Fowler, Alan, "Simulation's Evolving Role in Management", 1996

SIMULATION'S EVOLVING ROLE IN MANAGEMENT

Alan Fowler
School of Management
University of Newcastle on Tyne
England NE1 7RU

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The paper argues that simulation techniques, while traditionally having been widely applied
in Science and Engineering, have not yet attracted a corresponding degree of uptake in ‘softer’
management applications. Systems-thinking and its associated 'toolbox', simulation, have
featured prominently in the systems literature for three decades or more and the question must
therefore arise as to why the take-up of such a potentially powerful aid to management-
planning and decision-making has traditionally proved so sporadic and sluggish amongst
business practitioners? This question, along with a review of current trends illustrated by
some basic examples, underscores the logic of this paper.

THE SYSTEMS SPECTRUM

Figure 1 presents a view of the potential scope for application of simulation, spanning the
spectrum from the so called ‘hard-systems', found in engineering and science, though to the
softer systems involving strategic-planning, organisational learning and human resource
management. Towards the left, many applications feature a pronounced control-engineering
bias requiring a degree of familiarity with differential equation formulation and classical
linearised, and state-space analysis of multivariable systems (Fowler, 1988). A well
developed and mathematically underpinned theoretical base has emerged in these disciplines,
over the decades. The central band includes problems of layout-design, capacity-planning,
scheduling and computer-integrated-manufacture (Fowler & Lees, 1995). This is mainly the
domain of discrete-event simulation and is, once again, substantially underpinned by
established theory. To the right the picture becomes less clear, at least with respect to
accepted theoretical underpinnings. The problem is that here we have soft, human centred
disciplines combining with hard systems theory which owes much to the physical sciences.
These are traditionally, 'unhappy bedfellows’.

A wide ranging UK review of the take-up of simulation in management, undertaken by The
Simulation Study Group (1991) produced a very mixed response, generally indicating market
failures in the areas of awareness, education and research. The report highlighted the
complex combination of skills currently required to access simulation and called for further
deskilling of the technology to provide greater access by new users. Training and Education
deficiencies amongst managers, lack of familiarity with system modelling concepts,
imprecision in defining information needs and fear of technology were identified as
hindrances to its take-up. Computer packages were considered to be difficult to master for
those without a specialist background and simulation was often regarded as an area for
technically minded but relatively junior managers, as contrasted to senior decision makers.

Notably, the above study was specifically aimed at Manufacturing applications, found in the
mid range of the spectrum defined in Figure 1. Similar studies, targeting the more generic
aspects of management, do not appear to be available but given the relatively low level of
input into University management courses, in the samples analysed, it seems reasonable to
assume that exploitation of simulation is still relatively thinly dispersed in these areas. The

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question therefore arises as to what has happened, and is currently happening, which might
redress some of these imbalances?

SIGNIFICANT TRENDS

It is argued in, this paper, that a number of trends are currently in train which will ultimately
have a dramatic effect on the take up of simulation in the domain represented to the right of
the 'systems-spectrum’. These include technical developments in information technology and
changes in management theory and practice, including demographics.

Information Technology

Firstly there is evidence that perceptions of IT have changed substantially over its relatively
short lifespan as the full managerial implications of the technology have become more
apparent. From its origins as a backroom activity, implemented by technical specialists in the
1960's, IT is now seen as an essential core component of business and a highly strategic issue.

Secondly the emergence of the Personal Computer has unleashed an apparently insatiable
appetite for end-user computing, thereby providing direct access to computer power even for
those with minimal IT background. This trend has been matched by parallel developments in
software, not least the emergence of user-friendly ‘front-end’ operating systems and GUI's.
For management applications the generic products of word-processing, spreadsheets and
databases have now been supplemented by many other specialist applications including
Executive Information Systems. However, these management oriented ‘decision assistance’
applications are predominately spreadsheet based and while offering a capability for 'what if
and sensitivity analysis, they encapsulate, what is essentially, a static view of organisational
life (Richmond, 1994). Complex dynamics and the presence of feedback are not readily
accommodated and yet, these aspects of systems, can prove highly problematic for
contemporary managers. Fortunately, new generation simulation products are now appearing
and being marketed primarily at business managers (Wolstenholme & Stevenson, 1994).
Exploiting the capability of modern hardware and object-oriented programming these
products are accessible, user-friendly and in many cases very realistically priced. Powerful
output graphics are available to interpret results and present them in a form which can slot
directly into management reports. Most importantly results can be obtained and information
gleaned from raw data, following a relatively brief expenditure of effort in training and
familiarisation.

Management

It is now thirteen years since the advent of the PC and many younger managers, who have
spent most of their working lives in the "IT era", are now progressing into positions of
influence within the organisations of the 90's. Others, who have been using computers since
they were at school, are also moving up the ‘management ladder’. The implication of this is
that the new generation of managers, many of whom will have technological backgrounds
and/or MBAs, hopefully featuring MIS and simulation, will be more inclined than their
predecessors to experiment with this technique in their planning and decision making
processes.

There also exists a pronounced trend towards what is termed ‘the lean organisation’ which
usually implies downsizing and delayering, often accompanied by the complete elimination of
whole tiers of middle-management. This will often produce, as a side-effect, additional
requirements for senior managers to use advanced information systems (Beheshti 1995).

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Given the nature of the problems which such senior executives face, including strategy
formulation, long time-scales and the processing of much unquantifable data, simulation
presents a potential solution to emerging pressures in a way which is not addressed by
alternative EIS. In particular, the current emphasis upon Business Process Reengineering
(BPR) with its associated demands for an holistic and systemic approach and an emphasis on
business processes which cut horizontally across the full range of vertical departmental
functions, further reinforces the need for new tools. These must assist managers in their
fundamental thinking about how the respective value-adding processes within the company
integrate together. Simulation is potentially ideally poised to perform this role.

MANAGEMENT REQUIREMENTS AND APPLICATIONS

Arguably, the most sustainable competitive-advantage is the ability to learn faster than
competitors. This requirement implies organisational-learning and understanding, not only of
the complex relationships between the respective parts within the organisation, but also of the
organisation's interactions with external factors such as customers, suppliers, the general state
of the market, technological change etc. (Morecroft and Sterman 1992)

Such organisational and environmental understanding also proves indispensable when
selecting and implementing appropriate business strategies, noting that implementation
traditionally proves the most notoriously difficult stage in the 'design-school' sequence
(Ansoff, 1991). The tendency to think ‘open loop’, thereby missing the constraints,
interrelationships and feedback loops which inherently exist, can now be replaced by closed
loop thinking and a full appreciation of ‘organisational physics’. Finally systems thinking and
simulation present an invaluable aid when contemplating either step change BPR initiatives
or incremental TQM improvements.

Figure 2 presents a simplified generic model of a typical interactive business system showing
a top-down view of the main subsystem models, the main process flows and some of the more
important information feedback paths. Each block can be further decomposed to what ever
level of detail is considered necessary by the particular management team which is
undertaking the modelling exercise. Such a model may form a basis from which the
organisational learning process can evolve, recognising that the thinking processes involved
in the qualitative modelling phase is often as valuable as the actual experimentation phase.
For example, the ‘production block' in figure 2 may decompose into a number of sub-
processes as shown in Figure 3, from which alternative operations-control alternatives, such
as JIT and MRP, can be evaluated. For illustration Figure 4 depicts the type of result which
can emerge in an inadequately designed system. Hence we observe the need for analytical
design tools as typically formulated in the literature of control engineering, for example.
Conversely, at the 'softer end of the model, as represented in the ‘people’ block, concepts such
as motivation, morale, anger, frustration, self-confidence, self-esteem and pride must be
included, these being areas requiring in-depth understanding based in the organisational
sciences. Clearly the remit is very wide.

CONCLUSIONS

This paper has briefly attempted to reconcile the position of the manager, as a social scientist
and holistic decision maker, with the role of the simulationist, who is characteristically
reductionist and technically oriented. It is argued that although there are many similarities,
there are also significant differences in modelling hard and soft systems. It may now be
necessary to further explore these differences and to assess their implications for the take-up

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of simulation methodology. However, changes in the domain of management, compounded
by technological developments in IT, have created a dynamic environment in which much
wider exploitation of simulation now appears likely. It is therefore concluded that
organisational learning and management decision support will provide a major growth area
for the application of Simulation methodologies in the immediate future.

Proprtional Taget

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Figure 2 A simple Business model with feedbacks Figure 4 Response to 40% Step change in demand

REFERENCES

Ansoff, H.I. 1991. "The Design: School Reconsidering The Basic Premises of Strategic
Management." Strategic Management Journal V.12. pp 449-456.

Beheshti, H. M. 1995 "Downsizing With Executive Information Systems" Industrial
Management Data Systems, V.95, NS, pp18.

Fowler, A. 1988. "Microcomputer Based Simulation of Marine Propulsion Systems".
Transactions of I.Mar.E, V.100, pp13-29.

Fowler, A. and Lees, D. 1995. "Process Simulation In Consumer Product Manufacturing and
Packaging." Proceedings of the UK Simulation Society Annual Conference, Berwick UK. pp
155-160.

Morecroft, J.D.W. and Sterman, J.D. 1992. "Modelling for Learning". Journal of
Operational Research, V.59, N1. Elsevier.

Richmond, B.1994. "Systems Thinking Systems Dynamics: Lets Just Get On With It".
Systems Dynamics Review, V.10, N2-3, pp 135-157.

Senge, P. 1990. The Fifth Discipline, New York, Doubleday/Currency.

Simulation Study Group 1991. Simulation in UK Manufacturing Industry. University of
Warwick Print Services.

Wolstenholme, E. & Stevenson, R. 1994. "Systems Thinking & Systems Modelling New
Perspectives on Business Strategy and Process Design." Management Services, V.38, N9,

pp22.
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