IAE – IMBA 2023/2024

G.Fayolle – dec 2023

OPEN
Business Simulation

« OPEN » is a Business Simulation that tracks the growth of an enterprise in a competitive

market.

The student, or group of students manage the enterprise over the course of five years and must
make management decisions with the main goal of rapid development of the structure as well
as the profitable growth of sales.

This simulation allows the group to :

- Become aware of the complexity of management decisions,

- Measure the interactions between business decisions, production, investment, finance,
and social aspects... as well as measuring the creation of value,
- Create competition between participants, the results obtained being measurable and
comparable.

Program : management of an enterprise over a period of 5 years.

We need four groups, 1 gmail address for each group, results will be given via google drive.

Day 1 :
 8h00 to 10h00 : Preparation and presentation of a business plan : adopted
strategy and expected results.
 12h15 : Decision grid year 1
 15h30 : Decision grid year 2
 17h45 : Decision grid year 3
Day 2 :
 10h00 : Decision grid year 4
 12h00 : Decision grid year 5
 14h30 : Presentation by the groups (15’ each) summarizing the results after
5 years and compared to the initial business plan.
 Main Characteristics of « OPEN »

Within the sports market, racket sports occupy an important space. Tennis is the most publicized
discipline, and is practiced by amateurs and professionals all over the world. The economic stakes
are therefore significant, as such there are many players who want to expand in this sector.

Four industrial SMEs of comparable means and size have positioned themselves in the French
racket sports market.

As Innovation is an important factor in gaining the advantage in the market, a new type of tennis
racket is being produced and distributed for 4 years by the SMEs and the market is growing
rapidly.

One of these 4 SMEs has been bought, the new management has high hopes about the
profitability of this activity. However, the other three SMEs are not known for leaving much space
for their competitors...

The objectives of a SME are defined by its ambitions and means as well as the market and
competition. A set of decisions must be made at the beginning of each annual period, in a limited
amount of time.

The company intends to measure changes over 5 periods, in order to identify the results of the
decisions made.
Sales & Marketing

The enterprise is part of a market in which growth depends on elements that she does not control
: the economic and social environment, the amount of the efforts of companies to make a product
visible and attractive to the public, as well as the current and future tariff positionings of all the
actors.

The growth of the market, in volume of sales, is evaluated according to the graph below.

100

The growth of the market share of a company depends on :

- Tariff Policy
o The sale price must be consistent in relation to the defined objectives as well as
product positioning.
o Price deviations compared to the annual average sales price of the market will
deeply impact the quantities sold.

- Advertising Effort
o The advertising budget is vital, but its effectiveness becomes limited after a certain
point.
- Brand image
A brand image is built on the quality, on the look of its products, and on the valorisation
by the distribution circuit.
o Product quality depends on the level of the rejection rate at the end of the
production.
 o Using a design agency to improve upon the product's final look may be a wise
choice.
o The companies market their products through specialized distribution networks
within the sports market. Specific actions can be taken with the distributors to favor
the promotion of the products : additional margins, gifts…

The commercial data are the following ones

Year 0 Market share % Selling prices to Quantities sold

Enterprises distributors
Andy 25,02 % 57,96 137 220
Novak 24,84 % 58,49 136 240
Séréna 25,01 % 57,99 137 180
Rapha 25,13 % 57,42 137 860

The average initial advertising budget is 150 000 €.

The annual market survey costs 10 000 € per year and is purchased every year by all the players,
who then have the most up to date information on market trends, as well as the competitive
position and performance of each business.

The decisions that can be made at the beginning of each cycle are as follows :

● Percentage modification of the selling price

● Amount allocated to advertising expenses
● Other expenditures for external service providers (design agency)
● Specific charges of the distributors

Annual production is decided at the beginning of the cycle and in the case of a shortage of finished
products it is not possible to resort to subcontractors or to import identical products.

Therefore, it is necessary to define the sales objectives and the best production plan.

Production
Production workshops :

The production process and raw materials are the same for all the actors who share the market.

Each factory has 5 production workshops, two are 4 years old and three are 2 years old.
8 workers are posted in each workshop per day. Productivity can vary with the age of the
machines as well as the management of the personnel.

The lifespan of the workshops is 8 years, the production levels are reduced during the years 6, 7,
and 8 as the workers need to spend more time in maintenance of the machines than in the early
years of production. Maximum productivity is shown below :

Year 6 Year 7 Year 8

Maximum
productivity of 75% 50% 25%
each workshop

Coefficient of productivity : A workshop is able to produce 36 000 products per year under normal
conditions. Only the implementing of overtime can increase production.

Quality control :

After a very bad year 0 (40 000 defective products were destroyed) the company must definitely
take into consideration the quality control.

The rejection rate on leaving the workshop varies from 0 to 5% depending on the resources
invested in quality control. A higher rate means a larger risk of putting a defective product on the
market. Reducing the rejection rate of one point costs 20 000 € per year.

Research and Development Effort :

Resources allocated to the R & D team can lead to a 25% drop in price of production by using a
lower amount of graphite in the composition of the frames.

At the end of year 0, the head of R & D is convinced of its success, but cannot predict when
development of the product will be over.

A minimum of 5% of the sales given to R & D each year will lead to a realistic chance of achieving
the cost reduction within the next five years.

The average R & D expenditure for the year 0 is 420 000 €.

Inventory :

The raw material is not stored, instead a Just-in-Time (JIT) procurement policy has been put in
place, supplying raw material when needed.

The finished products that are not sold are stored, their cost includes the sum of supply costs and
raw materials as well as personnel expenses and depreciation.
The cost of storing the surplus is estimated at 4% of the final value of the stock and invoiced by
company specializing in logistics where the products are waiting to be sold.

The decisions to be made at the beginning of each cycle are as follows :

● Acquisition of a workshop at the price of 400 000 €

● Level of R&D expenses
● Level of product control expenses
● Hiring factory workers
● Level of overtime

Social

The company employs 70 people, including 40 factory workers, 12 commercial staff, and 18
others with varying jobs (technical managers, R&D, purchasing, administrative staff and director).

The social climate can impact productivity. Decisions must be made regarding the salary increase
policy, the use of overtime, and organization studies.

Wage policy regards the annual increase in wages, which takes into account changes in cost of
living as well as the desire to attract new employees to the company.

It is possible to propose overtimes to factory workers, with a limit of 120 hours per person per
year at a rate of 125%.

Every year the company may request an external service provider to improve working
conditions :
- Less accident and disease,
- increase the satisfaction index.

The price of the studies depends on requests and can vary from 0 to 40 000 € per year.

The satisfaction index of personnel allows the measurement of the well being of employees in the
working environment as well as the risk of social movements.

The index at the end of year N is at 90 out of 120. A score below 80 can lead to strong social
movements.
Variable wages for commercial staff :

A 20% increase in quantities sold compared to the previous year allows a 300 000 € bonus in the
annual gross salary, to share between the commercial staff.

The decisions to be made at the beginning of each cycle are as follows :

 % evolution in salaries

 Hiring other workers

 Amount allocated to improve working conditions

Investment and Finance

Acquisition of an additional workshop : the overall cost of a workshop is 400 000 €, and the
amortization period is 5 years.

At the end of the 8th year the machines are worthless, and scrapped.

Borrowings :

Borrowing is possible and recommended for financing workshops, at an average market rate of
4,5 % for 5 years. It is not possible to borrow for operating expenses or salaries.

Companies must keep the total net borrowings bellow the owners equity.

Savings account:

Cash surpluses can be put in a savings account, paid at a rate of 2%. (positive on the decision
grid).

The recovery of funds is possible at any time (negative on the decision grid).

Overdraft :

An overdraft is authorized within the limit of 1 000 000 € at a 10 % annual rate.

If this limit is exceeded, one year will be granted.

If the company does not recover, the cessation of payments will be noted and the company
liquidated.

Third party receivables :

The distributors pay at 60 days, a decision can be made to grant discounts for a cash
settlement. The amount of the discount is 2% of the sales price. Within limit of 20% of sales
(0%, 10 % or 20 %).
VAT is applicable at a rate of 20%.

Liabilities :

The suppliers are paid at 60 days

Corporation tax is calculated at a rate of 33 1/3 % of the year's profit. In case of a loss It is
calculated as a negative tax on the basis of carry-back deficits.

Owner’s equity :

If the result is positive, a portion may be distributed to the associates the following year.

Required return :

For the shareholders, the level of the required return is 12 %.

The decisions to be made at the beginning of each cycle are as follows :

● Amount borrowed (multiple of 100 000 €)

o Limited to the investments made during the year
● Savings account (multiple of 10 000 €, and negative if recovery)
● % of sales to distributors with discount (0 %, 10 %, 20 %)
● Dividend distribution to associates (in €)
 DECISION GRID
Year 1 Year Year Year Year
example 2 3 4 5
Percentage modification of the selling price( 0 %, 0,5 %, 1 %,
1,5% …) 2,5%
Other expenditures for external service providers (design
agency), in € 20000
Specific charges of the distributors, in € 20000
Level of R&D expenses, in € 20000
Level of product control expenses, in € 20000
Market survey cost 10000
Amount allocated to advertising expenses, in € 20000
% evolution in salaries (0 %, 0,5 %, 1 %, 1,5 % …) 2,5%
Hiring factory workers : numbers of people hired over the year
(0, 1, 2 , 3 …) negative if dismissals 8
Hiring other workers, including commercial staff : (0, 1, 2 , 3
…) negative if dismissals -8
level of overtime, in number of hours 100
Amount allocated to improve working conditions, from 0 € to
40000 € per year 30000
Acquisition of a workshop at the price of 400000 € : In number
of workshop (0, 1, 2, …) 1
Amount borrowed (multiple of 100000 €) : Limited to the
investments made during the year 200000
Savings account (multiple of 10000 €, and negative if
recovery) 20000
Dividend distribution to associates, in € 5000
% of sales to
distributors with discount (0 %, 10 %, 20 %) 10%