Business Simulations: Go Ahead, Bite Off More than You Can Chew!

Business simulations offer invaluable opportunities to bridge theoretical knowledge with real-world applications. In this context, Ana Leiderman discusses how game dynamics can lead to insightful decisions regarding subcontractors.

In a business simulation, teams often push boundaries, such as opting to sell more products than they can deliver. Why does this happen? Sometimes, it's an honest mistake driven by excitement. Other times, it's a deliberate strategy, and facilitators must identify teachable moments or manage the game's flow.

Some teams adopt an early strategy of securing large orders, believing their forward-thinking approach will support this. These teams benefit from lessons in cash flow financing and budgeting tools, often seeing their strategy succeed if they manage expansion correctly.

Conversely, some teams focus on outperforming others, prioritizing competitive edge over their own success. This energy typically emerges later in the simulation, with teams attempting to win customers at any cost, even if it means overpromising. Facilitators may need to enforce strict rules in final markets to prevent unfeasible sales. Many teams adjust once they realize late sales won't contribute to income until delivery, thus not enhancing their chances of winning.

Both scenarios highlight the concept of late order delivery and present opportunities to discuss subcontracting or third-party production, practices common among many brands today.

Subcontracting is appealing in the real world as it can lower costs and shift the burden of inventories and capital expenditures off the balance sheet, in exchange for a portion of the margin. Generally, companies that subcontract minimize risk through stringent control over their subcontractors. Establishing and managing these relationships requires time and resources, involving financial disclosures, audits, and close monitoring of capacity and key performance indicators like on-time, in-full (OTIF) deliveries.

However, companies may sometimes find profitable opportunities and push contractors beyond established limits. Contractors, eager to maintain the relationship, might rapidly expand capacity, risking failure to deliver. This can lead to unmet customer expectations, order cancellations, and financial strain on contractors, potentially driving them out of business. The company then faces the challenge of identifying and certifying new subcontractors.

This scenario underscores the importance of viewing subcontractors as partners in the company's success, rather than mere resources to manage.

Income|Outcome serves as a simplified representation of the real world, emphasizing key aspects and relationships while omitting minor details. Even if certain elements aren't modeled in full real-world complexity, participants' mindsets reveal their decision-making processes. Challenges encountered in the simulation prompt consideration of practical issues, allowing facilitators to guide discussions on how these matters manifest in their actual companies.

It's a game, providing a safe space to take risks and experiment with "What Happens If..." scenarios. Go ahead—the entire class will learn, even if it involves some laughter.

Ana Leiderman teaches extensively and distributes Income|Outcome in Colombia as "Ingresos/Egresos Colombia".

Interested in enhancing your team's decision-making skills through experiential learning? Contact us to learn more about our business simulations.

Note: This post discusses the application of Income|Outcome business simulations in understanding subcontracting dynamics.

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