System Dynamics

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System Dynamics

• Douglas M. Stewart, Ph.D.
• Anderson Schools of Management
• University of New Mexico

Adapted from Senge, P. The Fifth Discipline,
Doubleday/Currency, 1990.
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Why System Dynamics

• TQM requires a systems view of the world
• A new paradigm required
• See the interrelationships rather than the linear
  cause-effect chains
• See the process of change rather than a snapshot
• In systems thinking every influence is both a
  cause and effect

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Introduction to Systems Diagrams

• From any element in a situation you can trace
  arrows that represent the influence on another
  element.

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Example Filling a glass of water
Am I filling the glass of water?
Desired Water Level
Faucet Position
Perceived Gap
Water Flow
Current Water Level
Or is the level of water controlling my hand?
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Building Blocks of Systems Thinking

• Reinforcing Loops (Positive Feedback)
• Balancing Loops (Negative Feedback)
• Delays

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Reinforcing Loops
If the product is good we have a virtuous cycle.
Sales
Positive Word of Mouth
Satisfied Customers
If the product is bad we have a vicious cycle.
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Reinforcing Loops

• The snowball effect
• Accelerating growth or accelerating decline
• These systems can take you by surprise!

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Balancing Loops
Body Temperature
Desired Body Temperature
Adjust Clothing
Temperature Gap
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Balancing Loops

• System reverts to status quo
• Often in business the goals are implicit
• When there is resistance to change, look for a
  hidden balancing process

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Delays The Sluggish Shower
Current Water Temperature
Desired Water Temperature
Delay
Shower Tap Setting
Temperature Gap
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Delays

• When you tell the story add the word eventually
  
• Cause the system to overshoot the target
• Aggressive action produces the opposite of what
  is intended

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An Example Reducing Burnout
Actual Hours Worked
Implicit goal of 70 hour workweek
Threat of being perceived as uncommitted
Heroism Gap
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Archetype 1 Limits to Growth

• A reinforcing process is begun to produce a
  desired result. It works, but also creates
  unintended side-effect (a balancing process) that
  eventually slows down success.

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Limits to Growth
Size of Market Niche
Motivation and Productivity
Saturation of Market Niche
Morale
Growth
Delay
Promotion Opportunities
Where is the leverage?
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Limits to Growth

• The tendency is to push hard
• The leverage not in the reinforcing loop, but
  removing the limits on the balancing loop
• Dont push growth. Remove the factors that limit
  growth

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Archetype 2 Shifting the Burden

• An underlying problem generates symptoms that
  demand attention.
• Butunderlying problem is obscure or costly to
  confront.
• So people shift the burden to other solutions
  that address the symptoms.

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Shifting the Burden
Bring in HR Expert
Expectations that HR Experts will solve problem
Personnel Performance Problems
Delay
Develop Managers Abilities
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Shifting the Burden

• Beware the symptomatic solution
• Benefits are short term at best
• Pressure on symptomatic response only gets larger

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Archetype 3 Eroding Goals

• A shifting the burden type structure where the
  short term solution is letting the long term goal
  decline.
• Customers are dissatisfied with late schedules.
  Production scheduling never really under control.
  Company says we ship to schedule 90 of time.
  Butevery time the schedule begins to slip, they
  add to quoted delivery times.

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Eroding the Goals
Early warning symptom Its OK if our
performance standards slide just a little until
the crisis is over
Pressures to Adjust Goal
Goal
Gap
Actions to Improve Conditions
Condition
Principle Hold the vision
Delay
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Archetype 4 Success to the Successful

• Two activities compete for limited resources.
  The more successful one becomes, the more support
  it gains, thereby starving the other.
• Manager has two protégés. One gets sick for a
  week, the other gets preferential treatment. The
  first feeling approval flourishes and therefore
  gets more opportunity. The second, feeling
  insecure, languishes and eventually leaves.

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Success to the Successful
Warning symptom One of two interrelated
activities is beginning to do very well and the
other is struggling
Resources to A
Success of A
Allocation to A instead of B
Principle Look for overarching goal to balance
both, or decouple the shared resource.
Resources to B
Success of B
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Tragedy of the Commons

• Individuals use a joint resource on the basis of
  individual need. At first they are rewarded for
  using it. Eventually they get diminished
  returns, which causes them to intensify their
  efforts. The resource becomes depleted.
• Several divisions use a common retail sales
  force. Each is concerned that sales force will
  not give enough attention to their products. One
  manager sets higher than needed targets. Other
  managers followed. Sales force becomes
  tremendously overburdened, performance declines
  and turnover increases.

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Tragedy of the Commons
Warning Symptom There used to be plenty for
everyone. Now things are tough. I will have to
work harder to succeed.
Individual As Activity
Net Gains For A
Resource Limit
Gain per Individual Activity
Total Activity
Delay
Principle Manage the commons through education
and self-regulation or an official regulation
Individual Bs Activity
Net Gains For B
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Archetype 5 Growth and Underinvestment

• Growth approaches a limit which can be pushed out
  with investment in additional capacity. But if
  investment is not aggressive enough to forestall
  growth, it may never get made.
• People express was unable to build service
  capacity to keep up with demand. Firm tried to
  outgrow problems. Deteriorating service quality,
  increased competition and lower morale followed.
  Firm relied on underinvestment strategy until
  customers no longer wanted to fly airline.

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Growth and Underinvestment
Principle Build in advance of demand as
strategy for developing it. Hold the vision on
quality standards.
Reputation
Increased Flights
Number of Passengers
Delay
Quality Standard
Revenues
Service Quality
Warning We used to be best and will be again,
but right now we need to conserve resources and
not overinvest
Perceived need To improve quality
Service Capacity
Additions to Service Capacity
Delay
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Spend on RD to Drive Growth
Size of Engineering Staff
RD Budget
Management Complexity
Delay
Revenues
Management Burden to Senior Engineers
New Products
Product Development Time
Senior Engineers Ability to Manage
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The growth of survey based business research.
Researcher As Surveys
Net Research For A
Business Survey Tolerance
Survey Burnout and Resistance
Total Surveys
Delay
Researcher Bs Surveys
Net Research For B