Why use business simulations?

For half a century, case-studies of real businesses have provided the cornerstone of management education. They bring together two components

• some underlying theory or principles, that would otherwise be simply read by students, or lectured to them,
• a real, or quasi-real, business situation, that demonstrates the theory and provides the context in which students can rehearse their understanding

This combination is much more effective than either dry theory, or theory-free stories could ever be on their own. But case-studies suffer limitations - users don't experience the flow of events through time, do not see the consequences of their decisions, and have no opportunity to test alternative proposals. A business simulation, or 'Microworld', solves these problems by adding a critical third component:

• a PC-based simulation that plays out the theory, in the context of the business situation

Many 'block-buster' simulations try to capture as much of the rich detail in a business situation as possible. Such products reflect a philosophy that only complete 'realism' will do. Our Microworlds take a different perspective - that complexity is the enemy of learning. Models too rich in detail become as difficult to understand as the real world. Our Microworlds, therefore, capture carefully-chosen business dynamics, reflected in the supporting case or briefing notes, and in the related learning materials.

Principles underlying our Microworlds

Our Microworlds are not just "games" or glorified spreadsheet models, but are built on sound, established theoretical principles. A resource-based perspective on strategic performance is brought to realistic life through the medium of rigorous dynamic frameworks. The essential elements of the resulting models are as follows (more detail can be found in Warren, "Competitive Strategy Dynamics", available from July 2002 at both Wiley Europe and Wiley US).

• The state of the world at any moment (sales rate, profitability, productivity, market share etc.) depends directly on the levels of resources available to the organisation (customers, staff, morale, reputation)
• These resources have a unique and hugely important characteristic - they accumulate and deplete through time. The quantity of each resource is therefore, at all times, equal to the sum of everything ever added, minus everything ever lost (today's staff = everyone ever hired, minus everyone ever fired or resigned)
• The rate at which each factor is filling up or draining away at each moment is, like all other features of the world, dependent on the existing levels of other factors (today's customer win-rate depends on today's number of sales people, product reputation etc.)

These fundamental principles have a most serious implication. Since customers, staff and so on are precisely accounted for by the total of all past gains and losses, they cannot be usefully explained by statistical correlation methods - today's customer base is not "related" to today's marketing spend, price or sales force size. And if these accumulating factors cannot be explained by correlation methods, then neither can anything that depends upon them, such as market share or profitability.

As well and being the fundamental essence of strategy dynamics these principles also underly the Resource Based View of strategy (RBV), system dynamics, systems thinking and business dynamics. The accumulation and depletion metaphor is also embraced by "Bathtub Thinking".