Every few years, just like clockwork, Bill Biach would have a really good year. He'd reinvest earnings in a new marketing campaign, an extra salesperson or an engineer who added expertise to Biach Industries. Then every few years, just like clockwork, profits would plunge and force him to curtail his marketing efforts, lay off salespeople and furlough engineers.
Biach, whose father founded the 26-person, Cranford, New Jersey, industrial design firm in 1955, went through several cycles before seeing that the cause of the bad times was his reaction to the good times. "We didn't realize it, but we weren't managing these investments well," Biach admits. He'd hire an engineer with expertise in a new market, for instance, but fail to add salespeople with experience in that market. "After four or five years, we had this body of expenses we weren't getting anything from."
Biach gained this insight after modeling the company's boom-and-bust profit swings on a computerized business simulator. The software program used a mathematical model incorporating Biach's figures, such as costs and profit margins, to represent the way the company's policies would fare in the real world, and quickly revealed that although reinvesting in the business may have been well-intentioned, it was poorly executed.
"We realized we needed to be much more diligent about creating an expectation for those investments," says Biach, "monitoring what we were getting and stopping the expense if we couldn't get the results we expected."
It may seem obvious now, but Biach says he might never have figured out the problem without the simulator. Many other businesspeople are also learning that computerized simulations of their companies can provide a safe, inexpensive way to test theories, grasp the workings of complex systems, and reveal problems in communication and management.
Firms such as AT&T, Xerox and Sprint have spent hundreds of thousands of dollars creating complex simulations of their business environments. Smaller firms like Biach Industries are making use of inexpensive simulation programs that run on standard desktop computers. "I think it's just getting started," says James Ritchie-Dunham, president of Strategic Decision Simulation Group, an Austin, Texas, management consulting firm that has helped numerous large corporations and government agencies use simulators.
Mark Henricks is an Austin, Texas, writer specializing in business topics.