Seeing the Fores and the Trees: Integrating Knowledge Using Large Scale Simulations In Capstone Business Strategy Classes Developments in Business Simulation and Experiential Learning, Volume 26, 1999 SEEING THE FOREST AND THE TREES: INTEGRATING KNOWLEDGE USING LARGE SCALE SIMULATIONS IN CAPSTONE BUSINESS STRATEGY CLASSES John Stephan, University at Buffalo Diane H. Parente, Penn State, Erie Randy C. Brown, Medaille College ABSTRACT This paper describes the results of using large scale simulation (LSS) to foster an integrative perspective among students in undergraduate business classes. Results indicate that the multi- ple methods and specific cross-functional re- quirements of LSS are capable of overcoming parochial, functional-level perspectives. How- ever, because students are evaluated individu- ally for some component of their grades, the au- thors caution that such reward structures pose specific challenges for successfully developing an integrative perspective using LSS. INTRODUCTION A primary purpose of business strategy, or pol- icy, courses within the curriculum of most schools of management in the United States has been to afford students the opportunity to inte- grate the knowledge they have acquired in their prior coursework. This role is prominent in strategy courses offered at both undergraduate and graduate levels in business programs. Cata- logs from business schools describe this (often required) ‘capstone’ course as one which devel- ops approaches to defining and analyzing total organizational and top management problems and to formulating and implementing firm-wide objectives and strategies. The course typically assumes familiarity with the major functions and disciplines of business including account- ing, economics, finance, manufacturing, market- ing, organizational behavior and human re- source management which are often stated pre- requisites and represent the tools with which students are prepared as they enroll in a cap- stone course. Course goals typically focus on enhancing students’ ability to effectively inte- grate this knowledge as they examine issues with organization-wide impact. This integrating perspective has increased in im- portance as the ‘resource-based view’ has come to be a dominant paradigm in strategic management. The resource-based view (Penrose, 1959) links firm performance to a firm’s ability to develop competitive advantages based on core- competencies, capabilities and resources that are valuable, rare and difficult to imitate (Barney, 1991; Peteraf, 1993). Because imitation by com- petitors presents the greatest risk to a firm’s com- petitive advantage, the degree to which a firm’s competencies and capabilities are embedded in processes that operate across functional areas has been theorized to provide the best protection against such imitation. Imitation of cross- functional activities is difficult due to their inher- ent complexity and causal ambiguity (Barney, 1991). If students of business are to learn how firms develop long-lived competitive advantages through inter-functional relationships, capstone strategy classes must provide students with the opportunity to integrate their knowledge of functional areas. Such courses must also permit students to actually experience cross-functional integration to understand how difficult it is to initially achieve within a firm and thus for com- petitors to subsequently imitate. This imperative calls for research that identifies pedagogical methods which are capable of fostering an un- 186 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 derstanding of and appreciation for this cross- functional, integrationist perspective. Prior research on the effectiveness of various teaching techniques regarding the integration of knowledge within a capstone business strategy class has not been very promising, however. Hemmasi and Graf (1992) show that the effec- tiveness of computer simulations to enhance knowledge integration ranked fourth among cur- rent students and fifth (next to last) among for- mer students (current business practitioners) for the managerial skills they investigated. In an- other study, Teach and Govahi (1993) found that those managerial skills related to knowl- edge integration were rated by former students as most effectively developed with different teaching techniques. For example, the ability to see the ‘big picture’ was best developed using cases, while developing people and teams (which is essential for implementing cross- functional capabilities) was best learned through simulations. The conclusion one can draw from their study is that knowledge integration and application requires the use of multiple teaching methods. Recently, the idea of large scale simulation (LSS) has been put forth as a mechanism whereby capstone courses can deliver an inte- grative experience (Parente, 1995). This paper reports on the use of LSS within a capstone un- dergraduate business curriculum. Analysis of data obtained from several classes of students enrolled in capstone business courses utilizing the LSS framework shows that among the vari- ous components of LSS, those with a specifi- cally integrative quality are capable of getting students to recognize the interdependence be- tween functional areas that lies at the heart of competitive advantage. Results also show that these components are capable of overcoming the parochial focus that students often develop as a function of their previous business school training, with its programmatic emphasis on ma- jors in specific functional areas. LARGE SCALE SIMULATION According to Parente (1995), LSS integrates the- ory, simulation and role-playing into a coherent whole that seeks to provide an active, experiential learning environment. Through a combination of teaching methods, students are able to bring in- formation from academia to the ‘real world,’ and obtain feedback which reinforces concepts and builds confidence in their perceptions of the skills and abilities they are developing (Parente, 1995). In particular, LSS is comprised of a computer- based simulation in which student teams form mock corporations which manage anywhere from three to eight strategic business units (SBUs) over twelve quarters of simulated time. Each student in the corporation assumes the title and responsibili- ties of a Vice President of a specific functional area (finance, marketing, administration, produc- tion, research and development) or is CEO of the company. Students also assume responsibility for personally managing one or more of the SBUs in their company’s portfolio over the course of the simulation. In addition, each corporation produces a number of written documents and oral presentations which describe the plans, operations, and results of its various businesses and the corporation overall. These documents and presentations, called deliv- erables, are analogous to the types of reports managers are responsible for in actual businesses. The deliverables can be subdivided into two primary categories. The first are those that emphasize the skills associated with a particular functional area. For example, students who are human resource majors often occupy the posi- tion of VP of Administration and the Job Descriptions deliverable describes the tasks that each of the functional VPs will perform, both as vice president and within their team in the class. This deliverable draws heavily on the topics that students learn in their human resources class about job design, an area that is especially im- 187 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 portant to HR majors. Typically, the comple- tion of this deliverable is delegated to the stu- dent in the simulated company who possesses the most knowledge about HR and job design issues (and who will, in all likelihood, occupy the VP of Administration position). In addition, the grading structure for the course allocates a larger proportion of a student’s overall grade to the particular functionally-oriented deliverable associated with the position the student holds on his or her team. Functionally-oriented deliver- ables, by position in the simulated corporation, are listed in the first 6 rows of Table 1. The second category of deliverables are those that require the adoption of an integrative ap- proach. These deliverables require information and expertise from several different functional areas. They also require active participation and cooperation among students to complete the de- liverable. For example, the Board of Directors report is an oral presentation requiring all com- pany officers to speak during the presentation. Rehearsal is required so that the information is deliverable professionally and time limits are respected. In addition, the content of the Board presentation requires that all officers serve in the SBU manager role as they report to the Board on SBU performance and future plans. This information should be consistent across SBUs so that it is readily comprehensible, the plans reinforce competitive advantages at the SBU and corporate levels and the overall per- formance of the firm is enhanced. This consistency further requires that team members share information and collectively de- cide on resource allocation decisions across the various businesses for the coming simulated year. It emphasizes the roles that specific func- tions played in creating SBU competitive advantages that led to the past year’s performance. The remaining two integrative deliverables exhibit similar integrative characteristics in both substance and processes. The integrative deliverables constitute an equal proportion of each student's overall grade and student's overall grade and are listed in the last 3 rows of Table 1. HYPOTHESES Successful implementation of the LSS approach should be reflected in students' recognition of the difference between integrative and functional de- liverables. That is, coupled with current strategic management theory, students who are taught us- ing the LSS approach should come to realize the importance of cross-functional integration to busi- ness success and the development of the capabili- ties and competencies that underscore a firm’s competitive advantage. Consequently, within the LSS approach, this realization should be reflected in different perceptions of the importance of the various deliverables to the overall goals of the course. To this extent, we expected that students in LSS classes would evaluate the integrative deliverables as being much more important at the end of the course. That is, after being exposed to the LSS throughout the semester, students' perceptions of the importance of integration should change and be reflected in their evaluation of the portions of the course that specifically highlight this issue. H1: Importance ratings for integrative deliver- ables should increase from the beginning to the end of the course. The true success of the LSS approach, however, is that is appears to be capable of actually overcom- ing the parochialism that sometimes pervades the various functional areas (Dearborn & Simon, 1958). Students majoring in particular functional areas tend to see the world strictly through the lens offered by their major. The LSS approach, through an emphasis on cross-functional, integrative experience, at- tempts to break down this parochialism. We would, therefore, expect that students’ percep- tion of the importance of the integrative deliver- ables would not differ due to the functional lens 188 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 they bring to their capstone course. Thus, we expected to see no differences in rated impor- tance of the integrative deliverables as a func- tion of students’ academic training: H2: Importance ratings of the integrative deliverables should not differ by academic m ajor. Although we expected no differences in the rated importance of the deliverables as a func- tion of major, the reward structure of the course could exert an influence. Students within most business programs are evaluated on an individ- ual basis for some (often the majority) portion of their grade. It is likely that differences in stu- dents’ perceived importance of the deliverables in an LSS framework would reflect their percep- tions of the degree to which the deliverable con- tains a higher individual component regarding their grade. H3: Importance ratings of the functional deliverables should differ by functional position. Table 1 DELIVERABLE CATEGORIES Position Deliverable Category CEO Interviews Functional CFO Annual Report Functional VP Administration Job Descriptions Functional VP Marketing Corporate Strategic Plan Functional VP Operations Operations Plan Functional VP R&D Environmental Position Paper Functional No primary position Board of Directors Presentation Integrative No primary position SBU Strategic Plan Integrative No primary position Case Study Integrative METHODOLOGY The LSS approach was used as the pedagogical method in undergraduate Business Strategy classes at two institutions between the Spring 1994 and Summer 1996 semesters. A pre- and post-semester survey was completed by 705 re- spondents (59% male; 41% female). Teams were organized during the second week of the semester following interviews. Pre- semester surveys were completed during the third week of class before teams (mock corpora- tions) have had the opportunity to develop norms. Students were presented with the list of deliverables and asked to rank them in order of their perceived importance. Rankings could range from 1 (= most important) to a high of 16 (= least important). Thus, lower numbers repre- sent higher importance ratings. Students com- pleted a post-semester survey after fulfillment of all course requirements. Students were given the same list of deliverables and asked to rank them again using the same scale. Course grading was accomplished through the use of a matrix (position by deliverable). While the number of total points was the same for all positions (i.e., all students could potentially earn the same number of total points), each of the six positions had at least one deliverable for which the team member occupying that position re- ceived more points than any other member. This deliverable was considered the position's pri- mary, functionally-oriented deliverable. The three integrative deliverables carried the same number of points for all team members. Table 1 provides the description and purpose of the de- liverables and indicates whether each is of a 189 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 functional or integrative nature. Table 2 DELIVERABLES WITH SIGNIFICANT DIFFERENCES IN PRE- & POST-TEST RANKING Deliverable Pre-Test Mean Importance Post-Test Mean Importance t-value P < Board Presentation 6.84 5.17 -7.27 .000 SBU Strategic Plan 5.18 4.12 -3.56 .000 Case Study 8.62 7.84 -2.69 .008 RESULTS H1: Student rankings of the importance of the integrative deliverables were expected to in- crease from pre-test to post-test. In Table 2 it can be seen that all three integrative deliver- ables were assigned a higher importance at the end of the semester than at the beginning and the difference was highly significant (all p<.01). Five of the six defined functional deliverables did not exhibit a significant difference between pre and post ranking. Taken together, these re- sults support H1. H2: If the functional lens were applied to the view of the deliverables, we expected to see post-test rankings of functional deliverables by major to demonstrate significant between-group differences. Five majors were identified. The percentage of students in each was: Accounting (29%), Marketing (25%), Finance (19%), Man- agement (19%) and MIS(8%). An ANOVA by major as well as post-hoc testing revealed no significant between-major differences in rank- ing of the deliverables. Only the pre-test ranking of the Annual Report showed any significant difference by major. Ac- counting majors ranked this highest, but the dif- ference disappeared in the post-test ranking. Thus, since there is no significant difference in the students' post-test ranking of the deliver- ables by academic major, H2 is accepted. H3: We analyzed the difference in rankings by functional position instead of major. As can be seen in Table 3, four of the six functional deliver- ables showed no significanct differences in impor- tance on the pre-test across the functional posi- tions. On the pre-test, the Annual Report and the Operations Plan were evaluated differently across the functional positions (F(5,574)=3.53,p< .01; F(5,559)=4.71, p<.001 for the Annual Report and the Operations plan, respectively). Post-test re- sults show that differences in rankings for five of the six deliverables were significant at the .05 level while the Annual Report was significant at the .10 level. None of the integrative deliverables showed any difference in importance ranking across the functional positions. Students’ perceived importance of the functional deliverables was greater at the end of the semester than at the beginning. The reward structure of ad- ditional points for the primary position of each functional deliverable appears to have an impact. Therefore, H3 is accepted. 190 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 Table 3 ANOVA BY SIMULATION POSITION Deliverable Primary Position Pre-test Post-test F-ratio Sig. Mean F-ratio Sig. Mean Interviews CEO .92 n.s. 10.31 2.68 .02 10.23 Annual Report CFO 3.53 .01 4.38 2.05 .07 4.59 Job Description VP Admin. 1.53 n.s. 8.15 3.16 .01 8.24 Corp. Strat. Plan VP Marketing 1.24 n.s. 4.24 2.57 .03 4.00 Operations Plan VP Operations 4.71 .00 5.55 3.06 .01 5.31 Envir. Pos. Paper VP R&D 2.02 n.s. 8.95 9.84 .00 9.84 Board Meeting None 1.55 n.s. 6.93 1.94 n.s. 5.17 SBU Strat. Plan None 1.64 n.s. 5.34 1.21 n.s. 4.29 Case Study None .54 n.s. 8.75 .89 n.s. 7.94 DISCUSSION This paper reported on the use of LSS as a pedagogical tool for helping students to inte- grate their prior knowledge and develop an un- derstanding of the importance of the integrative nature of businesses in today's competitive envi- ronment. By combining a number of pedagogi- cal techniques and placing students within a simulated business setting comprised of the various functional areas found in businesses, LSS appears capable of making the interde- pendent nature of these functions more salient than the use of any single technique. It appears to offer an effective way to both deliver an inte- grative experience and permit students to appre- ciate how crucial integration is to the success of a business. Our results showed that over the course of a se- mester, students were able to recognize the im- portance of integrating capabilities across func- tional areas and the interdependence this both requires and creates. A key aspect of the integrative nature of the LSS approach is that it is capable of reducing the paro- chialism that can accompany an emphasis on functional specialization. Our results showed that by requiring students to complete assignments which stress the integrative nature of business or- ganization, the LSS approach appears to be able to encourage students to see beyond the narrow boundaries of individual concerns. As such, the LSS approach offers students an opportunity, in a classroom setting, to begin to develop the skills necessary to foster integrative environments in the organizations they will eventually join. However, differences did emerge regarding stu- dents' perceived importance of some deliverables as a function of the specific role (or functional position) they played on their simulated corpora- tion. In these cases, there was a match between the position which rated the deliverable as most important and the functional area on which the deliverable focused. The differences found in the rated importance of the functionally-oriented deliverables points to 191 Developments in Business Simulation and Experiential Learning, Volume 26, 1999 a key challenge faced by the LSS approach (and in businesses). This challenge is to find a way to reward people individually for their ef- forts while at the same time maintain a focus on the inter-relatedness of the various business functions and the overall success of the busi- ness. The deliverables that each functional posi- tion rated as most important emphasized the knowledge and demands of that functional area, and constituted a larger proportion of the over- all grade for students in those positions than for the other members of their simulated corpora- tion. Students clearly recognized this corre- spondence and responded to it. The LSS approach attempts to balance the ne- cessity for recognizing individual achievement with the importance of emphasizing the integra- tive nature of business. By requiring that stu- dents work in teams for the entire semester, it continually puts cooperation at the center of students' concerns. Rather than focus on integra- tion for one section of the course, the integrative deliverables are spread across the course, with the Board of Directors presentation occurring fairly early in the term, the strategic plan toward the latter third of the course and the case analy- sis at the end. In this way, it continually rein- forces integrative concepts and requires that students revisit them throughout the semester. While the functional deliverables do reward in- dividual achievement differentially, the integra- tive deliverables constitute equal portions of all students' grades, reinforcing the key role of in- terdependence among teams and functional ar- eas. This study represents a first attempt to examine aspects of the LSS approach for their effect on how well LSS is able to foster an understanding of the importance of cross-functional integration in business settings within an academic envi- ronment. The results reported provide some promising evidence that this pedagogical tech- nique can achieve one of the key objectives of capstone courses in business curricula. Students exposed to the LSS approach appear to be able to recognize specific functional issues while also understanding the necessity of fitting them into the demands of the larger organization. LSS appears to represent a teaching methodology that can help business schools produce gradu- ates who are better able to make significant con- tributions to their future employers more quickly. Students appear to emerge with a solid capability to see both the forest and the trees. REFERENCES Barney, J. B. (1991). Firm resources and sus- tained competitive advantage. Journal of Man- agement, 17, 99-120. Dearborn, D. C., & Simon, H. A. (1958). Selec- tion perception: A note on the departmental identification of executives. Sociometry, 21, 140-144. Hemmasi, M., & Graf, L. A. (1992). Managerial skills acquisition: A case for using business policy simulations. Simulation & Gaming, 23(3), 298-310. Janis, I. (1972). Victims of Groupthink. Boston: HoughtonMifflin. Parente, D. H. (1995). A Large-Scale Simulation for Teaching Business Strategy. In D. Crookal & K. Arai (Eds.), Simulation and Gaming Across Disciplines and Cultures (pp. 75-82). Thousand Oaks, CA: Sage Publications, Inc. Penrose, E. T. (1959). The Theory of Growth of the Firm. London: Basil Blackwell. Peteraf, M. A. (1993). The cornerstones of com- petitive advantage: A resource-based view. Stra- tegic Management Journal, 14, 179-192. Teach, R. D., & Govahi, G. (1993). The Role of Classroom Techniques in Teaching Manage- ment Skills. Simulation & Gaming, 24(4), 429- 445. 192 Table of Contents Volume 26, 1999 ABSEL's Historical Research Interests Back From the Future: An ABSEL Merlin Exercise for the Year 2005 The Contributions of ABSEL During the 1980's ABSEL's Contributions to Experiential Exercises in the 90's ABSEL's Contributions to Experiential learning/Experiential Exercises: The Decade of the 1970's Business Simulations - Algorithms and Model Enhancements: A 25 year Review A Study of the ETS General Field Test as an AACSB Assessment Tool and the Impact of Experiential Exercises and Simulation on Learning A Framework for Assessing the Competencies Reflected in Simulation Performance Developing A Learning Culture: Assessing Changes in Student Performance and Perception Financial Simulation Using Distributed Computing Technology Analyzing Managers' Judgements and Decisions with an Educational Business Simulation Understanding Your Business through Home-Made Simulator Development An Examination of a Reanalysis of the Impact of a Market Leader on Simulation Competitors' Strategies Applying Shocks to TE Simulations: A Demonstration Increasing Efficiency of Management Skill Assessment A Testbank for Measuring Total Enterprise Simulation Learning Developing Leadership Skills - Video Live! LEADSIMM: Collaborative Leadership Development for the Knowledge Society A Team Approach to Producing Multi-Media Laptop and Video Formatted Presentation Tinkertoys Revisited: Exploring Trust Based Relationships Overall Dominance in Total Enterprise Simulation Performance Success or Bankruptcy: The Relationship between Personal and Goal Orientation and Simulation Performance Assessing the Effects of Feedback: Muti-method and Muti-directions in Multi-pedagogical Courses The Missing Ingredients in Experiential Learning Purpose and Learning Benefits of Business Simulations: A Design and Development Perspective Building Capabilities for Change through Laboratory Simulations Modeling Innovation as a Process of Design in Educational Business Simulation The Need to Measurer variance in Experiential Learning and a New Statistic to do so Assessing Effectiveness of an Experiential Oriented Course Over Time Developing Participant Satisfaction Models of Experiential Exercises in Business Education Perceptions of Learning in TE Simulations Students' View on the Use of Business Gaming in Hong Kong Management Gaming's Lost Opportunity: Meditations about the Russian Experience and Prospects for the Future Unanticipated Enhancements in the Business Strategy and Policy Game when Running in Windows 95 Using a Business Game to Demonstrate Broad Business Concepts A New Model for Business Courses (Getting the Student Connected) Seeing the Forest and the Trees: Integrating Knowledge Using Large Scale Simulations in Capstone Business Strategy Classes Is It Here To Stay? A Roundtable Discussion of the Inter-Group Interaction Interactive Tools Used in Applying Financial Concepts Strengthening Essential Skills through a Finance Exercise: Calculation of Beta A Model of Currency Exchange Rates Understanding Currency Exchange Rates: A three-part Exercise Student Experiences in the World Intercollegiate Business Game Competition Student Experiences in the International-Collegiate Business Policy Game Competition Using Boards of Directors in Simulation Environments: Comments From Board Members Sharing Best Practices: Teaching Smarter, Not Harder Star Power: A Simulation for Understanding Power and Empowerment The Marketing Game: A Marketing Principles Simulation Alexander Islands: GSSM Tiny Business Simulator on the WWW Putting Strategy into Strategic Business Games Industry Analysis, Porter's Five Forces Model and Strategic Group Maps in the Business Strategy Game Simulation The Use of Concept Mapping to Improve Student Performance and Understanding of Strategic Management Concepts: A Comparison of Techniques Transformational thinking in the Organizational Behavior Course: The Use of Metaphor as an Assessment Tool Creation of a Virtual Learning Community for the Global Virtual Enterprise Project Inter Institutional use of Educational Resources: Joint Use of Management Simulation Games Business Insights: Theory and Practice with the Aid of a Business Simulation Progress: An Experiential Exercise in Development Marketing The ABC's of teaching the Theory of Constraints to Undergraduate Business Students Demonstrating Principles of Organizational Purchasing Behavior through an Experiential Exercise The Virtual Manager: A Different Simulation for Managing Complexity When the Rules are changing and Chaos Breeds Innovation: Recapturing the Value of Constructive Thinking and Play in Simulation Training The Pitfalls, and Potential, of Actual Events as Problem Drivers Using Business Games to teach Environmental Awareness and Green Management: The International Experience with the ENSIM Game A Review of my ABSEL-Related Work Simulation of Government: A Workshop Using GEO Creating Internet-Based Games Using Perl and JavaScript Who's on First? Exploring the Concepts of Problem-Based Learning, Experiential Learning, and Lifelong Learning Students Learn Customer Service and Selling while Conducting Research So You Want to Run an NFL Football Team–An Honors Interdisciplinary Project Supervised Internship: The Employer's Perspective Using Computer Assisted Simulation to Teach International Business Strategy: A Case of the Multinational Management Game (MMG) Multi-Cultural Experiential Learning: A Computer Simulation in China An Appreciative Stance on Diversity as We Move into the 21st Century: A Timeline Exercise to Identify Key Experiences in Good Work Relationships between Black and White Peers A Day in the Life of an Interactive, Real Time, and Internet Delivered Course: A Demonstration Comparing Internet Search Engines: An Experiential Learning Exercise Total Enterprise Simulations and the Internet: Assessing Student Perceptions and Preferences Teaching Accounting Information Systems in a Practicum Format Providing Experiential Learning in Accounting through a Field Study Payroll Project A Spreadsheet Based Business Simulation Game Computer-Behavioral Simulations Training for Project Managers Simulation Scenarios - Rationale and Illustration