How Company Performance Is Scored
The scoring procedure is tied to how well each BSG company is able to meet or beat the 5 performance targets which board members have set for the company’s management team:
- Grow earnings per share from $2.00 at the end of Year 10 to $2.50 in Year 11, $3.00 in Year 12, $3.50 in Year 13, $4.00 in Year 14, $4.50 in Year 15, $5.25 in Year 16, $6.00 in Year 17, $7.00 in Year 18, $8.50 in Year 19, and $10.00 in Year 20.
- Grow average return on equity investment (ROE) from 20% at the end of Year 10 to 21% in Year 11 and by an additional 1% annually in Years 12 through 20 (thus reaching 30% in Year 20). Average ROE is defined as net income divided by the average of total shareholder equity balance at the beginning of the year and the end of the year. Average ROE for each company is reported on page 2 of the Footwear Industry Report. The formula for calculating your company’s average ROE appears in Note 11 on page 7 of the Company Operating Reports below the Balance Sheet.
- Achieve stock price gains from $30 at the end of Year 10 to $40 in Year 11, $50 in Year 12, $65 in Year 13, $80 in Year 14, $100 in Year 15, $125 in Year 16, $150 in Year 17, $180 in Year 18, $215 in Year 19, and $250 in Year 20. Board members agree that such stock price gains are within reach if the company meets or beats the annual EPS targets, from time to time pays a higher dividend to shareholders, and perhaps repurchases some of the common stock shares outstanding. Your company’s stock price is a function of revenue growth, earnings per share growth, ROE, credit rating, dividend per share growth, and management’s ability to consistently deliver good results as measured by the percentage of the 5 performance targets that your company achieves over the course of the BSG exercise.
- Achieve a credit rating of B+ or higher in Years 11-13, A- or higher in Years 14 through Year 16, and at least A in Years 17 through Year 20. The company’s credit rating was B at the end of Year 10.
- Achieve an “image rating” of 70 or higher in Year 11, 72 in Years 12-13, 75 in Years 14-15, 77 in Years 16-17, and 80 in Years 18-20. The image rating is based on: (1) the company’s branded S/Q ratings in each geographic region, (2) the company’s global market shares for both branded and private-label footwear (as determined by their market shares in the four geographic regions), and (3) the company’s efforts in Corporate Social Responsibility and Citizenship over the past 4-5 years.
The default weights placed on the five performance targets are 20% each. The five weights translate into 20 points out of 100 for each of the 5 performance measures, with the sum of the points adding to a total of 100 points. There is an option on your Administrative Menu for each “industry” that allows you to alter these weights however you see fit. The scoring weights selected are reported to all company co-managers in the narratives at the bottom page 1 of the Footwear Industry Report and also in the narratives showing the company scores on each scoring variable on pages 2 and 3 of the Footwear Industry Report. Hence, class members will be well aware of what the weights are.
Using the assigned weights (or corresponding number of points out of 100), each company’s performance on the 5 measures is tracked annually and company performance scores are calculated from two different angles: the “investor expectations” standard and the “best-in-industry” standard.
Special Note:The scoring procedures described below may seem more complicated than they really are because we are providing full details and explanations of how the scoring works—in truth a company’s overall performance cannot be fairly or accurately gauged by “keeping it simple” and looking at just a couple of performance measures. A “balanced scorecard” for determining how well a company is doing financially and strategically has to be multi-faceted and somewhat sophisticated in order to look at a company’s performance from several perspectives and angles.
The BSG scoring methodology, introduced in 2004 and now used for over 500,000 participants, has an exceptionally good, time-tested track record. The scoring synopsis provided on the scoreboard pages (pages 1, 2, and 3) of the Footwear Industry Report is very detailed and complete. The tutorial videos associated with the first three pages of the Footwear Industry Report attempt to explain the scoring in a more succinct and fundamental manner.
The Investor Expectations (I.E.) Scoring Standard. The Investor Expectations Standard involves calculating an annual “Investor Expectation Score” based on a company’s success in meeting or beating the five investor-expected performance targets each year. There is also a Game-to-Date or “all-years” Investor Expectation Score that shows a company’s success in achieving or exceeding the expected performance targets over all years of the exercise completed so far. Some important aspects of how the Investor Expectation (I.E.) Scores are calculated are summarized below:
- Meeting each expected performance target is worth some number of points based on the scoring weight you select (the default scoring weights—which we recommend using—are 20% or 20-points each). For instance, if the scoring weight for EPS (or ROE or stock price or image rating or credit rating) is 20%, meeting the EPS (or ROE or stock price or image rating or credit rating) target earns a score of 20 on each particular performance measure.
- Beating the EPS, ROE, stock price, and/or image rating targets is worth additional points equal to 0.5% for each 1.0% that a company’s actual performance exceeds the expected performance for EPS, ROE, stock price, and image rating, up to a maximum 20% additional for each measure. For example, if a company achieves an EPS of $6.00 when the target is $4.00 and if EPS carries a 20-point weighting, then the company will receive an EPS score of 24 (because it beat the target by 50% and qualifies for the maximum 20% additional points over the 20-points awarded for just matching the EPS target). Additional points are also awarded for credit ratings that exceed the targets, with a full 20% additional being given for an A+ rating.
- Failure to achieve the investor-expected target for EPS or ROE or stock price or image rating results in a score for that performance measure between 0 and the point maximum for that measure, with the score depending on the percentage of the target achieved. For instance, if a company achieves a stock price of $20 at a time when the stock price target is $50, then the company’s score on the stock price target (assuming a 20% weight and thus 20 possible points) would be 8 points (40% of the 20 points awarded for meeting the stock price target).
- If a company’s EPS is negative, no points are awarded toward meeting investor expectations for EPS.
- If in a given year a company has a negative ROE, no points are awarded on the ROE measure.
- If the point weighting for credit rating is 20 (which equates to a maximum of 24 points including the bonus), then the various possible credit rating scores are as follows:
- The sum of a company’s scores on each of the 5 investor-expected targets equals its annual I.E. Score. Exactly meeting each of the 5 performance targets produces an I.E. Score of 100. Beating the EPS, ROE, stock price, and image rating targets by 20% or more and earning an A+ credit rating results in a maximum achievable I.E. Score of 120.
- A company’s Game-to-Date Investor Expectation Score is
determined as summarized below:
- Game-to-Date I.E. Scoring for EPS is based on how each company’s weighted-average EPS for all years completed compares to the average of the EPS targets for all years completed. Companies that meet the all-year weighted-average EPS target receive a score equal to the EPS point weighting. Companies that beat the weighted-average EPS target receive additional points of up to 20%, and companies that fall short of the weighted-average EPS target receive scores equal to the fraction of the EPS target that was achieved. More details are provided in the Help document for Page 2 of the Footwear Industry Report.
- Game-to-Date I.E. Scoring for ROE is based on how each company’s weighted-average ROE for all years completed compares to the average of the ROE targets for all years completed. Companies that meet the all-year weighted-average ROE target receive a score equal to the ROE point weighting. Companies that beat the weighted-average ROE target receive additional points of up to 20%, and companies that fall short of the weighted-average EPS target receive scores equal to the fraction of the ROE target that was achieved. More details are provided in the Help document for Page 2 of the Footwear Industry Report.
- Game-to-Date I.E. Scoring for Stock Price is based only on each company’s most recent year’s stock price, not on an average. The latest stock prices are used for game-to-date scoring because a company’s latest stock price is a function of EPS growth, ROE, credit rating, dividend per share growth, and management’s ability to consistently deliver good results, and thus includes a heavy long-term element. Companies that meet the most recent year’s stock price target receive a score equal to the stock price point weighting; companies that beat the most recent year’s stock price target receive additional points of up to 20%, and companies that fall short of the most recent year’s stock price target receive scores equal to the fraction of the stock price target that was achieved. More details are provided on the Help document for Page 2 of the Footwear Industry Report.
- Game-to-Date I.E. Scoring for Credit Rating is based only on each company’s most recent year’s credit rating, not on an average.. Only the latest year’s credit rating is used to measure the game-to-date credit rating score because a company’s latest credit rating is largely reflective of its long-term financial condition and the overall balance sheet strength that management has engineered to date. The game-to-date I.E. scores for credit rating are always the same as for the current-year scores because both are based on the most recent year’s credit rating. More details about the credit rating scoring are provided on the Help document for Page 3 of the Footwear Industry Report.
- Game-to-Date I.E. Scoring for Image Rating is based on how each company’s average image rating for the most recent three years compares to the average target for the most recent three years. A 3-year average image rating is used to measure game-to-date performance so as not to burden a company’s performance by image ratings that are not representative of the image and reputation it has recently achieved with its strategy. Companies whose average image rating for the most recent 3 years equals the 3-year average image rating target receive a score equal to the image rating point weighting. Companies with 3-year average image ratings above the 3-year average target receive additional points of up to 20%. And companies with 3-year average image ratings below the 3-year average target receive scores equal to the fraction of the image rating target that was achieved. More details are provided on the Help document for Page 3 of the Footwear Industry Report.
- Both annual and Game-to-Date Scores of 100 to 120 are quite excellent, scores of 90-99 are very good, scores of 80-89 are good, scores of 70-79 are fair, and scores below 70 reflect consistently “sub-par” results in meeting the targets that investors expect and that company Board of Directors set for management to achieve.
|Credit Rating||Year 11 – Year 13||Year 14 – Year 16||Year 17 – Year 20|
|A+||24 points||24 points||24 points|
|A||23 points||22 points||20 points|
|A–||22 points||20 points||18 points|
|B+||20 points||18 points||16 points|
|B||16 points||15 points||14 points|
|B–||12 points||12 points||11 points|
|C+||8 points||8 points||8 points|
|C||4 points||4 points||4 points|
|C–||0 points||0 points||0 points|
The Best-in-Industry (B-I-I) Scoring Standard. The Best-In-Industry or B-I-I standard concerns how well each company performs relative to the “best-in industry” performer on 4 measures—EPS, ROE, image rating, and stock price and how close each company comes to the ultimate credit rating of A+. Again, the performance scores are based on the weights/points assigned to each of the 5 performance measures, with the sum of the points on the 5 measures adding to 100. The Best-In-Industry standard entails assigning the best-performing company the highest number of points and then assigning each remaining company a lesser number of points according to what percentage of the leader’s performance they were able to achieve. For instance, if ROE is given a weight of 20% (20 points), an industry-leading ROE performance of 25% gets a score of 20 points and a company with an ROE of 20% (which is 80% as good as the leader’s 25%) gets a score of 16 points (80% of 20 points)—the B-I-I scores for EPS, stock price and image rating work in precisely the same manner. The procedure is slightly different for the credit rating measure—each credit rating grade is tied to the number of points you assign to credit rating (an A+ rating always gets a Best-In-Industry score equal to the instructor-chosen maximum, with the scores for lower credit ratings scaled down all the way to 0 for a C rating).
Each company’s Best-In-Industry (B-I-I) score is equal to its combined point total on the five performance measures. In order to receive a score of 100, a company must (1) be the best-in-industry performer on EPS, ROE, stock price, and image rating, (2) achieve the targets for EPS, ROE, stock price and image rating set by the company’s Board of Directors, and (3) have an A+ credit rating. B-I-I scores of 80 to 100 reflect good-to-excellent performance; scores under 50 should cause company co-managers great concern and signal the need for immediate strategy improvement.
Below are some important aspects of how the Best-In-Industry scores for a given year are calculated:
- The Best-In-Industry scoring standard is based on a maximum score of 100 points, with each scoring variable carrying a 20-point rating (unless you alter the 20% default weights). To get a score of 100, a company has to be the highest performing company—termed the best-in-industry performer—on all five performance measures during the year, meet or beat the EPS, ROE, stock price, and image rating targets for that year, and have an A+ credit rating.
- The best-in-industry performer on each measure earns a perfect score (the full number of points based on the chosen point weightings—provided the industry leader’s performance on that measure equals or exceeds the annual performance target established by company Boards of Directors). Each remaining company earns a fraction of the points earned by the best-in-industry performer that is equal to its performance (on EPS, ROE, stock price, and image rating) divided by the performance of the industry-leading company (on EPS, ROE, stock price, and image rating). For instance, if ROE is given a weight of 20 points, an industry-leading ROE performance of 25% gets a score of 20 points (provided the annual ROE target is not greater than 25%) and a company with an ROE of 20% (which is 80% as good as the leader’s 25%) gets a score of 16 points (80% of 20 points).
- If the best-in-industry performer’s EPS, ROE, stock price, or image rating is below the performance target for that year, the industry-leading company is not awarded a perfect score (the maximum number of points) but rather a percentage of the maximum score that equals the leader’s EPS, ROE, stock price, or image rating as a % of the corresponding performance target for that year. This is done to prevent a company with the highest average EPS, ROE, stock price, or image rating from being awarded a high Best-in-Industry score when its performance on EPS, ROE, stock price or image rating actually falls below target performance levels. In all such instances, each remaining company will earn a fraction of the points earned by the best-in-industry performer, with that fraction being equal to its performance (on EPS, ROE, stock price, and image rating) divided by the performance of the industry-leading company.
- The procedure for assigning Best-In-Industry scores is a bit
different for the credit rating measure. Each credit rating grade
from A+ to C carries a certain number of points that scales down
from the maximum number of points for an A+ credit rating to 1point
for a C rating. If the credit rating weight is 20 points out of
100, the B-I-I point awards for credit rating are as follows:
Credit Rating Score A+ 20 points A 19 points A– 18 points B+ 16 points B 14 points B– 11 points C+ 8 points C 5 points C– 1 point
- All companies that lose money in any given year and end up with a negative EPS automatically receive a Best-In-Industry EPS score of 0 points.
- Similarly, companies with a negative ROE have a Best-In-Industry ROE score of 0 points.
- Each company’s B-I-I score equals its combined point total on the five performance measures.
- Best-In-Industry performance scores of 90-99 are excellent, scores of 80-89 are good to very good, scores of 70-79 are fair to good, scores of 60-69 are weak to fair, and scores below 60 reflect a performance roughly 40% or more below that of companies with scores in the 90s—which says that such companies were outperformed by other companies in the industry by a significant margin.
The highest possible Best-in-Industry (B-I-I) Score is 100, earned only if a company is the best performer on EPS (with an EPS equal to or above the target), the best performer on ROE (with an ROE equal to or above the target), the best performer on stock price (with a stock price equal to or above the yearly target), and the best performer on image rating (with an image rating equal to or above the yearly target) and also has an A+ credit rating.
Combining the Annual and Game-to-Date Scores into Overall Scores. The scoring includes both an annual and a game-to-date “Overall Score” for each company. These scores are determined by combining each company’s Investor Expectation Score and the Best-in-Industry Score into a single score using whatever weighting you wish (the default weighting—which we strongly recommend—is 50% each). The Annual Overall Scores for the various companies are a weighted average of their respective annual I.E. scores and the annual B-I-I scores, while the Game-to-Date Overall Scores are a weighted average of the game-to-date I.E. scores and the game-to-date B-I-I scores.
Since I.E. scores can range as high as 120, it is common for the Overall Scores of the very best-performing companies to be greater than 100. Overall Scores that are greater than 100 are clearly indicative of superior company performance. As a general rule, we think that companies with an overall performance score of 90 or above at the conclusion of the simulation should receive a grade from A– to A+ on this portion of the BSG exercise. Companies with overall game-to-date scores of 80-89 should get a B– to a B+ (or higher if there are no companies with scores of 90 or more). Companies with an overall performance score of 70-79 above should get a grade in the C range (or higher depending on how many companies have higher scores). You may find it desirable to scale the company grades if competition turns out to be so fierce or cutthroat that companies in the industry can’t earn profits that meet investors’ performance expectations and thus end up with “low” overall game-to-date scores. In most of our classes, we end up scaling the performance scores of companies with overall scores below 70, but there is usually at least one company with a score above 90 (clearly meriting an A),so scaling scores on the upper end of the industry rankings is typically unnecessary.
A game-to-date scoreboard appears on the Administration page for each “industry” you have created in your instructor account, and a scoreboard containing the same information is displayed on each company’s Corporate Lobby page. After each decision round, students and instructors can view or print the Footwear Industry Report, pages 1-3 showing each company’s performance on every aspect of the scoring, including all the scoring weights. The associated Help documents provide detailed explanations of the scoring, so students should encounter no “mystery” factor about how the scoring works or where each company stands in the industry performance rankings.
The Optional Bonus Point Feature. Every decision round, companies have the opportunity to qualify for two special bonus point awards that can increase their company’s overall game-to-date score. Both bonus awards are a part of the simulation scoreboard, are calculated and awarded automatically to qualifying companies, and shown as an addition or adjustment to a company’s overall score. The two bonus point awards are:
- The Bull’s Eye Award (awarded annually for accurately
projecting company performance) — One bonus point is added to a
company’s game-to-date score when (1) the company’s actual total
revenues are within ±5% of projected total revenues, (2) the
company’s actual EPS is within 10¢ or ±5% of projected EPS, and (3)
the company’s actual image rating is within ±4 points of the
projected image rating. To qualify for the Bull’s Eye Award
in a given year a company must achieve ALL of the above
requirements for that year.
- Standard rounding rules apply to the ±5% calculations for revenues and EPS. There are no decimal points involved in the calculation and reporting of a company’s Image Rating.
- Partial bonus points are NOT awarded when just one or two of these three conditions are met.
- All companies that meet all three conditions in a given year are awarded 1 Bull’s Eye bonus point for that year.
- There is no limit on the number of Bull’s Eye Awards a given company can receive over the course of the simulation. So receiving a Bull’s Eye Award for each decision round can significantly impact a company’s overall score.
- While Bull’s Eye Award statistics are provided during the practice rounds for illustrative purposes, any awards earned during the practice rounds are erased when the Data Reset occurs—in other words, any Bull’s Eye Awards during the practice rounds “do not count” and will not be included in the bonus-point additions to a company’s final game-to-date score.
- The total bonus points accumulated by each company and the bonus-point-adjusted overall score for each company are shown in the center section of page 1 of the Footwear Industry Report where the Overall Game-to-Date company scores appear.
- The Leap Frog Award (awarded annually for most improved
overall current-year performance score) — Beginning in Year 12, one
bonus point is added to a company’s overall game-to-date score when
the company’s current-year score shows the biggest improvement over
its current score for the prior year (based on number of points,
rather than percentage improvement) in comparison to the score
gains of all other companies in the industry.
- The first Leap Frog Award is given in Year 12 (since it takes two years of results for a company to show improvement over its prior year’s results).
- In case two or more companies tie for the biggest point-improvement in overall current-year score, each company will receive a 1-point Leapfrog Award bonus.
- In the rare instance where all companies fail to improve their current scores from one year to the next (indicated by a negative year-to-year change in overall score for all companies in the industry), a Leap Frog bonus is not awarded.
- The total bonus points accumulated by each company and the bonus-point-adjusted overall score (including both Bull’s Eye and Leap Frog bonuses) are shown in the bottom section of page 1 of the Footwear Industry Report where the Overall Game-to-Date company scores appear.
The Bull’s Eye and Leap Frog awards accomplish three worthwhile purposes:
- Provide an additional element of interest and excitement for students/participants when the performance outcomes are generated as the deadline for each decision-making round passes.
- Encourage students to put more thought and analysis into making accurate projections of upcoming-year outcomes and searching for a strategy and decision combination with the most realistic chance of producing good year-over-year overall improvement (just as occurs in real-world companies). Students will certainly appreciate being rewarded when their efforts to accurately anticipate their company’s performance or to achieve a bigger jump in overall score than rival companies are successful.
- Give company-teams an opportunity to enhance their overall score via measures outside the five standard simulation scoring variables (EPS, ROE, Stock Price, Credit Rating, and Image Rating). This may serve as an additional incentive for companies not currently challenging for the industry lead.
There is a page in the Footwear Industry Report (page 3b) devoted exclusively to reporting the bonus points awarded to all companies across all the decision rounds—the associated Help document provide students with detailed explanations of how the Bonus Point awards are calculated.
By default, the optional Bonus Point Scoring feature is enabled when you set up the simulation exercise for your class. However, if you wish, you can disable the bonus point feature by un-checking the Bonus Awards box that appears in the Company Performance Grade Book (which is accessed from your Administration Menu). We strongly urge that you utilize the bonus point scoring feature at least initially—even if you are skeptical about its value.
The Default Scoring Weights. The “default weights” for the five performance measures on which each company is scored were set at 20% each because a 20% weight for each of the five variables constitutes a “balanced scorecard” that is in reasonably close accord with judging the performance of real-world companies. However, you can alter these weights if you wish—see the Grade Books and Scoring heading in the Administration Menu, Scoring Weights menu item.
The 50%-50% Default Weights for the Two Scoring Standards. As explained above, the default weights for the 2 scoring standards in The Business Strategy Game are 50% for the Investor Expectations Standard and 50% for the Best-In-Industry Standard. The default weighting is recommended, but you can change the weights if you wish—see the Grade Books and Scoring heading in the Administration Menu, Company Performance Grade Book menu item.
If the scoring standard weights are changes the weighted average performance scores in your Company Performance Grade Book will be recalculated. Also, the Overall Scores in the Scoreboard box on your Industry Menu page and on each company’s Corporate Lobby page will immediately reflect the new weights.
Concluding Comments about Scoring. One very important point about the BSG scoring methodology warrants emphasis: it is a company’s overall score that matters (how close company scores are to 100-120 in the case of the Investor Expectations Standard and how close they are to 100 in the case of the Best-in-Industry Standard), not whether a company is in first or last place. There will always be a last place company, but what is truly telling is whether it is in last place with a score of 85 (which clearly signals a strong performance and a deservedly good grade) or in last place with a score of 37 (which clearly signals a poor performance and a deservedly lesser grade).