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BSG Guide – How to Win the Business Strategy Game

You are playing the BSG but do not want to read the 35-page Player’s Manual? Or you have read it but still do not know what strategy to pursue or what is going on? I feel you. In this blog post, I will run you through everything important that you have to know about the BSG and how to win it. The most important advice in advance: it is all about PROFIT.

 

Your Strategy for the BSG

Before you even start plugging in any numbers, it is important that you decide for a strategy to pursue for the game. Even more important is, to stick to it! I have encountered two successful strategies so far: medium-quality shoes (S/Q rating of 5-6 stars) paired with high number of models (250-350 models) and high-quality shoes (S/Q rating of 8-10 stars) paired with low number of models (50 models). For this blog post, I will concentrate on the high-quality + low model strategy. I personally find it easier to pursue and had more success with it in the past. However, you can successfully apply most of the following tips to either strategy. Even though this game is said to be a business simulation, get rid of the thought that all decisions have to make sense and be logical. You will soon know why. With the high-quality shoes + low model strategy, the only thing you care about is your PROFIT. Everything else like earnings per share (EPS), return on equity (REO), and image rating (IR) will automatically follow. After clicking on the green “Go to Decisions/Reports”-button in the corporate lobby, you can see your profits in the lower left-hand corner.

If you are completely new and your projected performance box is not showing yet, you have to click the “Save Decisions” button on the upper right-hand corner for the projected performance box to appear.

 

 

Decision Entries for the BSG

We will now look at all the decisions you have to make to actually play the game and be successful with your strategy. Two of the most important things to do here are analyzing your competition and optimizing your values. Optimizing your values is the essence of the game, even though it might be very time-consuming. However, if done right, it is worth the time as it will yield the maximum profit possible and success in your industry. You will get the hang of it after the first few decision rounds as it is always the same procedure. Let me walk you through the various decision pages and explain you how to optimize each entry. I will walk you through each page chronologically.

 

Corporate Citizenship

This decision page is mainly a waste of money and we will not spend a lot of time with this page. As already mentioned earlier, not every decision has to make sense. You might think that using green footwear materials or using recycled boxing / packaging is a good decision, especially with the currently ongoing environmental debates. It is not. Most of the decisions you can make here are a waste of money and will not benefit your company. While they might boost your image rating, they will decrease your profit. And profit is what the game is all about. Hence, you will only focus on the two following decisions that are worth their money as they increase your image rating the most. You want to set Ethics Training / Enforcement to “All Employees” and Workforce Diversity Program to “Yes”. Leave everything else unchanged. You are now done with all your decisions for the Corporate Citizenship decision page and should hit the “Save Decisions” button on the upper right-hand corner. For all following decision rounds, you do not have to return to this page, as I advise you to always keep those two options and not change anything else on this page.

 

Sales Forecast

This is probably the most important decision entry page in the game and you will be spending most of your time here. On this page, you will optimize your entries and toggle each value until your reach the maximum profit possible for each entry. Do not worry about your market share percentage or any other value than your net profit. Market share is not crucial for your success in the BSG, but profit is. I recommend having a pen and piece of paper next to you so you can write down your net profit and compare when plugging in different values.

 

Adjusting to Competition

First, click on the “Adjust Competitive Intensity” button that can be found on the top middle of the page. A window should pop up where you can select each of the four regions and change the industry average S/Q rating and competitive impact. Select +2% for the “Percent Change in Competitive Impact of All Other Factors from Previous Year”. Do this for all four regions.

You have successfully adjusted to your competitors. In the first years, the estimate of the industry average might be a little off the +2%. This is because your competitors are adjusting and trying to find their strategy. However, after 3-4 years, your competitors will settle and changes will be more predictable. The two most important values you want to have as precisely estimated as possible are the industry’s average wholesale price and S/Q rating. While +2% might now always be spot on, I have made the best experience with it so far. However, if you want to do it more precisely, note down each industry’s percentage change over the years and use this number instead of the +2%.

After you have done this, you might notice that your “Your Estimate of the Ind. Avg.” values have changed. They have all changed by +2%, just as you plugged it in. However, some values, such as the Wholesale Price have decreased instead of increased. No worries, this is logical and you did nothing wrong. With increased competition, prices tend to decrease.

 

Factors Affecting Wholesale Sales

Let us move on to the tricky part of this decision page. Looking at the North America column, you now have to plug in your values for Wholesale Price, S/Q Rating, Models Available, etc. Start off with the values that you know for sure: For the high quality, low models strategy, I recommend starting off with a S/Q rating of 7 stars and 50 models available. In addition, your Retail Outlets values should always be the highest number possible that you are allowed to enter. Your Delivery Time should be set to 3 weeks. After you have done this, play around with the values for Wholesale Price, Advertising Budget, Rebate Offer, and Retailer Support (increase/decrease by 100s only, as everything else makes no sense). Again, it is important that you keep in mind to optimize your profits. This like a trial and error process and does not necessarily have to make sense. You might have the highest profits with 0 advertising budget. Just plug in numbers and note down your net profit values. The value that yields the highest profit value is the one you want to go with for this decision round. Be cautious though: Do not only look at the percentage change in net profits, but also at the total value as the total value might change sometimes but the percentage change remains the same. I usually go ahead and plug in whole dollar amounts for the wholesale price and see how net profit changes. It typically keeps increasing until a certain price point and then starts to drop. From this highest whole dollar amount, I plug in every possible value around it and find the price that yields the highest net profit. Be careful: Sometimes, especially for advertising, numbers that are way off (for example $100 and $8,000) can yield about the same net profit with only a little difference. Hence, make sure to plug in every possible value to reach the highest net profit possible. Do this for all the four regions. It might be tedious work and consumes a lot of time, but it will definitely worth it and will let you win the BSG.

 

Factors Affecting Internet Sales

After you are done, move on the left side and do the same for your internet sales. Set Models Offered to “50” and Free Shipping to “No”. Free shipping will most likely not increase your profits. Try and set it to “Yes”. If it increases your profits, leave it at “Yes”, otherwise set it to “No”. Your estimate of the industry average for the internet retail price does not change with your adjusted competitive that you set to +2% before. Hence, keep track of the industry’s internet price and how it changes. According to the change, you can estimate the next year’s average industry internet price and plug it in. In the first few years, this will be pretty difficult to determine. However, try your best. The Models Offered estimate seems pretty fair and you do not have to worry about it. Then, just like you did before, plug in different values for your internet price and see, which price yields the highest net profit. However, you should keep on thing in mind: Your internet price should ideally be 40% higher than your wholesale price. If it is lower than 40%, your wholesale price will be in competition with your internet price. This means, you have a channel conflict, meaning that your Retail Outlets number will decrease in the next year and less retailers are willing to sell your shoes. You do not want that to happen, especially because your internet sales only account for a small percentage of your entire sales. Hence, try to keep your internet price at least 40% higher than your wholesale price. You possible might decrease your net profits with this, but it is definitely worth it and will pay off in the long-run.

 

Inventory Clearance

If you have beginning inventory from last year (you did not sell all your shoes), try and use the Inventory Clearance option in the lower half of the page. Sometimes, clearing your beginning inventory at a discount will boost your profits. Again, try out each percentage for each region and set it to the percentage that yields the highest profits. If it is 0%, that is fine as well, do not worry about it.

 

Company Sales Forecast

You are almost done for the Sales Forecast decision page. All you have to do now, is writing down your forecasted Regional Sales Volume for both the Internet Segments and Wholesale Segments in all four regions. You will need those numbers later on.

 

 

Branded Production

Do not worry about the Plant Capacity / Upgrades page. I did not forget it, but we will take a look at it later. On this page, you will set your values for your branded production. This means, you decide about the S/Q Rating of your branded pairs produced and your compensation and training for your employees. Again, maximizing net profit is all you care about with our strategy determined at the beginning. At the lower half of the page, you also determine how many branded pairs you want to manufacture in each region you have a plant.

 

S/Q Rating of Branded Pairs Produced

Here, you will determine the Percentage of Superior Materials, Number of Models, Enhanced Styling / Features, TQM / Six Sigma Quality Program, Change in Annual Base Wages, Incentive Pay, and Best Practices Training. First, set your Number of Models to 50, as determined earlier at the Sales Forecast page. You should pay attention that your S/Q Rating of Branded Pairs Produced matches your value on the Sales Forecast page. So for our strategy, it should be 7 stars at the beginning. Again, trying out different combinations and optimizing net profits is key for these values. Percentage of Superior Materials, Number of Models, Enhanced Styling / Features, TQM / Six Sigma Quality Program, and Best Practices Training all affect the S/Q Rating. So, play around and find the best combination for your given S/Q rating that yields the highest net profit. I usually have the highest net profit when setting Enhanced Styling / Features to $50k, TQM / Six Sigma Quality Program at around $0.70, and Best Practices Training at $5,000. I would then adjust the Percentage of Superior Materials to whatever is needed to match my S/Q Rating with the value plugged in on the Sales Forecast page. However, do not rely on those values. Go ahead and try out which combination yields the highest profits. One time, I was able to increase my net profit by lowering TQM / Six Sigma Quality Program to $0.20 and increasing Percentage of Superior Materials to maintain my S/Q Rating. It is all about trying out all possible combinations. After a couple of decision rounds, you will get a feeling for it and it will become easier, no worries.

The same accounts for your Change in Annual Base Wages and Incentive Pay values. While those two values do not change your S/Q rating, they will change your net profits. Hence, find the combination that gives you the highest profit. Ideally, you can cut your employees’ wages and will increase profit. It sometimes works. If not, see what positive percentage yields the highest profit for you. After you have done this for both the N.A. and A-P plant, focus on your Total Branded Production Needed to Achieve Year XX Sales Forecast section on the lower half of the page.

 

Total Branded Production Needed to Achieve Sales Forecast

You now need the forecasted Regional Sales Volume for both the Internet Segments and Wholesale Segments in all four regions that you wrote down earlier. While your regional sales volume for the internet segment is a good estimate, the estimates for the wholesale segments are not. The BSG tends to underestimate those values by about 20% and hence, you need to correct them for a more precise estimate. The closer your actual numbers are to your estimates, the more likely it will be that you earn bonus points from the Bull’s Eye Award (be within a 5% range of the estimates). So, multiply your sales volume for the wholesale segment for each region by 1.2. This is your new, more precise regional wholesale sales volume. If you happen to end up with a large surplus of shoes the next year, lower your 1.2 multiplier a little bit to 1.18. Again, this can be trial and error for a couple of decisions but you should get a feeling for what multiplier is best for your company. It is definitely around 1.2 though and I recommend starting off with this value. After you have calculated your new regional wholesale sales volume, add the regional internet sales volume to it. Do this for all four regions. You now have an estimate of how many shoes you are going to sell in each region. This can get confusing at the beginning so here is a table to show you the process.

 

 

While you already have a good estimate of how many shoes you are going to sell in each region, you still need to consider your rejected pairs during production. To do so, first plug in your N.A. total sales volume estimate into the Branded Pairs to be Manufactured in Year XX slot for North America, write down your reject rate and add it to your previous total N.A. sales volume estimate. Then, you want to plug in your L.A. total sales volume estimate into the production slot for North America as well and add up your reject rates. You always want to make sure that you produce your sales volume for N.A. and L.A. in North America to reduce costs because of NAFTA. After you have done this, you repeat the same procedure for Europe-Africa and Asia-Pacific with the A-P plant because it is cheapest to ship shoes from A-P to E-A. Write down each region’s reject rates and add them up to the region’s estimates sales volume. After you have calculated the manufacturing volume for each region, add up your N.A. and L.A. volumes and finally plug them into the NA manufacturing slot. Do the same for your E-A and A-P volumes and plug them into the A-P manufacturing slot. Here is a chart again tho show you the process:

 

 

If your regular production capacity is not sufficient, use overtime. If this is still not enough, add the missing shoes to the other plant’s Branded Pairs to be Manufactured in Year XX number. However, if you happen to use overtime at either of the two plants, plan on increasing the plant’s capacity in this decision round. You need the capacity for the private label market. I will explain soon, how to increase plant capacity and why we need the capacity for private label. After you have successfully plugged in your branded pairs that need to be manufactured for both plants, click the “Save Decisions” button and move on to the Branded Distribution page.

 

Branded Distribution

Here, you will plug in your previously calculated regional total sales volume for each region. Important: Your Sales volume, not the production volume that includes the rejected pairs! As already mentioned, it is important that you ship all your shoes for the North American warehouses and the Latin American warehouses from the North American plant. Ship all the other shoes for the Europe-African warehouses and the Asia-Pacific warehouses from the Asian-Pacific plant. If numbers do not add up correctly and your total pairs shipped do not match your total pairs available, go back to the Branded Distribution page and adjust your numbers accordingly. Your numbers might be a little bit off due to the reject rates.

After you have plugged in your numbers for both plants and your Branded Pairs Available for Shipment matches your Total Branded Pairs Shipped from each Plant, go ahead, click the “Save Decisions” button, and move to the Private-Label Operations page.

 

 

Private-Label Operations

Do not worry about me skipping the Internet Marketing, Wholesale Marketing, and Celebrity Endorsements pages. You can ignore the Internet Marketing and Wholesale Marketing pages because they will just reflect your internet and wholesale decisions that you already plugged in on the previous pages. I will talk about the Celebrity Endorsements page later.

The private-label sector is something you do not want to miss out on, especially with our high quality, low models strategy. It can be very beneficial for you. However, the private-label market is set up the way that only a limited demand is given each year. The company that offers the lowest price will sell all its supply first, followed by the company with the second lowest price offered, and so on.

 

Private-Label Production

In the Private-Label Production field, use all your remaining available capacity, even overtime. Now you begin to understand why I earlier said, that if you use overtime for branded production, you should expand your plant capacity for the next year. You need this capacity for the private-label market.

Now, decide to which region you want to ship your private-label shoes. I would look at the Margin Over Direct Costs value at the very bottom of the page to see where it is most profitable to ship your shoes to.

After you have decided to which region to ship your shoes to, go ahead and set your Superior Materials Usage value and your Enhanced Styling / Features value. Similar to the branded production, try out the different values to see which combination will give you the lowest Average Production Cost value for your plant and hence, the highest profits.

When you found the best combination to produce your shoes at the lowest cost possible while meeting the S/Q rating requirement, move to the Private-Label Bids section.

 

Private-Label Bids

Here, you will decide for how much your shoe is going to sell. This can be a very tricky decision and you need to analyze your competitors’ prices. No worries, it will be easier after the first few years. Do not price your shoes too low, so that you will not make any profits with your sales. However, do not price your shoes too high, so that your competitors have a lower price than you and will sell their shoes first. Worst case, all the demand is already satisfied in your region before your shoes at a certain price is being considered. This would leave you with a bunch of shoes unsold. However, when pricing your shoes, keep in mind to set the price at least $5 below the wholesale price average. Otherwise you will not sell any shoe either.

The private-label market is a very nice opportunity to gain an advantage off your competitors and take their market share. Hence, it should be your goal to price your shoes lower than everyone else and take their market share so that other companies will not sell any private-label shoe in this region. However, to be able to do so, you need available capacity. This is why building additional capacity is so important.

After you have found the right price, click the “Save Decisions” button. You are now done with your private-label decisions and all significant decisions that affect your net profits. However, there are still some other “voluntary” decision that will prepare you for future decisions. Let us take a look at the Plant Capacity / Upgrades page first.

 

 

Plant Capacity / Upgrades

This decision page deals with your plants. You can decide to sell or purchase available capacity, upgrade your plants, build new plants in other regions, or add capacity to already existing plants.

 

Capacity Sales / Purchases

Here, you have the opportunity to sell your existing capacity. NEVER do this. You need your capacity and it is never a good idea to sell your existing capacity. By clicking on the “Purchase Capacity” button, you can see whether someone else did the mistake and sold capacity. If you find capacity available for purchase, I would always directly purchase it. Purchasing capacity is 20% cheaper than building new capacity on your own.

 

Plant Upgrade Options

In this section, you can upgrade your plants. One option that you definitely want to purchase is Option C. Option C increases your S/Q rating by 1 star. This means, without increasing your superior material or enhanced styling / features, you gain 1 star. Especially with our high quality and low models strategy, this will be very beneficial and will safe you some money. I would recommend purchasing the upgrade for both of your plants within the first four years. With our strategy, you might want to think about getting Option A as well. However, it is not necessary and Option C is definitely more effective. You can only do one upgrade at a time in each region and a total of two updates per region.

 

Self-Construction of Additional Capacity

In the last section of the Plant Capacity / Upgrades decision page, you can construct a new plant in either of the two regions where you do not have a plant yet or you can build additional capacity to your N.A. or A-P plant. With our strategy in mind, I would recommend addition capacity to already existing plants rather than constructing a plant in a new region. I recommend building additional 1,000 capacity for the North American plant in the first year, if your cash balance allows it. When doing so, you have to plug in numbers for the assumptions section in the new window. Do not worry about those numbers, they will just show you whether your investment is profitable or not. It will be, trust me. You then want to select “0%” as the Portion of the $XX mil. construction cost to be financed with debt. It is best to build only as much capacity as you can afford without taking any loans. Authorize your construction and you save your decisions.

 

 

Celebrity Endorsements

On this decision page, you can bid on celebrities. Celebrities will enhance your marketing efforts and help you sell more shoes. When contracting a celebrity, your advertising efforts in the Sales Forecast section should not be low. It makes sense; the more ads you run, the more your celebrity endorsement will be seen and the more effective it is. The higher your celebrity endorsement value for a specific region, the more your advantage in attracting buyers to purchase your branded footwear. However, keep in mind that your regional endorsement value should not be higher than 400 in any region. Otherwise, their endorsement effect declines.

I have experienced different behavior with bidding on celebrities. I would always encourage you to bid on available celebrities. However, with a reasonable price. I personally would not bid higher than $5,000 – $6,000. If you see little action on the celebrity market, go ahead and get your celebrities for the lowest price possible ($500). If you bid on multiple celebrities, it is good to set a ranking priority and a spending cap so that you do not spend more money than you want or have available. As always, do not forget to save your decisions after you are done.

 

 

Finance & Cash Flow

Almost done, the last decision page. On this screen, you can handle your financial decisions for your company.

 

Sources of Additional Cash

In the upper left box, you have available sources of additional cash. You can either take out a 1-year, 5-year, or 10-year bank loan. Your interest rates depend on your credit rating and the duration of your loan. However, I would recommend not taking out any loan if possible. If you really need money, I would rather advise you to issue some of your stock.

 

Uses for Excess Cash

In the upper right box, you can spend your excessive cash. When starting the BSG, you have two long-term loans; one for 5 years, the other one for 10 years. Paying off these loans in advance has the advantage that you will pay less interest over the coming years.

You can also pay dividends to your shareholders. Paying dividends will increase your stock price and your ROE. However, it will also decrease your ending cash. I started with paying $0.05 dividends and increased it by $0.05 every year. At the end, I increased dividends to boost my ROE.

In addition, you have the option to repurchase your stock. Repurchasing stock will boost both your EPS and ROE. However, it will also decrease your ending cash. It is usually best to repurchase stock at the beginning, when your stock prices are relatively low.

 

 

The Following Years for the BSG

If I have cash available after doing all my decisions, I like to alternate between building additional capacity, purchasing plant upgrades, paying off loans and repurchasing stock in the following years. I prioritize building additional capacity and purchasing plant upgrades. If you have more cash available, go ahead and spend it for either one of the other options. Do not sit on it. However, do not forget to calculate your possible additional expenses for your celebrities. I like to have around $8-10 million ending cash available after all my decisions are made.

Wow, you are done! You are now all set to dominate your industry and win the BSG! You basically do the same thing over and over again, for every decision round. It is important to toggle your values and find the best combination to maximize your net profit. Profit is the key to success in this game! If you reach the last decision round, comment down below and I will give you some hints on how to boost your net profits for the last year and gain some extra points. 😉

 

I wish you the best of luck for your game. If you have any questions, suggestions, or comments feel free to comment and I will do my best to help you out.

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