More system More system dynamics……….dynamics……….

Can you construct the Can you construct the schematic model for this schematic model for this Causal model?Causal model?

desired level

actual level

adjustment rate adjustment time

We know what that isWe know what that is

Dessired level Adjustment time

Actual level

Adjustment rate

How about this one?How about this one?

birth rate norm birth rate

death rate norm death rate

Population

We know what it isWe know what it is

Birth rate norm

Death rate norm

Population

Birth rate

Death rate

Some rulesSome rules

There are two types of causal links in There are two types of causal links in causal modelscausal models• InformationInformation• FlowFlow

Information proceeds from stocks and Information proceeds from stocks and parameters toward rates where it is parameters toward rates where it is used to control flowsused to control flows

Flow edges proceed from rates to states Flow edges proceed from rates to states (stocks) in the causal diagram always(stocks) in the causal diagram always

LoopsLoops

In any loop involving a pair of In any loop involving a pair of quantities/edges, quantities/edges,

one quantity must be a rateone quantity must be a rate the other a state or stock, the other a state or stock, one edge must be a flow edgeone edge must be a flow edge the other an information edgethe other an information edge

CONSISTENCYCONSISTENCY

All of the edges directed toward a All of the edges directed toward a quantity are of the same typequantity are of the same type

All of the edges directed away All of the edges directed away from a quantity are of the same from a quantity are of the same typetype

Rates and their edgesRates and their edges

q1

q2

q3

RATES

q4

q5

q6

Informationedges

Flow edges

Parameters and their Parameters and their edgesedges

PARAMETER

q1

q2

q3

Informationedges

Stocks and their edgesStocks and their edges

q1

q2

q3

STOCK

q4

q5

q6

Flow edges Information edges

Auxiliaries and their edgesAuxiliaries and their edges

AUXILIARY

q1

q2

q3

q4

q5

q6

Informationedges

Informationedges

Outputs and their edgesOutputs and their edges

OUTPUT

q1

q2

q3

Informationedges

STEP 1: Identify STEP 1: Identify parameters/inputsparameters/inputs

Parameters have no edges Parameters have no edges directed toward themdirected toward them

STEP 2: Identify the edges STEP 2: Identify the edges directed from parametersdirected from parameters

These are information edges These are information edges alwaysalways

STEP 3: By consistency STEP 3: By consistency identify as many other identify as many other edge types as you canedge types as you can

STEP 4: Look for loops STEP 4: Look for loops involving a pair of involving a pair of quantities onlyquantities only

Use the rules identified aboveUse the rules identified above

System Dynamics System Dynamics SoftwareSoftware STELLA and STELLA and I thinkI think

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PowersimPowersim• What Arthur Andersen is usingWhat Arthur Andersen is using

What is system dynamicsWhat is system dynamics

A way to characterize systems as stocks A way to characterize systems as stocks and flows between stocksand flows between stocks

Stocks are variables that accumulate the Stocks are variables that accumulate the affects of other variablesaffects of other variables

Rates are variables the control the flows Rates are variables the control the flows of material into andout of stocksof material into andout of stocks

Auxiliaries are variables the modify Auxiliaries are variables the modify information as it is passed from stocks to information as it is passed from stocks to ratesrates

A DEMOA DEMO

Nature’s Templates: the Nature’s Templates: the ArchetypesArchetypes

Structures of which we are Structures of which we are unaware hold us prisonerunaware hold us prisoner

– The swimmer scenarioThe swimmer scenario

Certain patterns of structure occur Certain patterns of structure occur again and again: called again and again: called ARCHETYPESARCHETYPES

We are creating a We are creating a “language”“language” reinforcing feedback and balancing reinforcing feedback and balancing

feedback are like the nouns and verbsfeedback are like the nouns and verbs systems archetypes are the basic systems archetypes are the basic

sentencessentences Behavior patterns appear again in all Behavior patterns appear again in all

disciplines--biology, psychology, family disciplines--biology, psychology, family therapy, economics, political science, therapy, economics, political science, ecology and managementecology and management

Can result in the unification of knowledge Can result in the unification of knowledge across all fieldsacross all fields

Recurring behavior Recurring behavior patternspatterns

Do we know how to recognize Do we know how to recognize them?them?

Do we know how to describe them?Do we know how to describe them? Do we know how to prescribe cures Do we know how to prescribe cures

for them?for them? The ARCHETYPES describe these The ARCHETYPES describe these

recurring behavior patternsrecurring behavior patterns

The ARCHETYPES The ARCHETYPES

provide leverage points, intervention provide leverage points, intervention junctures at which substantial change junctures at which substantial change can be brought aboutcan be brought about

put the systems perspective into practiceput the systems perspective into practice About a dozen systems ARCHETYPES About a dozen systems ARCHETYPES

have been identifiedhave been identified All ARCHETYPES are made up of the All ARCHETYPES are made up of the

systems building blocks: reinforcing systems building blocks: reinforcing processes, balancing processes, delaysprocesses, balancing processes, delays

Before attacking the Before attacking the ARCHETYPES we need to ARCHETYPES we need to understand simple understand simple structuresstructures the reinforcing feedback loopthe reinforcing feedback loop the balancing feedback loopthe balancing feedback loop THE DEMOTHE DEMO Pages 520-525 in Austin/Burns--Pages 520-525 in Austin/Burns--

your handoutyour handout

ARCHETYPE 1: LIMITS TO ARCHETYPE 1: LIMITS TO GROWTHGROWTH

A reinforcing process is set in A reinforcing process is set in motion to produce a desired result. motion to produce a desired result. It creates a spiral of success but It creates a spiral of success but also creates inadvertent secondary also creates inadvertent secondary effects (manifested in a alancing effects (manifested in a alancing process) that eventually slow down process) that eventually slow down the success.the success.

Management Principle Management Principle relative to ARCHETYPE 1relative to ARCHETYPE 1

Don’t push growth or success; Don’t push growth or success; remove the factors limiting growthremove the factors limiting growth

ARCHETYPE 1: LIMITS TO ARCHETYPE 1: LIMITS TO GROWTHGROWTH

Useful in all situations where Useful in all situations where growth bumps up against limitsgrowth bumps up against limits

Firms grow for a while, then plateauFirms grow for a while, then plateau Individuals get better for a while, Individuals get better for a while,

then their personal growth slows.then their personal growth slows. Falling in love is kind of like thisFalling in love is kind of like this

– The love begins to plateau as the couple The love begins to plateau as the couple get to know each other betterget to know each other better

StructureStructure

state of stockgrowing action slowing action

BalancingReinforcing

Understanding the Understanding the StrurtureStrurture

High-tech orgs grow rapidly High-tech orgs grow rapidly because of ability to introduce new because of ability to introduce new productsproducts

This growth plateaus as lead times This growth plateaus as lead times become too longbecome too long

How to achieve LeverageHow to achieve Leverage

Most managers react to the slowing growth Most managers react to the slowing growth by puching harder on the reinforcing loopby puching harder on the reinforcing loop

Unfortunately, the more vigorously you Unfortunately, the more vigorously you push the familiar levels, the more strongly push the familiar levels, the more strongly the balancing proces resists, and the more the balancing proces resists, and the more futile your efforts become. futile your efforts become.

Instead, concentrate on the balancing Instead, concentrate on the balancing loop--changing the limiting factorloop--changing the limiting factor

– This is akin to Goldratt’s Theory of Constraints--This is akin to Goldratt’s Theory of Constraints--remove the bottleneck, the impedimentremove the bottleneck, the impediment

Applications to Quality Applications to Quality Circles and JITCircles and JIT Quality circles work best when there is Quality circles work best when there is

even-handed emphasis on both balancing even-handed emphasis on both balancing and reinforcing loopsand reinforcing loops

JIT has had to focus on recalcitrant JIT has had to focus on recalcitrant supplierssuppliers

THERE WILL ALWAYS BE MORE LIMITING THERE WILL ALWAYS BE MORE LIMITING PROCESSESPROCESSES

– When once source of limitatiin is removed, another When once source of limitatiin is removed, another will surfacewill surface

Growth eventually WILL STOPGrowth eventually WILL STOP

Create your own LIMITS Create your own LIMITS TO GROWTH storyTO GROWTH story

Identify a limits to growth pattern Identify a limits to growth pattern in your own experiencein your own experience

Diagram itDiagram it• What is growingWhat is growing• What might be limitationsWhat might be limitations• Example--the COBA and University Example--the COBA and University

capital campaignscapital campaigns• NOW, LOOK FOR LEVERAGENOW, LOOK FOR LEVERAGE

Test your LIMITS TO Test your LIMITS TO GROWTH modelGROWTH model

Talk to others about your Talk to others about your perceptionperception

Test your ideas about leverage in Test your ideas about leverage in small real-life experimentssmall real-life experiments

Run and re-run the simulation Run and re-run the simulation modelmodel

Approach possible resistance and Approach possible resistance and seek WIN-WIN strategies with themseek WIN-WIN strategies with them

ARCHETYPE 2: shifting the ARCHETYPE 2: shifting the burdenburden An underlying problem generates symptoms that An underlying problem generates symptoms that

demand attention. But the underlying problem is demand attention. But the underlying problem is difficult for people to address, either because it is difficult for people to address, either because it is obscure or costly to confront. So people “shift the obscure or costly to confront. So people “shift the burden” of their problem to other solutions--well-burden” of their problem to other solutions--well-intentioned, easy fixes that seem extremely intentioned, easy fixes that seem extremely efficient. Unfortunately the easier solutions only efficient. Unfortunately the easier solutions only ameliorate the symptoms; they leave the ameliorate the symptoms; they leave the underlying problem unaltered. The underlying underlying problem unaltered. The underlying problem grows worse and the system loses problem grows worse and the system loses whatever abilities it had to solve the underlying whatever abilities it had to solve the underlying problem.problem.

The Stereotype StructureThe Stereotype Structure

Problem

Symptomatic Solution

Fundamental Solution

Side effect

BALANCING

BALANCING

REINFORCING

Symptiom-CorrectingProcess

Problem-Correcting Process

Addictioin Loop

Special Case: Eroding Special Case: Eroding GoalsGoals

Full employment meant 4% Full employment meant 4% unemployment in the 60%, but 6 to unemployment in the 60%, but 6 to 7% unemployment in the early 1980’s7% unemployment in the early 1980’s

Gramm-Rudman bill called for Gramm-Rudman bill called for reaching a balanced budget by 1991, reaching a balanced budget by 1991, but this was shifted to 1993 and from but this was shifted to 1993 and from 1993 to 1996 and from 1996 to 19981993 to 1996 and from 1996 to 1998

““If all else fails, lower your goals..”If all else fails, lower your goals..”

EXAMPLEEXAMPLE

Alcohol

Stress/Depression

Reduce workload

Health

BALANCING

BALANCING

Alcohol

Stress/Depression

Reduce workload

Health

BALANCING

BALANCING

Another Example Another Example

Costs of Higher Ed not funded by State

Raise tuition, add course fees, etc.

Lower enrollments

Perceived cost to the student

Still Another ExampleStill Another Example

Heroics and Overtime

Project Delayed

Efectiveness of PM practices

Reward for heroic behavior

Improvement of processes/practices

Symptom-correctingprocess

Problem-correctingProcess

Addiction Loop

““Shifting the Burden” is an Shifting the Burden” is an insidious probleminsidious problem

Is has a subtle reinforcing cycleIs has a subtle reinforcing cycle This increases dependence on the This increases dependence on the

symptomatic solutionsymptomatic solution But eventually, the system loses But eventually, the system loses

the ability to apply the the ability to apply the fundamental solutionfundamental solution

The system collapsesThe system collapses

Senge SaysSenge Says

Today’s problems are yesterday’s Today’s problems are yesterday’s solutionssolutions

We tend to look for solutions We tend to look for solutions where they are easiest to findwhere they are easiest to find

HOW TO ACHIEVE HOW TO ACHIEVE LEVERAGELEVERAGE

Must strengthen the fundamental Must strengthen the fundamental responseresponse• Requires a long-term orientation and Requires a long-term orientation and

a shared visiona shared vision Must weaken the symptomatic Must weaken the symptomatic

responseresponse• Requires a willingness to tell the truth Requires a willingness to tell the truth

about these “solutions”about these “solutions”

Create your own “Shifting Create your own “Shifting the Burden” Storythe Burden” Story Is there a problem that is getting Is there a problem that is getting

gradually worse over the long term?gradually worse over the long term? Is the overall health of the system Is the overall health of the system

gradually worsening?gradually worsening? Is there a growing feeling of helplessness?Is there a growing feeling of helplessness? Have short-term fixes been applied?Have short-term fixes been applied?

– The Casa Olay problem of using cupouns to The Casa Olay problem of using cupouns to generate business and then can’t get away from generate business and then can’t get away from using the coupons because their customer base is using the coupons because their customer base is hucked on couponshucked on coupons

To structure your problemTo structure your problem

Identify the problemIdentify the problem Next, identify a fundamental Next, identify a fundamental

solutionsolution Then, identify one or several Then, identify one or several

symptomatic solutionssymptomatic solutions Finally, identify the possible Finally, identify the possible

negative “side effects” of the negative “side effects” of the symptomatic solutionsymptomatic solution

Review Review

We have now seen two of the basic systems We have now seen two of the basic systems archetypes. archetypes. • The Limits to Growth ArchetypeThe Limits to Growth Archetype• The Shifting the Burden ArchetypeThe Shifting the Burden Archetype

As the archetypes are mastered, they become As the archetypes are mastered, they become combined into more elaborate systemic combined into more elaborate systemic descriptions.descriptions.

The basic “sentences” become parts of The basic “sentences” become parts of paragraphsparagraphs

The simple stories become integrated into more The simple stories become integrated into more involved storiesinvolved stories

Seeing Structures, not just Seeing Structures, not just TreesTrees

Helps us focus on what is Helps us focus on what is important and what is notimportant and what is not

Helps us determine what variables Helps us determine what variables to focus on and which to play less to focus on and which to play less attention toattention to

WonderTech: The Chapter WonderTech: The Chapter 7 Scenario7 Scenario

A lesson in Growth and A lesson in Growth and UnderinvestmentUnderinvestment

What Senge gets out of this is the What Senge gets out of this is the Growth and Underinvestment Growth and Underinvestment ArchetypeArchetype• A combination of variants of the A combination of variants of the

Limits to Growth Archetype and the Limits to Growth Archetype and the Shifting the Burden ArchetypeShifting the Burden Archetype

The WonderTech The WonderTech ScenarioScenario

WonderTech continues to invest in the growth side of WonderTech continues to invest in the growth side of the process. Sales grow but then plateau. the process. Sales grow but then plateau. Management puts more sales people into the field. Management puts more sales people into the field. Offers more incentives to sales force. But because of Offers more incentives to sales force. But because of long lead times, customers wane. “Yes you have a long lead times, customers wane. “Yes you have a great product, but you can’t deliver on your lead time great product, but you can’t deliver on your lead time promise of eight weeks. We know; we’ve heard from promise of eight weeks. We know; we’ve heard from your other customers.” In fact, the company your other customers.” In fact, the company relaxed its lead-time standard out to twelve to relaxed its lead-time standard out to twelve to sixteen weeks because of insufficient capacity. sixteen weeks because of insufficient capacity.

The Reinforcing LoopThe Reinforcing Loop

Number of Orders

Revenues

Size of Sales Force

REINFORCING

The Balancing Loop: The Balancing Loop: Following the LTG Following the LTG ArchetypeArchetype

Number of Orders

Revenues

Size of Sales Force

Size of Backlog

Delivery Time

Delay

Sales Difficulty

The Growth Curve: Page The Growth Curve: Page 117117

What’s happened?What’s happened?

WT’s management did not pay much WT’s management did not pay much attention to their delivery service. They attention to their delivery service. They mainly tracked sales, profits, market share mainly tracked sales, profits, market share and return on investment. WT’s managers and return on investment. WT’s managers waited until demand fell off before getting waited until demand fell off before getting concerned about delivery times. But this is concerned about delivery times. But this is too late. The slow delivery time has already too late. The slow delivery time has already begun to correct itself. The management begun to correct itself. The management was not very concerned about the relaxed was not very concerned about the relaxed delivery time standard of eight weeks.delivery time standard of eight weeks.

The WonderTech ScenarioThe WonderTech Scenario

The firm decides to build a new The firm decides to build a new manufacturing facility. But the facility manufacturing facility. But the facility comes on line at a time when sales are comes on line at a time when sales are declining and lead times are coming declining and lead times are coming back to the eight-week standard. back to the eight-week standard.

Of every 10 startup companies, 5 will Of every 10 startup companies, 5 will disappear with five years, only 4 disappear with five years, only 4 survive into their tenth year and only 3 survive into their tenth year and only 3 into their fifteenth year.into their fifteenth year.

The Shifting the Burden The Shifting the Burden ComponentComponent

Number of Orders

Size of Backlog

Delivery Time

Delay

Sales Difficulty

Production CapacityPerceived need to improve delivery time

Delivery time standard

Planned additions to capacity

Delay2

Put the whole thing Put the whole thing togethertogether

Comments on The Senge Comments on The Senge MethodologyMethodology

Sees problems as conforming to a Sees problems as conforming to a finite number of “archetypes”finite number of “archetypes”

Formulates models based on Formulates models based on combinations of the archetypescombinations of the archetypes

Addresses problem-driven situationsAddresses problem-driven situations• What about situations and systems that What about situations and systems that

are technology-driven, dynamics-driven, are technology-driven, dynamics-driven, exogenously-driven, anything but exogenously-driven, anything but problem-drivenproblem-driven

More Comments on the More Comments on the Senge MethodologySenge Methodology

But does this become sufficiently But does this become sufficiently general to accommodate all general to accommodate all dynamical “scenarios and situations”?dynamical “scenarios and situations”?

It is difficult to translate his It is difficult to translate his archetypes and causal models into archetypes and causal models into running system dynamics simulationsrunning system dynamics simulations• A lot of variables (RATE VARIABLES, A lot of variables (RATE VARIABLES,

specifically) get left out in terms of specifically) get left out in terms of connectionsconnections

More Comments on the More Comments on the Senge MethodologySenge Methodology

The focus is on characterizing the The focus is on characterizing the dynamics, not on how to capture dynamics, not on how to capture that in terms of stocks, flows and that in terms of stocks, flows and information pathsinformation paths

He doesn’t label his edges with He doesn’t label his edges with “+” or “-” signs“+” or “-” signs

Another methodology: Another methodology: The Sector Approach to SD The Sector Approach to SD model formulationmodel formulation Begin by identifying the sectorsBegin by identifying the sectors

• A “sector” is all the structure associated with a A “sector” is all the structure associated with a single flowsingle flow

• There could be several states in a single sectorThere could be several states in a single sector Determine the within-sector structureDetermine the within-sector structure

• Reuse existing “molecules” where possibleReuse existing “molecules” where possible Determine the between-sector information Determine the between-sector information

infrastructureinfrastructure• There are no flows and therefore no stocks or There are no flows and therefore no stocks or

rates hererates here

A Single-sector A Single-sector Exponential goal-Exponential goal-seeking Modelseeking Model Sonya Magnova is a television retailer Sonya Magnova is a television retailer who wishes to maintain a desired who wishes to maintain a desired inventory of DI television sets so that she inventory of DI television sets so that she doesn’t have to sell her demonstrator doesn’t have to sell her demonstrator and show models. Sonya’s ordering and show models. Sonya’s ordering policy is quite simple--adjust actual policy is quite simple--adjust actual inventory I toward desired inventory DI inventory I toward desired inventory DI so as to force these to conform as closely so as to force these to conform as closely as possible. The initial inventory is Io. as possible. The initial inventory is Io. The time required for ordered inventory The time required for ordered inventory to be received is AT.to be received is AT.

A Two-sector A Two-sector Housing/population ModelHousing/population Model

A resort community in Colorado has A resort community in Colorado has determined that population growth in the determined that population growth in the area depends on the availability of area depends on the availability of hoousing as well as the persistent natural hoousing as well as the persistent natural attractiveness of the area. Abundant attractiveness of the area. Abundant housing attracts people at a greater rate housing attracts people at a greater rate than under normal conditions. The than under normal conditions. The opposite is true when housing is tight. opposite is true when housing is tight. Area Residents also leave the community Area Residents also leave the community at a certain rate due primarily to the at a certain rate due primarily to the availability of housing.availability of housing.

Two-sector Two-sector Population/housing Model, Population/housing Model, ContinuedContinued The housing construction iindustry, on The housing construction iindustry, on

the other hand, fluctuates depending on the other hand, fluctuates depending on the land availability and housing desires. the land availability and housing desires. Abundant housing cuts back the Abundant housing cuts back the construction of houses while the opposite construction of houses while the opposite is true when the housing situation is is true when the housing situation is tight. Also, as land for residential tight. Also, as land for residential development fills up (in this mountain development fills up (in this mountain valley), the construction rate decreases valley), the construction rate decreases to the level of the demolition rate of to the level of the demolition rate of houses.houses.

What are the main sectors What are the main sectors and how do these and how do these interact?interact? PopulationPopulation HousingHousing

What is the structure What is the structure within each sector?within each sector?

Determine state/rate interactions Determine state/rate interactions firstfirst

Determine necessary supportng Determine necessary supportng infrastructureinfrastructure• PARAMETERSPARAMETERS• AUXILIARIESAUXILIARIES

What does the structure What does the structure within the population within the population sector look like?sector look like? RATES: in-migration, out-RATES: in-migration, out-

migration, net death ratemigration, net death rate STATES: populationSTATES: population PARAMETERS: in-migration normal, PARAMETERS: in-migration normal,

out-migration normal, net death-out-migration normal, net death-rate normalrate normal

What does the structure What does the structure within the housing sector within the housing sector look like?look like? RATES: construction rate, demolition RATES: construction rate, demolition

raterate STATES: housingSTATES: housing AUXILIARIES: Land availability multiplier, AUXILIARIES: Land availability multiplier,

land fraction occupiedland fraction occupied PARAMETERS: normal housing PARAMETERS: normal housing

construction, average lifetime of construction, average lifetime of housinghousing

PARAMETERS: land occupied by each PARAMETERS: land occupied by each unit, total residential landunit, total residential land

What is the structure What is the structure between sectors?between sectors?

There are only AUXILIARIES, There are only AUXILIARIES, PARAMETERS, INPUTS and PARAMETERS, INPUTS and OUTPUTSOUTPUTS

What are the between-What are the between-sector auxiliaries?sector auxiliaries?

Housing desiredHousing desired Housing ratioHousing ratio Housing construction multiplierHousing construction multiplier Attractiveness for in-migration Attractiveness for in-migration

multipliermultiplier PARAMETER: Housing units PARAMETER: Housing units

required per personrequired per person

dimensions 1 2 3 4 5 6 7 8 9 10 11 12 13 4 15 1617

1 AA 1 -1 1

2 AA/DD 1

3 I/DD 1

4 dimless 1 1

5 CC/AA 1

6 AA/DD -1

7 AA/(BB.DD) 1

8 AA/ZZ 1

9 BB 1

10 CC 1 -1 1

11 CC\DD 1

12 DD -1

13 CC/DD -1

14 CC/(AA.DD) 1

15 ZZ -1

16 CC/AA -1

17 CC 1 -1