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Mousetrap 2012
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The Mousetrap 2012 User Guide The Mousetrap Interactive Business Simulation
An advanced management training tool a dynamic, interactive simulation which emulates real business issues in an entrepreneurial setting. This simulation is a browser-based, Real-Time, Multi-Player business simulation, which runs on high speed servers in the USA and Europe. In this way we can deliver results instantaneously & simultaneously to participants all over the world. The Mousetrap business simulation is at http://confluence-2012.industrymasters.net/ Objectives : The objectives of this simulation are to impart an understanding of a. How to make decisions about the markets to enter b. How to position your offering so as to attract customers to it c. How to finance your business throughout its existence d. How to scale up organically and inorganically e. How to manage competition Your performance will be measured as a stock price. This is a function of your companys profitability: the decisions you take will add or destroy value for your shareholders. You will take management control for a number of business quarters or business months, and your decisions in the marketplace over this time period will affect your share price. Choosing to invest and develop certain product markets, setting higher or lower pricing and marketing levels, or devising a quality, HR or R&D strategy are some of the areas you can decide on to build your new business plan - and increase profitability, leading to a higher stock price for your venture. Your competitors will react to your decisions according to their own strategic business plan this is often a closely guarded secret. With careful study of their management decisions during the course of the simulation - and the following notes - you may find some clues to their approach and use this to beat them in the market. You will be under a constant time pressure to make decisions and understand the evolving competitive environment. You will not have all the time you need to come to what you may consider to be the best decisions. There is no single correct answer or solution you will make a range of decisions which will contribute to progress or decline. The system is extremely dynamic and will react to the choices you make. These notes assumes that you are a. on the Mousetrap simulation website at http://confluence.industrymasters.net/ b. you have registered as a user c. you have logged in, using the username and password given to you
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http://confluence-2012.industrymasters.net/loginclc.php?
The Login page is shown below. Enter your assigned user name and password and click Logon
Your username will be the parimary e-mail ID with which you registered. Usernames and passwords are CASE SENSITIVE.
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TIME GIVEN TO MAKE BUSINESS DECISIONS All players must log in 15 minutes in advance of their preferred time slot. The simulation will run 20 quarters over 60 minutes thus the time available to make decisions will be 3 minutes per quarter. Therefore, it is strongly recommended that you carefully peruse through all elements of this guide before you start playing. The first 15 minutes prior to the commencement of your 60 minute slot is the startup phase elaborated below.
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Every company: Begins with a market cap of 300M and has a share capital of 300M Is not invested into any product and has a AAA credit rating Has an investment budget of 540M.
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COMPANY SCREEN :
A. B. C. Your Company Name and Time Period Investment budget and credit rating Financial Planning, LT and ST debt, share issues and buyback. Product Module: Manage Prices, Maintenance Spend, Marketing, Expansion and Production Decisions View Accounting See real time balance sheet, P&L, cash flow statement and corporate ratios Invest Now Diversify into new businesses View Charts Graphic data for trend analysis Real Time Results View Competitor Performance Company Link Click here to return to the opening screen J. Industry Sectors Viewing sector specific real time market data K. Quarterly Report Competitor comparison across parameters in graphic format
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F. G. H. I.
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3.
Click the View Details button for the product that you are considering investing into to navigate to a screen that shows the parameters that should drive your product launch decision. On this screen, you will see the most important parameters to aid your investment decision, including: Supply: Number of units of the product that are available to customers for purchase Demand: The potential market size by volume of the product Supply Level: This represents the fraction of the total market demand for that product that is already being met by existing players, if any. Supply Level Forecast: This represents the fraction of the total market demand that is estimated to be met if you decide to launch this product now. All the above parameters change in real time in response to competitions moves; hence it is essential to monitor them continuously to be in touch with market situation.
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5. Click on the Launch Product button to close your choice of product. As soon as you do that, the just launched product will appear on your company dashboard as a separate business unit panel. Further, your investment budget will decrease to reflect the investment you just made.
ATTENTION: The simulation engine automatically takes on debt on your behalf as soon as your cumulative invested amount exceeds the seed capital.
TIP: You should be wary about getting into an product with a supply level approaching 90% or greater than 90%
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Focusing on a Sustainable Strategy Deciding How to compete will also involve setting a path that is rational profitable firms often focus their efforts on one of two approaches as indicated in the chart below: a Cost Leadership strategy, or a Differentiator approach. Either can lead to profitable and successful operations
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_________________________________________________________________ Price Hedging You will not be able to set prices for the following products within the simulation: All Products in the CHEM & ENERGY sector Cotton, Polyester, Leather and Dyes in the TEXTILE sector Lead, Tin, Bauxite Ore, Copper, Iron Ore, Silver, Gold and Aluminium in the METAL sector Wood and Paper in the WOOD & PAPER sector
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Step 2: Find out the price that will get locked upon hedging hover mouse over X next to hedge price
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Step 4: Verifying the effects of hedging sales price on left not equal to sales price on the right. Sales price on left = Hedged price Sales price on right = Current market price
Step 5: To turn off hedging at any point in time, click the check symbol next to Hedge Price so that it becomes a X again. Price hedging will be discontinued from the subsequent quarter onwards and your price will again be subject to market fluctuations.
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_________________________________________________________________ Competition The Competitors Tab shows who is competing in a particular product market, along with their market share for that product, sales and cost data
___________________________________________________________________ Expansion Expansion opportunities are explained in the Expand Tab with advice and hurdle on suitability of the action proposed. Upsizing is offered where you have the required budget available to invest and where your credit rating is above a minimum standard. Supply level forecasts and warnings are highlighted as necessary.
Before
After
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The planned production for the subsequent quarter must be adjusted by taking into account current inventory levels and your assessment of future demand. In production driven industries, maintaining high utilization levels is often the key to lowering unit costs. If you plan to produce more than capacity, then your per unit costs may be higher than normal as you will have to use overtime. This tab also shows your production output from the previous quarter. ___________________________________________________________________
Increasing maintenance capex has a number of benefits Utilization of fixed assets will rise as your machines break down less often Reduces customer churn that has a number of financial impacts lower marketing spend as fewer customers leave, and need to be replaced; as a result, inventory levels will be maintained at a more profitable level. Effective capacity will increase, which means your assets will be more effective
Reducing maintenance spending might improve short term profitability, however Effective Capacity reduces as machines wear out faster Utilization dips as they break down more often Customer churn increases
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For example, increasing the Customer Service budget will increase Demand (1st green bar in the diagram above) your customers will appreciate the extra care and attention you are offering; but will increase production cost (1st red bar in the diagram above) because of the additional cost of supplying this higher level of service. A successful combination of settings will depend on various factors like market saturation, debt ratio and relative competitor activity all of which fluctuate during the simulation.
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a. Customer Service: Higher levels of customer service will be expensive principally extra staff costs. This should be matched by setting higher prices, if you are trying to maintain profit margins. In a cost leadership strategy, a lower customer service budget might be appropriate. b. TQM/Product Quality High quality products are generally more complex, and require matching of higher industry standards, so increasing production costs. A company with a high quality position should also move prices upwards, to maintain margins. A cost leader might reduce investment into quality improvements, to cut costs. c. R&D/Innovation Increasing research and development spending should lead to more innovative products, for which there will be higher demand from consumers. R&D costs will be added to production costs so again, increases in R&D spending should be matched with a higher price strategy, so that profits can be maintained. A cost leader may wish to set a lower R&D budget.
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The choice of an additional investment is a long term decision and hence requires a careful thought on what is your priority in the long run: Are you going to be focused on topline growth in the long run? Is your focus going to be bottomline growth in the long run? Are both topline and bottomline growth important to you in the long run?
Before deciding to choose an additional investment that helps you achieve topline growth in the long run: Make sure you have built up the additional capacity required to serve the incremental demand that arises from the additional investment chosen Make sure that the markets you are serving are not already saturated; if this is the case, you will not see the incremental revenue growth promised by the additional investment.
Before deciding to choose an additional investment that helps you reduce costs: Scan the previous 2 to 3 P&L accounts to zero in on costs that have been denting your profitability Remember that you will have to trade off an increase in some other cost to reduce the cost that you have zeroed in on A good approach to making cost savings investments is to do the following exercise: o o Am I willing to trade off a slightly lower EBIT margin for a substantially increased gross profit? Am I willing to trade off a reduction in gross profit for a substantially increased EBIT margin?
Remember the following about additional investments: They start taking effect after the time required to construct them has elapsed. Monthly durations specified next to these investments must be converted into quarters to determine when they will take effect. Additional investments that are a capital expenditure result in the creation of an asset in your BS whose depreciation is charged to the P&L beginning the subsequent quarter, irrespective of the construction time. Further, these investments are characterized by diminishing marginal returns with time, as more and more of your competitors adopt them. Additional investments that are a one off cost get charged to the G&A costs in your P&L in the same quarter that you invested into them Additional investments that are a monthly cost get charged to the G&A costs in your P&L beginning the same quarter that you invested into them until their validity expires.
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Additional cost reductions may occur as a result of experience or learning sometimes these cost benefits are shared across industries (industry learning) as techniques and knowledge get passed around, or staff move between companies. A company that is striving to become a cost leader in its industry will focus heavily on driving costs down, including the application of economies of scale and experience curves. A key driver in this simulation is relative cost advantage, because of the high fixed cost / high fixed asset investment nature of the industry. You can improve your cost advantage with greater market shares
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1. Review how much short term debt has been granted to your corporation 2. View the difference in interest rates between Short Term and Long Term 3. Convert the required amount of Long Term Debt to Short Term Debt by clicking the Green + sign several times. 4. Your Balance sheet will reflect the changes you have made, and your P&L will have reduced interest charges next period. Data is updated for the next period. Redeeming Long Term Debt If you have built up cash balances from positive cash flow operations, and so have not been granted any short term debt, you could consider paying down some of the Long Term debt you have, to reduce interest charges
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Financing your business expansion The financial planning panel shown below is used for a number of important functions. 1. Balancing long and short term debt will improve your companys profit performance long term debt is cheaper than short term: convert short term debt at every opportunity, using the green + icon shown here
2. Share Issues: If you are planning to expand your business, you may want to issue more shares. Depending on your cash position, debt ratio and credit rating , you may be offered the opportunity to sell shares. A button Issue Shares will appear at this time (see below)
3. You may also wish to repurchase shares from the market this may depend on your excess cash position, and you may not feel that expansion opportunities are attractive enough for your business plans. Excess cash deposits earn only very small amounts of interest income.
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Summary information on all products is also available under the Industry Sector tab. Click on the link SECTOR METAL to see the screen below
> >
____________________________________________________________________ Overhead Costs : With each new investment, overheads will increase these are costs associated with managing the new production units you have started. There is some synergy effect a sharing of knowledge and systems - between different product lines in the same industry, which will balance some of this cost increase. Remember that low, current supply levels indicate greater growth potential
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___________________________________________________________________ COMPETITOR INVESTMENT ACTIVITY Finally, to keep a check on who is investing, where and how much : at the top of your screen on every page you will see the NewsTicker. This will be updated at every quarter, and shows recent investment activity by you and by your competition
If you click on any corporations name in this list, you will be able to go to see what that companys summary corporate information looks like and, potentially, be able to understand their business strategy, their strengths and weaknesses If you click on any product link, you will be taken to the product summary page. This shows which competitors are active in that sector, as well as a range of data charts with detailed, comparative market information
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At the bottom of your main company screen are a range of detailed financial reports which you should track the basic reports are Balance Sheet, Income Statement and Cash Flow. These reports are updated every period, automatically.
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Financial Charts : for example, cost structure, total corporate contribution margins etc
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BUSINESS SCENARIO CASE STUDY This is visible in the form of a storyline at the top of the screen and its impact on the left hand panel of the participant screen. Participants must watch out for significant events unfolding as part of the case study and alter their decisions accordingly, failing which, a less than desirable outcome may result.
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Sales (Revenues) The final amount of sales, determined by subtracting the amount of sales returns and allowances and sales discount from the total amount of sales, for a fiscal period.
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