preventing the next boom and bust
Posted: Mon Apr 02, 2001 3:32 pm
Ive had a couple of interesting responses from insiders in the recent
tech-bubble, who seem to share the sense of frustration. Heres one - who
prefers to remain anonymous ...
It seems to me that a logical first step would be to evaluate the business
plans (and associated spreadsheet models) used by several failed dot coms to
determine whether flawed assumptions and policies (discoverable using SD
reasoning) were present. If so, then you could draw the conclusion that
employing SD methods might have prevented a lot of waste. If not, then SD
methods would presumably have led to the same unfortunate outcomes.
As you know, most business plans are justified using spreadsheet models. If
it can be demonstrated that inherent limitations with spreadsheet models
render them unable to reflect realistic business operations, then the need
for SD (or something else) would be apparent. However, at this point, the
predominant feeling seems to be that the spreadsheet models are adequate
(or, in any event, as good as can be achieved) and there is therefore no
motivation to learn a more complex, less well-documented alternative.
Money is invested based on perceived management team talent, industry
trends, and the business plan. In the dot com case, "e-business" was
correctly perceived to be a rapidly growing industry. Many management teams
comprising outstanding groups of people were formed. That accounts for two
of the three prerequisites, leaving the business plan as the area where SD
might be shown to be a superior tool--sufficiently so to warrant the higher
development cost. The audience for this message would be the investment
bankers, who have many choices about where to invest. Perhaps a two-step
method would work. Step 1: screen candidate investments based on the
simpler, less expensive spreadsheet models (almost always within the
capability of the management team to develop). Step 2: require preliminary
winners to prepare SD models to validate the spreadsheet assumptions.
-------------
It looks like what we need to tackle the original question, then, is some
group who have a strong interest in anticipating and preventing a repeat of
this episode - strong enough to support some research. Any ideas who this
might be, anyone?
Kim
From: Kim Warren <kim@strategydynamics.com>
tech-bubble, who seem to share the sense of frustration. Heres one - who
prefers to remain anonymous ...
It seems to me that a logical first step would be to evaluate the business
plans (and associated spreadsheet models) used by several failed dot coms to
determine whether flawed assumptions and policies (discoverable using SD
reasoning) were present. If so, then you could draw the conclusion that
employing SD methods might have prevented a lot of waste. If not, then SD
methods would presumably have led to the same unfortunate outcomes.
As you know, most business plans are justified using spreadsheet models. If
it can be demonstrated that inherent limitations with spreadsheet models
render them unable to reflect realistic business operations, then the need
for SD (or something else) would be apparent. However, at this point, the
predominant feeling seems to be that the spreadsheet models are adequate
(or, in any event, as good as can be achieved) and there is therefore no
motivation to learn a more complex, less well-documented alternative.
Money is invested based on perceived management team talent, industry
trends, and the business plan. In the dot com case, "e-business" was
correctly perceived to be a rapidly growing industry. Many management teams
comprising outstanding groups of people were formed. That accounts for two
of the three prerequisites, leaving the business plan as the area where SD
might be shown to be a superior tool--sufficiently so to warrant the higher
development cost. The audience for this message would be the investment
bankers, who have many choices about where to invest. Perhaps a two-step
method would work. Step 1: screen candidate investments based on the
simpler, less expensive spreadsheet models (almost always within the
capability of the management team to develop). Step 2: require preliminary
winners to prepare SD models to validate the spreadsheet assumptions.
-------------
It looks like what we need to tackle the original question, then, is some
group who have a strong interest in anticipating and preventing a repeat of
this episode - strong enough to support some research. Any ideas who this
might be, anyone?
Kim
From: Kim Warren <kim@strategydynamics.com>