Simulation and Strategic Management

Guest article from Marco Ribeiro

Corporations everywhere today face the huge challenge of surviving and growing in an extremely competitive environment. Markets are shaped and reshaped due to constant innovation, customer demands and fierce competition. All these forces demand that corporations continuously reinvent themselves trying to maintain competitive advantages that differentiate them from the competition.

Strategic planning in such an environment is a difficult challenge that corporations must overcome successfully. Corporate strategic planning deals with such complex issues as:

    * Understanding the market and its future trends – understand suppliers, competition, their competitive advantages and market positioning. Know the future trends that will shape the market.
    * Future resource allocation – how the corporation’s resources should be organized in order to maintain an efficient operation.
    * Scope of operations -in which businesses should the corporation operate, which ones should be dropped out
    * Diversification of the corporation’s business – should the corporation focus its operations in a small and related set of businesses or should it look to diversify to heterogeneous businesses
    * Future structure of the company – draw the boundaries of the corporation and determine how these boundaries will affect relationships with suppliers and customers

The strategy defined will address all these issues in detail and determine the future direction of the corporation.

Can we use simulation to support the strategic planning process?
Yes, we can. As Thomas Davenport and Jeanne Harris describe in their book: Competing on Analytics: The new Science of Winning, we will see an increasing demand and use of analytical technologies supporting corporation’s decision-making processes.

Simulation can play an important role by helping managers create models of their markets and processes and “toy” with them in order to get a deeper understanding. We can also use simulation to support such efforts as portfolio analysis and management, helping managers determine how to most effectively manage and configure their product life cycle. We can build models of processes and determine the most efficient configuration. Simulation is a valuable tool to test scenarios and make better business decisions.

Marco Ribeiro
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