MULTIPLE INDUSTRIES IN COMPUTERIZED GAMING-SIMULATIONS Developments In Business Simulation & Experiential Exercises, Volume 20, 1993 108 MULTIPLE INDUSTRIES IN COMPUTERIZED GAMING-SIMULATIONS Precha Thavikulwat, Towson State University ABSTRACT A scale-invariant model for incorporating multiple industries into computerized business gaming-simulations such as to match the U.S. Standard Industrial Classification system, while also allowing the instructor to redefine the industries, is presented. Intended to capture the functional character of industries, the model allows for (a) quantitative differences in rates of productivity, of deterioration, of depreciation, and of utilization; (b) qualitative differences in resource requirements; and (c) industrial interdependence. The model should be most suitable for business gaming-simulations designed to cover strategic business issues. Experience with such gaming-simulations may help clarify concepts in business policy and strategy, illuminate the method of competitive analysis, and suggest even better analytical methods. INTRODUCTION Although comparative industrial studies are pervasive in business and economics, and is particularly central to business policy and strategy, computerized business gaming-simulations have generally not allowed either instructors or participants a choice of industries. In most cases, the gaming-simulation is based either on a particular industry or on a generic manufacturing industry. An exception is STRATEGY! (Priesmeyer, 1 992), wherein participants are allowed to enter and exit 1 0 industries. Even so, STRATEGY! does not allow the instructor to redefine the industries. A multiple-industry business gaming-simulation that allows the instructor to define the industries must capture the essential differences between industries in a small set of instructor- modifiable parameters. The selection of these parameters is crucial, for they limit the issues that can be addressed. Capital, labor, and material are the elements of industry in Gold’s (1991) multiplicative production function. The function specifies that these elements affect output through elasticity parameters that allow for variable returns to scale. The function fits an industrial classification system based on input intensities (i.e., capital intensive, labor intensive, and material intensive). It ignores qualitative differences in inputs, outputs, and processes. It neither accounts for time-dependent losses (output deterioration and resource depreciation) nor for interdependence among industries, factors crucial to the relative profitability of industries. Furthermore, it is unrelated to the U.S. governments Standard Industrial Classification (SIC) system, the basis for many comparative industrial studies of U.S. businesses. By the SIC system, businesses are assigned to industries based on their “product or group of products produced or distributed, or services rendered” (Office of Management and Budget: 15). Because products and services are tied to production processes, gaming-simulations can be related to the system by modeling production processes, and labeling the products and services to suit. This paper presents a model of production processes that allow for qualitatively different inputs; that accounts for output deterioration, resource depreciation, and industrial interdependence; and that can be directly matched to the SIC system. The model is mathematically simple, with invariable returns to scale. When properly incorporated into a business gaming-simulation, the model permits the instructor to define any industry by setting a small number of parameters and labeling the products and services. THE MODEL Scale-invariant production processes can be modeled by rates. The rates having the greatest effects on the production process are the productivity rate, deterioration rate, utilization rate, and depreciation rate. The productivity rate is the rate by which a resource’s productive capacity depends upon its presence (Equation 1). The deterioration rate is the rate by which the inventoried output diminishes over time (Equation 2). The utilization rate is the rate by which a resource is consumed by production, and the depreciation rate is the rate by which an unconsumed resource is lost over time (Equation 3). Given any number of required resources, actual production will be limited by the minimum of the productive capacities of all resources. The four rates are not completely independent. If the output of one industry is the resource of another, the deterioration rate of the output-to-resource item should generally be the same as its depreciation rate. Moreover, the utilization rate of a production- limiting resource cannot exceed the inverse of its productivity rate, for that would cause the ending level of that resource to have an impossible negative value.1 With these relationships, an economy of interdependent industries can be created by designating the outputs of some industries as resources of other industries. A sample instructor’s setup table that defines a sample-simulated economy of five cascadingly dependent industries is shown in Table 1. 1 For the production-limiting resource, implying that the product of the productivity and utilization rates must not exceed unity. Developments In Business Simulation & Experiential Exercises, Volume 20, 1993 109 The sample setup table gives a name for each of five items, their associated rates, and the resources required for their production (0, no; 1, yes). The presumption here is that the rates associated with each item are constant across industries. Thus, services depreciate at the rate of 1.000 (100%) a period, irrespective of whether they are used to produce materials, buildings, machines, or food. Although the sample items have been constructed to match 5 of the SIC system’s 11 divisions,2 and the rates chosen to represent pure cases, the intent is that the instructor should be able to change the labels, rates, and requirements to suit the instructors purposes. Accordingly, if the instructor so chooses, the instructor might set up two industries producing identical outputs with different resources and processes, or two industries producing different outputs with the same resources and processes. MODEL APPLICATION A business gaming-simulation that incorporates the model presented without embellishment would have a very simple production-operations component compared with most total enterprise gaming-simulations traditionally used in courses on business policy and strategy (Keys & Biggs, 1990). Accordingly, it would not be suitable for instructors desiring extensive coverage of production-operations management. But the simplicity of production would enable the gaming-simulation to cover more adequately the strategic issues of entering and leaving industries; of corporate financing; of selecting, compensating, and motivating executives; and of purchasing and product pricing. A gaming-simulation focused on these strategic issues may be one in which each participant will be allowed to found a limited number of firms each in the participants choice of industry, to finance the firms by selling shares to other participants, and to employ and compensate other participants as executives who will manage purchasing and product pricing. Such a gaming-simulation can include a real market (Thavikulwat, 1 990) for executives, for shares, and for industrial inputs and outputs. CONCLUSION This multiple-industry model adds to the body of literature constituting the “science of simulation design and development that Goosen (1981: 41) envisioned over a decade ago. This science may soon develop to the point where concepts in business management will regularly be clarified by their implementation in gaming- simulations. The concept of service, for example, generally defined in production-operations management as something that is produced and consumed simultaneously” (Schroeder, 1989), is clarified by the multiple-industry model presented as an item with a 100% deterioration rate, and an identical depreciation rate. Notwithstanding the widespread use of computerized business gaming-simulations in business courses (Frand & Britt, 1989), their role in clarifying business concepts remains generally unappreciated. Thus, for example, in the report on doctoral education commissioned in 1 988 by the Executive Committee of the Business Policy and Planning Division of the Academy of Management (Summer, et al., 1 990), no mention is made of gaming-simulations at all, even though gaming-simulations are used in almost 50% of business policy courses (Faria, 1 990). Moreover, gaming-simulations may be the ideal setting for studying the adequacy of analytical methods. Over the last decade, probably 2 The five matching divisions are (a) services; (b) mining; (c) construction; (d) manufacturing; and (e) agriculture, forestry, and fishing, respectively. The six remaining divisions are (a) transportation, communications, electric, gas, and sanitary services; (b) wholesale trade; (c) retail trade; (d) finance, insurance, and real estate; (e) public administration; and (f) nonclassifiable establishments. the most popular of analytical methods in business policy and strategy has been Porters (1980) competitive analysis. Because the method brings out differences among industries, it is inapplicable to business gaming-simulations with only a single industry. Even so, how a participant might apply competitive analysis to realize superior results in a multi-industry business gaming-simulation remains unclear. As all drugs have side effects, all analytical methods require effort. The effort of applying Porters method may cause mental fatigue sufficient to thwart insight. Observations of participants as they contend with a multi-industry gaming-simulation based on a model such as the one proposed here may illuminate Porters method, and suggest even better ones. REFERENCES Faria, A. J. (1990) Business simulation games after thirty years: current usage levels in the United States. In J. W. Gentry (Ed.), Guide to business gaming and experiential learning (ABSEL), (pp. 36-47). East Brunswick, NJ: Nichols/GP Publishing. Frand, J. L., & Britt, J. A. (1989) Sixth annual UCLA survey of business school computer usage. University of California, Los Angeles, Information Systems Research Program Gold, S. C. (1991). Modeling short-run cost and production functions using Sheppard’s lemma in computerized business simulations. Developments in Business Simulation & Experiential Exer 18, 33-37 Goosen, K. R. (1981) A generalized algorithm for designing and developing business simulations Developments in Business Simulation & Experiential Exercises, 8, 41-47 Keys J. B., & Biggs, W. D. (1990) A review of business games. In J. W. Gentry (Ed.), Guide to business gaming and experiential learning (ABSEL), (pp. 48-73). East Brunswick, NJ: Nichols/GP Publishing. Office of Management and Budget (1987) Standard Industrial Classification Manual, 1987 Springfield, VA: National Technical Information Services (PB 87-100012). Porter, M. E. (1980) Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press. Priesmeyer, H. R. (1992) STRATEGY! (2nd ed.) Cincinnati, OH: South-Western Schroeder, R. G. (1989) Operations management: Decision making in the operations function (3rd ed.). New York: McGraw-Hill. Summer, C. E., Bettis, R. A., Duhaime, I. H., Grant, J. H., Hambrick, D. C., Snow, C. C., & Zeithaml, C. P. (1990). Doctoral education in the field of business policy and strategy Journal of Management, 16, 361-398 Thavikulwat, P (1990) Consumption as the objective in computer- scored total enterprise simulations Developments in Business Simulation & Experiential Exercises, 17, 167-169 Table of Contents Volume 20, 1993 Dominant Personality Types and Total Enterprise Simulation Performance Shelf Wars: A Grocery Channel Simulation Shared Cultural Perspectives: An Experiential Exercise Utilizing International Students to Globalize the Classroom An Instrument for Investigating the Effectiveness of Teaching Methods in the Business Policy and Strategy Formulation Course Providing Better Trained Graduates for Accounting Employers The Ambition Gradient Approach to Evaluation of Computer Simulation Game Team Performance Alphatec: A Negotiation Exercise with Logrolling and Bridging Potential Using the Ideafisher Idea Generation System as a Decision Support System in Marketing Strategy Courses A Dynamic Market Share Allocation Model For Computerized Business Simulations Multi-Cultural Adaptability Using Experiential Learning in a Graduate Course Development of Experiential Applications in HRM: Practicing What Preach and Preaching for Practice Linking Students and Business Leaders Through Portfolios Debriefing International Experiential Learning Exercises: Road Signs for Effectiveness Sales Manager: A Simulation Modeling Interactive Effects in Mathematical Functions for Business Simulations: A Critique of Goosen's Interpolation Reducing the Complexity of Interactive Variable Modeling in Business Simulations Through Interpolation Antecedent Biases of Experiential Learners: Trainee Occupation and Subgroup Diversity Pax in Terra Sancta: Simulating the Middle East Peace Negotiations A Multiple Regression Case In Experiential Learning Changes in Ethnocentric/Geocentric Orientation by Business Students after Exposure to a One Summer Course in International Marketing's A Systematic Approach to the Development and Evaluation of Experiential Exercises Entrepreneurs Evaluate Experiential Education A Linear Programming Approach to Open System Total Enterprise Simulations Reflecting Leader Behavior from the Looking Glass, Inc. Simulation Linking Cognitive Styles, Teaching Methods, Educational Objectives and Assessment: A Decision Tree Approach Restructuring Management Education in Post-Communist Countries: How Western Experts Can Help Managerial and Cultural Pre-Conditions for Superior Performance in a Global Setting: An Experimental Study with the Aid of Business Games Multiple Industries in Computerized Business Gaming Simulations Content or Process? - Content and Process! Some Observations and Reflections About Management Education in Central Europe Out-of-Class Experiences to Promote Volunteerism Enacting the Linguistic Consciousness of the Modern Managerial Mind: Post-Modernism and Experiential Learning Intergrating Experiential Exercises into the College Curriculum: The Case of Internationalizing the Business Curriculum Simulation Marketing Oversights Incorporating Advertising Creative Strategy into Computer-Based Business Simulations The Dynamics of a Partnership Between Business and Education Collaborative Education Done Globally Experiential Systems Analysis CADPLAN: A Simulation for Comparative Advertising A Doctoral Symposium: Preparing Students for Conference Behavior Comparing the Simulation with the Case Approach: Again! Total Quality Management: A Model for Continuous Quality Improvement The Quality Audit: An Experiential Exercise for Business Students Extending the Reach of Simulations: DECIDE Heads for the Inner City Lessons Learned from a Customized Management Development Simulation The Foreign Exchange Spot Trading Simulation Using Lotus 1-2-3 to complete a Triple Play in a Simulated Competition International Business Education: Is Enough Being Done? Matching of Student-Teacher Cognitive Style as a Factor in Student Success in an Introduction to Information Systems Course Breathing (More) Life into the Case Approach Lord of the Flies: A Live Case Approach to Leadership Cooperative Case Studies: Experiential Tools for Teaching Business Problem Solving Tools Strategy Simulations in Context: An Evaluation of Key Dimensions The Distribution Channel Game Evaluation of a Simulation Game as an Education Tool for Utility Professionals The Relationship Between Total Enterprise Simulation Performance and Learning Total Quality Management does not Happen by Magic, but it can be Taught Using a Pedagogical Methodology that Utilizes Magic Effectively Preparing Students for Careers in a Global Environment by Integrating Total Quality Management Thoughout the Business Curriculum An Empirical Investigation of Cognitive and Performance Consistency in a Marketing Simulation Game Environment Using MARSGAP with LAPTOP: (A Marketing Simulation Game Analysis Program) with LAPTOP: A Marketing Simulation Adapting TQM Implementation to Organizational Level An MBA Business Simulation: Executive Interaction Experiential Exercises and Pedagogy Track Workshop: Experiencing Cultural Diversity in the Classroom (and the Hotel Meeting Room) Closing the Gap between Corporate and National Culture The Dynamic Manufacturing Company The Use of Experiential Techniques in Corporate Training The State of Simulation Gaming in Easter European Countries- Principally Russia An Experiential Exercise in Cross-Cultural Training Valuing Differences: A Conceptual Framework Demonstration of an Experiential Exercise Effectively Using Experiential Learning to Impart TQM Concepts in a High Technology Environment The Older Worker Questionnaire: An Exercise Concerning Older Worker Stereotypes and Behaviors The Crime Fighting Task Force: An Exercise in Organizational Politics Welcome to the Party! An Expression of Vocational Preference Experiential Exercise for Imparting Cross-Cultural Appreciation Six Swift Simulations on Globalization Overview of BASF Delegate Program