Background
With the creation of a platform for integrating key performance indicators into a system which uses the impact of different choices of investments on company cash flow, (KPI), Ibis has now created a fictional market in which four companies compete and decide on investments. The game is designed to demonstrate the major elements of business planning, by focussing on:
Basic introduction to strategy
Forecasting
Cash flow
KPI
Balanced scorecard
Benchmarks
Planning horizon
Investment appraisal
Contingency planning
Prioritisation
Presentation skills
Core to the design of the game is to provide participants with business planning skills that they can take into real life business planning, in an environment that is speeded up to show the consequences of certain decisions. Many of the components of the planning process are central to the business
planning standard operating procedure (SOP).
Each game period takes each of the four competing companies forward one year, though the planning horizon each works on is set at three periods. The market is driven by the actions of the companies within it so competitive activity will considerably change the market environment and macro-economic changes which can be altered by the moderators. The resulting inter-relationships are quite complex and no two games have yet yielded the same end results. At the end of each period the participants are provided with a print out which provides information on their current position.
The winner is measured on the overall CFROI during the entire game period as each company is of differing sizes this provides the best measure of success. Companies can go bankrupt; and indeed have done so!
The market
The business universe within which the game is set is the itgit market. The itgit is a technological device which was invented by government laboratories in the technically advanced central European country of Ruritania. The itgit provides a stand alone device which has both business and consumer applications, but is also incorporated in other equipment, which are produced by OEM manufacturers.
The market has grown rapidly but is now entering a period of relative stability; there are numerous opportunities for market penetration, international development and product development as well as addressing the cost base of the companies which have grown significantly over the period of growth. Price elasticity is similar to many other electronic products, and there has been relatively little advertising since the product introduction. More details of the market are provided to game participants prior to the start, along with three years of prior key performance indicators.
There are risks inherent in the market, such as the possibility of international company entry and changes in health and safety legislation. Such changes, where relevant will be included in the period briefing documents to the game participants.
There are four different companies operating in the market:
Alpha the market leader
Beta the market follower
Gamma the market specialist
Delta the OEM supplier
Each company at the start of the game have some operations within the market sectors occupied by the other, and one of the strategic decisions that is central to the game is whether to continue this broad spread of market activity or to focus into those sectors in which they can achieve competitive advantage. The strategic choices are most complex for Beta reflecting the normal problems of market followers in most sectors.
The playing teams take charge of one of these companies. They each have different operating characteristics and face different problems in moving forward. Each of these companies has raised significant quantities of cash during their IPO phase and it is this cash reserve which is all the finance available during the game. All companies are currently cash positive as well though detailed background material is provided to each participant.
The basic management team consists of four areas of responsibility:
Chief executive
Finance
Marketing and Sales
Production
The business monitoring system built into the game is that which is central to the standard Ibis business monitoring approach (Business monitoring).
The investment options
There are a wide number of investment options available to the companies. They can be summarised under seven main headings:
Maintenance
Health and safety
Withdrawal
Consolidation
Market penetration
Market development
Product development
There are no possibilities for diversification or acquisition.
Within each category there are a number of separate options at present there are 28 available, but this continues to expand. Each of these has differing rates of return over a three year time period the planning horizon. The participants are provided with basic information on the main options open to them, but can opt to buy additional market research though this will delay any revenue stream that they are considering investing in.
Some of these options have fixed investment and return patterns. For example, the creation of an e-commerce platform has a fixed investment cost and a fixed cost reduction effect which differs for each company. By contrast, increases in advertising and promotion spend are subject to step effects. There is a minimum amount of investment required for the option, but then returns increase with each step of investment up to an upper limit which is defined by the game, but is unknown to the participants. The total effective number of options for each company in each game period is around 500 implying a total possible interaction within the market of more than 1010 options for the overall game.
Most options have a positive as well as a negative effect on the balanced scorecard. An example is that of outsourcing. While all of the options reduce the cost base of the operation, some have a major deleterious effect on customer satisfaction and skills levels within the organisation. Such planning constraints exist within the game to mirror the real world environment.
Powers of the moderator
The moderator has powers to fine companies for specific transgressions the most serious of which is anti-competitive behaviour. The moderator will also levy additional charges where the company management has made an unconvincing argument for a particular course of action, or does not agree as a team on an investment plan. The moderator can also change the macro-environmental conditions and if required the competitive environment with the introduction of Epsilon, a foreign competitor.
Starting the game
Each team receives a briefing document with three years past performance, past investment policies, a detailed analysis of future investment opportunities, the current balanced scorecard for each company and existing benchmarks. The team then works on a three year forecast integrating different investment policies, reviewing strategy, and prioritising investments against the new balanced scorecard.
The management team is then required to present their first plan to the moderator(s) acting as external stakeholders/ investors. There is a standard presentation framework which includes an investment summary (investment summary) and business plan outline (business plan outline), together with cash flow forecast templates.
The plan is then implemented followed by a number of other cycles. At each stage the company team receives the new print out of their current position. The management team then present their new plan using standard presentation material including success and failure comments, and revising the three year plan on a rolling basis.
Generally, the standard number of cycles (or years) is six but the value of the game can be seen in shorter or longer periods.
Ibis supervises at present
Until the game has been programmed as a stand- alone system, Ibis supervise and provide background material.
19 March 2007 15:27:48
