Getting the Matrix Right: Effective Business Simulations

In our previous blog Test, Fail and Learn Safely, we described digital simulations as a way to better understand how your business might react to internal or external changes – without the inherent risks of performing experiments on it to find out. It’s an easy argument. After all, few people would suggest testing a new wing design by just bolting it onto a plane and taking off – even fewer would volunteer to fly the plane. The question you’re probably asking yourself at this point is “how do I create a simulation?” The one you should be asking is ”how do I create a simulation that matches my organization closely enough that it minimizes the risk of our proposed changes when we carry them out in the real world?” It’s important to understand those are two different questions. The answer to the first one is interesting. The answer to the second one is important.

Last time we promised to share what we believe are the essential capabilities for building a good simulation. This list is based on our experience helping our customers design successful digital transformations using our platform. It’s not exhaustive, but we believe everything on it is non-negotiable.

Knowing What You Need – And Why

First and foremost, whatever you’re simulating needs to be as close to the real thing as possible. “That’s obvious,” you’re probably saying, but nothing is so obvious it doesn’t benefit from being restated. Building a wind tunnel is a pointless exercise unless your replica wing is an accurate copy, and the wind tunnel can create real-world air flows. To accurately simulate your back office, you must first have a way of representing the current state, by which we mean processes, volumes (baseline volumes, transaction profiles, and the like) and resource levels. Capturing the inputs from your operation can be accelerated with tools, but you should consider whether they’ll provide the coverage you need. The ability to enhance the picture built from tools-based data gathering with the collective experience of your staff is invaluable to ensure you don’t leave any gaps that might render the simulation valueless. If you want to better understand the pros and cons of such an approach, read our blog Stuck in the Mine.

Once you’ve created an accurate model of your current state, you’ll play with it – to alter it in a wide variety of ways, to create alternative realities or future states. These might include running your as-is organization at a reduced capacity or using a different channel mix, or you might look at various degrees of operational transformation, or explore different business environments with a different regulatory regime. Just as you’d want to alter the strength of the wind in a wind tunnel, your business simulation must allow you to dial up and dial down the variables, both internal and external, that impact your organization’s performance

In the real world, change rarely happens all at once. Markets change over time; transformations roll out in phases. An effective simulation must allow you to not only create different alternative states but to explore degrees of change, enabling you to generate different versions of a particular future state and compare the results of different levels of intervention. This is essential to enable you to fine tune your transformation design and rollout schedule.

Since the whole point of the simulation is to investigate various types of “what if?”, it must enable you understand how different change scenarios will impact your organization’s key metrics, so you can draw comparisons, understand consequences, and evaluate tradeoffs. It must display results in a way that is both easy to interpret and compare. This is especially important if you’re designing a transformation and need to understand the optimum degree of change or you’re an executive working out the right change priority.

A good simulation tool must allow you to communicate as well as investigate. Results are of limited use if they’re available to an analyst and are hard to interpret or explain. Capabilities that facilitate communication and enable collaboration include:

• Dashboarding
• Notifications of changes – for example, when a new alternate state has been created and the simulation run
• Document output – to share results and enable collaborative cross-functional decision making

Finally, your simulation tool must be easy to use. It’s a means to an end, not a new business function. It should require neither coding nor an army of dedicated resources to create and maintain the current state model and all subsequent future state models. Tools which are easy to use are used frequently.

Although we’ve talked a lot about using simulations to help during the design phase of your transformation, you can also use it as a feedback loop during the execution phase. The same capabilities you used to determine which changes to make, will also help you track whether your transformation is delivering the anticipated benefits in the real world – and navigate any unforeseen course corrections.

Need to Have, Not Nice to Have

We believe business simulations are the most efficient and effective way of rehearsing how to cope with external disturbances and delivering successful change. They make transformation quicker and more likely to succeed. They enable greater resilience by reducing an organization’s turning circle for change. However, to build one you need a tool that ticks all the following boxes:

• Creates an accurate model of your current state
• Creates and compares alternative future states
• Visualizes the business impact of change in a way that is easy to interpret and to communicate to others
• Facilitates collaboration
• Is quick and easy to use without an army of specialist resources