Enterprises experienced significant technological and managerial changes over the last decades. Changes have been forced by various events: global competition, workforce changes, new technology, and continuously changing customers’ preferences. Enterprises must harmonize structure and deal with competition in an increasingly complex and vaguely understood business environment (Temponi et al., 1999 and The Economist, 1999). A business organization is considered a society with growth, differentiation, hierarchical order, controls, competition, communications, relationships, etc. The business organization or enterprise is viewed as a socio-cultural system (Von Bertalanty, 1968). Managers and leaders should view organizations as flexible work groups with information flow across the business functions, instead of vertically arranged discrete functions with well-defined boundaries. Von Bertalanty, 1968, Temponi, 1992 and Kosanke et al., 1999 indicated that modeling of organizations in the context of a system involves many difficulties:
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Enterprise structures have complex dynamics. Companies organize by products, processes, hierarchical structures, matrix structures, or hybrids.
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Variables to assess performance in organizations are difficult to identify and measure, and often clouded by employee and management emotions.
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Relations between enterprise components are difficult to identify and quantify. Descriptions are usually qualitative and subjective.
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Multiple time scales associated with enterprise functions affect grouping of functions, and how feedback can update decisions.
An enterprise must quickly accommodate change, maintain profits, address internal issues, continuously improve, quickly deliver products and services, serve internal and external customers, satisfy customers’ expectations, develop human resources, and cope with regulations. Today’s enterprises have adopted process driven structures and constant innovation (Kim and Jang, 2002, Olhager et al., 2002, Ding and Eliashberg, 2002 and Champy, 1995).
Managers often structure or restructure organizations based on hunch or feel. To remain competitive, enterprises must sometimes adopt untested practices. Needed are modeling methods to assess the effectiveness of decisions, before implementation. This has been hindered by difficulties in enterprise modeling (Von Bertalanty, 1968, Temponi, 1992, Kosanke et al., 1999 and Jorysz and Vernadat, 1990).
This paper integrates several existing models of business functions (Feichtinger et al., 1994, Vidale and Wolfe, 1953, Nervalone and Arrow, 1962, Bass, 1969, Porter and Taylor, 1972, Mak et al., 1976, Sethi, 1977, Abad, 1982, Spremann, 1985 and Srinivasan et al., 2000) into an aggregate enterprise systems model, using system dynamics methods. We develop an approach to efficiently combine functional models into an enterprise’s aggregate model. The objective is to demonstrate how to combine sub-models into aggregate models that can track reality, and thus be useful to management’s strategic decision making. These models are not intended for quantitative description of manufacturing processes. No judgments or assessments will be made in this article. A strategic model can be useful to any industry or environment. Section 2 reviews related literature on organizations and strategy. Section 3 examines pertinent functional enterprise models. Section 4 integrates these business models into an aggregate enterprise model. In Section 5, publicly available data is used to “tune” the aggregate strategic enterprise model to a specific company. We demonstrate this approach on tire companies; however, this approach can be extended to a variety of organizations. Interpretation of results and limitations of the approach are discussed in Section 6. Conclusions and future directions are presented in Section 7.
We assembled several sub-models of business functions into an aggregate enterprise system model to be used for corporate strategy. Equations and variables were made non-dimensional, and parameters values of the resulting system were tuned from publicly available data from annual reports. Simulations based on these models captured aggregate enterprise behavior, from interactions between individual business functions. A demonstration analyzed historical business data of the tire industry. Parameters were assigned numerical values by comparing results of the system model to data from annual reports. The goal was to show that a company’s dynamics of business functions can be combined into an aggregate model of the company, with reasonable fidelity. The model captured the behavior of a given company. To capture changes in organization structural realignment, e.g., Cooper, simulations of the model required separate sets of parameter values, before and after the restructuring of the company in 1998.
The developed aggregate enterprise model could provide management with a powerful organizational assessment tool. Management could assess the impact on worth and effectiveness of an enterprise’s structure, before actual implementation. Simulation results suggest that an enterprise can have short and long term benefits from such a model. The use of company’s historical data to assess structure, strategies, and continuously monitor current practices leads to proactive actions to improve enterprise performance with minimum disruption of the physical, technical and human resources of an organization at large.
