bsg 3 year strategic plan operating projections

The Business Strategy Game

Competing in a global marketplace, how performance on the 3-year strategic plan is scored.

The strategic plans are automatically graded on a scale of 1 to 100; scores are tied to whether a company meets or beats its stated performance targets for EPS, ROE, credit rating, image rating, and stock price for each of the three years of the strategic plan. The scoring is based on the principle that a company's strategic plan was "good" if management met or beat the targeted levels of performance and if these targets contained some "stretch." The thesis here is that company managers should not be rewarded with a "good" grade for setting "pie-in-the-sky" performance targets and then delivering a performance far short of what was promised — there can be no applause whatever for a strategic plan that over promises and under delivers!!!!!! At the same time, though, there is no glory to be gained by "sandbagging" and setting easily achieved performance targets.

The following point system was developed to assign higher scores to those plans where stretch targets were met and lower scores to plans with “low” performance targets and plans where actual performance was below established targets (while the scoring system may seem “complicated”, the various point requirements and conditions were necessary to cover the differing circumstances of different companies—experience indicates that the explanations provided to co-managers allow them to grasp the scoring pretty readily):

2019 Edition

• 14 points for setting any one target below the Investor Expectation Standard and then meeting or beating the target — a maximum score of 70 points (or C–) if applied to all 5 performance measures for each year of the plan. Underachievement of a particular target results in a point reduction proportional to the underachievement , subject to a minimum “consolation prize” score of 10 points on the targets set for EPS, ROE, and stock price. Under no circumstances will any points be awarded for setting a credit rating target below B or an image rating target below 50 . Moreover, the points awarded to companies struggling to reach "rock-bottom" performances of $1.00 for EPS, 10% ROE, and a $20 stock price are a function of how close their targets are to these "rock bottom” levels — such companies will normally have difficulty earning 70 points but can score 50 or higher with a plan that incorporates a successful turnaround strategy and that delivers upward trending results (albeit with a low overall performance level).
• 16 points for setting EPS, ROE, Stock Price, and Image Rating targets equal to the Investor Expectation Standard (or above the I.E. Standard but less than 10% above the actual performance for the year prior to the plan) and setting the Credit Rating target to B+, and then meeting or beating the target (80 points max if applied to all five targets for each year of the plan). Thus, if all 5 performance targets are set at the level expected by investors and if these targets are subsequently achieved, then a company’s 3-year plan score will come out to be an 80. If a target is only partially met, a proportional number of points is awarded (achieving an EPS of $2.63 when the Investor Expectations Standard is $3.50 results in an award of 12 points). If the Investor Expectations Standard is an EPS of $3.75 and actual EPS turns out to be just $1.25 (33% of the targeted level), then the automatic minimum 10-point consolation score is awarded for EPS.
• 10% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• 10% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 10% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year.
• 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.
• Credit Rating – Setting and achieving a target credit rating of A–
• Image Rating – 10% above the Investor Expectation for EACH of the 3 upcoming years
• 20% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• 20% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 20% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year.
• 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.
• Credit Rating – Setting and achieving a target credit rating of A
• Image Rating – 20% above the Investor Expectation for EACH of the 3 upcoming years
• 30% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• 30% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 30% above the company’s prior-year ROE for EACH of the 3 upcoming years if the company's ROE was above the Investor Expectation level for the prior-year.
• 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s ROE was at or below the Investor Expectation level for the prior year.
• Credit Rating – Setting and achieving a target credit rating of A+
• Image Rating – 30% above the Investor Expectation for Years 14 and 15, and an Image Rating of 100 for years 16-20.

2018 Edition

• 14 points for setting any one target below the Investor Expectation Standard and then meeting or beating the target (70 points max. if applied to all 5 targets for each year of the plan). Thus, setting and achieving sub-par objectives results in a maximum performance score of 70 or a C−. Underachievement of a particular target results in a point reduction proportional to the underachievement, subject to a minimum “consolation prize” score of 10 points on the targets set for EPS, ROE, and stock price. Under no circumstances will any points be awarded for setting and achieving a target below a B credit rating or an image rating of 50. Moreover, the points awarded to struggling companies that will have a hard time even reaching "rock-bottom" performances of $1.00 per share, a 10% ROE, and a $20 stock price are a function of how close their targets are to the "rock bottom levels" of $1.00 per share, a 10% ROE, and a $20 stock price rather than to the investor expectation minimum — such companies will normally have a hard time earning 70 points but can nonetheless get scores of 50 or higher with a plan that incorporates a successful turnaround strategy and that delivers upward trending results (albeit from a low level of overall performance).
• Annual EPS growth equal to 7% in Years 11-15 and 5% in Years 16-20 (the actual values for these targets for each year are shown on page 2 of the Footwear Industry Report )
• Annual stock price appreciation equal to 7% in Years 11-15 and 5% in Years 16-20 (the actual values for these targets for each year are shown on page 3 of the Footwear Industry Report )
• Credit rating of B+
• Image rating of 70
• - 10% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• - 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• - 10% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• - 10% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 16.5% ROE (10% higher than the 15% norm)
• Credit rating of A-
• Image rating of 77 or more (10% higher than the norm of 70)
• - 20% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• - 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• - 20% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• - 20% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 18% ROE (20% higher than the norm of 15%)
• Credit rating of A
• Image rating of 84 (20% higher than the norm of 70)
• - 30% above the company’s prior-year EPS for EACH of the 3 upcoming years if the company's EPS was above the Investor Expectation level for the prior-year.
• - 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s EPS was at or below the Investor Expectation level for the prior year.
• - 30% above the company’s prior-year Stock Price for EACH of the 3 upcoming years if the company's Stock Price was above the Investor Expectation level for the prior-year.
• - 30% above the Investor Expectation for EACH of the 3 upcoming years if the company’s Stock Price was at or below the Investor Expectation level for the prior year.
• 19.5% ROE (30% higher than the 15% norm)
• Credit rating of A+
• Image rating of 91 or more (30% higher than the norm of 70)

Different stretch objectives may be set for each of the five performance measures. In other words, a company can have an A+ credit rating objective (a three-notch stretch), an image rating objective of 77 (a one-notch stretch), a 18% ROE objective (a two-notch stretch), an EPS objective equal to Investor Expectations, and a stock price objective that is below Investor Expectations.

If a company meets or beats a performance target, then its performance score for that target equals the corresponding number of points for that target. Underachievement of any of any target results in a point reduction proportional to the underachievement, subject to a minimum “consolation prize” score of 10 points on the targets set for EPS, ROE, and stock price . For instance, if co-managers set a 30% stretch target of $10 per share for EPS (which carries a score of 20 points if achieved) and actual EPS turns out to be just $6 (60% of the targeted level), then they will incur an 8-point penalty and get only 12 points (60% of 20 points). If co-managers set a 30% stretch target of 45% for ROE and actual ROE turns out to be just 15% (33% of the targeted level), then they will be awarded the automatic minimum 10-point consolation score for ROE.

To get a “good” (80 or better) performance score for any one year of the plan, the scoring approach requires that a company achieve performance levels at least commensurate with investor expectations that year (as shown on pages 2 and 3 of each year’s Footwear Industry Report). To receive scores above 80, a company must set “stretch objectives” that are higher than the investor minimum performance targets and then meet or beat these stretch targets .

Clearly, the point system for judging the caliber of a company’s strategic plan (1) rewards co-managers for setting stretch objectives and then succeeding in meeting or beating the stretch objectives and (2) punishes the strategic plan scores of companies when the targeted levels of performance are not met. Indeed, the scoring is based on three principles:

• A company’s strategic plan is “good” if management met or beat the targeted levels of performance and if these targets contained some “stretch.”
• A company’s 3-year strategic plan is “not so good” if actual performance falls far short of what was promised in the 3-year plan.
• Company co-managers should not be rewarded by setting easily achieved performance targets —setting and achieving high stretch objectives merits a higher strategic plan score than does a plan where company co-managers set lower target objectives and achieve them.

A company’s performance score for any one year of the plan is the sum of the points earned for each of the five performance targets.

A company’s overall performance score on the 3-year plan is the average of the performance scores earned for each of the 3 years of the plan period.

The scores earned on the 3-year plan are reported to co-managers on the 3-Year Strategic Plan link that appears on the top of their Corporate Lobby screen—as the results for each year of the plan become available, all they have to do to track their scores is just click on the link and the scores will be shown near the top of the page that appears.

Strategic Plan Scores Are Automatically Reported in Your Online Grade Book. Each company’s scores on the 3-year plan are automatically posted in your online 3-Year Strategic Plan Grade Book—this grade book automatically appears in the Grading and Scoring category on your Administration Menu whenever you schedule a 3-year plan. The 3-year strategic plan grade book shows (1) the performance targets each company established for each year of the plan, (2) whether the target was met, (3) a “performance score” for each year of the plan, and (4) an overall performance score across all three years of the plan that is the average of the three annual performance scores.

You have the ability to include the scores on the 3-year strategic plan(s) in each individual’s grade for the entire BSG exercise. All you have to do is to designate some percentage weight to 3-year plan in the Individual Grade Book; this grade book is programmed to calculate an overall simulation grade for each participant covering the quizzes, the strategic plan(s), and other assignments.

BSG Report, Part 3

What will do differently in the future.

A five year strategic plan for the future.

For the next five years from Year 18, we will continue:

To provide highest quality branded athletic shoes to the global market at a competitive price.

We keep the Mission which we built from last 8 years.

G Brand has a Vision to establish a worldwide brand dedicated to innovative design and best provider in quality at reasonable prices, allow becoming a global leader in the athletic branded shoe market.

We always provide best S/Q with reasonable price just 15% higher than Industry Average, with Largest collection 500 models and also largest networks of retailers worldwide.

Our company will provide its customers provide multiple choices in footwear that will satisfy any of their footwear needs. No matter the location, our goal is to satisfy our customers’ “foot fashion” desires and provide them with the best style and quality in footwear. G-Brand will continue to build on its existing strategy ( Globa Differentiation Strategy ) of attempting to gain a competitive advantage primarily by differentiating the Value and Quality for Price, customers pays for Real High Quality Value and Fashionable athletic shoes with much higher Quality what our competitors would charge for similar products. This is the case of iPhone or any other high end products are bringing values to customers such as cars and fashions. We are in shoes industry, so we can provide the differentiation with larger Collections.

We will work tirelessly to ensure that our shoes are within reach of purchasing and get the high quality shoes with very large selection. Moreover, we will invest on advertising and make use of “celebrity appeal” to gain brand consciousness. 

Our revised strategy is three stages:

With respect to our employees well-being, our G-Brand Company intends is to continue its practices of investing in employee-development and utilize a compensation model that encourages our employees to work hard, while simultaneously striving to be more productive and efficient. We increase wage, compensation, bonus and keep high training, TQM as we used to doing in the last 8 years.

G-Brand continue to be a good steward of the environment and social responsibility. Toward that end, it put in place responsible environmental policy that ensures more decisions for community. Increase from 3 to 6 activities to support society and environment. G-Brand will continue to make all efforts to use good materials which environment friendly. Also, G-Brand believes that every organization has a social responsibility to promote harmony within the community it exists. G-Brand will invest more in the  Use of "Green" Footwear Materials, Energy Efficiency Initiatives and Charitable Contributions to build a bigger Image of societal Brands. 

G-Brand has been performing for many years Higher than Investors’ Expectation. In order to be continue higher competitive and perform to the higher levels, there are still some areas in which the company can focus to operate better. Over the next five years, G-Brand will pursue strategies that will help it improve its financial bottom line, especially ROE because the company has quite high Equity. To do so, G-Brand has to improve on the effectiveness of its operation, especially increasing Net Profit higher than ratio of expanding its Factories. It has to find ways expand so that cost of production at high quality still low enough to increase high margin, high market share and getting over all high Net Profit. Also, G-Brand need to keep high market shares, year 17 market shares are reduced, but G-Brand has get back to Top in Year 18. We need to keep continue going up to expand and to create new markets.

With revised strategy, G-Brand will focus on offering higher quality products, more models, more fashion, to be industry leader in cost for value. In next five years, G-Brand will be more competitive with production capacity at the top and also high quality with largest collection. We aim to increase market share through factories in three continents, NA, AP and LA. We will keep the largest market shares in Internet Sales. Largest network of retailers around the world. Keep control of Private Label market with upgraded factories that can produce most of quality at lower cost than any competitors.

Furthermore, G-Brand will continue focus on what we are top leading like S/Q, models, strong advertising, retailer support, celebrities. We do not focus on rebate, time of delivery. We will upgrade new factory in LA to produce top high quality shoes with C options an B for large quantity.

We are doing well, so Stock Price is high too, over 120, we will buy back some with extra money, cash in hand of G-Brand will be over 150 million every years. We do not leave it in bank or safe. So, after expansion of new factory in LA with 120 million, we reduce the number of shares to increase EPS. We will get ROE higher soon, and faster than other competitors.

Financial Analysis

In year 18, end of the game, G Company has more than 150 million Cash in hand, so we pay old loans to get A+ Credit Rating.

We always used the 10 decision groups of Finance and Cash Flows in most careful ways to maintain high EPS, in fact we should spend more Cash in hand to buy back Share in early years. We also regularly pay old loans to get higher Credit Rating. From Year 19, if any, we have over 100 million cash in hand and Net Profit every year, it will be better financial status for us to expand or invest in upgrading new factories, or even produce at higher stars 8, 9 or 10 stars.

Another important indicator of profitability is the return on equity (ROE). ROE indicates how much profit is generated with the investments that shareholders made.  In Year 18, we have increased ROE to 26.3% vs. IE of 15%.

We need to figure out most effective ways to increase ROE by increasing Net Profit but keep Total Equity low, not expanding faster than increase of Net Profit.

Balance Sheet

From Company Operating Reports, we focused on Balance Sheets and Cash Flow, we see Total fixed Assets of 573,906; Total Liabilities of 127,335 and Total Shareholder Equity of 446,571. The ROE in Year 18 is good back to 24,3% compared with Investor Expectation of 15%. We get out of Year 17 with bad results in ROE because we expand too fast in that year.

The key information form balance sheet is not just Total Cash outlays of 711,362 or Net Cash balance for every year. We also learn that Loans from previous years may have higher interest rate, we can borrow new loans to pay off  old debts, and get higher Credit Rating because we can pay loans. Also, we are doing better than in the past so interest rate is lower. More effective.

We note to see Return on Equity, so keep Total Equity lower than increase Ratio of Net Profit. We have quite large Total Shareholder Equity of 446,571. Net Profit must over 110 million every year to keep ROE higher than 25% or more. This is the key to affect our strategy in the next five years.

Our EPS increase fast from 7.36. 7.39 to 12.81 over last three years, much higher than Investor Expectation of 4.3. We will keep going with this rate in next five years with expansion strategy, based on large volume, higher S/Q and reasonable Prices.

Our ROE fluctuated over the years due to expansion of factories, we now have paid all the old loans and have quite good cash in hand, we do not have to increase equity in next five years, at least we do not have to borrow for expansions. We have good Cash in hand over 100 million each years. Over Year from 15 to 18, ROE changes up and down 22.5, 18.2 then 20.0 then in year 17 down to 16.8 then up to 24.3 in Year 18. We need to control this better in next five years.

We are doing very well, even up and down from 1 st and 2 nd position but we have a strong and clear visions for future strategy to lead the company at top of market and meet Investor Expectations. We also learn a lot from the BSG itself and from our class mates, other teams, even we compete in the games, but in order to run effectively, we have to look at our competitors to learn their strategies and we see what they did well or not very well, we learn by doing this.

We also thank the Professor and creators of BSG Online to give us a good environment to learn, to practice with full of knowledge, competitions and emotion close to business life. Through the games, we learn more in-depth knowledge and skills in making decision in big business fields, from Corporate Social Responsibility, to Sales Forecast, which is very important. Then we can analyze business results to identify new marketing, production strategy. We have never looked in very details of business management like sales margins or even a few percent of market shares. Now we learn from the game and be more knowledgeable in making business decision. One of the most useful skills we learnt from BSG in Financial Analysis, we have had the chance to read Income Statement and Financial Reports every years, for last 8 years, many time, which we understand more about cost and revenues, details of cost, details of revenue, we notice the importance of loans, interest rate, credit ratings. We even understand the very details such as marketing per pair of shoes, cost of warehouse, administration per pair of shoes, which can contribute to the total cost making the Net Profit higher or lower then decide the Business Results and overall market development.