Welcome to the second instalment of our three-part interview with HFX Training on business simulations. In the first part of the interview, we explored the basics of business simulations and their role in modern training and education. Now, in this instalment, we take you through the history, development, and design process behind business simulations, and explore their unique pedagogical power.
Whether you are an educator, a business professional, or simply curious about the power of simulations, this article promises to provide valuable insights into the mechanics and benefits of using these sophisticated educational tools.
In this article, we will cover: - History of Simulations - What Skills do Business Simulations Teach - The Simulation Design Process
History of Simulations
Board Games and Military Strategy
Will: In terms of innovation and adaptation, I think there’ll be many viewers who are very interested in how simulation programs have advanced over the last several years. Can you talk us through a bit about the history of simulation models and their technological development?
Jeremy: To understand the evolution of simulation-based training, we can start by looking at its roots, which lie in traditional military strategy games like Go or Chess. These games, which date back millenia, were designed to challenge the mind and enhance decision-making under pressure. Wargames became more and more sophisticated, eventually leading to the first computer-based military simulations in the late 1950s, and the first business simulation, the “Top Management Decision Simulation” from the American Management Association, in 1955.
Over the decades, the major change has been in computing power, which has dramatically increased the accessibility and scalability of these simulations. For example, many of the design teams that we work with have been building simulations since the early 1970’s, and in many ways, their core design approach was established early on. The biggest difference between then and now, is that back then, the rounds of a simulation were processed on mainframe computers with punch-cards. This required a lot of leg-work from the instructor, not least because mainframe computers were anything but ubiquitous!
The real transformation has been in how easily these simulations can now be accessed and how quickly they can be processed. So much so that today, we almost take it for granted that simulations are hosted online, accessible by anyone with an internet connection and process almost instantaneously.
The practical consequence of this is two-fold. First, it is now feasible to deliver simulation based workshops remotely, to distributed teams. Second, the rapid processing speed (with the results of each simulated round coming within minutes or even seconds of the instructor’s command) makes the learning experience more dynamic and immediate.
Latest Innovations and the Impact of AI
Will: Have these changes mostly occurred in the last decade?
Jeremy: In short, yes. The landscape has shifted dramatically in recent years. Although it seems hard to believe, when we launched HFX Technologies in 2019, the concept of cloud-based simulations still wasn’t as widely accepted or understood as it is today. Back then, the notion of running complex simulations entirely online was still a novel idea for many.
This gives you an idea of how rapidly these simulation technologies have evolved. But it doesn’t stop there. Currently, we’re exploring how artificial intelligence can further revolutionize these tools. We’re particularly focused on how iterative AI can enhance the user experience. For instance, in our conversational simulations, we’ve started to integrate AI-driven characters. This allows participants to engage in dynamic, realistic conversations within the simulation, a significant step up from the basic multiple-choice interactions of the past. Now, participants can simulate more natural and complex interactions with a virtual client, which greatly enriches the training experience.
Virtual Reality – Benefits and Limitations
Will: I find this incredibly exciting. When I think of advanced simulations, my mind goes to something like Star Trek’s Holodeck. Looking ahead 10-20 years, do you see us using VR headsets for the most sophisticated simulations?
Jeremy: Interestingly, that scenario is already a reality, Will. Virtual reality has been in play for quite some time now. VR headsets have been available for decades, accessible even to the retail market. I recall using one in London about 25 years ago – it was a flight simulator. Today, VR technology has become quite ubiquitous, especially among the younger generation who might use it at home.
However, at HFX, our focus on VR is more selective. While VR is prevalent in several commercial and training contexts, we find its best use in operational training. For instance, VR is highly effective in clinical settings, factory operations, and military training, where the realism of a VR environment can significantly enhance the practical skills of trainees. Flight simulators, a form of sophisticated VR, have been essential in pilot training for years, demonstrating the effectiveness of this technology. Despite its broad utility, we evaluate where VR fits best within our suite of simulation tools, focusing on applications that offer the most tangible benefits to users.
Will: So, would it be fair to say that HFX Technologies specializes in strategic decision-making simulations?
Jeremy: Yes, that’s accurate, Will. I’d describe our focus as centered on managerial decision-making, which requires deep and strategic thinking. In this context, we find that the cost-benefit of incorporating virtual reality (VR) often doesn’t quite add up. In fact, in our more complex simulations, we view VR as a potential distraction from the intense thinking and analysis required.
Pedagogy – What do Simulations Teach
Key Skills
Will: In terms of preparing current and future leaders with essential tools and skills, what would you say are the key competencies they need to develop to thrive in today’s dynamic business environment?
Jeremy: The most crucial skill for today’s leaders is navigating what we call the VUCA environment—volatile, uncertain, complex, and ambiguous. This term really captures the challenges that modern leaders must manage. Our simulations are specifically designed to help leaders understand and adapt to these conditions, providing them with realistic scenarios where they can practice making tough decisions amidst uncertainty.
Will: Embracing ambiguity is crucial. It’s fascinating how simulations can mimic the real-life ambiguity and complexity leaders face, providing a valuable training ground.
Jeremy: Indeed. Navigating these complex scenarios isn’t straightforward—it requires a specific mindset. Our more complex simulations are not just about intellectual challenge; they demand a particular resilience and willingness to engage with uncertainty. Those who excel in these environments are often those who also thrive in entrepreneurial and corporate leadership roles. They don’t just tolerate ambiguity; they leverage it to foster innovation and strategic thinking.
Our simulations push participants to step outside comfortable, well-defined roles and embrace the unpredictability of the business world. This requires agile decision-making—an essential skill in today’s fast-paced market environments.
Will: That’s a profound insight. When faced with ambiguity in my own work, I find that having time to think things through is invaluable. How do simulations handle the aspect of time when making decisions?
Jeremy: Simulations are designed to reflect the real time pressures that leaders face in the workplace. Participants must balance the need for thorough analysis with the urgency of making timely decisions, mirroring the real-world trade-offs between speed and precision. This aspect of simulations is crucial for developing the ability to make effective decisions quickly, even with limited information—a reality for most leaders today.
Game Theory and Decision Making Under Uncertainty
Will: It sounds like focusing on the core elements of strategy and decision-making, without the distraction of unnecessary technology, is key in your simulations. How does HFX integrate game theory into your simulations?
Jeremy: That’s a great question, Will. Let me focus on our complex multiplayer simulations where there is no definitive right answer, and the effectiveness of your decisions depends heavily on your competitors’ actions. Game theory is central to these simulations, particularly in multiplayer zero-sum scenarios where your gain is someone else’s loss.
Imagine you’re in an industry with five competitors, all starting on equal footing. If you decide to increase your marketing spend by 10% to gain more market share, this initially seems like a solid strategy. However, if your competitors each decide to increase their marketing spend by 20%, your relative investment suddenly becomes inadequate, potentially causing you to lose market share even though you increased your spending.
This scenario illustrates the critical aspect of game theory in our simulations—understanding and anticipating competitors’ strategies. It’s about more than just making decisions; it’s about making informed decisions based on a deep understanding of the competitive landscape.
Business simulations train participants to think like seasoned strategists at the poker table. They need to gauge not just their own moves but also anticipate others’ moves to effectively navigate and influence market dynamics. This is particularly revelatory for people who may not have entrepreneurial experience and are used to more deterministic outcomes.
Understanding Risk
Will: That brings me to another point, actually. Success in any field is highly complex, involving intricate industries and business models. In your simulations, do you also include outlier events like natural disasters, or other unexpected variables that could influence decisions?
Jeremy: Absolutely, that’s a great question. Indeed, we work with various design teams that integrate these kinds of real-world complexities into our simulations. Each team has its own specialty in how they embed both negative and positive externalities into the game scenarios.
For example, one of our expert teams excels at incorporating elements such as labor disputes, strikes, wage resolutions, and even auctions of defunct competitors into the simulations. These events introduce unexpected challenges that require players to adapt their strategies on the fly, closely mirroring real-world business unpredictability.
Another team we collaborate with specializes in the intricacies of R&D investment and new product launches. They simulate the dynamic process of adjusting to market demands, timing product launches effectively, setting the right price points, and choosing the best distribution channels. This requires a deep understanding of different market-segments, which adds another layer of realism and complexity to the training.
By including these types of unpredictable events and strategic challenges, our simulations provide a robust platform for participants to hone their decision-making skills in a way that closely mimics the unpredictable nature of real-world business environments.
Simulation Design Process
Customizable Simulations
Will: So in any of these training simulation models, participants can be hit by all sorts of curveballs, right?
Jeremy: Absolutely, and that’s part of what makes these simulations so valuable. In academia, especially, we’ve found that business professors appreciate the ability to rescript simulations to maintain engagement not just for their students, but for themselves as well. Repeating the same scenarios year after year can become monotonous, so the flexibility to modify these simulations is crucial.
Moreover, at institutions like large business schools, there’s often a need to adapt the simulations across different classes or programs. Professors can tailor the complexity of the simulations to suit the course level. For instance, in undergraduate classes, they might opt for simpler modifications like adjusting news items that affect the simulation. However, for a Master’s level capstone project, they tend to include more complex interventions and set parameters to be more challenging to really test the students’ abilities to navigate tough situations.
This flexibility not only keeps the curriculum fresh but also ensures that the simulations are appropriately challenging and relevant to the educational goals of different levels of study.
Game Design Process
Will: So when your team designs these simulations, there must be extensive pre-planning and meetings with various stakeholders to ensure the scenarios are realistic, right?
Jeremy: Absolutely. You’re highlighting the crucial aspects of development and customization. Typically, creating a new simulation tailored specifically for a corporate client involves a substantial, iterative process. This interaction between our design team and the client is especially intricate for complex simulations, which might include detailed financial models. These engagements require a deep understanding of the client’s environment to ensure the simulation is as realistic as possible.
However, striking the right balance between realism and accessibility is key. If a simulation is too realistic, it might overwhelm participants, especially in a brief workshop setting. Our experienced design teams are adept at calibrating simulations to be engaging yet manageable, which is critical from a pedagogical perspective.
Will: Are most of your simulations then readily available off the shelf for immediate use, or do they require customization?
Jeremy: Most of our simulations are indeed available off the shelf. These pre-developed simulations are designed to be adaptable and are widely used, especially in academic settings. Once business professors are familiar with the base simulation—after experiencing it as students—they often want to customize aspects like news items or crisis scenarios to better align with their teaching objectives. We provide the necessary training to enable them to make these adjustments, allowing them to tailor the simulation details to fit their specific curriculum goals more closely. This flexibility is one of the strengths of our simulation offerings, providing a solid foundation that can be modified as needed.
Instructor Training Process
Will: That’s fantastic. For someone like a university professor or a corporate trainer in a specific industry, how much training is required to become familiar with the simulation before it’s implemented within the organization?
Jeremy: In an academic setting, where you’re dealing with thought leaders and experts in their respective fields, the approach is quite straightforward. Professors will experience the simulation first as participants, which helps them understand it from a student’s perspective. Typically, if the simulation is run asynchronously, they can familiarize themselves with all its aspects — from reading the materials to making decisions — within about four to eight hours. This process ensures they grasp how the simulation can support their educational goals and enhance student learning.
Will: Is the training duration similar in a corporate environment?
Jeremy: The situation in the corporate world can differ significantly. Large corporations, especially those with in-house training capabilities, often opt for customized simulations tailored to their specific business processes and challenges. Here, the training isn’t just about using the simulation; it’s about co-developing it. Corporate trainers often collaborate closely with our team from the early stages of development, which can be a detailed and iterative process. This involvement can range from tens to hundreds of hours, depending on the complexity of the simulation and the depth of customization required. This extensive collaboration ensures the simulation perfectly aligns with the company’s strategic objectives and training needs.
This is the end of Part 2. Stay tuned for part 3, where we look at the ROI on simulation-based management training, what the future holds for Business simulations – including the impact of AI – and finally some tips for organizations looking to incorporate simulation-based management training into their programs.
Jeremy Lovelace | Director | hfxtraining.com
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