments which could create even greater returns for the investors in the future. The score is always greater or equal to 1.0 and a good score would be greater than 3.0. Investment in Future = (Cumulative Expenses that Benefit Firm's Future / Cumulative Net Revenues) * 10 + 1 Creation of Wealth Measures how well the executive team has been able to add wealth to the initial investments of the stockholders. During the start-up phase of the company, it is

expected that the initial stockholders' investments will be used to create new brands and conduct R&D on new brand features. Expenses can exceed revenues leading to losses and retained earnings figures that are negative. 1. To compute the creation of wealth measure, the net equity of the firm is first computed by adding the retained earnings to the total of the investments from all of the stockholders. The retained earnings figure is the sum of all profits from the inception 起初 of the firm. As noted above, the retained earnings will be negative in the early quarters as the firm invests money to start up and grow the business. 2. Next, the net equity is divided by the total of all equity investments to obtain a ratio of wealth creation. A value of zero or less indicates bankruptcy. A value greater than zero and less than one indicates the executive team is relying upon the initial stockholder's investments to pay day-to-day expenses plus invest in the future. A value greater than one indicates the firm is adding wealth to the stockholders. Wealth = Net Equity / Total Stockholders’ Equity Human Resource Management Measures how well the executive team is able to recruit the best employees, satisfy their needs and motivate them to excel. High performance is only possible if the firm's compensation packages is competitive and in tune with 与一致 what is important to employees over time. The scores range from zero to 1.00 and a good score would be greater than 0.85. Human resource management = sales force productivity/100 Asset Management Measures the executive team’s ability to use the firm’s assets to create sales revenue. The first step in measuring asset management is to compute the asset turnover of the

firm. Effective managers are able to use the assets to create sales which are two or three times the value of the assets. Thus, a very good score would be 3.0. Asset Management = Asset turnover Manufacturing Productivity Measures the executive team’s ability to create products efficiently. This indicator measures how much of the operating capacity is actually used in production versus that portion lost to excess capacity. Excess capacity costs occur when the factory is scheduled to produce more inventory than is needed to meet demand or stock the warehouse. Good forecasting and production scheduling will reduce penalties for excess capacity. The score ranges from 0.0 to 1.0. A very good score would be 0.80. Manufacturing productivity = percent% of operating capacity used in production/100 Financial Risk Measures the executive team's ability to manage debt as a financial resource. The financial risk indicator is based upon the degree to which debt is part of the capital of the firm. As debt increases relative to the total capital, then the financial risk associated with the company increases. Conversely, as the proportion of equity in the total capital increases, then the perceived financial risk in the firm decreases. To compute financial risk, the proportion of equity is obtained by computing the amount of equity in the firm and dividing it by the amount of capital invested in the firm from all sources. Specifically, the amount of equity is equal to the sum of common stock plus retained earnings. The amount of capital is equal to the sum of debt plus common stock plus retained earnings. As the ratio of equity to capital decreases (meaning more debt), then financial risk increases.

A value of 1.00 would indicate there is no debt and, therefore, no perceived financial risk. It is important to realise that financial managers do not want to totally discourage debt. The optimum 最适宜的 capital structure will vary by firm depending on its tax situation, overall risk, asset base, and financial slack. Some debt may be desirable in order to help the firm take advantage of value enhancing business opportunities (i.e., opportunities that earn more than the company's weighted average cost of capital). In order to mitigate or downplay the effect of low amounts of debt in the capital structure, the value for the share of equity in the company is raised to a power of 0.5 (square root). Thus, if debt represented 20% of the capital structure, then the Financial risk indicator would be 0.89 (0.80 ^ 0.5). If debt were 50% of the capital structure, the Financial Risk indicator would be 0.71. A Financial Risk indicator below 0.80 (more than 36% debt) would be considered unfavorable. Financial Risk = (Total Equity / Total Capital) ^ 0.5 Cumulative Balanced Scorecard The final simulation mark will be based upon an average of your performance over the final four quarters. Here is how the cumulative score is computed for the last quarter of play, which we will call Qt: Total Cumulative Overall Score in Qt = Cumulative Financial Performance in Qt x Cumulative Market Performance in Qt x Cumulative Marketing Effectiveness in Qt x Cumulative Investment in Future in Qt

x Cumulative Wealth in Qt x Cumulative Human Resource Management in Qt x Cumulative Asset Management in Qt x Cumulative Manufacturing Productivity in Qt x Financial Risk in Qt Where, Cumulative Financial Performance in Qt = (Financial Performance in Qt-3 + Financial Performance in Qt-2 + Financial Performance in Qt-1 + Financial Performance in Qt)/ 4 Cumulative Market Performance in Qt = (Market Performance in Qt-3 + Market Performance in Qt-2 + Market Performance in Qt-1 + Market Performance in Qt)/ 4 Cumulative Marketing Effectiveness in Qt = (Marketing Effectiveness in Qt-3 + Marketing Effectiveness in Qt-2+ Marketing Effectiveness in Qt-1 + Marketing Effectiveness in Qt)/4 Cumulative Investment in Future in Qt = (Investment in Future in Qt-3 + Investment in Future in Qt-2 + Investment in Future in Qt-1 + Investment in Future in Qt)/4 Cumulative Wealth in Qt = Wealth in Qt Cumulative Human Resource Management in Qt = (Human Resource Management in Qt-3 + Human Resource Management in Qt-2 + Human Resource Management in Qt1 + Human Resource Management in Qt)/4 Cumulative Asset Management in Qt = (Asset Management in Qt-3 + Asset Management in Qt-2 + Asset Management in Qt-1 + Asset Management in Qt)/4

Cumulative Manufacturing Productiv...