More than 50 executive MBA students stand in a circle in a Wharton classroom. On cue, one of them cups his palms downward under his lips, simulating a rabbit’s teeth, while two others who flank him hold their palms flat against the sides of his head, mimicking the animal’s ears. Then, in voices as loud as they can manage, the three yell: “Bunny! Bunny! Bunny! Bunny! Bunny!…” The shouting continues until the man in the middle–the “teeth”–points at a woman standing on the other side of the circle. Instantly, she becomes the bunny’s “teeth,” while the two people beside her become the “ears.” Again, their voices ring out: “Bunny! Bunny! Bunny! Bunny! Bunny!…”

What on earth is going on–a wild party game? Not quite. The exercise forms part of a seminar organized last month by ImprovEdge, a New York City training firm, which uses the techniques of improvisational theater for executive development. Weird as it might initially seem, the “bunny” exercise has a point. It forces all the people in the circle constantly to be on their toes–you never know when you might have to become the bunny’s teeth or ears–and to respond quickly, together with others, to a sudden development. As Frances Barney-Knutsen, a founder of ImprovEdge, says: “In business you often face situations where you have to think and act quickly. Improvisational theater is great at helping you learn how to do that.”

Barney-Knutsen, who is also a director of risk management in the New York office of a large global bank, was a founding member of the Purple Crayon, an improv theater group at Yale University. While participating in Wharton’s executive MBA program, she was struck by the similarity that management concepts such as teamwork and innovation seemed to have with the principles of improv theater. This inspired Barney-Knutsen and her associates–including Rick Knutsen, Mike Everett Lane, Lisa Jolley and Steve Bodow–to launch ImprovEdge in 1999. In addition to Wharton’s program, ImprovEdge has conducted its three-hour seminars for companies such as Bankers Trust (now part of Deutsche Bank), Capital One and Citigroup, among others.

One such seminar–in which a Knowledge at Wharton writer took part–began with the “bunny” exercise, which is an instant, high-energy ice-breaker. This was followed by a session in which all 50-plus participants had to pretend to pass an imaginary ball to one another. The catch in this exercise is that participants are free to define and redefine what kind of ball it is. Someone might view it as a baseball; another might change it to a football, or golf ball, or even ping-pong ball. To take part in this exercise, participants must keep their eye on the ball–literally and metaphorically–a state of mind that has its uses in business.

The group then broke up into five teams of 10 each and went through independent exercises. In one session, the team was given a project, and each team member had to say something that added to the project’s definition. The team is required in this exercise to greet all suggestions–even strange and inane ones–with a resounding “Yes!” Example: Your team makes vases. Each vase will be offered in bright colors. “Yes!” They will be sold in flowershops. “Yes!” The vases will double as paper weights and be sold through office-supply chains. “Yes!”

In another exercise, one team member starts telling a story. When the moderator points at another member, however, that person instantly continues the story from the point where the first person left off. Over time, this leads to the narration of very strange tales with unusual twists and turns, and inevitably leads to much laughter. Next, the moderator divides the team into pairs. Each pair serves, in effect, as a two-headed person. As the team bombards the pair with questions, each person in the pair replies with alternating words in the sentence. Example: If the question is, “How are you?”, the answer might be, participant A: “I’m,” participant B: “fine.” Since the pairs are chosen at random, the answers are often unexpected as well as hilarious.

Yet another session requires participants to imagine they are making a business presentation to say, a group of venture capitalists. The team gets a scenario to work with, and each individual’s role within the team is defined. When the so-called presentation begins, though, the prepared scenario goes out the window and the team is confronted with an entirely unexpected set of circumstances. For example, if the team members have been asked to pitch a concept for a real estate website to the venture capitalists, they might be told that the venture capitalists never invest in real estate. It is up to the team to rethink its strategy on its feet and come up with a coherent and possibly convincing response.

While some of ImprovEdge’s exercises are intentionally zany, others come close to a Dilbertesque reality that reflects much of what actually happens in many corporate settings. At the end of the seminar, however–which at times comes close to resembling a boisterous party–do these exercises actually teach anything valuable?

They do–in at least three ways.

First, amid all the fun and games, an interesting dynamic emerges. Members of some teams visibly support one another; in others, they challenge one another or a veiled one-upmanship develops that undermines their combined efforts. In both cases, the results clearly show, as they do in business situations. As Rick Knutsen, an ImprovEdge instructor explains, “Some people have a ‘Yes, but..’ approach, while others have a ‘Yes, and…’ approach. You can either be a spoiler or a supporter.”

Second, the ability to practice being innovative and team-oriented through such exercises is important at a time when companies are being forced to become more open and less hierarchical. So, too, is the ability to respond rapidly to unexpected developments a crucial trait. As many people now believe, the battle today is no longer between Big Business and Small Business, but between Slow Business and Fast Business.

Perhaps the most crucial reason to use improvisational theater as a method of training managers might be that it teaches a simple lesson: While preparation is important, spontaneity is even more so. “Most business situations require preparation,” says Barney-Knutsen. “Improvising is a complement to preparation. For example, in a jazz combo, all musicians must prepare thoroughly, but once they have mastered their art they riff off one another. It’s a balance between structure and chaos.”

This balance requires a mindset that rarely comes easily to those trained to manage. Letting go, yielding control, going into free fall, flying blind, trusting instinct–these are scary prospects, but nonetheless crucially important. When people–and companies–lose the ability to improvise, they can no longer innovate. And those who fail to innovate perish.

Note: ImprovEdge will present a one-hour seminar on May 18 at a conference organized by the Wharton Center for Leadership and Change Management.