Transcript the integrative business simulation - Duke University`s Fuqua School

THE DUKE GLOBAL INTEGRATIVE
BUSINESS SIMULATION
Cross Continent MBA Program
Term VIII 2007
Agenda



Objectives
Mechanics
Advice/suggestions
Part I: Objectives
Duke Global Integrative Business Simulation


A competitive business simulation focused on
strategy formulation & implementation
A capstone learning experience that




integrates learning from the core curriculum
requires the design and execution of a strategy
demands good decision making under uncertainty
Tests your ability to
 build and maintain an effective team
 integrate functional decisions to achieve company
goals
 deal effectively with unexpected events
Part II: Mechanics
Three Worlds

Blue World, Red World and Green

Each with five/six teams
Teams compete within a world
Each world has a wing in Thomas Center, each team
with an office (a team room)
Software will be loaded before you occupy your office



Decisions

Beginning:







Strategy Planning Worksheet
Present it to a venture capitalist group
Quarter 0: start-up decisions about plant
locations and size
Quarters 1~4 decisions
Shareholder meeting
Quarter 5~? decisions
Final presentations
Multiple Functional Decisions Starting with Q1





Marketing
Sales
Finance
Operations
R&D
Some decisions about
the present, others
about the future
Logistics






Headquarters / External Environment
Handouts
Deadlines, Late Penalties: $1,000 per minute
Give yourself the time to enter the decisions and
verify them
Each quarter: turn in your memory key + a hard
copy;
Our version of Sarbanes-Oxley: hard copy must
be signed by the CEO
Facilitators


A group of facilitators help me run the simulation
Dedicated team for each world
Communications





We communicate with you by memos and
handouts
You cannot talk to any member of any of your
competing teams
You can talk to instructor and facilitators
You can give out Press Releases
We also publish Duke Street Journal
Part III: Advice and Suggestions
Initial Company Position
Customers Perceive
Companies as Equals
$700K Cash
AAA Debt Rating
Finance
R&D
All Companies
at Same Position
Marketing
Sales
Operations
All Companies Face Start-Up Decisions
• Plant Location
• Production Levels
• Plant Capacity
Three
Experienced
Sales Reps
Define Your Success





Your company is a going concern
Imagine that you will leave the company to a group of
successors who will continue your work
You define your strategic objectives
You define the metrics by which you want to measure
yourself
During the simulation, you should see how you well do
against the metrics that you have developed
Assessing Your Situation
Your situation at a given stage is given by:
 Your financial statements

balance sheet, income statement, cash flow statement


Available inventory, production capacity


Number and locations of sales offices and salesforce
available
Product features


amount of pre-approved loans available
Improvement level, reliability, variable costs
Customer satisfaction levels
How Do You Succeed?
Competitive results are based on the
interactions of:





Customers’ demand characteristics
Competitors’ and company decisions
Economics in the environment
Unknowns ??
There are many decisions, each involves tradeoffs
Strategy Creates Alignment
Finance
R&D
Marketing
Sales
Operations
Understand Your Customers
 24 Unique Customers
15 Wholesalers
9 Retailers
 Needs differ by customer type
 Demand forecast by customer
Understand Multiple Sources of Competitive
Advantages
Price
Product
Improvements
Reliability
Sales Support
Delivery
Advertising
Geographic or
Customer Focus
Branding
Strategy
Plant
Location
Understand Construction, Production and Sales
Cycle
Quarter 1 onwards:
Quarter X
Construct
Quarter X+1
Produce & Store in
Regional Warehouse
Quarter X+2
Distribute/Sell
Quarter 0: Construction and production together
Linkage Across Different Types of R&D
 Product improvement makes your product more complex
 Your manufacturing costs may go up
 You may need to invest in cost reduction
 Your reject rate may go up
 You may need to invest in process improvement
Different Types of Loans
Long-term Debt
(Planned)
Short-Term Debt
(Planned)
 Must be scheduled
 Must be Issued
 Automatically renewed
 Interest rate 1% higher
than short-term debt
 Must maintain
debt/equity ratio below
100% to issue
 10-year maturity
 Interest rate depends on
credit rating (prime rate
plus risk premium)
 Bank intervenes if D/E >
100%
Solvency Loan





Solvency Loan (Emergency)
Automatically granted
Fee: $10,000
Interest rate about 6% above prime rate
Automatically converted to short-term debt next quarter
Managing Cash Flow
Cash
Balance
Debt
Accounts
Receivable
Available Cash
Operating
Expenses
Capital
Expenditures
Interest
D/E Ratio is a Ratio





D/E can go up in two ways
You get more debt
OR
You lose money and erode your equity
Check how much money can you borrow before
your D/E becomes too high
Check how much loss you can afford before
your D/E becomes too high
You cannot Estimate the Demand Function





Your sales are a function of a large number of variables
Your price, advertising, product improvement level,
previous history with customers, your sales force, etc.
All of these variables for each of your competitors
You will NOT have enough data to make a good
estimate
You may some intuitive feel for how things work but not
a precise relationship
Suggestions for Success




Make your strategy the centerpiece of your thinking
If uncertain about a decision
 Check the case facts from the manual
 Ask about it
There is a person behind every piece of paper
Use all your instincts, judgment, and experience
 React to information/events as you would in your
real job
Next Steps







Make sure everyone is well prepared
Draft on Saturday Jan 13
Teams will be announced after the draft
Tuesday Jan 16: we will begin with a short lecture in
Geneen
Everyone will go to Thomas center
You will begin by filling out a specific strategy planning
worksheet
I will also ask you to agree on a decision making process
Caution
This simulation is a very good learning experience
 It is not a game but is a simulation
 The objective is not to do slightly better than the
competitors but is to put the company on a sound footing
 It is a lot of fun
BUT
 It can also be very stressful
 Maintain the right balance

GOOD LUCK!