What is a business simulation?
You have seen us write about business simulations, but you are not exactly sure what a business simulation is? Say no more, this article will explore all the things a business simulation is, what it is used for, and what it does.
A business simulation is a type of game that aims at teaching business concepts to players, who are organized in teams. This type of game is decision-based, time-constrained and sequenced over multiple rounds.
That would be a short definition.
Common concepts that can be found in business simulations include, for example, the customer value proposition, the financial statements, or the cost structure of a company. However, depending on the topic of the business game, the emphasis could be put on elements related to finance, strategy, marketing, engineering, human resources, hospitality, or even healthcare management.
For example, the game could refer to team leadership, to bed capacity in a hospital, to engineering appeal, etc.
As mentioned, participants are grouped in teams of 4 to 6 people, competing against one another. The number of teams competing against one another is up to 6 per simulation environment, and we aim at diversifying teams as much as possible, based on their professional, education experience, and cultural background.
How do business simulations work?
At the start of the game, each team is given access to an online dashboard, providing information and metrics about a fictional company. Metrics include, for example, elements of cash flow statements, available manufacturing capacity for a given product line, number of people working on a given line, the CO2 emissions of a given product range, the morale of employees in a company, etc. – metrics will be different depending on whether the focus of the game is on human capital, marketing, healthcare management, etc.
The goal of the game is to develop the fictional business against a set of predefined winning criteria – e.g., the EBIT, the ROCE, CO2 emissions –, and to rank as high as possible for each of them. The team ranking highest in the most winning criteria will be declared the winner.
The fictional business at start is duplicated by the number of competing teams, meaning that all teams start with the same numbers and metrics, and only through their decisions will be able to differentiate themselves from competitors. Simply put, all teams start with the same market share, the same prices, the same quantities, you name it.
Decisions are made by participants against a given set of elements – e.g., price, quantity to produce, number of people to promote, marketing investments, etc. – which is the same across all teams. That means that all teams will make a price decision, a quantity decision, etc., and decisions are expected to be typed by each team into their online dashboard by a given date and hour, after which the dashboard will not be accessible anymore.
When the deadline is reached the educator runs the simulation, using its dedicated faculty interface.
The software is an algorithm, which brings together the decisions of all teams, and which is influenced by natural sensitivities within the system: for example, if a product line is known to have a high customer sensitivity to price, and if all teams increase their prices, the market demand will drop. Based on teams’ decisions and system sensitivities, the software will yield a new market situation – in both market size and market share –, taking place in T+1, or simply put, a ‘fictional’ year later than when the decision was made.
When the simulation has been run, accesses are open to students and they are expected to make their next decision, against the same set of elements.
And this is the tricky part:
─ On the one hand, teams need to integrate a large amount of information about customer, patient, or employee sensitivity, cost sensitivities, and more, so they best answer the needs of their target population when making their decision. For example, if a target group is sensitive to technological improvements for a given product, investing on R&D or engineering will boost demand.
─ On the other hand, teams need to develop an analytical eye towards their competitors: it could be that competitors understand the target group better and have a better value proposition! On the simulation dashboard, competitive metrics are also displayed, helping teams adjust their decisions.
The same sequence will take place multiple times (3 to 7 times):
─ First, teams discover their metrics and information about competitors, in their web-based interface. This is the brainstorming part, where participants discuss their results and their strategy. Educators go through groups and provide feedback or support.
─ Second, teams turn their strategy into decisions, against a set of given elements, such as price, quantities, etc., depending on the focus of the game. This is the decision-making part, which is limited in time.
─ Third, the facilitator locks all accesses at the end of the countdown and runs the simulation algorithm.
─ The accesses are reopened, conclusions are drawn regarding what worked, what did not, and why, and the brainstorming part takes place again.
What are business simulations for?
Business simulation games are used at graduate and postgraduate levels in business schools, in executive education – such as EMBAs – and within corporate training programs.
The strength of business simulations lies in the interactions it generates among participants: players want to understand the logic of the game, the sensitivities of their customers and will be very motivated to beat competitors! This ‘hyper’ moment of curiosity, mixed with engagement and willingness to win, is an amazing opportunity for educators to transfer valuable knowledge about business concepts and practices, and allows players to experience a moment of fun, while learning.
During the brainstorming parts, educators will usually go through teams to answer practical questions and help them challenge their own reasoning regarding their next decision: players are the drivers of their own learning curve, and facilitators are making sure the magic is happening, for example by raising unexpected questions, and challenging players’ perspective.
Depending on the needs of the course, or the webinar, educators can also slip in a theoretical session after every run, to draw the link between the game and the overall academic curriculum. Except for the pre-reading material and videos, which help onboard participants into the context of the game, educators are free to talk about whatever they want in between decisions, and therefore can use the tool to support any relevant concept they are seeking to transfer to their students.
Players are learning by doing, which is shown to have a long-term effect on knowledge retention, and they are learning the right thing: knowing how to read customer insights, how to price products, how to position the business, are the essential questions that any successful organization asks on a regular basis to keep their market leadership.
Finally, what makes a business simulation a powerful tool, is its flexibility: we usually recommend a block of 2 hours for the brainstorming and decision-making parts together, but decisions can take place anytime over the course of a day or a week! Some trainers run weekly decisions over multiple months, some others run multiple decisions in one day: it is absolutely not set in stone.
Do you still have questions regarding what a business simulation is? Or would you be interested in getting to know us and explore our existing products? Get in touch!
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