Using Feedback Systems Thinking and
Simulation in Core Strategy Teaching
An Application Presentation for the
2018 International System Dynamics Conference
Reykjavik, Iceland, August 2018
Dominic Houlder and J ohn Morecroft
London Business School
Abstract
Simulators based on principles of system dynamics are increasingly
used in management education. However there is a pedagogical
challenge for instructors who wish to connect the insights from
such simulators to established concepts and frameworks in core
courses. Here we report the deployment of a well-known simulator,
Fish Banks, in a core strategy course for students enrolled in EMBA-
Global - a dual degree programme offered by London Business
School and Columbia Business School. We review the design and
content of the strategy course and explain how feedback systems
thinking and simulation are used to engage students with important
general management topics such as the frames and mindsets that
shape top management behaviour, the cognitive biases that
obstruct sense making and the challenge of working in groups with
conflicting perceptions of a situation.
Problem Statement
Business school instructors are bringing more and more simulators
into the mainstream of core strategy teaching.
But how can simulators based on system dynamics be deployed to
fit well with established strategy concepts and popular case studies
while also demonstrating the benefits of feedback systems thinking
and simulation ?
We report results from using the Fish Banks simulator in the core
strategy course for EMBA-Global at London and Columbia Business
Schools.
Value Statement
The value and visibility of system dynamics in management
education will be dramatically improved if mainstream strategy
instructors use feedback systems thinking and simulation wisely in
core courses.
There are value and visibility analogies for the use of system
dynamics based simulators in other areas of mainstream education.
@
What is EMBA-Global? London _HKUL 4 Columbia
Schod BUSINESS Business
SCHOOL School
EMBA-Global
The Executive MBA progremme for
globally focused executives snd managers
EMBA-Global is a partnership programme between Columbia Business School,
London Business School and The University of Hong Kong designed for
experienced executives to gain the insight, network and international perspectives
to become successful global business leaders.
THE ELEMENTS OF A STRATEGY
WHAT?
WHY?
Position ———>
choices
THIS SESSION’S OBJ ECTIVES
Define and execute a simple strategy,
working in groups
Understand how our actions impact rivals,
and their consequences for the sector
Discover how our ‘frames’ govern what we
seek to achieve and how we execute
GAME BOARD
YOUR LEGACY
RECENT HISTORY OF THE FISHERIES
YEAR PRESENT
WHAT HAPPENED TO THE FISHERIES?
PHN, PF
QUESTIONS FOR YOU
Why did we let the fisheries collapse?
How might we have avoided this outcome?
What obstacles might we have faced?
What analogies do you see between this
simulation and the real world?
x<xmo2—
TYPICAL GAME BEHAVIOR
3 m—Fish Catch
“TRAGEDY OF THE COMMONS”
Even the most successful would have been
better off had they seen the bigger picture
IRRATIONAL EXUBERANCE?
RATIONAL DECISION MAKING?
Weak or absent market signals: fish price remains
constant
Published data at system level ( total assets) are
lagging indicators
No published information about total catch or
leading indicators such as fish population
—,
How might we have obtained or inferred critical
information about the health of the sector?
COOPERATIVE INFORMATION SHARING AND
ACTION SOUNDS NICE...
- f
D
f) d
- | H
‘
BARRIERS TO INFORMATION SHARING AND
ACTION
Competitive mindset automatically adopted
Opportunities to cooperate described as
“trading”
Apparent one-off winner-takes-all opportunities
(auctions, sales)
Time horizon unclear so tend to short-termism
Long lags: by the time problems are apparent,
radical disruptive action is needed
Inequality: larger operators sacrifice more
Lack of trust, shared values and community
TEDxWarwick - John Kay - Obliquity: How Complex Goals Are Best
Achieved Indirectly
OBLIQUITY
“Strange as it may seem, overcoming
geographic obstacles, winning decisive
battles or meeting global business
targets are the type of goals often best
achieved when pursued indirectly. This
is the idea of Obliquity. Oblique
approaches are most effective in difficult
terrain, or where outcomes depend on
interactions with other people.”
- John Kay
THE ICEBERG OF SENSE-MAKING
EVENTS
/ Patterns and trends
/ Underlying structures and forces
/ re \
Source: Senge (adapted)
TRANSFORMING OUR OWN PERSPECTIVE
Events: on which we tend to focus e.g. drop in
our own catch
Patterns and trends: that alert us to a
fundamental issue e.g. change in total catch
Underlying structures and forces: the deeper
factors driving trends e.g. stocks must be
falling fastest when catch is greatest
Frames: through which we see the world that
allows the situation to persist
Source: Senge (adapted)
FRAMES GOVERN BEHAVIOUR
FRAMES CAN BECOME BLINKERS
FRAMES ENCOUNTERED IN THE GAME
Extrapolationist: “Our actions won’t affect the future; there will
always be fish”
Win at All Costs: “You’ve got to win; it’s that simple”
Titanic Syndrome: “If we’re going down, we might as well go
first class”
Bummer: “Things are the way they are and there’s nothing we
can do about it”
Social Trap: “If others do it, I’d be stupid not to”
Moral High Ground: “My first responsibility is to my family”
Invisible Hand: “Someone or something will take care of it”
Shameless: “I want a lot and I don’t care about the
consequences”
Fairyland: “It’s just a game”
Source: Senge (adapted)
THE PARADOX OF FRAMES
To make sense of a complex world, we impose a
frame on it
« Simplifying and focusing our field of view
= Borne of what we know to be important through experience
Over time, frames become embedded in
Metrics
Policy rules
Success stories
And more
Committing to shared frames enables aligned action
But frames limit what we are able to see - and do
SPOT THE DIFFERENCE
Google Yahoo!
LIDL Tesco
Emirates Gulf
Zara Benneton
Brahma Antarctica
Apple Sony
Amazon Barnes & Noble
Fujifilm Kodak
Embraer Fairchild Dornier
Lafarge-Holcim _Blue Circle
Sa
Both winners and losers faced similar opportunities and
had with them the resources for success
WINNERS AND LOSERS: HAND
DEALT OR HAND PLAYED...
Capabilities offered
and required
ACTIVE INERTIA
Inertia is the resistance of
any physical object to any
change in its state of Industry
motion, including changes conditions
to its speed and direction
ee
CAN WE SEE AND
ACT IN GOOD TIME?
Pita al
Our
organisation
Time
)
CO-CONSULTING WORKBOOK
ASSIGNMENT
For our businesses
What ‘frames’ can we infer from
its decision rules, measurement
systems, rewards, promotions
and celebrations? What are their
consequences?
For ourselves
What are our habitual ‘frames’?
How have they constrained or
enabled what we could
accomplish? How might we need
to stretch them?
Discussion
Views and reflections about the value and visibility of system
dynamics in management education.
Value and visibility analogies in other areas of mainstream
education.
Bibliography
Ginsberg A. & Morecroft J . (1997) Weaving Feedback Systems Thinking into the Case Method: An Application to
Corporate Strategy, Management Learning, 28 (4), 455-473. Also available under e-Topic: Diversification, on the
Instructors’ website for Strategic Modelling and Business Dynamics 2" Edition, Wiley 2015
www.wiley.com/go/strategicmodelling2e (accessed 23 February 2018).
Meadows, D.L., Fiddaman, T. & Shannon, D. (2001). Fish Banks, Ltd. A Micro-computer Assisted Group Simulation
That Teaches Principles of Sustainable Management of Renewable Natural Resources (5th edn). The FishBanks
Ltd. game was developed by Professor Dennis Meadows, co-author of “Limits to Growth.” The board game kits
which include the game software, P owerP oint slide sets for introducing and debriefing the game, instructions for
playing the game, the role description, game board, and pieces are sold through the System Dynamics Society
http://www.systemdynamics.org/ (accessed 23 February 2018).
Senge, P., Smith, B., Kruschwitz, N., Laur, J. & Schley, S. (2008). The Necessary Revolution: How Individuals and
Organizations Are Working Together to Create a Sustainable World. London: Nicholas Brealey.
Sterman, J .D. (2014a). Interactive web-based simulations for strategy and sustainability; The MIT Sloan Learning
Edge management flight simulators, Part 1, System Dynamics Review 30(1-2), 89-121.
Sterman, J .D. (2014b). Interactive web-based simulations for strategy and sustainability; The MIT Sloan Learning
Edge management flight simulators, Part 2, System Dynamics Review 30(3), 206-231.
Strategy Dynamics (2017). Professional Services Microworld, https://strategydynamics.com/microworlds/ (accessed
23 February 2018).
Speaker Bios
Dominic Houlder brings a unique mix of theory, practical experience, and insight to his work. He is Adjunct Professor in Strategic and
Entrepreneurial Management at London Business School. Previously, he worked for The Boston Consulting Group and held senior
leadership positions in the corporate world. Dominic has been a committed Buddhist practitioner for more than 30 years.
At London Business School, Dominic was Associate Dean of the School's flagship Sloan Fellowship Programme. He continues to be
closely involved in the programme, which attracts highly successful, senior professionals at turning points in their careers and lives, and
he is a repeated winner of the Sloan Fellows’ "Best Teacher" award. He is Academic Director for the School’s Global Business
Consortium for senior managers - from Oracle, Emirates, GEA, DP World, BUPA and Mars - who are moving into key leadership
positions. As lead Faculty, Dominic also directs London Business School’s open Executive Education programme "Executing Strategy
for Results"
Dominic overseas the Board of his family’s business interests in Latin America. In the non-profit arena, Dominic is a Trustee of the Clore
Social Leadership Foundation, a Governor of the RNLI and a Trustee of the Karuna Trust.
He has an MA in History from Cambridge University an MBA from Stanford Business School and a Master's Degree in Philosophy (with
Distinction) from Buckingham University, where he studied under Sir Roger Scruton. His home is in Scotland, where — alongside his
academic and client commitments — he is a crofter on the Isle of Skye.
J ohn Morecroft is Senior Fellow in Management Science and Operations at London Business School where he has taught system
dynamics, problem structuring and strategy to MBAs, PhDs and executives. He served as Associate Dean of the School's Executive
MBA and co-designed EMBA-Global, a dual degree programme with New York's Columbia Business School. He is well-known for his
work in system dynamics and strategy. He has published numerous journal articles, co-edited three books and written a system
dynamics textbook, Strategic Modelling and Business Dynamics (Wiley 2015, 2" edition). He is a Past President of the System
Dynamics Society and one of its Founding Members. He received the Society's J ay Wright Forrester Award for his work on bounded
rationality, decisionmaking and information feedback in models of the firm. He develops behavioural models and simulators to study
the long-term performance of firms and industries. He has led applied research projects with a wide range of organisations from Royal
Dutch/S hell to BBC World Service, Harley-Davidson, and Mars. Before joining London Business School he was on the faculty of MIT's
Sloan School of Management where he received his PhD.
