Business Simulation and Professional Development

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Topic Overview – Today’s business simulation industry

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

Corporations, management education and development consulting firms, and collegiate business

programs use simulations to train and to teach (Faria, 1987, 1998). These simulations support three

types of education programs—learning how to use prepackaged information technology such as SAP

(Systems, Applications and Products in Data Processing).

The computer-based business simulation industry is nearly 50 years old. Nevertheless, it is undergoing a

remarkable transition. The advent of e-learning is creating the potential for exceptional growth of

computer-based simulations. Simultaneously, new technologies for modeling industries, markets, firms,

and business processes are emerging. These technologies come from research in computational fields of

science such as artificial intelligence and optimization. The “traditional” modeling technologies,

associated with the industry’s earliest years, are based on systems of formulate derived from

economic/business modeling and system dynamics. Enticed by the growing market and technological

opportunities, new suppliers are now entering the industry, and they are bringing new products, business

models, and professional management to the field.

2.Simulation types

When considering business simulation technologies, there are basically three types of business

simulations currently in use—computer-based simulations, board games, and behavioral simulations.

2.1Computer-based simulations

Computer-based simulations are usually firm or industry business games. In these games, players learn

by managing a simulated firm, most often within a competitive industry or environment. Learners make

decisions usually but not exclusively by allocating resources. The simulations can focus on the firm’s

internal mechanics/ dynamics, its interaction with its environment, or both. In some games, decisions

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focus on a particular business function or analysis. For example, Knowledge Dynamics’s TANRO

simulation teaches breakeven analysis. Alternatively, simulations can span many business functional

areas such as marketing, finance, product design, sales, and human resources.

2.2 Board games

Most business board games simulate enterprise operations. These games typically entail a game board,

game pieces, and cards. The board, for example, might have areas for orders, inventory, business

investments, and liabilities. Game pieces represent objects that flow to and from or through the company

such as cash, inventory, and customers. Game cards initiate both normal and change events that involve

customers, management, and the business environment. In these games, learners manage a company

by moving game pieces around the board. Board games have certain advantages that are absent from

computer-based simulations. Learners can watch business operations and dynamics as the game pieces

illustrate them. In contrast, with most computer-based simulation, learners observe dynamics by

analyzing tables and graphs.

2.3 Behavioral simulations

Behavioral simulations or experiential exercises have their participants act out a situation. The

circumstance could be related to a business situation, but many are set in other environments.

Participants can role-play or play themselves. These exercises can address a variety of issues such as

leadership, teaming, sales, negotiations, ethics, and understanding different cultures. Examples of

behavioral simulations include LOOKING GLASS INC. from the Center for Creative Leadership and

BAFA-BAFA from Simulation Training Systems.

3. Business practices

Several business practices, as described in the following, are increasing the demand for business

simulations (Summers, 2004):

• Globalization, new information technologies, and new business processes are changing business

practices. Training has become an indispensable part of adaptation and change.

• Leaner, flatter organizations have fewer apprenticeship positions; consequently, companies must train

managers via institutionalized methods.

• Strategic alliances are essential for business success and are occurring with everincreasing frequency.

However, they are difficult to manage, so companies are using training to help make alliances successful.

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• Globalization and the Internet have made industries more competitive. This creates a harsh business

environment where companies cannot rely on oligopolistic margins, protected markets, or market

dominance to remain profitable. To profit, they must innovate. Successful innovation requires leadership,

teaming, project management, effective strategy, and good risk management. All of these responsibilities

require training managers and knowledge workers. Training has become a prerequisite for success.

4. New training technologies

New business simulation technology is transforming the industry by endowing learning technologies with

new qualities. The three most important new qualities are described next (Summers, 2004).

-Customized simulations. Previously, most customers had to choose between off the-shelf and custom-

made simulations. Custom-made simulations were expensive, therefore only the largest companies could

afford them. With object-oriented designs and software libraries, suppliers can now customize their off-

the-shelf simulations to fit customers’ needs while maintaining lower prices.

-Specific knowledge. As used herein, specific knowledge addresses a particular task, such as reading

financial statements. In contrast, general knowledge denotes skills that are not attached to a specific

task, such as leadership and teamwork. Most of the industry’s traditional products teach general

knowledge, whereas many of the new technology simulations teach specific knowledge. Teaching

specific knowledge increases demand by tightly associating simulations with specific needs. This also

allows for more reliable estimates of the rates of return (ROIs) and the costs/benefits realized from

training investments. The need for these calculations was expressed by Wexley and Baldwin (1986) and

in studies by Cascio and Gilbert (1980), Mathieu and Leonard (1987), and Urban, Ferris, Crowe, and

Miller (1985).

-Learner-controlled learning. The new technology can deliver learning environments to any computer.

These educational programs are designed for individually paced play so learners can engage in the

experience when they wish rather than waiting for a group meeting. As a result, learners can learn

anywhere, anytime, and at their own pace, which is known as an asynchronous learning environment.

This is different from the common type of distance learning that is batch processed or synchronous in

nature. With learner-controlled environments, learners can integrate learning into their work. For

example, a salesperson can practice a sales technique the morning before a sales call. A marketing

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manager could learn to estimate the ROI of a marketing initiative while working on a new proposal. This

quality, called learning on demand, offers immense potential.

5. New applications

Business simulation technologies have energized the industry with new companies, capital, and

management. The new companies are expanding their simulations into new markets, and customized

simulations are leading the way. New markets include business-to-business sales, change management,

consultative selling, customer service, e-business, legal knowledge, supply chain management, and

telemarketing to name a few New applications Business simulation technologies have energized the

industry with new companies, capital, and management (Summers, 2004).

The new companies are expanding their simulations into new markets, and customized simulations are

leading the way. New markets include business-to-business sales, change management, consultative

selling, customer service, e-business, legal knowledge, supply chain management, and telemarketing to

name a few. Some simulation companies are already partnering with e-learning companies, and some e-

learning companies are developing simulation products of their own. Still, significant hurdles remain.

There are legitimate questions such as whether simulations can become price competitive with other e-

learning offerings. As per Summers (2004), during the late 1990s, the industry was introduced to several

innovations based on new technologies, including the following:

1. computer-based behavioral simulations featuring the use of decision trees and agent based

simulations;

2. computer-generated feedback on learners’ decisions via artificial intelligence;

3. supplementary learning materials such as tutorials, case studies, reference materials, exercises, and

multimedia application tools;

4. advanced computer-user interfaces employing video game–quality graphics, natural language

processing, and voice recognition technology. Decision trees, agent-based simulations, artificial

intelligence, natural language processing, and voice recognition technology all come from research in

computational science fields.

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5.1 Decision trees

Although decision-tree simulations have existed for some time, their use is increasing dramatically.

Decision trees enable a learner to engage single-handedly in a behavioral simulation. The computer

presents the learner with a situation that includes several computer-controlled characters. The situation

has a story and a goal, and the learner must converse with the characters to achieve the goal. For

example, the learner plays a customer service representative at a department store. The software

presents the learner with several customers having questions about the store’s merchandise. The learner

must “talk” to the characters and try to resolve their issues while making sales (Summers, 2004).

5.2 Agent-based behavioral simulations

An agent is an object in a simulation that has the ability to determine its own behavior. It has properties

that determine its state, and it has artificial intelligence that determines its behavior given its internal state

and external inputs from its environment. An example would be a simulated competitor or company in an

industry simulation. The simulation mimics the entity with a software object that has properties such as

capital, a production function, and sales offices. The entity also has artificial intelligence governing how

these properties act and interact with each other. The agent concept is not new. However, several

simulation companies are using them to represent people in behavioral simulations. When used this way,

the agents are called virtual agents, virtual characters, or virtual people, and they can be complex.

Depending on the simulation, each virtual person could possess various decision-making models,

embrace different change management strategies, and feature different reactions to group dynamics,

leadership styles, sales techniques, or team decision-making practices. The qualities of these virtual

people are incorporated through their artificial intelligence. In behavioral simulations, the learner “speaks”

to a virtual person. The virtual person receives this input, processes it within the artificial intelligence

governing its behavior, and reacts with an action and/or a verbal response. This interaction is free in its

form. Rather than being guided by a predesigned structure, such as a decision tree, the conversation

evolves as the agent and learner respond to one another (Summers, 2004).

6. Computer-generated feedback

Providing feedback and coaching with simulations has always been problematic. In a seminar or

classroom setting, the facilitator or instructor provides feedback. Unfortunately, a facilitator’s attention is

limited because all learners cannot be observed and answered all the time. Other situations are even

more problematic such as when the learner is pursuing a course or training program via distance

education. To overcome these problems, suppliers have developed mechanisms for providing learners

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with feedback based on their decisions. The feedback is available on request throughout the entire

simulation. This feature is compelling. Its use is growing, and some suppliers use their complex feedback

technology as a key selling point. How does a simulation provide personalized feedback on demand? It

depends on the simulation technology. Decision-tree simulations. Providing feedback with decision-tree

technology is fairly simple. The simulation associates or bundles a critique and advice with each node.

When a learner requests feedback, the simulation identifies the learner’s place in the tree and presents

the feedback associated with that node. A simulation can also analyze the path and present feedback

based on the result. For instance, the simulation might compare a learner’s chosen path with the optimal

path. ABBS and traditional technology computer-based simulations. Providing personalized feedback

with these simulations is problematic. The simulations’ dynamics cannot be predicted, and the number of

simulation states is so large that feedback modules cannot be assigned to each one. In this case, artificial

intelligence can come to the rescue. To provide personalized feedback, these simulations contain a

databank of critique and advice. Artificial intelligence analyzes the simulation as it evolves and selects

feedback modules from the database. Sometimes, the simulation presents the feedback through an

animated character that acts as a personal coach and advisor (Summers, 2004).

7. Qualities of the new technology products

This section describes the advantages of the new products and the difficulties they must overcome if they

are to obtain widespread adoption. In doing so, it primarily focuses itself on the corporate market,

although much of what is presented here applies to the academic market as well. When considering how

the industry’s new products will be accepted, one must consider how customers use the traditional and

the new technologies. With the traditional technology, the company’s human resources department

usually organizes the training or management development program. The department selects the

learning content and determines the where, how, and when training will occur, although the firm’s internal

client group is consulted. Most of these training programs are classroom based. Employees receive

preparation materials to complete a few days before attending the seminar. The seminar begins with a

company executive presenting the latest initiative, followed by an expert who lectures and leads the

participants through the methods chosen by the training department. The expert concludes with a

debriefing to reinforce and generalize the lesson(s) and ideas associated with the method. Finally,

participants are often asked to complete a written exercise, after which they return to work with a folder of

seminar materials. Unfortunately, with many programs the materials sit unused on an office shelf. Months

later, the participants might use what they learned—if they remember the lesson(s) or where they left the

materials. In this example of the application of the new technology, the human resources department

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purchases an annual subscription to a simulation with its constantly updated supplementary materials.

These products are customized to meet the company’s needs. They are delivered via the firm’s local area

network (LAN) or the Internet so that learners can access them individually at any time. Under this

selfpaced asynchronous system, the learner decides when and where learning takes place. While using

the simulation, learners receive artificial-intelligence-generated expert advice based on their decisions.

The artificial intelligence also directs learners to supplementary materials. This type of simulation-based

learning system has several advantages, but there are also impediments to its diffusion (Summers,

2004).

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References

Cascio, W. J., & Gilbert, G. R. (1980). Making dollars and sense out of management development. In R. D.

Huseman (Ed.), Proceedings of the 40th Annual Meeting of the National Academy of Management (pp. 95-

98). Detroit: Academy of Management.

Faria, A. J. (1987). A survey of the use of business games in academia and business. Simulation & Games,

18, 207-224.

Faria, A. J. (1998). Business simulation games: Current usage levels—A ten year update. Simulation &

Gaming, 29, 295-308.

Mathieu, J. E., & Leonard, R. L. (1987). Applying utility concepts to a training program in supervisory skills: A

time-based approach. Academy of Management Journal, 30, 316-335.

Summers, G. J. (2004). Today’s business simulation industry. Simulation & Gaming, 35(2), 208-241.

Urban, T. F., Ferris, G. R., Crowe, D. F., & Miller, R. L. (1985). Management training: Justify costs or say

goodbye. Training and Development Journal, 39(3), 68-71.

Wexley, K. N., & Baldwin, T. T. (1986). Management development. 1986 Yearly Review of Management, 12,

277-294.