Deficient strategic planning in modern enterprises prevents the medium and long-term expectations of its managers from materializing.
For example, according to a survey by Domenge and Belausteguigoitia (2009), one of the main problems that SMEs face in Mexico are poorly designed strategies for obtaining any relatively sustainable competitive advantage in terms of investing or allocating their limited financial resources in the best way. These strategies, by their own general nature, should identify and evaluate the key strategic resources (human, technological, operational, marketing and financial) that the company requires to achieve its objectives, as well as the means to obtain them, either by developing or accumulating them in a complementary and balanced manner (Warren, 2008).
Roughly speaking, a company’s traditional strategic planning consists of four major stages: the external analysis, the internal analysis, the design of the strategy and the implementation plan for the strategy. The external analysis determines the vision of the company in a competitive or challenging environment, and defines how the company wants to be seen in the future, which identifies the strategic objectives. An internal analysis of the resources notes and evaluates the assets and capabilities of the company and those that are missing to achieve its strategic objectives. The design of the strategy results in a path or way to achieve the strategic objectives. Finally, the implementation plan refers to the set of tactical or short-term decisions that, when carried out, will enable it to advance toward the materialization of the strategy from which they were derived.
How do strategists determine or select the best strategy? How do they evaluate the proposed strategies? Is it possible to validate and calibrate the strategy before putting it into action?
The Traditional Approach
Generally, the design of the strategy is based on a number of hypotheses that assume that certain decisions and actions will achieve the desired objectives at a certain time, within the constraints of scenarios that pose realistic assumptions or the most likely of the environment. In most cases, these hypotheses are based on the subjective postulation of causal relationships between the company’s resources and its expected effects, based on the experience of the strategists and supported, perhaps, by an analysis or a linear impact assessment model of the input -> output (IO) type (Figure 1), held in a computer spreadsheet program, which usually considers only measures of financial performance such as the pro-forma financial statements, expected cash flows, financial reasons, net present value and internal rate of return.
Figure 1. Traditional linear IO impact assessment model
These models for the assessment of the causal impacts of decisions on the resources of the company and their expected effects are conceptualized or developed according to a linear view of decisions to effects or performance measures, considering that in these models the effects do not have an influence on decisions in the planning horizon and if it is intended to factorize some undesirable effect, another assessment (or computer run count) must be made, taking into account the previous results in the new decisions.
The learning organization and the interactive learning environment
Poor strategic planning has been one of the main reasons for failure of the small and medium-sized enterprises, since it is generally considered a requirement and not a learning tool. In the approach to learning in the organization (Seng, 1990; Morecroft and Sterman, 1994; Spector and Davidsen, 2006), to design business strategies, the mental models of the strategists are called into question or the ways in which they see and understand the dynamics of the company, by means of new informed visions of the likely scenarios that would result from current decisions.
In recent years, there has been an increase in the tendency to do strategic planning and specifically plans of (new) companies, because, among other reasons, it is a requirement to persuade the directors, to apply for credit or invite equity partners. In many cases, you end up with a static document that is a compilation of data and that does not allow entrepreneurs to understand the structure of the dynamic system in which the company operates (Bianchi et al., 1998). Strategic planning in the context of learning empowers strategists to anticipate future scenarios for company growth and, therefore, understand the time needed to obtain or develop the resources necessary for the company to move toward its strategic objectives.
Learning necessarily involves the concept of feedback. Decisions are made that affect the actual results reflected in the performance measures. With these results, decisions made to achieve the objectives are reviewed and corrected (Sterman, 2000). These objectives, in turn, can be modified and adapted to the dynamics of the company environment, following the idea of resilience of the company.
The relationships between the strategic resources that the strategist has, his strategic objectives and his development strategy are the foundations of management flight simulators (MFS) that serve him at the time of designing, evaluating and predicting the potential performance of his strategy. Planning can be seen as a practical means of learning and the MFS as the vehicle that supports and enhances the understanding of the business system (Bianchi et al., 1998). High competitive levels and market demands force the strategists to be more prepared and to acquire greater knowledge to address today’s business challenges. Because the modern enterprise must be constantly learning and growing, the MFS provide a means of sensitizing entrepreneurs through an immediate feedback on the impact of their strategies, in order to analyze the impact their decisions might have on the organization’s resources.
The interactive learning environments (ILE) are means to achieve learning goals through the interaction of the participant and the focal system (Domenge, 2009). In particular, the MFS are a type of ILE designed for use on the computer, in the form of an interactive game based on virtual simulators of real systems. The MFS use a user-friendly interface for the decision maker.
The MFS are any representation of an environment, or a real or imaginary system, in a computerized simulation model (Davidsen, 2000). A simulator is designed and used when there are impediments to experimenting directly with the real system, such as cost, time, risk or lack of access to resources. The MFS are a means of learning in entrepreneurship education and practice or experimentation spaces for decision makers (Figure 2). With these means, an effective learning cycle is created, since they close the gap between the design and implementation of strategies and their effects.
Figure 2. The role of MFS in the strategy
With the MFS, learning occurs in a double loop in which the feedback from the information (results) stimulates changes in the mental models. Learning involves new concepts of a situation and leads to new objectives and decision rules, and not only to new decisions (Sterman, 2000; Lane, 1995). With the learning of two cycles, the decision makers assess the consistencies of their mental models, as one of the most important risks is making decisions without having examined the consistency of the mental model (Bianchi et al., 1998).
The MFS are an effective model of learning various aspects of business and are also one of the most interesting, as they lead users to engage with their decisions, as they progress through the interactive use of the simulator, since they review results immediately, accelerate their learning and gain experience quickly, experiment new behaviors, and acquire certain skills and competencies related to decision making (Saad, 2013; Lane, 1995). The simulator facilitates learning because it allows you to review and evaluate various strategies in a constant, immediate and iterative manner and to make decisions in light of new information generated by the simulator itself in a series of scenarios or iterations.
The MFS open the possibility of articulating knowledge from different areas of a business; they produce a strong motivation to undertake active learning; combine strategic and analytical thinking, and strengthen the ability to work as a team and improve personal communication and work under pressure. Simulation learning improves the mental models of the participants and helps them to form a shared vision of reality (Bianchi, et al., 1998).
However, the MFS also have some disadvantages. For example, a simulator is a model of reality, that is, it makes certain simplifications beginning with a selective abstraction of the real system. In addition, as the decisions are made without any responsibility –because the results of the simulator do not affect reality– they may influence the behavior of the players.
The bibliography related to MFS addresses issues that have served to formulate and evaluate strategies for a particular business or businesses in general (among others, Saad, 2013; Bianchi et al., 2000; Threshold Entrepreneur; The Business Disc; GoVenture; VCommerce; Venture; Enttrepreneur; DEAL; Corporation; Vensim; EnRoads; CRoads; Der RÜTLI Management-Simulator; Millenium Institute).
Conclusions
Modern business dynamics are complex. Entrepreneurs evaluate their strategies according to the results they obtained as their strategy progresses. Thanks to MFS, strategists can develop more efficient strategic planning by identifying and analyzing the main recourses that are available and by evaluating the gap between the objectives and the results of the simulations.
With the MFS, the company is considered to be dynamic, accumulating resources over time and modifying and evaluating various strategies, as the participant understands its structure and function. By articulating all the areas of the company, the MFS open the possibility of changing the mental model of strategists so that they have a general overview, which can also serve as an interactive method for themselves and others responsible for strategic planning.
With the MFS, the strategist intends to adhere to the following points:
Develop an explicit mental model for the dynamic development of the company, which is used and continually reformulated in strategic planning.
Identify and analyze the resources required for the strategic development of a company and to achieve the strategic objectives.
Map and evaluate various strategies, analyzing their impact on the performance measures considered in the model.
Propose a strategy that takes into account the investment and the balanced development of the company’s resources.
?.
References
Bianchi, C., E. Bivona y F. Landriscina (2000). Promoting entreprenership thorugh open-distance-learning management flight simulators EcoRoll Educational Package. International System Dynamics Conference. Bergen.
Bianchi, C., G. Winch, y Grey, C. (1998). The business plan as a learning-oriented tool for small/medium enterprises: A business simulation approach. International System Dynamics Conference. Quebec.
Davidsen, P. (2000). “Issues in the design and use of system-dynamics-based interactive learning environments”. Simulation Gaming, 31, 170-177.
Domenge, R. (2009). “Importancia de los factores de transferencia de contenido en una escuela de negocios: percepciones de estudiantes y profesores”. Cuadernos de Estudios Empresariales, 19, 75-104.
Domenge, R. e I. Belausteguigoitia (2009). “Nuevas pymes, problemas y recomendaciones”. Dirección Estratégica, 29(8), 25-27.
Lane, D. (1995). “On a resurgence of management simulations and games”. The Journal of the Operational Research Society, 46, 604-625.
Morecroft, J.D.W. y J. Sterman (comps.) (1994). Modeling for learning organizations. Nueva York: Productivity Press.
Saad, F. (2013). Modeling and comparing a startup dynamics in the US and Egypt. System Dynamics Society Conference. Massachusetts.
Senge, P. (1990). The fifth discipline: The art and practice of the learning organization. Nueva York: Doubleday.
Spector, J.M. y P. Davidsen (2006). “How can organizational learning be modeled and measured?” Evaluation and Program Planning, 29, 63-69.
Sterman, J. (2000). Business dynamics: Systems thinking and modeling for a complex world. Boston: McGraw-Hill.
Warren, K. (2008). Strategic Management Dynamics. Chichester: John Wiley and Sons.
Improve strategic planning through management flight simulators
Deficient strategic planning in modern enterprises prevents the medium and long-term expectations of its managers from materializing.
For example, according to a survey by Domenge and Belausteguigoitia (2009), one of the main problems that SMEs face in Mexico are poorly designed strategies for obtaining any relatively sustainable competitive advantage in terms of investing or allocating their limited financial resources in the best way. These strategies, by their own general nature, should identify and evaluate the key strategic resources (human, technological, operational, marketing and financial) that the company requires to achieve its objectives, as well as the means to obtain them, either by developing or accumulating them in a complementary and balanced manner (Warren, 2008).
Roughly speaking, a company’s traditional strategic planning consists of four major stages: the external analysis, the internal analysis, the design of the strategy and the implementation plan for the strategy. The external analysis determines the vision of the company in a competitive or challenging environment, and defines how the company wants to be seen in the future, which identifies the strategic objectives. An internal analysis of the resources notes and evaluates the assets and capabilities of the company and those that are missing to achieve its strategic objectives. The design of the strategy results in a path or way to achieve the strategic objectives. Finally, the implementation plan refers to the set of tactical or short-term decisions that, when carried out, will enable it to advance toward the materialization of the strategy from which they were derived.
How do strategists determine or select the best strategy? How do they evaluate the proposed strategies? Is it possible to validate and calibrate the strategy before putting it into action?
The Traditional Approach
Generally, the design of the strategy is based on a number of hypotheses that assume that certain decisions and actions will achieve the desired objectives at a certain time, within the constraints of scenarios that pose realistic assumptions or the most likely of the environment. In most cases, these hypotheses are based on the subjective postulation of causal relationships between the company’s resources and its expected effects, based on the experience of the strategists and supported, perhaps, by an analysis or a linear impact assessment model of the input -> output (IO) type (Figure 1), held in a computer spreadsheet program, which usually considers only measures of financial performance such as the pro-forma financial statements, expected cash flows, financial reasons, net present value and internal rate of return.
Figure 1. Traditional linear IO impact assessment model
These models for the assessment of the causal impacts of decisions on the resources of the company and their expected effects are conceptualized or developed according to a linear view of decisions to effects or performance measures, considering that in these models the effects do not have an influence on decisions in the planning horizon and if it is intended to factorize some undesirable effect, another assessment (or computer run count) must be made, taking into account the previous results in the new decisions.
The learning organization and the interactive learning environment
Poor strategic planning has been one of the main reasons for failure of the small and medium-sized enterprises, since it is generally considered a requirement and not a learning tool. In the approach to learning in the organization (Seng, 1990; Morecroft and Sterman, 1994; Spector and Davidsen, 2006), to design business strategies, the mental models of the strategists are called into question or the ways in which they see and understand the dynamics of the company, by means of new informed visions of the likely scenarios that would result from current decisions.
In recent years, there has been an increase in the tendency to do strategic planning and specifically plans of (new) companies, because, among other reasons, it is a requirement to persuade the directors, to apply for credit or invite equity partners. In many cases, you end up with a static document that is a compilation of data and that does not allow entrepreneurs to understand the structure of the dynamic system in which the company operates (Bianchi et al., 1998). Strategic planning in the context of learning empowers strategists to anticipate future scenarios for company growth and, therefore, understand the time needed to obtain or develop the resources necessary for the company to move toward its strategic objectives.
Learning necessarily involves the concept of feedback. Decisions are made that affect the actual results reflected in the performance measures. With these results, decisions made to achieve the objectives are reviewed and corrected (Sterman, 2000). These objectives, in turn, can be modified and adapted to the dynamics of the company environment, following the idea of resilience of the company.
The relationships between the strategic resources that the strategist has, his strategic objectives and his development strategy are the foundations of management flight simulators (MFS) that serve him at the time of designing, evaluating and predicting the potential performance of his strategy. Planning can be seen as a practical means of learning and the MFS as the vehicle that supports and enhances the understanding of the business system (Bianchi et al., 1998). High competitive levels and market demands force the strategists to be more prepared and to acquire greater knowledge to address today’s business challenges. Because the modern enterprise must be constantly learning and growing, the MFS provide a means of sensitizing entrepreneurs through an immediate feedback on the impact of their strategies, in order to analyze the impact their decisions might have on the organization’s resources.
The interactive learning environments (ILE) are means to achieve learning goals through the interaction of the participant and the focal system (Domenge, 2009). In particular, the MFS are a type of ILE designed for use on the computer, in the form of an interactive game based on virtual simulators of real systems. The MFS use a user-friendly interface for the decision maker.
The MFS are any representation of an environment, or a real or imaginary system, in a computerized simulation model (Davidsen, 2000). A simulator is designed and used when there are impediments to experimenting directly with the real system, such as cost, time, risk or lack of access to resources. The MFS are a means of learning in entrepreneurship education and practice or experimentation spaces for decision makers (Figure 2). With these means, an effective learning cycle is created, since they close the gap between the design and implementation of strategies and their effects.
Figure 2. The role of MFS in the strategy
With the MFS, learning occurs in a double loop in which the feedback from the information (results) stimulates changes in the mental models. Learning involves new concepts of a situation and leads to new objectives and decision rules, and not only to new decisions (Sterman, 2000; Lane, 1995). With the learning of two cycles, the decision makers assess the consistencies of their mental models, as one of the most important risks is making decisions without having examined the consistency of the mental model (Bianchi et al., 1998).
The MFS are an effective model of learning various aspects of business and are also one of the most interesting, as they lead users to engage with their decisions, as they progress through the interactive use of the simulator, since they review results immediately, accelerate their learning and gain experience quickly, experiment new behaviors, and acquire certain skills and competencies related to decision making (Saad, 2013; Lane, 1995). The simulator facilitates learning because it allows you to review and evaluate various strategies in a constant, immediate and iterative manner and to make decisions in light of new information generated by the simulator itself in a series of scenarios or iterations.
The MFS open the possibility of articulating knowledge from different areas of a business; they produce a strong motivation to undertake active learning; combine strategic and analytical thinking, and strengthen the ability to work as a team and improve personal communication and work under pressure. Simulation learning improves the mental models of the participants and helps them to form a shared vision of reality (Bianchi, et al., 1998).
However, the MFS also have some disadvantages. For example, a simulator is a model of reality, that is, it makes certain simplifications beginning with a selective abstraction of the real system. In addition, as the decisions are made without any responsibility –because the results of the simulator do not affect reality– they may influence the behavior of the players.
The bibliography related to MFS addresses issues that have served to formulate and evaluate strategies for a particular business or businesses in general (among others, Saad, 2013; Bianchi et al., 2000; Threshold Entrepreneur; The Business Disc; GoVenture; VCommerce; Venture; Enttrepreneur; DEAL; Corporation; Vensim; EnRoads; CRoads; Der RÜTLI Management-Simulator; Millenium Institute).
Conclusions
Modern business dynamics are complex. Entrepreneurs evaluate their strategies according to the results they obtained as their strategy progresses. Thanks to MFS, strategists can develop more efficient strategic planning by identifying and analyzing the main recourses that are available and by evaluating the gap between the objectives and the results of the simulations.
With the MFS, the company is considered to be dynamic, accumulating resources over time and modifying and evaluating various strategies, as the participant understands its structure and function. By articulating all the areas of the company, the MFS open the possibility of changing the mental model of strategists so that they have a general overview, which can also serve as an interactive method for themselves and others responsible for strategic planning.
With the MFS, the strategist intends to adhere to the following points:
?.
References
Bianchi, C., E. Bivona y F. Landriscina (2000). Promoting entreprenership thorugh open-distance-learning management flight simulators EcoRoll Educational Package. International System Dynamics Conference. Bergen.
Bianchi, C., G. Winch, y Grey, C. (1998). The business plan as a learning-oriented tool for small/medium enterprises: A business simulation approach. International System Dynamics Conference. Quebec.
Davidsen, P. (2000). “Issues in the design and use of system-dynamics-based interactive learning environments”. Simulation Gaming, 31, 170-177.
Domenge, R. (2009). “Importancia de los factores de transferencia de contenido en una escuela de negocios: percepciones de estudiantes y profesores”. Cuadernos de Estudios Empresariales, 19, 75-104.
Domenge, R. e I. Belausteguigoitia (2009). “Nuevas pymes, problemas y recomendaciones”. Dirección Estratégica, 29(8), 25-27.
Lane, D. (1995). “On a resurgence of management simulations and games”. The Journal of the Operational Research Society, 46, 604-625.
Morecroft, J.D.W. y J. Sterman (comps.) (1994). Modeling for learning organizations. Nueva York: Productivity Press.
Saad, F. (2013). Modeling and comparing a startup dynamics in the US and Egypt. System Dynamics Society Conference. Massachusetts.
Senge, P. (1990). The fifth discipline: The art and practice of the learning organization. Nueva York: Doubleday.
Spector, J.M. y P. Davidsen (2006). “How can organizational learning be modeled and measured?” Evaluation and Program Planning, 29, 63-69.
Sterman, J. (2000). Business dynamics: Systems thinking and modeling for a complex world. Boston: McGraw-Hill.
Warren, K. (2008). Strategic Management Dynamics. Chichester: John Wiley and Sons.