What is a business simulation? A guide for leadership development
A plain-English guide to what business simulations are, how they work and how to use one well.
What is a business simulation?
A business simulation is a hands-on learning exercise in which teams run a simulated company over several rounds, make the decisions a leadership team makes and see the financial results of those decisions. After each round, a facilitator walks the group through what happened and why, and connects it back to their real jobs.
In corporate training, business simulations are used most often in leadership development and strategy execution. They give leaders a safe place to practice complex skills, like strategic thinking, business acumen and working across functions, and to see the consequences of their decisions before they make them for real.
Why use a business simulation?
Companies use business simulations for three main reasons:
Engagement and retention
People remember what they do far better than what they hear. A simulation turns a program from a presentation into an experience they won’t forget.
Complex topics made practical
Strategic thinking, business acumen and cross-functional trade-offs are hard to teach in theory. A simulation lets leaders practice them and see the results.
Faster strategy execution
When leaders run a simulation built around their own strategy, they understand the what, why and how of it, and move faster when they get back to work.
Business simulations are most commonly used within corporate training and employee development initiatives. In many instances, these tools are used within corporate leadership development programs in an effort to increase learning, learning retention, and accelerate corporate change initiatives.
The highly distilled summary is that active learning is far better than passive learning. Putting all the fancy research aside, most naturally accept that corporate training participants intuitively understand and agree with this: adults learn better by doing (trial and error). A business simulation and puts this fact into action with exceptionally low risk. Utilizing a leadership development business simulation is an exceptionally effective learning tool. With the exception of either teaching the subject matter yourself or learning through real-life trial and error, a business simulation is one of the most effective ways to learn new subject matter. The ultimate goal is to enable learners to immediately start using the subject matter being introduced. By using the subject matter in a safe and lifelike situation (i.e. within a business simulations), people begin to change their behavior naturally. This is why mission-critical disciplines such as military or aviation industries rely so heavily on simulations. Business simulations within leadership development are the fastest and most effective means to safely apply complex training theory and rapidly transform it into natural behavior.
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What are the types of business simulations?
Business simulations used in corporate training come in two main types: strategic business simulations and branching story simulations. Either can be paper-based or computer-based, and ready-to-go, tailored or custom. See how those three options compare.
Strategic business simulations
Teams run a simulated company, usually competing against each other, and make decisions on pricing, investment, operations and people. A financial model calculates the results of each round. They’re the most common type in leadership development because they build strategic thinking, business acumen and cross-functional decision making in a single exercise.
Tip: Keep it small and focused. A simulation built around two or three learning objectives almost always teaches more than a sprawling multi-day one.
Advantages
Closely tied to real business outcomes
Builds several skills at once: strategy, business acumen and collaboration
Highly engaging, because teams see the results of their own decisions
Disadvantages
Can get complicated if the scope isn’t kept tight
Needs facilitators with real business and leadership experience
Takes some planning to fit into a program
Branching story simulations
Remember choose-your-own-adventure books, where each choice sent the story in a new direction? A branching story simulation works the same way. Teams face a scenario, choose a response and see where it leads. They’re inexpensive, quick to build, and can run on paper or in simple slides.
Tip: Run three rounds, pause for reflection, then run three more. The pause is where most of the learning happens.
Advantages
Inexpensive and quick to create
Engage people fast, which makes them great for building energy in a program
Work well for behavioral topics, like difficult conversations or decision-making style
Disadvantages
Not strategic; better for behavior than business results
Participants can “game” them by guessing the answer the course is looking for
Where are business simulations used?
The most commonly used programs business training simulations are used within corporate training and development are:
Leadership development
Strategy execution and alignment
Sales training
Business simulations in leadership development
The most common use. Leadership programs increasingly need to cover strategy, business acumen and collaboration, not just behavior. A simulation lets leaders practice all three together, in a setting that looks like the business they actually run.
Business simulations for strategy execution
When a company changes direction, a simulation built around the new strategy helps leaders understand the what, why and how of it. Teams experience the trade-offs firsthand, usually in a one- or two-day workshop, and leave aligned on how to execute.
Business simulations for sales training
Sales simulations let a team practice a new sales method or customer strategy in a realistic setting, and see the business impact of their choices before trying it with real customers.
Tips for getting started with a business simulation
These tips come from our Forbes article, “Business Simulations Can Be a Powerful Tool for Leadership Development, but Proceed With Caution.”
Start small. Make the simulation a small part of your budget and program time. Begin with something ready-to-go or lightly tailored, and expand once you’ve seen where it’s justified.
Practice extreme focus. Write down your program’s goals and learning objectives before any design starts, and keep the simulation aligned with them. Scope creep is the enemy.
Consider paper as well as digital. Computer-based simulations have sizzle, and sometimes that matters for buy-in. But simple paper-based simulations are often just as effective, and they cost less.
Stay in charge. Most companies hire an outside firm for complex simulations. Remember that the firm works for you, and don’t let it push you out of your comfort zone.
Be comfortable with your provider. It’s surprising how often programs go wrong because a company chose “the best in the industry” and then felt pushed around. Choose a partner you trust.
The short version
Business simulations are one of the most engaging tools in leadership development, and often more affordable than people expect. To get the most from one, stay focused on your program’s goals, start small, stay in charge and choose a provider you’re comfortable with. The simulation is one part of your program, not the whole thing.
Resources to learn more
Here are some resources to help you learn more about using a business simulation within corporate training and employee development.
Training Industry: How to Effectively Use Business Training Simulations in Leadership Development
Forbes: What Are Business Simulations, And How Can Companies Utilize Them Effectively?
Training Industry: How To Effectively Use Business Training Simulations
Forbes: Using Business Training Simulations And Employee Development For Strategic Change
About Simulation Studios
Simulation Studios has built and facilitated more than 500 business simulations since 2003 for companies including Boeing, Caterpillar, Novartis and Sephora. Every simulation is designed and facilitated by a former executive who has run a P&L outside the training industry. Talk through your program →