The Advantages and Disadvantages of Simulation

By Greg Silverman, Nov 23, 2020

What if your business could test its strategy in the current market without experiencing the consequences of a misstep? 

Business simulation software empowers organizational leaders to test their ideas and gain experience in a risk-free environment. This highly engaging tool helps teams accelerate strategic change, which is something that is increasingly helpful as most transformation efforts fail, according to Forbes.

In the modern marketplace, where uncertainty is the only guarantee, business simulation is the sole way for organizations to harness the power of prescriptive analytics to optimize their strategies. 

The three ideas behind business simulation software

Gartner’s definition of simulation is “The use of mathematical or computer representation of a physical system for the purpose of studying constraint effects.” At its core, business simulations allow teams to test their ideas, especially in regard to their marketing, in a controlled environment. As they see how the market will react and receive recommendations for how to optimize their plan, they are able to improve their strategy in real time. 

There are three meta ideas behind business simulation software that make it a powerful tool for organizations to utilize, they are: 

1. Integrated data and ideas

Simulation brings all of an organization’s data together on one platform. This provides users with a unified view of all internal activity alongside current market conditions and consumer activity. Businesses take their existing insights into brand research and syndicated data to the model that will work to fill in the missing pieces 

2. Unified analytics

A simulation platform brings together a variety of analytic methods to achieve the most actionable level of forecasting possible: Prescriptive analysis. Having every analytics capability in one place gives businesses the information they need to improve their decision-making. Think of it this way, yoga means union, and business simulation software is the yoga of the analytics world; it brings everything together to help teams validate a strategy with the most favorable outcome.

3. Software capabilities

Simulation is an engaging, collaborative activity. It’s a move away from the siloed and manual process of trying to organize thoughts to a digital platform that consolidates ideas and delivers quick results. 

Concentric Market is the standard of business simulation for prescriptive analytics. As an in-house platform protected by a business’s internal firewall and utilized by an entire enterprise, it helps organizational leaders make better, faster decisions for everything from product pricing to promotions. 

The complete advantages and disadvantages of simulation

Like with any business tool, there are both advantages and disadvantages to simulation. Here are the seven you need to know about:

1. A complete view of the market

Advantage: Simulation offers calibration of the entire market, not just one brand. Without a complete view of the market and those in it (their brand, the competition, alternatives and consumers), businesses are creating a plan without anticipating how these players will react. Only simulation creates a twin of the market and the people in it for business to test their strategies and obtain valuable insights to turn into action.

Disadvantage: Market-centric simulation requires executives to relearn strategy development in a way that is able to be quantified. They must be transparent about the information and resources they already have to see where there are gaps to fill. Sometimes this means procuring competitive intel and committing more funding to areas they haven’t already (such as analytics). 

The Advantages and Disadvantages of Simulation

2. Provides what-If forecasting

Advantage: Businesses need simulation to utilize prescriptive analytics. As discussed previously, the unified analytics platform builds upon an ascendency model to provide businesses with the most valuable information: Recommendations based on predicted and prescriptive outlooks. A simulation doesn’t just tell users what could happen in the market but gives insight into how to get there.

Disadvantage: This level of analytics requires more integration between product teams, marketing and finance departments. Everything should flow from the CEO’s profit goals so businesses have unified goals that prescriptive analytics helps them reach.

3. Data drives decisions

Advantage: A simulation platform integrates disparate data sources with different periods of collection. This helps businesses receive the most from their information while reducing the friction that would occur when using siloed information.

Disadvantage: Business leaders must be ready and willing to bring all of their data sources into one place. This requires collaboration and preparation beforehand to ensure everyone is on the same page.

4. End-to-end solution prescriptive strategy solution 

Advantage: Many diagnostic tools are used to solve both people and process problems for the best results. These solutions are automated so they are easy to use and work efficiently. 

Disadvantage: Businesses must have internal capabilities to create these models and utilize these diagnostic tools. They should have some expertise around model building and either an existing infrastructure in place or the willingness and resources to create it.

5. Acknowledges current market conditions

Advantage: Simulation of this caliber provides business users with near-time answers to their what-if scenarios. This means the results are relevant to current market conditions. The model is easily adjusted to accommodate new environmental and consumer shifts to ensure results remain accurate. 

Disadvantage: Businesses must be prepared to update their processes to meet the demand of the model. Internal teams should be collecting new data and keeping tabs on the market to update information that will make the model more accurate for the current conditions.

6. Build an internal laboratory

Advantage: With simulation, businesses have their own internal laboratory to test their strategies. By running what-if scenarios in it, they see which plan offers the best results across a number of metrics.

Disadvantage: Cross-functional collaboration is necessary to achieve the best results. Internal teams must be ready to share information and agree on goals before running the scenario.

7. Dynamic dashboarding

Advantage: Inputs and outputs flow from the company dashboard to constantly search for the best analytics in the firm. Citizen data scientists are able to use the customized dashboard to sort data and make faster decisions. 

Disadvantage: This requires a fundamental business model that teams participate in and existing business intelligence tools to leverage.

As your business works to overcome these disadvantages, your team harnesses the full power of prescriptive analytics and simulation to make better, faster and cost-effective decisions even in an uncertain market.

To learn about the advantages and disadvantages of simulation in more detail, download our eBook today.

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