Friday, September 14, 2007

1987 Marketing 'Flight Simulators for Business'

December 8, 1997 New York Times

Marketing 'Flight Simulators for Business'

At the Montreal offices of Canada's biggest phone company, visitors peering over the shoulders of the company's top strategists get a glimpse of what appears to be a computer game playing across their screens. If Bell Canada Ltd. is increasingly worried about the entry of competition into its local phone business, why are its executives playing computer games?

It turns out the on-screen villains are rival phone companies -- well, virtual imitations -- created by the software. And the puzzles they are presented with are questions like, ''What happens to my market share if a competitor lowers his price?''

In gaming sessions, as many as 50 players compete in a virtual world called Telesim, an elaborate telecommunications industry simulation created by Thinking Tools Inc. of Monterey, Calif. ''There is a winner and there is a loser,'' said Michael Park, Bell Canada's vice president for performance, whose job is to enhance the performance of the company through data base and economic analysis. ''And the winner is the team that comes up with the best shareholder value for our company.''

For example, last November when the Canadian Radio-Television Telecommunications Commission, the equivalent of the Federal Communications Commission in the United States, introduced measures to open up local phone markets, Mr. Park convened a session of Telesim to help executives brainstorm.

John Hiles, the founder and chief executive of Thinking Tools, describes his company's software as ''flight simulators for business.'' There are about 300 users of Telesim (which costs $100,000 to $200,000, depending on the configuration) at Bell Canada and the software is also used by Pacific Telesis, Bell Atlantic, AT&T and Sprint.

Another Thinking Tools simulator, called Project Challenge, is a simulation that lets project managers test complex projects to identify possible problems and solutions.

The challenges come in the form of virtual team members, software agents who come complete with attitudes (displayed by means of frowns or happy faces on lapel buttons), who might burst in to complain about someone involved in the project. Team members also represent skills and resources and may present solutions instead of problems.

Project Challenge is used by Comdisco, a computer leasing and consulting company, to teach project management to its consultants. The Pentagon uses it to teach students at the National Defense University.

Thinking Tools has designed custom simulators for Xerox, Andersen Consulting, the United States Army and the task force that put together the Clinton Administration's ill-fated health-care overhaul proposal. Prices range from $500,000 to $1 million.

Using computers to model reality is not new -- simulations were among the earliest computer applications and have been used by scientists, engineers and economists to study everything from the behavior of subatomic particles to the effects of tariffs on international trade. What makes the Thinking Tools simulators different from such conventional models is that they rely on a cast of virtual people -- software that simulates individual behavior.

Known as multiple autonomous agent technology, this approach seeks to reflect more accurately the workings of complex systems like markets or ecosystems by taking into account the random behavior of individuals and the choices they make. ''Essentially you have a bunch of tiny little actors running around, each one containing a repertory of behavior,'' Mr. Hiles said. ''That's how real-world systems get to be so surprising and complicated.''

In recent years, computer scientists, with cross-pollination from the physical and social sciences, have made strides in creating so-called artificial life inside a computer, in the form of software that exhibits biological rules: natural selection, reproduction and mutation.

Genetic algorithms can compete with each other in solving problems and can mutate by exchanging bits of code with one another, thereby evolving into forms that are increasingly adept at finding solutions.

Much of the research into artificial life, or A-life, is centered at the Santa Fe Institute, a privately financed research center whose sponsors include many Fortune 500 companies. The hope is that A-life will be a practical tool for many users, from multinational corporations to supermarket managers.

But thus far, Thinking Tools is the only company selling products based on the technology. And, while several major companies including Citibank, DuPont, Deere and the British grocery giant J. Sainsbury P.L.C. have invested in the research, it is unclear whether agent models, for all their promise, are yielding any bankable results.

One drawback is the cost: Thinking Tools' latest simulator, Think 2000, which is intended to help managers cope with the year 2000 computer problem, starts at $25,000; the cost of custom programs can reach seven figures.

As a result, Thinking Tools, which lost $1 million on revenue of just $20,000 in its latest quarter, has struggled to increase its sales. The company, which was spun off in 1993 from the Maxis Corporation, has recently shifted its focus from custom-developed simulators for individual clients to shrink-wrapped products like Project Challenge and Think 2000.

Still, the technology has attracted some prominent followers, including Esther Dyson, publisher of the influential computer industry newsletter Release 1.0, who also sits on the board of Thinking Tools. ''It'll become mainstream and you won't notice it's there anymore,'' she said.

These days, many people see agent-based modeling as a powerful tool for business. W. Brian Arthur and John Holland, researchers at the Santa Fe Institute, have built an artificial stock market populated with hundreds of investors. ''These little guys get smart by learning which one of their strategies works best,'' Dr. Arthur said. ''As they learn, they're changing around their strategies, which changes the nature of the market.''

Michael Schrage, a Massachusetts Institute of Technology researcher and consultant, said: ''You don't have to clone an entire human being and raise them from birth to get human behavior. We can get very important insights into how humans behave by imbuing agents with just a handful of very simple rules.''

Macy's, which is owned by Federated Department Stores, has commissioned an agent simulation of its retail environment to help it to better understand how things like promotions and sales affect planning issues like store staffing and layout. Coopers & Lybrand, the consulting firm building the Macy's model, is another sponsor of the Santa Fe Institute.

Some proponents predict that the technology will become more accessible within a few years, just as financial analysis using spreadsheets -- once esoteric and expensive -- has become virtually universal.

Dr. Arthur is more cautious: ''Yes, I do feel that this will be a major area in years to come. But we're still in the Wright brothers stage.''

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