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From Loops Through Modeling to Learning: 

From Loops Through Modeling to Learning

The Purpose of Modeling: 

The Purpose of Modeling Modeling is for learning - not prediction! The ability to learn faster than your competitors may be the only sustainable competitive advantage A. de Geus

Predicting the Future Has Always Been Difficult: 

Predicting the Future Has Always Been Difficult It is only a toy - Alexander Graham Bell 1876 Everything that can be invented has been invented Duell, US Patent Office 1899 Computers in the future may weigh no more than 1.5 tons. Popular Mechanics, forecasting the relentless march of science, 1949. We don't like their sound, and guitar music is on the way out. Decca Recording Co. rejecting the Beatles, 1962. There is no reason for any individual to have a computer in their home - K Olsen Digital, 1977

The need for simulation models: 

The need for simulation models Mental model = Set of hypotheses Human brain: Can only deal with a limited number of concepts => Inability to 'work things out' mentally System dynamics model: Formalisation of the mental model => Forces internal consistency of hypotheses Clarifies implications of mental model

What a Good Model Does: 

What a Good Model Does Stimulates novel thinking about future business opportunities. Facilitates the sharing of mental models of a specific business situation. Enhances participants’ introspection about their own decision processes and routines. Creates a new language and new concepts to re-assess events of common experience. Helps unveil hidden assumptions behind collective interpretations typically presented as “taken-for-granted” or “obvious.”

Slide6: 

Strategy and Decision Making Invent Real World Implementation and Action Produce Outcomes and Evaluation Reflect Mental Models Discover Delays Delays Confounding Factors Different conclusions, systemic impacts explored Lower risk allows public mapping of views Ambiguous, imperfect information A Learning Approach to Dynamic Strategy Design

Learning: Policy design: 

Learning: Policy design Strategy proposal Intuition of management Simulation model Simulation analysis Understanding of system behaviour Debate and discussion Evaluation of strategy proposal Opinions Opinions Revisions Revisions

System Dynamics or Business Dynamics: 

System Dynamics or Business Dynamics From Structure to Behavior Explicit recognition of feedback Explicit recognition of lags Modeling soft variables Dynamics rather than detailed complexity User-friendly software

Slide9: 

Building Models With Management Teams

Conceptualisation = Setting the scene: 

Conceptualisation = Setting the scene Developing a shared mental model Identifying the key variables and their interrelationships Information gathering Discussion of issue at hand Typically team of 4-6 people from organization + facilitator and modeller

Current Freight Rates: 

Current Freight Rates

Slide12: 

Shipyard Building Capacity Ship Supply Fleet Utilisation Ship Demand Freight Rates Owners’ Decisions to Increase Supply The Feedback view of the Market B R R R R R B

Slide13: 

Expected Supply Expected Demand Orders Pragmatists (40%) Orders Freight Rate New Cost New Price Orders New Price Forecast New Price Cautious (50%) And Aggressive (5%) Investors Speculators (5%) Investors Ordering Behaviour

Slide14: 

New Cows Dogs Building Capacity New Price Orders Pipeline Deliveries Supply Scrapping Capacity Change Utilisation Freight Rates Demand Speculator Ordering Aggressive Ordering Cautious Ordering Pragmatic Ordering Structure of Model

Examples of Maps: 

Examples of Maps Customers New Product Development Resource Allocation Existing Products Market Place Competitors Products Finance & Accounting Stock- market Sector Map

Example of Maps: 

Example of Maps Investment Decision New Capacity Expected Demand Viable Cost Fixed Cost Required Rate of Return Consumer Trends Strategic Fit Investment “Decision Bubble”

Southwest Airlines: 

Southwest Airlines Limit passenger service Relative low cost Very low ticket price Passenger attractiveness Revenue No meals No seat assignment No baggage transfers Profitability Productivity of crews Aircraft utilization Flexible Union contracts High compensation of employees High employee stock ownership Frequent, reliable departures No connection to other airlines Standardized fleet of 737 aircraft Causal Loop Diagram

Slide18: 

Baseline Demand Long term Expected Demand Gap Perceived Industry Capacity Project Announcement Capacity in Construction Project Approval Industry Capacity Closure Cash Availability Hurdle Rate Expected Profitability Long Term Expected Price Current Profitability Lifetime of Plant Inventory Supply Shipments Industrial Production External Events i.e. ‘Gulf War’ Oil Price Expected Price Plant Loading Total Demand Desired Stock Stock Adjustment Baseline Demand Total Demand Example of Map From Chem. Indus. Expected Supply Shortage Price online

Part 2: Building the Model: 

Part 2: Building the Model Using the information and conceptualization to construct a simulation model. Simulation model is normally “relative” small as the user has been closely involved in the conceptualization. Model based on “stock and flow” modelling (i.e. accumulation or state variables).

Software: 

Software Vensim free version from vensim.com Powersim time limit demo version from powersim.com Ithink / Stella “non-save” demo from High Perfromance Systems

Modelling : 

Modelling Develop stock and flow model Clarify relationships in the model Collect further data Calibrate the model Test the model Verify results with member of the team

Example of Stock and Flow Network: 

Example of Stock and Flow Network Technology Migration Effect of Saturation Penetration

Slide23: 

Hospital University Research General Management and Administration Medical Staff Medical Support Staff Research Support Staff Maintenance and other support staff HRM Structure

HRM structure (example): 

HRM structure (example)

Simplified Overview: 

Simplified Overview Organizational Processes

Model Forum: 

Model Forum “Close the loop” Experiment Discuss Begin to form a view

Slide27: 

Introduction (30 Minutes) Freight rates – core feedback loops Ship demand – global mercantilism & sustainable world The make-up of the fleet – dogs, cows, new Ordering behaviour – investor archetypes Shipyard capacity A SYSTEMS VIEW OF THE OIL TANKER (20 Minutes) Picture of investors, ships and building Diagram of investors, ships and building ------------------ break (15 minutes) ------------------ THE BASE CASE SCENARIO (60 minutes) Explain scenario assumptions Discuss base-case simulations USING THE CONTROL PANEL (30 minutes) A guided tour of the control panel Creating new scenarios ------------------ lunch (60 minutes) ------------------ THE MARINE MANAGEMENT TEAM AT THE CONTROLS (120 minutes) The marine management team generates and debates its own scenarios ------------------ Break (15 minutes) ------------------ GETTING TO CLOSURE (60 Minutes) Investment options and implications What we have learned Action arising ------------------ end of the forum ------------------ AGENDA FOR MARINE STRATEGIC FORUM A Computer-Aided Meeting For Marine Managers

Modeling With Management Teams : 

Modeling With Management Teams Involvement of the decision makers Team develop model together with facilitator and model builder Create a coherent and consistent view of the future -- a virtual history of the future Using the model the team can explore multiple futures and create a comprehensive view on the advantages and disadvantages when strategic decision has to be made

From Group Learning to Organizational Learning: 

From Group Learning to Organizational Learning How can the “learning” in the group be communicated to the whole organization? The use of microworlds or as they sometimes are called “management flight simulators” Important part as a way of communicating process insight

What is a Microworld: 

What is a Microworld A microworld is essential a computer simulation of an organizational process or system. It is used to apply or practice systems thinking and mental models to a more realistic business case in which quantitative as well as qualitative assessments can be made. The ability to experiment also makes it an excellent tool for strategy development (NASA Productive Conversation Training Program)

What is a Microworld?: 

What is a Microworld? Computer game Risk-free environment Representation of business situation Instrument for communication Advanced learning tool Fun Use technology such as “Management Flight Simulators” or “Microworlds” to create understanding and commitment in the organization for the necessary change.

How to use a Microworld: 

How to use a Microworld Discussion of the case/background Setting the scene Experiment with the Microworld Understand the problem Formulate strategy Implement strategy Second run (sometimes) If times permit - better results second time? Debrief and discuss results Emphasis on learning

Slide33: 

Opening Screen from the Oil Producers

Slide34: 

INTERCONEXIÓN ELÉCTRICA S.A. E.S.P. Training electricity traders in Colombia Franco, Dyner, Smith, Bedoya, Arango, Ochoa & Larsen