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Business Strategy1973 Avalon Hill

Basic Business Game

To be successful in BUSINESSSTRATEGY you must analyze marketconditions, take shrewd advantage of yourcompetitors' circumstances, and prudentlyoperate your own factories and warehouses

at peak efficiency. You and yourcompetitors must agree beforehandwhether the game is to end after apredetermined number of calendar years orat some specified time on the clock, or byelimination of all other players.

HOW TO WIN

In the calendar and clock versions, theplayer with the greatest Surplus showing onthe Balance Sheet wins. (Surplus is alwaysa reflection of profit at the end of onecalendar year it would be the same as theNet Profit figure shown on the P & LStatement.) In an elimination version, play

proceeds until all players but one havegone bankrupt.

Two, three, or four players may participate.Each player assumes the role of Presidentof a manufacturing corporation.Instructions for expanding the game toallow a greater number of participants canbe found in the CLASSROOM game.

COMPONENTS

1. Family Game Rules card

2. Rules of Play folder

3. 16" x 16" Playing Board

4. OneRunning RecordPad

5. One set of 18 Climate situation cards

6. 4 sets of 4-colored Pawns (16 total).

Play follows the same course of actionoutlined in the Family Game with thefollowing exceptions and additions providedherein for greater realism.

HOW TO START

Play follows the same outline provided inthe Family Game. Each player is given$10,000 from which he must immediatelypay fixed expenses of $4200 for theJanuary turn. This figure is recorded on line1 of the Running Record Sheet. Henceforththe recording of each turn's Fixed Expensesshall be the first step in the play of eachmonthly turn. Each player is given threepawns of the same color which he placeson the proper squares of the board;indicating that he has 2 FIU's (FinishedInventory Units), 2 Standard Factories, and

4 RMU's (Raw Material Units). Later, if theplayer decides to order an AutomatedFactory he is given a fourth pawn which hewill place on the proper square of the

Automated Factory row.

HOW TO PLAY

After all players have paid and recordedtheir Fixed Expenses on line 1 of theRunning Record Sheet the Senior Bidder forthat turn turns the next Climate Card faceup. All players then secretly record thenumber of units they wish to bid upon andthe bid per unit on lines 2a and 2b of theRunning Record Sheet. After all bids havebeen recorded, the Presidents expose theirbids. The highest bidder receives his unitsfirst, and the remaining available units goto the next highest bidder, and so forthuntil all available units are sold. Surplus

units which do not receive the minimum bidcalled for by the Climate Card are retainedby the Bank. Tie bids are resolved in favorof the Senior Bidder or if he is not involvedin the transaction, the player sitting closestto him proceeding in a clockwise directionaround the table.

EXAMPLE: January's Climate Card mightindicate 8 RMU's available at a minimum bidof $500. North bids for 4 at $600 each,South bids for 3 at $550 each, West bidsfor 5 at $550 each, and East bids for 2 at$500 each. Thus, North gets 4 for a totalexpenditure of $2400; the tie betweenSouth and West is resolved in favor of

South (assuming North is Senior Bidder),thus South gets 3 units for $1650, andWest gets the remaining unit for $550. Eastgets none. North now moves his RMU pawnforward four spaces; remaining playersmove their RMU pawns forwardcommensurate with the number of unitsbought. At this point lines 2c and 2d mustbe filled out on the Running Record Sheet.

Players now decide how many RMU's theywish to convert to FIU's and record thisinformation on the Running Record Sheetby filling out lines 3a, 3b, and 3c for thecurrent month. Production plans shouldremain confidential until all players haverecorded their intentions for that turn. EachStandard Factory may produce one FIU permonth at a processing cost of $2,000, whilean Automated Factory can produce twounits for $3,000 or one unit for $2,000.

After all Presidents have declared theirproduction plans for the turn, each pays theBank for converting his RMU's into FIU's. Itis not mandatory that units bemanufactured, or full production capacitybe utilized. However, Fixed Expenses must

continue to be paid regardless ofproduction.

Players now consult the Climate Card todetermine the Potential Market for Finished

Inventory and Maximum Market Value forFinished Inventory. Armed with thisinformation plus the knowledge of theirown production capabilities as well as thatof their opponents, players must decidehow many FIU's to offer for sale and atwhat price. This information is secretlyrecorded on lines 4a and 4b of the RunningRecord Sheet. Only after all bids have beenrecorded are they made public and salesmade to the Bank, taking the lowest bidsfirst and working up until the PotentialMarket sales figure has been reached, orthe supply of units offered for sale isexhausted. At this point lines 4c and 4d onthe Running Record Sheet are filled out and

the Bank issues payment for all sold FIU's.Remember, the price listed on the ClimateCard is the Maximum Market Value if youplace a higher price tag on your finishedinventory it cannot be sold. Ties areresolved in favor of the Senior Bidder inmuch the same manner as shownpreviously for R M U's.

At this time, Presidents may borrow moneyfrom the Bank, repay loans, and payinterest on loans previously taken. Unlikethe other phases of BUSINESSSTRATEGY it is not necessary to performthis function in. private. Players not desiringto take out a loan and not needing to repay

a previous loan or pay interest may simplyrecord zeroes on lines 5a, 5b, and 5c of theRunning Record Sheet and proceed toCAPITAL IMPROVEMENTS. Those havingbusiness in the LOAN PAYABLE categorymust adhere to the following guidelines:

A President may borrow up to one half thevalue of his factory units. Thus, if a playerhas 3 standard factories he may borrow upto $7500. All loans must be repaid within12 months, with interest at the rate of 1%per month. Loans cannot be paid off soonerthan 12 months. Interest payments arerounded upwards to the nearest $50.Payments must be made each and everymonth until the loan is repaid. The amountof the loan is recorded in line 5a of theRunning Record Sheet on the turn in whichit is taken. The amount of the monthlypayment is recorded on line 5b on the turnfollowing the loan and every turn thereafteruntil the loan is repaid. Additional loanscannot be made until the initial loan isrepaid, unless another factory is acquiredagainst which a loan has not been made.Such an additional loan would be limited to1/2 the value of the newly acquired factory.

A President cannot re-finance a loan if the

http://aardwolfgames.com/rules/busistrategy/runrec.pdfhttp://aardwolfgames.com/rules/busistrategy/runrec.pdf

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SPECIAL SITUATIONS SHUTDOWNSmoney is not available to pay off theoriginal obligation; but if he pays off hisloan when it becomes due, he may re-borrow during the same month. A Presidentmay wish to finance a new factory duringthe same month that it comes intoproduction. For instance, if a factory comesdue in March, you may take out a loan inMarch during Phase 5 to cover the finalpayment of that factory. The amount of theloan should be entered on line 5c andcarried forward every month until the loanis repaid. NOTE: loans may only be taken inPhase 5 of the schedule of events printedon the Running Record Sheet. If a loan istaken during another phase, it is, termedan Emergency Loan which must be repaidin 12 months with a monthly interestcharge of 2%. No loans between Presidentsare allowed, nor may an Emergency Loanbe taken for a sum in excess of a player'sregular credit limits.

The Special Situations printed on thebottom of the Climate Cards were ignoredin the FAMILY GAME. However, in theBASIC BUSINESS game players must abideby the instructions given therein. Note thatfour of the Special Situations call for eventsto take place in the following turn ratherthan the current turn. Note also that thesesame situations (Cooperative Advertising,Consumer Boycott, Sour Economy, Imports)can be pre-empted by counter situations asdescribed on the cards. When twocontradictory Special Situations are drawn,the latter situation always pre-empts theformer. EXAMPLE: The June Situation callsfor a SOUR ECONOMY which will reduceRMU's available for the next 6 months,effective in July. However, the JulySituation reveals the IMPORTS card whichcalls for an increase in RMU's effective inJuly. As a result, the SOUR ECONOMY cardis ignored and the RMU supply increasesrather than decreases! Note that had theorder of the cards been reversed the exactopposite result would have occurred.

Should the same Special Situation be drawnin two consecutive turns, the effects areprolonged an additional month. They arenot doubled!

In the event that a strike should occur,operations become unprofitable, or for anyother reason, a President may elect to shutdown his factories. By so doing, he loses allproductive capacity, but cuts his fixedexpenses for the factory effected in half.The decision to shut down must be madeduring the sixth phase (capitalimprovements) of the month preceding theshut-down period. However, a corporationmust decide to reinstate operations 2months before such operations may beresumed. The decision to reinstateoperations must be made during the sixthphase of the second month preceding themonth in which operations are to resume.For instance, if you decide to shut down inMarch, you pay 1/2 the amount of FixedExpenses beginning in April. In April, youmay decide to re-instate operations. Thefactory does not come into production untilJune. Full amount of Fixed Expenses is paidin June.

At this point players may opt to build newfactories or convert old ones as stated inPhase 6 of the FAMILY GAME. The initial50% down-payment should be recorded onlines 6a, 6b, and 6c respectively. When the

factory is completed the remaining 50%must be paid and so noted on theappropriate line for that month. At thispoint, one month has been completed inthe play of BUSINESS STRATEGY. RepeatPhases 1 through 6 until the end of thegame.

DEPRECIATION

Factories depreciate in value each year in a"straight line" manner at the rate of 10%per year. EXAMPLE: If the purchase price ofall Factories is $10,000, then Depreciationwould be $1,000 each year. Factory valuethen becomes $9,000. However, thefollowing year's Depreciation is based onthe purchase price, not the depreciatedvalue of $9,000. The depreciation sufferedduring a year of business is listed on theProfit and Loss Statement when closing thebooks for the year, and the factories mustbe listed on the Balance Sheet at theirdepreciated value. Loan value is based onthe depreciated value of a factory.

CALENDAR YEAR

At the end of every calendar year theClimate Cards must be shuffled before playproceeds.

SPECIAL SALES

At any point in the game you may sell anoperating factory to one of yourcompetitors at mutually agreeable turns.

SPLIT BIDS

You will note there are two spaces on theRunning Record Sheet for lines 2a, 2b, 4a,and 4b. This allows each President the

option of recording bids on RMU's and FIU'sat two different prices instead of one priceas in the FAMILY GAME. For example; ifPotential Market for FIU's is 4 units, Northmay offer 3 at $4,000 and 1 at $3,000assuming he has 4 to sell In the event aPresident offers more for sale than themarket can buy, the banker buys all thoseoffered at the lower price first. Conversely,a President may elect to bid for RMU's attwo different prices; purchases being madeat the higher prices first.

BANKRUPTCY

Bankruptcy occurs immediately uponfailure of a player to meet his obligationsand no necessarily at the end of the month.

Another President may not buy out abankrupt President. He may sell ifbankruptcy seems imminent, so long as ithas not actually occurred For example, if aplayer has sufficient cash td finish Marchbut will not be able to pay Fixed Expensesin April, then he may arrange a partial saleof his possessions to the highest biddingcompetitor in March. The Bank takes overall assets in the event of bankruptcy.

GAME ENDING DETAILSAlthough the BASIC BUSINESS game mayend in a variety of ways, players mustcomplete a Profit and Loss Statement, andcomplete a Balance Sheet at the end ofeach calendar year if playing a calendar orclock version. Instructions regardingcompletion of the P&L Statement areprinted on the Running Record Sheet.Ignore Investment Credit & Work Incentivetax credits in the Basic Business version.

You are NOW ready to play the BasicBusiness version. Become familiar with thisversion before attempting the Corporate

Game explained elsewhere this folder.

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Corporate Game

The Corporate Game of BUSINESSSTRATEGY is simply the Basic BusinessGame plus certain additional rules designedto make the play even more realistic andcomplex. It is absolutely essential thatplayers become proficient at the BasicBusiness Game before attempting theCorporate Game. Basic Business Game rulesapply except where otherwise stated

herein.

HOW TO WIN

In the calendar and clock versions, theplayer with the greatest Net Worth wins.Net Worth is determined by totalling theStock Issued and Surplus figures shown onthe Balance Sheet. In an eliminationversion, play proceeds until all corporationsbut one have gone bankrupt.

ADVERTISING

Presidents may attempt to increase thePotential Market for Finished Inventorythrough advertising. Advertising tends toincrease consumer demand for a particulartype of product throughout the entiremarket structure while benefiting most thefirm which carries out the most extensiveand effective advertising campaign.

Advertising in the Corporate Game istransacted in the following manner:

Immediately after paying fixed expenses allplayers secretly record the amount theywish to expend the following turn foradvertising purposes. This amount isrecorded in the space between lines 1 and2a and kept secret until the following turn,when the amount must be paid to theBank. Play then proceeds as normal untilthe SALES portion of the following turn. Atthis time, the advertising expenditures ofthe previous turn are made public andpayments made to the bank. The sum of allplayers' advertising expenditures is taken todetermine the effect on the PotentialMarket for Finished Inventory. The PotentialMarket for Finished Inventory is expandedfor that turn only at the following rate:

$1,000 expended - 1 additional FIU$2,500 expended - 2 additional FIU's$4,500 expended - 3 additional FIU's$7,000 expended - 4 additional FIU's

The market may never be expanded bymore than 4 FIU's on any one turnregardless of the amount allotted foradvertising. Advertising costs in excess ofthe amount needed to buy an extra FIU arelost with no added advantage gained. Inaddition, the President who has spent themost money on advertising (ties resolved infavor of the Senior Bidder) is allowed todeduct $300 from his selling bid withoutactually losing the amount; that is, he is

paid $300 per unit in excess of his bid foreach unit sold.

Dividends can only be paid from Surplus.This is a matter of law - you cannot paydividends from Stock Liability. Thus, if atthe end of a year no Surplus remains, it isnot possible to pay dividends even thoughan arrearage based on 10% of Book Valuemust be maintained. In this case, of coursethe Book Value of a share has droppedbelow its Par, or original, Value. Before it is

possible for a Surplus to exist, one mustcarry stock at full liability, which is to say itsfull Par Value.

EXAMPLE: It is the January turn. Northallots $600 for advertising for the followingturn, East allots $550; West allots $500,and South makes no advertisingexpenditures. In February all playersannounce their advertising expenditures,

pay their bills, and it is discovered that thetotal advertising commitment for all fourplayers was $1650. As a result, thePotential Market for Finished Inventory isincreased by one unit and North is allowedto sell his units at a price $300 above thebid he makes in the Sales portion of theturn. Note that if North is underbid in theSales portion and is unable to sell any FIU'she cannot take advantage of his highadvertising bid.

Example (21: If, in Example (11, there isa Surplus of only $2,000, the Book Valuewould be $34,000 instead of $40,000. Thedividend requirement would be 10% of$34,000, which comes to $3,400. This is$1,400 more than the Surplus figure.Therefore, the entire Surplus of $2,000 ispaid to the Bank. The remaining $1,400 isan Arrearage and must be recorded as suchon the Stock Record section.

When exercising the Advertising option theCooperativeAdvertising Program SpecialSituation is ignored.

DIVIDENDS AND STOCK ISSUANCE If a Corporation has paid dividends and hasno arrearages, per the foregoing, then itmay issue stock.In the CORPORATE Game, players may

issue additional stock for their Corporationsbut in order to do so, they must establish arecord of full payment of dividends. Acorporation must pay a dividend equal to10% of the Book Value of its stock eachyear to the Bank. If a Corporation does notwish or plan to issue stock, it is notnecessary to pay dividends although anarrearage record must be maintained onthe Stock Record form. In the event aCorporation should later decide to issuestock, and has accumulated arrearages, thetotal arrearage plus 10% penalty must bepaid to the Bank. It is permitted to makepartial dividend payments and accumulatethe difference as an arrearage.

Only one issuance of stock may take placeper year per Corporation and the issuancemust be done at the year end. In no singleyear may a Corporation issue more sharesthan an amount equal to half of the sharescurrently outstanding. Thus, at the end ofthe first year of operations, only 16 newshares may be issued.

Valuation of each share sold must be atBook Value. Thus if Book Value per share is$1200 and 10 new shares are to be issued,the Bank must pay that price per share fora total of $12,000 for the 10 new shares.This is done to avoid "watering down" theequity of older shares. The $12,000 figurewould be entered as a new stock liability infull amount.

Book Value is computed as follows: On yourcurrent Balance Sheet, add Stock Liabilityplus Surplus and divide by the number ofshares outstanding to reach the Book Valueof each share. Dividends per share arebased on 10% of this valuation on eachshare. A simpler method, of course, is tosimply add Stock Liability and Surplus,paying dividends as 10% of the total.

Stock may be issued at the end of the firstyear of operations if circumstances allow.Dividends may not be paid, however, onthe new shares issued at that time. Allstock transactions must be "public" - otherplayers are entitled to full disclosure.Example (11:At the end of the first year,

Stock Issued ($32,000) and Surplus($8,000) equal Book Value ($40,000).Dividends, based on 10% of $40,000,

would be paid to the Bank. Deduct $4,000from Cash and Surplus and re-compute theBalance Sheet. Stock Issued remains thesame, but Surplus now reads $4,000 andCash will be $4,000 lower.

A Corporation may, at the end of any year,"repurchase" its shares from the Bank for

the Book Value plus current dividends plus10% penalty on the total of Book Value anddividends.

TAXES

Dividends can be paid only after taxes havebeen paid and Surplus has been computedon the Balance Sheet. Dividend paymentsare not tax deductible, and are nevercomputed in any current or future Profit &Loss Statement.

If a net profit exists, 50% of it must be paidto the Bank for corporate income taxes. If acorporation suffers a loss for one or moreyears and then has a profitable year,previous losses for five years back may becharged against the profit for tax purposesonly. Profit and Loss Statement or Balance

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Sheet figures are unaffected except for thetax entry on the Profit and Loss Statement.For example, if a corporation lost $5,000over a three year period and the fourthyear a net profit before taxes of $8,000 ismade, the corporation may deduct theprevious loss of $5,000 from the $8,000,thus entering only $3,000 in the Net ProfitBefore Taxes blank. The tax bill for thatyear is reduced from $4,000 to $1,500.Similarly, if operations were profitable forseveral years and then a loss is sustained, arefund of taxes paid within a five-yearperiod from the time of the loss can berealized. It is possible in a game betweenexperts, or in the CLASSROOM game wherethere are more than 4 Presidents, that onecorporation with high profits may want tomerge with a near-bankrupt corporation inorder to take advantage of these taxcredits.

INVESTMENT CREDIT & WORKINCENTIVE

The U.S. Government provides a number ofways to encourage expansion. While themechanics of such programs change fromyear to year, basically what the governmentdoes is to provide credits for the purchaseof manufacturing equipment and the hiringof handicapped people, to name a few. Thebeauty of these programs is that suchcredits are direct reductions from the taxlien itself. For the sake of simplicity, this isbuilt into the Corporate Game in asomewhat abstract manner; the benefits ofwhich are derived through the amount aplayer spends in processing throughautomated factories (line 3b).

CLOSING PROCEDURE

At the end of the year, do the following inorder:

(1) Complete your Profit & Loss Statement(Pay taxes to Bank).

(2) Figure up Balance Sheet.

(3) If surplus exists, pay Dividend. SubtractDividend payment from Surplus and Cash.

(4) Record Dividend payments andArrearages in Stock Record Section.

(5) If additional Stock is issued, adjust Cashand Stock Issued sections of Balance Sheet

If P&L shows a loss, subtract loss fromSurplus. If any Surplus remains, you maypay a dividend even though operations inthat year were unprofitable.

Classroom Game

BUSINESS STRATEGY can be expanded toallow a greater number of players and par-ticipation by the entire classroom. Thereare basically two ways of doing this. Theeasier of the two is to retain the basicstructure of the four player game andsimply divide the classroom into foursections or teams. Each classroom groupwould then elect a Chairman of the Boardfrom among their number, the othersbecoming members of the Board ofDirectors for their particular firm. Thegroup, led by the Chairman, then proceedsto secretly vote on all decisions to be made.Once they arrive at a decision it is secretlyrecorded on the Running Record Sheet inthe normal manner. All votes are decided infavor of the majority with the Chairmanbreaking any ties that may result andgenerally conducting the proceedings. Anew election for Chairman of the Board

should be held at the end of every calendaryear. The Chairman of the Board assumesthe role of the President in the game'sproceedings.

Another form of CLASSROOM Gameinvolves increasing the number of Corpora-tions. This can be done by simplymultiplying the number of RMU's and FIU's

Available on the Situation Card by theproper multiplier. For example, if a class of15 is to participate, the instructor wouldmultiply the " 3 Player" column by 5 todecide the number of RMU's and FIU'savailable. The Special Situations andMinimum and Maximum Bids remain ineffect. The instructor would have toproduce new game boards and tokens forthe added players and keep track of salesfrom a large tote board (class blackboard).In a game of this nature one could expectmany bankruptcies and the possibilities for

merger would be quite extensive. In thisway the instructor can easily illustrate howlarge corporations develop by allowing hisstudents to build one from among the lessfortunate companies. Those players whomerge with a stronger corporation mayattempt to influence his decisions but arenot allowed to act in his place.

To add color to the game, the Presidentsmay consider their corporations to bespecific competing industries, such asautomobile manufacturers in the four playegame. Each Finished Inventory Unit wouldthen represent a fleet of automobiles. Inthe expanded CLASSROOM game, eachcorporation could be given a fictitious name(or named after its President) and strive toreach the highest profit in the industry.

General Hints on StrategyNot everyone is cut out for business.Playing this game may very well determinethis for you. Those of you who have thatinnate 6th sense for business, need notread further. This section is designed toimpart some truisms of business to thatindividual who is, perhaps, too conservative

in nature to ever really make it in thebusiness world.The key to business success is aggression.In the game, as in real life, some chancesmust be taken. There will be times when itwill be expedient to attempt to corner themarket on RMU's. Bear in mind that there isa percentage of predictability for theClimate situation cards; there is a total of18 of which only 12 are used pergame-year (after which all are reshuffled).Five cards are extremely poor RMU buying

markets; there are five extremely goodRMU markets. The same "five" breakdownapplies to FIU markets, good and bad.Should the extreme markets appear inconsecutive order for 3 months or more,you could be in trouble with either toomuch stock on hand (for which you pay

whopping fixed expenses) or too little onhand which precludes you from making thesales necessary to obtain proper cash flow.

Do not go overboard with capital expansionuntil such time as you are able to generatesome sort of guarantee of an expandingmarket through advertising, or by the eviland devious methods delightfully built intothe design for you to discover. Whatappears at face value to be a game ofchance (in that the RMU & F1 U market is

determined by the luck of the drawl is reallya game of think and counter-thinkcontaining a variety of nuances of strategywhich accounted for the same few peopleconsistently winning our design-test gamesThis axiom held true even when this gamewas marketed to the educational system

under its former name, Management.

Quite honestly, if you find yourself in alosing streak over Business Strategy, wesincerely urge you to drop any thoughts ofgoing into real business for yourself.Business Strategy is that realistic . . .