ST & SD in real life

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daniel.jarosch@au.pwcglobal.com
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ST & SD in real life

Post by daniel.jarosch@au.pwcglobal.com »

Jay wrote "The most important use of system dynamics should be for the
design of policies, that is, the rules that should govern decisions. " Of
course, I do not disagree to this. However, in common management practice
you only start analysing the structure / policies when you either have (or
anticipate) a problem or when faced with a critical (high opportunity costs
/ high costs of inaccuracy) decision. My question then was: should this
decision act as the entry point to introduce ST/SD? If yes, what are the
typical decisions? If no, what are the entry points?

Further replying to Gordon, I would not say that a certification of SD
accelerates the diffusion of SD in management practice. In my opinion it
could even slow it down. What would be the driving factors of a
certification?

What drove the success of other management tools such as the BSC, which has
been around for some 90years? (BSC Software?Certificates?The
Book?Critical Mass in Academia? academic background of managers? etc)

cheers
daniel
From: daniel.jarosch@au.pwcglobal.com
daniel.jarosch@au.pwcglobal.com
Junior Member
Posts: 6
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by daniel.jarosch@au.pwcglobal.com »

Hi all,

Often I am asked if Systems Thinking and Systems Dynamics has really
managed to become a aknowledged management technique in certain areas or
industries. Sometimes I struggle (I know I should not, but that is why I am
consulting you) with explaining the usefullness of Systems Thinking &
Systems Dynamics on a more concrete level and how it can be applied to
current issues. We have on one hand the academic concept which is very
abstract and generic and on the other hand we have case studies and
citations, often too specific and past oriented.
The question is now, what are typical management situations / issues of
today where Systems Thinking & System Dynamics would be the technique to
use or even better is used?

Greeting from Sydney
daniel
From: daniel.jarosch@au.pwcglobal.com
Imrana Umar
Newbie
Posts: 1
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by Imrana Umar »

Hi Daniel,

I think the range of manegement situations or issues
where ST/SD could be applied can only be limited by a
consultants ability to translate his/her clients
problems into a system dynamics structure. The concept
of Stocks and Flows alone have so much practical
application of simplifying what are otherwise very
complex and unmaintainable spreadsheet models. There
is also the problem of dealing with intangible assets
and social capital (soft variables) in financial
planning.

Our entire consulting practice in Powersim (millions
annually) is centered around SD modeling (feedback
theory and the techniques of computer simulation). I
have been doing this since 1993 and over the years we
have practically covered every management decision
area.

We have built models of Customer Relationship
Managemnt (CRM), Supply Chain Management (SCM), Human
Resource Management (HRM), Investment Analysis and
ROI, Financial Planning and Budgeting, Rolling
Forecasting, Customer Lifetime Value, Product
Lifecyle, Call Center Mangement, eCommerce, and many
other areas. None of these projects has lasted more
than 14 weeks.

Furthermore, these models are not research models, but
models that have been put into practical use, like
Executive Management Training and Decision Support. In
most instances, we have more than 200 managers using
the simulation for management exercises and on one
occasion we had 6500 managers going through the
exercise all at once.

The key to these successes is the ability to combine
the methodology and the technology effectively. That
is, deliver to the client a solution that has
practical use within the organization. There is a lot
of benefit gained by the client by participating in
the model building exercise. However, delivering an SD
model is not as good enough as delivering a Management
Training or Decision Support tool, which can be
integrated with enterprise database systems and being
accessible through the web.

This is very long, but I hope it offers some insight
into how pervasive and practical SD is in managerial
life.

Imrana Umar.
From: Imrana Umar <imrana_u@yahoo.com>

=====
Imrana A. Umar
703.627.9895
daniel.jarosch@au.pwcglobal.com
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Posts: 6
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by daniel.jarosch@au.pwcglobal.com »

Dear SD Colleagues,
thank you for your helpful answers to my request. I must admit I am quite
impressed by the number and the quality of replies this mailing list or
better the SD community produces.

Before I reply, I would like to give you a little background information in
order to let you understand my motivation of asking this question. 4 years
ago, in my job as a consultant, I was confronted with ST and SD for the
first time. It impressed me so much that I made a significant decision to
change the topic of the my Phd Thesis I was writing at that time: With no
background in it I decided to incorporate System Dynamics in my thesis. - I
had no idea what was in the room when I opened the SD Door....- For the
last four years I have been studying ST&SD and was obviously forced to
pause my PhD project. (thanks to my supportive doctor father, who let me do
it).
However, as you have probably noticed in my email address I am still with
PwC, and have moved to our strategic modelling group some time ago,
applying the ST&SD theory in real life. I have experienced that it is
usually no problem applying ST & SD modelling on the back of strategy
projects. And Imrana is right when he says that the most limiting factor of
applying SD is the ability of the modeller of translating the real life
problem. Nevertheless I found it quite tricky to sell SD on its own (to
clients, colleagues or friends). By the number of case studies, courses in
academia and management literature I would have expected more awareness of
SD in the industry and the current management thinking. But the reality (at
least my individual experience in this part of the world) is different.
If you need to spend a long time of your selling process to explain why you
are using this particular method your sales process becomes difficult. I
can not say that the proven benefits of ST&SD are widely appreciated and
that still an effort to bring it into todays management practice has to be
made. I really liked Alan Grahams response and his comparison to the
adoption of other management decision support tools like DCF and that we
are still in an early stage of the SD product life cycle. Drawing a
reference mode of the SD lifecycle we would then still be in an early
stage. A selective and targeted go to market approach to lead-clients
that have high cost of inaccuracy (of strategic planning) is definitely a
reasonable solution that I support.

Another point that might not appear too important at first, but from my
experience are obstacles in bringing SD to the road: It is not only the
lack of understanding of the concept of ST& SD, often it already starts
with the basic terminology such as complexity, dynamic and feedback, that
have become management buzz words. They are too often used without or even
with wrong understanding of the meaning and the implications of the terms.
Having a client who thinks he understands the terminology, but in fact
means something different is sometimes even more problematic than someone
who hears it for the first time.
In both cases (and now I come back to my initial question) the generic
academic explanations and terminology is not sufficient anymore. This is
when case studies and citations (which are indeed very valuable) play an
important role. But maybe these clients would not be considered as, using
Alans term, lead clients anyway.

However I am convinced there must be a better way. A form of
productisation of ST/SD where a list of widely known and as important
anticipated management issues/decisions can be addressed with ST&SD.

Imrana listed a number of problems that Powersim has successfully addressed
with SD: Customer Relationship, Management (CRM), Supply Chain Management
(SCM), Human, Resource Management (HRM), Investment Analysis and ROI,
Financial Planning and Budgeting, Rolling Forecasting, Customer Lifetime
Value, Product Lifecyle, Call Center Mangement, eCommerce, and many other
areas. These topics are indeed current management issues but they are
formulated in terms of functional organizational areas (i.e. scm, hr,
finance?), even though ST&SD takes a more holistic (cross functional) view
of an organization. (This would another point of tension between the
concept and modern organizations). Thoughts?

But what about defining the decision itself as the product? Decisions
where time is a critical variable, such as the diffusion of new
technologies, merger integration or industry deregulation. Situations where
the decision is de facto a process.
Building upon Alans reply I would demand further that SD, to become widely
accepted, it needs to be easy digestible as a product, like the BSC, DCF
etc. The general concept with all its benefits has to be understood by the
decision makers in the industry. The teaching of ST&SD in schools and
academia in this process plays definitely an important role just as the
development of SD desktop software. But I believe there are still some
untouched high leverage points that could bring SD to higher popularity.

Now, I better finish this email, otherwise I might receive some hate mail
for filling other peoples inboxes. But I would be happy to keep this dialog
open and further share insights. I am trying to attend the conference in
Atlanta and would be happy to continue the dialog in person.

Regards
Daniel

P.S. writing this email another (probably philosophical question) came to
my mind?. What is (are) the limiting capacity(ies) in the diffusion of SD
in management?

From: daniel.jarosch@au.pwcglobal.com
"Eric Melse"
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Posts: 1
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ST & SD in real life

Post by "Eric Melse" »

Dear Daniel,

I have read with great sympathy your summary email of the discussion thread
you started.

You seem to have made a serious effort to introduce ST/SD into your real
world practice as a consultant working in the management disciplines and
working on your PhD thesis, undoubtedly striving to make your own
contribution to the field.

What strikes me most in your summary response is your question:
"But what about defining the decision itself as the product? ....
Building upon Alans reply I would demand further that SD, to become widely
accepted, it needs to be easy digestible as a product..."

I think that, with this statement, you strike at the heart of your (and my)
problem:
Is ST/SD a product that can be sold/implemented/used by business people
for make (operational?) decisions?

Of interest in the context of this discussion is a Working Paper of Dr David
C. Lane of the London School of Economics and Political Science:
LSEOR 00.34 You Just Dont Understand Me: modes of failure and success in
the discourse between System Dynamics and Discrete Event Simulation
http://www.lse.ac.uk/Depts/op-research/fs_requests.htm
He points at the lack of dialogue between the ST/SD school and the (so
called) discrete event simulation (DES) school, which, in his opinion, has
resulted in very little (academic) cross-fertilization and thus
opportunities are lost to make more headway in the management disciplines.
(Note for a critical comment on this the REPLY Discrete Event Simulation
(DES) and System Dynamics (SD3216)
of Prof. R.G. Coyle)

I cite from Mr. Lanes paper, his citation (page 6) of G.P. Richardson and
A.L. Pugh, 1981, Introduction to System Dynamics modeling with DYNAMO:
"System dynamicists...deliberately move one step back from events: they
smooth discrete events into patterns of continuous behavior, and they blend
discrete decisions into continuous policies and pressures. They do so
because they believe that it is policy structure and dynamic behavior that
are connected through the feedback concept, not individual events and
decisions. ..."

Are we then not expecting something from ST/SD it can and will not deliver?

Personally, I tried to build up a ST/SD practice some years ago, aimed at
meeting the same market demands as you are doing.
I can claim that ST/SD can be a success for making business decisions in the
operational sense, because my customers have told me so.
But not without paying a price, not without diverging from the ST/SD
methodology to a point where many will question if what is happening has
anything to do with ST/SD to start with!

But, what I have learned is ST/SD has shortcomings that must and can be
addressed should we ever hope to meet the demands of the market you
articulate.
I can add to that my opinion that the current SD software prohibits
average business users to make use of SD/ST modeling-simulation for the
purpose of making business decisions of a more operational nature. Again,
all this is probably very much at odds with the claimed objective of ST/SD
in the first place (personal & organizational learning etc.) and very much a
tool for the more sophisticated user, both thinker and modeler.

Can we expect to be able to gain the attention of the business community at
large with a methodology and technology that is primarily focused at raising
peoples understanding of systemic behavior, i.e. (trying to) make mental
models (more) explicit and thus further the capacity of people (managers) to
learn about their mental models, and, possibly, change them? I think not,
most managers just do not care. Most ST/SD practitioners will then
(probably) reply: "Fine, then we cannot engage on a project." My response is
instead: I have a problem-I have to solve that first before anything can
happen! Of course, this is not a very good sales situation.

Personally, I think, ST/SD is much less about making decisions then people
are made to believe, especially those who use SD modeling-simulation
software.

Therefore, any effort aimed at the implementation of ST/SD, in whatever
form, in a business environment as a decision support tool, needs first to
address fundamental questions about the appropriateness of the methodology
and technology to be used for that purpose. The answer might be full of
surprises.

Best regards,

Eric Melse
Nijenrode Accounting & Auditing Center
The Netherlands
eric.melse@inter.nl.net
Alan Graham
Member
Posts: 27
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ST & SD in real life

Post by Alan Graham »

Daniel (and SD colleagues in general),

Sometimes the simple questions are the most profound and interesting.
Youre quite right that typical answers to your questions would be either a
plethora of abstract statements of the general form "use dynamic models when
the situation is dynamic" or specific statements of the form "it should be
used here because it has been used here."

Ill propose a somewhat different answer below.

Both types of answers you identify are rooted in the present, but the spread
of dynamic modeling (and its younger sister, systems thinking) are following
their own technology diffusion dynamics. Suppose twenty years ago we had
asked "in what situations should we use discounted cash flow (DCF) instead
of the easier time to break even, or other evaluation methods? We would
have gotten answers along the lines "use it in special circumstances X, Y,
and Z because its tricky and nobody knows how to do it." But even at that
time, there would have been "lead users" of the technique, in Eric Von
Hippels sense of organizations whose needs anticipate (often by many years)
the trends in the needs of the broad market, and whose economic incentives
cause them to investigate and adopt the technique on their own.

And indeed, such the current answer given about both dynamic modeling and
real options, in, e.g. Courtney, Hugh, Jane Kirkland, and Patrick Viguerie,
"Strategy under Uncertainty," Harvard Business Review, Nov-Dec 1997, 67-79:
its useful for only situations known to be very difficult (uncertain, in
their case). But System Dynamics consultants do deal all the time with
"lead users", whose needs for dynamic analysis are more pressing (or more
precisely, are perceived more clearly as pressing) relative to the broad
mass of corporate organizations.

With all that as a preamble, let me give my partial answer to your question,
rooted in a vision of the future based on PAs (the former Pugh-Roberts)
years of dealing with one class of "lead users". Ill be blunt, as I think
its important to be clear about the direction at least one part of the
field is headed:

System dynamics is the most appropriate technique from which to initiate
strategy formulation and execution for corporations with multiple lines of
business ("product/market combinations") and market capitalization of
several billion dollars.

Thats not to say numerous other strategic analysis tools will be
inappropriate, but I am saying that a system dynamics model of the
corporation is the one thing a corporation should always have, and that
should be guiding and informing use of other techniques. Anything less than
a high-quality, well-validated system dynamics model leaves the corporation
vulnerable to being blind-sided by the gaps and shortcomings of simpler
approaches. (Ill be writing more about this topic in due course.)

The paper by myself and Carlos Ariza on allocating marketing resources (to
appear in this summers SD conference) reports on one such model and use
(along with the shortcomings of standard approaches). The reports past and
forthcoming by Rick Park, Donna Mayo, and Bill Dalton of PA on London
Undergrounds privatization are another example. Warren and Morecrofts
corporate model conceptualization and insight approach, based as it is on
the "resource-based view" of strategy, which in turn rests on solid
microeconomic foundations, offers an extremely generic approach to
initiating such corporate strategy models.

There will many more examples forthcoming, and I expect to see an
ever-increasing body of both cases and theory (i.e. abstract frameworks)
that support this thesis.

Note that this is a ten- to twenty-year proposition. For DCF to move from
something that only financially sophisticated analysts or consultants did,
to something a manager is expected to understand and do (at least simpler
applications), it took an expanded treatment of DCF in MBA training, and the
graduates working their way into corporate life. For system dynamics, the
academic infrastructure (read: professors teaching SD courses) and the body
of written knowledge continues to expand, and the software continues to
become more and more supportive. Consultants continue to rack up cases
among lead users of SD at the corporate strategy level. But these are all
longer-term processes. Like so many other innovations ("broadband to the
home"), theoretical demand will exist long before the infrastructure can
deliver economically to the broad market.

Now why is this a partial answer? Because there are doubtless other market
niches where the technology diffusion pattern has become clear. Certainly
PAs (and others) work on dynamics of managing complex projects is one area
where theres both a clear track record of lead users, and every reason to
believe usage will expand over time. And the question of how smaller
organizations can benefit from SD/ST is still very much uncertain. (Some
may remember that ST arose as a research topic to see what benefits could be
derived without the resource comitment of quantitative modeling.) This is
an active research topic for Carmine Bianchi and colleagues
(
http://www.mailbase.ac.uk/lists/sme-lea ... ng-growth/)

I dont know of parallels for track records in systems thinking (as distinct
from quantitative system dynamics modeling). You may find the paper by
myself and Sharon Els from the 1999 system dynamics conference (New Zealand)
relevant to this question, as it discusses a variety of different niches for
the variety of system dynamics-related disciplines being practiced today.

cheers,

alan


Alan K. Graham, Ph.D.
Business Dynamics Practice
PA Consulting Group

Alan.Graham@PAConsulting.com
Direct phone (US) 617 - 252 - 0384
Main number (US) 617 - 225 - 2700
Mobile (US) 617 - 413 - 7801
Fax (US) 617 - 225 - 2631
One Memorial Drive, Cambridge, Mass. 02142 USA
"Jay W. Forrester"
Senior Member
Posts: 63
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by "Jay W. Forrester" »

In (SD3256), Eric Melse wrote:
>
>Is ST/SD a product that can be sold/implemented/used by business people
>for make (operational?) decisions?
>

Such comments, which have run through much of this discussion about
using system dynamics, focuses on decisions and seems to miss the
real power of system dynamics. The most important use of system
dynamics should be for the design of policies, that is, the rules
that should govern decisions. Indeed, that is a fundamental change
in the management paradigm and will not be easy for managers to
embrace. A system dynamics model should first show how past policies
created the current difficulties. Then, one experiments in the model
with alternative policies in search of a better-behaved system. The
policies are relatively stable and unchanging and are used to guide
the day-by-day decisions. Focusing on todays decision without
knowing how past policies created the present difficulties, and
without knowing what policies will guide future decisions will often
(or usually) be misleading.

Chapter 10, "Policies and Decisions" in
Forrester, Jay W. (1961). Industrial Dynamics. Waltham, MA, Pegasus
Communications.
may be helpful in making the important distinction between policies
and decisions. System dynamics should be used for designing policies.
--
---------------------------------------------------------
Jay W. Forrester
From: "Jay W. Forrester" <
jforestr@MIT.EDU>
Professor of Management
Sloan School
Massachusetts Institute of Technology
Room E60-389
Cambridge, MA 02139
"Gordon Kubanek & Carmen Hust" <
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ST & SD in real life

Post by "Gordon Kubanek & Carmen Hust" < »

Another view on the SD in the real world conversation...

We currently have no accepted body of knowledge which is recognizable by the
world outside of SD that can certify to a client that this practitioner is
"certified".
IF we ever want to recognized as a Business Policy Method by rank & file
managers, say in the way that project management, www.pmi.org
we need a standardized body of knowledge, training course & exam so a SD
practitioner can show client that his/her expertise has been validated by a
reputable certification body.
I would like to talk with anybody interested at the Atlanta Conference about
this idea - I have heard from consultants outside "our fold" - but who look
in - say that in 5 years the world may be ready for SD - the question is
will we be ready for the world?

Gordon Kubanek P.Eng.
Ottawa Canada
chust@monisys.ca
"Jim Hines"
Senior Member
Posts: 88
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by "Jim Hines" »

Gordon Kubanek invites interrested folks to discuss SD certification in
Atlanta this summer.

This comes idea comes up from time to time, and I for one would like to
discuss it again in Atlanta.

At the moment, anyway, I think I am opposed to it -- although I certainly
recognize the allure. I just think its going to be too difficult for us to
agree on what an SDer needs to be certified or to agree on giving anyone the
authority to decide who is good enough and who is not.

A more promising route, suggested a few years ago by David Andersen, might
be to certify educational programs, rather than individuals. This seems
MUCH easier to me, and might accomplish 70% or more of the objectives.

Regards,
Jim Hines
jhines@mit.edu
Bill Braun
Senior Member
Posts: 73
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by Bill Braun »

At 10:08 AM 6/1/01 -0400, Jim Hines wrote, in part:
>A more promising route, suggested a few years ago by David Andersen, might
>be to certify educational programs, rather than individuals. This seems
>MUCH easier to me, and might accomplish 70% or more of the objectives.

I concur at the same time I offer a minor dissent (driven by
self-interest). Does this leave room for the self-directed learner? I have
most every book on SD published (to the best of my knowledge) and have
studied them all. Im sure my knowledge and understanding is incomplete. I
wish to continue to learn, and going away to school at this juncture in my
life is not feasible. Id like to know where I am deficient and continue to
hone my skills in those areas. Individual certification would address a
good part of that.

Bill Braun
From: Bill Braun <medprac@hlthsys.com>
"Jack Ring"
Junior Member
Posts: 12
Joined: Fri Mar 29, 2002 3:39 am

ST & SD in real life

Post by "Jack Ring" »

Hi all,

This response is a little late because I have been otherwise occupied
and it presents a somewhat broader view than Daniel may have intended
but the question is so important that I feel compelled to bother you
even though the thread may be dead.

The following views are based on a rather unique and fortuitous
background; 40 years of management of high tech and other fuzzy
businesses concurrently with 40 years in systems.

I would like to approach an answer to Daniels question by rephrasing it
to the negative as: What are the consequences of operating an enterprise
without a) a good understanding of systems thinking and b) competencies
in Identification of systems, Design/architecting of systems,
Engineering of systems, Adapting of systems and Learning to do all of
the above better next time? In short, the IDEAL of systems.

The answer, in a nutshell? Waste. At a rate equal to about 20% of the
GDP of most nations and 50% of the toxic emissions of most nations.
Consider that GM recently spent $24 Billion on sales promotions in order
to clear excess inventory. The source of excess inventory, of course,
is an inaccurate market demand model. Further, the promotion spent the
money but didnt clear much. Another faulty model?
Consider the sum of all "restructuring costs" (the euphemism for Ooops)
cited in annual reports.
Consider the hundred million dollar thrust into eBusiness that CEO
Nasser has plunged Ford -- without a dynamic model of the "patient" on
which surgery is to be performed by hundreds of asynchronous surgeons.
Consider the hundreds of other examples of dumb decisions because
management theory assumes the earth is flat even though humans interact
as second order differential systems. How many managers are able to
sort out second order differential systems in their little noggins?

And if that is not enough, consider that the one parameter they
understand the least, delay, is busily changing throughout businesses
small and large, local and worldwide because of the world wide web.
What happens if a currently well run company has many of its delays
changed by a factor of 3? Chaos, thats what.

As I scan academia, and the order of magnitude larger educational
enterprise called Corporate Universities, the most glaring deficiency is
the lack of courses and experiences on the IDEAL of systems.

SD as a skill and toolset must be considered fundamental because it can
be therapeutic in all five phases of the IDEAL systems gestation
scenario. It is not sufficient but very necessary.

There is more to be discerned about Systems Dynamics, the topic, than is
revealed by the stocks and flows flavor of SD but that is not an
important discussion to have when less than 1% of those who need to know
even the basic SD do not know it.

My question is, why is not the SD society banding together with others
interested in systems and lobbying hell out of NSF, NAE, The Conference
Board, UN OCED and everybody else in sight? If you dont believe me,
read the agenda of the forthcoming Corporate Universities Conference in
Switzerland.

http://www.cuweek.com/global/gl_agenda.htm

Ill wager that you get alarmed and, hopefully, energized.

Thanks for reading. And thank you, Daniel, for the trigger.

Jack Ring
Never (mis)take Know for an answer.
From: "Jack Ring" <jring@amug.org>
Locked