PARTICIPANT HANDBOOK

Gavin Fraser - Blue Ocean Strategy Initiative Centre Dr. Rmi Triolet - StratX

Copyright 2008 by StratX

2009-08-23

Table of Content
1 Introduction to the BOSS Challenge ________________________________________________1 1.1 1.2 1.3 2 Your Role ________________________________________________________________1 Your objective ____________________________________________________________2 Working in a team ________________________________________________________2

Introduction to the BOSS World ___________________________________________________2 2.1 2.2 Introduction to the Market _________________________________________________2 Key Competing Factors _____________________________________________________3 Price ____________________________________________________________________3 Sophistication of Gaming Experience (Console Power) ____________________________3 Graphics Sophistication _____________________________________________________3 Controller Sophistication ____________________________________________________4 Audio Sophistication _______________________________________________________4 Multimedia Add-ons _______________________________________________________4 Quality of Online Support ___________________________________________________4 Online Gaming ____________________________________________________________4 The Current Customers of the Industry ________________________________________4 Segment 1: 6-21 Year Olds __________________________________________________5 Segment 2: 22-35 Year Olds _________________________________________________6 Segment 3: 36+ Years Olds __________________________________________________7 Distribution Channels ______________________________________________________8 Low Price-orientated Channels _______________________________________________9 Specialized Electronics Stores ________________________________________________9 Video Game Chains ________________________________________________________9 Shopping Preferences ______________________________________________________9 Marketing ______________________________________________________________10 The Competitors and their Offerings _________________________________________10 Shiny Apples ____________________________________________________________11 Purple Plums ____________________________________________________________11 Yellow Bananas __________________________________________________________12 Blue Buddies ____________________________________________________________12 Expected offering upgrades over the next 3 years _______________________________12 Services and Delivery _____________________________________________________13 Introduction to the Blue Buddies Organization _________________________________13 Kel Sharkland CEO ______________________________________________________14 David Richter CFO _______________________________________________________14 Sally Burley Marketing Director ____________________________________________14 Rick Stark Operations Director _____________________________________________15 Barb Regan Sales Director ________________________________________________15

2.3

2.4

2.5 2.6

2.7 2.8

Introduction to the BOSS Software _______________________________________________15 3.1 Your team file ___________________________________________________________16 What is a team file? _______________________________________________________16 Where is the team file located? _____________________________________________16
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Is the team file protected? _________________________________________________16 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Loading your team file from server __________________________________________16 Loading your local team file ________________________________________________17 Saving your team file on the server __________________________________________17 Submitting your team file for server _________________________________________17 Activating your team _____________________________________________________18 Working in groups over several days _________________________________________18 Working in an environment with limited access to Internet ______________________19

Copyright 2008 by StratX

2009-08-23

1
1.1

Introduction to the BOSS Challenge

Your Role

Welcome to Blue Ocean Strategy Simulation (BOSS) ! You and your team will take over the management of a fictitious company in the video game console market at the beginning of 2008. You will be leading the company over the next nine years. At the beginning of each year you have to make key strategic decisions. A computer model then simulates your performance during the year. You are then able to see the results you have achieved as a consequence of your strategy! This introduction to the BOSS World covers the main aspects of the market, the customers, the distribution channels, the existing offerings and the competitors. At the beginning of each Round there is an additional introduction to provide you with more specific details about that Round. The eight years during which you lead the organization are organized into four Rounds. A Round is broadly related to a particular set of learning objectives. Within a Round you may have one or more years as shown on the chart below:

Each round presents you with new strategic challenges: Round Red: Managing your existing offering for 3 years, using Competitive Strategy tools as a basis for your decision making Round Blue 1: Creating a high value (differentiated and low cost) Blue Ocean Strategy product offering, perhaps including competing factors beyond those on which the industry currently competes Round Blue 2: Unlocking further demand by determining the right Strategic Price and refining your offering Round Blue 3: Extending your Blue Ocean Strategy by using Service and Delivery platforms as a basis for creating uncontested market space, as well as dealing with the presence of new lowpriced competitors. It will take you and your colleagues about 2 to 3 hours to complete each Round. Hence, the total exercise will last around 10 hours plus pre-reading.

Copyright 2008 by StratX

2009-08-23

Note: your Instructor may have decided to skip the Red Round, since completing this Round is not mandatory in order to fully understand the Blue Ocean Strategy concepts covered in Blue Rounds one to three. Similarly, he or she may have decided to combine Round Blue-1 and Round Blue-2, as shown below, to provide you with a more condensed learning experience.

1.2

Your objective

Your objective over the next 8 years is to maximize the Share Price Index of the fictitious company that you will be managing called Blue Buddies , a measure that takes into account several indicators including net contribution generated, product market share, your ability to grow the organizations revenues and the quality of projects successfully completed.

1.3

Working in a team

It is helpful to establish a good working relationship within your team. It is strongly recommended that each team member be involved in all discussions in order for everyone to have the same understanding of the business situation. Try to avoid letting each member concentrate solely on his/her area of professional expertise. As the simulation evolves, your team will develop a common understanding of the strategic issues. In parallel, the management of the organization will become increasingly complex. Usually, by the third decision period, the members of the team can begin refocusing on a specific area of responsibility. By following this process, not only will you maximize your internal resources, but also ensure that everyone benefits equally from the BOSS experience and key learnings.

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2.1

Introduction to the BOSS World

Introduction to the Market

There are two broad geographic markets similar to continents: Roundland and Starland. Roundland has a population of 125 million and could resemble North America. Roundland is the home country of all the major competitors in the market and is thus the market where new offerings are assumed to be launched first. Starland is about the same size as Roundland, with a population of 130 million: it could be viewed as similar to Europe, with multiple languages and countries. Investment in geographic expansion into the Starland market is financially rewarding, although it requires more investment since there are fewer region-wide players and each market has its own cultural and business idiosyncrasies. The total video gaming market consists of hardware (the video game consoles) and software (the video games themselves). Hardware and software each account for about 50 % of the $7.4 billion market.
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The current video console market is thus worth $3.8 billion annually. Annual sales peaked at $5.0 billion 5 years ago, but unfortunately the market has been in decline since then. Over each of the last three years it has declined as shown on Figure 1 below.

Figure 1 Market size and growth rates over the last 3 years

The household penetration of video game consoles in Roundland and Starland is about 53% - so, over half the homes in the market have at least one video game console, and many have more than three! These have accumulated in households over many years, as each console is replaced by a more powerful and sophisticated one as the industry drives relentlessly to exploit the exponential technological improvements within the broader computer and electronic entertainment device industries. The video games industry has been through peaks and valleys in the past. What creates a new peak is mostly the long-awaited launch of ever more powerful and sophisticated gaming consoles. Technological novelty and sophistication is a strong driver of consumption in the industry, especially amongst the core customer group. Once they mobilize behind an offering, the rest of the industrys customers follow suit.

2.2

Key Competing Factors

This section explains the competing factors which are most important to customers (and thus competitors) in the Red Ocean. Price The current prices for the four competitors' game consoles vary between $250 and $660. The allowable price range for your decisions within the game is from $100 to $660 per console. Sophistication of Gaming Experience (Console Power) This factor is measured in GHz (Gigahertz), referring to the speed of the main processor which drives the visual and audio experience, and the ability of the controller to direct many different tasks almost simultaneously. Console power varies between 2 and 10 GHz. Graphics Sophistication This is measured in Mbytes and is accountable for the degree of lifelike movement and scene-setting within the virtual world, as well as the number of colors and the ability to select widescreen, letter box or standard aspect ratios. Graphics Sophistication ranges between 32 and 288 Mbytes.

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2009-08-23

Controller Sophistication Controller sophistication refers to the number of buttons on the controller, whether it is wireless or not and whether the controller includes any haptic devices, transmitting tactile sensations an example of the latter is a shaking or rumble function in the game controller. Controller sophistication is measured on an index from 4 to 20 and is largely driven by the number of buttons on a controller. Beyond this, a haptic device raises the index by 2 points, as does having a wireless connection between the controller and the console. Audio Sophistication Audio sophistication refers both to the clarity and richness of the sound as well as to the number of channels it supports. It is measured on an index from 1 to 9. The index at level 1 represents mono sound. At level 2 it represents stereo sound. At level 3 it represents stereo with early generation Dolby sound enrichment and clarity. From level 4, sophistication increases as channels increase to four and then to 5.1 (including a subwoofer), 6.1, 7.1 and finally 10.2 for the extremely sophisticated home cinema with twelve speakers. Similarly, as the number of channels increases, the sound enrichment progresses from early Dolby enhancement to Dolby Pro Logic, DTS, SDDS, Dolby Pro Logic II, Dolby Digital EX, DTS-ES and finally DTS-HD, true high definition sound. Multimedia Add-ons Over and above the basic gaming capability of a console, various other entertainment devices may be included within the console unit, or connections are available so that customers can connect the gaming console to other devices (e.g. HD television screens) as well as to the internet via a wireless or wired connection. This competing factor is thus measured on an index from 1 to 9, where 1 is no other devices other than the gaming console itself. As the index increases, it becomes possible to play CDs and DVDs, to interact with an MP3 player (copying and playing music), to store information on a Hard Drive of 20GB to 100GB (for saving movies purchased off of the internet) and even have an HD (high definition) Video playing device. Quality of Online Support This is measured on an index ranging from 10 to 90, measured as the time it takes for a question to be answered or an issue to be resolved. Typical response times range from several days (index = 10) to only a few minutes (index = 90). Online Gaming This is measured on an index which ranges from 10 to 90. It encompasses the speed of access to the gaming environment and the ability of the gaming environment to cope with multiples users, as well as the quality of the games and the quality of the interaction with other players.

2.3

The Current Customers of the Industry

Currently it is split

The core customer group is about 20% of the total available market. approximately 63:37 male:female.

Most customers fall into the 10-45 age bracket, half of these under the age of 21. However, the market has been aging as young gamers in the 1980s are now wealthy and are able to pay for an improved gaming experience in terms of game complexity, visual definition, realism and sound quality gaming is part of the relaxation at the end of a hard days work. These customers are also willing and able to buy consoles for their children.

Copyright 2008 by StratX

2009-08-23

The core customer group is very internet-savvy and enjoys playing within the recently available online gaming communities. They are able to meet with and play with or against other gaming enthusiasts from all over the cyber world at any time of day or night. The one thing that customers do complain about is the lack of availability of really good games. The majority of available titles style the gamer as a person with weapons, life credits and sets of tasks to perform to progress from one level to the next in the game. The task is to avoid being damaged or killed while solving how to progress to the next level of the game. This can involve much repetition however a recent survey revealed that, for some customers, the repetitive nature of buttonpressing and repetition of actions at any one level in the game provides a soothing effect on the player. The hand-held controllers have become more and more sophisticated, with many buttons located on their different faces usually more buttons than the fingers on both hands. The attraction and complexity of a game are partly dependent upon all of the functions that these buttons offer and how game programmers are able to use the consoles control language to exploit all the options that the buttons offer. The market is divided into three major groups of customers, or segments, each having similar needs and purchasing behavior. The major defining demographic of each segment is age. The sizes of these groups (in volume and value) are given below, and a detailed description of each group follows.

Figure 2 Size in volume and value of the three groups of existing customers

Segment 1: 6-21 Year Olds This segment accounts for about half the market by volume. The first expensive gift that a pre-tenyear-old is likely to receive is a video game console. Hours spent in front of the screen give hardworking caregivers relief from having to provide constant supervision. As this segment ages, it enjoys video gaming as a way to escape from teenage and post-teenage relationship and development issues. They mostly live at home and the video gaming world is a world to which they can escape and over which they feel they have control. If anyone within the gaming world behaves aggressively towards them, they can be defeated or blasted to eternity! These gamers can take on the persona of the people they play in the game, for as long as the game endures. Although they may not always win, they win in the end. They have the free time and the
Copyright 2008 by StratX 2009-08-23 5

drive to progress through all of the avenues and challenges that a game offers. While this segment used to be dominated by boys, the gender split is fast approaching 50:50. For this segment, price is the most important purchase driver. It may take them or their parents a while to save up to buy a video gaming console. Alternatively, they may have to wait for their birthdays or another celebratory holiday before they receive a gaming console. They will avidly shop and be aware of the best deals. They usually buy the basic bundled package, which may include one or two free games. The sophistication of the game is important but not paramount. This segment also likes to play online, where the lack of sophisticated games requiring high speed processors does not interfere with the quality of their gaming experience. The same applies to the graphics sophistication. Often they are viewing the game on older generation televisions (family cast-offs). As long as they can see what they are doing, they are fine, regardless of how small or blurry the screen might be. Even though the world they view may not be a close representation of reality, it is a big step up from childrens story books where the characters do not move and where there are no sound effects. The controller is a different matter. Long before they are able to drive a motor vehicle, these players enjoy developing the reflex reactions of jet pilots. Mastering the complexity of the controllers is a right of passage which, when achieved, denotes assured status within their peer group. They are not daunted by sophisticated controllers and they enjoy developing the skill to master them. Unlike the next segment which has more money, this segment does not usually opt for wireless controllers or sophisticated haptic devices. Audio sophistication is not a strong need for this group. Since they live at home, they cannot make too much noise without disturbing others in the house (parents or younger siblings). Internet connectivity is important to this segment, as well as the ability to play DVDs. They are fairly interested in the console being a CD player as well (linked to an MP3 player), but not really for it to have a hard drive for streaming movies off of the internet, or for it to be able to play HD (high definition) videos. When things go wrong with the controller or with a game, or if they have questions, this segment mainly consults their friends. In fact, they are very well-informed and well-networked players. The main source of knowledge is typically that of older siblings. A new piece of data travels very quickly through this highly interconnected segment. They do appreciate online help, but are quite relaxed about how long it takes to receive a response. In the meantime, they have the patience to try and sort out the problem themselves or to seek help from their friends. The online gaming experience is fairly important to this group. They may be latch-key kids or from families where they are the only child (a growing trend in the developed world) and so the availability of many friends in cyberspace is appealing. After school, they enjoy meeting their friends in a virtual gaming world and using the messaging capability to send joking messages. The internet games they play are available for free or for a nominal monthly fee that is usually well within their financial allowance. Segment 2: 22-35 Year Olds This segment accounts for about 25% of the market. They live in a world where they are beginning their careers and have more disposable income. Many still live at home, but a larger majority share low cost student type accommodations with friends of their own age group. With few claims on their time and income, they are able to spend as much time as they want playing games as a kind of

Copyright 2008 by StratX

2009-08-23

stress reducer from the combined tension and (possible) boredom of their first jobs. The gender split of girls to boys is 30:70. Price is not as important to this segment as it is for the younger one, and they are willing to spend money on a quality console, especially if the console has other multi-media add-ons; this saves them from having to buy a DVD player, a CD player and a media box separately. One of the most important drivers of choice for this segment is the sophistication of the gaming experience. After having grown up in the video gaming age, they are not interested in retro as far as technology goes! They want faster, better, and more complicated. Their minds have been weaned on gaming strategies, and the more complicated and quicker the gaming environment, the better. However, they are not as demanding on the graphics front. Although the appeal of very lifelike scenarios is big, often they are as yet unable to afford a display device (e.g. a medium-to-large LCD or Plasma television) to match the sophistication of the graphics that their console produces. The controller, however, is their master weapon. The more sophisticated the controller, the better. Sophistication is offered through the number of buttons and the way the functionality of these buttons changes at different phases of the game. The best controllers are also wireless, enabling the gamer to roam freely around a room or studio apartment while being able to game constantly stand up, shoot monster, open fridge, shoot baddy, open drink, shoot monster, pour drink, shoot baddy, sit down, shoot monster. Finally, rumbling controllers are very appealing to this group the rumble effect and the sounds that it can make all contribute to the realism of the virtual escape world for this segment. Audio sophistication is also not a primary driver of choice for this segment, since they have limited space, live in dense accommodation and have to try and be considerate to others. They may well use headphones in which case stereo sound is sufficient. When the cost of a good home cinema speaker system drops well below $100, this segment will buy one and they would like their gaming console to be able to offer a great sound. Multi-media add-ons are very important for this group. If their gaming console doubles as a CD player (together with the ability to download songs to their MP3 player) and a DVD player, along with providing internet connectivity and the ability to stream videos from the internet, then they are quite happy. A few from this segment may require an HD player however, this is not a paramount requirement. Online support is quite important to this group and they expect to receive a reply which solves the problem within 24 hours. Along with the sophistication of the gaming experience and of the controller, the most important factor for this group is the online community. They may have moved to another town, or moved away from their friends and familiar neighborhood, and so the virtual community becomes their new extended network of family and friends. Segment 3: 36+ Years Olds This segment accounts for about 25% of the market. They are the aging gamers who grew up with the industry. They refuse to grow old and remember those bygone times when all they had to answer to were themselves. These gamers may have families and much more disposable income to spend on toys. They already have, or aspire to have, a home cinema system. This segment is predominantly male, with the gender split being 85:15 men to women.
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This segment is not price sensitive at all. Since they are working hard and spending most of their earnings on their family, buying something for themselves for once feels justified. They are looking for something good, not a bargain. They are willing to pay, and so the sophistication of the gaming experience is very important to them. However, the most important thing for them is the sophistication of the graphics. Visual appeal is everything to this segment. The gaming console must match the performance of their high-end DVD and HD Video players. Scenarios must have depth and accurate visual detail, and the movement of the characters must be smooth and realistic. Controller sophistication is not particularly important for this segment. They found the controllers they learned on (some 25 years earlier) to be quite adequate for their needs and, with so much else happening in their lives, they appreciate the simplicity and familiarity of these. Audio sophistication is very important. Since games are using better and better sound effects to mimic dramatic explosions, often with surround sound echoes, being able to reproduce this in a home cinema is very important. This segment has spent the money on a good sound system and now they want to make it pay for itself! This segment is not at all driven by game consoles with multiple multimedia add-ons. In fact, the stand-alone equipment which they have is far more sophisticated than any available on a gaming console. All they want is the game player itself they are indifferent to the rest of the multi-media capability and will never use it. Although they are experienced gamers and do not require much help, they are used to pushing equipment to its limit and from time to time may have an odd technical question. Since they have money, they are used to obtaining a high level of service and are able to pay that bit extra to be at the front of the queue. They thus expect very rapid replies to any queries which they may have. Online gaming was never part of their gaming experience when they grew up, although they are now relatively sophisticated internet users. However, their internet usage is not socially driven, apart from the few e-mails to family and distant friends. They use the internet to buy and sometimes sell goods and services. Their interest in online gaming is very low, but it is increasing slowly.

2.4

Distribution Channels

Most sales arise through three main channels. The sizes in volume and value of these three channels are given in Figure 3 below:

Figure 3 Size in volume and value of the three distribution channels Copyright 2008 by StratX 2009-08-23 8

The majority of sales force expenditure for each competitor involves the extent to which their strategy focuses on developing and maintaining one, two or all three of these distribution channels, as well as their investment in geographic expansion within Roundland and beyond to Starland. A detailed description of each channel is given in the next sections: Low Price-orientated Channels These stores sell a very wide variety of goods and services. Examples are hypermarkets, catalog companies, online electronics stores and auction sites. Service is virtually non-existent, although most distributors will exchange faulty goods immediately as a matter of policy. No advice or guidance is given at the point of sale. Many price deals are done, and only the most basic game console packages are offered in summary: limited variety at a great price. Specialized Electronics Stores These sell electronic and computing goods such as televisions, computers, printers, MP3 players, DVD players, cameras of all types and some domestic appliances. These are either independent distributors who have only one shop or a number of shops in a particular region, or major multiples which have national brand presence and store footprint. They mostly offer a limited number of bundled packages i.e., a combination of console, number and types of controllers (wireless etc) and free or discounted games. Video Game Chains These include distributors dedicated to selling consoles and games, as well as some distributors which focus broadly on home entertainment products such as pre-recorded CDs and DVDs. There are no national brands here, although some do cover multiple regions. They tend to carry the most extensive range of gaming console bundles from low end to high deluxe which include multiple wireless controllers, many discounted games and many multimedia add-ons. All items are sold separately as well (i.e. not only in bundles). These distributors also sell accessories and games. They have a strong relationship with customers, including loyalty cards for discounts. They offer second hand games at lower prices and pass on tips to customers regarding how to get the best out of the games. Shopping Preferences Figure 4 shows the shopping preferences of each segment for each channel. For example, 30% of the 22-35 Year Olds will usually shop in Low Price-Oriented Channels.

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2009-08-23

Figure 4 - Shopping preference by age band

2.5

Marketing

Not unexpectedly, all competitors spend a significant amount of money on marketing, investing their budgets strategically to target each of the three major customer segments. The majority of the marketing budgets are used to buy advertising space in a variety of media, including television, the internet, billboards, and the press.

2.6

The Competitors and their Offerings

Four well-known organizations compete fiercely with one another for a share of the gaming industry market. They are: Shiny Apples Purple Plums Yellow Bananas Blue Buddies (YOUR TEAM) Each competitor vies with the others in a bid to amaze the industry gurus and journalists with the technological sophistication of their offerings. The gurus and journalists have the ability to make or break an offerings success. Industry magazines are dominated by speculation concerning the fascinating technological capabilities of potential future offerings. An organizations market leadership in terms of market share can easily be lost to a competitor through the launch of a new generation of technology by the latter, leading to a step change in market share. However it can take years to recover the hundreds of millions invested in developing new technology, and often hardware sales need to be subsidized for a while by software sales. Thus, although it is a large industry, making a good profit or even growing profits remains a daily struggle. The sales and market shares in volume and value of the four competitors are given in Figure 5 below, and a detailed description of each organization is given in the sections which follow:

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2009-08-23

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Figure 5 Market shares by brand

Shiny Apples The current market leader, Shiny Apples, is still enjoying steady sales from the buzz created by the Shiny Station, its new generation console launched 2 years ago. This console features the fastest chip in the business, which apparently cost hundreds of millions dollars to develop. It is by far the most powerful processor in the gaming market. Shiny Apples takes great pride in the fact that game developers prefer to develop games using their proprietary software than that of other manufacturers, not only because it is simple, but because the graphics capability is so superb, allowing the imagination of developers to reach beyond anything conceivable in the industry even half a decade before. Their controller is uniquely sophisticated in that it has an extra button under the base the blast/jump button. Gamers can ram this button onto their knees or stomach (if lying down) to generate a particularly massive attack after earning the points to do so, of course. Shiny Apples sound engineers had worked with a specialist sound group which had just won major awards for its contribution to the latest animated Hollywood blockbuster. They believed that the quality of sound that the console could produce was better than some top end receivers. The console was also richly endowed with connections the first HDMI connection in the industry, four controller slots and an option to extend controller slots further. There were two USB 2 ports (for any MP3 players and cameras) and an Ethernet LAN port. There was also a component and two SCART connection points as well as the 7.1 sound connection ports. The console no longer resembled the small machines that characterized the industry 5 years before. It was a veritable technological marvel. It had a 60 GB hard drive for future downloading of movies off of the internet. At a price tag of $650 a console it was rated as well worth the buy for the great quality gaming it offered. Shiny Apples strategy was to supply the best machine it left the development of the online community to its main developers. The talk in the industry was that this was Shiny Apples Achilles heal other competitors had exploited this factor to try and differentiate themselves given Shiny Apples awesome technological capabilities. It offered an acceptable level of online support to its customers. Purple Plums The second major competitor is Purple Plums, with sales of just over a billion $. It is a spin-off from a major computer manufacturer. The management team hired some experts from the consumer electronics and gaming industries to create a new powerhouse in the gaming industry. The press calls Purple Plums little Shiny Apples since their console, the Purple Player, is very similar to the Shiny Station, with not quite the same sophistication as the industrys flagship device. However, at $100 less per console, savvy customers believe they are getting all they need at a great price.

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Unkind observers believed that Purple Plums merely imitates Shiny Apples, thus avoiding the high development costs spent by Shiny Apples executive team (Shiny Apples was rumored to be having financial difficulties). Purple Plums defends its reputation by saying that its main strategic focus was the online gaming experience. To support this, it has a broadband wireless link built into its console rather than the Ethernet LAN connection in Shiny Apples console. It has a well respected online support business with the best search facility in the business. Through an alliance with a world class search engine, customers are able to search Purple Plums database of FAQs as well as the whole internet to access the information they need for gaming tips and strategies. Yellow Bananas The smallest competitor, Yellow Bananas, provides its console, named the Yellow Console, as a link to a PC or a laptop via a high speed USB 2 link. A new version was launched in 2007 with major improvements in the sophistication of the gaming experience and the graphics. The controller is the least sophisticated in the business, a variation of the old PC joystick. The Yellow Console relies on the graphics card in the PC as well as the PCs sound card. While the graphics sophistication is probably below the average expectations of potential customers, and the sound depends on the sound resources of the customers home PC, it is the online support and online gaming experience which really sets Yellow Bananas apart from the competitors. The games are bought and downloaded online and it is easy to try new games, or buy them at very low cost for a week or two. Yellow Bananas went this route since it believes that gamers would find it easier to interact online through an already familiar system the home PC. The Yellow Bananas console also plays CDs and DVDs and some customers like the ability to copy CDs in real time from the Yellow Bananas player onto their PCs CD burner. It has the best international online contact centre in the business, run from Sydney, London and Chicago so that it is always open 24/7/365 for live webchat and e-mail help; the support staff/issue handlers are highly informed gamers themselves, mostly university students. The current console price is $300. Blue Buddies The firm which you and your teammates will manage is Blue Buddies. It is the third player in the market in terms of market share. The Red Box, your current offering, is a generation behind that of Shiny Apples and Purple Plums from a technology point of view. Recent internal difficulties and uncertainties regarding the future of the market have delayed the design and development and launch of the new console. However, the research laboratories, designers and production staff are enthusiastic and ready to create Blue Buddies new console or to upgrade the existing one. The Red Box was very successful when first launched, so much so that it really defined the markets expectations, and continues to do so. However, the leap in performance of the graphic, sound and gaming capability of the Shiny Station and the Purple Player have made the Red Box seem very 2001. Furthermore, when it was launched, MP3 players were not yet mainstream, and nor were DVDs. Thus, it only plays the game CDs for which it is designed. Blue Buddies had such success with its technology development in years gone by that it failed to invest sufficiently in its online support; and, apart from a few primitive online games, it was not as well-placed as its rivals in the online gaming world. The current price of the game console is $ 350. Expected offering upgrades over the next 3 years Blue Buddies and its three competitors are likely to continue their relentless technology race over the next few years. All competitors are expected to upgrade their existing offering while simultaneously decreasing their price.

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The chart below summarizes all the announcements that have been made in the past few weeks.
Competitor Main offering Expected Upgrade Date New features announced Shiny Apples Shiny Station 2009 Major improvements in graphics and audio sophistication $650 $600 Purple Plums Purple Player 2008 Major improvements in the sophistication of the gaming experience and the controller $550 $525 Yellow Bananas Yellow Console 2011 Major improvements in audio sophistication

Pricing trends

$300 $250

2.7

Services and Delivery

The industry competes primarily on product differentiation and price, rather than on service and delivery differentiation (with the exception of the comments on the quality of online support and the online gaming experience discussed earlier). Virtually the same strategy is followed for delivery. Manufacturers regularly subsidize deals and promotions (price discounting) to increase sales volumes. In addition, game consoles, accessories and games are bundled in packages where a small financial incentive exists for customers to buy them all together. Additionally, manufacturers do contribute towards the training expenses of the salespersons. A similar convergence of strategy amongst the main players in the industry exists for services. The length of warranties (one year) is a standard for the industry and extended warranties can be purchased. Since Yellow Bananas first introduced a loyalty and reward card system, the other competitors followed suite. The operation and reward system for the loyalty cards is virtually identical. Manufacturers also offer accidental damage insurance for an extra charge, except where distributors have a scheme of their own on offer. This is because they believe that making a move into the financial services industry is quite lucrative.

2.8

Introduction to the Blue Buddies Organization

Blue Buddies was originally a family business and the Dexter family is still the largest single shareholder even though their shareholding is under 5%. Their presence on the external board is largely honorary now. Frank Dexter was a solid state physics graduate who specialized in the development of hard drive storage and access protocols. Both his son and nephew, best friends from their earliest years, had graduated with majors in mathematics and physics respectively. These two, Marc and Stephen, were among the earliest gamers in the late 1970s and had a vision for the industry. They built the company into a profitable and successful one and largely liquidated their shareholding in the mid-1990s. The organization still holds strongly to the values of fairness, integrity and innovation that the original founders had. Blue Buddies appears to new employees as an organization which can achieve good outcomes but can be rather sloppy and unsystematic in the way that it got there: it marches to its own drum. In the past, new console launches have been delayed by up to 6 months. When it has mastered something as an organization, it can be quite good at ongoing execution. However, when it needs to do something quite different from business as usual it struggles. It lacks a project management discipline which is usually taken for granted in most organizations in the technology industry.
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Blue Buddies employs over 5500 staff. 85% are in the Roundland continent, the majority being located in three factory sites linked to distribution hubs East Coast, Mid-Continent and West Coast. Head office consists of 500 people, and the Research Centre 800 people. The remaining Roundland employees are in Sales, spread across the Roundland continent. The 825 employees located in the Starland continent are mainly in Sales with some minor local support functions.

Kel Sharkland CEO Kel has been with Blue Buddies for 15 years, previously playing the role of marketing manager. An enthusiastic gamer himself, he is often on the front cover of industry magazines and always willing to give opinions on the industry to journalists, many of whom he would count as his personal friends. His office wall is lined with trophies and citations awarded at the annual video gaming awards ceremony held in mid-January every year just after the high winter sales period. Kel is a capable businessman and manages to keep the profits of Blue Buddies steady when those of competitors have been declining, although even he has been unable to stem the downward trend in profits experienced over the last 3 quarters. He has given his word that he will remain at the helm of Blue Buddies for as long as the shareholders still need him. It is well known that he is privately very wealthy and wishes to spend more time fishing. David Richter CFO David has only been with Blue Buddies for 6 months. He was previously a partner in a medium-sized accounting firm and had long wanted the chance to be part of an organization with tangible products and services. An active and sophisticated gamer himself, he leapt at the chance to join Blue Buddies when he noted the position advertised in a gaming industry magazine. David has become increasingly concerned by the drop in unit sales, although he realizes that this is mostly due to the trend in the industry overall. He believes that what the industry needs most is novelty, a new technological breakthrough which will wow customers to such an extent that they will be happy to replace their existing consoles, as they have done for each new generation of gaming console in the past. Sally Burley Marketing Director Sally is a well known figure in the video gaming world. She began her career in marketing at a well known consumer goods organization. After a thorough training in marketing, she made an industry switch to become the managerial assistant to Stephen Dexter. She is an avid gamer and extremely knowledgeable about the industry and its customers, and is deeply respected for this knowledge within Blue Buddies and the industry. She was the first person in the industry to accurately segment the market and to point out that gamers now ranged from under ten to over 40 and comprised 3 separate demographic and psychographic groups. Many of the competitors had adopted her classifications of the different customer segments. She had encouraged the other major players to subscribe to a panel which collected and distributed monthly information on certain vital customer purchasing and usage patterns. She is a popular conference speaker, often headlining industry events.

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Rick Stark Operations Director Rick has been with Blue Buddies for over 20 years, longer than Kel who he remembers inducting into the organization all those years ago. Rick is a real devotee to the gaming industry. At home he has installed an impressive home cinema, complete with 7.1 surround sound and a $25,000 projector. When the Blue Buddies research laboratories want to test their latest graphics and sound systems, Rick is their number one test customer if he likes it, it will be good enough for anyone in the market. Rick has seen the market develop from the first colored blocks moving on a screen to the massively impressive and realistic 3D pictures and great sound being offered today. After an early career in the mail distribution center and then in sales, Rick worked his way up through the business and took over the helm of Operations two years ago. His main challenge has been to deal with balancing staffing at the factories with the unpredictable demand pattern for consoles. The patterns that existed with peaks during the winter season and just before the summer break no longer occurred.

Barb Regan Sales Director Barb was seen as a strategic hire when she joined Blue Buddies just under a year ago from a major global computer giant, where she was deputy Global Sales Director. She holds a PhD in Computer Science and was a prominent researcher before her management career development led her to doing a stint in Sales. Following Blue Buddies struggles to change its culture, Barb was seen as the right person with the intelligence and initiative to make a real impact at Blue Buddies.

Introduction to the BOSS Software

At the beginning of each simulation period, you and your team will be given the business unit Annual Report and a series of Market Studies which cover the previous periods activities. You and your team should begin analyzing this information and then start formulating a strategy for the Blue Buddies organization. This analysis will lead to a series of decisions, which will be input into the decision screens provided. You will then submit your decisions. The BOSS software will then compile the data and generate the results of the period in question. After reviewing the results and additional information, you and your team should then review your initial strategy and decide on what changes should or should not be made. Once you have agreed on a common objective, the decision-making cycle repeats itself. Each Round of the Blue Ocean Strategy Simulation has a specific duration; for instance, the Red Round is 3 years long. The BOSS interface is an easy-to-use platform which needs no prior computer skills or expertise. The screen is divided into two parts much like a web page. The left-hand side of the screen represents your navigation menu and the right-hand side of the screen displays the information that corresponds to the navigation menus.

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Most importantly, your remaining investment budget for each round is permanently displayed at the bottom left hand side of the screen.

3.1

Your team file

At any time, the Home is the place to go to make all logistic operations on your team data file or more simply team file. What is a team file? Your team data file or simply team file contains all of your data and decisions. All teams in your class start with a fresh copy of the same team file. Then, your own team file will evolve over time as you progress in the simulation: analyzing your situation, making decisions and running them within the BOSS model. After the first run, all team files in your class will be different, unless you and another team have made exactly the same decisions, which is highly unlikely. Where is the team file located? Your team file is located on the BOSS remote server at the beginning of each period of decisions. Once you have loaded it from the server, it is located in the folder My Documents/My BOSS files . Your team file is automatically saved each time you use the BOSS interface to change your decisions. At some point, you may decide to save your team file on the server; there are several reasons to do this which are explained in the following sections. Finally, when you are finished with your decisions, you will submit them to the server. At this point, your local team file becomes out-dated and you have to start a new cycle. Is the team file protected? Yes it is! Your team file contains private information that you should not communicate to the other teams. This is why your team file is protected by a 4-digit password that will be communicated to you by your BOSS instructor.

3.2

Loading your team file from server

You need to load your team file from the server when: You start a new period of decisions You operate on a computer that you have not used before, e.g. a public computer One of your teammates has modified the file and has saved it on the server. To load your team file, you will need three pieces of information: your course ID (eg: B84689), your team name (eg: Albatross) and your team password (eg: 7643). If your BOSS instructor has not yet provided you with these data, please contact him or her. Select the command Load from server in the HOME menu; the Authenticate form pops up. Enter your course ID in the top-right cell and click Get course data. The course description and the name of your professor should show up in the form; if not, you may have entered an incorrect Course ID. Then, select your team name in the choice box and enter your

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password. Your team file will be downloaded from the BOSS server and you will have access to your data. This operation may not be possible if your professor has not yet initiated the course. In this case, you will have to start again later. If you have started a working session, and need to close it to resume it later, just close the BOSS application by clicking the cross in the top-right corner. Your decisions will be saved automatically on your computers hard drive. At any time, you can also save a copy of your team file on the BOSS server, as explained in the following sections.

3.3

Loading your local team file

You need to load your local team file to resume a working session with BOSS on the same computer. You should be 100% sure that none of your teammates has modified it on another computer. Select the command Load local team file in the HOME menu; the Authenticate form pops up. Click on the Select button to retrieve your team file in your local drive. Enter your password and validate. Your team file will open and you will have access to your data.

3.4

Saving your team file on the server

You need to save your time file on the server on two main occasions: You want to archive your team file in a safe place. You have modified the team file and want to communicate the changes to your teammates. Select the command Save on server in the HOME menu and wait for the completion of the file transfer.

3.5

Submitting your team file for server

You need to submit your decisions for run when you are finished with your decisions and want to start the next period of decisions. You can submit you decisions to the BOSS simulator only when your decisions are error-free and only if your team is activated (see section 3.6 to learn how to activate your team). Select the command Submit for run in the HOME menu; a confirmation message pops up. If you confirm the operation, your latest team file will be uploaded to the server and then the simulation model will be applied to your decisions. A fresh team file will be generated, with a new market situation. Please note that this operation cannot be cancelled. Thus, do not submit for run until you and your teammates have made the best decisions possible. After the run, your local team file becomes out-dated and you have to start a new decision cycle. The mathematical model of BOSS has been designed by a team comprising experts in simulation as well as experts in Blue Ocean Strategy theory. The model provides a good representation of the video game console market and of its consumers, competitors, distribution channels, etc. The BOSS model has been calibrated to reinforce learning; hence, it may not always behave as the real world
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does. For instance, the model has been designed to underreact to poor decisions; you will not go bankrupt even if you make really bad decisions. Similarly, the model has been designed to overreact to excellent decisions; if you design an excellent Blue Ocean offering, your profits will increase exponentially. Finally, the representation of time is somewhat condensed in BOSS. For example, whilst it may take 5 years or more for an excellent Blue Ocean offering to be imitated at scale in the real world (depending on the industry), it will only take 3 years in BOSS.

3.6

Activating your team

You must activate your team before the first run of the simulation. Indeed, you will not be able to run your first set of decisions until your team file is activated. All other operations are allowed: downloading your team file; viewing or printing reports; reading or printing the documentation; and making decisions. Here is what you need to do to activate your team: Click on "Team Activation" at the bottom of the home page. The form of Figure 6 pops up. Enter your Participant Activation Key (PAK); your first and last names; and your email address in the form and then click on "Continue >>". Each member in your team must do the same operation. You may do that all together or one after the other, at different times and/or locations. If some of your teammates have already entered their PAKs, they will show up in the first rows; in this case, use the first free row to enter your data. Your team will be activated as soon as all members in the team have gone through the activation form.

Figure 6 Team activation form

3.7

Working in groups over several days

Within each Decision Round, you and your team may choose to organize several working sessions with the BOSS software. You can make a detailed analysis of your results on day 1, make Product Upgrade and Production Plan decisions on day 2, make Marketing Budget and Segmentation Strategy decisions on day 3 and finalize everything on day 4. You may make decisions all together or choose to
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work remotely from different computers. The BOSS software includes several features to help you with these different situations. If you and your team decide to assign responsibilities (Development, Production, Marketing, Distribution, ) to team members and to work remotely from different computers connected to the Internet, we strongly advise that you use the BOSS server as a central location to save your team file. Please note that if you choose to work in this way, you should work in a sequential manner and not in parallel, otherwise you risk losing decisions which have already been taken. For example, we recommend the process described in the table below.
WHO Team Member 1 WHEN Day 1 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. WHAT Load team file from server Work and input decisions Save team file on server Load latest team file from server Work and input decisions Save updated team file on server Open latest team file from server Work and input decisions Save updated team file on server Open latest team file from server Finalize decisions Save final team file on server Submit for run

Team Member 2

Day 2

Team Member 3

Day 3

All Team Members sharing a single computer

Day 4

If Team Members 2 and 3 do not coordinate and decide to download the file from the BOSS server on Day 2 and work on this file in parallel, then the file which will be saved on the server at the end of Day 2 will only contain the decisions taken by Team Member 1 and the ones taken by Team Member 2 OR Team Member 3, depending on which one has saved its file last. In any case, this file will NOT contain all of your decisions. Therefore, make sure that you coordinate your teamwork to avoid losing decisions and wasting a precious time. Even if you and your team decide to always work together, the Save on server function allows you to always keep a back-up of your team file.

3.8

Working in an environment with limited access to Internet

If you are working from a computer without a permanent Internet connection, you can save your team file locally on your computer when you close your BOSS session and re-open it later to continue your work on BOSS. To do so: Close the BOSS application to finish the session. BOSS will ask you to confirm that you really want to close your working session. Just click on Yes and your team file will be saved locally on your PC. If you want to work from another computer afterwards, you can save your team file on a USB key or any other removable storage, and load it on another computer. Your team file, named for instance Gnu.Boss.ind is located in the \My Documents\My BOSS Files folder of your computer.

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Go to this folder using the file explorer, copy the Gnu.Boss.ind on the removable storage, and then paste this file in the same folder on the other computer which you would like to use. Obviously, you should have installed the BOSS software on this other computer before performing this operation. You can then open your team file from the other computer, using the Load local team file function of BOSS.

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