Business simulation or corporate simulation is business simulations used for training, education or analysis. It can be scenario-based or numeric-based.
Most business simulations are used for business acumen training and development. Learning objectives include: strategic thinking, decision making, problem solving, financial analysis, market analysis, operations, teamwork and leadership. [1]
The business gaming community seems lately to have adopted the term business simulation game instead of just gaming or just simulation . The word simulation is sometimes considered too mechanistic for educational purposes. Simulation also refers to activities where an optimum for some problem is searched for, while this is not usually the aim of an educational game. On the other hand, the word game can imply time wasting, not taking things too seriously and engaging in an exercise designed purely for fun. The concept of simulation gaming seems to offer the right combination and balance between the two. [2] Simulation gaming is also the term that the educational gaming community has adopted. [3]
Partly, the terminology of business simulation games is not well established. The most common term used is business game but several other terms are also in use. Here we will define the most common terms used in context of (computer-based) business learning environments.
Klabbers (1999) [4] notes that gaming is sometimes associated with something that is frivolous, just for the fun of it. This hampers its scientific endeavor and the more serious connotations of gaming in the scientific arena. The term game is used to describe activities in which some or all of these characteristics are prominent: [5]
Games are played when one or more players compete or cooperate for payoffs, according to an agreed set of rules. Players behave as themselves though they may well display exceptional behavior. [6] Games are social systems and they include actors (players), rules and resources, which are the basic building blocks of social systems. [7] In each game, the players (actors) interact with one another, while applying different rules, and utilizing different resources. [8]
Tsuchiya and Tsuchiya [9] note that the simulation gaming community is still struggling to establish itself as a discipline, although 35 years have passed since the International Simulation and Gaming Association (ISAGA) was established. To be a discipline, simulation gaming needs a theory, methodology, and application and validation. Of these, forming a theory is the most difficult challenge. Similar comments come from Wolfe and Crookall. [10] Referring to prior research they conclude that the educational simulation gaming field has been unable to create a generally accepted typology, let alone taxonomy, of the nature of simulation gaming. According to them this is unfortunate because the basis of any science is its ability to discriminate and classify phenomena within its purview, based on underlying theory and precepts. Without this, the field has been stuck, despite its age, at a relatively low level of development.
In most cases, the terms business (simulation) game and management (simulation) game can be used interchangeably and there is no well-established difference between these two terms. Greenlaw et al. [11] determine a business game (or business simulation) as a sequential decision-making exercise structure around a model of a business operation, in which participants assume the role of managing the simulated operation. The descriptions given for a management game, for example, by Forrester [12] and Naylor [13] do not differ from the previous. However, Elgood [5] determines that in a management game profit is not the dominant measure of success. Keys and Wolfe [14] define a management game as a simplified simulated experiential environment that contains enough verisimilitude, or illusion of reality, to include real world-like responses by those participating in the exercise.
Gredler [15] divides experiential simulations into the following four categories:
Business simulation games are most often of the first kind. A participant in a data management simulation typically functions as a member of a team of managers or planners. Each team is managing a company allocating economic resources to any of several variables in order to achieve a particular goal.
Business strategy games are intended to enhance students' decision-making skills, especially under conditions defined by limited time and information. [16] They vary in focus from how to undertake a corporate takeover to how to expand a company's share of the market. Typically, the player feeds information into a computer program and receives back a series of optional or additional data that are conditional upon the player's initial choices. The game proceeds through several series of these interactive, iterative steps. As can be noted, this definition does not consider continuous (real-time) processing an alternative.
In business simulation games players receive a description of an imaginary business and an imaginary environment and make decisions – on price, advertising, production targets, etc. – about how their company should be run. A business game may have an industrial, commercial or financial background (Elgood, 1996). Ju and Wagner [17] mention that the nature of business games can include decision-making tasks, which pit the player against a hostile environment or hostile opponents. These simulations have a nature of strategy or war games, but usually are very terse in their user interface. Other types of managerial simulations are resource allocation games, in which the player or players have to allocate resources to areas such as plant, production, operations, marketing, and human resources, in order to produce and sell goods.
According to Senge and Lannon [18] in managerial microworlds – like business simulation games – unlike in the actual world, managers are free to experiment with policies and strategies without fear of jeopardizing the company. This process includes the kind of reflection and inquiry for which there is no time in the hectic everyday world. Thus, Senge and Lannon argue, managers learn about the long-term, systemic consequences of their actions. Such "virtual worlds" are particularly important in team learning. Managers can learn to think systemically if they can uncover the subtle interactions that thwart their efforts.
Naylor [13] in 1971 gives quite a detailed view of the contents, structure, and operating of management games. Today, this description by Naylor is still valid for most of the business simulation games. Business simulation games are built around a hypothetical oligopolistic industry consisting of three to six firms, whose decision-makers or managers are the participants of the game. Each firm or team is allocated a specific amount of resources in the form of cash, inventories, raw materials, plant and equipment, and so forth. Before each operating period the players make decisions. Naylor mentions that these decisions can concern, e.g., price, output, advertising, marketing, raw material acquisition, changes in plant capacity, and wage rate. This information is read into a computer that has been programmed on the basis of a set of mathematical models that provide a link between the operating results and operating decisions of the individual firms, as well as the external environment (the market). On the basis of (a) a set of behavioral equations, such as demand and cost functions, and a set of accounting formulas that have been programmed into the computer, and (b) the individual decisions of each firm, operating results are generated by the computer in the form of printed reports – for example, profit and loss statements, balance sheets, production reports, sales reports, and total industry reports – at the end of each operating period. Usually the environment can be changed by the administrator of the game by altering the parameters of the operating characteristics of the game. In each case, the firms find it necessary to react according to the magnitude and the nature of the change imposed by the external environment. Naylor mentions that some of the more complicated and more realistic games even permit multiple products, plants, and marketing areas, stochastic production periods, stochastic demand, labor negotiations, and the sale of common stock. For more information about this topic see Lainema (2003). [2]
The first use of games for education and development was the war game simulations in China in about 3,000 B.C. These games bore a vague similarity to the early 17th century chess. [14] In the Western world, war games date back to at least the German Kriegspiel of the mid-nineteenth century (Faria and Dickinson). [19] Faria and Dickinson note that different war games have also been conducted in Japan before the Second World War and war games have been long used by the British and the Americans to test battle strategies. Military officers trained with war games in the 1930s and 1940s started to use their military training to manage civilian businesses. Some of the business game evolution can be traced to a 1955 Rand Corporation game, which simulated the U.S. Air Force inventory management within its supply system. [20] Greenlaw et al. [11] state that business simulation exercises may be considered an outgrowth of earlier developments in three fields: military war gaming, operations research, and educational role-playing.
According to Naylor, [13] the use of games in business and economics goes back to 1956 when the American Management Association developed the first so-called management decision-making game, called the Top Management Decision Game. Faria and Dickinson and Greenlaw et al. also find this the first widely known business decision-making simulation, although Greenlaw et al. date the origin of the game to 1957 and further specify that it was the first non-military competitive business game. Greenlaw et al. note that the Top Management Decision Simulation stimulated the design and use of dozens of other games. In this simulation five teams of players operated firms competing in a hypothetical, one-product industry. Teams made quarterly decisions covering price, production volume, budgets, research and development, advertising, and sales force and could request selected marketing research information. During the period 1955-1957 only one or two new games appeared each year (Faria, 1990). [21]
A rapid growth in the number of business games occurred over the years from 1958 to 1961. Greenlaw et al. had made a summary of some business games available by the beginning of the 1960s. The summary includes 89 different business games or different versions of a certain business game developed by industrial firms, business associations, educational institutes, or governmental units. Naylor [13] mentions already in 1971 that hundreds of management games have been developed by various universities, business firms, and research organizations. These management games have been used both for research purposes and for training people in diverse disciplines such as management, business operation, economics, organization theory, psychology, production management, finance, accounting, and marketing. Also Faria (1990) and Dickinson note that the number of simulation games grew rapidly in the 1960s. McRaith and Goeldner [22] list 29 marketing games, of which 20 had been developed by business firms and nine by academians for university teaching. In 1969 Graham and Gray [23] listed nearly 200 business games of different varieties. Horn and Cleaves [24] provided a description of 228 business games. Faria (1989) [25] mentions that over 200 simulations were in use in the United States in over 1,700 business schools. Overall, taking advantage of computer games in education increased enormously through the 1960s to the 1980s, see for example Ju and Wagner. [17]
At the end of the 1980s Faria (1990) estimated that there were approximately 228 games available in the United States, and that there were around 8,500 instructors using business games. At that point, Faria also believes that there is a large and growing number of business schools instructors and business firm users of simulation games. Still, Faria estimated that only 12.5% of all US business firms with training and development managers used computerized business games.
The penetration of business gaming in academia is fuelled by the following factors: [26] the increase in student numbers, the increase in new courses, increased adoption of methods supporting diverse learning styles, and the increasing availability of technology. Dickinson and Faria [27] state that in US over 200 business games are being used by nearly 9,000 teachers at over 1,700 colleges offering business programmes.
Larsen and Lomi [28] describe the shift of the objectives of management gaming. They state that until the early 1980s simulation was used to forecast the behavior of a variety of sub-system level variables, ranging from the cash flow and financial performance of a company, to the inflation and unemployment rates of an economy. They state further, that during the last 15 years a new way of thinking about simulation emerged. Instead of focusing on predicting, simulation progressively became a tool to help management teams understand their company and industry's problems and opportunities. Simulations could prepare for the future and reduce the sensitivity of possible strategies to changes in alternative frames of reference – or mental models. Larsen and Lomi further note, that the emphasis of computer-based simulation models has shifted:
In the late 1990s, training and consulting companies began designing and customizing business simulations for individual companies to augment their corporate leadership development programs. The business simulations often focused on strategy and business acumen. The business simulations allowed participants to test their decision-making skills, make mistakes, and safely learn from their experience. Some refer to this type of employee education as "experiential learning". By 2000, business simulations were available that blended the traditional business acumen (financial) skills with the softer – interpersonal – skills required for effective leadership development.
In a business game or business simulation game, a scenario is played out in a simulated environment and the learner or user is asked to make individual or team based decisions on how to act in the simulations. Often multiple choice alternatives are used and the scenario is played out following a branching tree based on which decisions the learner makes. Throughout or at certain intervals feedback is provided. These are similar to role-play simulations.
A numeric simulation can mimic a whole company on a high level or it can be more detailed and mimic specific organizational units or processes. In a numeric simulation the learner or user makes decisions by pulling levers and dialers as well as through inputting numbers. The decisions are processed and the outcomes are calculated and shown in reports and graphs, e.g. price and volume as well as number of employees can be decisions and the outcome can be viewed in e.g. an income statement, a balance sheet and a cash flow statement. Feedback is given throughout the simulation or at certain intervals, such as when a year has passed. Many numeric business simulations include elements of competition against other participants or against computer generated competitors.
Business simulation games can be classified according to several properties. The first taxonomies were introduced already in the beginning of the 1960s (see e.g. Greenlaw et al., 1962). Here we introduce the taxonomy from Biggs, [29] which is practically identical with the taxonomy from Greenlaw et al.
Dimension | Description of alternatives |
---|---|
Functional or Total enterprise | Designed to focus specifically on problems of decision-making as seen in one functional area; OR Designed to give participants experience in making decisions at a top executive level and in which decisions from one functional area interact with those made in other areas of a firm. |
Competitive or Non-competitive | Whether the decisions or participants influence the results of other participants or not. |
Interactive or Noninteractive | In an interactive game participants respond to the questions at the computer, receive an immediate response, and then submit additional decisions. In a noninteractive game decisions are submitted to the game administrator. |
Industry specific or Generic | In an industry specific game the authors attempt to replicate closely the actual industry. In generic games only general business relationships are replicated. |
Played by Individuals or by Teams | |
Deterministic or Stochastic | The stochastic alternative is probabilistic, including chance elements. |
Degree of complexity | Two dimensions of complexity: (a) game decision input variable complexity, (b) the computer model complexity |
The time period simulated | E.g. day/week/quarter/year |
Business simulation games are designed to provide a sandbox learning environments. When arguing for this, they most often refer to David A. Kolb's influential work in the field of experiential learning. [30] During the last decades ideas from constructivism and authentic e-learning have also provided new perspectives for considering the role of business simulations in learning. [31] [32] The activities carried out during a simulation game training session are: [33]
Instructors may vary in how much introduction they give to a business simulation game. The level of preliminary instruction given may also vary depending on the complexity of the simulation.
Business simulations may be played by individuals or by teams. Increasing team size allows for practical lessons in leadership and collaboration and students delegate responsibilities, interpret data, and make decisions. Research indicates that team performance rises with each additional member until the team reaches five members. [34]
The group discussion phase is usually called debriefing. Debriefing is the most important part of the simulation/gaming experience. [35] We all learn from experience, but without reflecting on this experience the learning potential may be lost. Simulation gaming needs to be seen as contrived experiences in the learning cycle, which require special attention at the stages of reflection and generalization. [6]
Thiagarajan [36] lists six phases of debriefing, presented as a flexible suggestion and not as rigid requirements:
Van Ments [37] notes that the aim of debriefing is to: deal with factual errors and to tie up loose ends (including scoring); draw out general conclusions about the session; and deduce general lessons which can be extrapolated to the real world. Furthermore, the participants should not be allowed to conclude what was learned without receiving feedback (Gentry, 1990). [38] The participants need to articulate their perception of what was learned, and the instructor needs to put things into a broader perspective. Gentry also expresses that process feedback is much more valuable than outcome feedback. As games are less-than-perfect representations of the real world, it should be the decision process used that needs to be applauded or critiqued, not the gaming outcome. The importance of reflection, debriefing and feedback highlight the need for business simulations to supported by carefully considered learning outcomes, pedagogy and assessment tasks. Student factors such as low motivation to engage and prior skill weaknesses can undermine the ability of authentic assessment regimes to achieve the purported learning benefits. [39] The Online Business Simulations Project funded by the Australian Government Office for Learning and Teaching has developed a range of resources to help educators embed simulations into their classes. [1]
A study in the Journal of Business Research [40] used a Marketplace Simulations game to explore the role of cognitive processes in team decision-making within the context of marketing. The paper addressed a gap in existing literature by considering not only behavioral and cultural aspects but also the cognitive aspects of information processing in teams. The team gathered data from eight MBA programs across the United States that used Marketplace Simulations in their class. The final study included 823 participants, representing 179 MBA teams. After the fourth decision round in the simulation, students were told to create a detailed business plan for the remaining four decision rounds. They were then given an assessment to measure their perceptions of the market, the symmetry of the team's awareness, team tactical agreement, and team performance. Researchers controlled for how many years of real-world work experience each team member had, as well as how much time each one had spent in the simulation.
The study's results showed that when a management team can perceive, understand, and predict market factors (team market awareness), the company tends to perform better. This effect is even stronger when awareness among team members is uneven, with some having a better grasp of certain market elements. Additionally, when team members agree on how to approach different aspects of marketing, the impact of team market awareness on performance is even greater.
A simulation is an imitative representation of a process or system that could exist in the real world. In this broad sense, simulation can often be used interchangeably with model. Sometimes a clear distinction between the two terms is made, in which simulations require the use of models; the model represents the key characteristics or behaviors of the selected system or process, whereas the simulation represents the evolution of the model over time. Another way to distinguish between the terms is to define simulation as experimentation with the help of a model. This definition includes time-independent simulations. Often, computers are used to execute the simulation.
Simulation video games are a diverse super-category of video games, generally designed to closely simulate real world activities. A simulation game attempts to copy various activities from real life in the form of a game for various purposes such as training, analysis, prediction, or entertainment. Usually there are no strictly defined goals in the game, and the player is allowed to control a character or environment freely. Well-known examples are war games, business games, and role play simulation. From three basic types of strategic, planning, and learning exercises: games, simulations, and case studies, a number of hybrids may be considered, including simulation games that are used as case studies. Comparisons of the merits of simulation games versus other teaching techniques have been carried out by many researchers and a number of comprehensive reviews have been published.
Experiential learning (ExL) is the process of learning through experience, and is more narrowly defined as "learning through reflection on doing". Hands-on learning can be a form of experiential learning, but does not necessarily involve students reflecting on their product. Experiential learning is distinct from rote or didactic learning, in which the learner plays a comparatively passive role. It is related to, but not synonymous with, other forms of active learning such as action learning, adventure learning, free-choice learning, cooperative learning, service-learning, and situated learning.
Business simulation games, also known as tycoon games or economic simulation games, are video games that focus on the management of economic processes, usually in the form of a business. Pure business simulations have been described as construction and management simulations without a construction element, and can thus be called simulations. Micromanagement is often emphasized in these kinds of games. They are essentially numeric but try to hold the player's attention by using creative graphics. The interest in these games lies in accurate simulation of real-world events using algorithms, as well as the close tying of players' actions to expected or plausible consequences and outcomes. An important facet of economic simulations is the emergence of artificial systems, gameplay and structures.
Debriefing is a report of a mission or project or the information so obtained. It is a structured process following an exercise or event that reviews the actions taken. As a technical term, it implies a specific and active intervention process that has developed with more formal meanings such as operational debriefing. It is classified into different types, which include military, experiential, and psychological debriefing, among others.
Intopia is a strategic management simulation tool in the form of a business game, and is used in a variety of undergraduate and graduate university courses. It is used to teach students the concepts of strategic management of multinational businesses in a simulated world of up to four "nations". The number of participant executives or students can range from 9 to 100+, and are divided into 3−25 teams, each managing a company. The participants practice their skills over a few hours, receiving immediate feedback on their decisions.
Business war gaming or business wargaming is an adaptation of the art of simulating moves and counter-moves in a commercial setting. In a complex global and competitive world, formulating a plan without testing it against likely external reactions is the equivalent of walking into a battlefield without the right weapons or a plan to win. In situations where the cost of being wrong is high, war games can be very helpful to understand from a 360-degree perspective the external opportunities and challenges of all the key stakeholders in the industry.
A serious game or applied game is a game designed for a primary purpose other than pure entertainment. The "serious" adjective is generally prepended to refer to video games used by industries like defense, education, scientific exploration, health care, emergency management, city planning, engineering, politics and art. Serious games are a subgenre of serious storytelling, where storytelling is applied "outside the context of entertainment, where the narration progresses as a sequence of patterns impressive in quality ... and is part of a thoughtful progress". The idea shares aspects with simulation generally, including flight simulation and medical simulation, but explicitly emphasizes the added pedagogical value of fun and competition.
A simulation game is "a game that contains a mixture of skill, chance, and strategy to simulate an aspect of reality, such as a stock exchange". Similarly, Finnish author Virpi Ruohomäki states that "a simulation game combines the features of a game with those of a simulation. A game is a simulation game if its rules refer to an empirical model of reality". A properly built simulation game used to teach or learn economics would closely follow the assumptions and rules of the theoretical models within this discipline.
The browser-based IndustryMasters product is a range of business simulation games that allow students, business people, and others to sharpen their entrepreneurial and strategic management skills by building their own company and competing in real-time against each other.
Jean-Claude "JC" Larreche is Emeritus Professor at INSEAD, Fontainebleau, France, where he held the Alfred H. Heineken Chair of Marketing from 1993 to 2018. His academic and business activities are focused on building the fundamental capabilities required to create corporate value, especially through marketing excellence, customer focus, and value-capture selling.
Medical simulation, or more broadly, healthcare simulation, is a branch of simulation related to education and training in medical fields of various industries. Simulations can be held in the classroom, in situational environments, or in spaces built specifically for simulation practice. It can involve simulated human patients, educational documents with detailed simulated animations, casualty assessment in homeland security and military situations, emergency response, and support for virtual health functions with holographic simulation. In the past, its main purpose was to train medical professionals to reduce errors during surgery, prescription, crisis interventions, and general practice. Combined with methods in debriefing, it is now also used to train students in anatomy, physiology, and communication during their schooling.
Business game refers to simulation games that are used as an educational tool for teaching business. Business games may be carried out for various business training such as: general management, finance, organizational behavior, human resources, etc. Often, the term "business simulation" is used with the same meaning.
Virtual worlds are 3D computer environments where each user is represented with a character – avatar. Traditionally, virtual worlds have been used for entertainment. However, starting from approximately 2004 both corporate world and academia started to recognize business value of virtual worlds for training and education, collaboration, and marketing. Development and maturity of most popular virtual world – Second Life – played a significant role in corporate movement towards virtual worlds for several reasons:
Gamification is the strategic attempt to enhance systems, services, organizations, and activities by creating similar experiences to those experienced when playing games in order to motivate and engage users. This is generally accomplished through the application of game design elements and game principles in non-game contexts.
In business, training simulation [aka Simulation Training] is a virtual medium through which various types of skills can be acquired. Training simulations can be used in a variety of genres; however they are most commonly used in corporate situations to improve business awareness and management skills. They are also common in academic environments as an integrated part of a business or management course.
Markstrat is a business market simulation game developed by Jean-Claude Larréché and Professor Hubert Gatignon, in which players take control of a virtual corporation. Players make a number of decisions in marketing, finance, research and development, and other areas in order to achieve a better performance than competing players, who also take control of their own companies. After the game was developed it was distributed on an ad-hoc basis by the French business school INSEAD. Markstrat is played in over 500 academic institutions worldwide, including 8 of the top 10 international business schools.
Project team builder (PTB) is a project management simulation tool developed for training and teaching the concepts of project management and for improving project decision making. A number of published books and academic papers are based on the PTB and its predecessors. The PTB won the Project Management Institute Professional Development Product of the Year Award. The PTB is used in universities and business organizations around the world. The simulator is based on an approach that separates the simulation engine from the scenario editor and allows each user to simulate any project. The simulation engine simulates the dynamic stochastic nature of modern projects. The design of the PTB supports the system engineering approach to Problem solving as each scenario presents the requirements, the alternatives that can be selected and the constraints imposed on the solution. The user has to trade off the cost, schedule, risk, and benefits to the stake holders and to find a feasible, robust, good solution for the scenario. The solution is then simulated by the simulation engine while the trainee exercises monitoring and control throughout the execution. A planned project can be simulated using Monte Carlo simulation. This is done in automatic mode and shows the probability to finish the project at any time period or at any cost. Furthermore, based on the Monte Carlo simulation the probability of each activity to be on the critical path is estimated. The Monte Carlo analysis supports risk analysis and decision making. Another characteristic of the simulator is the ability to save points in the history of each run for future analysis or even for testing a different solution from any of the points saved.
Friday Night at the ER is an experiential team-learning game. Played on game boards at tables with four players per board, each gameplay session is followed by a detailed debriefing in which participants relate the simulation experience to their own work and gain insights for performance improvement.
Marketing simulation games provide participants with an interactive method of testing out marketing decisions in an environment which is virtual or which has game characteristics. Common game topics belong to categories such as: marketing strategy, product positioning, pricing strategies, consumer behaviour. Marketing games usually focus on the marketing landscape of a certain business industry or a company. A marketing simulation game usually contains a number of scenarios and provides participants with results in response to their decisions.