Growth Dynamics in New Markets (eBook)

Improving Decision Making through Model-Based Management

Martin F. G. Schaffernicht, Stefan N. Groesser (Autoren)

eBook Download: EPUB

2018
John Wiley & Sons (Verlag)
978-1-119-12741-3 (ISBN)

Infos

An innovative simulation-based approach for strategic decision making when launching new products

Growth Dynamics in New Markets contains a dynamic case study and simulations that reveal what it takes to successfully introduce a product into a new market. Written by experts in the field, the text and companion website include a compelling simulation game and a variety of simulation models. Using the simulation game and computer models, readers are challenged to design and put in place a strategy about product introduction and competitive behavior. The simulation models build on each other to help to arrive at a comprehensive understanding of product uptake as well as market development and competitive dynamics. The authors present different approaches for enhancing the models and offer guidance for applying them to real-world problems.

This groundbreaking text clearly shows how to develop maps of dynamic systems, formulate candidate policies and evaluate them based on the simulations. It also reveals how to use computer simulations to understand what decisions could and should be made, when to make them and how intensive they should be. The authors present an interactive approach that:

• Contains an innovative combination of a case study, simulation game and simulation models for developing the skills to introduce a product to the marketplace
• Offers targeted questions that help to enhance the understanding of the material presented
• Presents detailed answers and solutions to a number or real-world business challenges
• Features video tutorials that explain how the simulation experiments are implemented and interpreted
• Aids in the development an action-oriented, pragmatic understanding of the underlying forces in business

Designed for students of business administration, management, industrial engineering, informatics, engineering, and public policy, Growth Dynamics in New Markets offers an innovative approach that combines the practice of dynamic reasoning and the use of simulation to design and test possible policies. 

Martin FG. Schaffernicht, Facultad de Economía y Negocios, Universidad de Talca, Chile.

Stefan N. Groesser, School of Engineering, Bern University of Applied Sciences and Institute of Management, University of St. Gallen, Switzerland.

Textauszug

PREFACE

Invitation to explore

We are inviting you on a journey to explore the different elements of introducing a product into a new market. You will assume the role of a manager responsible for successful product introduction while a competitor strives to do the same. Your potential customers are free to choose either of the products. How should you make your decisions given that you have a direct competitor acting simultaneously? Which strategies can improve your decision making in such a dynamic situation?

Remember, not only managers have goals, make plans, decide, and execute. This is what individuals do irrespective of their profession. What follows are a few general remarks to set the stage.

Making plans requires the ability to know where you currently are, where you want to go, and how to get from here to there. Maps or diagrams are helpful tools. There are many well‐known examples of maps. For instance, explorers developed maps to navigate through a geographical area or topological space.

The map in Figure 0.1 dates back to the year 1630. It was created to help navigators cross the Atlantic Ocean (‘Mar del Norte’) to the Pacific Ocean via the Strait of Magellan. At this time, ships sailed from Europe to the New World, and since navigators always looked in the upward direction, it was useful for them to draw a map and position East at the top.

Figure 0.1 A navigation map of the Strait of Magellan (Princeton University Library, 2016)

‘To navigate’ stems from the two Latin words ‘nāvis’ (ship) and ‘āgis’ (drive); it literally means to steer or drive a ship. However, that what we want to steer is not always a ship, and not all the maps are geographical ones. Architects and planners design maps of buildings or bridges. Systems engineers map information systems with databases and computer programs. Both architectural and information systems maps are construction plans for artificial, man‐made objects. Organizational consultants map, revise, and design business processes and organizational structures, thereby planning how different organizational members interact to carry out their work. In these cases, the maps represent structures, i.e. elements that are essentially static.

However, business managers are often confronted with situations, with or without a map, that defy their ability to anticipate what will happen. Imagine you are a corporate strategist. You must develop a plan for long‐term success and, thereby, need to anticipate the potential actions of your suppliers, competitors, and customers who have also developed their own plans based on their own goals and expectations about your actions. Such structurally interdependent situations are ‘dynamic systems’. A dynamic system consists of several interrelated components with different actors. The components and actors react to one another and have different reasons for influencing and altering the system.

One example of a dynamic system is the strategic planning of football (soccer) matches. The map in Figure 0.2 illustrates the movements a soccer team can perform when the opposing team’s defence players attack a player. The teams have opposing goals and the actions of one team decrease the level of goal achievement of the other team. Further, each team plans and decides its moves considering the respective previous and expected moves of the opposing team. Therefore, the soccer‐planning map not only illustrates structural elements but also considers past or expected moves.

Figure 0.2 A map for switching sides and keeping control of the ball in soccer

Managers are faced with even more dynamic situations: the ‘game’ they are in is not as well defined as football. Competitors, customers, and other actors are free to decide on their course of action. Let us assume there is a company: NewTel. It is about to introduce mobile phones – a durable consumer good typically used for 9–18 months – to a new market in the presence of one rival of approximately the same size. You are a top manager at NewTel and face the challenge of taking the necessary decisions to lead the product introduction to a success. Uncovering and developing a new market in parallel to your rival is the dynamic challenge at hand: both you and your competitor will strive to capture customers from the same population as quickly as possible. The customers, of course, are influenced by the actions of both companies in the market. The interdependency between you and your competitor in this limited market leads to a highly complex situation, where your decisions may easily generate undesired effects and dynamics.

Which factors should you include in your management map to successfully ‘navigate’ NewTel? How do you determine these factors? How will this map help you to make successful decisions? Since many of those factors will be changing, and at different speeds, you will need to know why and how quickly they are changing and how you can influence them through the decisions you take. What you need are tools for mapping and planning in dynamic systems. You need an approach to determine the relevant factors in messy situations, map their dynamic relationships and show immediate, as well as delayed, effects to determine their impact over time on the relevant outcome of interest. The simulation model‐based management approach will support you in this regard.

What will you learn?

You will learn how to develop maps of dynamic systems, how to formulate candidate decision policies, and how to evaluate them based on simulations. Moreover, you will learn to elaborate and use your own computer simulations to find out what decisions you could and should make (content of the decision), when you should make them (timing of the decision), and how intensive they should be (intensity of the decision). When reaching the end of the book, you will have an intuitive understanding and skills to master dynamic business challenges such as:

1. Self‐limiting growth: dynamics fuelled by word‐of‐mouth diffusion is self‐reinforcing and displays exponential growth until the shrinking population of potential customers limits growth. Overall customer growth follows an S‐shaped behaviour.
2. Obsolescence speeds re‐purchases: the product’s life cycle duration determines the relationship between current customers and new sales to potential customers.
3. Sell earlier, not more: advertising can increase purchases now by anticipating future purchases. It is recognized that a decrease in purchases will follow.
4. Sources of revenue: revenues depend on new purchases from customers who pay the sales price and current customers who pay the subscription rate. With a limited population, higher revenues from sales cannot be sustained without losing revenues from subscriptions, and vice versa. Your business model must state how you balance these two revenue streams.
5. Customer net value: advertising can require more financial resources than the value of the additional sales.
6. Double‐action of prices: an increase in prices leads to higher revenues from sales and revenues from subscription, but it also reduces the new sales and, therefore, the number of current customers paying the subscription, which in turn decreases revenues.
7. Relative attractivity: in rivalry situations, customers make decisions about purchasing and switching according to the price and the amount of advertising the company displays in comparison to its competitors.
8. Options for rivalry: companies can compete for potential customers or each other’s current customers. The levers used for each type of rivalry are different.
9. Competition versus cooperation: competing by lowering prices can lead to acquiring more new customers, but it also decreases the revenue per sale and monthly subscription, thereby reducing the market value. Moreover, it is likely to trigger a price war.

Each chapter guides you through applicable content and questions enabling you to develop these insights yourself. You will first arrive at answers and then elaborate on them while going deeper and deeper into the subject. Methodological concepts such as variables, causal links, and feedback loops will become your normal language, and you will develop and experiment with simulation models. These simulation models will allow you to qualify your answers and to pose new questions. In summary, the book prepares you to approach dynamic management problems in a systematic and consistent way. Moreover, you can use simulation models to reflect upon the dynamics of business and make better grounded decisions. At the end of this journey, you will be able to develop dynamic maps and use simulation models to reflect upon the dynamics of business for designing successful business policies. Such models serve the purpose of designing decision policies. When management relies on such policies, we refer to it as model‐based management (Schwaninger, 2010). This book is designed to help build several skills that belong or relate to the system dynamics competency framework (Schaffernicht and Groesser, 2016).

What are the components of the book?

The book consists of three components.

The printed text. This is the thread in your learning...

Produkt-Details

• Erscheint lt. Verlag: 17.4.2018
• Sprache: englisch
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Unternehmensführung / Management
• Schlagworte: Balancing Feedback and Goal-seeking Behavior • Betriebswirtschaft • Betriebswirtschaft u. Operationsforschung • Business & Management • Capturing Customer Dynamics Driven by Diffusion • Causal Diagrams Reveal the Causal Structure • Decision Sciences • Diffusion - A Regular Dynamic in Social Systems • Diffusion Is Based on a Network of Variables and Causal Relationships • Effects of a Limited Product Life Cycle Duration • Entscheidungsfindung • <p>Introducing a Durable Product in a New Market • Management Science/Operational Research • Qualität, Produktivität u. Zuverlässigkeit • Quality, Productivity & Reliability • Reinforcing Feedback and Exponential Growth • Statistics • Statistik • Structure and Dynamics of New Product Diffusion • The Concept of Life Cycle Duration and Its Effects on Customer Dynamics • The Effect of advertising spending • The Effect of Fixed advertising spending</p> • Theorie der Entscheidungsfindung • Tracking Accumulated Purchases and Accumulated Customer • Turning the Attention of Potential Customers to a Product • When the Two Feedback Loops Are Interconnected • Wirtschaft u. Management
• ISBN-10: 1-119-12741-6 / 1119127416
• ISBN-13: 978-1-119-12741-3 / 9781119127413