Introduction to Systems Thinking and Dynamic Modeling (ST&DM ): Part I

1. Introduction to Systems Thinking and Dynamic Modeling (ST&DM): Part I For Tahoma School District on June 3, 2010 Tahoma contact: Dawn Wakeley DWakeley@tahomasd.us, 425-413-3424 Paul Newton (Boeing) paul.c.newton2@boeing.com, 206-544-7641 Dr. Dexter Chapin (Seattle Academy of Arts and Sciences) dchapin@seattleacademy.org, 206-323-6600 Jim Ray (retired Boeing engineer) james.ray@comcast.net, 425-865-9319 (home) June 3, 2010

2. Agenda: Intro to ST&DM Part I • Broad application areas of systems thinking and dynamic modeling (ST&DM) • Slinky • What is ST&DM? • Drug-related crime • Modeling example: filling a water glass • ST&DM at Boeing • First feedback loops

3. Broad Application Areas of ST&DM • To Technology Problems • Control engineers do ST&DM all the time, although they might not call it that • Examples: autopilot, thermostat, paper machine, electric blanket, cruise control, steam engine, electric motor, computer, etc. • To Social Problems • Business dynamics • Family dynamics • Community dynamics • Insurgency dynamics • Ecological dynamics • Organizational dynamics • Urban dynamics • Etc…..

4. What is the systems lens? Hint: Structure and behavior Introduction from Meadows, D. H., & Wright, D. (2008). Thinking in systems: A primer. White River Junction, Vt: Chelsea Green Pub.

5. What is systems thinking? • A perspective and a set of conceptual tools that enable us to understand the structure and behavior of dynamically complex problems • A rigorous modeling method that enables us to build computer simulations of dynamically complex problems and use them to design more effective policies and organizations [slightly modified from Sterman, John (2000) Business Dynamics: Systems Thinking and Modeling for a Complex World. Irwin McGraw-Hill]

6. What is system dynamics? Some quotes… System dynamics is the use of computer simulation for policy analysis in complex systems. Its big contribution is helping people to build progressively richer understandings of some dynamic problem, and anticipate weaknesses in policy initiatives that would develop over time.  It gets a lot of its power from a 'feedback' perspective -- the realization that tough dynamic problems arise in situations with lots of pressures and perceptions that interact to form loops of circular causality, rather than simple one-way causal chains. Humans are really good at thinking up all that interconnected complexity and really weak at inferring its implications without the support of simulation models. George Richardson Rockefeller College of Public Affairs and Policy, State University of New York at Albany System dynamics deals with how things change through time, which includes most of what most people find important. It uses computer simulation to take the knowledge we already have about details in the world around us and to show why our social and physical systems behave the way they do. System dynamics demonstrates how most of our own decision-making policies are the cause of the problems that we usually blame on others, and how to identify policies we can follow to improve our situation. Jay Forrester Sloan School of Management, Massachusetts Institute of Technology The what, why and how of system dynamics: What: A rigorous way to help thinking, visualizing, sharing, and communication of the future evolution of complex organizations and issues over time, Why: for the purpose of solving problems and creating more robust designs, which minimizes the likelihood of unpleasant surprises and unintended consequences, How: by creating operational maps and simulation models which externalize mental models and capture the interrelationships of physical and behavioral processes, organizational boundaries, policies, information feedback and time delays; and by using these architectures to test the holistic outcomes of alternative plans and ideas, Within: a framework which respects and fosters the needs and values of awareness, openness, responsibility and equality of individuals and teams. Eric Wolstenholme School of Management, University of Stirling, Scotland. • System dynamics is a framework for thinking about how the operating policies of a company and its customers, competitors, and suppliers • interact to shape the company’s performance over time. System dynamics models are: • Maps, diagrams, words, and friendly algebra to activate and capture team knowledge • Frameworks to help organize, filter and structure the vast amount of knowledge that an experienced team shares, and • Microworlds, microcosms of reality, learning environments that managers can use to test, challenge, and refine their own mental models. John Morecroft London Business School, U.K.

7. The real system… …vs. what we often see… Edited extract The trouble with feedback is that it is often invisible … “System dynamics demonstrates how most of our own decision-making policies are the cause of the problems that we usually blame on others, and how to identify policies we can follow to improve our situation.” Jay Forrester Sloan School of Management, MIT Page 38 of Morecroft, John (2007) Strategic Modelling and Business Dynamics. Wiley

8. From Events to Dynamics and Feedback: Drug-related Crime "Drugs are a big worry for me, not least because of the crimes that people commit to fund their dependency. We want the police to bust these rings and destroy the drugs. They say they're doing it and they keep showing us sacks of cocaine that they've seized, but the crime problem seems to be getting worse". Typical description of the problem by the victims of drug-related crime [Morecroft (2007) p 46]

9. Drug- Related Crime Time in Years Unintended Dynamics of Drug-Related Crime What feedback structure could explain this puzzling divergence? reported puzzling divergence tolerable [Morecroft (2007) p 47]

10. + + drug-related crime + - + call for police action demand price - drug seizures supply CLD for Drug-Related Crime “What feedback structure could explain this puzzling divergence? Reported crime is growing and we know that growth arises from reinforcing feedback. The persistence of unwanted growth in crime suggests a feedback loop that weaves its way around society, and by doing so it goes unnoticed.” Among the variables below, construct a CLD that could create this puzzling divergence. Event-oriented thinking. Why does price not influence demand as it does in most markets? Stakeholders represented? • - Community • Police • Drug users • Drug dealers Crime Spiral [Morecroft (2007) p 47-48]

11. Agenda • Broad application areas of systems thinking and dynamic modeling (ST&DM) • Slinky • What is ST&DM? • Drug-related crime • Modeling example: filling a water glass • ST&DM at Boeing • First feedback loops

12. Combined Qualitative & Quantitative Thinking Example:Filling a water glass(Go to Vensim) Drug Related Crime: qualitative, yet mathematical, thinking.

13. WaterGlass1.mdl

14. WaterGlass2.mdl

15. WaterGlass3.mdl

16. Agenda • Broad application areas of systems thinking and dynamic modeling (ST&DM) • Slinky • What is ST&DM? • Drug-related crime • Modeling example: filling a water glass • ST&DM at Boeing • First feedback loops

17. ST&DM in Boeing: Where is it done? • The modeling and simulation group Paul Newton (one of the two presenters of this slide show) belongs to… • …is part of Boeing Research & Technology, Boeing’s R&D organization • …is like an internal consulting firm: fee for service to BCA & BDS • …does other kinds of modeling and simulation as well • …contains four people doing ST&DM, with several others learning, and is hiring (we have growing demand) • …has 1 PhD, 2 Master’s, 1 Bachelor’s • …engages summer interns, from HS seniors, to PhD students. • Elsewhere in Boeing • Boeing Test & Evaluation: systems thinking to improve organizational change and performance dynamics • Scattered interest elsewhere, e.g. BCA, Information Technology

18. ST&DM in Boeing: Dynamic Business Problems • Boeing examples: • Learning curve dynamics • Aerospace industry dynamics • Future workforce dynamics (STEM) • New business strategy dynamics • Boeing customer examples: • Boeing Commercial Airplanes (BCA) customers example: business strategy dynamics, like People Express shown below • Boeing Defense Systems (BDS) customers example: better understanding insurgency & irregular warfare dynamics • Show two examples: • Autopilot (airplane design – technical systems) • People Express Vensim model (business design – social systems)

19. Desired state – 40,000 ft Current state – variable Actions – variable vertical winds Feedback Proportional “Altitude Hold” Autopilot

20. Proportional Autopilot for Holding Altitude During Vertical Wind Drafts No Control Loop With Control Loop

21. Morecroft’s Dynamic Hypothesis for People Express Airlines “People Express’ resource accumulation processes…include a tangible resource system that contains three reinforcing feedback loops, each a compelling engine of growth in its own right...These three growth engines…drive the kind of spectacular growth actually achieved by People Express….But, the three engines of tangible resource growth are not well coordinated because the underlying policies governing resource accumulation are so different. As fleet expansion and passenger growth begin to outstrip staff expansion, problems become evident in the intangibles of perceived service level, customer satisfaction, and employee motivation. No management action is taken to fix these problems, however, because: (1) the unmanaged intangible resources initially provide relatively weak signals to the rest of the organization of latent growth stresses; and (2) the powerful logics underlying the policies governing tangible resource accumulation are insensitive to such weak signals. This seeming lack of alignment of resource accumulation policies, leading to a virtual paralysis in the face of growing problems, and, eventually as impending doom, is symptomatic of a loss of management coordination under conditions of dynamic complexity.”3,pages35&36

22. People Express Airlines Performance

23. Agenda • Broad application areas of systems thinking and dynamic modeling (ST&DM) • Slinky • What is ST&DM? • Drug-related crime • Modeling example: filling a water glass • ST&DM at Boeing • First feedback loops

24. The following is from: published in 1988

25. Elementary School

29. Intermediate Grades The Middle (Junior High) School Years. The High School Years.

30. Software • Vensim PLE (free for educational use – to run models Paul showed, & to create & save your own models) • Download Vensim PLE (Personal Learning Edition) from http://vensim.com/freedownload.html • When installing, • uncheck the default checkbox that reads "Install Vensim PLE for evaluation purposes. Use limited to 60 days" • check the checkbox for "Install Vensim PLE for academic, public research or personal use. Commercial, proprietary, classified or operational use not allowed.” • Stella Trial Version (trial version is save-disabled, but will run models Dexter showed) • Download trial from http://www.iseesystems.com/

31. Learning More: ST&DM in K12 Education • Websites focused on ST&DM in K12 education: • http://clexchange.org/ • Read this paper: http://sysdyn.clexchange.org/sdep/papers/D-4434-3.pdf • Conference in June 2010, and not again until summer 2012: http://clexchange.org/conference/cle_2010conference_registrationinfo.html • Jay Forrester: founder of the field: http://sysdyn.clexchange.org/people/jay-forrester.html • http://www.watersfoundation.org/ • Among many other things, an online course for teachers • Books: • Introduction to Systems Thinking with Stella, by Barry Richmond. http://www.iseesystems.com/store/college_university/books.aspx • Thinking in Systems – A Primer (2008), by Donella Meadows. • Strategic Modelling and Business Dynamics: A Feedback Systems Approach (2007), by John Morecroft • Modeling the Environment , 2nd edition (2010), by Andrew Ford • Many more books listed at: • http://clexchange.org/lom/cle_books.htm • http://pegasuscom.com/

32. Stuff We Didn’t Get To(but maybe we’ll cover these another day…) • People Express Airlines Example detail • Paper Folding Exercise & Modeling • Fishing in Bonavista, Newfoundland game • Standing & holding hands in a circle loops exercise • High School economics simulation • Systems Thinking Skills

33. Modeling in HS Science Examples shown by Dr. Dexter Chapin Science teacher at Seattle Academy of Arts and Sciences and Author of the book, “Master Teachers: Making a Difference on the Edge of Chaos” http://www.amazon.com/Master-Teachers-Making-Difference-Chaos/dp/1578868637/ref=reader_auth_dp Intern story – Dexter’s student Sarah

34. History of People Express Videos http://blog.flightwisdom.com/2009/07/31/history-people-express/ In the presentation, we will only view one or two of the videos here. The others are well worth watching to get the whole story.

35. The Rise & Fall of People Express1a Background de-regulation of US airline industry in early 1980s charismatic founder Don Burr passion for airlines and track record in the industry (credited with the turnaround of Texas Air) Spectacular Success from startup in 1981 to fifth largest US airline in 1986 revenues in excess of $ 1 billion and 5000 employees by 1986 deep discount prices and innovative people management policies • Even More Spectacular Failure • “burned-out and bought out corporate carcass in only six months”2

36. People Express Problem Behavior1b What caused the success? What caused the failure? John Morecroft, of London Business School, analyses the causes using: Resource Based View (RBV) The notion of “dominant logic” System dynamics (or more commonly – systems thinking)

37. Toward a dynamic hypothesis:Tangible and Intangible Resources3,p34 • Tangible • Planes • Staff • Passengers • Intangible • Service Reputation • Staff Morale Note high degree of aggregation of resources! Planes, staff and passengers could be greatly disaggregated, but , for Morecroft, such disaggregation is not necessary to explain the rise and fall of People Express. The rise and fall depends on “dynamic” complexity” rather than “detail complexity.” Dynamic complexity is present in business or social systems whenever cause and effect are subtle or where the effects over time of interventions are not obvious. For example, when an action has dramatically different effects in the short run and the long run, or when the local consequences of an action differ from consequences elsewhere in the system, then there is dynamic complexity.4

38. Planes Plane Purchases Target Increase in Planes Burr's Personal Growth Target vision Toward a Dynamic Hypothesis Dominant Logic: FLEET EXPANSION(See P-Ex Planes.ITM1b) Pool of Readily Available Used Planes, so no need to represent ‘Planes in Construction‘. Planes have long lifetime, so no need to model outflow. Note: Some “role” selects information to use for the “plane purchases” policy! (conceptual linkage to VNA?)

39. Toward a Dynamic Hypothesis service capacity staff productivity Experienced Staff New Staff labour market labour market Induction Hiring Departures rigour of screening size of the hiring team interviews Dominant Logic: STAFF EXPANSION Recruitment Policy(See P-Ex Staff.ITM1b) Note: Some “role” selects information to use for the “hiring” policy! (conceptual linkage to VNA?)

40. Toward a Dynamic Hypothesis Fliers with a favourable impression of People Express Pool of fliers in region served by People Express. Size depends on scope of service and convenience (routes and schedule) Fliers hearing favourable comments about People Express Fliers losing interest in People Express Potential Passengers Pool of fliers in region served by People Express Increase of Potential Passengers Loss of Potential Passengers churn marketing spend conversion ratio service reputation relative fare low, low price Dominant Logic: PASSENGER GROWTHMarketing Policy: Word of Mouth(See P-Ex Passengers.ITM1b) Note: Some “role” selects information to use for the “increase of potential passengers” policy! (conceptual linkage to VNA?)

41. Potential passengers Planes Increase of Potential passengers Plane Purchases dominant logic: word-of-mouth dominant logic: Burr's vision of growth New Staff R R R Experienced Staff Induction Hiring dominant logic: selectivity and staff involvement Toward a dynamic hypothesis:Summary of dominant feedback logic for tangible resources

42. PEOPLE EXPRESS - THE SUCCESS STORYSimulations of P-Ex Full Model.ITM

43. service reputation motivation Toward a Dynamic Hypothesis ANALYSIS OF INTANGIBLE RESOURCES

44. Toward a Dynamic Hypothesis service quality as perceived by the flying public - based on accumulated experience and hearsay Potential Passengers Service Reputation dynamic complexity masks link between service quality and potential passengers Change of Service Reputation gap current service quality passenger miles service quality as experienced on day of flying service capacity SERVICE REPUTATION An Invisible Intangible Resource – see P-Ex Full Model.ITM

45. Toward a Dynamic Hypothesis Staff Motivation Change of Motivation hard work culture work teams & minimal hierarchy job rotation & simple work practices participation & responsibility quality of CSMs & selective recruiting MOTIVATION AND PRODUCTIVITYMore Dynamic Complexity – see P-Ex Full Model.ITM staff productivity performance related factors stock options gap profit sharing indicated motivation growth structural and cultural factors Burr's 'people' precepts fleet size profits

46. Morecroft’s Dynamic Hypothesis based on his reading of the People Express Case – unfurled bit by bit on the following slides.

47. Fleet (planes) tangible resource management policy

48. Potential Passenger tangible resource management policy.

49. More policy for fleet management.

50. Service reputation intangible resource management policy