Simulating the Solar Industry: A new interactive tool developed at MIT Sloan creates a virtual world for students to learn about competitive strategy and business

The flight simulator is available on the school’s public website, MSTIR

John StermanJohn Sterman, Jay W. Forrester Professor in Computer Science Professor of System Dynamics Director, MIT System Dynamics Group

CAMBRIDGE, Mass., June 3, 2010 — Imagine you are a senior manager at SunPower, a leading Silicon Valley-based company in the solar photovoltaic industry. You work in a dynamic industry – one that is growing rapidly, with intense competition from other manufacturers, large and small. You’ve just been asked to formulate the company’s competitive strategy, and now have some big decisions to make: how should you set prices for your solar panels? How do you protect proprietary technical knowledge? How will you pay for expansion?

This is the premise of a new management flight simulator and case study launched today on MIT’s Sloan School of Management open courseware website*. The flight simulator, an interactive model based on a system dynamics model, aims to help business students and faculty all over the world learn key concepts in competitive strategy.

“While relatively small today, solar has enormous potential to generate huge amounts of renewable, low cost, electric power and help combat global warming, and the solar photovoltaic industry is growing at more than 30 percent a year today,” said MIT Sloan Professor John Sterman, director of the System Dynamics Group, who designed the simulator.

“The fact that the industry is growing at such a fast pace, however, poses strategic challenges for firms and entrepreneurs: they have to constantly balance the quest for market share against the need for resources to invest in new technology. Using our simulator, students learn how to manage these challenges, and can transfer these lessons to other settings.” Sterman developed the model in collaboration with other faculty and leaders in the solar industry. The simulator is useful in a wide range courses, including strategy, economics, technology management, energy policy and sustainability.

In the simulation, users compete against other firms, simulated by the computer, and set prices for solar panels while at the same time reacting to different industry conditions and their competitor’s behavior.

Players strive to maximize their cumulative profits over the long run. But participants may also strive for other goals, such as reducing greenhouse gas emissions by maximizing the growth of the industry. “Players can experiment with different carbon prices and subsidies for solar to see how they affect the success of their firm and the overall industry,” says Sterman. “The simulator reports both the profits of the firms and the cumulative greenhouse gas emissions avoided by the installation of each firm’s solar panels.”

MIT Sloan’s main MBA course in strategy has used a prototype of the solar simulator for the past four years. In surveys MIT Sloan students say that the simulators are a great way to learn, and a lot more fun than traditional lectures and case study discussions. “Those tools have their place, but the deepest learning comes from experimentation and experience coupled with mindful reflection,” says Sterman. “However, long time delays between actions and outcomes mean we never experience the consequences of most of our decisions. When experimentation is too slow, too costly, or just plain impossible, simulation becomes the main—perhaps the only—way we can discover for ourselves how complex systems work and where the high leverage points may lie.”

The flight simulator is available for free on the MIT Sloan Teaching Innovation Resources website (MSTIR), which offers a collection of creative teaching materials developed by MIT faculty and students. The website provides case studies, videos, and other instructional resources at no charge to faculty and students — and anyone with access to the Internet — all over the world.

“It’s part of the social mission of the school, and MIT Sloan’s commitment to sharing knowledge to further management education,” says Cate Reavis, manager of MSTIR.

* The solar simulator may be found on the school’s open courseware website here: https://mitsloan.mit.edu/MSTIR/management-simulators/solar/Pages/default.aspx

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