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 Gap Threat 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 Condition Actions to Improve Conditions Pressures to Adjust Goal Goal 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 Resources to 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 Total Activity Individual B’s Activity Net Gains For B Individual A’s Activity Net Gains For A Resource Limit Gain per Individual Activity 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 of Passengers Increased Flights Revenues Reputation Service Quality Perceived need To improve quality Additions to Service Capacity Service Capacity Quality Standard 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’s Surveys Net Research For B Researcher A’s Surveys Net Research For A Business Survey Tolerance Survey Burnout and Resistance