Strategic Modelling and Business Dynamics. Morecroft John D.

Ericsson, McKinsey & Co and Mars. Before joining London Business School he was on the faculty of MIT's Sloan School of Management where he received his PhD. He also holds degrees in Operational Research from Imperial College, London and in Physics from Bristol University.

      Foreword by Peter Checkland

      When I was a manager in the synthetic fibre industry in the 1950s and 60s, there was a recognised but problematical pattern of activity in the textile industry. A small increase in demand for textile products would induce big ups and downs back in yarn and fabric production. This arose as a result of the structure of the production-to-retail chain, a sequence from fibre to yarn to fabric to products, these being stages in the hands of different companies between which were time delays. This recurring pattern of response to demand change was one which no one stakeholder could command and control.

      Many areas of human activity reveal dynamics of this type, with several classic patterns of behaviour: exponential growth or decline; oscillation; S-shaped growth; growth followed by collapse, etc.

      John Morecroft's textbook is a brilliantly clear guide to elucidating and modelling such patterns of behaviour. The modelling is normally a team effort based on both real-world experience of the area and the principles of system dynamics. Such modelling seeks to reveal enduring feedback structures (both balancing and reinforcing) which are real characteristics of the situation in question but are normally hidden. Once developed, such models are ‘instruments for investigation, clarification and discovery’, and can be used to feed better evidence into discussion of strategy than does the reliance on experience and gut feel, which is the common mode of managing.

      These pictures of dynamic behaviour may be relevant within an organisation (public or private) or may be characteristic of an industry. A particularly interesting example in the book is the one which in the end affects us all – the dynamics of the oil industry. Here is complexity stemming from an oil market which tries to meet demand, a fluctuating price for oil, an organisation of some producers (OPEC) which sets quotas for production and suppliers consisting of independents, opportunists and a ‘swing producer’ (Saudi Arabia), which produces just enough to defend OPEC's intended price. The build-up of the model of industry dynamics is lucidly described. It was carried out not as an academic exercise but by the author working with a team of Shell managers, and made a serious contribution to Shell's strategic thinking about their industry context and its possible futures.

      This illustrates an outstanding feature of John Morecroft's approach. All the work described was carried out in active engagement with managers facing problems.

      Not for this author the too-familiar picture in which academics sit at their desks and write papers about other papers!

      So this book is not ‘academic’ in the usual derogatory sense of that word. Nor is it a book to be read casually in an armchair, for it comes with website materials enabling readers to get a feel for situation dynamics by running simulators – including one containing the oil industry model.

      Finally, although presented as a textbook, this volume is relevant on a broader canvas. When I was a manager in industry I found the then textbook management science irrelevant to my day-to-day concerns. However, since then a major shift in perspective has occurred. Originally the core concept (‘hard’) was to make models of assumed real-world systems, and then experiment on the models to find optimum ways of doing things. The richer current concept (‘soft’) illustrated here, is complementary to this. It uses models as transitional objects to aid learning. In his last chapter John Morecroft writes:

      The idea that there is a singular and objective world out there to be modelled is replaced with the softer notion that a formal model can help improve mental models … through which we interpret and make sense of the world …

      For its lucidity, its practicality and its illustrations of the idea of consciously learning your way to ‘action to improve’, this book is a very welcome addition to the literature. It brings a fresh wind off the heath to the groves of academe.

Peter ChecklandEmeritus Professor of Systemsand Honorary Fellowof Lancaster University

      Preface to the Second Edition

      In the second edition of Strategic Modelling and Business Dynamics I have refreshed the book while building on its strengths. The original 2007 book was well received. So I retained the pre-existing ten-chapter architecture and within this architecture I made numerous chapter-by-chapter revisions. For example chapters 1 and 9, on the fishing industry and World Dynamics refer to new research and web-based simulators about sustainability and climate change. The background to the oil industry in Chapter 8 reports changes to industry structure and the advent of shale oil. The references at the end of each chapter have been carefully reviewed and updated to include selected journal articles and books that point the way to important ongoing developments in the field such as group model building and computationally intensive analytical methods.

      But there is more too. I want the book to be an enduring bridge from traditional to contemporary system dynamics, and so I have created two accompanying websites – the Learners' website and the Instructors' website.1 Traditional system dynamics involves a distinctive ‘style’ of modelling and analysis. It lays strong emphasis on clear visualisation and documentation of real-world feedback structure backed-up by rigorous yet easy-to-read equation formulations. Understanding of dynamics comes from careful narrative interpretation of simulations. I use these style guidelines for modelling and analysis throughout the book and I believe it is important for all students of system dynamics to master them. To reinforce the message I have provided, on the Learners' website, selected articles from the working paper archives of the MIT System Dynamics Group.2 I hope readers will enjoy these historical glimpses of the field. On the Instructors' website I have provided annotated and graded solutions to course assignments showing exemplary work by students who have followed the style guidelines. My thanks to Chris Baker, Zahir Balaporia, Bill Grace and John Kapson (graduates of WPI's online programme in system dynamics) for agreeing to display their anonymised assignments for the benefit of other learners. It is worth noting that, when enrolled in the course, they each held responsible full-time posts in business or government.

      From this foundation of rigour-with-accessibility it is then possible for learners to reach out securely to complementary methods and ideas, whatever form they might take. For example, the book already connects with contemporary behavioural and resource-based views of the firm, as described in the Preface from the 1^st Edition of the book (see the next section). These ideas, from modern economics and strategy, fit neatly with asset stock accumulation and the information feedback view of the firm found in traditional system dynamics. In addition, and scattered throughout the book, there are references to contemporary analytical methods for dynamic models. And finally, for model conceptualisation, there is mention of tried-and-tested protocols for group model building.

      I have added two new electronic topics that can be found in learning support folders on the Learners' website (see the About the Website Resources section). The topics are the ‘dynamics of diversification’ and ‘managing metamorphosis’. Diversification is an important part of corporate (multi-business) strategy and complements material in Chapters 6, 7, 8 and 10 on the dynamics of single-business firms and of entire industries. Metamorphosis is a process of managed adaptation to change in the business environment; change that is often ushered in by firms, industries and societies as they co-exist and innovate while competing for resources and markets. When the environment changes organisations must reliably sense the change. Then they must take timely action to re-configure their assets and operating policies in order to survive and contribute to the formation of a new and beneficial future environment. The material on metamorphosis is novel and somewhat experimental. It can be seen as a way to extend the range of strategic modelling to include surprise disruption to firms' core business arising from technical and social innovations – and covert side-effects. The new electronic content includes video lectures from my online course at Worcester Polytechnic Institute (WPI). I am grateful to Khalid Saeed and Jim Doyle at WPI for enabling and supporting the use of this video content.

      All

1

Please see the About the Website Resources section at the back of the book.

2

The articles are reproduced with permission of MIT's Technology Licensing Office. They come from a special DVD archive collection of all the working papers and PhD theses in the D-memo series of MIT's System Dynamics Group, covering a period of almost 50 years, starting in the early 1960s. In total the collection contains around five thousand articles, originally printed on paper, which have each been scanned to create electronic pdf files. Copyright of the entire collection resides with MIT and the DVD is available from the System Dynamics Society www.system dynamics.org.