Practice Firm, an innovative teaching methodologies on business administration
Beyond frontal lecturing:
the Practice Firm, an innovative teaching methodologies on business administration
Bologna University, Department of Management
It is a shared opinion that it is necessary to widen the sphere of students’ knowledge and skills by introducing a new type of learning in university studies that accompanies the traditional methods founded upon frontal lecturing, in order to encourage a more active and participative role for students. Going from the classroom to the laboratory means practicing (albeit in a virtual way) running a company, getting to know it close up, entering into the way it operates, targeting the acquired knowledge and at the same time developing new skills, abilities and knowledge. Many scholars should thus take on innovative methodologies in which students are pro-active and are the focus, in a learning environment that through learning by doing, can promote the processing of acquired knowledge, the construction of new knowledge and an inclination towards problem solving and critical thinking. One of the most important teaching techniques based on learning by doing is that of simulation. Practice Firm is a didattical methodology founded upon the virtual reproduction of company processes, and creates a context in which there is a direct link between what is studied and how it is concretely applied, with the opportunity to try out innovative solutions in didactics and training in a corporate culture. Practice Firm (or Virtual Enterprise) concretely reproduces the modus operandi of a company in such aspects as organization, atmosphere, relationships and objectives. It encompasses the main corporate functions such as administration, human resources, marketing, and finance, in which each student operates with his/her own role and set of tasks. Virtual exchanges of goods and services with other simulated companies are carried out with the national and international networks to which the simulated company belongs. Thus Practice Firm provides business administration students with the opportunity to experience learning that is complementary to required courses. It also makes the transition from university to the working world less traumatic. All this is made possible by the fact that students have acquired direct knowledge of companies’ operating procedures and formal requirements and they have developed behavioral capacities such as group work, managing roles, assuming responsibilities, and handling internal and external relations, all fundamental aspects for students’ first approach to the working world.
KEYWORDS - Practice firm, simulation, Perting Srl.
Authoritative scholars of business administration from major Italian and other universities, noted the limits of teaching based exclusively on frontal lecturing as traditionally practiced in economics degree programs. The invitation to overcome the limits of the traditional teacher-student dialectic and try to anchor knowledge by engaging students in more active roles, is one of the most widespread issues in accounting education literature and publications.
This issue arises from an emerging awareness that modern societies are turning to universities with a demand that is now – more so than in the past - more strongly oriented toward developing skills that are directly targeted at rapid and easy integration into the working world.
Students’ competitiveness in accessing jobs presupposes additional skills beyond those that are traditionally offered at universities: not just knowledge, but knowing how and being able to do, in addition to developing the ability to work in groups, solve problems, effectively communicate, and be able to orientate oneself in increasingly complex contexts which are constantly changing and characterized by great unpredictability.
It is a shared opinion that it is necessary to widen the sphere of students’ knowledge and skills by introducing a new type of learning in university studies that accompanies the traditional methods founded upon frontal lecturing, in order to encourage a more active and participative role for students. Many scholars should thus take on innovative methodologies in which students are pro-active and are the focus, in a learning environment that through learning by doing, can promote the processing of acquired knowledge, the construction of new knowledge and an inclination towards problem solving and critical thinking. The International Federation of Accountants (IFA), in applying the International Education Standards (IES) for professional accountants, recommends student-focused teaching (moving the focus from teaching to learning) with the goal of encouraging students’ active engagement in the learning process.
Therefore it appears necessary to go beyond theoretical knowledge and develop the ability to interpret phenomenon, solve problems, and put knowledge into action; these are the particularly important components of the new portfolio of knowledge and skills that students should possess at the end of their educational process.
In this paper we propose to identify those didactic methodologies that can be readily used to facilitate the teaching of business administration subjects with a more targeted focus on the above-mentioned goals.
One of the most important teaching techniques based on learning by doing is that of simulation. This technique is based on a type of active learning in which students take on roles in complex situations that often reproduce reality. Students have to know how to solve problems, observe the results of their own actions and evaluate the effects of their decisions with feedback generated by the simulation itself.
“Thus interaction with the group is created, and the group takes part in an educational experience through a continuous exchange of input and feedback ” (Strati 2009).
2 THE METHOD OF PRACTICE FIRM
There is no doubt that among the simulation methodologies used in teaching business administration, company simulation stands out as one of the most useful. It is founded upon the virtual reproduction of company processes, and creates a context in which there is a direct link between what is studied and how it is concretely applied, with the opportunity to try out innovative solutions in didactics and training in a corporate culture.
Practice Firm (or Virtual Enterprise) concretely reproduces the modus operandi of a company in such aspects as organization, atmosphere, relationships and objectives. It encompasses the main corporate functions such as administration, human resources, marketing, and finance, in which each student operates with his/her own role and set of tasks. These tasks are carried out with a high degree of approximation to reality. Virtual exchanges of goods and services with other simulated companies are carried out with the national and international networks to which the simulated company belongs.
There are other types of simulation applied to business administration educational contexts, such as business games, didactic tools that aim to illustrate the complex system of corporate management to participants, enabling experimentation with decision-making processes and managing variables in a simulated context.
Another simulation methodology is role playing, which usually excludes administrative and management control functions; these methodologies are used without time limits and entail a concept of learning as an empirical process.
In contrast, company simulation is essentially characterized by the dynamics of relationships that occur on the level of the learning group (the participants in the course), which directly interacts with the outside, while professors and tutors mainly perform the functions of orientation and control.
Reproducing a company situation, its organization, its relational dynamics and managing the main administrative aspects all help students to know and understand companies in a direct way. Going from the classroom to the laboratory means practicing (albeit in a virtual way) running a company, getting to know it close up, entering into the way it operates, targeting the acquired knowledge and at the same time developing new skills, abilities and knowledge.
It is clear that managing a computerized accounting system for a financial statement is one thing, but it is quite another to know how to draw it up, which entails the ability to solve accounting problems, conduct analyses and evaluations, look at the company as a unified system, and finally have sufficient mental flexibility. In each of these stages the exercise of critical thinking and the habit of conceiving of the company as a system is stimulated. This is precisely where the level of quality stands out in contrast to traditional accounting methodologies: teaching students how to actually have a complete overview of company operations, the implications that each managerial aspect has for the entire accounting system and the balance sheet, and knowing how to consult and involve the various parts of a company in solving problems.
Likewise, managing and administering human resources becomes a less abstract concept if it takes place in a situation in which people are organized by company functions, with assigned roles, responsibilities and tasks. Usually it is the students, who in a simulated company take on the roles of “employees”, “collaborators” and “members of the company bodies” in the company. In this case they are expected to develop relationships, work in a team, provide a proper flow of internal information, and evaluate the results achieved compared to the assigned goals.
Furthermore, regarding the administrative aspects of personnel, in simulation different types of existing contracts are used, as well as the current retributive system with all the formal obligations that it entails. In sum, a decisively professionalized approach which involves not only knowledge of human resources but also legal and fiscal aspects.
In the same way, marketing is no longer just a creative theoretical exercise, but when applied to the simulation of a real company enables students to develop operational strategies and choices. In addition, by using the web participants can try out more innovative solutions to promote their company, grow sales and use the web in every aspect connected to customer and supplier relations.
We have cited some of the disciplines, the potential of which can be fully develop when applied in an experimental environment such as company simulations. The fact that these disciplines are anchored to operational situations means that students can benefit even more from this knowledge. This method can be extended to other disciplinary fields with the same goals and the same efficiency. Thus one arrives at an interdisciplinary type of training which can help students to order their knowledge according to a complex, yet unitary logic.
Various studies have demonstrated how the most effective way to learn is to experiment, since it enables students to “understand more complex situations and contents and cause-effect relations are rendered more obvious” (Ceriani 1996).
3 THE GOALS OF SIMULATION
Virtual enterprise is certainly an optimal educational framework for developing these relationships due to the following:
• Constantly changing situations arise, originating from the continuous flow of information in managing a company. The problems to be addressed change as operations are carried out and continuously pose problems that students must solve and results must be evaluated;
• The environment does not carry concrete risks, but the fact that it is plausible makes it no less stimulating. This kind of protected environment is appropriate for training students to make company decisions and measure the decisions taken. Errors that are made are considered “formative” in the sense that they help students to evaluate their own abilities differently, and to experience less traumatically the limits of choices made and to understand that an attempt to overcome failure is in itself a source of learning. This experience requires a high degree of students’ involvement in interpreting their own roles by carrying out the tasks assigned, responding with their own actions to the other students, with whom they have to guide the virtual company. All this requires a spirit of collaboration, teamwork, comparison, dialogue, and decision-making ability. Simulations based on teams thus have the added value of forcing students to confront group dynamics, just like in real life. Students make decisions and verify the results of their decisions in the answers of the other students within their own simulated company and/or in simulated companies which belong to the same network.
• The model is flexible and thus variations can be made in the complexity of the operations as well as measuring competencies and abilities acquired during the course of the training period. In other words, the simulations provide students with a temporal dimension as well as the opportunity to test results which can change based on their input over time;
• With company simulations it is possible to develop distance learning and support activities for the start-up of new simulated companies, actively assisting their activities. These aspects are carried out in the framework of international projects for cooperation between educational institutions, mainly universities.
Simulation also changes the timing of the educational process. In other words, the method overcomes the linearity of learning based on a succession of theoretical notions to be acquired sequentially, instead moving towards a generative type of learning, applying non-preordained disciplinary contents, linked to solving problems created by company operations.
Furthermore, it is necessary to consider that the simulation game features typical aspects that can facilitate the process of knowledge acquisition.
Let’s see how.
Repeating operations. The continuous repetition of modes of working helps students to consolidate their acquired competencies and use them more confidently.
Interaction in the learning process. The variety of tools available for use in the simulation enables students to not limit themselves to just one learning capacity as they acquire knowledge.
Group work. It is well known how the cooperative climate instilled in group work, and how the relationships that are created between the group’s components, if well managed, can have positive effects on the learning process. For this to occur, good leadership is essential, as well as determining the goals to pursue, the method of comparison, listening to different opinions and the final synthesis. From this point of view, company simulation enables students to participate in a project (the company mission), in an environment that stimulates common action, and allows students to perceive the objectives of their engagement, all decisive factors for creating motivation for learning and generating interest in the activities to be carried out.
Individualization of the training process. Each student has to learn to handle his or her own role within the company. This occurs in the office or department in which the simulated company is organized. Students carry out their defined tasks for each single job, with the duration of their job linked to the achievement of preset goals. At the end students move to another job, changing offices or departments. The purpose of this rotation is to provide the student with an overview of the whole company in its organizational articulation, to undertake multi-faceted training and to comprehend the company environment in which his or her own abilities and talents are best expressed (Gualdi 2000).
We began by pointing out how all countries’ economies have for some years been going through a profound process of technological innovation which requires a new type of learning in order to develop new skills and types of intelligence. In addition, in human resources training it is fundamental to acquire knowledge based on creativity and synthesis.
If we think about the quantity of information that can be accessed in various ways at any moment thanks to digitalization, there is no doubt that it is necessary to teach students how to take advantage of this, how to master it for one’s own purposes and above all for those of managing a company. Likewise we have also shown how developing creative intelligence is a fundamental part of a company’s success as well as each individual’s professional success. This means orienting learning towards innovation, and facilitating the emergence of new ideas and new ways of thinking.
In this regard company simulation is proposed as a methodology that makes didactic innovation and the transmission of unconventional knowledge its centerpiece.
4 COMPANY SIMULATION AND ITS APPLICATIONS
The flexibility of the company simulation methodology makes it possible to introduce it in a completely new way in university courses, different from similar methods carried out in other educational contexts. Interested students need to be oriented in the methodology in a professionalizing way, moving the focus of the lessons and activities to company strategies, and adding functions like management, programming, control, marketing, finance and administration, areas in which students can try out company management. In other words this type of management is much closer to the problems that management has to deal with in the executive stage of operations, which must be present in company management. Students who will manage an enterprise are selected based on the results of their previous courses and are assigned to company functions and tasks after careful examination of their resumes and a personal interview.
A simulation begins with the following stages:
• Drawing up a business idea
• Transforming the idea into a project
• Verifying the project’s feasibility
• Transforming the project into a business plan
• Choosing the most suitable legal form
A brainstorming session among students is the starting point to stimulate the creativity that will serve to draw up business ideas, and with these, the purpose of the possible activities. In general several proposals emerge which should then be examined for their feasibility, their coherence with the student team’s cognitive resources and the situation in the target market. While the business idea is the starting point, which will lead to choosing the product or service at the base of the entrepreneurial project, the business plan is the most suitable administrative to represent entrepreneurial development and predict expected results.
Once the business sector in which the company operates is chosen, as well as the market segment and products or services, we proceed to the formal set-up phase with the help of external professionals who will draw up the formal deeds required by the current laws in force.
Before proceeding with the trade of goods and services with other simulated companies in the network to which the company belongs, it is necessary to plan the company’s activities.
In addition to the business plan, planning is carried out on the following levels, the most important of which are listed below:
a) Designing the organizational structure and personnel management
b) Company marketing plan
c) Implementation of a computerized accounting system
d) Financial planning
The task of organizational design is to identify the best company structure or the formal system of tasks and relationships that control the way people cooperate within the simulated company in order to achieve the goals set out in the plan.
The simplest and most intuitive form is the hierarchical-functional one which has the advantage of dividing work by macro functions, and then defining specializations that are necessary for the company’s mission.
Organizational design occurs on two levels:
a) The macro structure, which sets up the aggregation of positions in higher level organizational units, defines the criteria for groupings or specialization, the number of levels and the breadth of control, the difference between staff and line organs and the description of authority relationships between the various company organs;
b) The micro structure, which indicates the jobs and thus defines the tasks given out by human resources and the decree of discretion assigned to them.
In a simulated company’s organizational chart there are at least three company functions: administration, marketing, and human resources. Others can be added based on the company’s organizational needs. The assignment of students to company positions should be prepared with a personnel selection plan aimed at ascertaining students’ aptitudes and competencies for carrying out the required jobs. In this process it also necessary to evaluate candidates’ leadership characteristics, since some of them will be asked to take on roles of responsibility. The directors of functions should coordinate their own structures, report to the CEO and plan company activities along with the other functional directors in order to share the budget objectives.
It is well know that functional organizational hierarchy manifests its limits when placed in an environment exposed to rapid change, which in this day and age, in contrast to the past, is the status quo. Moreover, it is poorly suited to the circulation of ideas and information, vertically and horizontally. For this reason, alongside traditional hierarchical structures, operating systems based on networks can be employed to redefine and implement new company strategies, thus engaging the students in research and the quest for innovative and shared ideas.
One of the most efficient ways to redesign company organization in this sense is the so-called dual structure elaborated by John P. Kotter. (2012). This design entails a second organizational chart alongside the hierarchical functional one that operates like a network, composed of people from different company functions, who have the task of putting forward creative competencies and interacting around the changes and innovation to be implemented in the company’s management.
There is always a “mother” company or tutor behind a simulated company, e.g. a real company operating locally which can provide its competencies, resources and knowledge to the students conducting the project.
The mother company’s presence is essential for at least two reasons: it is a fundamental interlocutor for judging the reliability of the operations carried out by the simulated company and for maintaining a continuous connection with the situation of local businesses.
Indeed, the mother company gives students the opportunity to get to know up close the business sector chosen by the simulated company. It helps to provide information about products and services to be offered, updates on ongoing technological innovation, and indications on how to handle commercial relationships with customers and suppliers on the simulated market. These suggestions are absolutely necessary for conducting business, in that one cannot ignore how companies concretely operate in reality, in this entrepreneurial project up to now only imagined by the students (Gualdi 2000).
5 PRACTICE FIRM IN UNIVERSITY
After 15 years and even though Virtual Enterprise is taught in just a few universities in Italy, we can make an initial didactic and scientific assessment supported by the experience of thousands of students who have participated in the courses.
There is no doubt that one of the first challenges faced was that of innovation. There was a need for new ideas in order to realize the didactics in university courses that up until then had been based on the traditional frontal mode of teaching. At the same time it was necessary to adapt a methodology that was already prevalent in high schools, to a university setting with objectives and methods suited to a target of more evolved knowledge.
It is exactly the methodology’s flexibility that has allowed Simulimpresa to be introduced at universities in a completely new way compared to other educational contexts: its goals encompass an approach aimed at solving company problems without neglecting the managerial aspects of company procedures.
At the same time regarding work habits and exchanges of goods and services between simulated companies, instruments, solutions and procedures should be adopted that are very pertinent to the professional atmosphere in companies.
Thus Simulimpresa provides business administration students with the opportunity to experience learning that is complementary to required courses. It also makes the transition from university to the working world less traumatic. All this is made possible by the fact that students have acquired direct knowledge of companies’ operating procedures and formal requirements and they have developed behavioral capacities such as group work, managing roles, assuming responsibilities, and handling internal and external relations, all fundamental aspects for students’ first approach to the working world.
Combined with this is the fact that students get a better perception of their aptitudes for certain roles and tasks, just like a test of one’s own strong and weak points in relation to objectives.
All this is the result of an educational process in which knowing and being able to do is accompanied by being able to comprehend approaches that enable one to behave innovatively in order to change ongoing situations.
As we have already shown, the utility of company simulations stems from the creation of networks of collaboration between similar situations that exist on a national and international level. From this point of view the course held at the Economics department in Forlì (University of Bologna) is exemplary. Through the simulated company “Perting srl” which operates in the field of consulting, it was possible to “support at a distance not only simulated companies but also the concrete start-up of real companies” (Gualdi 2000).
This is an example of how a virtual company can be used not only as an “educational game of simulation” but also to start up real companies. Obviously this type of support varies depending on the need, in the sense that since the company continues to carry out its own activities with real enterprises, the factors and complexity that enter into play are numerous, the analysis of the environment becomes more circumstantial, and the search for the necessary human resources and financing to start up a business certainly becomes more difficult.
Nevertheless, for students the operating instruments do not change, they just need to be oriented differently depending on the target. In other words, it is always necessary to make a business plan, a plant estimate, a strategic plan, and a company organizational chart, using the knowledge and competencies acquired in the experience of company simulation.
The various international projects that the Economics department of Forlì has conducted through the simulated company “Perting srl” with various transition countries in the Balkans such as Albania and Bosnia Herzegovina, and with emerging countries such as Russia and Kazakhstan, have provided the basis for entrepreneurial development projects “aimed at developing the necessary corporate culture and networking capacities to start up new entrepreneurial initiatives” (Tampieri 2009). Thus consulting has ranged from elaborating business ideas to feasibility studies and partnerships with Italian companies, to project analysis and start-ups.
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