An Infectious Disease Model on Risk Diffusion From

the Perspective of Business Gene’s Vulnerability

Zhan Zhou
School of Management
Ming Yan Wuhan University of Technology
School of Management Wuhan, P.R.China, 430070
Wuhan University of Technology richa420@126.com
Wuhan, P.R.China, 430070
yanm@live.whut.edu.cn

Abstract—Like the gene of biological organism, business gene is
also vulnerable or fragile. The vulnerability of business gene is
the main reason that makes a business lack the immunity to risks,
or be easily infected by risks. Considering the strong similarity
between business risk and infectious disease on the mechanism of
diffusion, it is quite possible for us to use the infectious disease
model (acronymed as IDM) to explain how business risk diffuses
from the perspective of business gene’s vulnerability. It is
believed that the diffusion of risk triggered by the vulnerability
could bring on unsteadiness to business, and even to business
ecosystem. In this paper, we have set up a SEIRS model to
explore and tell why and how risk diffuses among a specific
cluster of businesses as well simulate the process of business risk
diffusing with Matlab software.
Keywords-business gene; vulnerability; risk diffusion;
infectious disease model
I. INTRODUCTION
So far, Chinese and even the world economy are strongly
impaired by the financial crisis, while “three tides” (namely,
the tide of “withdraw of foreign capital”, “return of peasant
labor” and “bankruptcy of small and medium-sized firms”)
have been occurring simultaneously in some specific areas as
Pearl River Delta, Yangtze River Delta, and Bohai Rim.
Actually, we don’t think the phenomenon such as “three tides”
happen only because of the external surrounding, namely, the
financial crisis, but also attributed to the business’ intrinsic
defects, or business gene’s vulnerability. In fact, we argue that
the business gene’s vulnerability is a kind of weakness of
business gene, such as the weakness or lack of “business
culture”, “quality of human resource”, “ability of R&D”,
“capability of financing”, etc. Accordingly, the business gene’s
vulnerability will lead to a high risk infectivity, weak risk
resistance, low self-recoverability and high mortality. In
contrast, a business with a strong business gene is hardly ever
impacted by the external risk factors, or we could say it has a
strong immunity to risks. We believe that risk factors belong to
exogenous variables, as virus or bacteria belongs to an
organism. It is the organism gene’s lustihood or vulnerability
that determines whether it is easy or not for the organism to be
infected by virus or bacteria. Quite similarly, risks exist
everywhere around a business, and the key to determine a firm
is healthy or not lies on its ability to resist external risks, or
immunity to risks. Moreover, suppose each firm in the world is
strong enough to resist all kinds of risks, then there is no risk or
it is not risky to firm’s survival and development at all.
Otherwise, if some firms are not so strong, even a tiny risk will
be amplified to a huge one by pervasion from one to another
and will be evolved to a severe crisis. So far, under the strong
and tight cooperation between firms, the risk is much easier to
be transmitted than before through the supply chain, financial
market, social network or even the internet.
Therefore, it’s really necessary and meaningful for us to
disclose the principle of risk diffusion standing on the view of
business gene’s vulnerability. In this paper, we try to borrow
the idea of IDM to construct a new methodology to study and
simulate the process of risk pervasion among businesses.
II. LITERATURE REVIEW
Based on the theory of business gene, it is known that, the
business performance is essentially determined by business
gene, which has specific structure and participates in business
activities. Tichy (1993) argued that, as a non-natural living-
form, a business has its own genes similar to that of creature
organism [1]. It is business gene that determines the stability,
development as well variety of genetic characteristics of a
business. Baskin (1998) deemed that business’ DNA is a
complicated database composed by business process and
structure, and it could be taken as an identification of
individual firm [2]. Zhou (2003) furthermore pointed out that
the business gene determines the business’ variability and its
life-cycle [3]. Nevertheless, Aurik (2003) defined the business’
gene or DNA as its factors of competence [4]. While, Neilson
(2005) had compared the business gene and creature’s gene,
offered the similarities and differences between them, finally,
he emphasized the importance of business DNA (gene) in the
process of business’ development [5]. All of the aforesaid
authors have touched the business genes’ structure and
characteristics, but from different view of points. Anyway, it is
not difficult for us to obtain the common points from the above
authors, i.e., they all emphasized the comparability between the
business gene and the biological gene, and approved that the
varieties of business gene are determined by its specific
structure. As well, they believed a firm’s life cycle is even
predetermined by its gene, and the heterogeneity of businesses
is just a demonstration of business gene’s variety. Moreover,
the excellent business gene will make a firm fitter to its

978-1-4244-4639-1/09/$25.00 ©2009 IEEE

environment and get a longer life cycle; in contrast, inferior
business gene will lead to abortion. Li and Wang (2002) argued
that, the business gene’s defect might be induced by the
shortage of the ability of developing intellectual capital, which
could be the crucial factor to determine a business’ health [6].
Guo and Meng (2004) had scrutinized the relationship between
business and its health, and concluded that opportunism is the
fatal factor that leads Chinese small and medium-sized
enterprises (SMEs) to be unhealthy [7]. Wang (2005) had
specifically studied the business’ culture gene, and
demonstrated that cultural misunderstanding is one of the most
important gene defects [8]. Li (2005) argued the business crisis
in micro-level comes from the lack of critical DNA or unfitness
of business gene to its surrounding [9]. Based on the previous
literatures, we can discover that the quality of business gene
will definitely determine a business’ survival in short run and
sustainable development in long run.
As a creature body will suffer disease when it can not resist
the external negative impact, the defect or vulnerability of
business gene will also make a firm be sick. We can deduce
that the weakness or vulnerability of a firm is actually
attributed to its gene’s vulnerability. Business gene’s
vulnerability will decrease business’ immunity to risk, in other
words, it’s very easy for a firm to be affected by the risk
conducted from other businesses. In this paper, we propose
such a practical criterion to judge the degree of a firm’s health
as if the firm has enough immunity to risks or not. Meanwhile,
as to the risk itself, it quite resembles to virus or bacterium in
the biological world. Namely, it somehow has the features of
infectivity, epidemic, immunity and cyclicity. So based on a
kind of infectious disease model named as SIR, we have
established a infectious disease model considering latent period
(named as SEIRS) to study the mechanism of risk diffusion and
infection between members within a business clusters. The
results of the research are expected to offer a theoretical and
strategic basis for a firm to discover, prevent and control risks.
III. THE MODEL OF INFECTION
A. The Generic Infection Model
The infection model has a wide range of applications, it is
applied not only in the medical field, but also in the biology,
sociology, psychology, economics, management science, and
so on. For instance, it has been used in studying the
convergence of individual body in an animal groups;
simulating the process of oral information transmitting;
exploring the principle of knowledge and technology diffusion,
and so on. So far, the research on risk diffusion with IDM
paradigm, especially from the perspective of business gene’s
vulnerability, can be hardly ever seen.
Currently, the most common used IDM are SIR model and
SIS model. In SIR model, the diffusion of the infection can be
described with the following differential equations：
ds di dr
= − β is , = β is − γi , = γi (1)
dt dt dt
Thereinto, β is the percentage of susceptible individuals
infected by some infected individual in unitary time; γ is the
ratio of healed over infected individuals; s, i, r represent the
proportion of individuals in susceptible group( S ), immune
group( I ), and infected group( R ) within the total population
respectively.
In light of the view that business’s risk induced by business
gene’s vulnerability has latent period, namely, it maintains its
original status before emerges. So we modify the traditional
SIR model to SEIRS infection model considering the latent
period. But before our analysis, we should make the following
assumptions:
(1) The population of a given business cluster is constant,
namely the number of withdraw and entrance should be offset
or balanced, where, the number of withdraw involving the
number of normally perishing and abnormally aborting due to
being infected by risks.
(2) All firms in a given business clusters could be divided
into four categories, namely: susceptible group (briefly denoted
as S ), latent group( E ), infected group( I ) and recovered
group( R )(have a certain degree of immunity, but is still
possible to be infected by some new risks). We use S (t ) ,
E (t ) , I (t ) , R(t ) to denote the number of firms in each group
( namely, S , E , I , R respectively) at time t ( t > 0 )，so we
have:
S (t ) + E (t ) + I (t ) + R(t ) = 1 (2)
(3) μ is the ratio of variation of firm’s number in a given
period; β1 and β 2 are the infective ratio of for group E and
group I respectively; ε is the possibility of members in group E
being transferred to members in group I; γ is the possibility
of members in group I being transferred to members in group
R; δ is the possibility of members in group R being transferred
to members in group S, where, β1、 β 2、 ε、 γ、 δ are
constants located in the interval [0,1] .
(4) 1 / ε is the average latent period, 1 / γ is the average
infected cycle， 1 / δ is the average immune period.
δR
β 1 SE εE
μ γI
β 2 SI
μS μE μI μR
Figure 1 The SEIRS model of business risk’s diffusion
Based on the above assumptions, we can figure out an
conceptual SEIRS model to describe how can business risk
transmitting between different groups due to the vulnerability
of business gene(shown in Fig.1) ， as well its numeric
relationship(a differential equation groups) could be depicted
as follows：
 From the equation (5), we can know that, E , I , R are all
⎧ dS
⎪ dt = μ − μS − β1SE − β 2 SI + δR positives in the non-zero balance point, and S < 1 . The non-
⎪ zero balance point means that the diffusion of the risks is
⎪ dE = β SE + β SI − (ε + μ ) E consecutive, namely, the point must meet the condition:
⎪ dt 1 2
dE
⎨ (3) = 0 ，and then, we can get the following equation:
⎪ dI = εE − (γ + μ ) I dt
⎪ dt
⎪ dR ( β1E + β 2 I ) S = ( μ + ε ) E (6)
⎪ = γI − (δ + μ ) R
⎩ dt Namely,
From the formula (3), we can discuss how the model γ +μ
evolves under some specific circumstances: ( β1 + β 2 ) I (1 − E − I − R) = ( μ + ε ) E
ε
1 γ +μ I γ +μ
(1) When → ∞ ，namely, δ → 0 ，the immunity of the ( β1 + β 2 ) I (1 − ) = ( μ + ε ) I (7)
δ ε H ε
business ecosystem is sustainable, and the recovered group( R ) I (γ + μ )(μ + ε ) 1
1− = =
will not be infected into susceptible group( S ), then, we can get H (β γ + μ
1 + β 2 )ε h
the SEIR model; ε
1 Finally, we can obtain:
(2) When → 0 ， namely, δ → ∞ ， the recovered
δ γ +μ
( β1 + β 2 )ε
group( R ) could be neglected, then we can simplify the SEIRS ε
h= (8)
into the SEIS model; ( μ + ε )(γ + μ )
1 Where, h is the threshold value of the risk diffusing
(3) When → 0 ，namely, ε → ∞ ，the latent group( E ) system. When h ≥ 1 , there is only one risk-free balance point in
ε
could be neglected, the SEIRS model could be simplified into the system, namely, the system has no positive balance point. It
the SIRS model. means that, all firms in the given business cluster corporate
members in the ecosystem have immunity to risks, and can
maintain a healthy development tendency; When h < 1 , there is
B. Balance Point and Threshold Value of the Model
only one positive balance point, namely, without further
Considering formula(2)， we can transform formula(3) to intervention, the risks will become stable eventually, and exist
the following three-dimensional differential equations: permanently in the business ecosystem.
⎧ dE C. Model Simulation
⎪ dt = ( β1E + β 2 I )(1 − E − I − R) − ( μ + ε ) E
⎪ In virtue of Matlab7.0，we employ the four and five orders
⎪ dI Runge-Kutta method to simulate and solve the above SEIRS
⎨ = εE − (γ + μ ) I (4)
⎪ dt model. Assuming that we adopt a general control strategy,
⎪ dR namely, limiting the susceptible group, monitoring the latent
⎪ dt = γI − (δ + μ ) R group, isolating infected group and intensifying immune group,
⎩
to prevent the firms from being infected by risks. In this way,
In the above risk diffusing system, let E (t )、 I (t )、 R(t ) = 0 , we can evaluate parameters in the simulation as following:
and S (t ) ≠ 0 , it means all members in the given business
μ = 0.08 ， β1 = 0.04 ， β 2 = 0.12 ， ε = 0.1 ， γ = 0.2 ，
cluster belong to group ( S ), we can get risk free balance point.
δ = 0.02 .
Actually, the risk-free balance point is also the zero
point (1,0,0,0) of the formula(4). Unfortunately, the risk-free Let E = x1 , I = x2 , R = x3 , and put corresponding
balance point is only an ideal status for business in a given parameters into equation (4), we can obtain following
business cluster, it’s impossible to happen in the process of risk differential equations:
diffusion.
⎧ x1 ' = −0.14 x1 − 0.04 x12 − 0.16 x1 x2 − 0.04 x1 x3
Let the left part of the formula (4) to be zero, we can get the ⎪
equilibrium that met any balance condition in the risk diffusing ⎪ − 0.12 x2 x3 − 0.12 x2 2 + 0.12 x2 （9）
system [10]: ⎨
⎪ x2 ' = 0.1x1 − 0.28 x2
⎪ x ' = 0.2 x − 0.1x
⎧ γ +μ ⎩ 3 2 3
⎪⎪ E = ε I
⎨ (5) Let x1 (0) = 0.3, x2 (0) = 0.12, x3 (0) = 0.08, t ∈ [0,20] ， and
⎪R = γ I compiling codes in the Matlab7.0 as follows：
⎪⎩ δ +μ
>> x 0 = [0.3;0.12;0.08];
>> odefun = @(t , x)[−0.14 * x(1) − 0.04 * x(1)^ 2
− 0.16 * x(1) * x(2) − 0.04 * x(1) * x(3) − 0.12 * x( 2) * x(3)
− 0.12 * x( 2)^ 2 + 0.12 * x(2);0.1 * x(1)
− 0.28 * x( 2);0.2 * x(2) − 0.1 * x(3)];
>> [t , x] = ode45(odefun,[0,20], x0);
>> figure(' numertitle' , ' off ' , ' name' , ' DAE demo − by Matlabsky' )
>> plot (t , x)
>> legend (' x1(t )' , x 2(t )' , ' x3(t )' )
The result of the simulation is showed in Fig.2. From Fig.2,
it’s easy to find that the percentage of both latent group and
infected group in the given business cluster decline all the
while. It demonstrates that the risks due to vulnerability in
these two groups have been controlled well. In contrast, the
percentage of the recovered group ascends in the initial period
and descends subsequently. It means that, in the short run, the
immunity for businesses in the recovered group had been
upgraded, and the percentage of recovered firm transformed to
susceptible firm diminishes because a part of infected
businesses have embodied the persistent immunity. However,
in the long run, the recovered firms are still possible to be
infected by some other inexperienced risks. So, we should
monitor the businesses in the susceptible group intensively, and
strengthen the immunity of the businesses in the recovered
group. Then, the diffusion of the risks due to business gene’s
vulnerability could be controlled effectively. In this way, risks
due to business gene’s vulnerability in the ecosystem will be
stabilized at a satisfied non-zero balance level.
0.35
0.3
0.25
0.2
Proportion
0.15
0.1
0.05
0 Vol16, 2001(4), pp392-398．(in Chinese)
0 2 4 6 8 10 12 14 16
Time
Figure 2 The image of the SEIRS’s simulation
IV. CONCLUSIONS
In the process of a business exchanging its resources (such
as information, capital, culture, labor, etc.) with its
surrounding, it’s inevitably accompanied with the exchanging
and reorganizing of different kinds of business genes. On the
one hand, a business can improve its haleness through seeking
and acquiring alien healthy business gene; on the other hand,
once a business absorbs some poor or defected business gene,
it would impair its haleness or increase its vulnerability, as well
incur the risk. The more severe thing is, once the risk diffuses
as an infectious disease does, it will be a disaster not only to an
individual firm but to the whole business ecosystem. So as the
most important conclusion of this research, we strongly
suggest, for a firm, it’s essential to improve its gene’s
immunity to external risk factors; for a business ecosystem,
management should take effective measures to prevent and
control the internal risks, and maintain the degree of risks into
a relatively low level.
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18 20