1 Faculty of Business and Social Sciences, SDU2 Department of Marketing & Management, Faculty of Business and Social Sciences, SDU3 Strategic Organizational Design, Department of Marketing & Management, Faculty of Business and Social Sciences, SDU4 Research Group Managers, Department of Marketing & Management, Faculty of Business and Social Sciences, SDU5 Wharton School of the University of Pennsylvania6 Department of Marketing & Management, Faculty of Business and Social Sciences, SDU
This paper sets forth an evolutionary model in which diverse businesses, with diverse offerings, compete in a stylized physical space. When a business firm attempts to expand its activity, so as to profit further from the capabilities it has developed, it necessarily does so in a "new location" - sometimes close-by existing activity, but often not. The model representation reflects the fact that the physical space in which economic activity takes place is far from homogeneous. The firm then confronts both the challenge of replicating its routines and the hazard that existing routines may not work as well in the new environment as they did in the old; the firm may respond with effort to locate appropriate environments or by modification of its routines. Tradeoffs are presented between the complexity of a business model and its replication costs, as well as issues involving response to environmental change. Formally, the model builds on the NK framework for organizational analysis, with firm policy choices and environmental conditions represented by segments of a string of N bits; it joins this structure to an abstract representation of space based on the idea of a cellular automaton. Randomly generated firm policies are tested first by a local market environment, and then, if success leads the firm to grow spatially, in a gradually expanding environment. In the initial experiments reported here, we show that the model generates configurations that reflect features of the exogenous environment in understandable and realistic ways, and also illustrate some subtle features of the connections between firm policies and success.