Prepared for

Dr. Lim
BSG Reflection Paper
NWMSU

Prepared by

Bryce, Jennifer, Elizabeth, and Dale

Students

26 November 2012
 Table  of  Contents  
I. Strategic Plan for the Company

II.  Rational  Behind  Strategic  Plan  

III.  Changes  to  the  Strategic  Plan  and  Rationale  

by  Year  

IV.  Contributions  of  the  BSG  to  the  Business  

Program  

V.  Shortfalls  of  the  BSG  to  the  Business  

Program  

VI.  Lessons  Learned  and  How  Performance  

could  be  Improved  

Appendix  1:  3  Year  Strategic  Plan  

Appendix  2:  3  Year  Strategic  Plan  Forecast  

and  Results  

Appendix  3:  Year  17  Footwear  Industry  

Report  

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I. Strategic Plan for the Company: Our strategic plan started with our vision. “Our

vision is to be the leading global footwear company in the industry. We will continue to

produce the high quality products that we have in the past to maintain our (prestige)

brand image within the industry.” Although the vision statement was not formulized

early on, we did know that we wanted to go global and we wanted a prestige product.

This laid the foundation for the strategic direction of the company.

We pursued a Global Differentiation strategy with a premium product. From this

overarching strategy we developed additional guiding principles for our company. We

formed a socially and ethically responsible company. We invested in green packaging

and energy efficiency initiatives. We invested in our greatest resource which is our

human capital. We trained our entire work force in ethics and work diversity program.

Additionally we invested in TQM training for all employees. We also completed plant

upgrade A and D to reduce the error rate and increase productivity.

The core of our business focus was in wholesales. We used the private label

market only as a way to use excess capacity in our plants and produce additional

income. It was never our primary focus. Internet sales were used to reach customers

unable or unwilling to go to a retail store. With the current competitive levels in the

industry our goal was to maintain over 20% market share in each region. Finally since

all companies are supposed to work for their shareholders we paid dividends early and

increased the payments as the company retained more free cash.

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II. Rational Behind Strategic Plan: The rationale behind the strategy was simple.

We made decisions that supported our vision statement. We used high quality products

from the beginning starting out at 7 stars and ending up at 10 stars. We also invested

in celebrity appeal. We did these two things to support our differentiation strategy to

create a perceived value for our customers so we could continue to produce a premium

product and charge a premium price.

We also pursued a global strategy. We wanted to take advantage economies of

scale with the overall strategy being dictated by the home office. We wanted to

continue to work towards a transnational strategy so we could also take advantage of

local responsiveness. We felt that by pursuing the wholesale market this would be

attainable. We would produce a standardized product and the retailers could manage

local sales and marketing. Within the confines of the game it was hard to evaluate if

would have been attainable.

It was important for us to have a company that was ethical and socially

responsible. This did use a lot of disposable capital early one, but it is the “right” thing

to do. From a moral standard, a company should be green so they can continue to

produce their product and not hurt the environment. From a bottom line standard, if you

produce green products you might not get hit with a fine from the EPA and will have a

sustainable source of raw materials for your products.

We knew we wanted to invest in both tangible and intangible assets It was

never a question that we would invest in our human capital. We wanted to create an

organization culture with a standard excellence and high set of moral values.

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Additionally we wanted a highly trained work force. Finally, we ensured our employees

were paid well. The combination of all of these factors created one of our core

competencies which were our employees. Our competitors could not match their

productivity or low error rate.

The tangible assets we invested in were our factories. We did this by completing

option A (reduce reject rate by 50%) and D (increase productivity by 25%). The error

rate for year 10 was 5% in North American and 7% in Asia. That error rate in year 10

accounted for 300,000 pair of shoes being rejected at a cost of $6.4 million dollars. We

did this to create our second core competence. We could produce more shoes at a

lower cost because we invested in TQM and our facilities. Since we never intended to

produce a wide range of models we did not use option B. We did look at option C but

felt reducing the error rate would be a better option.

We chose early on to focus on the wholesale market. It was the largest market

and it was projected to grow. We wanted to support our vision by focusing on our

premium shoe line. We invested in retailer support to foster growth in this area as well.

We did use the internet to sell to customers that did not want to go to brick and mortar

stores. We used private label to use excess plant capacity and create additional

income. As our capacity grew and the demand grew for private label sales increased in

this area.

Finally due to strong competitive rivalry in our industry out goal was to maintain

at least a 20% market share in each region. There were 6 companies in that same

industry so a 20% share was an aggressive but attainable goal. We did conduct

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competitor analysis on a weekly basis which did resulting in swift competitive responses

when needed. We decide most actions would be tactical in nature such as a change in

price, quality level or increase in marketing. Tactical actions are easier to turn on and

off and take fewer resources. We also worked hard for our shareholders. The purpose

of a company is to increase the value of the stocks for their shareholders. Even though

we did not have a lot of free cash early on, we decided to pay dividends every year and

work towards increase the value of the stocks.

III. Changes to the Strategic Plan and Rationale by Year: The overall strategy did

not change much each year. We did continually work to expand, meet the right mix of

marketing, celebrity appeal and price to maintain the market share of 20% per region.

The plan worked as you will see when we discuss our three year strategy. We will now

discuss our thoughts and changes to the strategy / tactical competitive responses by

year.

Year 11 first years Strategy: We started off year 11 where we left off on the practice

decisions. We started off at 7 stars which were two above the industry average. We

maintained a large share of private label sales. We noticed that we did not attain the

20% wholesale market that we wanted.

Year 12 second year strategy: We wanted to solidify our premium product and raised

the quality to 8 stars. We decided to increase our number of models of shoes back to

200 to increase sales. We raised our prices and significantly raised our marketing per

region. We decreased our private label sales. We also decided to take first mover

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advantage and build a plan in Europe. This also allowed us to mitigate the issues of

tariffs and shipping. We did hit our 20% whole sale market goal.

Year 13 third year strategy: This is the year that we truly committed to focusing on the

wholesale market. We had 0% private label sales. We did not make the gains we

expected. We believe this was due to increased competition and our competitors

raising their star level. We also committed to support our retailers and utilize the

maximum amount of retailers available.

Year 14 fourth year strategy: We noticed our key competitor had raised their star

rating to 10. We raised ours to 9. We felt that with our image and celebrity appeal we

did not need to go to 10 at that time to maintain our Differentiation strategy. We also

lowered or prices. We wanted to make a statement to our competitors that we were

going to maintain market share in each region. It worked. The wholesale market share

was 24.8% in North America, 26.2 % in Europe, 23.7% in Asia, and 32.6% in Latin

America.

Year 15 fifth year strategy and our 3 year strategy: The three year plan was time

consuming and tedious but important. It combined the art and science of management

and it forced us to look hard at where we had been, what had worked and not worked,

and where we wanted to go. As you can see in appendix 1 our global differentiation

strategy had worked. We led industry in every area except for free shipping. We did

decide to raise prices on average of 5% per region and us an average percentage as

the standard. We had had a hard time coming up with how we wanted to determine the

price. The three year plan forced us to think through these decisions more thoroughly.

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Year 16 sixth year strategy: We built a plant in Latin America. We were the only shoe

company with a plant in each region. This excess capacity allowed us to get back into

the private label market. We had noticed that the current demand was higher than the

supply. This strategy also reduced the risk of currency fluctuations and tariffs.

Year 17 seventh year strategy: There were no major changes in year 17. We

adjusted the prices slightly and redistributed our private label sales and prices to line up

with the demand per region. We were able to charge a higher price because the

demand was higher than the supply. This was largely due to other companies not

investing in additional plants or plant capacity.

Year 18 eighth year strategy: Year 18 we were in a pretty good rhythm. We noticed

that the industry average star rating had increased to 8 stars so we increased our line to

10 stars in order to maintain on premium product. We increased marketing to maintain

market share and increased our price an average of 3%. We paid a dividend of $2.50

and bought back 300 shares to raise our EPS. Finally we took advantage of our

increased capacity and increased demand by selling more private label shoes.

The strategy we chose worked. We maintained the market share we wanted.

We had a 100 image rating for 6 years. We maintained an A+ credit rating. Our stock

price increased every year. We maintained an average ROE of 20%. Our EPS

increased almost every year. As you can see in appendix 2 we hit our exceeded our

projections for our 3 year strategic plan.

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IV. Contributions of the BSG to the Business Program: Since this was our capstone

course we felt the BSG was good a way to put what we had learned to use. The BSG

was set up well. It gave you a very detailed background of the company. It also walked

through each area of the industry to include marketing, price, EPS, ROE, stocks, image,

credit rating, shipping, currency and the list goes on and on. If you did the work and

read the material, you had a clear understanding of second and third order effects of

your decisions.

It was good that the BSG author stressed that there is no right answer. It was

hard in the beginning. Everyone one wants to know the right answer or for someone to

tell them what direction to go. This forced or group to do research, read the material

and learn from our mistakes in the practice rounds. The BSG author also forced

students to read the material by having two quizzes along the way.

Using this program solidified the fact that a company must maintain awareness of

their internal and external environment. The game gave our company competitive

reports which we reviewed and used to adjust our plan as needed to ward off

competitive attacks. These tools demonstrated to us the purpose of scanning,

monitoring, forecasting and assessing the external environment. It allowed us to see

what our competitors were doing and predict what strategy they were using. These

reports also allowed us to tailor our tactical responses.

V. Shortfalls of the BSG to the Business Program: We felt the BSG was a good

tool to bring realism to the multiple decisions that mangers are faced with on a daily

basis, but also thought it was somewhat unrealistic. In the game we would say we

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wanted to produce more shoes and sell more in different regions, but did not have to

deal with any aspect of the support and primary activities. Our point is that you did have

to manage logistics and ensure you had excess supply to cover demand and you had to

put down how much you wanted to spend on marketing. What you did not have to deal

with in establishing the supply chain or the marketing plan per region. The personnel

factor was missing which is a big x factor.

Another example of the lack of reality is when we wanted to expand and put a

factory in Europe and Latin America. Granted for the most part these are stable

markets. However, before going into a new region a manger should review the

Hofstede studies and understand that most of Europe is much like the United States in

what motivates employees, how regulated their country is and how they communicate.

Germany would have been a good choice for a Company. However, in Latin America

business is built on relationships and loose contracts. The cultural aspect is huge when

looking to expand into other international areas.

We did not have to work through the International Entry Mode for either region.

We did start out with exporting, which followed the natural order of expansion once the

home market is saturated. Additionally we experienced one of the key drawbacks with

was high costs of transportation, tariffs and currency fluctuation. I think we would have

gone with an acquisitions strategy and try to buy a factory that already produced shoes

and use the current supply and distribution chain.

Finally the game did not make us evaluate the political or economic risk per

region. For example currently Europe is having significant economic problems in

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several countries within the European Union. A company would need to assess these

issues before deciding to expand. The bottom line is the BSG was a good program that

forced us to manage and think about multiple issues when we developed and executed

our strategic plan. It was almost too easy in the fact that it took out the people factor.

We did not have HR issues or cultural snafus. We did not have to worry about missed

shipments or political unrest. Over all it was a good program and we would recommend

it to any business department.

VI. Lessons Learned and How Performance Could be improved. We do not want

to brag, but we could not have performed much better. Note appendix 3, we were in the

top one hundred each week nationwide and attained a perfect score one week. We led

the industry most weeks in most measurable areas. What we could have done is write

our vision and mission statement week one and stick to the plan. That could have

increased performance.

We also needed to research what factors caused the price of stocks and the EPS

to rise. We felt that we did not have a clear understanding of these two aspects of the

business and did not do a good job with the forecast on our 3 year strategic plan. We

also could have taken better notes on the logic behind the decision each year. It would

have been good to write down key reasons for our decisions so we could go back and

review what did and what did not work.

We learned that a company needs strategic plan, but must be able to maintain

the flexibility to adjust as the internal and external environment changes. I think by year

15 we had a good handle on this. We all understood the overall strategy that we were

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following, but made minor changes in prices and star rating on our shoes as the industry

average changed.

We think one of the biggest lessons that we learned as a group was that going

green and being socially responsible is not an easy task. It is even harder when your

company does not have large amounts of free cash. The extra money is used to pay

shareholders and invest back into the company for expansion and factor improvement.

We were a light green company at best. We did not use “Green” footwear materials, but

did supported all other areas on the Corporate Social Responsibility and Citizenship

screen.

As we sat back and reflected on this we discussed how we wanted to be a green

company and if we had stayed true to our convictions that we might not have performed

as well. We also wondered if that very issue is why companies have ethical issues or

misconduct with their environmental programs within their companies. Mangers end up

going back on their values to make more money or to be the best.

This moral issue could move into any decision a manager makes on a daily

basis. When you go back on your values or do not do the “right thing” in order to win or

make more money you are not going down the right road. The key is to communicate to

your stakeholders and shareholders the reasons for the higher prices and reduced

dividends and see if they want to continue to be a green company or change the

direction of the company. Then you need to ask yourself is do you want to be a part of

a company that is not green or ethical.

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 In conclusion the BSG program is a good tool and should be made a part of any

Business program. It forces students to use what they have learned and make multiple

decisions with no “right” answer. This is a very real part of a manager’s day when they

allocate resources such as time, money and personnel or decide to train the work force

on TQM and ethics. It did lack a human factor and much of the real planning that would

take place before the decision was made or the work required executing the plan. It

made the game almost too easy.

Having a strategic plan with a vision and a mission statement is the key for any

new company. It is important that every employee down to the guy on the line

understands the big picture and vision of the company. Every decision made should

support this plan. We feel what took our team over the top was due diligence. Due

diligence is a must with the BSG game just as it is in mergers and acquisitions. We feel

the main reasons that our company came out on top is because of our due diligence

during the practice rounds. We read the material. We also understood where the

company was and knew the general direction where we wanted it to go. When the

game started our competitors were about a year behind. They could not make up the

ground they lost.

This lesson can be taken with the members of our team for the rest of our lives.

It is critical that in any venture you do due diligence so you have a clear understanding

of the current situation which allows you to make informed decisions and form a better

strategic plan. Managers that do due diligence will outperform their peers every time.

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Appendix  2:    3-­‐Year  Strategic  Plan  Forecast  and  Results    
Performance Year 15 Year 16 Year 17
Measures Target Actual Score Target Actual Score Target Actual Score
EPS $7.79 $9.28 16 $8.16 $10.42 16 $8.55 $11.94 16
ROE 19% 21% 19 20% 20% 20 20% 20% 20
Credit Rating A+ A+ 20 A+ A+ 20 A+ A+ 20
Image Rating 95 100 20 95 100 20 95 100 20
Stock Price $145.00 $176.77 16 $150.00 $198.71 16 $155.00 $227.04 16
Total Annual
Score 91 92 92
Overall
Performance
Score 91.7 (avg. of the 3 completed years)
 
 
 
 

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