“Simulation” is mostly thought of as a complex, technical and time-consuming thing to do, but modern methods make it easier and faster than developing the spreadsheet models most managers are familiar with. Developing a simulation, whether to tackle a one-off challenge or for developing and managing strategy, actually replacesmore difficult and lengthy activity. Its major benefit is in creating much clearer, more intuitive models of how an enterprise or situation functions and performs than is otherwise possible– a true “business model”.
Much is written about the importance of business models. Business Schools teach whole courses on the topic and consultants urge clients to innovate by changing those business models. But current definitions are ambiguous and qualitative. More seriously, those business model frameworks make no attempt to quantify anything or show how and why the business actually performs as it does – they are descriptive “statues”, rather than true models.
But it is possible to develop working, quantified models that replicate how a real business (or a part of it) performs over time – linking investment to product development and capacity growth, marketing to customer growth, staffing to capability, and if required connecting all into an integrated whole, including the financials. This makes many important things possible … new ventures can be bench-tested before real money or people’s livelihoods are put at risk; market competition can be managed to the firm’s advantage; integrated business plans cutting across functional silos can be tested and shared by everyone; big challenges or initiatives can be rehearsed before they happen; and detailed, time-phased action-plans assembled and continually updated.
It is easy to get started, by modelling small but important parts of an organisation, such as the growth of customers and sales, staff development, or service quality.The mind-set and methods to accomplish these important purposes are not complex, and the tools required are easy for regular analysts to use in supporting senior management.
An example: The power of such models can be illustrated with the case of a newly started marine engineering business in Norway, focused on the new requirement for ship operators to install equipment for cleaning ballast water. See video description of the case at sdl.re/BWTcase and the working model at sdl.re/BWTS.