Systems Evaluation for Business Sustainability and its Application to Regional Air Transportation September 2013 Nobuaki MINATO (Intentionally Blank) 2 Executive Summary A business is not intrinsically self-sustainable. According to the statistics of the Ministry of Economy, Technology and Industry (METI), 73.9% of newly established enterprises disappear within 10 years (Li, 2011). For the purpose of acquiring sustainability in a competitive market, we need to appropriately monitor, evaluate, and manage typical behaviours of business systems such as growth, oscillation and decay overtime. But such methodology for evaluating business systems is not well-established yet. Therefore, the purpose of the thesis is to propose an integrated methodology to evaluate sustainability of business systems and apply it for transforming unsustainable regional air transportation to be a more self-sustained system. Previous researches on sustainability evaluation tend mainly to discuss the intersection of the triple bottom line of environment, economy and society. However, the approach has been ossified and lacks the capability of evaluating dynamics within business systems. It ignores dynamic interactions of business stakeholders which continuously changes balances of benefits and risks during business lifecycle. Thus, the thesis decomposes business systems evaluation into three stages; growth, maturity and decay, and identified issues associated with each stage. I proposed an integrated systems evaluation framework which can evaluate business systems from three perspectives; Scalability, Stability and Durability. Systems evaluation technologies such as mathematical modelling and simulation modelling are integrally applied in the framework. The thesis comprises 5 parts and 11 chapters. Part 1 (Chapter 1 to Chapter 3), Issue and Theory, provides the problem definition and theoretical framework. In Chapter 1, Introduction, the research background, motives, problem, purpose, and questions are illustrated. In Chapter 2, Sustainability and Air Transportation, I discussed the definition of sustainability concept and its limitations. I also review the extant researches on business systems evaluation, allowing me to highlight the originality of the thesis. In Chapter 3, Systems Evaluation Framework was introduced with associated evaluation technologies. 3 Part 2 (Chapter 4 and Chapter 5) addresses “Stability of Business Systems.” In Chapter 4, Airline - Airport (Multiple Airways), I introduced a mathematical portfolio modelling based on financial engineering to look at ways to reduce business risks of demand fluctuation by diversification using air traffic data to remote islands. In Chapter 5, Airline – Airport (Single Airway), I developed a quantitative, dynamic simulation model of load factor guarantee using System Dynamics for evaluating risk sharing mechanism among the stakeholders. The Haneda-Noto flight data was utilized for examination. Part 3 (Chapter 6 and Chapter 7) addresses “Durability of Business Systems.” In Chapter 6, Air Transportation Ecosystem, I introduced an ecosystem modelling of regional air transport community using System Dynamics, aiming at balancing stakeholder’s benefits and risks when business systems are decaying overtime. In Chapter 7, Air Transportation and Disaster, I discussed the substitutability of regional air transportation under catastrophic natural disasters analysing the case of the 2011 East Japan Great Earthquake and Tsunami. An effective management model under catastrophe was illustrated and a new added value of underutilized regional airport was highlighted. Part 4 (Chapter 8 through Chapter 10) addresses “Scalability of Business Systems.” In Chapter 8, Systems Evaluation on Competitiveness, I proposed a matrix operation model for a trade analysis to systematically evaluate competitiveness of business systems from technical, market and social perspectives. In Chapter 9, Systems Evaluation on Uncertainty, I presented a Monte Carlo simulation model for evaluating business uncertainty associated with emerging technology. In Chapter 10, Systems Evaluation on Business Integration, I developed System Dynamic simulation model for assessing the degree of business system integration. In Part 5, I concluded the discussions and presented the limitations and the future works. The primal achievement of the thesis is the integrated systems evaluation methodology for designing more self-sustaining business systems where business stakeholders symbiotically coexist in a market rather than competing with each other or being parasitic on public assistance. Furthermore, I found the fact from the quantitative simulation results that, instead of subsidizing unprofitable regional airlines or local residents as taxpayers, subsidizing ticket prices of inbound air passengers better aids the 4 viability of the regional air transport ecosystem, primarily through the multiplier effects of attracting more passengers and the economic spillover effects. I highlighted regional air transportation as a major example of unsustainable business systems but I think that the proposed methodology can be applicable to other business systems evaluation as well. I believe that, for instance, the methodology can be applied for public service design as business systems, which in turn, greatly contributes to future design of the country where depopulation and aging society are becoming of great issue. 5 (Intentionally Blank) 6 Acknowledgement Through my studies and working experience in Toulouse, France, the issue of regional air transportation has gained an increasing amount of my attention, allowing me to select a research topic for my doctoral thesis without a second thought. However, this research would not have been possible without the enduring support of several people. First, I would like to express my gratitude to Prof. Masaru Nakano of Keio University Graduate School of System Design and Management (Keio SDM) for his tremendous efforts in finalizing my doctoral thesis. Furthermore, I am grateful to my colleagues at Keio SDM, Dean Prof. Takashi Maeno, former Dean Prof. Yoshiaki Ohkami, Prof. Taketoshi Hibiya, Prof. Prof. Hidekazu Nishimura, Prof. Shinichiro Haruyama, Prof. Kenichi Takano, Prof. Naohiko Kohtake and all other professors, staffs and students for understanding and supporting my research activities at Keio University. The holistic viewpoint and systematic thinking methodology strongly inspired my introduction of the concept of ‘symbiosis’ to air transportation system design. Most of my doctoral research activities were conducted under the Ecole Superieure de Commerce de Toulouse (ESCT). Hence, I would like to express my greatest thankfullness to Prof. Risako Morimoto of University of London (former professor at ESCT). She provided me with the opportunity to conduct doctoral research in France and continuously supported me with solid advice throughout. Without her tremendous efforts in educating me and guiding my research, I would not have been able to accomplish the project. I also would like to thank Prof. Jonathan Winterton and Prof. Jacques Tounault for coordinating my doctoral research at the ESCT. I am also grateful to Prof. Sveinn Gudmundsson and Prof Anne Vanhems of ESCT for their encouraging feedback and valuable comments during inspiring discussions. I also would like to show my thankfulness to Prof. Kenichi Ozawa of Rikkyo University for inspiring me to evaluate tourism perspective on regional air transportation. Without his continuous encouragement, I cannot imagine the accomplishment of my doctoral degree. 7 My gratitude is also extended to my ex-colleagues at Avion de Transport Regional (ATR), especially to Othman Choui, Mario Formica, and Gianni Tritto, for helping me with their deep knowledge of and insights into the regional air transport business. Without my research experience at ATR, this work would not have been possible. I would like to express my gratitude to Japan’s air transport regulators, industry, research institutes, and community, as well as the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the Tokyo Regional Civil Aviation Bureau (TCAB), All Nippon Airways (ANA), Japan Airline (JAL), Noto Airport, Ishikawa Prefectural government, Sendai Airport, Miyagi Prefectural government, Yamagata Airport, Yamagata Prefectural government, Fukushima Airport, Fukushima Prefectural government, Mitsubishi Heavy Industry (MHI), Japan Aerospace Exploration Agency (JAXA), and the Institution for Transport Policy Studies (ITPS) among many others for their supportive provision of interview opportunities and valuable data for analysis. Their cooperation greatly enhanced the quality of my research. Finally, I owe my biggest thanks to my parents, who always supported and encouraged me throughout my studies. I cannot imagine where I would be today without their education and everlasting trust. August 10 th , 2013 Nobuaki Minato 8 Table of Contents Executive Summary ........................................................................................................ 3 Acknowledgement .......................................................................................................... 7 Table of Contents ............................................................................................................ 9 List of Figures ............................................................................................................... 17 List of Tables ...............................................................................................................