In the past two years the arrival of e-learning has caused profound changes in the way people learn and train, allowing them to do it anywhere, at any time. E-learning systems can reduce the costs of training in several ways: staff no longer need to be sent on classroom-based courses, more of them can be trained at the same time and internal courses can be made available to external marketing partners.

The first generation of e-learning systems used the web to deliver existing training material. Now a second generation is emerging - called performance, or business, simulation - in which what appears on screen during the course simulates real work. Trainees learn in a realistic environment, solving problems that are relevant to their work and receiving individual feedback from an artificially intelligent tutor.

This is prompting a change from teaching-by-telling to learning-by-doing, says Reinhard Ziegler, Global Head of Human Performance at Accenture. "People have been learning-by-doing for centuries. But in terms of business e-learning it is only now that the technology has become powerful enough to take a time-honoured form of learning and make it available to employees at the desktop."

The practical importance of this development is demonstrated by an example from Cisco, the network equipment company. Until the introduction in March of simulation-based exams, students could pass the Cisco Certified Network Associate course without touching a single router or switch, says Jürgen Ruthotto-Doubek, manager of the Internet Learning Solutions Group at Cisco EMEA.

"Like most of our competitors we used a multiple choice system where candidates go into the test centre and answer a selection of 120 questions taken from a database of 5,000 questions.

"But it is not so much knowledge we want to test; we want to test skills and experience." The new examination includes simulations, which model real-life networking scenarios and require test-takers to apply troubleshooting and problem-solving skills to deal with networking problems.

This highlights one of the key advantages of performance simulation - employers now know if their staff have attained a particular skill level, not simply that they have acquired a particular chunk of theoretical knowledge that may or may not be applicable to their work.

Companies that sell simulation-based training talk about transferring the principle of flight simulators for training pilots to the business environment. In a flight simulator everything happens in real time. As the pilot operates the controls, the plane responds.

In a business context, this makes performance simulation a useful tool for teaching technical and process skills. For example, a chemical engineer might learn how to operate a manufacturing plant by taking control of a simulated version. It is also useful for software engineers to learn and familiarise themselves with a new software tool, or get to grips with a new application without having to go near a real system or real data.

"It seems an obvious application, but historically most training on software tools involves a trainer walking students through the programme. This is tedious and the instructor never knows anything about the performance of a particular individual," says Mr Ziegler.

However, the analogy with flight simulators is only useful up to a point. In a context in which a particular action does not result in an immediate reaction, it no longer holds.

For example, it is more difficult to come up with a realistic simulation to teach a marketing manager how the complex interactions of various decisions will affect the performance of a brand or product over time. "Trying to provide meaningful feedback is very difficult because of the huge number of variables," says Mr Ziegler.

However, performance simulation is beginning to be applied to teaching supervisory or sales skills. For example, Accenture developed a customised performance simulation package to help BT upgrade the performance of its customer services and sales staff. By taking an approach that combined e-learning with simulation, the company was able to train 17,000 staff in 20 weeks. The programme doubled the rate of sales productivity and reduced overall training time by 50 per cent. In addition the number of BT customers who felt the customer service agents were "extremely knowledgeable" or "very knowledgeable" jumped by 20 per cent.

Customised performance simulation systems such as these consist of three components. The first captures the business processes in software, while the second is provided by the artificially intelligent tutor. The tutor is clever enough to provide coaching on specific actions, and reacts to suit the individual's learning path and pace.

The third component is the reference layer, which provides links to various resources, such as video clips of employees recounting their experiences and the lessons they learned. If a student is struggling with a task, he or she can launch these clips; otherwise they may be automatically launched by the intelligent tutor when it detects a student experiencing a problem. The reference layer also includes links to relevant databases and glossaries, where what is traditionally regarded as course content resides.

Customised systems such as these have been available for the past five years, but they are expensive. Now rapid growth in the e-learning market means authoring tools are becoming cheaper and off-the-shelf training packages are starting to incorporate simulations. Performance simulation is about to become a mainstream training tool.