A Study on the System Dynamics Modeling of
Business Technology Management Decision Support System
Yi-Ming Tu
Ching-Yee Young
Institute of Information Management
National Sun Yat-Sen University
Taiwan, R.O.C.
ABSTRACT
This paper is a research on the integration of system dynamics, protfolio and scenarios. The
prototyping is used in developing the system dynamics model which is focused on the activities of
business technology management . At here, we will discuss about the implementation and some
simulation results of the BTMDSS model.
Introduction
We majorly adopt three steps in the research. First, develop a system dynamics model which supports
the technology management activities . Second, combine the model with the portfoio analysis where the
portfolios play a decision making role in the model. Third, make a scenario analysis for the model and
conduct a decison making analysis.
First, the system dynamics model will be built by considering the environmental factors of market.
The major consideration of business's environment are strategic analysis, operational analysis and
resources analysis. And the industrial analysis, competitor's analysis , customer's analysis and products’
analysis will be considered in the environment of market .
Second, discontinuous decision loops will be built by applicaton of the portfolio analysis and
consideration of the technological environment. By completion of the combination, a base-run simulation
will be held by simulaton of the technoloy management decision support system dynamics model. The
simulation will show us the behaviors of this model.
Third, a simulation of the scenarios will be held for providing more informations in various
conditions. And then, we will discuss how to make decisions of technology management activites by the
assistance of the model. The research process is as show in figure 1.
Implementation of the Business Technology Management Decision Support
System (TMDSS) Model
The system model is constituted by four parts : decision , technology , market and business's
resources. The decision model is constructed by discontinuous feedback loops and the others continuous
feedback loops. Figure 2 shows us the construction of the TMDSS model.
Based on those different feedback loops , we could conceptually divide the model system into three
subsystems : strategic, information and environmental. The strategic subsystem contains the decision
making and decision analysis. The information subsystem contains the technology and business's
resources. The environment analytic subsystem contains the part of market. Figure 3 shows the
relationships of them.
Construction of the Strategic. Subsystem
Portfolio and scenarios are being applied as decision analysis tools in the strategic subsystem.
Portfolio (ie. Gorwth-Share matrix) which is proposed by the Boston Consulting Group (BCG) is
generally used in handling of the resources distribution. In the system, it will determine two other
strategies : marketing and R&D. The conceptual structure of portfolio is as in figure 4. The analysis of
scenarios will assist the model in detecting the possible changes of environment especially when in
complex. The conceptual structure of scenarios is as in figure 5.
Depending on the previous two decision analysis structure, we could construct the decision making
feedback loops. The R&D policy which contains two strategies - R&D people and R&D. The R&D
people strategy is majorly in determining the on-job education and average objective R&D people. The
feedback loop of R&D people is in the upper of figure 6 and the lower is the strategy of R&D.
Second, the marketing policy which is constituted by pricing and marketing strategy. The strategy of
pricing is majorly in determining the product's price and marketing is in determining the marketing
budget. The feedback loop of marketing policy is as in figure 7.
Market
Fi 1 System Dynamics Modeling Research Structure
of Business Technology Managemex Decision
‘Resource Distribution Policy
Portfolio:
Analysis
Market i Tedaslory
System ies
a
Anlyoe :
Saeting Poicy ee R&D Policy
Figure 3. Conceprual Sucture of Decision Analysis System
Business Resources
Figure 2 Construction of the TMDSS model
Lo
iowa Fined Variables of
‘Structure Change Indra)
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Figure $ Conceptual Stuctare of
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Strategic Unit Price of ‘Marketing Funds
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chnology sition Competitor
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oe sauge Tetoalog? Distribution of SBU
. (\. Life Cycle
Figure 7. Causal Diagram of Marketing Polcy
R&D Strategic V/-
te paar Sirategy of Burinesr
wy are Technology - Market gL
heals Life Cycle Groth ResSurce System
‘Strategic Position RAD Resource _ of een SBU
BU Strategies of SBU~S7
Marketing 4
Figure 6. Causal Diagram of R&D Policy
Innovation
Figure 9. Causal Diagram of Technology Development
Third , the resources distribution policy is majorly in determining how to distribute the business's
resources effectively. The resources of each SBU will be determined by the’ business's resources
distribution strategy and each marketing will determines their resources distributed to R&D and marketing
activities. The feedback loop is as figure 8.
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Construction of the Information Analytic Subsystem
There are two parts in the information subsystem - technology and business's resources. The
technology level of business is determined by four - product innovation, invention, production innovation
and technology transfer. The technology level will determine the strengthes of business's R&D activities.
And the technology transfer will be determined by the technology level in relative to competitors and the
industrial global technology level. The causal feedback loop is as in figure 9.
There are four kinds of business resources- people, production, marketing and finance.Technology
development and the policy of objective R&D people will determine the estimation demand of R&D
people which will influence the actually involved people. Besides, the actually involved people will be
determined by people martket's supply and the departure rate of R&D people. Technology development is
determined by the successful rate of R&D which is influenced by the level of R&D. And the level of
R&D is influenced by the actually involved R&D people.
At here, two kinds of productivity are discussed- capital and labor. They will influence the amount of
production. And the amount of production will influence the unit cost of product and then influence the
amount of sales. The amount of sales will influence the R&D investment which determines the
technology level of production .As to marketing and financial resources, they are discussed in the section
of resource distrbution policy.
Construction of the Environmental Analytic Subsystem
The price and quality of product, marketing, and others’ competition are in the subsystem. In the loop
, market share will influence the amount of sales and product's unit price(refer to the pricing decision in
section 2.1). The amount of sales will influence the experience curve which is the basis of growth-share
matrix portfolio analysis. The experience curve determines the learning effects and then influence the
product's unit costs and the unit prices. And the prices competition is in correspondence.
In the model , we assume that the quality of product is determined by the technology level of
business. So , the strength of R&D will influence the quality of products. And the products’ quality is an
important factor of customer's purchase willingness.
Formulation of the Strategic Subsystem Model
We built up two strategic tables where one is of portfolio and the other is PDLC. The portfolio
analysis is divided into six identifications that called the strategic position. (figure 10) There are two
portfolio strategic tables, one is the R&D policy (figure 11) and the other marketing policy. (figure 12)
R&D policy includes the Strategies of R&D and R&D people. R&D strategy is represented with the
strengthes of R&D. And R&D people strategy is constructed by learning rate , learning period and
objective R&D people. Marketing policy contains the pricing and marketing strategy. Pricing strategy will
determine the prices of products and marketing strategy will determine the marketing strengthes of
business.
Strategic table of PDLC (figure 13) is built in reference to the portfolio strategic tables except the strategy
of R&D direction. A relationship is existed between the direction of R&D and the three stages of PDLC.
Those tables represent the strategies of businesses in the model and the simulation will give us the
different behaviors by the different strategies.
Simulation of the Business Technology Management Decision Support
System Model
Base-run is majorly providing us the fundamental behaviors of the model. And scenario analysis .
provides the behaviors of the model when the environmental factors are changed. The simulations will tell
us about the informations of the TMDSS model.
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4 Mnansier rer ‘Sundar
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Figurel2. Strategy Sets for Differeat Portfolio
Situations
Base-Run Simulation
L R&D Sumegics
}Suage of PDLC| * [Direction
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his [A -
omnes iddle ABC
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Asis Taacla >| low | tog | ofteanme
1. invention ; 2. product innovation ; 3. production innovation
‘At high ; B: middle ; C: low
Figurel3. RAD and Martet Policy Base on Life Cycle Analysis
The base-run is based on some assumptions, following are the important ones.
# Basic business datas: (1) Business operation period : begins from time 0
(2) SBUs of business : 4
(3) SBU's competitor : 1
# Decision related datas
(1) Strategies under portfolio
1, attractive market : build-up strategy, 2. question mark : offensive strategy, 3. star :
investment Strategy, 4.cash cow : defensive strategy, 5.poor dos : withdraw/transfer strategy ,
6.unattractive market : transfer strategy
(2) R&D policy : figure 11
(3) Marketing Policy : figure 12
(4) Resource distribution Policy : fully supplied
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# Technology related datas
(1) Level of technology init =100
(2) Rate of successful = Level of R&D
(3) On-job education period/rate : by R&D policy
# Market related datas
(1) Market situation
Year [1 2 3 4 5 6 7 8 9 10
Growth Rate | 0 0 0.12 0.15 0.2 0.25 0.32 0.35 0.05 0.025
Stages | development : 1 - 2 embryonic : 3 - 4 growth : 5
| mature: 7-8 aging : 9-10
(2) Market Stage of each SBU (year) .
SBU1:3 ; SBU2:5 ; SBU3:7 ; SBU4:9
(3) Demands of Market
SBU1 = 100000 ; SBU2= 130000 ; SBU3= 200000 ; SBU4 = 390000
(4) Price of product : by pricing policy
(S) Cost of product : by experience curve
(6) Quality of product : by standard of technology
# Competitive related datas
(1) R&D policy : figure 13
(2) Level of technology init =100
(3) Cost of product : by competitor's experience curve
(4) Quality of product : by level of competitor's technology
Figure 14 shows the strategic positions of each SBU from time 0 to time 10 (year), Strategic
Position is a reflection of each market SBU's situation for market and competition. Besides the strategic
positions of each SBU will determine the strategies which influence the model behaviors.
Figure 15 shows the technology changing rate for each SBU. Technology change is influenced by the
strategies of R&D which is determined by strategic positions. So , we can find that the strategic position
of question mark or star results a more higher changing speed. And the strategic positon of cash cow or
poor dog results a lower changing speed. At last, the changing speed of unattractive or attractive market's
position will be in the middle.
Figure 16 shows the R&D directions of SBU1. The directions of R&D is determined by PDLC.
According to the stages of PDLC , the major directions of R&D are sequentially the product invention ,
innovation and production innovation. As to technology transfer , it is determined by the relative level of
technology. In figure 16, the stages of PDLC for SBU1 are embryonic , growth , mature , aging and then
development. So that the major directions of R&D are product innovation , production innovation and
then product invention.
Scenarios Analysis and Simulation
‘The analysis adapts four steps :
1, find the uncertain factors that could influence the model behavior
2. modify the model based on the uncertain factors
3. simulation
4, analyze the behaviors and make decisions
At first ,, we must find out the uncertain factors. The analysis of scenarios here will focus on two
phases - external and internal of industry. External factors includes the emergency of new technoloy , the
estimation of new technology and the changing of technology life cycle (TLC). Internal factors includes
four:
1. industry - attractiveness of industry , critical success factor , magnitude of marketing and
growth of industry
2. competition - current competitors and potential competitors
3. customer - market differentiation , purchase motivations and unsatisfied demands
4. product - the product life cycle (PDLC).
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Depending on those, we select the important ones (called scenario variable) which could influence the
model significantly. And then construct a scenario analysis table (figure 17) depending on the variables of
‘scenarios.
By modification and simulation we could gain the behaviors under scenarios, it will belp us analyze
the influences of the scenario variables and assist the decision making activities.
Figure 18 shows the model behaviors under the emergency of new technology. In figure 18 , we
assume that the emergency of new technology is at time 3 of SBU1 and time 5 of SBU2. The technology
changing rate of SBU1 and SBU2 are different when compared with figure 15. From this ,we could
observe the influences of new technology.
Figure 19 shows the R&D direction of SBU1 when the technology life cycles are changed. From this,
we could find that the R&D directions in different kint of life cycles (refer to figure 16).
The major objective of the model is to provide us about the imformation for strategy making
activities in various scenarios. In the model, the different scenarios are based on the combination of
various variables. By construction of the different scenarios , we could change the variables of the model
and run the model game and the simulation will give us more informations where the decision maker
could make more informed decisions.
Conclusion
This prototype model integrates the system dynamics , portfolio 'and scenario analysis . The
integration provides us not only a ‘method for construction of decision support system models , but also
provides a system model which could be applied of business in action.
By completion of the research , there are still some remaining topics that could be studied. First is the
extension of the model range. Second, the application of the model to business's T.M. DSS in active use.
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Cory J. P. 1989.Strategic Planning Process and Technology Management . International Jt. of
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Forrester , Jay W. 1968. Principles of Systems, 2th edition. Cambrige: Mass.
James M. Lyneis. 1980. Corporate Planning and Policy Design : A System Dynamics Approach. MIT
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Merten , P. , Loffler , R. & Weidmann , K. 1988, Portfolio Simulation : A Tool to Support Strategic
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