Business Simulation - Games and Business Simulation Games

Games and Business Simulation Games

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) 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:

• human, humanly controlled, opponents, whose actions have an effect upon each other and upon the environment,
• an emphasis on competitiveness and winning,
• an emphasis on pleasure, humour and enjoyment,
• a repetitive cycle of making decisions and encountering a result, allowing the hope of improvement and ‘doing better next time’.

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. Games are social systems and they include actors (players), rules and resources, which are the basic building blocks of social systems. In each game, the players (actors) interact with one another, while applying different rules, and utilizing different resources.

Tsuchiya and Tsuchiya 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. 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. 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 and Naylor do not differ from the previous. However, Elgood determines that in a management game profit is not the dominant measure of success. Keys and Wolfe 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 divides experiential simulations into the following four categories:

1. Data management simulations,
2. Diagnostic simulations,
3. Crisis management simulations, and
4. Social-process simulations.

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. 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 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, marketing, and human resources, in order to produce and sell goods.

According to Senge and Lannon 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 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).