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Family Business: Can Simulation Software Really Help?
An Executive Summary from 'The Family Business School'
Nothing benefits an entrepreneur like being able to look into the future. Just imagine if it was possible to do just that in your present business. Why, you’d certainly reap great rewards if you could anticipate what is going to happen.
Actually, you can. Thanks to advances in technology, there are now software applications that allow a company to look into its future – business simulation.
Business simulation looks into the future by simulating the business environment and analyzing the possibilities. Through analysis of data, the business is able to anticipate manufacturing and marketing conditions and form conclusions about future productivity.
Through business simulation, a company is able to prepare adequately for a rainy day or a rainy season, so to speak.
There are four key facets of business simulation:
· Data Warehousing
· Business Analytics and data visualization
· Data, Text, and Web Mining
· Business Performance Management
Primary Objective of Business Simulation
Business simulation provides a decision-maker with an intelligent platform from which to make decisions. It identifies the key competencies and best practices of employees that contribute the most to business success and disseminates this knowledge throughout the organization. This aspect of business simulation is known as “knowledge captivation” or acquiring effective solutions for various situations.
Knowledge captivation helps people to get to the most effective solutions in the shortest time possible because it records the best way a situation or problem was handled in the past. Companies need to focus on situation-based solutions rather than ready-made stereotypes that go in and out of fashion and may not be appropriate.
The Need for Business Simulation:
A day spent waiting for operational data to load into the data warehouse is a day too long.
In simple terms, Data Warehousing refers to a company’s physical filing system, how the data is organized and how it is made available enterprise-wide. Although much of this data has no immediate application, they provide important nuggets of information that organizations can process to make predictions that affect policy.
As more information is stored in the data warehouse, the number of users needing to access this information continues to increase.
Data warehousing has the following merits:
· Allows end users to perform extensive analysis
· Allows a consolidated view of corporate data
· Better and more timely information
· Enhanced system performance
· Simplification of data access
· Enhance business understanding
· Enhance customer service and satisfaction
· Facilitate decision making
· Help in reforming business processes
Business simulation shows how the business will react to changes in the marketplace, track how different strategies will work under these conditions and reveal patterns that will prevail over time. Since there are so many variables to measure in business simulation, using business simulation software is essential to keeping all the layers of information in synch.
Thanks to the growing demand and competition in business simulation software, the software is now less costly to develop, maintain, and secure. Eventually, this software will allow data from the warehouse to be synchronized with other applications within a business.
Industrial applications of Data Warehousing products:
The three main processes in integrating warehouse data are data access, data federation, and change capture. When these three processes are correctly implemented, data can be accessed and made available to an array of ETL, analysis tools and data warehousing environments.
· ETL refers to the extraction, transformation, and loading of a data warehousing process. It consists of extracting data from a database and transforming it from its previous form into a usable form that can be placed into a data warehouse or into another usable database within the warehouse.
· EAI refers to Enterprise application integration. This technology provides a vehicle for pushing data from source systems into a company proprietary data warehouse.
· Enterprise information integration (EII) is an evolving tool and process. It is also referred to as a “space” which promises and delivers real-time data integration from a variety of sources, such as relational databases, Web services, and multidimensional databases.
When stored in a database, information is of no value unless it can be used to increase health, productivity or profit. Various kinds of business analytics and data visualization tools are now available to help business owners and managers make informed decisions.
When linked to simulation, business analytics can build theoretical rules-based applications quickly and deploy them into almost any operating environment. It supports old hardware and software (known as legacy systems) while combining business rules, predictive models and optimization strategies into newer decision-management applications.
Merits of Business Analytics
· Business analytics helps companies monitor their competitors’ attempts to acquire competitive intelligence. Such information gathering drives business performance by improving knowledge management, increasing market knowledge, and raising the quality of strategic planning.
· Business analytics provides scorecards that measure a company’s success in reaching their goals and objectives
Industrial applications of Business Analytics:
· Enterprise reporting refers to the gathering of information from across an organization and making the relevant information available throughout the company to aid in monitoring company performance.
· Cube analysis: An information system that enables the user to query the system, conduct an analysis, and so on.
· An enquiry that could not have been predicted prior to the moment it was issued can be processed through business analytic systems. This is sometimes referred to as an Ad hoc query.
· Report delivery and alerting: This tool can distribute reports through any touch-point either by self-subscription or by administrator-based distribution. Delivery on-demand, on-schedule, or on-event reporting can be arranged through this Business Analytics tool. There is also a facility to automate the personalized content.
· Data mining refers to using statistical, artificial intelligence, mathematical, and machine-learning techniques to extract and to identify useful information and subsequent knowledge from large databases.
Data is often buried deep within very large databases and can span several years; sometimes the data are cleansed and consolidated in a data warehouse.
Mining uses sophisticated tools to remove the information ‘ore’ buried in the ‘seams’ comprised of corporate files or archival public records; finding it involves massaging and synchronizing the data to get the right results.
The miner is often an end user, empowered by data drills and other power query tools to ask ad hoc questions and obtain answers quickly, with little or no programming skill. An Internet search engine is an example of such a tool, but the data mining tools employed across large organizations may be designed to provide far more pertinent information than may be obtained from a simple web search.
Data mining tools can be combined with spreadsheets and other software development tools; the processed data can be analyzed and processed quickly and easily.
Merits of Data Mining
Data mining enables organizations to find the “hidden” content of documents, including additional useful relationships. It is also able to group documents by common themes.
Products may be cross-marketed to customers identified as having bought related items. For example a customer who has purchased a fishing line may also be a candidate for a waxed jacket.
Promotional campaigns can be evaluated based on past experience and split testing. Different demographic groups may be fed appropriate electronic advertisements, ideally in real time, and their behaviour can be predicted based on their age, gender, geographical location and a host of other variables.
Industrial applications of Data Mining
Decision trees are a means of calculating the best possible outcome for a given number of choices. Decision trees are defined as a root followed by internal nodes. Each node (including root) is labelled with a question and arcs associated with each node cover all possible responses.
Past decisions can be evaluated and applied into new decision trees to be used for future planning.
· Text Mining: Text mining analyzes document content to detect e-mail spam or phishing (attempts to illegally access sensitive information, such as passwords, company records, and industrial secrets). Text mining can also automatically route e-mail messages to the most appropriate party to process the message.
· Web Mining is the discovery and analysis of useful information from the Web and about the Web, usually through Web-based tools. This is especially important considering that Internet usage has expanded from sixteen million in 1995 to 1,319 million by the end of 2007.
· Business Performance Management is a system that alerts managers to potential opportunities, impending problems and threats, and empowers them to react through models and collaboration.
Objectives of Business Performance Management:
The goal of Business Performance Management is to enact a companywide strategy to prevent organizations from consuming resources at the expense of overall corporate performance. It is also an incorporation of company technologies, applications, and techniques.
Business performance management is vital to strategic planning, operational planning, and financial planning and budgeting.
Industrial applications of Business Performance Management:
Dashboards and scorecards provide visual displays of important information that can be digested at a single glance (rather than as linear text) and easily understood.
For example, think of universal symbols denoting various amenities such as escalators or toilets in public locations. The pictogram, like a dashboard or scorecard, is instantly understood even by a foreigner. On the other hand, a written sign using Arabic, Chinese or the western alphabet is far less intuitive.
Business activity monitoring alerts managers to potential opportunities, impending problems and threats in real time and empowers them to react through various models and means of collaboration.
Business simulation software:
Business simulation software builds virtual companies in a virtual world and lets them compete under a range of conditions. These include software such as Powersim Studio 7, IndustryPlayer, Simul8 and Celcom21 -- software products that cater to different business needs such as real time markets, video tutorial, virtual consultant, sales agent, news ticker, corporate accounting systems, charting systems etc.
Capabilities of Business simulation applications:
These applications allow decision makers to examine a wide array of circumstances that influence the business and which normally would be difficult to define or anticipate.
Business simulation creates “What if-scenarios” that take account various business conditions as well as constant and variable factors that affect the business. “What if- scenarios” help decision-makers understand the consequences of certain factors on the company’s performance. It is like taking a peek into the future.
Companies and individuals can develop and explore alternative programs of action in a risk-free and controlled manner and see how they affect the business. By determining the path that leads to market dominance, the business has a decisive strategic edge over its competitors.
Since planning and strategic decision-making models are updated constantly, it is easy to see how the business performs under a range of different conditions and situations. Potential risks are brought to the surface and can be addressed before they become real threats.
Business simulation applications make it easy for key managers to understand the need for specific strategies and decisions.
Limitations of Business simulation applications:
At present, simulation software can’t link with business objectives. It cannot dictate what an organization should do under specific circumstances. It can only show the consequences of certain actions, but it cannot recommend the action that will lead to business success.
Furthermore, it is not possible to program specific simulation situations into business simulation software. For example, it is not possible to program a worker’s strike or a hostile takeover attempt in the application. For this reason, it is extremely difficult to evaluate the overall business performance based on the techniques utilized by any simulation.
For business simulation technology to be used effectively, widespread management support is crucial. In difficult economic conditions, company management might de-prioritize crucial simulation initiatives such as data warehousing and business analytics if these aren’t reflected in the real world.
To terminate such applications, is no doubt, a mistake since the collection of data, the prevailing conditions, technology and user interfaces will continue to improve. Data collected in adverse conditions will be as valuable to a business in the future as data collected in a boom.
The tools described in this brief report can only provide the savvy business owner with useful information, but qualified by its inability to predict political events. Business Simulation Software however remains a powerful tool to help family business owners to grow a company and harvest rewards for the family.
References:
Turban, E. and Aronson, J., Liang, T.P., and Sharda, R. (2007). Decision Support Systems and Business Intelligence Systems. Prentice Hall, 8th Ed, Upper Saddle River, New Jersey, US.
Turban., Leidner., McLean., Wetherbe. (2006). Information Technology for Management, John Wiley & Sons, 5th Ed.