Demand Softens as R&D Drops

Orders in the EchoPen industry increased by only 2% during the last quarter after a 20% jump in the previous quarter. At the same time companies reduced R&D expenditures by 34% while raising prices to an average of $45 per EchoPen, an increase of 5%. The combination of higher prices and lower costs boosted profits by 36%. Unit sales once again fell short of production and, after a drop of 17% in the last quarter, inventory was up by 6%. Capital investment rose by 9%, indicating there are likely to be even more EchoPens produced in the next quarter.

"I fear EchoPen companies may be shortsighted," an analyst observed. "By taking profits now and not investing in their products, they might not be able to get the high prices they like. Customers are willing to pay for new features, but increasing Marketing without also improving their products might not work!"

Workers Enter Contract Negotiations

With their contracts about to expire, unions in the EchoPen industry have entered negotiations with management over terms of a new contract. All areas of employment are being discussed with a focus on wages and the benefits that are available if capacity utilization decreases and a worker is laid off. "They are pushing us to work harder and harder," one union member exclaimed, "and making lots of profit. The companies should share that with the people who make it for them!"

Banks Boost Loan
Limit to $35,000

Major banks announced an increase in the Loan Limit, the maximum a company may borrow, for EchoPen companies. The new limit is $35,000. With the new Loan Limit, all EchoPen companies now have an additional $5,000 of borrowing capacity which they can use for decision-making.

"EchoPen companies have become very profitable," a banker stated. "If they use their borrowings well we don't have to worry about them paying back their loans and we get to keep the interest!"

Preparing for Round 2

Round 2 of the Hewlett-Packard Global Business Challenge will consist of 64 groups of 8 teams. The 2 teams with the highest MPI scores in each of the 256 groups in Round 1 at the conclusion of Period 7 will advance to Round 2. In the case of a tie in MPI score, the team with the highest Retained Earnings at the conclusion of Period 7 is eligible to advance.

In addition to having one of the two top MPI scores, a team must meet the following conditions to advance:

• The registration fee must be paid.
  
• Loans must be within the Loan Limit at the conclusion of Period 7.
  
• The team must have entered decisions in the majority of periods.
  
• Complete information about the team, including team member names and birth dates along with a team description, must be posted in the Team Information Center.

If a team with one of the top MPI scores in a group at the conclusion of Period 7 is not eligible to advance, a team with the next highest MPI score will be invited to advance in its place.

To add information about your team, go to the Team Information Center by clicking Team Info on the HPGBC web site at www.jaintl.org/hpgbc. Select "Update Team Information" and then enter your team name and password. Add the requested information and click Continue.

Spaces for team member names and birth dates were created based on the number of members indicated when the team registered. All team members must be listed and all spaces filled out. Contact hpgbc@harvassoc.com if there are too many or two few spaces for your team.

Payment

Registration fee payments are now posted in the Team Information Center and invoices have been sent to teams that have not yet paid. Be sure your team is marked as paid when updating team information.

March 12 is the deadline for payment of the registration fee. Teams that have not paid the registration fee are not eligible to advance. Any questions about registration fees should be sent to vanessa@jaintl.org.

Decision Deadlines

Decisions in Round 1 of the HPGBC are due by 12:00 noon on Friday HPGBC time (GMT minus five hours). Enter decisions early to avoid server congestion near the deadline. Decisions may be entered more than once--the last decisions entered before a period is closed will be the decisions used.

Plan ahead for future decision deadlines:

Deadline for Period 5

The decision deadline for Period 5 is 12:00 noon on Friday, March 12.

MESE Performance Index (MPI)

EchoPen company performance in the Hewlett-Packard Global Business Challenge is measured by the MESE Performance Index, known as MPI. MPI is based on six factors that measure business performance. Like a stock price, which MPI resembles, there is not an exact formula for determining MPI. The factors described below contribute to a company's MPI. The teams with the two highest MPI scores in each group at the conclusion of Period 7 of Round 1 will advance to Round 2.

Retained Earnings - Retained earnings makes up 50% of MPI score initially. The higher a company's profit, the higher its MPI score. The best way to boost your MPI score above that of your competitors is to make more profit than they do. This factor is cumulative over time, based on a company's profit from the beginning of the simulation.

The following factors compose 10% each of MPI:

Operating Efficiency - Companies that operate efficiently, measured by capacity utilization between 75%-85%, have higher MPI scores. This factor is recalculated each period. If you must close your factory for a period to reduce inventory, do so in Period 6 rather than Period 7.

Capacity - A larger factory contributes to a higher MPI. This factor is based on the total production capacity a company has built since the beginning of the simulation.

Unit Market Share - The higher the unit market share a company achieves, the higher its MPI score. This factor is calculated each period so depends on a company's unit market share in that period. Unit market share is the number of EchoPens sold by a company divided by the total number sold by all the companies in the group in a period.

Brand Awareness - The more a company spends on Marketing and R&D relative to its competitors, which increases its brand awareness in the market, the higher its MPI score. This factor is cumulative from the beginning of the simulation.

Growth - The more a company's revenue grows from one period to the next, compared to revenue growth in its entire group, the higher its MPI score. This factor is based on the current period. A large increase in Sales in a period can boost a company's MPI score.

Ties - Ties in MPI score are broken by Retained Earnings. If two teams have the same MPI score in a final period, the team with the higher Retained Earnings is named the winning team.

The EchoPen Industry Economic Information Organization (EIEIO) provides The MESE Street Journal with financial information about the EchoPen industry. This information reflects the operations of all companies in the industry and sums each category for all companies and groups. It is useful to see the trends in the entire EchoPen industry. You can compare how your particular market compares to the worldwide EchoPen market. Seeing what is happening in other locations can help predict what might happen in your market.