David Levy

Muhammad Taimur
Shams Uddin
Nighat Saif
Safia Zeb
Mustafa Kakakhel

To provide theoretical framework for dynamic

evolution of industries

To provide application of Chaos theory in strategic

management

To provide implication of Chaos theory for

managerial purposes

Strategic management lacks theoretical tools to predict the

behavior of firms and industries.

Industries evolve dynamically overtime due to actors

interactions.

Existing theories assume simple linear relationships without

feedback.

Chaos theory provides useful conceptual framework

accommodating the non linear complexity.

Chaos theory is the study of complex, non linear dynamic

systems.

Butterfly effect

E.g. pendulum suspended between magnets

Tiny variations in initial position magnifies and results in

chaotic behavior.

Predictability short term vs. long term

Industries are assumed to be dynamic, complex and

non linear systems.

Interdependency of firms and industrial actors

Industries are non linear and are path dependant

So industries behave as chaotic systems

1.

Long term planning is very difficult

Smaller disturbances in initial state multiplies over

time

Future forecasting is difficult due to complexity and

non linear relationships.

Business should not spent on forecasting and strategic

planning

2. Industries do no reach stable equilibrium

Traditional theories tries to reach stable equilibrium

while equilibrium is not possible in chaotic system

Industries do not settle down and stability is not long

lasting

E.g. Prices and investment patterns are short lived

3. Dramatic change can occur unexpectedly

Traditional theories suggest that small changes in

parameters bring small changes in equilibrium
Dramatic fluctuations occur internally in chaotic
systems.
Characteristic of probability distribution in chaotic
systems.
Small exogenous changes may also bring magnified
fluctuations.
E.g. New entrants or small change in technology

4. Short term forecasts are possible

Long term forecasting is difficult while short term

forecasting is possible

This is because of the presence of patterns and fractals

The accurate models of complex system with carefully

drawn initial points help in short term prediction

Chaotic systems shows repetitive patterns helping in

forecasting

General guidelines are required since fixed strategies

cannot be formulated for every scenario

Firms change their strategies as industrial structures

evolve

Best strategies are those which achieve their goals even

indirectly.

So we need dynamic strategies for coping with

complexity and uncertainty

A model based on California Computer Technology is

presented

This model demonstrates how chaotic theory can help

in understanding real managerial issues

Supply chain as complex, dynamic and non linear

system.

Two important dimensions

1. Uncertainty
Each stage is exposed to shocks

Finished products fluctuate in volume to this

uncertainty

The inventory need to be adjusted to cope with this

uncertainty

2. Time Relationship

Disruption in one stage causes changes in other parts of

the system

These disruption propagate forward and backward

along the chain

This disruption causes chaos within the supply chain

Managers should make accurate sale forecasts to reduce

cost of offshore manufacturing

Managers should deal with external factors like suppliers

Managers should reduce the occurrence of internal

production problems

Managers should change the structure of supply chain

accordingly

Chaos theory provides conceptual framework for the

dynamic evolution of industries

Long term forecasting is almost impossible for

chaotic systems

However short term forecasting is possible

Dramatic changes can occur unexpectedly

Chaos theory highlights the importance of guidelines

formulation for coping with complexity

Underestimating complexity may result in

unanticipated costs

Management might reduce the volatility of supply

chain and improve its performance

Thank You