Diehl, Ernst W., "Strategy Support Software: Enhancing Executive Dialogue & Debate", 1993

Strategy Support Software: Enhancing Executive
Dialogue & Debate

Emst W. Diehl

Massachusetts Institute of Technology
-1 Amherst Street, E40-294
Cambridge, MA 02142
Tel. (617) 253-1512

ABSTRACT

Group decision making and discussion often leads to unanticipated. ends. The use of
strategic support software to improve such processes yields higher quality debate.
Simulation technology provides for explicit mental models, the exploration of
assumptions, and instantaneous analysis of "what-if" scenarios.. This paper will look
at how the design of executive support software is shaped by dialogue and debate, and
how interactive strategic management tools shape such discussions.

Introduction

Management teams meet to discuss strategic issues, problems and opportunities. Into
these meetings each manager will bring his or her own perceptions of important
opportunities for or possible threats to, their business environments. Managers must
sort through all the perceptions and decide upon the key issues, getting to the core
underlying assumptions. It is paramount for managers to surface and test these
underlying assumptions (Mason 1981, Wack 1985, Rockhart 1988). As Henderson et
al. (1984) argue: 2

The management of assumptions...can not be delegated. The
assumption set is the domain of executive management and the
responsibility for ensuring the validity of assumptions rests clearly
with executive management. We suggest that a major implicit
reason for existing ESS is to support executives in the analysis of
critical assumptions.

Morecroft (1987) stresses the importance of debate and dialogue ensuing from many
opinions generated by the management team's different mental models. In his view
mental models drive strategic change through recognition of problems and through
debate which leads to action plans. Enhancing the quality of executive debate and
dialogue is major concern.

The research challenge for strategic management is to create tools
and techniques that can be used as an integral part of executive
debate and dialogue to improve the quality of the mental models that
a management team evolves. (Morecroft 1987)

76 SYSTEM DYNAMICS '93.
In this paper I will discuss MicroWorld S**4™: Strategy Support Simulation System
@iehl 1991) in light of this research challenge. I will describe the use of MicroWorld
S**4 to improve group decision making by enhancing the quality of discussions. Two
questions are at the center of this paper: How does the nature of executive dialogue and
debate shape the design considerations of executive support software. And equally
important, how does the use of technology in meetings change the nature of dialogue
and debate in turn?

MicroWorld S**4 attempts to combine the benefits of dynamic modeling and executive
information systems and dynamic modeling (Diehl 1992b). While models are useful for
exploring tacit assumptions and for making mental models explicit, they lack advanced
data manipulation and retrieval capabilities of information systems. Executive
information systems, on the other hand, provide efficient ways to access data, but they
fall short in helping the decision-makers reexamine their thinking or reframe the problem
in a new way.

Initially, managers tend to see MicroWorld S**4 applications as useful off-line analysis
tools, the results of which might be used during presentations. With increasing
familiarity of the tool, managers integrate the use of MicroWorld S**4 into the
presentation itself by providing instantaneous what-if analysis in response to questions
in the ensuing debate.

Design criteria for software supporting strategic debate

Strategic discussions can turn in any number of directions. Managers need a tool that is
flexible enough to answer the "what-if" and "why" questions that lead business
planning meetings. To better handle such discussions senior management requires a
tool that will provide them with meaningful Teports and data to make assumptions more.
explicit; a tool to test assumptions and "what-if" scenarios on the spot while allowing
their model to remain flexible. MicroWorld S**4 has three key elements that provide the
needed flexibility: (1) Flexible report generation (2) Dynamic data analysis and (3)
Dynamic what-if analysis

1, Flexible re; eneration

To support instantaneous what-if analysis, data must be readily understandable and
must require little or no transformation. Like the simulation training system MicroWorld
Creator™ (Diehl 1990), the design of MicroWorld S**4 is guided by the belief that
whatever reports the manager uses in her 'macroworld' should be made available to her
in the emulated 'microworld' as. well. This provides the user with ready identification
with the information and increases the saliency of the output because. familiar

such as income/loss statements and balance sheets, create a bridge between the analysis
and the user's own decision-making environment (Diehl 1992a).

MicroWorld S**4 provides for a flexible report design. Reports are typically drawn ina
drawing program, copied and pasted into the application. The symbol ‘@' followed by
a variable name can be used in the report as a place holder for the actual variable in the
simulation mode]. Once the report is imported, MicroWorld S**4 substitutes the actual
value for each variable (Figure 1).

SYSTEM DYNAMICS '93, 7
(- Balance Sheet ™ f— Balance Sheet ™

ACME, Inc. ACME, Inc.
As of December 31, 1995 As of December 31, 1995
Assets
@Cash
.@Accts Receivable
>
Owner's Equity Owner's Equity
Owner's Equity @Owners_Equity Owner's Equity...
a : J Ke
Report in drawing program : Report in MicroWorld S**4
Figure 1

2. Dynamic data analysis

However, there is an inherent limit in preformulated reports. While reports can be
designed to support anticipated lines of inquiry, even the most experienced analyst can
only anticipate part of the questions that might arise during the course of'a strategic
debate. MicroWorld S**4 provides a unique tool to increase the bandwidth of data
analysis and to create dynamic reports. Clicking on any variable in a report will access
an_‘analytical lens' that is built into the program, (Figure 2).

(o ~ Balance Sheet ( i =)
‘ACME, Inc. Inventory :
As of December 31, 1995
TIME |]-®[REGION WenoDac}
Assets 1995
1997] ‘East North South West

$100,000 Small~ 975-800 975 630
> Medium 560 700 1500~ 770

Liabilities
2 Large 1200° 200 380 200

X S/S

Report in MicroWorld S**4 , . Analytical lens in data mode

Figure 2

78 SYSTEM DYNAMICS '93
The analytical lens extends the current analysis seamingless across time and across
dimensions such as competitors, product lines and regional markets. Any report thus
can be a starting point for questions such as: "How did inventory behave in previous
years? What are our inventory estimates for competitor X in Europe?”

3, Dynamic what-if analysis

The analytical lens does not only provide a framework for historical data analysis but
perhaps more importantly a framework for what-if analysis. What-if analysis can only
have an impact if its underlying assumptions have credibility within the management
team and if it avoids any mysterious black-box assumptions. To truly support the testing
of assumptions, the system needs to be open enough to allow in-depth exploration of
the model, without requiring extensive technical expertise. MicroWorld S**4 is based
on the principle that any assumption in the strategy system should be open for
inspection and should easily be changed. Clicking on any variable brings up the
underlying model assumption. (Figure 3)

(- Balance Sheet > (~
ACME, Inc.
As of December 31, 1995

~

Inventory

(time [Recion pRopucT

Inventory (now) =Inventory (last)
+Production (last)-Sales (last)

Uses: Is used for:
Production InventoryCost
Sales MaximumSales
Ne A
Report in MicroWorld S**4 Analytical lens in model ‘mode

The analytical lens canbe used as a starting point for exploring the model assumptions
and allows both causal backward drilling or causal forward drilling. For example,
having inspected the equation for inventory the manager might want to explore what the
underlying assumptions are for production or sales, the inputs used in the equation, and
might drill further backward. Similarly the manager might want to inspect how
inventory influences other parts of the model. Clicking on any variable name in the
"Uses' box or in the 'Is used for’ box turns the focus of the lens on the particular
variable.

The analytical lens allows a manager to probe deeper into any variable in a report that he
feels uneasy about. The underlying assumptions are there to be explored in a way that's
not intellectually overpowering—one equation at a time. In this way, the lens allows
managers to interact directly with the model. With the use of MicroWorld S**4's lens,

SYSTEM DYNAMICS '93. 79
managers can understand assumptions when they are ready to rather than being
overwhelmed by large listings of equations. Exploring the equations one at a time will
allow managers the opportunity to fully understand assumptions about the connections
between the different variables.

How technology shapes dialogue and debate

New technology to support executive dialogue and debate will in all likelihood change
the nature of the interactions taking place. In this section I will list some of the changes I
have noticed in several. companies that have introduced the technology. Some of these
changes are intentional. Other are subtle and unintentional.

One of the traditional advantages of using dynamic models is that assumptions are made
explicit and can more easily be.shared. Discussions using a model as a starting point are
structured and probing. Unexpected outcomes are observed, analyzed and can-serve as
the starting point for changing assumptions and ultimately mental models. Simulations
can be used to from a mental link between structural assumptions and behavior and to
debate the implications of policy charige (Morecroft 1987).

Very often the process of exploring assumptions seems to begin with what system‘
dynamics practitioner's might call partial model tests and extreme condition tests.
Users typically have a need to perform first-hand plausibility tests of the model. For
example, if a manager has a lot of experience with a particular market in the Far East,
he might ask: "What target shipments does the model predict for our competitors in the
Far East market?" Similarly, the manager might ask, "What if competitor X dropped
out of the picture? What would the model say?" Again, the manager may have an
intuitive feeling for what the result should be, and the model needs to come reasonably
close in order for him to accept the model's outcomes. The model needs to pass all of
these plausibility tests. It seems that a management team does not need to have created
the model by itself to believe in it, but that it can develop an intellectual ownership of .
the model through this process.

As managers use the system over time, the kinds of questions asked and the format of
the answers expected will be influenced by the technology. (1) The structure of the
model—-which variables are included or excluded—subtly affects the nature of what
the manager focuses on during a debate. For example, if it is easy to get information on
capacity and inventory (since these variables happen to be included in the model)
questions that concern competitor Y's capacity in Europe or a company's inventory of
product Z tend to increase. (2) All the data in a MicroWorld S**4 is easily displayed i in
time series format and this will shape the thinking of managers. When reviewing
competitor sales, it is no longer acceptable to receive data for only the last quarter or
year. It is now expected that analyses focuses on data from the last several years,
showing behavior over time. Sée Diehl (1992b) for a more detailed description of the
changes introduced by the use of the software.

Limitations

While the use of MicroWorld S**4 varies (Bean 1992 provides a cross-industry
example), typically an internal promoter supported by one or more analysts will
introduce the strategy support system into a group session as part of a presentation that

80 SYSTEM DYNAMICS '93,
provides on-the-spot what-if analysis. The use of MicroWorld S**4 in such a session is
characterized by substantial differences in the degree of participants’ familiarity with the
system as a whole and with the underlying dynamic model in particular. In such a
setting, a particular point of view is offered, underlying assumptions are discussed and
an invitation is extended to the rest of the group to substitute one or more of these
assumptions to explore the consequences of different courses of actions and business.
environments.

MicroWorld S**4 is a step towards Morecroft's prediction that

"...Strategic management tools of the future will become
increasingly interactive and take the form of graphic
‘playthings’ for sharpening executive mental models and
for stimulating debate and discussion." (Morecroft 1987)

Still, much is missing from fully realizing this vision. While it is easily possible to
change individual assumptions on the spot, much of the work going into a model-
based system is still done off-line by a group of analysts. The embedded model can
only enlighten discussions that stay within the boundary of the system. Major work
lays ahead to deliver strategy support software that is truly flexible and provides
structure for discussions without limiting them. While the steps towards this end are
not entirely clear-and leave much challenge for future research, we will know that we
have arrived once managers start to frown: "How can you have a meaningful strategic
discussion without strategy support software?" similar to the puzzled questions one
might hear today “How can you do financial analysis without a spreadsheet?"

SYSTEM DYNAMICS '93, 81
References

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Diehl, Ernst W., MicroWorld S**4™: Strategy Support Simulation System, Software
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Diehl, Ernst W. The model as a lens: Combining modeling and data support systems to aid in
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