Business Simulation Games Blog

J&J's Financials and CEOs

  

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Johnson & Johnson is the butt of jokes because of the announcement about their new CEO. As David Shaywitz says, writing in Forbes: "J&J is replacing their current CEO William Weldon (athletic white male and former sales rep who rose through the commercial organization) with Alex Gorsky (athletic white male and former sales rep who rose through the commercial organization)." Shaywitz wonders if innovation can come from people like this, but notes that it's not unusual in the industry.

J&J's financials are not bad, though. Nothing for the outgoing CEO to be ashamed of. Here they are in Visual Finance:

Approx $13bn in profit, on $60-something bn in sales. Not bad. No real debt. Fairly slow-paying customers, but cash flow doesn't look like a problem at all. Add the basic ratios in, and it confirms it:

Good job, Mr. Weldon!

Robin Helweg-Larsen, President, Andromeda Training, Inc.

'Visual Finance' is available as a free app for iPad; a $7.99 upgrade gives you access to many years of the financial statements of 450 publicly traded companies.

Andromeda Training provides classroom training in business acumen, using the same visual methodology in its Income/Outcome boardgame format.

Abbott Labs as seen in Visual Finance

  

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Abbott Labs is often thought of as one of the classic Big Pharma companies, and its structure appears to bear this out (note: 2010 Annual Report information):

• Very profitable, at 13% Return On Sales - though the comparatively high Assets reduce its Return On Assets to less than 8%.
• Very high R&D spend: some 11% of Sales Revenue is plowed straight back into developing new product.
• Slow-paying customers, at 75 Days Sales Outstanding
• Debt under control
• And the largest Asset item is Goodwill - reflecting aggressive expansion through strategic acquisitions.

At a glance, a perfectly healthy drug company - however, what you don't see in this view is that Abbott doesn't even consider itself as a "pharmaceutical" company any longer, but as belonging to the wider "medical" field. And this is what a lot of both its R&D and its acquisitions have focused on.

Abbott Labs is in a state of transition, not out of desperation as can sometimes be the case, but driven by a strategic vision; and the results are good.

(Andromeda Training is proud to have been providing business acumen training for Abbott Labs in the US, UK and Ireland, using the Income/Outcome simulation.

The Visual Finance app for the iPad is available at the app store; the basic app is free, and there is an $8 upgrade available.)

Robin Helweg-Larsen, President, Andromeda Training, Inc.

What Visual Finance highlights for Schneider Electric

  

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When you look at Schneider Electric's 2010 financial statements (2011 not being publicly available yet) in the Visual Finance app, you can see at once that:

• it's a profitable company, with something under 10% Return On Sales (turning on Ratios would give you the actual figure immediately);
• long-term debt is under control

but two anomalies also stand out:

• It looks like customers are taking an enormously long time to pay - Days Sales Outstanding is well over 90 Days. This is a situation worth checking into in the Notes to the Financial Statements in the Annual Report.
• The largest Fixed Assets item, when you click on it or hover over it, turns out to be Goodwill. In other words, the company has been on a major buying binge and, without racking up excessive debt, has paid well over book value for one or more acquisitions - which would have been done to meet the strategic needs of the company.

So Schneider Electric looks like a profitable company, able to generate cash for its major acquisitions, despite some possible glitch in its Receivables process. It is expanding through acquisitions - you'd have to down-arrow to previous years to see how it has changed from before the acquisitions. Whatever its strategic plan is, the company appears it is fulfilling it.

It will be interesting to see how the results for 2011 compare when they are released.

(Andromeda Training is proud to have been providing business acumen training for Schneider Electric's leadership development and new hire engineers for many years in the US and Mexico. The Visual Finance app for the iPad is available at the app store; the basic app is free, and there is an $8 upgrade available.)

Robin Helweg-Larsen, President, Andromeda Training, Inc.

Visual Finance shows Steven Appleton's legacy at Micron

  

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The death of Micron CEO Steven Appleton this month comes at a time of difficulty and change for the company - but difficulty and change has been the norm for Micron and for the entire semiconductor industry for decades. Mr. Appleton was remarkable for his survival skills in several areas of high risk - he knew the risks and relished them.

As the Wall Street Journal reported:

Mr. Appleton was a stunt-plane flier who had survived a previous crash and also raced motorcycles, cars and off-road vehicles. He cut a maverick figure in the industry, guiding Micron through a turbulent battle against much larger Asian competitors in the boom-and-bust market for memory chips.

Micron is the last remaining U.S. competitor in an industry that American companies once dominated, showing a knack for endurance that earned Mr. Appleton the semiconductor industry's highest award in November.

Mr. Appleton's legacy is a company that posted a profit in its last Annual Report. In the semiconductor industry, that is always an accomplishment in itself.

Here are Micron's 2011 Financial Statements in Visual Finance view.

Andromeda Training has provided Income/Outcome business acumen training to managers at Micron for many years. We share their sense of loss, and wish them well in the future.

Robin Helweg-Larsen, President, Andromeda Training, Inc.

Apple in Visual Finance

  

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Apple has been posting amazing financial results for several years, and those results are so good that they are hard to describe.

Look at them in the Visual Finance app (yes, on the iPad from Apple)

With every stack worth $5bn, you can see that its near-25% profitability is giving over $25bn for the year ending September 2011. On the Balance Sheet, it has almost no long-term debt. The largest amount of Fixed Assets is over $55bn of long-term Investments - the largest amount of Other Assets is over $15bn of short-term Investments. Add that to the $10bn in Cash on hand, and you've got $80bn in Cash and Securities that just seems to be sitting there.

Their Return On Assets may be high, at over 20%... but if they disposed of all their unnecessary Cash and Securities (say as Dividends), they would be perfectly functional with ROA at an amazing 70%.

Given that their 2012 Q1 results (not included here) were hugely better than anything prior, and that they are now the highest-worth company in the world, and that their cash and investments are up around the $100bn mark now... all I can say is that Steve Jobs' vision paid off, and CEO Tim Cook is an operational genius.

But what is Apple going to do with that much spare cash? Apple doesn't have a culture of buying things... but it doesn't have a culture of paying dividends, either. The rumor mills are talking about the latter, though.

What We Can Learn About Business Acumen From Kodak’s Bankruptcy

  

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Another once-dominant iconic company, Kodak, declares bankruptcy and the stories fly about mismanagement, the lack of visionary leadership, and lost opportunities. After all, Kodak invented the digital camera in 1975 and did nothing with it for 15 years. How could they not see how this would destroy their core business?

I liked Rick Newman’s article about Kodak in U.S.News & World Report. It’s more even-handed than most and comes to the conclusion that maybe there wasn’t anything Kodak could have done to stem their long decline. Kodak projected the rate at which digital photography would displace its core film business and tried to time their entry into digital so it wouldn’t damage their film sales until the technology matured. They tried diversification into pharmaceuticals and medical diagnostics based on their expertise in chemical and imaging technology. They tried hiring CEOs from different industries. All of these are touted as good strategies under these circumstances and all of them failed.

The Economist looks at Kodak and Fujifilm, and wonders why Fujifilm is now doing so well compared to Kodak. Their stories are quite similar. Both enjoyed lucrative near-monopolies in their home markets, both saw that their traditional business, film, would become obsolete, both saw that digital would never be as profitable as film, and both tried to diversify.

And that’s what struck me—how similar their two stories were even in their attempts to deal with their problems. We want simple answers to explain why Kodak went bankrupt and Fujifilm thrived, but there aren’t any because the problems are too complex for a simple answer.

There are a lot of theories for Kodak’s decline:

• They were too slow in responding to market changes
• They tried to create perfect products instead of introducing products quicker and fixing them later
• They changed leadership too often which led to lack of consistency
• They were too complacent because they had been a near-monopoly for too long
• They thought they could just rely on the power of their brand and marketing expertise to move into new fields

The facts are that Kodak was never going to be as successful as the company they were in the in 1976, when they accounted for 90% of film and 85% of camera sales inAmerica.

There’s much to learn in analyzing why some companies succeed and others fail but each company's situation is unique and we aren’t going to end up with simple rules we can put in business books that will tell the next company exactly what to do when they face similar problems.   

That’s why we designed Income/Outcome, our business simulation game, to be open-ended, not favoring one strategy over another. Teams compete to create the most successful business, learning to analyze financial data, create budgets, develop and implement strategies. They have to revise their plans based on market changes and the actions of their competitors. Some companies thrive, others struggle, but each team learns from their successes and failures and by looking at how competing strategies fared, just like in real life.

Learn more about income/outcome business simulation workshops at www.income-outcome.com.

Income/Outcome and Visual Finance in Arab News

  

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Arab News, the national English-language daily of Saudi Arabia, printed a nice half-page story today on Andromeda Training, Income/Outcome and our new Visual Finance app. The article is by Molouk Ba-Isa, Editor for the Gulf Region and an IT specialist.

In addition to an overview of Andromeda and our expansion out of the classroom into a new (but related) product line, Arab News has a screen shot of the VF app and a photo of Arab women - fully covered - playing Income/Outcome. 

If you read the story online, please be sure to leave a comment - even if it just says "Thanks!"

To find out more on the classroom learning, go to http://income-outcome.com

To find out more on the free iPad app (and its $8 upgrade), go to http://www.visualfinanceapp.com

Decision-Making and Speed of Change in the Gulf Countries

  

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In Saudi Arabia and other Gulf countries such as Bahrain and the UAE, my experience is that nothing gets done without a lot of introductory talk, discussion, negotiation. And it never stops. I hold to my old joke that signing a final contract in the Middle East just gives you one more thing to negotiate about.

But that implies that nothing can ever get done. Not true. The speed of change in the Gulf countries is unbelievable. Once someone at the top mandates a course of action, islands and cities get built in a couple of years.

A culture of slow decision-making and endless renegotiation doesn't need to slow the speed of change, so long as someone is actually in charge.

Visual Finance and Business Simulations as Ideas

  

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We use visualization methodology in the simulation and the new app... so we are always looking for other visual displays of information. There are lots of great visualization techniques being used today, and I would like to share one of them here.  

David McCandless has a beautiful book The Visual Miscellaneum which is also published in the UK as Information is Beautiful (I recommend the book to anyone who likes looking at how information can be displayed). This week he has come up with a Taxonomy of Ideas that is his attempt at finding order in the chaos called creativity. (When I was studying engineering I had a classmate Bill who believed 'a cluttered desk is a cluttered mind'... I always took the opposite side of 'you cannot create in a vacuum'. But keeping Bill in mind, I do clear my desk at the end of each project.) 

First off, I looked for my personal favourite 'elegant', but McCandless required that the phrase 'elegant idea' be popular on Google search, and it did not make the cut. Fair enough.

Then I wondered where our Visual Vinance ideas would fit in this taxonomy.

Income/Outcome Business Simulations... on the Functional x-axis the speed of learning and the high retention place I/O at superfunctional. On the Conceptual Structure y-axis, I/O is synthesizing (it combines a number of things into a coherent whole). So the Income/Outcome business simulations fall somewhere between beautiful and incredible on this ideas chart. I can live with that.  

Visual Finance App... on the Functional x-axis the app the app lets the user create new relationships from the information, so it is transfunctional. On the Conceptual Structure y-axis, the app is between harmonic (integrated in nature) and synthesizing (it combines a number of things into a coherent whole). So the Visual Finance App falls somewhere between brilliant and incredible on this ideas chart. Which is kind of fun.

Incidentally, there is a legend for the colours as well...  these ideas show up as unexpected and unpredictable.  

I wonder if we will one day get to that top right corner.  

Eliza HL, Co-Founder

Business Acumen and Game Transfer Phenomenon

  

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I recently read an article about game transfer phenomenon. This is the idea that people merge subjective realities and take a game-related action in real life. The author of the article starts by talking about unexpectedly using Mario-Kart driving reflexes to avoid a real-world collision.

I play a lot of games, and I frequently experience GTP. But the article got me wondering - if people do things differently as a result of our training, is this Game Transfer Phenomena? If so, is Game Transfer Phenomena a realistic, desirable, goal for business acumen training? 

Here are some scenarios coming out of income/outcome workshops: 

• Years ago we had a senior executive from a credit reporting company come to Chapel Hill to discuss buiding a game that modeled their business. On the first day he participated in a regular workshop. The second day he came into the office and informed us that he had changed hotels that morning... he had been replaying the simulation in his head, and come to the realization that saving $100/night on hotel room meant increasing profits by $100. He actually saw the outcome of his decision in terms of playing pieces on the game board.

• Similarly, we have the story of a manager for a major supplier to the automotive industry. One of the big auto-makers went on strike, and the OEM plant manager had a spontaneous game-board vision of what would happen if he kept up production while the strike was ongoing. (What he saw was inventory building up in his FGI area, and no new sales coming in, and running out of money... so he immediately got on the phone and began changing his operations for the duration of the strike). 

• Last month I ran a Finance for Managers program for social entrepreneurs in Kenya. One woman started the workshop by saying "I hate budgets". I told her my goal was to make her like budgets because they are useful, and at the end of two days she said "Eliza, you were right... my perspective had changed". What had been burdensome before, was now an excellent planning tool.

In each case we merged the business game reality with the real world reality, and changed the real world response. These situations describe Game Transfer Phenomena and they are inherent in the income/outcome simulations, they are another form of 'stealth learning'.    

And yes, they are desirable in business acumen workshops... they drive the experiential learning process. 

Eliza HL, Co-Founder