Sunday, November 24, 2013

System Dynamics as a tool for modelling Complex systems

Over 40 years ago, a visionary character proposed a way of modelling systems based on the control systems theory that was being used at the time in the electrical engineering area, and which proposed the understanding of a system in terms of the different interactions between its components and the stock and flow of relevant quantities. The idea at first may seem simple, but it has deep and very profound consequences.
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

Systemic view of the world

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.
These updates have to be looked at carefully. Although critics may say these originally predicted trends do not exactly mirror the observed values,the accuracy of the order of magnitude for each of these values, as well as the trends observed, cannot but deeply impress.

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

Probabilistic future- learning from the past?

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.
The definite role chance plays in all decision outcomes,business or otherwise, can be unsettling to many, who naturally expect that the accumulated knowledge that can be derived from the documented experience of past endeavors should lead us to decisions which eventually converge to achieving the required outcomes. This might be perceived to be the case if the media concentrates on the cases of success (which in itself might have a series of reasons, normally economic). However upon careful analysis, time and again we see this is not true. If anything, the opposite holds.
The fair comparison
Why is this, that the future will not subject to our increasing loads of information, models and case studies? One of my beliefs, is that maybe through the process we have chosen, which is to learn from past experiences, we are not making a fair comparison. At a point on my life I acquired the concept (probably learnt from my family) that future and past can be somehow “compared” through experience. This comparison I believe has mainly stayed in a first basic, visual level of understating the factual things that happened, and the learnings have been understood as identifying these visible “signs” and to apply the corresponding recipe that worked in the past. Upon reflection, this might help with short term decisions of recurring activities (how to do a task, how to get from one place to another, etc.), but fails to be useful as the decisions become medium or long term. A great deal of the business books I have read, engaged with medium/long termdecisions, deal with strategy in this way, and a great deal of them are destined to become just another management flavor that will most probably be proven wrong or taken off its highlighted status by an even more convincing and attractive new theory.
Just as a message has a literal meaning and a deeper, transcendent implication, the analysis of past experiences also has a first level of events, but at the same time, a deeper transcendent implication, which I believe is more difficult to grasp. The reasons I have found for this added difficulty, lie in the fact that the implications will be understood from experience, and in this point, every single person is a completely different world.
The unfairness of a past-future comparison also lies in the nature of these concepts. Past is deterministic while Future is probabilistic. What I mean with this is that there is only one past, events that can be recounted and researched up to the required detail, relived, retold and reinterpreted. The future is a bundle of different alternatives subject to chance, which may very well stand for an as-yet unknown causality.
The Probabilistic future
In order to face the probabilistic future, where any of a different set of circumstances might develop, as limited organizations we must either, influence the probabilities or prepare ourselves with a range of skills and capabilities of rearranging these skills, this is, flexibility, to better face whatever future presents itself.
The influencing of the probabilities concept starts from a concept known as path dependence. Through this probabilistic concept, the future probabilities are affected by the present outcome. This is, future does not cease to be probabilistic, but the probabilities as so to say "skewed" by what already happened. A simple thought experiment can picture this more clearly. Suppose you have a box with two balls, one red and one white, and you are instructed to draw one ball without looking into the contents of the box. The probability of choosing either color is 50%. Now, depending on the color chosen, ne next step is restoring the chosen ball to the box, but adding an additional ball of the same color as the one chosen last. This means that on our next blind choice, one of the colors will have a 66% chance of being chosen and the other one a 33% chance. If we happen to then choose a ball of the color not chosen first, following the same procedure of restoring the chosen ball as well an additional ball of the color last chosen, the probabilities would return to 50% for each color.
However, if in the second round, a ball is chosen of the same color as the one chosen in the first round, at the end of the second round the box would contain 3 balls of one color and 1 of the other color, raising the probability ratio to 75% to 25%. This can be easily simulated in Excel, which would result in eventually the series converging to one of the colors being dominant in the box. Iterations of the same process will mostly show a convergence towards one of the colors, which means that in a system with random probabilities,behaviors can be observed which tend towards a specific outcome.
Several iterations show that this tendency can go to either color (analysis equivalent to looking at several futures), yet if we analyze the past, only one of these tendencies will be seen and analyzed. This contrast for me pictures clearly our false assumption that past and future can be somehow be compared.
Facing an uncertain future
How can then a random future be effectively faced, and what is the use of strategy then if the future is of a random nature? These two questions require a relevant answer, to which I will contribute next with my personal outlook.
If we assume that the future is random all we can do is to prepare a set of skills (e.g. toolbox) that will allow us to deploy the required skills depending on the situation that we face. These set of skills need not (and probably will not) lie completely in one person, but be disseminated in a group of people. Organizations that are able to communicateeffectively and trigger action upon specified circumstances not only derive solutions that may not only counter, but take advantage of the changes, but will also stimulate the members of the organization, as change and novelty is a sensory biological requirement of living beings.
To illustrate this last point, humans become insensitive to known information in order to concentrate resources in the new inputs, phenomenon known as sensory adaptation. This is a natural process, which we do not determine and even control. For example, we don’t detect smells after a while if we are normally exposed to them, the same case with recurring noises. I have many a time asked an external eye to look at problems, or look for stuff I had been looking for a long time, as I has become insensitive for looking at it so many times.
The use of strategy, then, if we assume a random environment, is to align organizations towards a common set of skills, allowing ideally for an informed risk-taking within a healthy organization, and sense of purpose within a healthy team of motivated individuals, crucial to the maintaining the hope that deep down drives our everyday decisions. We have a natural attraction to stories, our proverbial attraction to gathering around the fire to listen to stories.
Lessons for now
Stories of success, such as Crown, Cork & Seal or the events that came to pass during the Cuban Missile Crisis, more than telling us about the actual decisions taken, leave me with a sense of having had organizations that could rearrange their resources for rapidly adapting to the changing environment, and were thus favored by chance on having a successful outcome (similar to the balls being chosen out of the box at the beginning of the exercise, this is, with similar probabilities for success or failure), and which have later molded circumstances so as to have increasing chances of new successes (equivalent to a box with colored balls already subject to path dependence, this is, with more balls of one color than the other).
The presence of uncertainty in our lives can be interpreted as a source of anxiety and/or humbleness, this is, it is our choice to face the future from an outlook of threat and impending catastrophe, or from an outlook of humbleness and communication building and empathy for our own or other’s failures.
Self-knowledge of limitations and assumptions, as well as network building and constant communication within those networks, are therefore important lessons to remember, so that within an uncertain world, we may not only navigate it effectively, but also enjoy the ride.