ft pt mba_eibe_2011-12_9-systems_thinking_scenario_planning

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)


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


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.


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


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


Holistic thinking and three frames

• Cutting stone • Completing a wall • Building a cathedral / mosque / church


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


Impact on thinking styles (after Senge)

React to change

History seen as inevitable

no experience with proactive

change

“Event” thinking style


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


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


Systems thinking tools

• influence diagrams • iceberg analysis • feedback loops • modelling systemic interaction • behaviour-over-time graphs


Influence diagrams


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.


Influence diagrams

Example:

".... the Publisher of a consumer magazine is tackling the falling profitability of her magazine...."


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.."


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


Feedback loops


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.


Feedback loops

A B

influences

influences

while


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)


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

+

+


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


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

“ // ”


Iceberg analysis


“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


“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?


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



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.



• 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?


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 -

-

-

//


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?


Modelling behaviour over time


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


Developing the scenario storyline

events

now future past


• 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


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


Perceived threat of shortages

Power availability

Brown outs

Grid capacity pressure

Power demand

-

+

+

+ - +

One strand in “Fill your boots”


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


Diversity of control/ownership of plant

t


Mothballing of plant

t


Available capacity

t


Investment in infrastructure

t


Investment in plant

t


Plant cannibalisation

t


Feedback loops

Mothballing plant

Grid capacity pressure

Available capacity

Investment in infrastructure

Investment in plant

Diversity of ownership

Plant cannibalisation

Owner profitability

-

-

- -

- -

-

+

+


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).