Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Companies: Beware Hazards of Getting Too Big Too Fast, Says Study in April Management Insights

25.04.2007
New research on companies that sprint to rapidly gain market share is revealing the danger of pursuing sudden massive growth, according to the Management Insights feature in the April issue of Management Science, the flagship journal of the Institute for Operations Research and the Management Sciences (INFORMS®).
Management Insights, a regular feature of the journal, is a digest of important research in business, management, operations research, and management science. It appears in every issue of the monthly journal.

“Getting Big Too Fast: Strategic Dynamics with Increasing Returns and Bounded Rationality” is by John D. Sterman and Rebecca Henderson of MIT’s Sloan School of Management; Eric D. Beinhocker, McKinsey Global Institute; and Lee I. Newman, Department of Psychology, University of Michigan.

Positive feedbacks such as network effects, scale economies, and learning curves are increasingly important in hi-tech, information-age industries. Strategy literature generally recommends that firms in such industries pursue “get big fast” (GBF) strategies, expanding capacity and production rapidly, and cutting prices—often below current costs—to gain market share and grow faster than their rivals, thus building the resources and competitive advantages needed to dominate the market.

The authors find, however, that such aggressive strategies often lead to overcapacity when the market saturates. The resulting losses can overwhelm the advantages of market share leadership, which happened during the collapse of the technology bubble in 2001.

The authors developed a simulation model that shows the conditions under which forecasting errors leading to capacity overshoot and large losses are likely. Rather than expanding aggressively when the risk of capacity overshoot is high, they recommend that firms consider conservative strategies, allowing less sensible rivals to play the aggressive strategy, then buying these rivals at distress prices when they fail during the transition from boom to bust.

The current issue of Management Insights is available at http://mansci.journal.informs.org/cgi/reprint/53/4/iv. The full papers associated with the Insights are available to Management Science subscribers. Individual papers can be purchased at http://institutions.informs.org. Additional issues of Management Insights can be accessed at http://mansci.pubs.informs.org/.

The Insights in the current issue are:
  • Biform Games by Adam Brandenburger, Harborne Stuart
  • The Horizontal Scope of the Firm: Organizational Tradeoffs vs. Buyer-Supplier Relationships by Olivier Chatain, Peter Zemsky
  • Brokers and Competitive Advantage by Michael D. Ryall, Olav Sorenson
  • Wintel: Cooperation and Conflict by Ramon Casadesus-Masanell, David B. Yoffie
  • Interdependency, Competition and Industry Dynamics by Michael J. Lenox, Scott F. Rockart, Arie Y. Lewin
  • The Timing of Resource Development and Sustainable Competitive Advantage by Gonçalo Pacheco-de-Almeida, Peter Zemsky
  • Strategic Management of R&D Pipelines with Cospecialized Investments and Technology Markets by Tat Chan, Jack A. Nickerson, Hideo Owan
INFORMS journals are strongly cited in Journal Citation Reports, an industry source. In the JCR subject category “operations research and management science,” Management Science ranked in the top 10 along with two other INFORMS journals.

The special MBA issue published by Business Week includes Management Science and two other INFORMS journals in its list of 20 top academic journals that are used to evaluate business school programs. Financial Times includes Management Science and four other INFORMS journals in its list of academic journals used to evaluate MBA programs.

About INFORMS
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications.

Barry List | EurekAlert!
Further information:
http://www.scienceofbetter.org
http://www.informs.org

More articles from Business and Finance:

nachricht Mathematical confirmation: Rewiring financial networks reduces systemic risk
22.06.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Can we see monkeys from space? Emerging technologies to map biodiversity

An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.

Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...

Im Focus: Climate satellite: Tracking methane with robust laser technology

Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.

Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...

Im Focus: How protons move through a fuel cell

Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.

As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...

Im Focus: A unique data centre for cosmological simulations

Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.

With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...

Im Focus: Scientists develop molecular thermometer for contactless measurement using infrared light

Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine

Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Plants are networkers

19.06.2017 | Event News

Digital Survival Training for Executives

13.06.2017 | Event News

Global Learning Council Summit 2017

13.06.2017 | Event News

 
Latest News

Individualized fiber components for the world market

23.06.2017 | Physics and Astronomy

How brains surrender to sleep

23.06.2017 | Life Sciences

Can we see monkeys from space? Emerging technologies to map biodiversity

23.06.2017 | Information Technology

VideoLinks
B2B-VideoLinks
More VideoLinks >>>