New Stimulus for Those Simulations

Article excerpt

Techniques . Methods . Strategies

Computer-based business simulations have, quite rightly, often been disparaged as mere 'business games'. Critics have focused their complaints on a key weakness: their inability to replicate conditions and forces operating in the real business world, primary because of crude modelling. Sometimes this problem is seen to stem from the generic context of many simulations. However, they use a fictitious business environment for two reasons; first, so that managers from any industry can be trained on them and second, because be being thrown into the deep end, managers are forced to use the skills and techniques taught on a course rather than rely on past experience or familiarity with a certain type of market.

Naturally any simulation, however advanced, will ultimately be a simplification of reality. But the latest, most sophisticated simulations can now recreate, through complex mathematical models, the dynamic effect of market and competitive forces, and so achieve the level of realism that the manager needs to feel fully engaged with the exercise. In addition, the conceptual level of today's simulations has been raised considerably. Although certain low-level tactical simulations can be effective in developing people's abilities to manage the day-to-day operational aspects of running a business or function, more use is being made of higher-level or strategic simulations, which provide a framework for managers to think a plan long-term and to make the trade-off between the short-term and long-term. With such simulations, tactical decisions will still be made but these will be a logical extension of the strategic decisions rather than being made in a vacuum. Obviously it is impractical, if not technically impossible, to include in a model the huge number of variables involved in normal business activity, so the art of modelling lies in the selection of only the most important variables in a given process and in the definition of their relationships. The resulting model can then be programmed and run on a computer to test alternative actions and to answer 'what if' questions.

While these models are, by definition, incomplete representations of reality and cannot incorporate completely unexpected changes in the environment, they are nevertheless empirically based. Well constructed models can allow a manager to investigate the possible dynamic effects of a certain plan of action in a simulated environment before doing so in the real world.

One example of what can be achieved is the Markstrat simulation, which was developed by Strat*X and which is now used by many of the world's leading business schools in both Europe and the US. Founded in 1984 by Jean-Claude Larreche, professor of marketing at Insead, Strat*X is an international management training firm specialising in marketing and business strategy. Mark-strat uses IBM-compatible standard industry software. The programming language is Turbo Pascal and it has about 60,000 lines of programming.

InMarkstrat, individual managers form five competing teams, which manage companies all operating in the same competitive environment. The management of each firm is particularly concerned with its marketing strategy. Consequently, decisions have to be made regarding long-term issues such as market segmentation, product positioning and product portfolio strategy, all of which lie at the heart of a business's competitive strategy. These decisions have then to be implemented through functional actions involving product design, distribution channels/salesforce, pricing and communications. Throughout the simulation period, the managers are constrained by their uncertainty about external market conditions, including the actions of competitors. This fits into a three- to five-day course in which the main objective is to learn and to practise concepts, techniques and decision-making. The simulation enables the learning - through lectures, seminars, case studies and such - to be applied to realistic, but fictitious, business environments. …