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Exploring the International Business Environment
Lecture 9 Systems thinking, systems analysis and EIBE
Dr. George Burt
Strategic Management for Sustainable Success
Exploring the International Business Environment (EIBE)
Exploring the International Business Environment
Agenda & objectives
• Introduction to principles of Systems Thinking • Tools and techniques of Systems Thinking (applied in
scenario development and analysis) – influence diagrams – iceberg analysis – feedback loops – modelling systemic interaction – behaviour-over-time graphs
• Examples in practice
Exploring the International Business Environment
Principles of systems thinking
• Thinking of and seeing the big picture. • Recognising the dynamic, complex, and interdependent
nature of systems. • Balancing short-term and long term perspectives. • Taking into account both measurable and non
measurable factors. • Remembering that we are all part of the system in
which we function, and that we each influence those other systems, just as they influence us.
Exploring the International Business Environment
Defining systems thinking
“systems thinking which is a conceptual framework .... to make the full patterns clearer, and to help us see how to change them effectively”.
“systems thinking is a discipline for seeing wholes; it is a
framework for seeing interrelationships rather than things, for seeing patterns of change rather than a ‘snapshot’”.
Senge 1990
Exploring the International Business Environment
Why systems thinking?
“systems thinking offers a valuable perspective, in that, it makes everything and everyone interconnected, in an infinitely complex network (of sub-systems)”.
Senge, 1990
“the world is whole and the whole is complex. It is
increasingly complex with more and more information, intense interdependency, and relentless change”.
RL Flood, 1999
Exploring the International Business Environment
Holistic thinking and three frames
• Cutting stone • Completing a wall • Building a cathedral / mosque / church
Exploring the International Business Environment
Systems thinking and complexity
Detail complexity:
“arises where there are many variables, which are difficult, if not impossible, to hold in the mind at once and appreciate as a whole”
Dynamic complexity:
“arises where effects over time of interrelatedness are subtle and the results of actions are not obvious; or where short term and long term effects are significantly different; or where effects locally are different from effects on a wider scale”
RL Flood, 1999
Exploring the International Business Environment
Impact on thinking styles (after Senge)
React to change
History seen as inevitable
no experience with proactive
change
“Event” thinking style
Exploring the International Business Environment
Impact on thinking styles (after Senge)
React to change
This reality only one of
several possible
History seen as inevitable
no experience with proactive
change
Deeper understanding
of shaping forces
Awareness of leverage
Pro-activity
“Event” thinking style “Systemic” thinking style
Exploring the International Business Environment
Systems thinking and EIBE
• The world can be separated into predictable and indeterminate/uncertain elements
• How to separate the predictable from the uncertain? • Systems analysis allows:
– Exploration and identification of structure, relationships, trends and driving forces
– Separation of predictable elements from uncertainty – Articulation of clear research questions (why is the system
behaving differently from my expectations?) – Modelling the dynamics of the system under study
Exploring the International Business Environment
Systems thinking tools
• influence diagrams • iceberg analysis • feedback loops • modelling systemic interaction • behaviour-over-time graphs
Exploring the International Business Environment
Influence diagrams
Exploring the International Business Environment
Influence diagrams • Ideas/concepts, defined as variables, are linked by arrows to
indicate causality or temporal sequences or influences. • Ideas/concepts describe/represent events. • Track causes backwards to get behind symptoms of a
problem. • Track causes forward to outcomes that matter to the problem
owner. • Track side effects that might matter (this often reveals multiple
criteria for the definition of the problem or consequences of possible solutions).
• Look for clusters of concepts, root causes of outcomes that are unwanted.
• Look for different perspectives (possibly note these in different colours). Note which criteria matter to which actor.
Exploring the International Business Environment
Influence diagrams
Example:
".... the Publisher of a consumer magazine is tackling the falling profitability of her magazine...."
Exploring the International Business Environment
Influence diagrams
The Editor says: "we are losing readers because the magazine does not have enough editorial pages and for every lost reader we reduce revenue from the cover price we charge...if we keep losing readers the ad staff will have to charge less for their ads…"
The Advertisement Manager says: "...we are not linking our
editorial matter to the advertisements we know we are going to get - like others are doing - which means we are not getting the more prestige ads and so we charge lower rates for the ads giving a significant drop in revenue.."
Exploring the International Business Environment
falling profitability
drop in revenue charge less for ads
losing readers
reduced revenue from cover price
not enough editorial pages
not getting prestige ads
not linking editorials to ads (as others do)
Influence diagrams
Exploring the International Business Environment
Feedback loops
Exploring the International Business Environment
Feedback loops in systems thinking
rather than linear thinking “if A, then B”,
systems thinking takes into account the fact that if A causes or affects B, then B may also affect A.
This circular causality is called a feedback loop.
Exploring the International Business Environment
Feedback loops
A B
influences
influences
while
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Influences and relationships in feedback loops
• Relationships in a system can be of various types, depending on the nature of the influences the components will have on
each other: • positive feedback loop have either generative or
degenerative characteristics • positive feedback loop(s) can show growth
– “virtuous circle” • positive feedback loop can new equilibrium position
– “vicious circle” • influences can also have lagged effects (delays)
Exploring the International Business Environment
Positive feedback
Here, positive does not mean “good”, it means that the influence reinforces action by pushing for upward movement
A B
influences
influences
while
+
+
Exploring the International Business Environment
Positive feedback
A B
influences
influences
while
+
-
Here, positive does not mean “bad”, it means that the influence brings about new level of equilibrium by pushing the variable in the opposite direction
Exploring the International Business Environment
Lags and Delays
some influences have a lagged effect
time effects (delays in different parts of the system between an action and its effects) play an important role in system behaviour
“ // ”
Exploring the International Business Environment
Iceberg analysis
Exploring the International Business Environment
“Iceberg” analysis (underlying structure)
Events
Patterns
Structure
Information
Financial
Resources
Political
Cultural
Legislation
Technology
Policy
Demography
Ecology Thresholds
Physics Power distribution
Regulation
Territorial
Agreements
Leve
ls o
f und
erst
andi
ng
What is happening to make this event occur?
Inquiry
Exploring the International Business Environment
“Iceberg” analysis - levels of understanding
Level of Understanding
Shared vision
Systemic structure
Pattern of events
Events
Action Mode
Generative
Creative
Adaptive
Reactive
Time orientation
Future
Present
Typical questions
what are the stated or unstated visions
which generate the structures?
what are the mental
or organizational structures that create the patterns?
what kinds of trends or
patterns of events seem to be recurring?
what is the
fastest way to react to this event NOW?
Exploring the International Business Environment
Iceberg understanding
• Remarkable people – Participates only in discussion on external business environment
– Understands (industry) structure, driving forces, key uncertainties
– Is not part of the normal ongoing strategic conversation in the company
– Asks new/unexpected questions
– Provides new insights
• Historical studies
Exploring the International Business Environment
Iceberg understanding
Events level understanding: Pattern / trend level of understanding: Structural understanding:
(Increase in) Level of violence Actions of actors involved in the situation State control or fight for freedom or civic breakdown?
Structure is defined by the interrelationships within the system, and not the parts themselves, structure is invisible.
Exploring the International Business Environment
Iceberg understanding
• One group involved in the violence? • Changing nature of groups involved in violence
over time? • How do you explain early violence and deaths
(with less media coverage), and later violence and deaths (with more media coverage)? What else is missing to enhance our understanding of the situation?
Exploring the International Business Environment
Examination and inquiry
Level of violence
Level of/extent of state repression
Level of media coverage
Flight of capital Foreign Direct Investment
Economic performance
Level of income -
-
-
//
Exploring the International Business Environment
Examination and inquiry
• Earlier example of the development of violence (and change of violence over time), which helps groups to:
• Model by: – Share tacit knowledge – Develop collective explanation / worldview of a situation – Explain relationships and behaviour (beyond ‘lists’ and events)
• Questions emerging include:
– What’s happening in this situation? – What other events do we see in the situation that might in some
way or other be related?
Exploring the International Business Environment
Modelling behaviour over time
Exploring the International Business Environment
Systems thinking & EIBE Structure Mapping, task 1
Per scenario: • Develop the scenario story over time in a story map • Identify one or two key strands characterising this
story
Exploring the International Business Environment
Developing the scenario storyline
events
now future past
Exploring the International Business Environment
• test cause and effect logic, and chronology, • add any events that are needed to fill gaps in the story
past future now
Developing the scenario storyline
Exploring the International Business Environment
Cha
ngin
g na
ture
and
st
ruct
ure
of c
usto
mer
s
Change in global economy driving demand
Many customers and diffused geographically
Global conflict Fragmentation Stagnation No energy growth
Global harmony Growth Energy demand and growth
Few customers with power
Retrenchment
Survive or die Win or lose
Fill your boots
Exploring the International Business Environment
Perceived threat of shortages
Power availability
Brown outs
Grid capacity pressure
Power demand
-
+
+
+ - +
One strand in “Fill your boots”
Exploring the International Business Environment
Systems thinking & EIBE Structure Mapping, task 2
Per scenario: • For each story strand:
• Identify the key forces and variables playing a role • Choose (say 5) variables that will illuminate the story
best • For each variable draw behaviour over time map • Map causal relationships between these variables
that would explain this behaviour (note: less is more) • Highlight the loops in the causal relationships
• Note any new insights that you discover
Exploring the International Business Environment
Diversity of control/ownership of plant
t
Exploring the International Business Environment
Mothballing of plant
t
Exploring the International Business Environment
Available capacity
t
Exploring the International Business Environment
Investment in infrastructure
t
Exploring the International Business Environment
Investment in plant
t
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Plant cannibalisation
t
Exploring the International Business Environment
Feedback loops
Mothballing plant
Grid capacity pressure
Available capacity
Investment in infrastructure
Investment in plant
Diversity of ownership
Plant cannibalisation
Owner profitability
-
-
- -
- -
-
+
+
Exploring the International Business Environment
Summary • Systemic understanding of the surrounding world
looks at the situation, in steps: – Break down the system into events, trends, patterns and
structure. – Specify the important events, the things we can see. – Discover the trends, time behaviour we observe in the
events, leading to the conceptualisation of variables. – Infer patterns, based on cues for causality applied to variable
behaviour. – Develop theories, which connect the system together
through causal links (multiple structures will be required from different possible interpretations of causal patterns).
– Use the theories to project future behaviour (with multiple structures leading to multiple scenarios).
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