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From Loops Through Modeling to Learning

From Loops Through Modeling to Learning. 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.

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From Loops Through Modeling to Learning

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  1. From Loops Through Modeling to Learning

  2. 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

  3. 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

  4. 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

  5. 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.”

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

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

  8. 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

  9. CONCEPTUALIZATION MODELLING MODEL FORUM MICROWORLD One day team meeting 10-40 days model building One day team meeting 30-50 days development • Issue conceptualization • Mapping • Facilitated discussion • Data collection • Model development • Model calibration • Model Presentation • Alternative developments • Facilitated Discussion • Workshop • Microworld • Teaching notes Building Models With Management Teams

  10. 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

  11. Current Freight Rates

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

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

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

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

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

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

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

  19. 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).

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

  21. 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

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

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

  24. HRM structure (example)

  25. Simplified Overview Organizational Processes

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

  27. AGENDA FOR MARINE STRATEGIC FORUM A Computer-Aided Meeting For Marine Managers 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 ------------------

  28. 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

  29. 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

  30. 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)

  31. 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.

  32. How to use a Microworld • Discussion of the case/backgroundSetting the scene • Experiment with the MicroworldUnderstand the problem Formulate strategy Implement strategy • Second run (sometimes)If times permit - better results second time? • Debrief and discuss resultsEmphasis on learning

  33. Opening Screen from the Oil Producers

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

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