System Dynamics

1. 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.

2. 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

3. Introduction to Systems Diagrams • From any element in a situation you can trace arrows that represent the influence on another element.

4. 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?

5. Building Blocks of Systems Thinking • Reinforcing Loops (Positive Feedback) • Balancing Loops (Negative Feedback) • Delays

6. 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.

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

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

9. 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

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

11. 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

12. An Example: Reducing Burnout Actual Hours Worked Implicit goal of 70 hour workweek Threat of being perceived as uncommitted Heroism Gap

13. 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.

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

15. 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

16. 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.

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

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

19. 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.

20. Eroding the Goals Early warning symptom: “It’s 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

21. 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.

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

23. 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.

24. 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 A’s 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 B’s Activity Net Gains For B

25. 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.

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

27. Spend on R&D to Drive Growth Size of Engineering Staff R&D Budget Management Complexity Delay Revenues Management Burden to Senior Engineers New Products Product Development Time Senior Engineers Ability to Manage

28. The growth of survey based business research. Researcher A’s Surveys Net Research For A Business Survey Tolerance Survey Burnout and Resistance Total # Surveys Delay Researcher B’s Surveys Net Research For B