Inner Mechanism of Corporations and How To
Incite Their Vigour
Qifan Wang
Xu Bo
School of Management,Fudan University,
Shanghai 200433, China.
ABSTRACT
In order to understand the inner mechanism of
corporations and incite their vigour, we create a model
which . provides us with the study of the development of
new product R&D and advanced technology absorption,
product life period, market promotion, the adjustment of
the length of working time, productivity and hiring qr
firing of workforces.
INTRODUCTION
This is the further study of the paper Analyzing the
Mechanism of Joint-Venture and Township Enterprises in
China. The difference is that in addition to the
analysis of mains factors such as market, productivity,
control of production capacity and working time
adjustment, we put emphasis on the research and
development of new product and advanced technology
absoption (include domestic and foreign technology) and
on the contrast between the original model and new
model. We aim at making a comprenhesive study of the
inner mechanism of corporations during the process of
corporations development.
THE FRAME OF THE MODEL
Figure 1 illustrates the frame of the model which is
mainly made up of three parts: sales and ordering
backlog, workforces hiring and productivity and the
adjustment of the length of working time, the adjustment
of production capacity, and the new product R&D and
advanced technology absorption.
1. For the sector of sales and ordering backlog, on one
hand, delivery rate determines revenue to sales which
determines the number of salesmen through the market
budget. On the other hand, according to the change of
delivery delay, customer ordering rate is adjusted.
2. %In the sector of production capacity adjustment,
production capacity is adjusted by the production
capacity adjustment coefficient which is concerned in
desired output and real average output.
3. Workforces are déevided into skilled workforces (OWF)
and unskilled wokforces (NWF). The NWF's hiring and
firing are determined by designed workforces
(DWF),workforces allowed by capacity facilities (AWF)
and workforces (WF),etc.
Finally, delivery rete is influenced by the adjustment
of the length working time (AWTL). AWTL is determined
by the desired output (DOUT) and normal product (NPROD).
Delivery rate (DR)is the product of normal product
(NPROD) and AWTL.
4. In Figure 2, budget for new product R&D and advanced
technology absorption (NPB) are devided into cost for
new product R&D (INP) and cost for advanced © technology
absorption (INI).The concept of product life reriod
says, generally, a product will go through three stages:
R&D stage, market benifit stage (earlier period and high
effect period) and withdrawing stage. But, there is
exception.If it cannot be accepted by the market, it
will jump over some of stages and be rejected by the
market. For the corporation as a buyer of advanced
technology, advanced technology absorpion will go over
the R&D stage and go into the market benefit stage
directly . Therefore, four level variables are NP, NP1,
NP2, NP3. New product adaption to market (ADAPT) is
determined by gq, ql, q2, q3 which are proportions of NP,
NP1, NP2 and NP3 over their sum, also by corporation
technical level (BTS) which is determined by science &
technology benefits (STR). Productivity is influeced by
BTS and determined the average wage of workforces
(AWAGE) which determines desired workforces (DWF).
BASE RUN
In the base run, we choose a type of corporations whose
market share is lower and whose competition status is
disadvantageous.
In the structure of the model, this is reflected that
the backlog cannot meet the demand of production
capacity, and that the number of appealed customers is
lower and there exists hidden unemployment. But the
corporation succeeds in adopting new product and advance
technology.
- 768 -
The results is shown in Figure 33. The number of
workforces declines at first, and then makes two S-
shaped growth. The sign of workforces' hiring and firing
rate (RWFHL) turns positive from negative at first so
that the number of workforces at first. The proportion
of NP1 over the sum of NP, NP1, NP2 and NP3 (ql)
increases at first. After about one and a half year, it
turns to go down. The proportion of NP2 over the sum of
NP, NP1, NP2 and NP3 (q2) decreases at first because NP1
increses relatively. In about half a year, it turns to
increase. In tow years it comes to its highest point
which reflects that the R&D achievement and advanced
technology products have been accepted by the market.
Thus costomer ordering rate (COR) has an S-shaped
growth. The adjustment of the length of working time
(AWTL)- also changes. At first it works in undertime
changing from decrese to increase, and then it changes
from work undertime to work overtime. At last, it
decreases to a stable value in work overtime.
POLICY SIMULATION ANALYSIS
1.Contrast of Basee Run and The Model without R&D
We have discussed the model in which the sector of new
product development and advanced technology absoprtion
is-not included. In this case, Hidden unemployment will
be eliminated with half a year. The number of workforces
declines at first, and goes up gradually. At last it
inclines to the number of workforces allowed by the
capacity facilities which will be made full use of. The
sign .of workforces' hiring and firing (RWFHL) turns
positive from negative at first so that the number of
workforces declines. within half a year. Then the
positive RWFHL makes the number of workforces an S-
shaped growth.
To analyze the reasonableness of the behaviors above, we
give a further discussion on hiring-firing rate from the
point of management and decision.
When AWF is greater than WF:
(1). if DWE<WE<AWF, the programme to decrease the
workforces is adopted. WF will incline to. DWF;
(2). if WE<DWE<AWF, the programme to increase the
workforces is adopted. WF will incline to DWF;
(3). if WF<AWF<DWE, the programme to increase the
workforces is adopted. WF will incline to AWE;
When AWF is less than WF:
(4). if AWF<WE<DWF, the programme to decrease the
workforces is adopted. WF will incline to AWF;
(5). if DWE<AWF<WF, the programme to decrease the
workforces is adopted. WF will incline DWF;
(6). if AWF<DWF<WF, the programme to decrease the
workforces is adopted. WF will incline to AWF.
To sum up all these programmes, if AWF>DWF, the manager
choose the goal of workforces' hiring and firing which
trends to DWF,if DWF>AWF, which trends to AWF.
In this case, coporation can improve some worse
conditions,but it has no motive force to cope with other
coporations.In the base run, things are different.
Whether new products is developed and whether new
product is accepted by market are very important to the
existance and development of the corporations. The
Figure 3 tells us the corporation succeeds in the
development of new product and wins in the market
because of the increase of the costomers ordering rate.
Futhermore, the number of workforces is influeced. not
only by workforces allowed by capacity facilities (AWF)
and desired workforces (DWF) but also by new production
adaption to the market.
2.Contrast between the Base Run and the Run in which
Product Refused by Market Figure 4 takes place when the
new product is not accepted by the market. First, the
corporation has to decrease the workforces and the
adjustment of the length of working time decreases in
work undertime because there exists hidden unemployment
and the backlog cannot meet the demand of production
capacity. In about half a year the proportion of NP1l
over the sum of NP, NP1, NP2 and NP3 (ql) begins to
decrease because the new product is not accepted by the
market. After half a year again, ql begins increase,
this means that new input in R&D plays the role. So, the
customers ordering rate (COR) has an S-shaped growth in
these changes, ql returns to the original level and does
not surpass. the original level. The adjustment of the
length of working time (AWTL) will meet the production
capacity and change up and down.
Contrast to the base run, we find out that whether the
new product is acceptéd by the market is an important
leverage to the success or failure of the corporation.
In the base run, new product succeeds in market
competition. The difficulties of the corporation, such
as hidden unemployment and disadvantageous competition
- 770 -
status that the backlog _cannot meet the demand
production capacity and that number of appealed
customers is lower, will be solved. fFuthermore, the
corporation will have an enduring moving force which is
the real vigour of the corporations
3. OTHER TESTS
To analyze the relationship between the structure and
behavior, we also conduct some policy tests such as
proper budget proportion for new product R&D and
advanced technology absorption, proper proportion
between new product and ordinary product, productivity,
etc.
CONCLUSION
In order to find out the way of developing of
corporations, we conduct a series of policy tests to put
forward comprehensive policies included as following:
1. The corporation should increase the input for new
product R&D and advanced technology absorption. About
10% to 15% of the sales profits investing into the new
product R&D and advanced technology absorption (include
the technology import) will be better. From the analyses
above, we have known the fact that new product R&D and
advanced technology absorption are the best way to
incite the vigour of the corporation.
2. There will be a proper proportion between the new
product R&D and advanced technology absorption. About
60% to 70% of NPB may be suggested to input to the
research and development of the new product, the others
to advanced technology absorption.
3. Relex restrictions of staff mobility patrly or
completely. Adjustment time for the staff mobility
should be kept within three to six months. If the
adjustment time is too short, it will be disadvantageous
to the stability of the enterprise. If it is too long,
it will be disadvantageous to the regular staff
mobility.
4. Average wage of workforces should increase slowlier
than prodictivity.Only by this way can enterprises
develop quickly.
5. New product research & development and advanced
- 771L-
technology absorption should meet the need of real
situation of market. Thus, the products will have a long
life in the market benefit stage and the corporations
will be given enduring impetus to incite their vigour.
The stable and coordinative development of corporations
depends on many other factors, but we believe that if
above policies are adopted, these corporations will gain
new vigour and their futures are prosperous. We
sincerely hope that the results of study will be
beneficial to the management and future development of
this type of corporations.
* A research supported by State Natural Science
- Fundation of China
REFERENCES
1. Wang, Qifan.1988. System Dynamics. Tsinghua
University Press.
2. Wang, Qifan and Xu, Bo. 1991. Proceedings of the
1991 International System Dynamics Conférence:
Analyzing the Mechanism of Joint-venture and Township
Enterprises in China. System Dynamics '91: 646-655.
- 772 -
Appendix
Productivity Sales & Ordering
bapacity ce
Adjustment Backlog
New product R&D Workforces Hiring,
oo A
and Advanced Productivity &
Technology Adjustment of
Absorption Working Time Length
Figure-1 The model's frame
INI ———______"- NT aa
vf Pine ait _ ‘ a
FPT + STR BIS ADAPT —€- NP3—
DRA .PROD PNB oT
AWAGE——»=-DWE PT
Notes:
NPB: Budget for new product R&D and advanced technology
INI: Cost for new product R&D
INP: Cost for advanced technology absorption
NT: Number of new product R&D items
NP: Number of advanced technology items
NP1: Number of products in earlier period of market
benefit stage
NP2: Number of products in high effort period of market
benefit stage *
NP3: Number of products in elimination stage
FPT:. und of now available technology
OT: Number of eliminated technology items
STR: Science benefit BTS: Technical level
ADAPT: new product adaption to market
PNB: Promotion ability of new product to market
DRA: Average production capacity
AWAGE: Average wage . DWF: Designed workforces
Figure-2 Structure of New product R&D and
Advanced Technology Absorption
WO450/350),°(9,400), 1,210,025, 0.495)
Notes:
C: Costomers Ordering Rate
W: Workforces
1: The Proportion of NP1 over the Sum of NP, NP1, NP2
and NP3
2: The Proportion of NP2 over the Sum of NP, NP1, NP2
and NP3
Figure-3 Base run
- 774 -
w(150,350), C(0,200), 1,2(0,0.4)
Notes:
C: Costomers Ordering Rate
W: Workforces
1: The Proportion of NP1 over the Sum of NP, NP1, NP2
and NP3
2: The Proportion of NP2 over the Sum of NP, NP1, NP2
and NP3
Figure-4 Behaviors for the product refused by market
CC BY-NC-SA 4.0