Friday, February 3, 2012

Fuzzy Delphi Method to Design a Strategic Plan


Nowadays, Fuzzy Delphi Method (FDM) is broadly used by researchers in the various fields of Science, Technology and Management. This method was stated by Ishikawa et al. (1993) in which it is the integration between the traditional Delphi techniques and fuzzy set theory.
In this article, I am willing to employ FDM to design a strategic plan. At the first, I will explain a brief methodology of Fuzzy Delphi Method then I will depict step by step to make a strategic plan and I will highlight where we need to utilize FDM. Finally, I will bring an example for better perception of FDM.

Methodology  

Traditional Delphi method is an approach to gathering information from high qualified experts to develop the predictions about future events. A panel of experts is chosen. Then, they release their opinions for each feature where the responses of experts are collected and analyzed statistically. The processed data will communicate with the experts again to write another response. This procedure will be repeated rounds of questioning and written responses in which the outcome will cover the reasonable data to solve a problem or to forecast an event in the future.  This method was developed by the Rand Corporation at Santa Monica, California in the late 1960s. One of the most important problems is to solve the fuzziness of the expert consensus within the group decision making. Murray et al. (1985) first proposed the application of fuzzy theory to the Delphi method. Then Ishikawa et al. (1993) utilized the maximum-minimum method together with cumulative frequency distribution and fuzzy scoring to compile the expert opinions into fuzzy numbers. We can use triangular fuzzy number, trapezoidal fuzzy number and Gaussian fuzzy number as the selection of fuzzy membership functions. There are many Fuzzy Delphi methods such as basic FDM, Fuzzy Analytic Hierarchy Process (FAHP), and the concept of distance (dij) between two triangular numbers refer to Kaufmann and Gupta (1988). In this article, my example is applied the triangular membership functions referred to basic FDM accompanied by the type of alpha –cut method (Ranking) as threshold. But in the next article, I will bring an example of Distance method and I will compare these two methods. (Why?) I will tell you the reason behind of this comparison in the next article.
Now, let us see a literature review of basic FDM as follows:

Yu-Lung Hsu et al. (2010) stated the steps of basic FDM: [1]

1. Collect opinions of decision group: Find the evaluation score of each alternate factor’s significance given by each expert by using linguistic variables in questionnaires.

  2. Set up triangular fuzzy numbers: Calculate the evaluation value of triangular fuzzy number of each alternate factor given by experts, find out the significance triangular fuzzy number of the alternate factor.

  3. Defuzzification: Use simple centre of gravity method to defuzzify the fuzzy weight.

  4. Screen evaluation indexes: Finally proper factors can be screened out from numerous    factors by setting the threshold.”

I also used from above steps for my example in this article.

Designing Strategic Plan

Here, I follow the steps which should be taken to design a strategic plan simultaneously I highlight the items which need to utilize FDM.
In fact, by designing a strategic plan, we look at the image of the company or industry including current vision and mission then we will make new vision and vision as the outlooks of the company or industry. Let’s go the steps:

1) Overview of the company
2) History of the company
3) Current vision & mission
4) Strategic goals
5) Current strategies
6) External or Internal consideration (Is the company Industry base or Resource base?)
7) Financial performance
8) Financial and Strategic Objectives
4) Strategy - Making Hierarchy including corporate strategy, business strategy, functional area strategies within each business, operating strategies within each business.
5) PEST Analysis (The components of a company’s Microenvironment) including:
    5-1) The impact factors of political issues
    5-2) Dominant Economic Factors
     5 -3) Dominant Socio – Cultural Factors
    5-3) Dominant Technology Factors
We need to use from FDM to rank and to find priorities.
6) Porter’s forces
According to Porter’s forces, we have below forces:
-Power of Suppliers
-Power of Buyers
-Threat of New Entrants
-Threat of Substitutions
-Rivalry
To determine the ranking and priorities for each force, we need to use from FDM.
7) Strategic Map Application
By using of Strategic Group Maps, we will be able to assess the market positions of key competitors. We should identify the competitive characteristics and choose pairs of these differentiating characteristics then we should plot the firms on a two – variable map (pair characteristics).
Therefore, we need to utilize FDM to rank a pair characteristic for all firms.
7) Driving Forces
 We will use FDM to rank the most important driving forces that can affect an industry.
8) Industry structure
9) Key Success Factors (KSF)
These Key Success Factors can be referred to Driving forces. Which are the drivers of change unique?
10) The External Factor Evaluation (EFE) Matrix and the Competitive Profile Matrix (CPM)
By using of Driving Forces and KSF, we should find the most important Opportunities and Threats which are affecting on industry and company. Then we should rank all weights and ratings for each Opportunities and Threats.
Therefore, we need to approach FDM.
11) Traditional Porter’s Value Chain
12) Appraising the Resources and Capabilities
What are the Resources and Capabilities important to industry? What are the rank of them for the industry and the company?
We can use FDM to rank the Resources and Capabilities for the industry and the company.
13) To derive all key Strengths and key Weaknesses of the company referred to Appraising the Resources and Capabilities and Value Chain. For instance, we can use the value chain in cost analysis in which we should analyze three sections of Sequence of Analysis, Value Chain, and cost drivers.
14) Assessment of internal factors for strategic advantage
15) The Internal Factor Evaluation (IFE) Matrix
By using of above items (11, 12, 13, 14), we are expected to find the most important Strengths and weaknesses which are affecting on the company. Then we should rank all weights and ratings for each Strengths and weaknesses.
 Therefore, we need to approach FDM.
 16) Impact Analysis
This is a matrix where Strengths and weaknesses are on column and the drivers of change (Driving Forces) are on row. We should give the score numbers between minus (x) to plus (x) for each member of this matrix.
As you can see, to solve fuzziness among this matrix, we need to use FDM.
17) Competitor Analysis
This matrix is another type of Impact Analysis in which the company and major competitors are on column of matrix and the drivers of change are on row.
We can also utilize FDM to solve fuzziness among this matrix.
17) SWOT Matrix
18) The Space Matrix
In this matrix, we have two internal dimensions (financial position, and competitive position) and two external dimensions (stability position, and industry position) on vertical and horizontal axis of a four – quadrant framework.  We should give the score numbers between minus (x,y) to plus (x,y) for each dimension.
The best method to prevent the fuzziness is to use FDM.
19) The Boston Consulting Group (BCG) Matrix
20) The Internal – External (IE) matrix
When we need to use FDM for EFE and IFE, it means that we can apply FDM for this matrix.
21) The Grand Strategy Matrix
22) Ansoff Matrix
23) GE / Mc Kinsey Matrix
We should find the external factors which are affecting on industry or market attractiveness and so we should extract the internal factors which are affecting on competitive strength of a strategic business unit (Business unit strength). Then, we should give the weight and rating to each factors in which we will have a rank for market attractiveness and a rank for Business unit strength. On column of Mc Kinsey matrix, we have market attractiveness and on row, we have Business unit strength. Finally, we can evaluate the business unit in linguistic values of low, medium, high.
In the result, to prevent fuzziness, we can use FDM for this matrix.
24) Finally, we can find out the suggested vision and mission by using of above framework.
Example of Fuzzy Delphi Method
As you can see, the driving forces are the most important factors to design a strategic plan. Therefore, I have chosen the driving forces as my example of FDM depicted as follows:
According to book of “Crafting and Executing strategy: The Quest for Competitive Advantage: Concepts and Cases by Thompson, Peteraf, Gamble, Strickland, the most common driving forces have been introduced below cited:

The Most Common Driving Forces
1. Changes in the long-term industry growth rate.
2. Increasing globalization.
3. Emerging new Internet capabilities
4. Changes in who buys the product and how they use it
5. Production innovation
6. Technological change and manufacturing process innovation
7. Marketing innovation.
8. Entry or exit of major firms
9. Diffusion of technical know – how across more companies and more countries
10. Changes in cost & efficiency
11. Growing buyer preferences for differentiated products instead of standardized commodity product (or for a more standardized product instead of strongly differentiated products)
12. Reductions in uncertainty & business risks.
13. Regulatory influences government policies changes.
14. Changing societal concerns, attitudes, and life styles.
I write the codes for driving forces as follows:

Codes of Driving Forces
1
DF1
2
DF2
3
DF3
4
DF4
5
DF5
6
DF6
7
DF7
8
DF8
9
DF9
10
DF10
11
DF11
12
DF12
13
DF13
14
DF14

I assume that I have chosen 14 high qualified experts to conduct a Delphi technique and also I have found the weights for each expert in accordance with their work experiences, academic level and so on. (The weights are not need for this article. I will reserve them for my next article)

Experts
Weights
E1
0.04
E2
0.08
E3
0.09
E4
0.1
E5
0.07
E6
0.05
E7
0.09
E8
0.07
E9
0.06
E10
0.06
E11
0.07
E12
0.09
E13
0.05
E14
0.08

The linguistic values have been purposed as follows:

Linguistic Values
Pessimistic = P
Most likely = M
Optimistic = O

I collected the significant opinions of the experts for each driving force. Here, I have brought a sample for DF1.  The others (thirteen samples) have been included in my spreadsheet of excel file.

DF1
Experts
Weight
P
M
O
2
6
8
E2
0.08
1
5
9
E3
0.09
3
7
10
E4
0.1
1
6
9
E5
0.07
2
7
9
E6
0.05
4
5
6
E7
0.09
3
6
9
E8
0.07
5
7
9
E9
0.06
1
6
10
E10
0.06
3
6
8
E11
0.07
2
5
9
E12
0.09
4
6
8
E13
0.05
1
4
7
E14
0.08
2
5
9

I calculated the evaluation value of triangular fuzzy number of each driving force given by the experts. In fact, we have three matrixes as follows:

W ij = (Pij, Mij, Oij)
Where:
i = 1, 2 ….14
j = 1, 2 ….14
No. j driving force given by No. i expert of 14 experts and 14 driving forces (j)

Then the fuzzy weighting Wj of No. j driving force is: Wj = (Pj, Mj, Oj) and j = 1, 2 ….14 where:
Pj = Min {Pij},   Mj = Sum {Mij} /14,    Oj = Max {Oij}
The below table shows us the final results:

DF
P
M
O
DF1
1
5.79
10
DF2
2
6.36
10
DF3
1
6.36
10
DF4
1
6.43
10
DF5
1
6.14
10
DF6
1
6.29
10
DF7
2
6.14
10
DF8
1
6.29
10
DF9
1
6.07
10
DF10
1
6.29
10
DF11
2
6.86
10
DF12
1
6.36
10
DF13
2
6.05
9
DF14
2
6.43
10

The next step is Defuzzification in which we should defuzzify the fuzzy weight of Wj.
The simple method is to use below formula:
Sj = (Pj + Mj+ Oj) / 3            j = 1, 2 ….14

The results have been included in below table:

DF
Sj
DF1
5.595238
DF2
6.119048
DF3
5.785714
DF4
5.809524
DF5
5.714286
DF6
5.761905
DF7
6.047619
DF8
5.761905
DF9
5.690476
DF10
5.761905
DF11
6.190476
DF12
5.785714
DF13
5.666667
DF14
6.142857


 Finally, we should define a threshold as alpha-cut to obtain proper driving forces which can be screened out from numerous driving forces by setting this threshold. The principle of screening is as follows:

If   Sj > alpha-cut, then No. j driving force is the evaluation index.
If   Sj < alpha-cut, then delete No. j driving force.

In this article, I consider alpha-cut = 6. Therefore, the appropriate driving forces are:

DF2:  Increasing globalization

DF7:  Marketing innovation

DF11:  Growing buyer preferences for differentiated products instead of standardized commodity product (or for a more standardized product instead of strongly differentiated products)

DF14:  Changing societal concerns, attitudes, and life styles

I have brought all above steps of Fuzzy Delphi Method on spreadsheet of excel file.



Note:  “All spreadsheets and calculation notes are available. The people, who are interested in having my spreadsheets of this method as a template for further practice, do not hesitate to ask me by sending an email to: soleimani_gh@hotmail.com or call me on my cellphone: +989109250225.   Please be informed these spreadsheets are not free of charge.”

I made all triangularFuzzy numbers by using of Monte Carlo technique because I had not any expert’s opinion.
This template can be also utilized for designing in the fields of engineering such as heat exchangers or Air –Pre Heater (APH) stated on below links:
As you know, there are so many business opportunities on the models of heat exchangers or APH to save energy. Everybody can test her/his creativity and chance to find out the new models.
Now, we can design the strategic plan for many topics by using of above template. Here are two examples of these topics:
-A strategic plan on Electricity Industry in USA
-A strategic Plan on Residential property industry in Middle East. 


 References

Book
1) Bojadziev, George., & Bojadziev, Maria (2007). FUZZY LOGIC FOR BUSINESS, FINANCE, AND MANAGEMENT (2nd ed.). London:  World Scientific Publishing Co. Pte. Ltd.
2) Thompson, Arthur., Peteraf, Margaret., Gamble, John., Strickland, A. J. (2011). Crafting and Executing strategy: The Quest for Competitive Advantage: Concepts and Cases (18th ed.). Churchville: Irwin/McGraw-Hill.
Papers   
1) Hsu,Yu-Lung., Lee, Cheng-Haw., & Kreng, V.B. (2010). The application of Fuzzy Delphi Method and Fuzzy AHP in lubricant regenerative technology selection. Expert Systems with Applications, 37, 419–425.

2) Dutta, Palash., Boruah, Hrishikesh., & Ali,Tazid. (2011). Fuzzy Arithmetic with and without using α-cut method: A Comparative Study. International Journal of Latest Trends in Computing 2 (1).

3) Glumac, Brano., Han, Qi., Smeets, Jos., & Schaefer, Wim. (2011). Brownfield redevelopment features: applying Fuzzy Delphi. Journal of European Real Estate
Research, 4(2), 145-159.