A CASE STUDY IN PROBLEM DEFINITION
FOR_A SYSTEM DYNAMICS MODEL.
Robert ¥, Cavana
System Dynamics Research Group
University of Bradford
Management Centre
Bradford
England.
SUMMARY.
Introduction
This paper contributes to the discussion of academic training
requirenents for System Dynamics modellers. In particular, it suggests
that training in Strategic Management can provide the System Dynamics
rodeller with some essential complenentary tools and a “top management
perspective" (or systems viewpoint), which is needed to define problems
of real ranegerial interest.
To illustrate these points, the author describes his experiences
in Gefining a problem for system dynamics modelling. The future
Prospects for the Kew Zealand Forestry Sector, and the New Zealand Forest
Service, in particular, are described and the problem for modelling is
presented,
Strategic Management :
Strategic Management is the responsibility of top management, and
is a continuous process which can help an organisation adapt to a constantly
changing external environment, Strategic Management training can help
Provide a "top management perspective” of all the functional parte of an
organisation, e.g. finance, marketing, production, etc., and is, therefore,
an extremely useful aid in helping to define problems of real managerial
332
interest. The strategic management process includes the following
elements: ~
1. Sétting the organisation's objectives.
2, Internal analysis, which involves assessing the strengths and
weaknesses of the organisation.
3. External analysis, which involves appraising the potential threats
and opportunities from the external environment.
4, Consideration of alternative strategies.
5. Choice of the most appropriate strategy.
Implementation of the strategy.
7. Evaluation of the strategy.
Both the strategic management process and the system dynamics
method are concerned with guiding an organisation (system) through time
in the face of threats and opportunities from a rapidly changing external
environment. It is suggested that the two methods complement each other
as follows:
(a) Stages 1-3 of the strategic management process described above, i.e.
setting objectives, internal analysis and external analysis, can
provide the System Dynamics modeller with a systematic approach to
defining problems of real managerial interest, and help in defining
the model boundaries,
(b) A system dynamics model can be most useful in stages 4-7 of the
strategic management process, i.e. considering alternative strategies,
choosing, implementing and evaluating the strategy. A system
dynamics model can be used to explore nore systenatically the
interrelationships between the organisation and its external
environment. In particular, a system dynanics model is a very
powerful aid in helping to examine the implications of alternative
strategies, and in helping to design robust policies and an
improved organisational structure, which can help steer the
organisation towards meeting its objectives.
Background to the Problem
Substantial changes could occur in the New Zealand Forestry
Sector over the next 30 - 40 years, as a result of the development of
vast areas of new plantations in exotic forests (i.e, species not native
to New Zealand) since 1960. Potential exotic roundwood removals are
expected to renain at the present level of about 9 million cubic metres
per annum throughout the 1980s, From 1990 onwards, the potential
exotic roupdvood supplies are expected to increase quite sharply to reach
a level of about 18 million cubic metres per annum by the late 1990s.
If new plantings are continued as planned, then the potential exotic
roundood supplies could reach a level of about 36 million cubic metres
per annum by the year 2015.
In 1978 approximately 45 percent (or 4.1 million cubic metres) of
the wood recoved from Kew Zealand's forests was exported in various
processed forms, e.g. logs, sawn tinber, pulp and paper. Unless some new
large scale industry such as energy production is developed, virtually all
of the increase in the exotic wood supplies during the 1990s will be
available for export. Thus approximately 12 million cubic metres per
arnur could be available for export by the late 1990s, approximately three
times the present level (and possibly 28 million m® p.a. by 2015, or seven
tires the present level).
The New Zealand Forest Service administers (for the State) 57 percent
of the exotic forests and 61 percent of the indigenous forests in New
Zeeland. The Forest Service exploys approximately 8000 people, plus a
further 800 people on the Governnent's special programme for the uneuployed.
In 1979-80,
-Z.$159.5 million was voted to the Forest Service, most of this
333
4
being spent on sawmilling, Revenue wee N.Z.$70 million. The N.Z, Forest
Service has 4 operating functions, which are: environmental forestry,
forestry research, production forestry and savmilling operations.
Definition of the Problem
Before commencing research for a PhD at the University of Bradford,
the author had been employed as an economist/statistician with the N.Z.
Forest Service. The question the author had intended to investigate by
developing a system dynamics model, was: "What are the future market
prospects for New Zealand's exports of forest products?". This type of
question, i.e. a predictive question not particularly suitable for systen
dynamics modelling, reflected the author's academic training in econo-
metrics and mathematical techniques, and hie functional position in the N.2.
Forest Service. It was also a fairly obvious question, considering the
potentially huge increases in exotic roundwood that could be available for
export from 1990 onwards.
However, after coupleting a case study course, at Bradford, in
Strategic Management (while receiving training in System Dynamics), the
author's perspective shifted from a functional perspective to a top manage-
ment perspective (or systens viewpoint) of the organisation.
With this perspective the author examined the strengths and weak-
ne:
es of the N.Z.Forest Service, and the potential threats and opportuni-
ties from its external environment to define a problem for modelling. Recent
reports had emphasised the weaknesses in financial management and long term
planning in the N.Z. Forest Service. With the prospects of double the
present level of exotic roundwood supplies by the turn of the century, and
possibly a further doubling by the year 2015, the author identified strategic
planning as the most important problem area for modelling. Consequently,
the author is now developing a System Dynamics model to help investigate
the following question: "What resources and policies,e.g. financial, new
planting, silvicultural, harvesting, personnel,etc., are needed to meet
the long term objectives of the N.Z.Forest Service for its exotie producticn
forests?"
A Case Study in Problem Definition for a
R. Y. cavanal
System Dynamics Research Group
University of Bradford
Management Centre
Bradford
England
Abstract
This paper contributes to the discussion of academic training requirements
for System Dynamics modellers. In particular, it suggests that training in
Strategic Management can provide the System Dynamics modeller with some essential
complementary tools and,a top management perspective (or systems viewpoint),
which is needed to define problems of real managerial interest.
To illustrate these points the author discusses his experiences in
defining a problem for system dynamics modelling, The future prospects for the
New Zealand Forestry Sector, and the New Zealand Forest Service, in particular,
are described, and the problem for modelling is presented.
r The views presented in this paper are the personal views of the author
and do not represent the views of the Bradford System Dynamics Research Group
or the New Zealand Forest Service.
Introduction
This paper is a contribution to the discussion instigated by W.Fey (1981)
at to why System Dynamics has not been more widely accepted and successful,
even though it has had nearly 25 years to become established. (J.W.Forrester
started the Industrial Dynamics Group at M.I.T. in 1956).
In the related field of Corporate Planning, Naylor (1979) suggests that
one of the major reasons for the limited success of Corporate Planning is
inappropriate academic training:
"If management scientists spent 20 percent less time solving
differential equations and inverting matrices during their
academic careers, and 20 percent more time learning how to define
problems and interact with management, corporate modelling would
take a great forward leap."
Perhaps inappropriate academic training is also one of the major factors
restricting the success of System Dynamics, It is suggested in this paper that
training in Strategic Management can provide the System Dynamics modeller with
some essential complementary tools and the perspective needed to define problems
of real managerial interest.
To illustrate these points an anecdotal case study in problem definition
for a system dynamics model is presented. This is based on the future
prospects for the New Zealand Forestry Sector and the New Zealand Forest Service,
for whom the author works.
Strategic Management
Strategic Management is the responsibility of top management, and is a
continuous process which can help an organisation adapt to a constantly changing
external environment. It is defined ‘by Glueck (1980) as:
"Strategic management is that set of decisions and actions which
leads to the development of an effective strategy or strategies
to help achieve corporate objectives."
Strategic Management training can help provide a 'top management
perspective’ (or systems viewpoint) of all the functional parts of an
organisation, e.g. finance, marketing, production, computer services, etc.,
and is, therefore, an extremely useful aid in helping to define problems of
real managerial interest. Glueck (1980) suggests that:
"Strategic management helps educate managers to become better
decision makers. It helps examine the basic problems of a
company."
The strategic management process, (based on Glueck, 1980) includes
the following elements:
1. Setting the organisation's objectives.
2. Internal analysis - assessing the strengths and weaknesses of the
organisation by systematically examining the following broad areas:
internal political structure, organisational structure, present
strategies and policies, finance, accounting, marketing, distribution,
production, operations, research and development, personnel, labour
relations, resources and assets.
3. External analysis - systematically appraising the potential threats and
opportunities from the external environment. This requires consideration
of the following general areas: factor inputs, product markets,
competitors, technological environment, social environment, political and
legal environment, and geographic environment.
4. Consideration of alternative strategies - the generation of a number of
alternative strategies as a result of matching the environmental threats
and opportunities identified by the external analysis, with the
organisation's strengths and weaknesses identified by the internal analysis.
5. Choice of the most appropriate strategy ~- the choice of the strategy which
will best meet the organisation's objectives. This choice involves
consideration of selection factors, evaluation of alternatives against
these criteria, and the actual choice,
Implementation of the strategy - the assignment of managers to match
the strategy, development of functional policies and the organisational
structure to support the strategy.
Evaluation of the strategy - the determination of whether the strategic
choice as implemented is meeting the objectives of the enterprise.
Both the strategic management process and the system dynamics method are
concerned with guiding an organisation (system) through time in the face of
threats and opportunities from a rapidly changing external environment. It
can be shown that the two methods complement each other as follows:
(a)
(b)
Stages 1 - 3 of the strategic management process described above, i.e.
setting objectives, internal analysis and external analysis, can provide
the System Dynamics modeller with a systematic approach to defining
problems of real managerial interest, and help in defining the model
boundaries.
A system dynamics model can be most useful in stages 4 - 7 of the strategic
Management process, i.e, considering alternative strategies, choosing,
implementing and evaluating the strategy. A system dynamics model can be
used to explore more systematically the interrelationships between the
organisation and its external environment. In particular, a system
dynamics model is a very powerful aid in helping to examine the implications
of alternative strategies, and in helping to design robust policies and an
improved organisational structure, which can help steer the organisation
towards meeting its objectives.
Drucker (1977) comments on the importance of quantitative analysis:
"Most managers know that they need better tools. Most have learned
through bitter experience that intuition is unreliable, if not
downright treacherous, if used as the only basis for decision,
5.
Indeed, most managers have long suspected what a
leading management scientist of today, Jay we Forrester of M.I.T.
brilliantly demonstrated: complex systems actually behave
"counter-intuitively'; the course of action suggested by common
sense tends to be wrong. And markets, technologies, and
business are very complex systems indeed".
The Case Study
The future prospects for the New Zealand Forestry Sector are provided as
background for the problem the author is investigating, with the aid of a
system dynamics model. This is followed by a brief discussion of the functions
of the New Zealand Forest Service. The organisational chart of the New Zealand
Forest Service is provided to illustrate some of the ideas presented in the
discussion on strategic management, Finally the problem for system dynamics
modelling is presented.
Background to the Problem
Substantial changes could occur in the New Zealand Forestry Sector over
the next 30 - 40 years, as a result of the development of vast areas of new
plantations in exotic forests (i.e, species not native to New Zealand) since 1960.
Potential exotic roundwood removals are expected to remain at the present level
of about 9 million cubic metres per annum throughout the 1980s, From 1990
_onwards, the potential exotic roundwood supplies are expected to increase quite
sharply to reach a level of about 18 million cubic metres per annum by the
late 1990s. If new plantings are continued as planned, then the potential exotic
roundwood supplies could reach a level of about 36 million cubic metres per annum
by the year 2015. This is shown in Figure 1 below,
Figure 1.
New Zealand's Potential Exotic Roundwood Supplies
and Projected Domestic Consumption
Million
cubic metres
per year
a
30 ae
¢
-
’
’
20 | a
10
. . 1
1980 85 90 95 2000 05 10 15 Year
Key: ——- potential roundwood supplies based on a 30 year rotation
---- potential roundwood supplies if new planting is continued as planned
—-— projected domestic consumption of forest products. (roundwood equivalent)
“Sources: based on Levack (1979) and New Zealand Forest Service (1978)
In system dynamics terms this is equivalent to a 10 - 20 year period of
a sustained and large ramp input. Therefore the forestry system will encounter
a severe exogenous input.
In 1978 approximately 45 percent (or 4,1 million
wood removed from New Zealand's forests was exported
e.g. logs, sawn timber, pulp and paper. Unless some
such as energy production is developed, virtually ali
cubic metres) of the
in various processed forms,
new large scale industry
of the increase in the
7.
exotic wood supplies during the 1990s will be available for export. Thus
approximately 12 million cubic metres per year could be available for export
by the late 1990s, approximately three times the present level (and possibly
28 million a p.a. by 2015 or seven times the present level).
New Zealand Forest Service
The New Zealand Forest Service administers (for the State) 57 percent of
the exotic forests and 61 percent of the indigenous forests in New Zealand.
The Forest Service employs approximately 8000 people, plus a further 800 people
on the Government's special unemployment programme, In 1979-80, N.Z.$ 159.5
million was voted to the Forest Service, most of this being spent on the
production forests, with N.Z.$ 28 million being spent on sawmilling. Revenue
was N.Z.$ 70 million. (Public Expenditure Committee, 1980).
The N.Z. Forest Service has four operating functions, These are:
Social Functions -
(a) Environmental Forestry - including soil protection, water regulation,
flora and fauna preservation, and provision of recreational activities.
(b) Research - a wide range of forestry research activities,
Trading Functions -
(c) Production Forestry - the Forest Service produces over half the
indigenous and exotic wood in New Zealand. Of the Forest Service sales
in 1979, 27 percent was exported and the balance sold locally.
Currently the N.Z. Forest Service removals of exotic timber are
approximately 5 million cubic metres per year. This is expected to
double to about 10 million cubic metres per year by the late 1990s.
If new planting is continued as planned, this could further double to
about 20 million cubic metres per year by the year 2015. (Levack, 1979).
(d) Sawmilling Operations - The Commercial Division operates two sawmills
which produce approximately one tenth of the New Zealand sawmilling
industry's rough sawn timber.
Perspective
Before commencing research for a PhD at the University of Bradford, the
author had been employed as an economist/statistician with the New Zealand
Forest Service. His position and perspective is represented by the point (0)
on the organisational chart of the N.Z.Forest Service, shown in Figure 2 below.
The question the author had intended to investigate by developing a system
dynamics model, was:
"What are the future market prospects for New Zealand's exports of
forest products?"
This type of question, i.e. a predictive question not particularly suitable
for system dynamics modelling, reflected the author's academic training in
econometrics and mathematical techniques, and his functional position in the
New Zealand Forest Service. It was also a fairly obvious question, considering
the potentially huge increases in exotic roundwood that could be available for
export from 1990 onwards.
However, after completing a case study course, at Bradford, in Strategic
Management (while receiving training in System Dynamics), the author's perspective
altered te the position represented by the point @ in Figure 2, i.e, a top
Management perspective (or systems viewpoint) of the organisation, It is
suggested, by the author, that this is the "perspective" needed to examine and
define problems of real managerial interest for System Dynamics modelling, and
that training in System Dynamics is not complete without this perspective.
Figure 2
Organisational Structure of the New Zealand Forest Service
Director-General
of Forests
Director Director Deputy Director-| Director Director 7
Forest Administration General Commercial| Engineering| | Conservators
Research Division Division Division
Institute
Assistant w
. Di Gi * 5 .
(rorest Mawenen Director Director
Utilisation] || Marketing
ment) ee ine
Development} Division
Division
Director Director Director
Production Environmental Forest
Forest Forestry Economics
Management Division Division
Division TO "
Assistant Chief Economist
Director °
Forest . foe
Planning economics/statistics
Key: @ - Tepresents the author's ‘perspective’ and position while working in the New Zealand Forest Service
- represents the ‘perspective' (or systems viewpoint) needed to define problems for system-dynamics
modelling (or any strategic analysis).
Source: based on New Zealand Forest Service (1979)
10.
Definition of the Problem
With the top management perspective and skills gained from a study of
strategic management, the author examined the strengths and weaknesses of the
New Zealand Forest Service, and the potential threats and weaknesses from its
external environment, to define a problem for modelling. Recent reports by the
Development Finance Corporation of New Zealand (1980), and the Public
Expenditure Committee (1980), had emphasized the weaknesses in financial
management and long term planning in the New Zealand Forest Service. With the
prospects of double the present level of exotic roundwood supplies by the turn
of the century, and possibly a further doubling by the year 2015, the author
identified strategic planning as the most important problem area for modelling.
Consequently, the author is now developing a System Dynamics model to help
investigate the following question:
"What resources and policies, e.g. financial, new planting, silvicultural,
marketing, harvesting, personnel, etc., are needed to meet the long term
objectives of the New Zealand Forest Service for its exotic production forests?"
In fact, it was for this type of managerial problem that System Dynamics
was first developed by Forrester (1961) and further developed by Coyle (1977).
Summary
This paper has presented a contribution to the discussion of what academic
training is necessary for a System Dynamics modeller. It was suggested that
training in Strategic Management can provide the System Dynamics modeller with
some essential complementary tools and a "top management perspective" (or systems
viewpoint), which is needed to define problems of real managerial interest.
This training is stressed however, because apart from being taught in Management
Departments, System Dynamics is also taught in other academic departments, e.g.
Engineering, Applied Mathematics, and Economics, where courses in Strategic
Management may not be readily available.
ll.
To illustrate these points the author described his experiences in
defining a problem for system dynamics modelling. The future prospects of
the New Zealand Forestry Sector and the New Zealand Forest Service, in
particular, were described, and the problem for modelling was presented.
Acknowledgements
The author gratefully acknowledges the assistance provided by his
supervisor Dr.R.G.Coyle, and colleagues Dr.E.F.Wolstenholme and Mr.J.Rego,
from Bradford, in the preparation of this paper, The author would also like
to thank Mr.G.Luffman of Bradford, for his excellent course in Strategic
Management, which provided the ideas for this paper, and the National Research
Advisory Council of New Zealand, for the financial support for the author's
tesearch at Bradford.
References
Coyle, R.G.
Development Finance
Corporation of
New Zealand
Drucker, P.F.
Fey, W.
Glueck, W.F.
Levack, H.H.
Naylor, T.H.
New Zealand
Forest Service
New Zealand
Forest Service
Public Expenditure
Committee
12.
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Forest Indust Study, Development Finance Corporation of
New Zealand, 1980.
Management, Pan Books Ltd,, 1977.
Public Communication re the 1981 System Dynamics Conference,
School of Industrial and Systems Engineering, Georgia,
January, 1981.
Business Policy and Strategic Management, Third Edition,
McGraw-Hill Kogakusha, Ltd., 1980.
Future National Wood Supply, New Zealand Journal of Forestry,
Vol.24, No.2, 1979, pp. 159-71.
Corporate Planning Models, Addison-Wesley Publishing Co.Inc
1979.
Statistics of the Forests and Forest Industries of New Zealand
to 1977, (and updates), Government Printer, Wellington,N.Z.,
1978,
New Zealand Forest Service - Functions and Divisions,
Unpublished Report, N.Z.Forest Service, 1979.
Financial Management in the Forest Service and Financial
Management in the Education System, Government Printer,
Wellington, New Zealand, First Report, 1980.
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