Market Structure

For a full description, see: Baumberger, C.; Braun, T.; Lindemann, U.; Maurer, M.: Strategic Diversification by Network Portfolio Analysis. Proceedings of International Design Conference - Design 2006, Dubrovnik - Croatia, May 15 - 18, 2006. (with friendly permission by the authors)

Problem Description

Today enterprises continuously have to come out with new products to retain competitiveness and to ensure sustainable growth. The competitive environment is characterized by global competition, increasing innovation dynamic, and shortened product life time.DSM can, in this context, be used to better manage a diversification strategy as a growth strategy where new products are developed for new markets. The goal is to gain a clear idea about what is expected to gain from the strategy and an honest assessment of risk is seen as indispensable. This is done through a network portfolio analysis to find new product ideas in a systematic way. It supports the analyzing existing, successfully established product portfolios of competing companies. This way, companies are supported in getting an in-depth inside of their competitive environment.

 

System Definition

The following figure shows the principle that is used to identify how often a certain product appears in different portfolios. If a company offers a product, it has a relationship with this product. If another company offers this product too, both companies have a relationship with each other via this product. As well products have a relationship with each other if they are offered by the same company.

Market Structure

Dependencies in the system

The following figure shows the initial data used: Company A issues product 1 product 2, thus these are related to each other. Furthermore, company B issues products 2 and 3. Consequently, product 1 and 2 as well as product 2 and product 3 have semantic (product-product) relationships with each other, because they are offered by the same company.  As well, both companies have a relationship with each other as direct competitors concerning product 2.


Using DSM, it is possible to analyze large networks. This enables two possible applications in the context of strategic management:

  • the visualisation of existing relationships between products and companies

  • the systematic search for new strategic opportunities


Application to the market system

The following figure uses a graph-based representation of the initial relationships of a company (shown in the centre). The green elements are the products produced by the company, while the red elements in the graph represent other companies (i.e. competitors) producing the respective products.  E.g. the product to the right (an industrial vacuum cleaner) is produced by 15 other companies as well.  All data was acquired through the product catalogues provided on the different companies’ websites.

 

If the products of the direct competing companies, and again related companies on the next level, are added, too, an extensive competition map can be designed, as shown in the next figure. Here, clusters of products and companies can be recognized even more clearly and in a broader view. Strongly related products are located in the centre while products of competing companies, which are only loosely or not related to own products, are located at the fringe of the network. Competition clusters of companies which have similar product portfolios can easily be identified. This visualisation of the competitors and their products helps companies to watch their competition environment. That way new competitors as well as shifts in the product portfolios of competing companies can be made out easily.


Product network

Furthermore, product-product-relationships between the products can be regarded, as shown below. Again clusters of strongly related products can be made out. E.g., vacuum cleaners, electrical heaters and electrical tools were identified as closely related products. These products might serve as promising starting points for a strategic diversification of the own portfolio.


Use Case provided by Maik Maurer

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