Business Simulation and Professional Development
Week: 9 1
Topic Overview – Impediments To The Diffusion Of The New Technology
Learning Outcome:
LO.1 explain the theory and practice of businesses (COI, CID, SID)
LO.2 describe a range of current problems and changes that organizations face in being successful (COI,
CID, IC, SID).
LO.5 students will discuss good practice for organization success (COI, CID, SID).
LO.6 undertake a critical audit of skills and capabilities for a professional career and identify areas
required for improvement (COI, CID, EID).
1.Introduction
Despite the inherent advantages associated with the new technology, there are a number of impediments
that can thwart the successful promotion of these simulation products. Most of these problems are
cultural. In fact, cultural resistance has been cited as the second greatest obstacle to e-learning
(Summers, 2004). Some cultural obstacles to the new technology products are presented next.
2. Cultural Obstacles to the new technology products
2.1 The new products place more responsibility on the learner.
Learners must make time for learning and apply themselves without the benefit of a class, mandatory
homework, or other motivational pressures. Integrating learning into work might overcome this barrier,
with work pressures acting as an incentive for greater training. How and whether learners make this
cultural adjustment is essential. Many companies evaluate training through employee participation rates
and trainee opinion questionnaires. The survey from Learning & Training Innovations asked e-learning
users how they measured e-learning success( Summers, 2004). The top two answers were employee
feedback and tracking the number of employees who used the online offerings.
2.2 Self-motivated learning on demand threatens human resources departments.
It integrates learning into work, so it is not a separate event delivered and controlled by the company’s
trainers. It decentralizes training and empowers employees to determine the when, where, and pace of
learning. This empowerment is particularly important to knowledge workers because their career depends
on their continuing their educations. Knowledge workers might even seek training from outside the
company such as through programs offered by their professional associations (Summers, 2004).
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2.3 People learn differently.
Some people prefer mentored instruction while others prefer group problem-solving exercises. Still others
prefer self-paced learning. Simulation products currently do not address this diversity of learning styles
(Summers, 2004).
2.4 Delivery Costs.
Although the delivery costs are variable costs and are low, the development costs, which are fixed costs,
are high. Traditional e-learning requires an average of 220 hours of development work for each hour of
content (Brandon-Hall, 2002). In contrast, simulations delivered via e-learning require 750 to 1,300 hours
of work for each hour of simulation (Brandon-Hall, 2002). Some simulations require even more labor. The
Strategic Management Group claims to invest from 1,200 to 1,500 hours for each hour of simulation
(Aldrich, 2001).
2.5 Simulations are Risky.
Like many information products, simulations are risky because customers cannot try them without buying
them. Although demonstration copies or “product tours” partially relieve this problem, customers still face
considerable risk, and this risk can retard growth until lead users prove the new technology’s value.
Because of these questions and the benefits of seminars, some companies are hedging their bets by
providing simulation-based seminars. Once the seminar has been completed, employees are allowed to
have continuing access to the simulation and all its supplementary materials through an annual
subscription. This combination of electronic and face-to-face learning has spawned a new buzzword:
blended learning. Interestingly, Faria (1987) reported that simulation exercises were frequently used with
cases, lectures, training films, readings, and group discussions. This suggests that e-learning has
adapted to become like the methods it might replace. Other problems associated with the new technology
products deal with the technology’s delivery and its comparative efficacy:
- Does the Internet provide enough bandwidth to transport the new simulations effectively?
- Is personalized, artificial-intelligence-generated feedback as effective as live, expert feedback?
- Finally and most important, do people learn better or faster with the new simulations than with the
traditional technologies
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3. Creative destruction versus fragmentation
Will the new technology companies come to dominate or even replace the old? If so, this would be a case
of creative destruction, a concept proposed by Schumpeter (1989). Alternatively, the new technology
companies may simply increase the number and variety of suppliers and products. The outcome depends
on whether the new technology is superior and whether the new technology companies can consolidate
the industry. The new technologies and products have already been discussed, but what about
consolidation? To consider this issue, first consider why the industry is fragmented.
3.1 A fragmented industry
Porter’s (1980) strategic analysis is helpful in this case and yields the following insights into industry
structure and competition. Decreasing entry barriers. Knowledge of traditional computer-based simulation
technology is being diffused, thereby lowering a key entry barrier, which was technological expertise.
Simulation & Gaming has published numerous articles by experts on simulation design (Gold, 1992; Gold
& Pray, 1984, 1989; Mergen & Pray, 1992; Teach, 1990; Thavikulwat, 1991, 1992). System dynamics is a
course of study at many universities, and several companies provide authoring tools for system dynamics
simulations. Some computer-based training authoring tools enable users to create simple decision-tree
simulations. Finally, spreadsheet software lowers simulation development costs by providing an interface
and a programming environment. Faria (1987, 1998) provided additional evidence that the industry’s
entry barriers are decreasing due to:
-High selling costs. In the corporate market, most suppliers gain sales from consultative selling, perhaps
because estimating the return on training investments is notoriously difficult. This inhibits economies of
scale. High delivery costs. Many simulations require a seminar presentation. Seminars require expensive
facilitators, which prevents scale economies.
-Low product differentiation. Although every simulation is different, the differences are often
inconsequential. All industry simulations have somewhat different interfaces, market structures, and
parameter values; nonetheless, they all prompt learners to make the same type of marketing, finance,
and production decisions. To the learner, they are largely the same, and this creates several difficulties
for suppliers. Without a differential product advantage, a supplier has difficulty dominating the licensing
market. This is unfortunate because licensing simulations to consultants overcomes the high cost of sales
and seminars. Consultants would pay the costs of both, thereby enabling simulation suppliers to gain
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scale economies. Insufficient product differentiation also minimizes repeat sales. Suppliers cannot offer
new, improved versions of their products, a standard strategy in the software industry, because product
differentiation is not meaningful. Facing this reality, companies supplying traditional computer-based
simulations increase sales by adapting their simulations to different markets such as retailers,
wholesalers, service companies, and manufacturers (Mergen & Pray, 1992).
-Lack of resources and skills. Many of the suppliers of traditional computer-based simulations were
university professors who sold their simulations through book publishers. Other suppliers were small,
local consultants. Few suppliers sought professional management with experience in growing a
company.
-Entry barriers. The new technology raises entry barriers in several ways. Agent based technology,
artificial-intelligence-generated feedback, and high-quality graphics all increase entry barriers. Software
libraries that enable quick, inexpensive customization further raises entry barriers, as do libraries of
supplementary materials. In fact, smaller suppliers are concerned that technology is overtaking their
ability to maintain the interfaces and game features learners desire (Fritszche, Biggs, Cotter, Jensen, &
Wolfe, 1998). The need for supplementary materials also increases switching costs, especially if
customers can organize reference materials into a personal reference. For example, customers could
save search queries and search results, highlight text, and create their own hyperlinks among the various
references. In addition to raising entry barriers, high switching costs have another benefit. When
simulations and supplementary materials are priced as annual subscriptions, high switching costs provide
suppliers with a reliable revenue stream.
-Selling costs. Competition is lowering prices, but the real issue affecting price is the underlying business
model used by the new technology companies.
-Distribution costs. Removing seminars from the training method reduces a major barrier to scale
economies. Moreover, high entry barriers and product differentiation can promote licensing, thereby
shifting the distribution costs away from suppliers.
-Resources and skills. The corporate market should grow into a billion-dollar industry and much more if
its e-learning segment grows robustly. This growth is attracting professional management and venture
Week: 9 5
capital. However, it is a double-edged sword. It is also attracting large suppliers from a variety of
industries, such as e-learning, training, and consulting.
4. New scientific research opportunities
Business simulations support research into learning and various aspects of man agement, including
decision support, strategy making, group behavior, organizational learning and change, and leadership
(Keys & Wolfe, 1990). The new simulation technologies and the next new technologies create additional
opportunities. These technologies facilitate new research techniques. Scientists can analyze decision
making with theory and measures from applied mathematics, computer science, and artificial intelligence.
These new techniques can direct simulation-based research into new fields. For example, scientists can
study decision-making heuristics (Kahneman, Slovic, & Tversky, 1982; Plous, 1993) and satisficing
(Simon, 1994, 1997). By applying the new technology to industry simulations, scientists can study how
management affects industrial organization, how competition diffuses knowledge over firms, and how
flexibility affects performance.
Week: 9 6
References
Aldrich, C. (2001, September 1). The state of simulations: Soft-skill simulations emerge as a powerful new
form of e-learning. OnlineLearning.
Brandon-Hall. (2002, March). Executive summary of E-learning simulations: Tools and services for creating
software, business, and technical skills simulations.
Gold, S. C. (1992). Modeling short-run cost and production functions in computerized business simulations.
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Gold, S. C., & Pray, T. F. (1984). Modeling market- and firm-level demand functions in computerized
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Gold, S. C., & Pray, T. F. (1989). The production frontier: Modeling production in computerized business
simulations. Simulation & Games, 20, 300-318.
Faria, A. J. (1987). A survey of the use of business games in academia and business. Simulation & Games,
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Faria, A. J. (1998). Business simulation games: Current usage levels—A ten year update. Simulation &
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Week: 9 7
Porter, M. E. (1980). Competitive strategy. New York: Free Press.
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