Strategic Modelling and Business Dynamics - Morecroft John D.

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sounding board for many fledgling ideas about system dynamics and strategy. My thanks to Andrew Doman who led the Business Dynamics initiative in London and to Maurice Glucksman, Paul Langley, Norman Marshall, Panos Ninios and Hendrick Sabert who collaborated with London Business School on a variety of projects and publications.

      There are samples of this strategy dynamics work on the Learners' website and in the book. See in particular the materials on People Express Airlines in the learning support folder for Chapter 6 and the materials on diversification dynamics and metamorphosis in the v-Lecture folders. Also, Chapter 10 includes edited extracts from Martin Kunc's dissertation about product growth dynamics and industry competition in fast moving consumer goods. Kim Warren went on to further develop the SD-RBV theme in his Forrester Award-winning book, Competitive Strategy Dynamics.

      Soft Systems and Complementary Modelling Methods

      In November 2001, I was invited by Mike Pidd of Lancaster University Management School to join the INCISM network, and it was here, in a series of meetings that spanned two years, that I learned much more about soft systems than I had previously known. INCISM is an abbreviation for Interdisciplinary Network on Complementarity in Systems Modelling and its meetings were funded by the UK's Engineering and Physical Sciences Research Council (EPSRC). The network brought together a mix of academics and practitioners to explore the combined use of what have become known as ‘hard’ and ‘soft’ approaches to systems modelling. One result was a book entitled Systems Modelling – Theory and Practice. Through the network, the book and subsequent conversations with both Peter Checkland and Mike Pidd, I have come to better understand where system dynamics fits on the hard–soft model spectrum. It seems to me that the juxtaposition of system dynamics and soft systems methodology (SSM) reveals, in tangible terms, quite a lot about the abstract philosophy of modelling – by which I mean the different ways in which modellers interpret situations in business and society. I touch on this topic in Chapter 2 (under ‘event-oriented thinking’), in Chapter 5 (under ‘modelling for learning and soft systems’) and again in Chapter 10 (under ‘mental models, transitional objects and formal models’). INCISM also inspired a plenary session on soft systems and modelling at the 2004 International Conference of the System Dynamics Society in Oxford. Presentations by Mike Pidd and Peter Checkland described the territory covered by hard and soft modelling approaches and opened up discussion about the role of both qualitative and quantitative system dynamics. In the UK there is a long tradition of qualitative system dynamics which was started by Eric Wolstenholme and Geoff Coyle. The Oxford conference built on this tradition with its theme of collegiality as a social and scientific process to mediate between competing or complementary world views.

      My interest in complementary modelling methods was further reinforced through collaboration with the Operational Research and Management Sciences group at Warwick Business School. There I found colleagues working at the interface of operational research and strategy. We had much in common. The use of complementary models and frameworks for strategic development became the focus of activity for an informal research group that included Robert Dyson, Maureen Meadows, Frances O'Brien, Abhijit Mandal and Alberto Franco (all from Warwick at the time), Jim Bryant (from Sheffield Hallam) and me.

      At Warwick, I also found experts in discrete-event simulation (DES). We soon discovered a shared interest in simulation methods that transcended our differences. With Stewart Robinson, I conducted a mini-project that compared system dynamics and discrete-event models of fishery dynamics. We each built a small model of a fishery following the normal modelling conventions of our respective fields. Then we compared notes. The project led to many interesting conversations about modelling and simulation. Some of our thoughts and conclusions are reported in the appendix of Chapter 9 on alternative simulation approaches. Although both system dynamics and discrete-event simulation are commonly viewed as hard system modelling approaches, their comparison illustrates an interplay and clash of world-views worthy of a soft systems study. In a sense, this comparison was our mini-project as we built separate fishery models and then reflected how our professional backgrounds led us to interpret and represent the problem situation in fisheries. The fishery models also opened the door to the discrete-event simulation community, making possible further collaborative research with Ruth Davies, Sally Brailsford and others at the boundary of system dynamics and DES.

      How to Use This Book

      To get the most out of Strategic Modelling and Business Dynamics it is important to develop a good intuitive feel for ‘dynamics’ – how and why things change through time. Personal experience of simulated dynamics is a good way to learn. So the book comes with chapter-by-chapter learning support folders, which are available on the Learners' website (see the About the Website Resources section). Each folder contains models and gaming simulators that allow readers to run simulations for themselves and to reproduce the time charts and dynamics described in the text. The models come to life in a way that is impossible to re-create with words alone. It is easy for readers to spot opportunities for learning support. A spinning gyroscope is printed in the page margin alongside text that explains how to run the simulator.5 Examples include unintended drug-related crime, the collapse of fisheries, perverse hotel showers, persistent manufacturing cycles, boom and bust in new products and services, promising market growth, unfulfilled market growth, competitive dynamics, hospital performance and price volatility in global oil.

      There are also PowerPoint slides with notes to accompany the book. They are available on the Instructors' website (see the About the Website Resources section). The slides include lectures and workshops which are organised chapter-by-chapter. They can be supplemented with assignments which are also to be found on the Instructors' website.

      There are many ways to use the book, models and slides in university and management education, some of which are outlined below. No doubt instructors will adapt and tailor the materials to suit their own needs, but the following comments may trigger some useful thoughts.

      MBA and Modular/Executive MBA

      The book is derived from an MBA elective of the same name (Strategic Modelling and Business Dynamics SMBD) that I ran at London Business School for many years.6 It therefore has a track record in graduate management education. To run a similar elective course at another business school I recommend starting with the well-known ‘Beer Distribution Game’ in the opening session and then working through a selection of book chapters complemented with workshops and assignments based on the learning support models. The Beer Game is a role-playing exercise for teams of students that examines supply-chain dynamics and coordination problems in a multi-stage production-distribution chain comprising retailers, wholesalers, distributors and a factory. The game can be purchased at modest cost from the System Dynamics Society www.systemdynamics.org and is a vivid way to introduce students to modelling, representation, simulation and puzzling dynamics. On this foundation can be built lectures and workshops that introduce feedback systems thinking and modelling (Chapters 2 and 3); examine the cyclical dynamics of balancing loops (Chapters 4 and 5); and overlay the growth dynamics of reinforcing loops to study limits to growth, stagnation and decline (Chapters 6 and 7). By the end of Chapter 7 students have covered the key concepts required to conceptualise, formulate, test and interpret system dynamics models. Then instructors can select among the applications presented in Chapters 8, 9, and 10 (complemented with system dynamics materials from other sources) to create a complete course with 30 or more contact hours offered in modular or weekly format. The material is best spread out across an academic term or semester to allow adequate time for reading, preparation and model-based assignments.

      A full-semester twenty-eight session course suitable for graduate students can be found on the Instructors' website in the folder entitled Course Outlines. A fourteen session taster course specially designed for PhDs can also be found in the same website folder.

      Non-Degree Executive Education

      Materials from the book have also been successfully used in a popular one-week residential Executive Education programme called Systems Thinking and Strategic

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<p>5</p>

A spinning gyroscope is ‘dynamically complex’ and is therefore a good visual metaphor to signal the simulation of dynamics in business and society. A gyroscope behaves in surprising ways. For example, when prodded on its top-most point it moves at right angles to the direction of the push; a counter-intuitive response. A gyroscope is also self-balancing. It stands on a pointed-end, like an upright pencil. Yet instead of falling over, as might be expected, it appears to defy gravity by remaining upright with its axis horizontal; again a counter-intuitive response.

<p>6</p>

Over the years Strategic Modelling has also been taught by Ann van Ackere, Shayne Gary and Scott Rockart, who each brought their own interpretations to the core materials. My thanks to them for the innovations and refinements they introduced.