Monday, December 16, 2013
Sunday, November 24, 2013
Let us do a simple mind exercise. Think about a bathtub. This bathtub is originally empty, but might be filled by opening the water tap above it, and closing the drain. In this way, the bathtub may be filled until a certain depth. What would happen if we open the drain? Well it depends. If the water escaping through thee drain is greater than the water coming in through the water-tap, then the water level inside the drain will slowly being to decrease. The contrary will happen if the water coming in is greater than the water leaving the bathtub through the drain. Now imagine the "Water" inside the Bathtub was instead the Greenhouse gasses in the earth's atmosphere. The dynamics of accumulation, as well as delay in closing or opening the "taps" and "drain" for the greenhouse gasses, are in this way much more understandable.
This example, from which a parallel can be drawn to our own experiences, is a very simple conceptualization of the stock, low and delay concept central to the System Dynamics framework. The Bathtub can be considered as the stock in this system, and the water coming in through the tap or leaving the bathtub through the sink can be considered to be the flows.
It results that, if thought out carefully, many problems can be represented in these terms, as concepts that can be viewed as stocks include available forests, wildlife diversity, cars in a specific street at a given time, or the experience in building houses at a particular construction company, for instance. The rates at which these quantities change can have a wide variety of influences in the way the complete system behaves over time, can expose a causal relationships that can be quite complex, and a resulting behavior that is highly non-linear.
There is extensive literature on the application of these techniques in industrial settings, yet from the information I have been able to gather so far, I am for the time being convinced that at MIT I have come across a discipline which is not getting nearly as much attention as I believe it must, and I am having a hard time figuring out why . I have spoken with leading practitioners and direct disciples of the inventor of this approach, Jay Forrester, who have been able to provide their particular viewpoint, but this matter is something in which I believe much is to be written.
Friday, November 22, 2013
Its been more than 40 years from a very dramatic scientific declaration: if the humankind continued to go about its business as it had been doing until then, using up resources and imposing a tremendous footprint onto the ecosystem, the conditions on the earth will become unfit for human existence.
I am talking about the 70's.
Those scientists, (based at MIT System Dynamics group and led by Jay Forrester, founder of the System Dynamics Discipline by applying Control Theory principles to organizational systems), as well as those who have followed in their footsteps were, after an initial shock in the scientific and economic world, heavily criticized, notwithstanding the open and documented scientific method through which those conclusions were reached. The world was not ready for such extreme indications.
Four decades later, many of the predictions are indeed happening. The Smithsonian recently published some interesting graphs that show the trend several of the indicators have followed through the years, and which unfortunately continue to rise, already above the current environmental thresholds.
Tools such as System Dynamics can give us an outlook into the broad vision of processes with multiple dimensions and crossed influences, like no other method I am aware of.
However, not everybody seems to think in this way. Politicians or economists, who influence policy directly are not being trained consistently in this domain, and the main uses for system dynamics are within Businesses and for academic enjoyment, notwithstanding several other current societal issues, such as Education, Public Health, and Strategic Industrial Development may surely benefit from this type of analysis.
A typical System Dynamics Model, has just a few crucial components (i.e. Stocks, Flows, Delays, Auxiliary Variables) which unleash a myriad of dynamic behaviors. Relatively simple diagrams can add a wealth of understanding on the different causal paths decisions take, and show explicitly all relevant feedback flows, when some decisions affect us back through their unintended chain effect on the original policy.
Saturday, November 16, 2013
It is interesting to think about the implications that assumptions have on the way people behave. Many of the paradigms with which we evaluate the world are full of our own experiences and conclusions, cloaked in the illusion of objectivity, which scientific education purports. Beyond the hard data, any interpretation of the information that can be obtained is inevitably subject to the investigator. The first five sessions of this Advanced Strategic Management course have allowed me to continue analyzing this, and have added to the intuitive appreciation of this subjectivity which engulfs organizations, appreciation I have had the chance of experiencing in all previous organizational roles I have had the opportunity of fulfilling.
Monday, July 8, 2013
In fact, the foundations of the current economic system have been maintained as if nothing had happened. Gruesome assumptions which became clear in a somewhat pathetic fashion, were well reflected by Alan Greenspan, Head of the Federal reserve at the time (2008), when declaring in front of the US congress, stating bluntly that he did not anticipate institutions or private companies would proceed in any other direction than in the utmost benefit of its shareholders. He at that hearing accepted he believed in the markets and their supposed power to restore equilibrium, condition which never arrived.
If we consider Mr. Greenspan to be one of the most respected and powerful men in the world economy at the time, this statement is baffling. How could he not have seen this crisis coming? In the aftermath, from Chile, a corner of the world that has followed the Monetarist doctrines faithfully,and a country which has diligently opened up its economy to the world according to the school of Chicago's gospel, I can respectfully say that the due reflections on the real causes of the crisis have not yet been carried out. The crisis has somewhat been left behind, maybe because we did not experience it first hand, and due to soaring commodity prices and increased internal demand due to 2010 earthquake reconstruction activities.
Our main universities are still far away from having an independent knowledge generating process, and have since the time of the military dictatorship, been in charge of producing generation after generation of economists who firmly defend the dogma of the free market economy, without so much as a thread of doubt regarding the foundations of the doctrine. The reasons for this may be multiple, such as a high percentage of Catholicism in the country, the effect of a repressive regime in the formation of alternate theories or independent thought, and the overhanging shadow of the US over Latin America, both through international investment as well as in the formation of minds in their elite campuses, minds that have taken, and still hold the main administrative seats in the economic direction of the country and the education policies at Chile's main Universities.
The foundations of the doctrine are clearly shaky, have been for over 50 years, and these weaknesses have been much more evident since the crisis, and even more so after Mr. Greenspan's words before congress. However, Chile apparently has not taken notice so far.
How could this be regarded as the intention of an economic model which is there to maximize the well-being of society? Clearly there were some big winners and some big losers, and in that aspect, following my own experience when confronted with situations where great inequality was caused by my doing, a sense of social responsibility (ethics), I considered also drove actions.
Much to my dismay, my question was quickly discarded by the professor, a middle-aged economist with the usual credentials for professor at the university, a PhD at a US university, many years of teaching experience and little to no published papers. His argument was simply that the ethical question was not something relevant at the level of policy making, where an ethical process was expected, and rather the ethical controls were mainly applied to the organization, the middle management and operators.
Well, that is just great, i thought to myself. What I carried out with me that day was the deeper conviction that the ethical aspect of business was being ignored by those who needed it the most, and this attitude of no ethics for me, but indeed to those who work for me, is something that can be felt at the worker level as actually widespread in the Chilean idiosyncrasy.
I have therefore welcomed the real-world economics review as a fruitful source of fresh thinking in regard with the economics which affects the people on the street, and urge anyone interested in educating him/herself into alternate ways of thinking about the society that should be built through the knowledge of relevant economics, to investigate further, keep a close watch over the World Economics Association (please note how suspiciously little information can be found in internet regarding this organization) and begin to take part in the discussion.
What does this have to do with Complexity? Well, the economy can also benefit very much from having a Complex adaptive system model approach, proposal still in a nascent state, but which has been explored so far by researchers such as Dirk Helbing in articles such as Rethinking economics using complexity theory .
Friday, June 28, 2013
An interesting challenge that has been undertaken by several researchers for well over a decade now, is the modeling of Supply Networks as Complex adaptive Systems (CAS's). One of the first to attempt the characterization of what Supply networks look like and how these charcteristics can be Modeled as CAS's, is Professor Choi at the Arizona State University in the early part of the 2000's. Through analyses of actual supply networks, he made a series of propositions which were further scrutinized and have been improved by subsequent research:
Proposition 1: The greater the level of shared schema (e.g. shared work norms and procedures, shared language) among allied firms in a Supply network, the higher will be the level of fitness for each of these firms (e.g. firm performance)
Proposition 2: Firms that adjust goals and infrastructure quickly, according o the changes in their customers, suppliers, and/or competitors, will survive longer in their Supply networks than firms that adhere to predetrmined, static goals and infrastructure, and are slow to change
Proposition 3: Witin a Supply Network, firms that are cognizant of activities across the supply chain (including tertiary level suppliers) will be more effective at managing materials flow and technological developments, than firms that are cognizant of activities of only their immediate suppliers
Proposition 4: Successful implementation of control-oriented schemes (e.g. ERP, JIT II) leads to higher efficiencies, but it may also lead to negative conbsequences such as less than expected performance improvements and reduction in innovative activities by the suppliers
Proposition 5: The degree of innovation by suppliers is directly proportional o the amount of autonomy that suppliers receive in working with customers
Proposition 6: Supply Networks that turn over quickly stand a better chance of exposing weak members and thus, gaining higher efficiency than supply networks that are artificially bound by long-term relationships
Proposition 7: Modilarization of tasks will decreace overall inter-dependencies among firms in a supply network, and thus, offer a higher efficeincy when optimizing the overall system
Proposition 8: Over time, quantum changes will last longer within a supply network than incremental changes that go against accepted practices
Proposition 9: Firms that deliberately manage their supply networks by both control and emergence will outperform irms that try to manage their supply networks by either control or emergence alone
Proposition 10: In a supply network, upstream suppliers that are more diversified are more likely to survive than those that are not
Whether you agree or not with these statements will depend on your background and experience, but to me they resonate for their soundness and simplicity, specially for having become a first milestone in the explicit description of complex adaptive systems.