2459-Advanced Strategy-2425_S2

Technical Issues

Q: I'm having a technical issue using/accessing CESIM.
A: While browsing both CESIM and Harvard Business Publishing Education, you should be able to find a small button for "Help" on the lower-left corner of your screen. Clicking it will open a live chat with the CESIM platform's support team. Please check with them about this type of issues.

Decision and Team Workflow

Q: We cannot find our 5th/6th team member / we are only 4/5 whereas other groups have up to 6 members
A: Most groups have 5 members, there are some groups with 4 or 6. The reason why some groups ended up with 4/6 students was simply based on the overall number of students per class and students that dropped out of the course. Though I understand that groups with 6 students may have some advantages, they may also have some disadvantages -  4 or 5 is a reasonable number.  So at the end of the day, things end up balancing out.

Q: How should we make decisions as a team?
A: How teamwork is organized is part of the exercise and you have to identify and justify what best fits with your team. Thereby, you are free to allocate your time the way you want to complete the team’s decisions. For instance, you may choose to allocate specific roles to one or several team member(s) (e.g. finance, R&D) and then gather to discuss and make decisions, based on each team member’s input.

Alternatively, each team member can individually fill up the decisions and the team can then gather to discuss overall team decisions. These are just two of many options. It is a very good idea to discuss how you plan to organize this process in the Initial Global Strategy Plan. The practice round is also here for you to try out a way to structure teamwork. Of course, you may need to adjust this during the course of the simulation. Potential changes in teamwork structure is also something that should be included in the final report.

Q: The case study and the market outlook have conflicting statements regarding the predicted growth rates of each market. Is this a mistake or intended to create confusion? 
A: They correspond to different timeframes (1 year vs. multiple years), and that if you consider that the external environment can change throughout the simulation, initial long-term expectations may not be realized. You should try to balance between the two projections, at least initially, to have a structured plan for the simulation.

Q: Are we allowed to use external information to enrich our case decisions?
A: In cases where you understand that the simulation is not providing you with enough data to develop a convincing strategy, you can use external data that is appropriate to the context of the case, namely, to make sound arguments about the external environment.

Q: I do not understand why the Interest rate for my team is way higher than the one of our competitor

A: Interest rates vary between countries and the moving cash between group, companies can be used to place the company debt wherever it is the cheapest. 

Q: Why does our cash increases in the parent company when we buy-back shares and it decreases in the other subsidiaries? 
A: The company capital structure is managed through the parent company treasury function in the U.S. If there are excess funds in Europe or Asia, those funds are automatically used to pay back local loans maintaining the minimum cash required. 

Q: How does the simulation compute the market value of the firm?
A: The company’s market valuation is based on the discounted cash‐flow method. In the simulation, realized performance is used to predict the future cash flows, taking into account future growth opportunities associated with long‐term investments like R&D and marketing.

Q: Regarding the products and available technologies. Will we have access to all products and technologies in all markets from round one? If not, will they be implemented incrementally?
A: You can invest in R&D for all technologies from the very start of the simulation, or you may opt for buying a licence for that licence, if that licence is available. If you decide to licence a technology, it will immediately be available to produce and sell in all markets. If you decide to invest in R&D to have that technology, it will only be available in the next round.

Q: We would like to ask for some help regarding the computation of the cumulative shareholder return in the CESIM simulation.
Ilustrative example answer:

A: At the beginning of the game, your share price was 183 $, same for all of your competitors (you can find this value under "time series" in the "ratios" tab). After the first round (=year), your share price increased to 237,24.  This results in a 29,49% return to shareholders for that given year ( 237/183 = 1,295 => increase by 29,5%).

(Your share price is calculated by dividing your market capitalization by the shares outstanding at the end of the round so for your case it is 7 117 205 / 30 000 = 237,24 $).

The calculation is, for now, more "easy" as there are no dividends paid yet and we are still in the first round. In the decision-making guide, you can find the formula for cumulative shareholder return. I am also sending a screenshot attached.

Q: We noticed that our value for internal loans is -62 000, having a positive impact on the total of the liabilities, reducing it. How is this calculated (-62 000) and why it has a positive impact on the liabilities?
A: Internal loans represent the transfer of funds between different countries in the simulation, and are used when you wish to repatriate cash for distribution or investments.

In this example, at the end of the first round the value for internal loans was -62,000 in the USA. For Europe it was -20,000 and for Asia it was 82,000. Adding up all the values, you have: -62 -20 +82 = 0. This means that, like the definition hints at, the sum of outgoing cash is equal to the sum of incoming cash.
Additionally, if the purchase of assets requires additional liabilities (due to not enough available cash, for example), the simulation will repatriate cash in the form of those internal loans to keep the above equation true.

Q: What is the cost “Sustainability” in the Financial Statements?
A: Sustainability cost is related to the supplier studies ordered and the change in suppliers.

Q: I want to find out the market growth for the Techs from round to round. where I can find it because we only estimate the market growth for each tech from round to round but where can I find the actual market growth that happened?
A: If you’re looking for the total volume of sales of each tech for each round, from which you can calculate the total market growth, you can find that information by selecting the “results” tab, and then “market reports”. All information regarding sales and demand are in that section. To have access to the previous’ rounds results, you just need to click the dropdown option on the top-right corner.  To go back to previous rounds and obtain those values, click that dropdown, and select the appropriate round. Downloading the values in an excel file, available in the “XLS” button on the top-right part of the screen, will help you in making whatever calculations you need.

Q: How do we withdraw from a market? 
A: If you want to completely withdraw or only sell one technology in a specific market, set the demand estimate on 0 and then double-check in the marketing tap that there is no price set for the technology in the specific market you want to withdraw from.

Q: Is it possible to balance the short-term and long-term debt, so by increasing the long-term debt, the short-term debt can be reduced? 
A: Short-term debt is paid based on the available cash, so you would need to have the necessary value “at-hand” to pay it. That cash can come from your profits, but you can also get it through a long-term loan. So you can consider restructuring your debt through that way, increasing long-term debt to pay short-term debt. 

Q: How is it possible that in market one group sold more Tech1 products with 3 features than us with 5 features and double the promotion budget?
A: What you sell is partially set by how much you produce. The fact that you may have underestimated demand in that round for that market, and consequently produced a lower quantity, may have left room for other teams to sell higher volumes than you. Secondly, while indeed higher promotion budget in the earlier rounds can have a positive effect on the other rounds.

Q: How can we calculate the cumulative shareholder return? 
A: Cumulative shareholder return can be calculated using the following formula: 

Where:
m = shares outstanding   (can be seen from Results / Ratios)
k = round number
n = current round number
D_k = Dividends given during round k (can be seen from Decisions / Finance)
r_k = opportunity cost of capital during round k  (can be seen from  Decisions / Projections / Parameters)

Q: Are the network coverage estimates going to change? Does it refer to the whole population or only the ones who could buy a car (ie not children)?

A: Network coverage estimates will stay the same throughout the game. The estimates only refer to the potential customer base, i.e.only  the ones that can buy a car.

Q: Are there economies of scale / scope for production across countries?

A: Yes, there are economies of scale and they apply across both production areas. 

Q: Is there learning across different technologies? For instance, if I produce hybrid, can I use learning from my previous experience producing electric?

A: There is learning for each technology, but not across technologies. So to answer to the latter; no, previous experience producing hybrid is not carried over to electric. 

Q: Are there synergies / learning across production and R&D?

A: In production there is a learning curve, and it is technology-specific. But there are no synergies / learning carryover effect to R&D. 

Q: Are there long term benefit of working with the same supplier(s)?

A: Not necessarily. However, when you pick a supplier that was not selected in a previous round, there is a cost of choosing a new supplier, so by keeping the same suppliers the company avoids that cost.

Q: Can we rely on our suppliers to deliver the amount requested?

A: Yes, this applies for both contract manufacturing and the procurement suppliers. 

Q: Why are the retained earnings the same for everyone?

A: Retained earnings for round X is calculated as follows: round X-1 profit + round X-1 retained earnings. Since the initial situation is the same for each team (i.e., each team has same profit and retained earnings), the retained earnings for (practice) round 1 will be the same. However, as the simulation progresses, you will see differences in the retained earnings as the teams start making differing profits.

Q: How does buying/ selling technology work regarding # of features? If we buy the tech from another group (or sell it to), does it include the features already developed?

A: If you buy a completely new technology, the minimum is "New technology + 1 feature".  However, you can still buy more features if you wish. Selling / buying licenses between the teams include only the technology + 1 feature, i.e. the "bare minimum". So, for example, if 'Green team' had Hydrogen technology and 5 features and they were to sell the technology to 'Red team', the deal would include only the technology + 1 feature, regardless of the number of features of the 'Green team'.

Q: Is there a sweet spot for the equity/debt ratio?

A: Around 40%-60%

Q: Can you sell in the US if you don't produce there?

A: Yes, you can sell in the US (or Asia) even if you didn't have any production there. If you're having issues here it is probably because you didn't have any products offered to the market on the Demand page:

This results in the pricing decisions to be disabled for the corresponding product slots in the market in question. The logic works the other way around, too: you can produce in the US or Asia even though you wouldn't be selling there

Q: Is the learning-curve for in-house manufacturing non-linear? Does it differ across technologies ?

A: Indeed, the learning curve is non-linear, and it differs across technologies, i.e. there are no spillover effects to other technologies.

Q: When we sell a plant, can we still use it in that same round? Also when does the money become available?

A: the plant stops working after 1 round, and the delay for receiving the cash is also 1 round. So, if you were to sell a plant on round X, it would still be operational during that round. However, for round X+1 you wouldn't have that plant any more, and sellers would also receive the cash during round X+1.

Q: What is /impacts internal sales?

A: Revenue from internal sales is simply number of products transferred * average unit value in inventory.

Grading and Deliverables

Q: Where can I find information on the CESIM global strategy initial plan and final report?
A:You can find this information in the assignment brief, which is under Assessment / First Component.

Q: Regarding the structure of the initial plan report. In the assignment brief you give us topics (arenas, vehicles, etc.) which we should elaborate on. Are we supposed to use these topics as structure/chapters or are we free in terms of structuring the report?
A: You can have your own structure, the elements suggested need to be discussed but you may adjust the structure depending on how you think it best fits your case.

Q: Are we allowed to attach some analysis in appendix which are excluded from the +/-7000 words or will an appendix section count towards the word limit?
A: You can include Appendices but the rest of the document must be understandable without them as we may not have the time to look at them in detail).

Q: On which criteria will the final performance be assessed?
A: Part of your grade, as per the Syllabus, will be based on your performance in CESIM (CW2). The metric on which this performance evaluation will be based is cumulative shareholder return relative to the performance of other groups in each market.

Q: Why did the CESIM simulation grades not take all markets into account?
A: There is a good reason behind the grades being focused on each class/market and not the whole course. The reason is exactly because cumulative shareholder return (i.e. financial performance) is indeed influenced by dynamics in each market. One cannot compare cumulative shareholder return from one market to another market. For instance, depending on the dynamics of the market (i.e. including behaviors of competitors), a performance of 5% may be very hard to get in one market but very easy to get in another. The CESIM team was very clear that we could not and should not compare across markets. 

As mentioned several times in class, you can relatively easily compensate your grade of the CESIM simulation with the final report counts for much more than the financial performance of the simulation. We will be mindful if a tiny difference here would potentially influence the final grade significantly. Also please note that while grade xx might seem disappointing to you now, it is still in the upper third of all grades possible. We chose to not give grades below the passing grade of 10 as we know that preparing for the decisions requires significant effort.

Report 

Q: Is it enough if 1 of the team members uploads the report? 
A: Yes, it is sufficient if only 1 uploads the report. 

Q: Does the Report has a page limit? 
A: No, only the word count. 

Q: Do pictures and tables included in the main body of the text count towards the word count? 
A: No, tables/pictures, that are important should be put it in the main body and not in the appendix. It does not count towards the word count.

Q: I have a question regarding the following sentence in the brief paper, could you be so kind and maybe explain the sentence to me since I don’t really know what it means exactly.

Importantly, the report must include a discussion on how you included responsible business conduct in your strategy and its implementation (i.e., taking into consideration all stakeholders, conducting appropriate due diligence). While conducting business responsibly is crucial per se, note that it also influences performance in CW4.

A: The point you state is related to the topic of sustainable business. As included in this brief, we will be looking for a discussion on how responsible your activities were for all stakeholders (not just the shareholders). As we discussed in class, this points means that you need to have a long term perspective, finding the balance between the financial results and being mindful of other stakeholders (e.g. making sure layoffs will not be needed after round 4 because of actions taken before that which were intended to increase short term financial performance). You may want to skim through the OECD guidelines for responsible business conduct and refer to them in the final report, for instance when discussing due diligence with suppliers.

Q: How should we define the structure for the final CESIM report?
A: You can refer the initial plan, mainly in terms of the initial strategy you outlined then. If you made any changes to the strategy (namely based on the feedback you received), you should also include what you did (or did not) change. The decision in terms of how to do that is also part of the exercise of developing this report. Regarding the level of detail, you should go as deep as you think appropriate, keeping in mind the word limit and that you make sure that everything in the report is consistent, connected and non-redundant and reflective of your outlined strategy.

Q: Do we need to add "CESIM“ as a source whenever we take information out of the market outlook etc.?
A: If you’re referring to information from the simulation itself (e.g. the Market Outlook for each round), you can just state that that’s where the information was retrieved from.

Q: Do interest rates affect demand?
A: No, interest rates are not reflected in product demand.

Q: Is it possible to adjust the features and price of the current inventory ?
A: Yes. The inventory can be thought as an inventory for the “base product”, i.e., a product with no features. The features are added to the base product later on, based on the decisions made by the team. So, if you sell products with 2 features from your inventory on round X, you can sell products with 3 features (or any other number of features you have available for production) from the same inventory on round X+1.