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INTRODUCTION TO ROUND RED

Gavin Fraser
Consultant
Blue Ocean Strategy Initiative Centre

Dr Rémi Triolet
Simulation Expert
StratX

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Table of Content

1 Your Role during Round Red ______________________________________________________ 1


2 Understanding your Annual Report _________________________________________________ 2
2.1 Company Scores ____________________________________________________________ 2
2.2 Profit & Loss Statement _______________________________________________________ 2
2.3 Profit & Loss Statement by Country _____________________________________________ 3
2.4 Production Report ___________________________________________________________ 3
2.5 Feedback Messages __________________________________________________________ 4
3 Understanding Market Studies ____________________________________________________ 5
3.1 Company Key Performance Indicators ___________________________________________ 5
3.2 Offering Characteristics _______________________________________________________ 6
3.3 Benchmarking ______________________________________________________________ 6
3.4 Customer preferences ________________________________________________________ 7
3.5 Sales and market shares ______________________________________________________ 7
3.6 Market forecast _____________________________________________________________ 7
4 Read Guides ___________________________________________________________________ 9
5 Making Decisions ______________________________________________________________ 10
5.1 Red Ocean decision form _____________________________________________________ 10
5.2 Product upgrade decision ____________________________________________________ 11
5.3 Production plan decision _____________________________________________________ 11
5.4 Pricing ___________________________________________________________________ 11
5.5 Marketing budget and segmentation strategy ____________________________________ 12
5.6 Geographical expansion and distribution coverage ________________________________ 12
5.7 Corporate projects decision___________________________________________________ 13
5.8 Finance ___________________________________________________________________ 14
5.9 Checking your decisions _____________________________________________________ 14
6 Description of Corporate Projects _________________________________________________ 15
6.1 A. Relocation Manufacturing to a Low Labor Cost Country __________________________ 15
6.2 B. Process Re-engineering (6 Sigma) ____________________________________________ 15
6.3 C. Restructuring for Cost Reduction (Making Employees Redundant) __________________ 15
6.4 D. Acquisition to Access R&D Technology ________________________________________ 15
6.5 E. New Appraisal and Reward System for Employees _______________________________ 15
6.6 F. Comprehensive New IT System ______________________________________________ 15
6.7 G. Leadership Development __________________________________________________ 16
6.8 H. Training Selected Employees in Project Management ____________________________ 16
6.9 I. Restructuring for effectiveness (No Redundancies, Just Changes in Responsibility) ______ 16
6.10 J. Campaign for Internal Cost Consciousness _____________________________________ 16
6.11 K. Time Management Training for all Managers ___________________________________ 17
6.12 L. Recruiting Highly Qualified People to Stimulate Strategic Thinking __________________ 17
6.13 M. Suggestion Scheme for ‘Bottom Up’ Improvement ______________________________ 17
6.14 N. Radically upgrading Leadership and Service in the Customer Contact Centre _________ 17
6.15 O. Culture Change Project ____________________________________________________ 17

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6.16 P. Hiring Expert Trainers to Train Distributors’ Salespeople __________________________ 18
6.17 Q. Hiring the Top Team from a Regional Specialist Luxury Goods Retailer _______________ 18
6.18 R. Hiring a Team Experienced in Developing and Managing a Fast Food Franchise ________ 18
6.19 Cost and Availability of Corporate Projects _______________________________________ 19

Table of Figures

Figure 1 – Annual Report – Sample P&L Statement _____________________________________ 2


Figure 2 – Annual Report – Sample P&L Statement by Country ____________________________ 3
Figure 3 – Annual Report – Sample Production Report ___________________________________ 3
Figure 4 – Annual Report – Sample Feedback Messages _________________________________ 4
Figure 5 – Market Studies – Sample Company Key Performance Indicators __________________ 5
Figure 6 – Market Studies – Sample Offering Characteristics Chart _________________________ 6
Figure 7 – Market Studies – Sample Benchmarking Chart ________________________________ 6
Figure 8 – Market Studies – Sample Customer Preferences chart __________________________ 7
Figure 9 – Market Studies – Sample Sales & Market Shares Chart __________________________ 8
Figure 10 – Market Studies – Sample Market Forecast Chart ______________________________ 8
Figure 11 – Red Ocean Decision Form _______________________________________________ 10
Figure 12 – Product Upgrade form _________________________________________________ 11
Figure 13 – Corporate Projects Decision Form ________________________________________ 13
Figure 14 – Sample Budget Form ___________________________________________________ 14
Figure 15 – Sample Errors, Warnings & Highlights Form _________________________________ 14
Figure 16 – Cost and Availability of Corporate Projects _________________________________ 19

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1 Your Role during Round Red
You and your teammates are now managing Blue Buddies. We are January 1st, Year 41
of the video game console era, as shown below:

You need to make strategic decisions regarding how much to produce, how much to spend and how to
target your investments in Marketing and in Sales. You will also be allowed to innovate and upgrade your
existing product in order to better serve your customers. You are also allowed to select from a range of
Corporate Projects which can really impact your financial performance. The investment categories
requiring strategic decisions are thus:
 Innovation and R&D: The level of investment is determined by the extent of product development you
specify, and upon which product dimensions
 Production: The number of units needed to be produced each year, taking into account the evolution of
the market, the moves of your competitors as well as you own plan of actions
 Segmentation Strategy: Deciding which market segments you will target
 Marketing mix: The day-to-day operational marketing decisions such as your product’s price, how much
you will spend on marketing communication/promotion and how much you will invest in geographic
expansion and on which channels you will focus your sales force.
 Corporate Projects: Investment in internal projects aimed at improving the organization’s capabilities,
which can have a strong impact on the bottom line if well timed and well chosen
 Finance: Adjusting investment decisions to meet the allocated budget, since you are responsible for the
financial performance and you must manage Blue Buddies profitably, taking into account the financial
impact of all your decisions.
You will probably find that creating value in the Red Ocean is very difficult for a number of reasons: market
decline, tough competitors, cost increases, and price pressure.
Note: Your professor may have decided to skip the Red round as it is not mandatory to fully understand the
Blue Ocean Strategy concepts.
The following sections describe the decisions you will have to make each year as well as the reports and
market studies that will be available for you to make those decisions. Before making dramatic changes, you
should try to get a feel for the behavior of the market. Try to avoid hastily jumping to conclusions and bear
in mind that obvious solutions may be based on an incomplete analysis. To reach more robust decisions,
use the information from the studies to review your situation and past competitive behavior.
Prior to reading this chapter, we suggest that you sign in the BOSS application as explained in the last
section of the Participant Handbook. You will then be able to browse through all the charts described in the
next section.

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2 Understanding your Annual Report
Two reports are available: the Annual Report and the Market Studies. Each report includes several charts
and graphs that can be printed and/or viewed directly on the computer screen.
Your annual report includes information on your organization and on your product. Initially, Blue Buddies is
marketing only one product called Red Box. As you progress in the simulation, you will launch a new
product that will show up in this section.
All charts and graphs included in this section are sample ones and should not be used as a basis of your
decisions. Make sure to log in BOSS and access your own data.

2.1 Company Scores


This chart provides you with the evolution of four of your key performance indicators: Share Price Index,
Value Market Shares, Revenues and EBIT. This is the first chart that you will see after each run of the
simulation model.

2.2 Profit & Loss Statement


A sample Profit & Loss statement is depicted in Figure 1.

Figure 1 – Annual Report – Sample P&L Statement

The Profit & Loss statement shows the evolution over time of your financial results, at the offering or
company level (at later stage). Each row of the brand P&L statement is explained in the table below.

Revenues Number of units sold x Average price.


Cost of goods sold Number of units sold x Unit production cost. The unit cost depends on the
(COGS) characteristics of your product as well as of the levels of services and distribution
offered by your company.
Gross contribution = Revenues – COGS
Marketing expenditures The investments made in specific communications actions aimed at building or
increasing your brand awareness in the targeted customer segments.
Geographical expansion The total cost of your sales force, including salaries and other benefits. These
(sales force) expenditures depend on your geographical expansion.
Contribution after Marketing = Gross contribution – (Marketing + Sales force expenditures).
Product Development The investments made in R&D for product development.
Other costs This includes the general & administrative costs (% of revenues) as well the costs
(G&A & Corporate projects) of the Corporate Projects launched during the past years.
EBIT = Contribution after marketing – R&D – Other costs

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2.3 Profit & Loss Statement by Country
A sample Profit & Loss statement by country is depicted in Figure 2.

Figure 2 – Annual Report – Sample P&L Statement by Country

This chart shows the financial results obtained by your offering in each of the two countries and in total.
Costs that cannot be allocated to a specific country do not appear in this statement: product development
costs and other costs.

2.4 Production Report


A sample Production Report chart is depicted in Figure 3. This chart allows you to check if your production
plan decision was in line with your actual production and to understand the financial implications of your
production plan decision.
Each year, you must make a production plan decision to inform the production department of the
forecasted sales for the year. The production plan will depend on the forecasted market size and on your
expected market share, taking into account the expected moves of your competitors as well as your own
marketing and geographic expansion investment plans. Based on your production plan, the Production
department will negotiate deals with their suppliers and subcontractors and will agree on a volume-based
reduction in COGS.

Figure 3 – Annual Report – Sample Production Report

The Production department is very flexible and will always produce the quantity of units needed. It will
produce more units if you are more successful than anticipated and will produce a smaller quantity if you
have been optimistic in your forecasting. The Production department will however charge you a penalty for
under- or over-production.
Each row of the Production Report is explained in the table below.

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Production plan Reminder of your Production Plan decision made at the beginning of the year.
Units produced Number of units actually produced. This is equal to the number of units sold.
Automated production = Units produced – Production plan
adjustment The higher this number (in absolute value), the higher your error in sales
forecasting.
Base unit cost Cost for producing one unit of your brand. This cost depends on the physical
characteristics of your product as well as of the levels of services and distribution
offered by your company.
Volume based COGS reduction Total reduction negotiated by the Production department, based on the
production plan made at the beginning of the year.
Penalty for production Cost charged by the Production department in case it had to produce more or
adjustment less units than what was specified in the production plan. The penalty is
proportional to the change in production.
Cost of Goods Sold = (Units produced x Unit cost) – Volume based COGS reduction – Penalty for
production adjustment
Average unit cost = Cost of Goods Sold ÷ Units produced
This cost takes into account the base unit cost, the cost reduction and the
penalty. If you production plan is accurate, the average unit cost will be lower
than the base cost.

2.5 Feedback Messages


This chart lists all of the information messages sent by various parties such as the Board or the various
departments of your company. These messages provide you with useful information. They are grouped in
three categories.
 Corporate Projects: outcome of corporate projects launched in the previous years.
 Market Intelligence: information of competitive product upgrades.
 Internal Messages: memos sent by your Finance and Production departments.

Figure 4 – Annual Report – Sample Feedback Messages

During the Blue Rounds, the Market intelligence section will provide you with feedback on your new Blue
Ocean offering. This will give you useful insights and will allow you to adjust and refine your Blue Ocean
offering. Make sure to read these messages carefully after each of the Blue runs.

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3 Understanding Market Studies
Two reports are available: the Annual Report and the Market Studies. Each report includes several charts
and graphs that can be printed and/or viewed directly on the computer screen.
Market studies provide you with key information concerning customer needs, distribution channels,
competitors, market shares, sales and growth. The following sections briefly summarize the type of
information availabe in each study. Market studies are updated each year and are available at any time.

3.1 Company Key Performance Indicators


A sample Company Key Performance Indicators chart is depicted in Figure 5. It provides you with essential
information on the four competitors, including Blue Buddies, and allows you to compare your
performances with that of competitors. As this chart is updated each year, it also allows you to monitor
your performance over time.
There are five key performance indicators. Four of them are traditional ones and do not need further
explanation: market shares in units and value, revenues and EBIT. The fifth one, Share Price Index (SPI), is
the ultimate indicator upon which your performance may be judged. The value of your SPI depends on
several indicators as well as on their evolution over time: net contribution generated, product market
shares, ability to grow the company’s revenues, etc.

Figure 5 – Market Studies – Sample Company Key Performance Indicators

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3.2 Offering Characteristics
A sample “Offering characteristics” chart is depicted in Figure 6. This chart allows you to compare the
characteristics of your offering with those of competitors. The list of Competing Factors will evolve over
time as new ones are introduced in the market. It also allows you to analyze the product upgrades made by
your competitors.

Figure 6 – Market Studies – Sample Offering Characteristics Chart

3.3 Benchmarking
A sample “Benchmarking” chart is depicted in Figure 7. It provides you with essential information on all
marketed offerings, including yours, and allows you to compare your performance with that of
competitors. As this chart is updated each year, it also allows you to monitor your performance over time.
There are four key performance indicators: market shares in units and in value, revenues and EBIT.
This chart also shows a comparison of Profit & Loss statements for all offerings. Refer to the section “Profit
& Loss Statement” for a detailed description of the Profit & Loss statement.

Figure 7 – Market Studies – Sample Benchmarking Chart

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3.4 Customer preferences
A sample Customer preferences chart is depicted in Figure 8. This is the percentage of customers in a given
customer group who would buy a given offering, assuming that they are aware its existence and that it is
available in stores.
Customer preferences do not take into account the impact on sales of Communication, Distribution or
Geographical Expansion. Hence, the actual market share of a brand might be lower than the preference of
customers for that brand; this will happen if its marketing budget is significantly lower than that of its
competitors; this will also happen if its coverage of distribution channels or geographical expansion is lower
than that of competitors.

Figure 8 – Market Studies – Sample Customer Preferences chart

3.5 Sales and market shares


A sample sales and market shares chart is depicted in Figure 9. This chart provides you with detailed sales
and market share data for each of the competitors. The main difference between this chart and the one
provided in the annual report is that you can use the choice boxes at the top of the chart to zoom in a
particular customer group, and/or in a particular distribution channel, and/or a particular country.
All information can be viewed in both table and pie-chart formats.

3.6 Market forecast


A sample Market forecast graph is depicted in Figure 11.
The Market Forecast screen presents information on a four-year horizon for each of the three customer
groups. Each line plots the current size of the customer group as well as the expected size for the next
three years.
All numbers are expressed in units and estimates are based on the current market situation. These
estimates assume that no substantial changes (introduction of a new brand, significant price
increase/decrease) will take place in the future.
Consequently, the forecasts are not always accurate, especially if your organization or the competitors take
drastic action during the course of a decision period.

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Figure 9 – Market Studies – Sample Sales & Market Shares Chart

Figure 10 – Market Studies – Sample Market Forecast Chart

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4 Read Guides
The “Read Guides” menu provides you with the access to online documentation. The “Read Guides” menu
will change at each round. New documents will become available at the beginning of each new round, e.g.
Introduction to Round Blue 1, Introduction to Round Blue 2, etc.
Each document exists in two formats: html-based and printer-friendly. The html-based format offers a
table of contents and allows the reader to browse through sections and to focus on a given one. It includes
a search functionality to retrieve sections containing specific keywords. Checking the option printer-friendly
will open an Adobe PDF version of the full document. You need to have Acrobat Reader (version 8.0
minimum) installed on your computer to view or print this file; this software is free and may be obtained
from www.adobe.com.
In the Red Round, you have access to two documents:
 BOSS Dictionary. This is the reference document to fully understand the BOS specific terms.
 Participant Handbook. Introduction to the industry, to its customers, to the firms and products in
competition, to the distribution channels and to the Blue Buddies organization
 Introduction to the Red Round. Introduction to your role, to the available information and to the
decisions that you will have to make. This document also includes a comprehensive description of all
the projects that you can initiate during the simulation exercise.

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5 Making Decisions
The Red round focuses on your existing market. You and your team will be in charge of R&D, Production,
Marketing, Sales and Finance. You will have to make the following decisions each year. Each of these
decisions is explained in details in the following sections.
 Product Upgrade
 Production Plan
 Price
 Marketing and Segmentation Strategy
 Geographical Expansion & Distribution Coverage
 Which Corporate Projects to undertake
 Finance

5.1 Red Ocean decision form


Select Red Ocean Decisions in the INPUT DECISIONS menu to enter your decisions. The form shown below
allows you to manage and input all decisions concerning your Red Ocean product. All boxed cells are
changeable. For example, if you want to change the price of your product, you simply need to move the
mouse over the Price cell and change the value.

Figure 11 – Red Ocean Decision Form

Once you have entered your decisions, you need to validate your input by clicking the “Save decisions”
button at the bottom of the form. Your decisions will be saved in the database and you may continue your
work in the simulation. Note: you may change this form and save your decisions as many times as you wish.

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5.2 Product upgrade decision
You are responsible for initiating innovation projects. Making R&D decisions is a crucial task because your
existing product will probably have to be improved during its lifetime to suit the changing needs of
customers and to match the technological advances of your competitors.
Research and Development decisions are quite complex and need to be based on thorough analysis of your
report. The charts Offering characteristics and Customer preferences in ANALYZE MARKET STUDIES are
especially useful to decide on what attributes to improve.
Click the ‘Upgrade…’ button to open the Product Design form, as shown in Figure 12. This form allows you
to enter new product characteristics for all technical factors such as ‘Graphics Sophistication’, ‘Multimedia
Add-ons’, etc.

Figure 12 – Product Upgrade form

To update a factor, click on the Pencil icon on the right, enter the new value and validate your input by
clicking the green check.
Once you have entered the values you think are best suited to your product, the simulation will
automatically compute the unit cost of the revamped product. It also calculates the budget that R&D will
require to develop the new features and then it tells you whether or not the project is feasible. After
making your product decisions, you need to click on OK to return to the main decision page.
Product upgrades are immediately available in the BOSS simulation. This means that if you upgrade your
product in a given year, the product that will be marketed during that year will be the upgraded one. There
is no elapsed time required by R&D to design and develop a prototype, as it would be in real life.

5.3 Production plan decision


Each year you must make a production plan decision to inform the production department of the
forecasted sales for the year. The production plan must be entered in thousands of units.

Your decision will depend on the forecasted market size and on your expected market share, taking into
account the expected moves of your competitors as well as your own product upgrade and marketing plan.
The Production department is a highly flexible supplier and will always manufacture the required quantities
in the best possible conditions.
You are not concerned about manufacturing investments, fixed costs or capacity utilization. Your only
responsibility is to make an accurate forecast as errors in planning will have financial consequences, as
explained in the section 2.4.

5.4 Pricing
You must set the price of your Red Ocean product at the beginning of each year. This is the price at which
you sell your product to distributors. All distribution channels apply the same margin to all competing
products.

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Dumping is strictly forbidden in the BOSS world. Therefore, the price of a product must be equal to or
higher than its unit production cost. Finally, price changes greater than plus or minus 30% in one year are
highly discouraged as they often result in negative market reactions. If there is a sudden and steep
increase in price, customers may react strongly and stop purchasing the product. On the other hand, if
there is an excessive price decrease, the distributors’ margins will also decrease and your salespeople may
have a hard time finding distributors for the product. An error message will warn you when such decisions
are made.

5.5 Marketing budget and segmentation strategy


For each decision Round you must make two decisions regarding the marketing of your Red Ocean product.

First, you should define the budget allocated to marketing activities. This budget will mainly be used to
purchase advertising space: TV, internet, billboards, press, etc. It is aimed at building and maintaining the
awareness of customers for your product. An important measure is your “share of voice”, i.e. the ratio
obtained by dividing your own marketing budget by the total marketing budget of all marketed brands,
including yours. You will most likely generate higher awareness levels for your product if your share of
voice is higher than that of your competitors. Refer to the Market Studies chart described in the section
Benchmarking for more information on competitive activities.
Secondly, you will also have to determine which customer segment(s) will be exposed to your advertising.
The three segments are: 6-21 Year Olds, 22-35 Year Olds and 36+ Year Olds. For example, if you have
modified a product with technical characteristics which correspond mainly to the 6-21 Year Olds segment,
then you will most likely want to allocate the majority of your marketing efforts to these consumers. In
order to do so, you need to locate the cell that corresponds to that segment and enter the percentage of
marketing resources you plan to allocate to that segment. Of course, the total segmentation strategy must
add up to 100%, otherwise you will get an error message.

5.6 Geographical expansion and distribution coverage


For each decision Round you must make two decisions regarding the distribution of your Red Ocean
product.

Firstly, you must decide the portion of the total territory (both continents) that you want to cover. As
explained in the manual, there are two broad geographic markets – like two continents: Roundland and
Starland. The two markets are about the same size.
Values input in Geographical expansion are in the form “R%/S%” where R% is the expansion in Roundland
and S% the expansion in Starland. If you enter a value lower than or equal to “100%/0%”, your product
will only be distributed in Roundland. Geographic expansion into Starland starts when you enter a value of
“100%/10% or more.

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Secondly, you must decide the distribution coverage for each of the three distribution channels:
 Low Price-orientated Channels
 Specialized Electronic Stores
 Video Game Chains.
The distribution coverage is a measure of the percentage of stores where your product will be available as
well as the quantity and quality of the shelf-space allocated to your product (gondola heads or eye-level
premium shelf-space).
Based on these two decisions, your Sales department will automatically decide on the size of your sales
force and its allocation across the three channels. The cost of the sales force is calculated based on these
decisions. This cost includes the salaries and benefits of sales people, the point-of-sales materials,
promotional items, participations to trade-shows, etc.
You will quickly realize that sales force is costly; for instance, the budget required to cover 100% of the
territory and 100% of stores in all three channels would be close to 300 million dollars. You thus have to
make choices in order to remain within your allocated budget. You will most likely concentrate your efforts
on the channels where your target customers shop. Refer to the “shopping preferences” chart that is
presented in the handbook.

5.7 Corporate projects decision


You will be able to invest in up to two internal projects each year. These projects aim at increasing your
productivity, reducing your costs and/or improving your organization capabilities. Slick execution of a
strategy is the next most vital ingredient of high profit growth as the strategy itself. Indeed, sloppy
execution can ruin a great strategy.
Where organization capabilities are weak, these need to be built for a strategy to be successful. However,
internal projects, though laudable, cannot compensate for a strategy which fails to have high profit growth
at its core.

Corporate projects will benefit all your brands in your portfolio. Each internal project is presented in section
6 at the end of this document. This section contains a description of the project as well as an estimation of
the expected impact that that project will have. Some projects may take more than one year to bear fruit;
this is realistic in large organizations such as Blue Buddies. Note that some of the projects listed are not
available for implementation during Round Red.
Click the ‘+’ button to initiate new projects; the form shown below pops up. Click on the project that you
want to initiate. Each corporate project has a cost that will be incurred in the year when you launch it. At
any time, you may change your mind and “undo” a corporate project by selecting it and clicking the ‘-‘
button.

Figure 13 – Corporate Projects Decision Form

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5.8 Finance
A budget is allocated each year to your company to cover its expenses in R&D, marketing, distribution and
corporate projects. Your budget is linked to the success of your company in the previous year. Your budget
for decision Round 2, for example, will be equal to a fixed percentage of your revenues in decision Round 1.
However, there is a maximum level of revenues above which resources are reallocated to other business
units in order to maximize the return on investment at the global level. Similarly, there is a minimum
budget level for each year. If you are not generating sufficient contribution internally, global headquarters
may subsidize your business unit so that you can continue operations.
In general, your budget will be between 70 and 300 million dollars. You will have to work within this given
amount. If total spending exceeds the allocated budget, you will receive an error message.

Figure 14 – Sample Budget Form

You do not have to worry about budget calculations as BOSS does that for you. You may consult the budget
chart at any time; it provides details on how you have decided to spend your budget in the upcoming year,
based on your current decisions. A warning message will appear if the budget is exceeded. This message
should not be ignored.
Note that if your objective is to maximize your return on investment, you should not necessarily spend your
entire budget in every situation. If you have an outstanding performance, you may be granted a large
budget. However, spending it completely might be a waste of resources.

5.9 Checking your decisions


Before submitting your decisions for a ‘run’ by BOSS, it is highly recommended to check that you have not
made any mistakes with your decisions by looking at the “Errors, Warnings & Highlights” chart.
 Errors indicate inconsistencies in your decisions that need to be corrected.
 Warnings are shown to draw attention to potential problems.
 Highlights remind you of the key decisions that you have made: product upgrades, corporate projects,
etc. You should check your decisions carefully to make sure that all entries are correct.

Figure 15 – Sample Errors, Warnings & Highlights Form

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6 Description of Corporate Projects
The corporate projects which can be selected are as follows:

6.1 A. Relocation Manufacturing to a Low Labor Cost Country


This project involves 80% of manufacturing being relocated to a low labor cost country. Blue Buddies have
the resources to undertake the project. The project includes hiring a top Public Relations firm to deal with
any political opposition in the towns where Blue Buddies current factories are located.
The full impact of this corporate project is expected to be achieved within two decision Rounds. It consists
mainly of a reduction of COGS. The cost of implementing this project is given in section 6.19.

6.2 B. Process Re-engineering (6 Sigma)


Blue Buddies believe that their processes are outdated and few measures of efficiency exist. This project
thus involves hiring ten experienced ‘Black Belts’ and Blue Buddies setting up a Six Sigma training and
qualification process. The aim is to get 30% of the staff and management qualified at Black Belt level. The
returns are realized over two decision Rounds. It consists mainly of a reduction of COGS. The cost of
implementing this project is given in in section 6.19.

6.3 C. Restructuring for Cost Reduction (Making Employees Redundant)


Following an unsuccessful attempt to reduce employee costs through a ‘delayering’ exercise (most
employees came back on temporary contracts), this project is a restructure of the organization from a
functional one to a matrix encompassing function and geography. About 7% of the employees are made
redundant.
The full impact of this corporate project is expected to be achieved within two decision Rounds. It consists
mainly of a reduction of costs, mostly during the second Round because of the initial expense of
redundancy payments. The cost of implementing this project is given in section 6.19.

6.4 D. Acquisition to Access R&D Technology


Since some at Blue Buddies feel that they may lose the technology race, especially for the Red Ocean part
of their portfolio, they have recommended an offensive move to acquire technology from a firm believed to
be working on some new gaming technology. The acquisition is costly, but Blue Buddies believe that even if
the technology they will have access to is not appropriate, the skills of the people within the acquired firm
will be worth having.
The full impact of this corporate project is expected to be achieved within two decision Rounds. It consists
mainly of an increase in sales, mostly in the second decision Round after the investment since it takes time
to adapt the new technology into the existing gaming module platforms. The cost of implementing this
project is given in section 6.19.

6.5 E. New Appraisal and Reward System for Employees


The perceptions amongst employees at Blue Buddies is that they are not paid as much as their counterparts
in the other major games module producers. This project involves not only creating different rewards for
different effort, but also a major change in the whole performance setting and appraisal process. The cost
is quite high since most employees are going to receive an increase in financial benefits.
The full impact of this corporate project is expected to be achieved within two Rounds. It consists mainly of
a decrease in direct and indirect costs through increased employee motivation. The cost of implementing
this project is given in section 6.19.

6.6 F. Comprehensive New IT System


Blue Buddies have survived for many years on computer systems built in the late 1970s and early 1980s. As
IT employees retire, top leadership fear that a major collapse in the IT systems could bring Blue Buddies to
its knees. This project involves a massive replacement of the IT systems to install a new ERP system which

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is far more reliable, efficient and effective. The new ERP system will use best practice process embedded in
the software and for some processes, little adaptation to Blue Buddies way of doing business will be
possible. All the major processes are re-engineered according to established manufacturing, distribution
and sales ‘best practice’. Many employees are involved in developing the detailed solutions and in training
and implementation.
The full impact of this corporate project is expected to be achieved within three Rounds. It consists mainly
of a reduction in all costs, including COGS. It is not expected to show benefits immediately because
employees may resist the imposition of the standard best practice and also because political opposition
may develop within the senior management of virtually all departments. This project is by far the most
expensive one; its exact cost is given in section 6.19.

6.7 G. Leadership Development


This project involves trying to improve Leadership at all levels, especially regarding the speed of decision
making and the understanding and leveraging of employee talent. Low value time is eliminated or
substantially reduced. Time spent on higher value work is radically increased. Leaders are able to achieve
exponentially more in a much shorter time frame and there is a clear win for them, for employees and
shareholders.
This project is relatively low cost and the impact on profit growth is expected to be high. The anticipated
benefits consist mainly of a reduction in sales force costs and a better efficiency of marketing expenditure.
The cost of implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Round Red. It becomes available for selection at
the beginning of Round Blue-1 since a Blue Ocean Strategy approach is used to define to develop the new
leadership profile.

6.8 H. Training Selected Employees in Project Management


Blue Buddies struggles to reap the full benefits of its internal projects. This project attempts to instill a
disciplined project management approach within the organization.
The cost is relatively low compared to other projects, but the impact on profit growth is uncertain. The cost
of implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Round Red. It becomes available for selection at the
beginning of Round Blue-1.

6.9 I. Restructuring for effectiveness (No Redundancies, Just Changes in Responsibility)


Blue Buddies has very large spans of control and many of the managers at levels two and three in the
organization spend all time on ‘people’ matters and fire-fighting with no time left for thinking about how to
approach work differently. To inject some energy and fresh thinking, roles are being redefined and
personnel moved around. This project is aimed at increasing effectiveness rather than efficiency (ie. cost
reduction).
The cost of implementing this project is given in section 6.19.

6.10 J. Campaign for Internal Cost Consciousness


Blue Buddies leadership believes it is good to engage the employees in a concerted ‘push’ every now and
then to save costs wherever they can. The culture is known for being a bit wasteful. This is a low cost
project involving suggestion boxes located in all company canteens and modest prizes awarded to those
whose ideas saved the most money. There are no large presentation ceremonies and not many people
may be aware of what suggestions were adopted and who was rewarded.
The cost of implementing this project is given in section 6.19.

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6.11 K. Time Management Training for all Managers
One aspect of Blue Buddies culture is that people tend to be late for everything – late for meetings and late
delivering on deadlines. This project aims to create a new habit of good time keeping for meetings and
delivering work on deadlines.
The impact of this corporate project is expected to be noticeable in terms of how managers act, but the
actual impact on the financial fortunes of the company is uncertain. The cost of implementing this project is
given in section 6.19.

6.12 L. Recruiting Highly Qualified People to Stimulate Strategic Thinking


Blue Buddies had a policy of promoting from within, something which it had proudly done for many years.
However, leadership believes that a lot could be gained by recruiting MBA graduates who might be able to
challenge and educated others in the business.
The cost of implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Round Red. It becomes available for selection at the
beginning of Round Blue-1.

6.13 M. Suggestion Scheme for ‘Bottom Up’ Improvement


Blue Buddies leadership has been persuaded by an external consultant that they are not using the
intelligence in their organization effectively. A series of employee mixed group meetings is proposed to
generate “many small improvements that will add up to a lot”. The project involves a 3 month launch
identifying 150 co-coordinators of the 150 ‘mixed groups. Thereafter, the coordinators will decide what
suggestions should be implemented and in what order. One person is appointed to coordinate all the
projects from a central point. This project is not as low cost as it may seem, since it takes a lot of employee
time to initiate.
The cost of implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Round Red. It becomes available for selection at the
beginning of Round Blue-1.

6.14 N. Radically upgrading Leadership and Service in the Customer Contact Centre
Blue Buddies leaders realize that their Customer Contact Centre is at best rated as average for the industry,
and at worst substantially below average. However, like many companies in the electronics industry, the
gaming industry is notorious for long telephone waiting times, multiple handoffs and a low proportion of
issues resolved to customers’ satisfaction. This project is aimed at creating a dramatic change in Contact
Centre performance through attending to both the processes, the motivation of the staff and the quality of
leadership – all of which, when improved, are mutually reinforcing.
The full impact of this corporate project is expected to be achieved within two decision Rounds. The cost of
implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Rounds Red, Blue-1 or Blue-2. It becomes available
for selection at the beginning of Round Blue-3.

6.15 O. Culture Change Project


The latest employee satisfaction survey showed that Blue Buddies was on a gradual decline in employee
satisfaction. An expert consultancy persuaded Blue Buddies leaders that satisfaction was just a symptom of
a culture that was not aligned with the strategy. This project involves a diagnosis of the culture using a
quick online questionnaire followed by agreeing what the new culture should be with the senior
management. Implementation was through hundreds of workshops of 1 hour each where employees are
told what the new culture would be and asked to come up with suggestions as to how to make it work.
The cost of implementing this project is given in section 6.19.

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6.16 P. Hiring Expert Trainers to Train Distributors’ Salespeople
Distributors often employ their own training people. However, their focus is mostly on topics such as the
logistics of running the store, how to use the check-out tills and how to greet shoppers. What these
trainers do not often do is familiarize the Distributors’ employees with the strategies of the various game
console manufacturers and what are the relative advantages and disadvantages of each console, given the
needs of a particular individual shopper. This project involves Blue Buddies agreeing with Distributors that
their trainers train Distributor employees on the shop floor (so there is no real risk for the Distributor if a
customer has to be served). They are trained in being able to answer questions about the concerns and
worries of potential customers in depth, especially those who would normally not be shopping for a game
console. Questions such as “is this the first time you are buying a game console?” are normally not asked
by Distributors’ employees but are exactly the sort of questions that Blue Buddies leaders believe are
appropriate to ask.
The full impact of this corporate project is expected to be achieved within two decision Rounds. The cost of
implementing this project is given in section 6.19.
Note. This corporate project cannot be implemented in Rounds Red, Blue-1 or Blue-2. It becomes available
for selection at the beginning of Round Blue-3.

6.17 Q. Hiring the Top Team from a Regional Specialist Luxury Goods Retailer
Blue Buddies believe that if they chose to create their own specialist stores, they would not have the
expertise within the organization to execute this strategy effectively. This project involves searching for
and attracting a team who know each other well and who have been successful in creating high traffic
through specialist stores.
The full impact of this corporate project is expected to be achieved within two decision Rounds. It is
expected to facilitate the development of dedicated stores. The cost of implementing this project is given in
section 6.19.
Note. This corporate project cannot be implemented in Rounds Red, Blue-1 or Blue-2. It becomes available
for selection at the beginning of Round Blue-3.

6.18 R. Hiring a Team Experienced in Developing and Managing a Fast Food Franchise
Blue Buddies believe that if they chose to create Gaming Cafes, they would not have the expertise within
the organization to execute this strategy effectively. This project involves searching for and attracting a
team who knows each other well and who have been successful in developing and managing a fast food
franchise.
The full impact of this corporate project is expected to be achieved within two decision Rounds. It is
expected to facilitate the development of gaming cafés.
Note. This corporate project cannot be implemented in Rounds Red, Blue-1 or Blue-2. It becomes available
for selection at the beginning of Round Blue-3.
The cost of implementing this project is given in section 6.19.

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6.19 Cost and Availability of Corporate Projects
The costs of corporate projects are given in the table below. The costs apply only in the year when the
project is launched. This table also indicates the Round when each corporate project becomes available for
implementation.

CORPORATE PROJECT COST AVAILABLE


$ X 1000 IN ROUND
A. Relocation Manufacturing to a Low Labor Cost Country 10 000 Red
B. Process Re-engineering (6 Sigma) 5 000 Red
C. Restructuring for Cost Reduction (Making Employees Redundant) 5 000 Red
D. Acquisition to Access R&D Technology 10 000 Red
E. New Appraisal and Reward System for Employees 6 000 Red
F. Comprehensive New IT System 15 000 Red
G. Leadership Development 500 Blue-1
H. Training Selected Employees in Project Management 500 Blue-1
I. Restructuring for effectiveness (No Redundancies, Just Changes in Responsibility) 2 000 Red
J. Campaign for Internal Cost Consciousness 500 Red
K. Time Management Training for all Managers 1 000 Red
L. Recruiting Highly Qualified People to Stimulate Strategic Thinking 2 000 Blue-1
M. Suggestion Scheme for 'Bottom Up' Improvement 2 000 Blue-1
N. Radically upgrading Leadership and Service in the Customer Contact Centre 3 000 Blue-3
O. Culture Change Project 2 000 Red
P. Hiring Expert Trainers to Train Distributors' Salespeople 3 500 Blue-3
Q. Hiring the Top Team from a Regional Specialist Luxury Goods Retailer 2 000 Blue-3
R. Hiring a Team Experienced in Developing and Managing a Fast Food Franchise 2 000 Blue-3

Figure 16 – Cost and Availability of Corporate Projects

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