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 Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

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: Breakthrough with a chain of gold atoms

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

Im Focus: DNA repair: a new letter in the cell alphabet

Results reveal how discoveries may be hidden in scientific “blind spots”

Cells need to repair damaged DNA in our genes to prevent the development of cancer and other diseases. Our cells therefore activate and send “repair-proteins”...

Im Focus: Dresdner scientists print tomorrow’s world

The Fraunhofer IWS Dresden and Technische Universität Dresden inaugurated their jointly operated Center for Additive Manufacturing Dresden (AMCD) with a festive ceremony on February 7, 2017. Scientists from various disciplines perform research on materials, additive manufacturing processes and innovative technologies, which build up components in a layer by layer process. This technology opens up new horizons for component design and combinations of functions. For example during fabrication, electrical conductors and sensors are already able to be additively manufactured into components. They provide information about stress conditions of a product during operation.

The 3D-printing technology, or additive manufacturing as it is often called, has long made the step out of scientific research laboratories into industrial...

Im Focus: Mimicking nature's cellular architectures via 3-D printing

Research offers new level of control over the structure of 3-D printed materials

Nature does amazing things with limited design materials. Grass, for example, can support its own weight, resist strong wind loads, and recover after being...

Im Focus: Three Magnetic States for Each Hole

Nanometer-scale magnetic perforated grids could create new possibilities for computing. Together with international colleagues, scientists from the Helmholtz Zentrum Dresden-Rossendorf (HZDR) have shown how a cobalt grid can be reliably programmed at room temperature. In addition they discovered that for every hole ("antidot") three magnetic states can be configured. The results have been published in the journal "Scientific Reports".

Physicist Dr. Rantej Bali from the HZDR, together with scientists from Singapore and Australia, designed a special grid structure in a thin layer of cobalt in...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Booth and panel discussion – The Lindau Nobel Laureate Meetings at the AAAS 2017 Annual Meeting

13.02.2017 | Event News

Complex Loading versus Hidden Reserves

10.02.2017 | Event News

International Conference on Crystal Growth in Freiburg

09.02.2017 | Event News

 
Latest News

Impacts of mass coral die-off on Indian Ocean reefs revealed

21.02.2017 | Earth Sciences

Novel breast tomosynthesis technique reduces screening recall rate

21.02.2017 | Medical Engineering

Use your Voice – and Smart Homes will “LISTEN”

21.02.2017 | Trade Fair News

VideoLinks
B2B-VideoLinks
More VideoLinks >>>