Frequently Asked Questions about Business Simulation and The Beacon Simulator©

1. What is Business Simulation?

A business simulation exercise typically involves three to five teams of participants who run their own company and compete against each other in the market for various products or services. Most business simulations operate on a software platform with input and output information generated by personal computers. The exercise may be either conducted in a face-to-face environment or on the Internet.

Each team makes a series of anywhere from five to ten decisions about business variables such as price, production, marketing, and research and development. Outcomes of the exercise or “game” are based on a team’s ability to establish and implement a superior strategy and to set optimal levels of the aforementioned business variables.

There are numerous business simulation products available in the market today. Each tries to differentiate itself by the number and type of products, the number and complexity of the decision variables that participants must manage, the underlying growth rates of the markets involved, and the sensitivity of the demand for the products sold relative to the decision variables. For example, some games have two to four distinct and mutually exclusive products, while others have multiple versions of the same product. Some also involve regional or country markets in order to provide a global look and feel.

In addition, some business simulations have a very complex and sophisticated financial dimension. Thus, participants must make decisions involving capital structure (e.g. debt versus equity funding) and perhaps other decisions such as the dividend pay-out policy, the type of borrowing (e.g., short term vs. long term) and foreign exchange considerations.

2.  What are Beacon’s© principal characteristics?

Beacon is a computer-based simulation product that is completely interactive. Teams compete against each rather than against the computer. The outcome of each game is different every time it is played. Each Beacon team must manage four mutually exclusive products over the course of seven decision periods, although five, six, or eight-decision games are possible. In addition to setting and monitoring their strategy, each team decides on the price, marketing, and development expenditures, production level, and capital investment for the four products. Beacon is designed to be conducted in a face-to-face environment, but it can be adopted for use on the Internet if a client so requests.

In the face-to-face environment, teams do not need their own laptops to make a decision. Teams record their decisions on a decision sheet and submit these decision sheets to a simulation facilitator. The data are keyed into the computer program and each team’s respective results are printed out and distributed accordingly.

Following is a general description of Beacon’s four distinct and mutually exclusive products:

Alpha: A commodity-like product in a fairly mature market. It is price sensitive and requires careful attention to cost and expenses.

Beta: A completely new product still in the development phase. Because it is so new, teams must be ready with capacity once it is launched because the anticipated demand is very high.

Chi: A company’s cash cow. Milking the maximum amount of cash from this product requires an astute balance of marketing, R&D and pricing while constantly monitoring the investment of new capital into this business.

Sigma: A service product that resembles such activities as consulting or the running of an outsourcing operation of an administrative function such as information technology. A key success factor is the careful management of headcount, training, and current and future demand for service contracts.

3.  In what types of training programs can Beacon be utilized?

Beacon can certainly be an effective “action learning” tool in programs designed to teach finance or strategy. In addition, the use of Beacon can also be very useful in developing the participants’ ability to work in teams as well as in cultivating their leadership skills.

4.  Isn’t Beacon rather similar to other computer simulations? What makes it so special?

Beacon can be considered somewhat similar to other business simulations available in the market. But as similar as all business simulators are in concept, no one simulation is exactly the same as another. Each simulation depends upon the designers’ particular choice of the mix of products, decision variables, and software algorithms. We believe that following the characteristics of Beacon are important to consider when comparing it to other simulations.

a.  Beacon emphasizes strategy and operations over financial management.

Beacon emphasizes the linkages of a company’s operations with its financial results, rather than on the financial report per se. That is, as participants become more involved with Beacon, they quickly learn how strategic and tactical business decisions affect financial results and how the judicious evaluation of financial results can help to make better operations decisions. But unlike other more complex simulations that are offered in the education market, Beacon does not require teams to make lengthy and involved financial management decisions concerning dividend policy, debt vs. equity financing, and borrowing strategies.

b.  Beacon teams must manage a service as well as manufactured products.

Many other business games still confine their portfolio of products to the manufacturing sector. Given the dramatic shift to service businesses in the United States, Europe and Japan, today’s managers and professionals need to be familiar with the particular challenges of operating a service business.

c.  The Beacon simulation involves the launching of a new product that is still in the development phase. (Typically, most business simulation exercises involve products already in the market.)

One particular product “Beta” has not yet been launched. This is the breakthrough product that the teams are waiting for to lead the company out of stagnation and into a whole new era of growth. Hence, Beta is, so to speak, the company’s potential “Beacon.” Is Beta (which has been given the nickname “Beacon”) a “wish come true,” or just “wishful thinking” on the part of the management? Participants soon find out when they begin to operate their respective companies in the Beacon simulation.

d.  Nth Degree Systems, Inc. has almost 15 years of experience facilitating business simulation exercises for companies in a wide variety of industries.

Perhaps the most important distinguishing feature of Beacon is the vast experience of the professionals at Nth Degree Systems, Inc. who would facilitate this simulation for corporate clients. For example, Phil Young, President and Founder of Nth Degree Systems, Inc. has over 20 years of experience developing and teaching customized corporate education programs for leading companies in such industries as telecommunications (both equipment manufacturers and service providers), information technology, fast-moving consumer products, pharmaceuticals, financial services, and semiconductor manufacturing. Phil has a particular knack for relating the simulation experience to the industries of the participants in the simulation exercise. Lead facilitators selected for assignments are equally qualified.

5.  Can Beacon be customized so that it resembles more closely a particular market or industry?

The product mix in the Beacon simulation (Alpha, Beta, Chi, and Sigma) was designed to be general enough to relate to a majority of products and services in all types of industries. However, if clients wish to use a set of products and services that are even closer to the actual competitive situation that they face, Nth Degree Systems, Inc. can provide certain types of customization. It should be cautioned that it is not Beacon’s objective to demonstrate that “winning” strategies and operational tactics can literally be applied to the world of the participants. No simulation could or should promise this. However, the simulation experience itself does help participants to learn valuable business lessons in an exciting and high-impact manner, one that transcends simply listening to a lecture or reading a book on these subjects.

6.  What are some of the important “lessons learned” for participants going through the Beacon simulation?

Here are some key lessons that Nth Degree Systems, Inc. has incorporated into the design of the Beacon simulation exercise. Upon completion of the simulation, it is expected that participants will have a clearer understanding of:

• The importance of developing and maintaining a corporate strategy for the longer term management of the company.
• The importance of managing expenses to revenues (“E to R”).
• The importance of maintaining a substantial gross profit margin insofar as it helps to fund the company’s expenses.
• How various financial ratios are affected by business decisions?
• The risk of heavily investing in markets with large forecasted future demand (because if everyone does it, gluts can quickly develop in the marketplace, which in turn could lead to vicious price wars).
• The importance of training as a supplement to experience (particularly in the case of managing Sigma, the service business).
• How optimal pricing can improve profits.
• The importance of carefully benchmarking company performance with the competition.
• The importance of taking calculated risks and of being ready when market demand finally materializes.
• · How it is possible to “teach an old dog new tricks” (in reference to the case of managing alpha, the “dog” product, by using disciplined cost and expense controls).

Following are some of the comments expressed by past participants upon completion of the simulation:

“Helped me understand the importance of teamwork in making good decisions…”

“I now have a better appreciation of what senior management must go through in making business decisions.”

“The financial statements came alive as we went through each decision period.”

The Beacon Simulator (PDF)