1.6. Preview of the Book and Topics Covered
The fisheries simulator demonstrates a general point that dynamic complexity within business and social systems make management and strategy development difficult. The performance of firms and industries over time rarely unfolds in the way we expect or intend. The purpose of strategic modelling and business dynamics is to investigate dynamic complexity by better understanding how the parts of an enterprise operate, fit together and interact. By modelling and simulating the relationships among the parts we can anticipate potential problems, avoid strategic pitfalls and take steps to improve performance.
The rest of the book demonstrates the art and science of system dynamics modelling. Chapter 2 introduces causal loop diagrams as a powerful conceptual tool to visualise interdependencies and take a strategic overview of operations. Chapter 3 introduces the additional concepts and tools required to translate causal loops into algebraic models and simulators. Chapter 4 provides an opportunity to experiment with a simulator and gain insight into cyclical dynamics by 'managing' the water temperature in an imaginary hot water shower. At first glance, World of Showers is far removed from the worlds of business or public policy, but the gaming simulator vividly illustrates the coordination problem at the heart of balancing loop dynamics found in many practical management situations. Players can also redesign the shower model to improve personal comfort, just as business models are used to redesign operating policies to improve corporate performance.
Chapters 5, 6 and 7 present a variety of business applications, covering topics such as cyclicality in manufacturing, market growth and capital investment. The models in these chapters are deliberately small and concise so their structure and formulations can be presented in full and used to illustrate principles of model conceptualisation, equation formulation and simulation analysis. Chapters 8 and 9 present larger models that arose from real-world applications. Chapter 8 investigates the upstream oil industry and the dynamics of global oil producers that affect us all through the volatile price of oil and gasoline. The chapter includes a description of the model's conceptualisation, a thorough review of the resulting feedback structure of global oil markets, a sample of equation formulations and a comprehensive set of simulations. Chapter 9 presents public sector applications of strategic modelling. We briefly review a classic model about the growth and economic stagnation of cities. Next there is a model that investigates the dynamics of hospital doctors' workload and patient care. Then we return to fisheries and further develop the gaming simulator from this chapter into a fully endogenous model of fisheries that includes investment and regulatory policy. Finally, Chapter 10 addresses the important topic of model validity and confidence building, using a model of product innovation in fast-moving consumer goods to illustrate a variety of tests of model integrity and quality. The chapter ends with a review of all the models covered in the book and some philosophical yet practical comments on realism, model fidelity and learning.
Throughout the book there are exercises with simulators that illustrate the dynamics of interest and allow readers to conduct their own tests and policy experiments. The simulators are to be found on the CD that accompanies the book. Each is designed with an interface that makes it easy to run simulations, interpret the time charts, change selected parameters and explore the underlying model structure and equation formulations. They offer a useful way to experience dynamic complexity and to develop an intuition for the causes and cures of puzzling dynamics in businesses and society.[],[]
[] Here, at the end of Chapter 1, is a good place to issue a challenge for readers who, on completing the book, want to test and refine their modelling skills on a really important dynamic problem. The task is to rebuild the World Dynamics model to incorporate the effects of global warming, with the intention of creating a small-scale simulator that can be used to raise public awareness of the need for us all to cut carbon emissions. By public awareness I mean awareness in your community, company, department, university or school. A good source of ideas for this reconceptualisation is The Revenge of Gaia (Lovelock, 2006). More ideas can be found in the 30-year update of Limits to Growth (Meadows et al., 2002) and in Thomas Fiddaman's prize-winning work on a climate–economy model (Fiddaman, 2002). But remember, the challenge is to create a compact and vivid model to raise local public awareness of the effects of climate change and not to develop a calibrated climate–economy model for climate scientists and policy advisers. Such a high-fidelity or close-analogue model could come later.
[] See also John Sterman's online interactive simulator on climate change. The simulator, available at http://web.mit.edu/jsterman/www/GHG.html, is based on the 'bathtub dynamics' experiments carried out at the MIT System Dynamics Group (Sterman & Booth Sweeney, 2007). That work shows how even highly educated people with strong backgrounds in mathematics and the sciences have great difficulty relating the flow of greenhouse gas (GHG) emissions to the stock of greenhouse gases in the atmosphere.