Posted by Richard Stevenson <
rstevenson@valculus.com>
Along with many others, no doubt, I broadly welcome the creation of a
""task force"" to examine the future of system dynamics.
But I sincerely question that it is possible to develop a global ""vision
and strategy"" for the field as a whole without considering more specific
interests - and specifically the future of SD in business.
Below, I try make some positive (but perforce limited) suggestions as to
how we might begin to make a difference in business. But we must start
from where we are now - and I see very limited evidence that there is
currently a collective view, nor any real capability within the SD
community, to make significant change in our strategy. Rather, the SD
world persists in the view that, if only we give out the same messages
often and loudly enough, the business world will eventually begin to see
the light. The reality is the opposite - SD has already had several
chances to make a difference, and has flunked them all.
Rather, SD itself must adapt to the way the business world works.
*Different strokes - SD's successes and failures*
SD suffers from the very fact that it is ubiquitous. It is applied in
education, in many sciences (including social science and economics) and
in business - both strategy and operations. The needs and the required
forms of application are utterly different in each case. There is a
tendency for new practitioners to believe that, having a little
experience in a particular domain, they can understand and express wider
applications of the SD disciplines. In reality, there is only a tiny
handful of SD practitioners who understand anything other than issues
that they have addressed in their own special domains.
SD’s impact in education and the sciences is undisputed - and it’s not
too difficult to see that it will continue to develop in these areas.
K-12 (e.g.) initiatives and disparate academic centres of excellence
will ensure this happens. So, first, let me say that I personally have
absolutely no experience, and hence nothing more to say, about SD's
future development outside of the business arena.
But the greatest failure of SD is to make a deep and lasting impact in
business. After all, in /Industrial Dynamics/ (1961) Forrester first
claimed that ""management is on the verge of a major breakthrough"".
Forrester himself was not initially concerned with education and
science, but with business strategy and design. So why hasn’t SD
happened in business, after 60 years?
*For a start - this forum is not the best place to discuss these serious
issues*
It is proposed by the strategy team to use this listserve as the primary
exchange of views on the future. Yet what I see here is only a
community of well-meaning yet largely inexperienced opinions, often
exchanging views on the number of angels dancing on the head of a pin.
Sadly it is the case that those who can do (in business at least) just
don't communicate on forums like this. Ask yourselves, why?
There is still, after 60 years, no coherent SD approach to the business
market. How many serious SD practitioners have ever had to justify their
conclusions (and maybe their careers) to a sceptical Board, or to
shareholders, or have been responsible for reconciling short-term
strategy (the easy route) with long-term value creation (the necessary
but difficult route)?
If the SDS is really serious about conducting a ""strategy review"", then
it needs to adopt a more formal and controlled forum of business people,
headed by people who have appropriate business credentials as well as SD
experience. Reality is that the SDS is still a tiny - yes a tiny -
collection of academics who appear to revel in their academic isolation.
However, and in a good spirit, here are a few thoughts for starters.
*Past SD initiatives in business*
SD’s greatest opportunity and challenge in business is as a strategy
support tool - and here SD has been both widely touted and conspicuously
unsuccessful in creating wide, long-term organisational impact. Sadly,
even where SD has provided significant strategic insights (and of course
there are many, many examples) it has never become embedded in long-term
organisational thinking.
Since Forrester’s original pioneering work there have been just two
significant SD initiatives in the business strategy arena.
/Systems Thinking/
The first was the ""systems thinking"" movement initiated by Senge et al.
Forrester has described this as an attempt to ""dumb down"" SD and I
agree. There was a bubble of interest that faded as managers realised
that systems thinking generated over-expectations and totally
underplayed the skills needed to deliver results. In retrospect,
systems thinking damaged SD considerably in the business arena - and we
now ignore this lasting effect at our peril.
/Strategy Dynamics/
The second movement was initiated by Barry Richmond in the 1990's and
has been most recently described by Kim Warren. But ""strategy dynamics""
is really no different from Forrester’s original work - it's just
another name. It requires managers to directly address the physics of
their businesses with stock/flow thinking. Fundamentally it expects
managers to become proficient in SD - and as Forrester himself states,
this requires extensive study and practical application experience. So
it is unlikely (in the extreme) that managers will ever follow this
route in any great numbers.
Both these approaches are governed by a static mental model that says
that, given basic understanding of SD principles, managers will suddenly
'see the light'. Thus there really has been no intellectual
breakthrough since /Industrial Dynamics, Urban Dynamics, World Dynamic/s
and /Limits to Growth. /In short, SD has atrophied rather than grown in
business. Neither systems thinking nor strategy dynamics have anything
much more to say than Forrester's original work. In fact, both
movement occlude it. Forrester's work remains the beacon.
So if we really are serious about rethinking the future of SD - we need
to completely rethink the way that SD fits into the way that the
business world actually works.
*New requirements for SD in business*
SD in business is currently mired between over-simplification (loosely,
systems thinking) and managerial incomprehension (loosely, strategy
dynamics). So the key to the way ahead must therefore lie in three
interdependent directions.
/1) Competence - a more professional approach/
We must never again downplay the complexity of SD, as many ""short
courses"" and distance learning programmes aim to do. I personally have
been guilty in this respect, as have (in particular) all the SD software
suppliers. MBA electives do not suffice, either. Many managers have
been seduced and then disappointed - and nothing is more damaging in
business than disappointment.
Rather, we should be actively promoting understanding that SD, like
finance, medicine and engineering, is a serious discipline that requires
a professional, developmental approach. There is no quick development
route - SD competence can only be acquired ""on the job"", not taught (as
Forrester himself continually says). The PROBLEM is that learners are
(rightly) afraid to test their putative skills on big, important
problems and companies are (rightly) unwilling to let them do so. Would
you let a first-year medical student operate on your heart,
unsupervised? But how else do you learn?
So we need professional development qualifications - underpinned by a
competence framework that is based on practical experience in business
and supervised by practitioners having years of real business
experience. There are a few such people worldwide - but only a very,
very few. We should be developing more!
This idea of competence is not the sole fiefdom of universities and
business schools - rather it requires a professional body approach that
mirrors the career routes of (e.g.) surgeons, lawyers and accountants.
In fact, the business schools are culpable by promoting the short
course mentality (even MIT, who are currently running one-week SD
programmes for managers). That is not the way ahead - and it could
indeed be the road to perdition.
/2) Inter-disciplinary thinking/
SD practitioners must work hard to comprehend how business works in
practice and meet those needs, rather than thinking of SD as a ""stand
alone"" strategy discipline. This requires (inter alia) business
knowledge, financial fluency, industry familiarity and (of course) deep
understanding of SD structures. These are indeed rare skill sets - that
cannot even be learned at MBA level. It is pretty unlikely that career
academics, based lifelong in their universities and tied to academic
strictures, could ever develop the range of front line skills
required. And consultants (particularly the big consultancies) are not
interested in wasting their chargeable time on developing SD skills - so
they can never be a power base in the development of the field. They
have all tried (e.g. McKinsey) - and they have all ultimately failed.
These broader business competencies must be wired back into the
necessary SD competence framework.
/3) Integration and management communication/
Third, it will be vital to apply - and to promote - SD as a component of
a much larger strategy decision framework. As Forrester himself says,
""we must break the boundaries between…finance, marketing, production and
personnel"". This means weaving SD into the actual decision structures
of organisations - not the other way around! We must be bold in
recognising that we don't actually hold all the keys to the kingdom -
and that SD has been intellectually aloof.
The reality is that all organisations are governed by market
imperatives, external regulation - and by inter-personal dynamics. If
the CEO, CFO, the CMO and the rest of the top team don't communicate
effectively, no amount of analysis will help them. So SD's role can be
to help them to communicate through developing strategy - both with each
other and with external stakeholders. There is no more powerful
approach to ""hearts and minds"" than providing a medium for
communication. SD is a powerful communication toolset.
So the key - and the opportunity - to SD's progress in the next twenty
years, lies I believe, in understanding two major new business realities.
*A) Value - and the changing role of the CFO*
First, we need to understand that 'strategy' is no longer (if it ever
was) a discipline in its own right. In particular, strategy is
intrinsically bound up with finance.
There are huge changes afoot in the strategy and finance arena - and
hence great new opportunities for SD. In particular, the finance
function is changing rapidly and is progressively assuming
responsibility for strategy. Today’s new CFO is light years’ different
from the old ""control and command"" finance director - he assumes primary
responsibility for creating value in the long term, across the whole
organisation - and communicating value to a wide range of stakeholders.
Value is a real, tangible concept that derives from the resource-based
view of the firm - and hence SD is brilliantly positioned to describe
and communicate it. *Resource allocation = strategy = value*; this is
a powerful new proposition for SD. It takes Forrester's original
propositions and turns them towards the new concerns of business.
*B) Globalisation - and changing ideas in long-life industries*
Second, we should recognise that SD is not equally applicable as a
strategy tool in all industries. In particular, we have comparatively
little to say (apart from 'beer game' type issues) in short life cycle
industries such as retail and FMCG.
But in the past decade we have witnessed a seismic shift in strategy
attitudes in ‘long life’ capital industries such as pharmaceuticals,
energy and utilities. In particular, such industries have been directly
affected by new attention from regulators and by global competition.
Sleepy European and USA companies are being challenged by more nimble
competitors from (e.g.) India and China. Pharmaceutical companies, in
particular, have seen their market values slashed as their patents
expire or are challenged. Energy companies must maximise value from
each and every investment. Even utility companies are increasingly
traded internationally and must hence justify their long-term value
propositions.
A defining characteristic of all such industries is that investment
returns are earned in timescales way beyond the tenure and reward
systems of their managers. Only tools such as SD (indeed only SD!) are
capable of illuminating these inherent time dichotomies. This is a mind
shift for SD practitioners raised on ""beer game"" principles based in
short-term operational thinking. The hard thinking now is the
transition to confront long-term strategy (often over over decades). The
insights that SD can bring to reconcile long-term outcomes with
short-term management actions can be both highly valuable and motivational.
*SD is uniquely positioned...*
Hence my belief that SD could be on the verge of a major breakthrough.
Indeed, business conditions are currently more propitious for SD than
at any time since /Industrial Dynamics/. In the past 50 years, you
could have been an ape and been successful in business (hmmm....). But
suddenly, the tide has turned in favour of intellect . And so here's
our opportunity.
*But...*
It is also my belief that our field is hamstrung by a lack of business
competence, organisation and willpower. We have very few practitioners
capable of making the breakthrough.
We must shift our emphasis away from promoting SD in its own right - and
take a market-based perspective in business. The primary customer is
the CFO, who speaks the language of value - not of systems. The need
and the opportunity is to provide deep insights into the relationships
between strategy and long-term financial value, using the language of
resources - indeed the very language of SD!
I suggest that our ""task force"" should address these issues by engaging
significant external expertise and interest - not simply by reinforcing
entrenched SD ideas with internal SD 'experts'.
Richard Stevenson
Valculus Ltd
Posted by Richard Stevenson <
rstevenson@valculus.com>
posting date Wed, 23 Apr 2008 22:20:57 +0100
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