Simulation strategy

In part one of a new series, David Lengacher introduces the concept of simulation as the new differentiator in strategy development. Corporate strategy has undergone significant changes in the past few years, both in the process through which it is formed and the way that it is viewed. Gone are the days when large companies could get by with bloated mission statements and vague objectives in their annual report. With the advent of the balanced score card, organizations have become more focused on measuring performanceÔÇösometimes to a fault. Many firms find themselves submerged in a competitive environment in which their opponents capture and monitor every conceivable measure of performance they can find. It is no surprise then that in this environment many find it difficult to develop real corporate advantages from a process-knowledge standpoint. Being an expert in what you do and how you do it is now simply a requirement to stay competitive. In other words, knowing your own process better than your competitor knows his is now a rarity. Partly responsible for this change is the availability and saturation of data warehouse vendors and providers of statistical packages. They have all but erased the quantitative advantage once possible to attain for brick and mortar companies. This is why strategy development is becoming increasingly more important; because the gap between the best and worst companies in terms of their capability in both execution and analysis is narrowing. The only competitive gap that remains is the gap between strategies that are robust and ones that are less so. Using simulation in the strategy development process is a proven way to make the final product more robust and thus more likely to succeed. And when it comes to testing strategies, simulation is ideally suited to uncover the concealed risks associated with each one. For the layman, strategy simulations can best be thought of as a model that is constructed using a simulation platform. Most users purchase a simulation platform like SimProcess, @Risk, Arena, Any Logic, Stella, etc. and then spend a few weeks building a virtual business environment that mimics their own. The latest generation of simulation platforms makes this process extremely easy, even for the novice, with many requiring no programming skills at all. Next, a scenario that represents real challenges facing managers is constructed. The final step is to conduct experiments, where managers execute several different strategies and then study the results of the simulation. End to end, this process provides a unique vehicle through which managers can think about their own processes in terms of interdependencies and relationships, something that the military has been doing for years. Simulations can also help managers capture their beliefs and ideas about their competitive environment and uncover the patterns inherent in their information processing and decision making style.┬á Most important of all, by involving managers in a simulation focused on strategy, companies can gain a new understanding of their competitive environment by allowing them to see the implications of their business assumptions and provide them the ability to test operational constraints. Out of all the constraints managers have to deal with, time is one of the biggest and no manager is unaffected by it. The good news is that when modeled correctly, simulations can represent a small-scale business environment in a matter of weeks. And when the correct scope is chosen for modeling a process or environment, simulation can deliver incredible value in the formation of corporate strategy. Over the next few issues, we will examine three of the most common types of simulations and cover the value that each can deliver, as well as covering the respective industries and problem types for which they are ideally suited. So between now and next monthÔÇÖs issue you may want to investigate whether or not your company is taking advantage of the kind of value that simulation can deliver. If so, how and in what capacity? If it is not, then you may want to familiarize yourself with some of the aforementioned productsÔÇöthen sit back, relax, and enjoy the journey as we examine several case studies in the coming months that will demonstrate both the application and value of using simulation in your business.┬á