Decision-making guide

Decision-making guide
Decision-making guide
Decision-making guide
Copyright © 2011 [email protected]
Decision-making guide
Table of Contents
1. About Cesim ................................................................................................................. 1
1.1. General ............................................................................................................. 1
1.2. Cesim products ................................................................................................... 1
1.3. Contact Cesim .................................................................................................... 1
2. Simulation Platform Introduction ...................................................................................... 2
2.1. General User-Interface Options .............................................................................. 2
2.2. Home Page ........................................................................................................ 3
2.3. Decision Checklist ............................................................................................... 4
2.4. Decision Areas ................................................................................................... 5
2.5. Results .............................................................................................................. 7
2.6. Schedule ............................................................................................................ 8
2.7. Teams area ........................................................................................................ 9
2.8. Materials .......................................................................................................... 10
2.9. Forums ............................................................................................................ 11
3. Introduction .............................................................................................................. 12
3.1. Company and operations ................................................................................... 12
3.1.1. Company ............................................................................................. 12
3.1.2. Market Areas and Segments .................................................................... 12
3.1.3. Products .............................................................................................. 12
3.1.4. Distribution Channels ............................................................................ 12
3.2. Demand ......................................................................................................... 12
3.2.1. Total Market Demand ............................................................................ 12
3.2.2. Companies’ market shares ...................................................................... 13
3.3. Winning criterion ............................................................................................ 13
4. Decision making process ............................................................................................. 14
4.1. Decision making flow ...................................................................................... 14
4.2. Practical advice ............................................................................................... 14
5. Decision making sections ............................................................................................ 16
5.1. Market Outlook ............................................................................................... 16
5.2. Products ........................................................................................................ 17
5.2.1. Product portfolio ................................................................................... 17
5.3. Markets ......................................................................................................... 20
5.3.1. Market areas ........................................................................................ 20
5.3.2. Customer care ...................................................................................... 23
5.4. Research and development ................................................................................ 24
5.5. Financial data ................................................................................................. 26
5.6. Market reports ................................................................................................ 27
5.7. Sales management ........................................................................................... 28
5.7.1. Number of sales personnel ...................................................................... 28
5.7.2. Sales management tactics ....................................................................... 29
6. Results ..................................................................................................................... 33
6.1. Summary ....................................................................................................... 33
6.2. Market research reports .................................................................................... 33
6.2.1. Market research reports .......................................................................... 33
6.2.2. Awareness, Intentions and Sales ............................................................... 34
6.3. Income statements ........................................................................................... 34
6.3.1. Product sales ........................................................................................ 34
6.3.2. Repairs sales ........................................................................................ 35
6.3.3. Variable costs ....................................................................................... 35
6.3.4. Administration ...................................................................................... 35
6.3.5. Production line costs .............................................................................. 35
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6.3.6. Advertising ..........................................................................................
6.3.7. Channel investments ..............................................................................
6.3.8. Warranty .............................................................................................
6.3.9. Investment in repair quality .....................................................................
6.3.10. Research and development ....................................................................
6.3.11. Marketing research ..............................................................................
6.3.12. Operating profit ..................................................................................
6.3.13. Interest income ...................................................................................
6.3.14. Interest expenses .................................................................................
6.3.15. Direct Income taxes .............................................................................
6.3.16. Profit for the round ..............................................................................
6.4. Balance Sheet .................................................................................................
6.4.1. Accounts receivable ...............................................................................
6.4.2. Cash and cash equivalents ......................................................................
6.4.3. Share capital ........................................................................................
6.4.4. Profit ..................................................................................................
6.4.5. Loans .................................................................................................
6.4.6. Accounts payable ..................................................................................
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About Cesim
Chapter 1. About Cesim
1.1. General
Cesim provides corporations, universities, and other educational institutions easy-to-use and cost-effective
business simulations that can be integrated in various business courses. Headquartered in Finland since
1996, we operate globally through our own offices and partner network.
1.2. Cesim products
Cesim offers four types of simulations to educational institutions:
• Cesim Global Challenge®
An on-line simulation designed for strategy and international business studies. It develops students'
understanding of the complexity of global business operations in a dynamic, competitive environment.
• SimBrand
An on-line marketing management simulation that develops students' understanding of the marketing
decision-making process as a whole, with particular emphasis on profitability.
• OnService
An on-line services management simulation that helps students to practice and learn service business
success factors in a Small to Medium sized Enterprise (SME) environment.
• Hospitality
An on-line hospitality simulation that helps students to practice and learn about small scale hotel and
restaurant operations.
• SimFirm
An entry level on-line simulation designed to develop understanding on how decisions in different functions of a company attribute to overall success in a competitive, international business environment.
Simulations can be conducted in a few days or over an entire semester. The number of simulation rounds,
schedules, and team structures can be adjusted even after the course has started.
1.3. Contact Cesim
Cesim Oy
Arkadiankatu 21 A
00100 Helsinki
Finland
tel. +358 9 406 660
http://www.cesim.com/
[email protected]
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Simulation Platform Introduction
Chapter 2. Simulation Platform
Introduction
2.1. General User-Interface Options
1. My Info – Through this page, you can personalize your Cesim player account by adding personal data
about yourself, as well as a picture, which will then be shown in various part of the user interface. You
can also change your password here, or even your email. On the bottom of the page, there are two
checkboxes for determining when you wish to receive automated email notifications.
It is highly recommended that all students use valid emails here, as otherwise they could miss important
information during the game. Also, the "Forgot my password" feature works through email, making password recovery impossible through an invalid email address.
2. Support – This is your best way to reach the Cesim Support team, should you run into problems or
issues relating to the game functionality. Please note that for any content related questions, you should
primarily contact your instructor.
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3. Change Language – You will find a list of supported languages for the game here. You can change the
user interface language at any point of the game.
2.2. Home Page
1. Player Information
2. Email function – Use this to easily reach your team members and instructor through emails. An easy to
use checkbox allows you to choose which team members you want to reach.
3. This panel shows all the important on-going data of the course. On the top you see the main indicators of
the last round. Below it, you will find information about round deadlines, forums messages and quizzes.
4. Team Decision Log – This feature allows you to see the decision making actions done by the team
members. Please note the "Show all rounds" and "More" buttons below the panel. By default, you only
see the current round latest decision saving action. Using the additional buttons, you can expand the
panel to show all rounds, and every decision saving action made during any of the rounds. Also note
that decisions made while in the team decision column (more on this in the Decision Checklist part of
the guide) will not be recorded in detail, only as "The team’s decisions were modified by…".
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2.3. Decision Checklist
Cesim simulations offer the user an innovative decision making area, through which the team members
have a high level of control over the decision making process. The "Decision Checklist" is split into two
general sections: The individual "Student Decision Areas", and the "Team Decision Area". Please note, that
once the round deadline has passed, the round results will be calculated only based on the Team Decision
Area. During each round of the game, you can easily identify changes already made by the highlighted
cells on the checklist.
The Decision Checklist offers several tools to manage the decision making process, which are explained
below.
1. Round drop-menu: Use the indicated drop-down menu to select the desired round. You may select
previous rounds in order to review the decisions made during the rounds, however modifications will
be disabled.
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2. The "Go" button allows a player to move to another team member’s decision making area, or the join
team decision making area. Use caution, as any modifications will be automatically recorded on their
respective area. Any modifications made directly in the team decision area will be used as final decisions
when the round ends, if no further actions are taken.
3. The "Copy" button copies a player’s decisions from the student area to the team area. Once copied,
the previous set of decisions cannot be recovered. Decisions can be copied from Student Area to Team
Area as many times as needed, before the round deadline. Please note that if decisions are made directly
into the team decision column, then no additional steps need to be taken, as they will be automatically
used for result calculation when the round ends.
4. The "Import" button, found on top of every decision area, transfers the decisions from the Team- or
Student Area to the importing players own Student Area. Once imported, the original decisions of the
importing player cannot be recovered. The decisions on the player that are being imported from will
not be changed in any way.
5. The budget for the round shows the estimated profits based on the current decisions, as well as the
"change in sales %" comparable to the previous comparable round.
2.4. Decision Areas
The Decision Area is split into several theme based sub-categories (e.g. Demand, Production, etc.). Please
refer to your decision making manual to determine where the decision making process should begin, and
what the suggested order of the process is. Some areas should be filled out first, as the effect of those areas
may influence some calculations and estimates elsewhere.
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The actual decisions are entered into dedicated fields within their respective areas. There are three general
types of decision making fields:
1. In the white cells you enter your decisions.
2. In the highlighted cells , you enter estimates of your sales, personnel turnover and so on. These estimations act as a basis for the budgets shown in the system.
3. Drop-down menus are used in certain decisions where there are some specific options to choose from.
The system automatically updates the budgets and calculations as you make decisions
It is important to note that there are two decision making areas. The first one is the Student Decision Making
Area. Each team member has their own personal decision making area, where they can freely input any
figures they want to see the effects they have on the projected results. The students always start on their
own student area by default, when logging into the game. After satisfactory decisions have been made on
the student area, they can easily be copied over to the second area type, the Team Decision Making Area,
through use of the "Copy" button. Once copied, the decision set will be used to calculate the rounds results.
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Alternatively, decisions can be made directly into the team area. To do this, a team member can move to
the Team Area through use of the "Go" button. Any changes here are automatically recorded, and will be
used to calculate the round results, if no other decisions are copied over. It is important to note that if a
team member’s decisions are copied over the decision set made directly to the Team Area, there is no way
to restore the originals, unless a player has "Imported" the set into their own Student Area.
Once the round deadline is passed, the game will automatically calculate results based on the final decisions
found in the Team Decision Area. Again, be sure to have copied over the decision sets from the student
areas before the deadline, if decisions are not made directly into the team area.
2.5. Results
As mentioned before, the round results are calculated immediately after the deadline passes based on the
decision set on the Team Area. The games also allow you to review the results from previous rounds,
including possible practice rounds, at any given time during the course of the simulation by using the
Results page drop-down menu. You may also utilize some special features, such as downloadable excel
versions of the round results and slideshows of main indicators.
1. The universe drop-down menu lets you choose any universe in the on-going course.
2. Use the Round drop-down menu to choose the desired round results.
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3. Use the "Download" button to download an excel file of the chosen round results.
4. Use the "Slides" button to view a slideshow of the key indicators of the round.
5. Use the "Printable" button to print the round results.
2.6. Schedule
In the schedule section, you can see a list of the amount of rounds that have been set for the course, as well
as the deadlines for each round. In cases where the user’s computer time is different from the system time,
this page will show the deadlines in both user time and the system time set for the course.
The simulation games are often started with practice rounds. Please note that practice round results have
no effect on the results of the real rounds, and are simply used to learn game mechanics and practice
forecasting results. Once the practice round(s) are over, the game will reset to the initial market situation.
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2.7. Teams area
The Teams area allows you to see details about players across all teams in all universes of the course. You
may also edit team information, like team name, slogan and team description.
Team members may also move freely between teams until the deletion of empty teams has occurred, and
the game has officially begun. Click the "Join Team" button to move to a different team. Once empty
teams have been deleted and the game has begun, it is only possible for the instructor to move students
between teams.
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2.8. Materials
This section contains all the documentation that is needed to understand and enjoy the game. The generic
reading materials will include the decision making guide and the case description. Instructors can also
upload custom case specific materials here.
The decision making guide shows you the basics of the simulation, such as user-interface functionality,
how to make the decisions, what should be considered when making decisions, and the general order which
you should begin with each round.
The case description gives information regarding the business case that is being played during the course.
It gives a general understanding of the industry situation, trends in the industry, future challenges. Certain
case specific parameters may also be given in the case description.
In this section, you can also find a video tutorial of the game, if available.
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2.9. Forums
The forums are a great way for the players to contact their instructors or co-players, and vice versa, when
face-to-face contact is not possible. The benefit of forum usage compared to private emails is that it is easy
for everyone with the rights to view the forum to contribute to the discussion.
The forums are split into a Team Forum, and a Course Forum. As the names suggest, in the Team Forum,
only your team members can see the posts and reply to them. The Course Forum on the other hand is
available for everyone on the course to participate in, regardless of team and universe.
Instructors are able to view and reply to forum posts in both sections. As such, the course forum is a good
place to ask questions that everyone on the course can benefit from, while the team forum is the ideal place
to discuss sensitive team related issues.
Unless disabled in the "My Info" section, players will get notified by email whenever something is posted
on their team forum area.
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Introduction
Chapter 3. Introduction
This section introduces the basic information about the company and markets, as well as the factors affecting the demand.
3.1. Company and operations
3.1.1. Company
The simulation game begins by starting the first years of operations in a newly established company. The
product offering consists of smartphones with a variety of features. The products to be sold are ordered from
a production company of the group and thus, actual production decisions are not part of this simulation.
3.1.2. Market Areas and Segments
The company can operate in two markets, for instance, Europe and Asia. The markets are of different size
and have different growth rates. Depending on the case applied to your course, one market can be larger
than the other in the beginning. It is important to identify the underlying sizes and growth rates of markets
in order to time market entries and set marketing effort sizes correctly.
There are four different customer segments in both markets: Households, High-end households, Companies and High-end companies. The segments react in different ways to your actions, that is, they have different sensitivities to price and advertising. Customer segments also appreciate product features differently
and tend to use different distribution channels to purchase products.
3.1.3. Products
The company is able to offer 0-6 differentiated products in both markets. The smartphones have a variety
of attributes, i.e. the levels of compactness and battery life, design, and additional features. With every
product, the team is able to decide whether it will be sold in a single market or in both markets. If a
product is sold in both markets concurrently, economies of scale that are achieved will be reflected in
a somewhat lower unit cost. On the other hand, some compromises might have to be made because of
different sensitivities to product attributes between segments in the markets.
3.1.4. Distribution Channels
The distribution channel usage varies by customer segment. Some segments may prefer to purchase their
products from department stores whereas other segments might favor household appliance stores, depending on the case applied to your course. Careful analysis of the results and marketing research material will
enable you to uncover these underlying preferences and choose the appropriate distribution channels for
each segment.
3.2. Demand
3.2.1. Total Market Demand
The total market size is dependent on the following four factors.
• Market growth rates
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• Average price level in the market
• Average level of advertising
• Number of differentiated products available
The possibility of a single company to affect a market's total demand is minimal compared to the possibility
to affect their own market share.
3.2.2. Companies’ market shares
The market shares are dependent on:
• Relative level of prices
• Relative level of advertising
• Relative level of channel investments
• Product attributes
• Customer care
The decisions of one company affect all the companies’ outcomes in the market. Products that are very
similar decrease each other's market shares. In other words, very similar products cannibalize each other
since they are competing for almost the same customer base. Advertising and channel investment expenditure have a long-term influence on demand, although the degree of the effect decreases by time.
The demand for services is calculated separately from the demand for products. However, the decisions
about customer care affect the demand for products, as well. Therefore, service operations have to be
considered as integrated part of smartphones business.
3.3. Winning criterion
The success of SIMBrand companies is evaluated by the performance in the equity markets. Therefore,
share price at the end of the game is the recommended winning criterion. Share price is, for the most part,
affected by the level of earnings. The detailed calculation of share price is based on discounted cash flow
valuation.
In addition to earnings, other important determinants of the share price are R & D activities and the capability of the management team. Reasonable R & D investments are a signal of favourable growth in the
future. The management's capability is assessed by the long-term performance, that is, the ability to make
sensible decisions in different situations. Therefore, all the rounds have an impact on the share price.
Moreover, the distribution of sales between the segments and markets has a slight effect on the share price.
Strong position in segments or market areas that grow rapidly is accounted positively. However, markets
associated with significant growth potential tend to be riskier because of several uncertainties. To some
degree, the share price is also affected by the marketing communication. Advertising has a long-term effect
on the success as it increases markets' awareness of your products. Similarly, channel investments improve
teams' channel coverage in the long run. Thus, investors tend to favor companies with proper long-term
expenditure on marketing communication.
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Decision making process
Chapter 4. Decision making process
This section discusses the general issues related to the decision making, providing you with the recommended steps of decision making, as well as some practical advice.
4.1. Decision making flow
These instructions will help you as you go through the decision support system for the first time. In the
beginning, it is often recommended to follow the decision making flow presented below. Later on, as you
have learned the basics of the decision making tool, you can make the decisions according to your own
preferences.
Remember that the analysis of previous round’s results is always an integral part of the decision making
process. If you are facing the very first round then please consult the market research report available from
the drop-down menu in the results section. This will be able to give you some hints as to how you should
proceed with your decisions. You are able to find all the results for every round under the Results section.
The results contain a summary report, marketing research reports, income statements and balance sheet.
After analyzing the results, you are able to start making the actual decisions.
1. Review last year's results.
2. Read the market outlook to take into account general economic and industry trends.
3. Decide the number of products offered as well as the product characteristics of every product according
to your marketing strategy.
4. Complete the marketing mix by deciding the price, advertising and channel investments for every product.
5. Make the appropriate decisions regarding customer care, such as warranty period and investment into
repair quality. Additionally, on the projected balance sheet, it is possible to decide the term of payment
in days for your customers.
6. Estimate demand for your product.
7. Invest in research and development to be able to introduce even better products and manufacture them
cost-efficiently in the future.
8. Review budgets periodically to see the effects of your estimates and decisions on the budget.
4.2. Practical advice
We have learned a lot about successful decision making during the past simulation courses. This section
presents a brief summary of best practices that seem to be shared by the best teams in the history. Read
them through and think if your team could benefit from adopting some of these ideas.
• For each round, appoint a project manager who is ultimately responsible for coordinating the team effort
and saving the final decisions. Circulate the role of project manager.
• Concentrate on planning and communication. Each team member can, or course, work independently
but in order to capitalize on the synergies, you must find a way to co-ordinate the efforts.
• Use the communication forums to exchange ideas about your strategy and decisions. The forum will
store your correspondence so that you are able to review later what has been agreed on.
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• Timing is a very important aspect of the team work. Agree on an internal deadline for each round. By
this deadline, all team members will make own decisions and suggestions. Remember also to leave some
slack before the actual decision making deadline in order to compile the decisions properly and save
them. If you work in different time zones, you can use Cesim time to coordinate the schedules.
• Use Decision Checklist to compile the final set of decisions. Here, you are able to see all your team
members' decisions side by side and in addition, you can access each team member's decision making
account. For example, you can use one of the team member's decision sets as a starting point for the
team decisions and make the necessary adjustments directly to this account. Finally, you can edit your
team’s decisions directly in the team’s decision making account.
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Decision making sections
Chapter 5. Decision making sections
This part of the decision making guide follows the suggested decision making flow. Each decision making
section is presented in detail. It might be useful to print at least this section before you start working on
your decisions for the first time.
5.1. Market Outlook
By clicking Market Outlook tab, you are able to access information about market conditions. The section
consists of the following three parts.
1. Market size forecast . Expected growth of demand and the total market size are shown in a graphical
format. There is a separate graph for both market areas.
2. Additional information. Certain parameters, such as administration and production line costs are presented here.
3. Market outlook. Market outlook provides information about the most important events and trends in
the markets.
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Please note that all the information presented on this page is based on forecasts for the year but, in general,
the details tend to be accurate. The market size is impossible to forecast accurately as several factors in
the markets are also affected by companies' actions.
5.2. Products
Product attributes are one of the most important determinants of the demand. Decisions regarding the product portfolio are, however, challenging because different customer segments appreciate product attributes
in different ways. By clicking Products tab, you are able to access a page that contains all the decisions
about product attributes.
5.2.1. Product portfolio
There are six product slots available for each team. The number of products offered is one of the most
important aspects of a successful product portfolio. It is recommended to increase the number of products
in the portfolio gradually as the markets evolve. However, in some situations a more aggressive strategy
might work. Your team's approach to product portfolio size needs to be decided according to the situation
and information at hand and therefore, there is no single best approach. The decision about launching a
new product or cancelling the marketing of an existing one is made simply by using the target market area
tabs. If you have not activated any markets, the product will not be marketed at all. DISABLED indicates
an inactive product.
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1. Product markets
For active products, the target market area has to be chosen carefully. The target market is decided
by clicking the respective market. Please, note that you can market the product in both markets by
selecting both market areas. Additionally, you may decide a name for each active product freely in
order to identify them more easily.
2. Product upgrade
You do not have to update the products every round. Please note that when products are updated production line costs will be incurred. If you are satisfied with certain products that were offered during
the previous period, it is recommended to keep the product attributes unchanged. Then, the production
entity is able to continue the production without any adjustments to the production processes. As a
result, the production line cost will not be incurred. The decision about product upgrade is made by
clicking New.
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3. Design
The design does not affect costs. However, design has an important role in product differentiation as
the tastes of customer segments differ from each other. Therefore, review the results carefully after
each round and try to figure out the latest trends. You are able to decide between the following three
alternatives.
• Classic
• Avant Garde
• Sport
The decision is made by clicking the Design tabs.
4. Additional features
You are able to choose between the following five additional features.
• Photo/Video
• Extra memory
• Premium display
• Navigation
• Security
Decisions about additional features are made by clicking the Feature icons. Selected features are clearly
highlighted. Additional features affect both the demand and unit cost of a product. The features do
not exclude each other and it is possible to build a product with all five additional features. However,
additional features may affect the possibility to implement compactness and battery life.
5. Compactness and battery life
Different customer segments appreciate product attributes in different ways. However, it is safe to say
that, ceteris paribus, all segments prefer products with greater compactness and battery life. On the other
hand, the better the compactness and battery life the higher the unit cost will be. Therefore, the idea is
to find a balance between the combination of compactness and battery life and the appropriate unit cost.
The compactness and battery life of the product can be set up to a maximum level dictated by the competence of the company. This is indicated by the competence indices. The initial level of competence
indices is 100 for both compactness and battery life. Index figures beyond 100 represent smaller phones
with longer battery life. By investing in research and development, companies are able to launch products with compactness and battery life beyond 100.
Decisions about compactness and battery life are made by using the corresponding decision cells.
6. Capability usage
Trade-offs are present in the planning of a product. Each of the features affect the stand-by time of
the smartphone. As a result, the maximum battery life that can be implemented in a product decreases from the company's competence index as you add more features. Moreover, each feature requires
specific components and affects the complexity of required technology. Therefore, also the maximum
available compactness decreases from the company's compactness competence every time you decide
to implement a new feature.
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Capability usage indicator and a figure between 0 % and 100 % show the current level of capability
implementation as a proportion of theoretical maximum. If the capability usage index is close to 100
and you want to add a new feature, you have to decrease the battery life or compactness in order to be
able to implement new features. Alternatively, you might have to remove certain additional features.
The system calculates the capability usage index continuously and does not allow decisions that would
result in unachievable capability usage.
7. Unit cost
Unit cost of products is affected by your choice of battery-life and compactness compared to you maximum ability, chosen product features, economies of scale and forecasting accuracy.
5.3. Markets
After designing a product portfolio, it is recommended to continue with the marketing communication
strategy. By clicking Markets tab, you are able to access the marketing communication and pricing decisions. Decisions regarding the two markets and customer care are made on separate sheets.
5.3.1. Market areas
Decisions for the separate market areas are developed in a similar way. Please, remember that pricing,
forecasting and decisions about advertising and channel investments are made separately for each active
product.
The left side of the page provides you with useful information. In addition, this part of the page contains
several buttons that allow for navigation between products, as well as graphs.
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A. Product menu. The menu depicts your complete product portfolio for the corresponding market area.
By selecting a product, you are able to access the product specific marketing decisions.
B. Product information. The most important information about product attributes is presented here. The
system updates the information automatically as you navigate between the products.
C. Charts. To support the decision making, SIMBrand system provides you with useful information in
graphical format. Navigation between the charts is done by using the buttons below the chart window.
D. Product specific decisions. This section consists of product specific decisions and forecasts. The decisions are discussed in detail below.
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1. Pricing. The company is able to set the prices for all its products in both market areas. Therefore,
the same product can be sold at different price in different markets. Price sensitivities are different in
different markets and segments.
2. Sales forecast. Sales forecast is actually an estimate rather than an actual decision. Sales forecast is
especially important for budgeting purposes. The more accurately you are able to estimate the actual
demand, the better is your standpoint for making the other decisions.
In addition to the role of an estimate, the sales forecast has a slight effect on products’ unit cost. This
is attributable to the fact that the sales forecasts are also a basis for the order made to the production
company. Naturally, the production company adjusts their production to match the demand. However,
the more the actual demand differs from the forecasted market size, the more the unit cost increases
as a result of last minute adjustments.
3. Advertising. The company sets a budget for its advertising for every market, product and segment. A
part of advertising set to a segment will always spill to other segments. Advertising is a type of pull
marketing directly aimed at end customers. Advertising expenditure has a long-term effect on demand.
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When making advertising decisions, you should look at the sales margin that you are expected to generate for the product in a specific market.
4. Channel investments. Channel investments are allocated among the three available distribution channels
in case of every product.
• Specialty stores
• Household appliance stores
• Department stores
Channel investments are an example of push marketing, being directed at the distribution channels
to achieve a broader store coverage and a higher selling motivation. Comparable to advertising, also
channel investments have a long-term impact on demand.
5.3.2. Customer care
Customer care is formulated through decisions about extended warranty, investments in repair quality, and
pricing of repairs. Access the customer care by clicking Customer care located below the main menu.
1. Extended warranty. Extended warranty has a positive impact on demand. On the other hand, extended
warranty results in higher costs during the current period and in future periods, as well. A longer war-
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ranty period will also affect repair sales negatively since more and more repairs fall under the extended warranty. Please, note that companies have a certain product liability based on national laws and
international conventions and as a result, even with no extended warranty period, you are expected to
incur some warranty costs.
The system automatically calculates the present value of all future warranty costs for every active product. In addition, the total warranty costs are reported for this and previous period. Total warranty costs
are affected by actions in the previous rounds.
2. Investment in Repair Quality. Investment in repair quality affects positively the demand for the repairs.
It has also a minor impact on the demand for the products. Most of the impact emerges in the round the
decision is made for, but the long term impact lasts for a few rounds decreasing gradually along the time.
3. Repairs. Here we mean those repairs that fall outside of the customer warranty and can be charged
money for. In case of repairs, you are expected to decide the pricing and estimate the sales. The repairs
are outsourced to the production entity of the group and as a result, the pricing is decided as a margin.
As a result, the final price to customers is discovered by adding the margin to the costs incurred by
the production company.
Besides pricing, repair quality and company’s competence indices affect the demand for other repairs.
Moreover, customers prefer services provided by the actual smartphone manufacturer. Thus, the total
number of smartphone sold has an impact on the demand for services. Finally, the decision about extended warranty affects the demand for repairs to some degree. The longer the warranty period, the
more the warranty repairs replace the sales of repairs.
The players should be able to estimate the impact of a longer warranty period, decrease in investment
into repair quality etc. when estimating the future demand for repairs. Total market size estimates (graph
on the right) are always calculated as total nr of teams multiplied by the base demand. Depending on
the pricing etc. decisions in relation to other teams, the actual proportion of demand for a given team
will vary. If every team had similar decisions, the demand for one team would be equal to the total
market demand divided by the nr of teams.
5.4. Research and development
Research and development has an important role in this simulation. Decisions regarding the R&D function
are made under R&D tab.
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1. Cumulative expenditure. The chart presents the cumulative expenditure on research and development.
In addition, you are able to review the investments made in the previous period.
2. Decide the R&D investment for this period. Allocate funds to R&D by using the decision cells here.
By investing in R&D, compactness and battery life indices can be increased. The funds allocated will
reap profits with a delay because the improvements will be available for the production lines during the
following period, that is, the investments affect next round's competence indices.
3. Change in competence indices. The chart on right side of the page shows the increase in both competence indices, that is, compactness and battery life.
In addition to this period’s R&D investments, the competence indices are affected by the following two
factors.
• Company specific competence indices in the previous period. Development results in improvements
gradually. Therefore, the year-on-year increase in competence indices is somewhat limited and, to large
extent, the competencies in the previous period dictate this period’s index levels.
• The average competence level in the markets. It is always less costly to develop competence that already
exists in the market than to develop something that does not yet exist.
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Research and development investments are very strategic in nature and it is difficult to apply any exact
investment calculation method. Even at best, the calculations include heavy assumptions and uncertainties.
However, at least when considering R&D investments, you should think the amount of products that you
have to sell in order to recover the money being spent on development.
You should always plan your research and development investments carefully. It is easy to lose substantial
amounts of money with careless research and development expenditure.
5.5. Financial data
Budgeted financial reports can be found by clicking the dedicated income statement, balance sheet and
ratios tabs at the bottom of the page. In addition to financial information, the term of payment is decided in
this part of the decision making tool. The decision is made on the Balance Sheet page. The decided term of
payment is applicable to all customer segments and market areas. The decision is made in days using the
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cell next to the budgeted balance sheet. A longer collection period has a small positive effect on demand
but, at the same time, it also increases the amount of accounts receivable.
5.6. Market reports
Market Reports can be found by clicking the dedicated segment tabs at the bottom of the page. Again,
market reports update continuously as you make decisions. The reports are mostly based on your own
decisions and estimates. Most importantly, market reports provide the decision making with alternative
perspectives.
Segment reports provide information about forecasted sales and margins in case of each segment in both
markets. The four pages named after segments show detailed information about the margins and sales you
have forecasted. All Segments page shows a summary of all the necessary information.
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5.7. Sales management
This decision making-guide explains the most important aspects of the Sales management module. When
the module is on, there will be an additional "Sales management" -tab under the "Decisions"-tab.
5.7.1. Number of sales personnel
Sales management has an important role in this simulation. The first decision is to assign sales representatives for each product. As products have unique customers that prefer different sales channels, the players
should adjust their personnel allocation accordingly. On the bottom of the screen the player chooses the
desired number of sales personnel for each product and sales channel. The associated salary cost is shown
next to the personnel decision.
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5.7.2. Sales management tactics
The sales management decisions that affect the efficiency of your sales force are located under the Sales
management tab. Sales management includes three different parts that the player has to consider: Planning,
HR development and Compensation. Sales management decisions are common for all sales personnel
unless otherwise specified.
1. Planning
In the Planning page the player decides about sales development investments and what kind of training
is available for their sales personnel. Good development and training decisions increase the skills of the
sales force. The estimated cost of development and training investments are shown on the left side of the
decisions. Moreover, estimated costs can vary throughout the simulation as the size of the organization
changes. As the companies grow, it is important to keep the processes up to date. This can be done by
changing the amount of money dedicated annually to Process management investments.
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2. HR development
In the HR development tab the player decides how the company's management will allocate their time
and what kind of sales styles are preferred. The decisions are given as a percentage of the total working
time spent and sum up to 100%. The recognition panel at the bottom of the screen allows the player to
give individual recognitions to the best teams and employees.
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3. Compensation
Compensation tab allows the player to set the desired level of total compensation for the employees. The
top of the screen shows total compensation levels. Total compensation is shown separately for educated
and uneducated employees for both markets. Additionally, the player is provided with information on
last round salary levels on the market and this should be used as guidance to attract and keep the best
sales personnel.
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The bottom of the screen presents decisions for sales personnel background and estimated calculation
for the total cost of the sales management. Background of sales personnel can be planned in Sales force
background panel. Total number of sales personnel section shows distribution of all sales people by
market and education. The distribution of educated and uneducated sales personnel is determined by
the decision in the Sales force background panel. The number of people leaving the company is affected
by the company's salary level, and also by the level of sales support personnel receive. The player
estimates the resignation percentage for this round, after which expected number of employees to be
recruited and/or laid off during this round will be shown. The player may need to both recruit and lay
off employees simultaneously if the need for e.g. educated employees is increased. Finally, the total
estimated cost of the sales management is shown in the last row.
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Results
Chapter 6. Results
This part of the guide focuses on explaining the most important content of various result reports. The
following presentation is divided into paragraphs according to the report structure. Of course, new results
become available after the decision making deadline for a round.
6.1. Summary
A set of financial highlights has been selected to give the participants a quick overview of the performance.
The calculation of financial ratios is based on the following well-known equations.
Gross profit
Gross profit, % =
Total sales
Operating profit
Operating profit, % =
Total sales
Net income
Return on sales, % =
Total sales
Summary provides the participants with information about companies’ competence indices. As discussed
above, investments in research and development affect the competence indices with a delay of one period.
Therefore, both last round’s and next round’s competence indices are shown.
6.2. Market research reports
6.2.1. Market research reports
Market research reports outline the performance in each geographic area in terms of sales and product
characteristics. In addition, graphical presentation of linkages between product awareness, buying intentions and final sales is offered.
The following product-level details are presented in these reports.
• Price.
• Sales. Sales are shown in thousands of units. In addition to total sales, the composition of sales by
segment is presented. Please, remember that high amount of sold products does not necessarily imply
high performance. Proper pricing is also required.
• Market share. Products’ market share among each segment, as well as the total market share, is presented.
• Product characteristics. Detailed information about product attributes enables you to analyze the key
success factors with each segment and target market area.
• Variable unit cost. The actual variable unit cost is also presented.
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The market research report can be adjusted according to your requirements by using the filtering tools on
the first market report page.
6.2.2. Awareness, Intentions and Sales
6.2.2.1. Awareness/Sales
The sales figure is the actual sales figure (or demand as they are equivalents). Awareness is measured and
portrayed on the same scale meaning one point of awareness is one person aware of the product.
The ratio is affected by advertising. On average, awareness is about 5 times the sales. Awareness is affected
by the same advertising efforts that are used to calculate the actual demand for products. The higher the
figure is, the more likely it is that the marginal benefit of advertising is negative. There is no optimal
position in the chart.
6.2.2.2. Intentions/Sales
Intentions are measured and portrayed on the same scale as sales meaning one point of intentions means
that there is one person who intends to buy a product.
The intentions/sales ratio is affected by channel investments. On average intentions are 12 per cent higher
than sales meaning there are more of those who eventually do not buy the device than those who intended to buy something else. Intentions are affected by all the same decisions as sales except for channel
investments. So intentions are kind of demand and the channel investments make the demand to actualize
as sales. The lower the channel investments are, the higher the intentions to sales ratio is. The higher the
intentions to sales ratio is, the more likely it is that the marginal benefit of channel investment is positive.
Sales can exceed intentions in case the product’s channel investments are high and other demand generated
products are not well available in the channels due to the competitors’ low channel investments. There is
no optimal position in the chart.
6.3. Income statements
There are three different income statements: one for each market area and one for combined results. The pro
forma reports, called "Income statement, Market 1" and "Income statement, Market 2" provide information
about financial performance in each geographical area separately. "Income statement, Total" on the other
hand depicts the group-level performance with both geographical areas combined. Pro forma reports on
individual markets provide the participants with complementary details and therefore, actual group-level
performance is not necessarily directly observable from them. For example, certain group-level expenses
are not allocated to market areas at all and as a result, shown only on the official income statement. The
following section presents the reported income statement items.
6.3.1. Product sales
Product sales show the company’s total sales revenue from smartphone markets. As smartphones are by
far the most important source of revenue, this item is a direct indicator of company size. Pricing and positioning are the main factors influencing the product sales. In general, also greater advertising expenditure
and channel investments result in larger sales.
There are different strategies in the simulation. Firstly, volume-directed strategy, based on economies of
scale in the production, enable lower pricing. Companies selecting this strategic approach believe that low
price is completely offset by high sales volume and as a result, satisfactory profitability can be achieved.
On the other hand, companies might also select premium-pricing that is based on the launching of new
and advanced products with modern characteristics. Despite relatively low sales volume, higher price level
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covers the high production costs. Which of these two strategies is better, or any intermediate strategy in
between, depends on the implementation of the strategy and the development of the markets. Especially
the relative sizes of segments having different price sensitivities are important determinants of strategies'
success.
6.3.2. Repairs sales
Extended warranty and other product support services are included in customer care in this simulation
game. Warranty services result only in expenses. However, customers have to pay for repairs that are
not covered by the warranty and therefore, these services generate revenue. The revenue from repairs,
however, forms a small proportion of companies’ total sales. Repairs are clearly non-core operations and
as a result, the success in them solely is not enough for the best companies in the markets.
6.3.3. Variable costs
Variable production costs of smartphones, called unit costs for each product, form the majority of total
variable costs. The decision-making tool automatically calculates the unit cost estimates shown. Unit costs
are subject to economies of scale, that is, the larger the volumes of production for a product, the smaller
the unit cost. Therefore, companies might benefit if the same product can be sold in both markets. In the
calculation of unit cost estimate, sales forecasts are used as a basis of scale economies adjustment. The sales
are also a basis for the order made to the production company. In the end, the production company adjusts
their production to match the total demand but the more the actual demand differs from the sales forecasts,
the more the unit cost increases as a result of last-minute volume adjustments by the production company.
The order amount of a product is simply the sum of forecasted sales for every segment in both markets.
It should be noted that the effect of poor forecasts on unit cost is not very dramatic, a few percentage
points at most.
In addition, companies incur costs related to repairs. As discussed above, repairs are outsourced to the
production company of the group. These outsourcing costs are directly shown as variable costs.
6.3.4. Administration
Presence in a market area creates fixed administration costs, a constant amount per market area. Furthermore, additional fixed costs depend on the number of products offered in a market, a constant amount
for each product. In short, the more products you offer in a market area, the more administration costs
you incur.
6.3.5. Production line costs
Launching a new product and altering an existing product require certain adjustments to the manufacturing
facilities and production processes. These adjustments result in certain fixed costs that are called production
line costs in this simulation. You are able to avoid these costs by keeping the product attributes unchanged
from the previous period. Therefore, long-term plans regarding product portfolio often help companies
to save money.
6.3.6. Advertising
Advertising expenditure is completely under the management's control through decisions. The amount
spent on advertising should be in line with the sales volume and gross profit. A useful rule-of-thumb is,
for example, the following.
Advertising budget = Unit margin before advertising x Total unit sales x Estimated advertising elasticity
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If, for example, advertising elasticity ranges between 0.1 and 0.3 depending on segment and market area,
a reasonable amount spent on advertising should be on average 10-30 % of the product’s contribution
margin. Nevertheless, also alternative strategies might result in favourable results depending on the market development. For example, successful companies might have chosen an aggressive strategy and use
relatively large investment-like advertising efforts when launching new products. This helps to create a
positive product image to customers, and has a long-term effect. Despite the long-term impact, all advertising expenses are expensed during the period when the investment is made.
6.3.7. Channel investments
In addition to advertising, channel investments are also completely under the management’s control
through decisions. The channel investments should be in line with the chosen strategy and management’s
vision. Despite the fact that channel investments have a long-term impact on demand, following the prudent accounting policies, the investments are completely expensed during the period when they are made.
6.3.8. Warranty
Extended warranty results in repairs and product replacements during the warranty period because all the
products cannot be flawless. Please, note that companies have a certain product liability based on national
laws and international conventions and as a result, even with no extended warranty, companies are expected
to incur some warranty costs. Depending on the length of warranty period offered in the past, previous
rounds’ sales affect the warranty costs. The warranty costs are generally insignificant compared to the total
costs from core operations and therefore, the company has decided not to make any provisions based on
the expected future warranty costs, and expenses only costs realized during the current round.
6.3.9. Investment in repair quality
Investment in repair quality is also completely under the management’s control through decisions. As
discussed above, the investment affects positively the demand for repairs and products. The latter effect
is, however, relatively small.
6.3.10. Research and development
In this simulation, all research and development costs are expensed against profit in the year the investments are made. Even though R&D is a long-term investment in nature, it is also a risky one with an
uncertain payback. Following a conservative approach in accounting, the company has decided to expense
the investments immediately. As a consequence, profit for the year may fluctuate depending on the intensiveness of research and development.
6.3.11. Marketing research
This is a fixed cost that cannot be avoided. Companies are committed to incurring this cost in order to
receive the market research reports.
6.3.12. Operating profit
Operating profit, or earnings before interest and taxes (EBIT), indicates the company's operating efficiency.
Generally, a team that has the highest operating profit relative to the capital employed performs the best
in the simulation game. However, it should be noted that in the short run, that is, one or two periods,
differences in marketing and research and development expenditure affect the operating profit a great
deal. Normally, the fluctuations caused by these factors tend to smooth towards the end of the game as
companies become more mature.
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6.3.13. Interest income
Companies earn interest income on cash and bank receivables.
6.3.14. Interest expenses
Debt capital, that is, loans from financial institutions result in annual interest payments. Interest rate on
loans affects directly the interest payments and the prevailing rate is visible on the market outlook page.
6.3.15. Direct Income taxes
Multinational companies are usually subject to several tax codes and rates. In general, several countries tax
the companies based on the operations located inside their borders. Naturally, in reality, international conventions and general principle of avoiding double taxation increase the complexity. SIMBrand, however,
is a marketing simulation, and we have decided that only group-level earnings are subject to taxation at a
single tax rate. This simplifies the financial reporting. Moreover, certain decisions that have been found
difficult to understand, for example transfer pricing, are not required.
Another factor that affects the income taxes is tax loss carry-forwards. This means that if a company has
been making losses in previous years, it will only pay taxes after reaching a positive level of cumulative
profits.
6.3.16. Profit for the round
Profit for the round is calculated by subtracting net financing expenses and income taxes from operating
profit.
6.4. Balance Sheet
One of the financial reports is a consolidated balance sheet that combines the information from both market
areas. Balance sheet enables the participants to observe companies’ solvency and the development of
capital structure. Because of simplified financial reporting applied in this marketing simulation, only the
most important items are presented without providing any unnecessary details.
6.4.1. Accounts receivable
In short, on a company's balance sheet, accounts receivable is the amount that customers owe the company.
Sometimes called trade receivables, they are classified as current assets. To record a journal entry for a
sale on account, one must debit a receivable and credit a revenue account. Companies are able to affect
the item by adjusting the term of payment.
6.4.2. Cash and cash equivalents
Cash and cash equivalents define the company's liquidity. The company carries at least a minimum level
of cash on the balance sheet at all times. Companies earn interest income on these liquid funds. Interest
rate is the same for all the companies in the markets.
6.4.3. Share capital
The amount of share capital the companies report on their balance sheets only accounts for the initial
amount for which the original shareholders purchased the shares from the issuing company. Obviously,
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any price differences arising from price appreciation or depreciation in the secondary markets, that is,
share price movements, are not included. The number of shares is fixed in this simulation and therefore,
the share capital will remain unchanged during the whole simulation.
6.4.4. Profit
Profit is simply the bottom line in the same period's income statement. High profit, in turn, is a sign of
short-term profitability.
6.4.5. Loans
The system will automatically raise loans to sustain the liquidity and strengthen the financial position if
cash inflows from operations are weak. Naturally, these liabilities are interest-bearing.
6.4.6. Accounts payable
Accounts payable is a file or account that shows the amount of money that a company owes to suppliers.
All the companies make their purchases according to the same terms.
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