CORPORATION

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• CORPORATION
• A GLOBAL STRATEGY SIMULATION
• Dr Jerald Smith
• Dr. Peggy Golden

Dra. Rocío Gómez-Tagle Rangel rgomeztagle_at_itesm.mx
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Corporation

• 4th edition
• Autores
• Dr. Jerald Smith
• Peggy Golden
• Florida Atlantic University
• Graduate School of Business

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OVERVIEW OF A SIMULATION

• Teams make a set of decisions for a simulated
  firm. These are evaluated against decisions made
  by competitors who are other class members.
• Each decision period represents 6 months.
• There are 12 decisions.
• Decisions are entered into a PC and the software
  acts as the purchaser of the product and compares
  the relative merit of the decisions made by all
  teams.

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The Scenario of Your Firm

• Each team begins at exactly the same financial
  position and all have 3 SBUs (strategic business
  units). The financial report for the last period
  (period 0) is on page 36, 37, 38.
• No one has an SBU4 at this point. You may fill
  it by purchasing a Venture. All ventures are new
  firms located off shore.

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SBUs Line of Business

• SBU1 Production of PC Computers
• SBU2 Software creation and sale
• SBU3 Combining software and hardware to create
  a system.

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An example of the simulation

• An example would be the sales system of a retail
  store that records the sale at the cash register,
  adjusts inventory, automatically re-orders
  inventory and creates reports for management.
• SBU3 may, but is not required, to purchase their
  materials from SBU1 and SBU2.

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• In addition to operating the 3 or 4 SBUs a firm
  may buy or sell any of the 4 SUBs.
• If you find a firm that has an SBU you have and
  they have one that you have, it is suggested you
  sell each other the SBU at the book value. In
  this way, no one loses or gains on the sale. The
  book value is shown on the 15th line of numbers
  on page 36.
• You may not own more than one SBU.
• A critical error occurs if a firm buys or sells
  more than one SBU at a time.

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• RULE The seller enters the sale of their SBU. A
  firm may not sell nor buy more than one SBU each
  period.
• The buyer takes possession of the acquired SBU
  the first day of the next period so they will
  need to increase budgets for all items when they
  purchase an SBU immediately.
• There are no bad ventures. Some are better than
  others. How they are operated also contributes to
  their relative success. They are listed on page
  20.

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• What a team decides to hold and divest is termed
  Corporate Strategy. This is the overall
  strategy of the firm.
• The decisions a team makes for each
• SBU is termed Business Level Strategy.
• If you will consult the decision form on page 25,
  the first 14 decisions are corporate decisions.
• Each firm has 14 or 15 decisions which are termed
  operating decisions.

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• SBU1 has an extra decision (item 15) as you can
  move your production plant for SBU1 off shore to
  any of 5 locations. They are listed on page 12.

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Exporting

• You may export from each SBU to 1 or 2 of 5
  export areas (listed on page 10). Each export
  area has its own set of sales demand. In general,
  the export areas are much like the countrys
  current demographics.
• Since your manual was written, NAFTAs name has
  been changed to FTAA, the Free Trade Agreement
  of the Americas.

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• The manual has many tips in it and it is worth
  reading again. For example, it requires two or
  more periods to build sales in a new export area.
  In the early quarters of a new area, the percent
  of marketing dollars budgeted will always be
  greater than the percent of sales gained.
• Also, you must replace aging equipment each
  period to maintain the same capacity (add number
  of units to expansion item on decision form
  page 25)

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Purchasing Market Research

• You may buy market research for the industry.
  There are 5 different sets of studies with each
  costing from 1,000 to 16,000. You can obtain
  valuable information about your competitors with
  market research. Most teams get tight with
  their budgets and dont buy enough.
• The studies are listed on page 21.

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Some Tips

• Be careful with large price jumps. If you want to
  raise price, do so in increments from period to
  period.
• Buyers will not pay a premium for a product or
  service unless it is of high quality (quality
  budget), and highly innovative (New product
  research budget), built by a serious and
  motivated workforce (human resources budget), on
  a ultra modern production line (Operations
  Technology budget).

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• A truism about the simulation is the same as in
  the real world. A lower price product will be
  sold via its low price and will not require the
  features of a higher priced product. Thus,
  strategic decisions must be consistent and
  compatible. Your products relative
  innovativeness is indicated in the particular
  SBUs Product Innovation Index. It is listed on
  the financial report on page 36, line 18.

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Incidents

• Each decision period require that you make a
  decision on the assigned incident for that
  period. In period 1 the incident is A and is
  listed on page 41, naming your company. The
  authors of the simulation urge you select a
  company name that carries an immediate message to
  your prospective customers. Use the form on page
  42 to guide your thinking. Unless your instructor
  directs otherwise, use incidents in order. A, B,
  C

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Organizing your team

• The most efficient method of organizing is to
  assign a particular person or persons to operate
  each SBU. That will allow accountability and the
  person(s) to become, and remain, familiar with
  that SBUs competitors. One person on the team
  may be assigned as financial vice president or
  Chief Financial Officer and specialize on the
  corporate and financial decisions.

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An Important Form

• All members of the team should complete the
  decision Journal on page 96-97. This is a record
  of all decisions. If the one member of the team
  that keeps the records is not available at
  decisions time, you will have the past decisions
  available.
• There are other financial analysis forms in the
  manual. Teams that win the simulation do an
  outstanding job of tracking competitors,
  analyzing their own performance, and work as a
  TEAM.

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The End of the Simulation

• Usually your instructor will want you to present
  some type of report at the end. The manual has an
  audit form and suggests some topics for doing a
  management audit.
• Do not miss reading the Common Questions and
  Troubleshooting Your Performance in the manual.

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Determing the Winners

• Instructors have different criteria for
  determining winners, and grades. Some
  quantitative criteria could be ROI, ROS, Total
  profits, profit trend at the end, stock price,
  EPS, Dividends per share, product innovation
  index, total number of lost sales, and lack of
  overdraft loans.
• Qualitative criteria could be teamwork (from the
  peer evaluations), interest in the simulation,
  and additional analysis by the team
  (spreadsheets, etc), final presentation.

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• Good Luck
• From the
• Authors
• And
• Your Instructor