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Business Planning for Network Services: A Systems Thinking Approach

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  • Amitava Dutta

    (School of Management, George Mason University, 4400 University Drive, Fairfax, Virginia 22030-4444)

Abstract

As demand for online network services continues to grow, service providers are looking to meet this need and avail themselves of business opportunities. However, despite strong growth in demand, providers continue to have difficulty achieving profitability, customer churn remains high, and network performance continues to draw complaints. We suggest that strategic business planning for network services would benefit from a systems thinking approach that analyzes the feedback effects present in the underlying business process. These feedback loops can be complex and have significant impact on business performance. For instance, while the size of a provider's customer base depends on price and network performance, network performance is itself dependent on the size of the customer base. In this paper, we develop a planning model that represents these feedback effects using the finite difference equations methodology of systems dynamics. The model is validated by showing its fit with essential characteristics of the underlying problem domain, and by showing its ability to replicate observed reference mode behaviors. Simulations are then carried out under a variety of scenarios to examine issues important to service providers. Among other findings, the simulations suggest that (a) under flat-rate pricing, lowering price to increase customer base can hurt profitability as well as network performance; (b) under usage-based pricing, lowering price need not necessarily lead to a larger customer base; and (c) in addition to price, the customers' threshold of tolerance for performance degradation plays a significant role in balancing market share with profitability. We briefly present a prototype decision support system based on the systems thinking approach, and suggest ways in which it could be used to help business planning for network services.

Suggested Citation

  • Amitava Dutta, 2001. "Business Planning for Network Services: A Systems Thinking Approach," Information Systems Research, INFORMS, vol. 12(3), pages 260-283, September.
    • Handle: RePEc:inm:orisre:v:12:y:2001:i:3:p:260-283
    DOI: 10.1287/isre.12.3.260.9713
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    References listed on IDEAS

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    1. Ralph L. Keeney, 1999. "The Value of Internet Commerce to the Customer," Management Science, INFORMS, vol. 45(4), pages 533-542, April.
    2. Kishore Sengupta & Tarek K. Abdel-Hamid, 1993. "Alternative Conceptions of Feedback in Dynamic Decision Environments: An Experimental Investigation," Management Science, INFORMS, vol. 39(4), pages 411-428, April.
    3. Ruth N. Bolton, 1998. "A Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Satisfaction," Marketing Science, INFORMS, vol. 17(1), pages 45-65.
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    Cited by:

    1. Nicholas C. Georgantzas & Evangelos G. Katsamakas, 2008. "Information systems research with system dynamics," System Dynamics Review, System Dynamics Society, vol. 24(3), pages 247-264, September.
    2. T. S. Raghu & B. Jayaraman & H. R. Rao, 2004. "Toward an Integration of Agent- and Activity-Centric Approaches in Organizational Process Modeling: Incorporating Incentive Mechanisms," Information Systems Research, INFORMS, vol. 15(4), pages 316-335, December.
    3. Robert Yawson & Jennifer Kuzma, 2010. "Systems Mapping of Consumer Acceptance of Agrifood Nanotechnology," Journal of Consumer Policy, Springer, vol. 33(4), pages 299-322, December.

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