The Gap between System Dynamics and Current Management Practice
- Some Messages to help reinforce the value of a Systems Approach to 21st. Century
Management Practice.
Eric Wolstenholme, Professor of Business Learning, Leeds Business School, UK and Director, COGNITUS.
Abstract.
This paper will explore the differences between system dynamics and current business practice.The purpose of the
paper is to contribute to an assessment of the impact which system dynamics is making to business.The analysis
will reflect on the gap between systems thinking and current business thinking and on the gap between system
dynamics simulation modelling and current business modelling practice.
An important conclusion is that some of the barriers to the understanding and use of system dynamics centre more
on its relationship to what business organisations currently do, rather than to the methodology itself. System
dynamics suffers from being almost too well conceived as an integrated set of propositions. The result is that current
education and practice in system dynamics usually centres on describing the implicit value of these propositions,
rather than bridging the gap between them and the current reality of business thinking and modelling practice. Some
ideas will be presented for closing the gap.
Introduction. Both systems thinking and system dynamics modelling are currently being used in a wide range of
management settings. This paper will draw on recent research and consulting experience to focus on factors
affecting the success of their application. The approach will be to outline the purpose, target audience and
characteristics of the methods and to compare them with the purpose, target audience and characteristics of
alternative, competing practices. This analysis will be used to identify how the methods might be used with greater
clarity and to better effect. Comments on theory and practice are drawn from a wide variety of sources which are not
referenced for space reasons.
Systems thinking and competing methods. Systems thinking based on system dynamics consists of using mainly
qualitative, generic concepts from system dynamics models to reach a wide and senior management audience. The
usual practice is to use microworlds to develop a sense of systems understanding and to use archetype structures to
classify and communicate management situations. There is considerable efforts being made to develop more
integrated tools such as learning environments where multiple microworlds can be used together with multimedia for
developing learning experiences. Systems thinking provides an integrated, holistic, multi-lens feedback approach
which is by which to create hypotheses about the behaviour of management situations which can aid
communication and understanding and learning. However, it is not simple to use. To explain archetypes or the
structure of microworlds it is necessary to understand causal loop diagrams, have a predisposition to visual thinking
and make a substantial investment in time and effort before benefits accrue.
The more widely used current management methods to assist senior management learning comprise strategic
management, organisational management, human resource management, change management, business process
re-engineering, knowledge/information management, total quality management and balanced scorecards. The
characteristics of these approaches varies between taking a non-systemic, single lens viewpoint to having holistic
tendencies, but having very variable detail and being limited to parts of organisations. These methods are
essentially linear, open loop approaches and heavily data orientated, but generally well used (if only over a very
limited life cycle). Recent experiences suggest that the main reasons for this are simplicity and a strong relationship
to management functions. That is, what the organisation does and can relate to.
Systems dynamics and competing methods.System dynamics modelling provides a means of linking
management processes to strategy, organisational responsibilities and information usage. It uses simulation to
understand the consequences over time of alternative structures and policies. The important characteristics of the
approach are the ability to, (i) facilitate éintermediate/ level modelling in companies. That is, modelling across
management functions, where each is represented at a similar level of resolution and at a sufficiently high level of
aggregation to link operational processes to strategy, (ii) create operationally , rather than financially, driven models,
(iii) incorporate the effects of time delays and non-linearities which cause phasing and hence surprises in behaviour
over time, (iv) be applied at both a strategic and operational level, although the main audience is usually the middle
or operational management, (v) provide a context of modelling for learning, which has an emphasis on process
facilitation for team learning as well as on predictive outcomes.Learning to apply system dynamics elegantly and
well requires an even greater overhead than learning systems thinking. Thinking visually and using generic stocks
and flow structures to create operational structures requires a giant leap for most people. Even with extensive
tutoring on real problem situations the process is not easy and much dedication is required before real
enlightenment is possible.
Competing practice varies from companies who do almost no quantitative modelling, through those using extensive
spreadsheet models, to those having very comprehensive and perhaps real time models for specific parts of the
organisation, usually the operations function.
Consider first the use of spreadsheet models. Spreadsheets are simple to use but are very crude simulation tools
which are non-visual and open loop. They often use many exogenous inputs and the assumptions on which they are
based are far from transparent. Further, they are almost exclusively data and finance orientated. Accounting,
investment and taxation functions are often modelled in enormous detail, whereas marketing and distribution are
totally unrepresented. These characteristics make them strongly in the province of the finance area within
companies which gives power to this function as well as contributing to model imbalance. This orientation results in
plans being constructed from a financial viewpoint and only later checked for operational feasibility.
In contrast to spreadsheet models, many organisations have tended to develop very detailed models for single
aspect of the business. Examples of this are the various material planning systems in use in manufacturing and the
very complex reservoir models use in oil companies. These models are vital to the functions which they represent
but are often used for inappropriate tasks in other functional areas because no alternative models exist. This is
another source of modelling imbalance.Finally, in large organisations there is often a business analysis unit or
operations research group whose function is to model. Although the modelling philosophy of such groups is
changing with the use of soft OR, the predominant mode of operation is still modelling for prediction rather than
learning and hence a remoteness from management needs.
Current research and consultancy experience suggests that modelling takes on many guises in business
organisations and there will always be a problem in introducing any modelling despite the benefits it brings. The
problems to be overcome in establishing modelling for learning based on system dynamics centre on five issues. (i)
Management expectations. Total involvement with senior management means responding very quickly and often
instant models are required. Whilst the introduction of system archetypes has had many benefits, one of the side
problems is that it has raise management expectations about the speed with which models can be created. There is
often a total underestimate by management of the work required to produce a specific company representation of a
generic situation. (ii) Abstract parameters. System dynamics modelling often involves using high level éaveragei
parameters which middle and operational management find some difficulty in relating to real activities in the
business. (iii) Soft variables. An important characteristic of system dynamics modelling is the use of soft as well as
hard relationships, say to mix human and marketing factors with production parameters. This means bridging the
culture gap in organisations. (iv) Detail escalation. Each part of an organisation has a tendency to believe itis more
important than others and this should be reflected in the detail with which it is modelled. (v) Model ownership. There
is often a power struggle for ownership of a model which is not to the benefit of the modelling process.
Some ideas for bridging the Gap. Systems thinking is still a long way from the types of products currently used on
a large scale in management development and systems modelling is still a long way from the compartmentalised
modelling found in most companies.
The main process point is to accept that there is a gulf to be crossed in applying systems thinking and system
dynamics. Just recognising this gap means that problem can be surfaced and discussed. Time must be spend time
to educate thinking or modelling teams to understand the process issues and to set expectations concerning the
timing and volume of outputs accordingly. These issues should include: (i) discussion of what is really meant by
balanced, intermediate level modelling, (ii) where the modelling power base currently lies in the company and the
challenges this might raise in moving from finance to operationally driven modelling, (iii) what methods are currently
being used in the company for management learning as these can be used as hooks by which to relate systems
thinking and system dynamics to existing activities.
This latter point is of particular importance. Whenever management techniques have proved to complex and difficult
to apply there has been a tendency in the past to add to their complexity. Mathematical programming went through
phases of complexity addition (for example, matrix generators and report writers) with the aim of making it more
useful. The consequence was to make it less useful. A much more effective policy is to relate methods directly to
real activities within the organisation and to current practice. In other words to bring the methods to the organisation
rather than the organisation to the methods. For example, if a company is heavily involved in strategic management
or balanced scorecards, use these as a window for introducing systems thinking and modelling.
Further, if a company has a focus on one particular activity it may be necessary to model these initially in as they are
in practice rather than trying to build a model containing all the elements of system dynamics. For example, ifa
company has a focus on supply chains, it might be necessary to model this in open loop form initially to build
understanding of process modelling, even ifit is glaringly obvious that the real problem lies in the feedback between
raw material supply and demand forecasting. From a systems thinking point of view there is also a need to avoid
being too generic and abstract. Most companies like to feel that they are unique and need to discover their own
internal generics from their own specifics, rather that the other way round. From a specific systems modelling point of
view, itis important to get a relevant model working quickly which contains recognisable company structures and
variable names and the best way to to this is by a top down approach, possibly using fictitious data. The importance
of developing an internal vision in a company of what a their own final model might look like cannot be overstated
and an early mock-up helps.These statements have important implications for teaching and training in system
dynamics.
Conclusions. This paper suggests that systems thinking and system dynamics have much to offer but are almost
too generic, integrated and self contained to relate to specific management reality and practice. More thinking and
research needs to focus on the way in which they relate to the current thinking in organisations and how these
methods can move to organisational needs, rather than the current emphasis on management moving towards these
methods.
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