Dealing with complexity in telecom: a system
dynamics approach for planning new services and
technologies
Esther Menezes, Giovanni M. de Holanda, Graziella C.
Bonadia, J odo Henrique A. Franco and R. Benetton Martins *
Fundacao CP qD?
(SP 340) km 118,5 CEP 13083-970
Campinas, SP - Brasil
www.cpqd.com.br
Keywords: systems thinking and system dynamics, telecommunications, service
planning methodology, business model
Extended Abstract
Nowadays, the telecommunications environment is drawn by a plethora of new elements and
driving forces, quite different from that of a few decades ago. Such elements and forces are
complex by nature and might be understood as the consequence of high competition,
deregulation, technology evolution and significant socioeconomic changes around the world.
The resulting telecom scenario is characterised by a number of new players, which
compound a rich value chain. The society, concerning users and clients, is demanding new
services and applications in such a manner that the telecommunications operators and
service providers have continuous challenges in order to attain needs and wishes with
adequate time-to-market.
Therefore, the conception and planning of such new services, and the subsequent business
modelling, are duty tasks in complex context as hereto mentioned. Several aspects should
be considered and all of them are subject to changes in time. Moreover, the requirement
specification of such new services should undertake a guideline of paramount importance:
the need of conciliating the benefits of all value chain players involved in the enterprise. From
a modelling point of view, the service and its business model may be described as non-linear
systems and made up of many interrelated elements.
In this sense, systems thinking and system dynamics establish an adequate and useful
approach. Systems thinking due to its inherent principle of considering multiple perspectives,
* authors for contact:
J 040 Henrique A. Franco: franco@ cpqd.com.br, Phone: +55 19 3705 6288 Fax: +55 19 3705 6833
Giovanni Moura de Holanda: giovanni@ cpgd.com.br, Phone: +55 19 3705 6565
Fax: +55 19 3705 6833
? 4 Telecom and IT Research and Development Centre
and system dynamics in function of being a modelling method able to deal with complexity,
non-linearity and feedback.
This paper aims at presenting a service planning methodology which has been adopted by
CPqD. Such a methodology includes systems thinking and system dynamics as an approach
for business modelling and for providing inputs to risk analysis. Besides, this paper shows, in
short, an application of such approach in modelling business alternatives for a telecom
service: an e-courier service.
The methodology
As shown in figure 1, the requirements capture can be described as the opportunity detection
procedures, which are based on the results of two activity branches: the technology
monitoring and the market information systems. When an opportunity is detected, the service
has its requirements preliminarily specified in order to allow the modelling process.
Market
information
system
Technology
monitoring
Figure 1 - Service planning methodology
The approach adopted in this process is the systems thinking and it is carried out by means
of system dynamics and computer simulation. The service and business models so obtained
configure the inputs for the risk and viability analysis, which, in turn, evaluate pros and cons,
threats and business opportunities, and the impacts that the enterprise may finally bring to
the players. All these analyses provide the means for evaluating the business alternatives in
terms of technical, market and economics viability. This work flow, including the
inputs/outputs relations, is shown in figure 1.
There is an iterative relation between the modelling process and the risk and viability
analysis. As the models become robust, sharper analyses are carried out, which, in turn,
provides new information to the models and so on. This feedback loop may be stopped in
function of the desired accuracy or limited by the analysis boundary.
An application for e-courier services
E-courier services, the electronic counterpart of conventional courier services, allows
electronic documents to be transmitted faster and cheaper, offering more value to users
demanding quality.
From the point of view of an already courier provider, launching an e-courier service could
have undesired effects: users of old service may stop using it without migrating to new one.
Besides, the operation of an e-courier service requires purchasing IT hardware, acquiring (or
licensing) software, training operational staff, launching advertising campaigns and so on.
The profitability of this operation should be adequately analyzed.
Other players are in the game, too. The company that planned and developed the e-courier
software is looking for alternative business models. Should it sell or license the software?
What should be the maintenance charges?
To answer such questions, and others as well, it was developed a dynamic model that aims
to support the decision process for the ecourier software developer. The model intends to
capture the relevant variables and their relationships along the ecourier value chain. The
former variables include market conditions for the e-courier provider and the software
licenser, the cash flows for both companies, etc.
Some exogenous variables, such as the royalty fee, the cost for conventional (courier)
shipment and the cost per e-courier transaction, have been parameterized in order to provide
more information about how they influence the net present value of both companies. This
way not only the people in charge in modeling but the clients as well can devise the better
alternatives to extract value from the proposed service.
In figure 2, it is shown the market elements from the overall dynamic model, depicting how
the introduction of this new service affects already existent ones.
New users
adoption rate
aqarea New users
Q new users 1 banincs
losing
new users
Ecourier
veal Losing users
market factor
Potential Migrated users
increasing pag acquiring Sox
marketsize new users
wath i 3
losing
migrated
users
Courier market Courier market
Adoption
‘monthly growth annual growth aie hake
rate rate an mim
n rate
Figure 2 - An alternative e-courier business model
1: Software developer discounted cash 2: Evourier service provider discounted cash
26970004
119285044
211300:
0.00 6.00 12.00 18.00 24.00
Figure 3: Simulation results of the dynamic model
Figure 3 corresponds to some simulation results obtained from the dynamic model shown in
figure 2°. According to these results, if the e-courier software is licensed the payback would
be 11 months for the licensee (the e-courier service provider) and 14 months for licenser (the
software developer). On the other hand, if a pay-per-transaction scheme is adopted - without
changing other factors - the service provider payback increases to 13 months while the
software payback for the software developer reduces to 8 months.
As can be noted, this kind of analysis allows flexibility and means to evaluate the impacts of
the business alternatives from the perspectives of all players involved in value chain. This
fact may be pointed out as one of the advantages provided by the dynamic modelling and
simulation.
Acknowledgements
The authors manifest their gratitude to all members of the CPqD service planning team,
which have been contributing with labour and suggestions to the evolution of this
methodology.
3 Only partial results are shown here, due to space limitation.
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