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.

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

Introduction to Systems Diagrams

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

Example: Filling a glass of water

Faucet Position

Water Flow

Current Water Level

Perceived Gap

Desired Water Level

Am I filling the glass of water?

Or is the level of water controlling my hand?

Building Blocks of Systems Thinking

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

Reinforcing Loops

Sales

Satisfied Customers

Positive Word of Mouth

If the product is good we have a virtuous cycle.

If the product is bad we have a vicious cycle.

Reinforcing Loops

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

Balancing Loops

Body Temperature

Desired Body Temperature

Temperature Gap

Adjust Clothing

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

Delays: The Sluggish Shower

Current Water Temperature

Temperature Gap

Shower Tap Setting

Desired Water Temperature

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

An Example: Reducing Burnout

Actual Hours Worked

Heroism GapThreat of being perceived as uncommitted

Implicit goal of 70 hour workweek

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.

Limits to Growth

Growth

Promotion Opportunities

Morale

Motivation and Productivity

Saturation of Market Niche

Size of Market Niche

Where is the leverage?

Limits to Growth

The tendency is to push hard The leverage not in the reinforcing loop, but

removing the limits on the balancing loop

Don’t push growth. Remove the factors that limit growth

Archetype 2: Shifting the Burden

An underlying problem generates symptoms that demand attention.

But…underlying problem is obscure or costly to confront.

So… people shift the burden to other solutions that address the symptoms.

Shifting the Burden

Personnel Performance Problems

Bring in HR Expert

Develop Managers’ Abilities

Expectations that HR Experts will solve problem

Shifting the Burden

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

larger

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. But…every time the schedule begins to slip, they add to quoted delivery times.

Eroding the Goals

Gap

ConditionActions to

Improve Conditions

Pressures toAdjust GoalGoal

Early warning symptom:“It’s OK if our performance standards slide just a little until the crisis is over”

Principle: Hold the vision

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.

Success to the Successful

Allocation to A instead of B

Resourcesto B

Success of B

Resources to A

Success of A

Warning symptom: One of two interrelated activities is beginning to do very well and the other is struggling

Principle: Look for overarching goal to balance both, or decouple the shared resource.

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.

Tragedy of the Commons

TotalActivity

Individual B’sActivity

Net GainsFor B

Individual A’sActivity

Net GainsFor A Resource

Limit

Gain perIndividualActivity

Warning Symptom: There used to be plenty for everyone. Now things are tough. I will have to work harder to succeed.

Principle: Manage the commons through education and self-regulation or an official regulation

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.

Growth and Underinvestment

Number ofPassengers

IncreasedFlights

Revenues

Reputation

ServiceQuality

Perceived needTo improve quality

Additions toService Capacity

ServiceCapacity

QualityStandard

Warning: We used to be best and will be again, but right now we need to conserve resources and not overinvest

Principle: Build in advance of demand as strategy for developing it. Hold the vision on quality standards.

Spend on R&D to Drive Growth

Revenues

R&D Budget

New Products

Size of Engineering Staff

Management Complexity

Management Burden to Senior Engineers

Product Development

Time Senior Engineers Ability to Manage

The growth of survey based business research.

Total #Surveys

Researcher B’sSurveys

Net ResearchFor B

Researcher A’sSurveys

Net ResearchFor A Business Survey

Tolerance

Survey Burnout andResistance