Business Modeling
Abstract
The objective of business modeling is to collaborate specific goals for businesses and organizations and forming them as part of a whole of a business strategy. Businesses and organizations, particularly large ones with multitudes of divisions and departments, follow integrated practices, although separately, but work toward achieving the same results. The dynamics of business modeling is set to create a renowned value for an organization’s structure, infrastructure and policies. In theory and practice core values are what form an organization’s rationale such as social, economic, or cultural. Seemingly internal stakeholders are often oblivious to applications as long as goals implemented by selected models are reached. If for example internal alterations are announced, the organizations and their external stakeholders require equipment of new policies and procedures without impacting too greatly its current plan. However, new policy and practices on the surface appear initially harmless but can be simplistic. After a few weeks of new practice of policy change, personnel suddenly find themselves in corporate upheaval affecting all departments, and in turn, the services to their customers. This is not to suggest the new policies and procedures are inadequate, but only not efficiently usable at hand. This paper is meant to explore and critique a researched publication titled “System Dynamics Modeling: Tools For Learning In A Complex World” by author John D. Sterman accompanied by a few additional and related sources, and how it settles with the theoretical and practical applications of policymaking as well as empirical insights to business modeling. The reviews stated are based upon my opinions only and not to construe what is true or false, but or informative purposes only.
Keywords: business modeling dynamics, strategic planning, strategic management, model marketing dynamics, stock and flow principles, casual loop concepts
1.0 Business Modeling Summary
Sterman’s book implicates several basic principles of dynamic business models by fusing schools of thought and practical approaches to problem solving. As the study of organizations grows, so do the complexities of governing systems and the methods of modeling them. Whether a modeling technique is written or computer generated as a simulated tool to guide personnel, Sterman introduces the importance of system dynamics designed to create the fabric of business models and strategies. He focuses on information feedback and circulation causality interaction between personnel and technological tools involved. The practicality of technology is as plausible as the personnel utilizing technology. However, what professionals fail to focus on are alternative consequences caused by implementing course of actions, even if intentions are deemed positive. If the simulation technology is not carefully selected, personnel may not adapt to the business model and time consumption is extravagant. However if a simulation is adapted favourably, the model can be permeated throughout an entire organization.
A complex system is often perceived as multitudes of interlocked simple systems performing interdependently a specific task. Sterman instead suggests the feedback is not always mutual and awareness of a systematic tool is implemented to make decisions. Hence simulation models are to be observed by managers and team leaders to serve as a guide to decision making, instead of predicting what and how a system shall operate. Although people exhibit different behaviours, if they are assigned in similar working divisions, their objectives remain identical. Sterman suggests more internal problems occur when attempting to rectify another problem without considering all factors within a complex system. Therefore added internal problems result in further external problems on larger scales.
2.0 Agreements with Sterman’s Studies
Sterman’s systems dynamic philosophy, with his research and development on simulations, does demonstrate in vast detail how graphical and computer models converge toward managerial decision making in a complex system. His pictorial representations bring about aliveness in his research in explaining the feedback and casual loop diagrams in graphics and in the written word instead of isolating them and relying on the reader to understand with the purpose of catering to both. Sterman prevents the use of assumptions on his approaches to organizational problem solving to explain to the layperson how simulation models operate under the most stringent environments of decision making.
For every of Sterman’s modular explanations he provides a counter explanation to remind future managers and stakeholders not to solely rely on models for effective decision making. He reminds us on how to utilize our own perception with business modelling as a guide only. He exemplifies numerous practical cases of policy resistance to the table on Page 9 which are, although briefly summarized, messages counteracting managerial decisions when not considering all factors as part of a complex system. The reason for policy resistance is not because of forecasting negative results. It is because not all decisions are properly explained and are made on a fast-track system based on a company’s current situation (sales, size of personnel, tools available, etc.). In spite of informing personnel of forthcoming decisions, management proceeds without full consultation and relying on models only, even if models in the past have not been too efficient.
Feedback is derived by reaction of past performances of a few discernible factors. The demonstration of policy resistance singles out a particular variable that will affect the intended outcome even if other accompanying variables are kept constant. The advantage of the feedback view is it has the ability of rerouting its reliable sources to boost company performance (Sterman, 2005). Hence the stocks and flows according to Sterman’s feedback loop diagrams portray a broad overview of the input-output principle. Additionally they explain the unknown and often overlooked relations among resources and their dispersals thereof to forecast the intended outcome. More importantly the bathtub concept is intelligently illustrated to reflect the inflow and outflow between performance put forward and the results based on performance for all sorts of establishments from educational to corporate entities. When a system dynamics is proven to function positively for a multitude of establishments and various corporations, it can be deemed as an acceptable business model which has been demonstrated by Sterman.
One utmost agreeable concept Sterman states is how a dynamic system places personnel of various behaviours upon common tasks (Page 6). Aside from different behaviors, essential experiences and training backgrounds converge to achieve a common result for these particular personnel. Similarly a specific department whether in production or management, are employed for particular credentials they possess which are all it may take in a complex system. A 30 percent match of their performance, behavioral and training skills would suffice to meet the expectations of a systems dynamics. But its intended outcome is not limited to the internal frameworks within a department or division. Their performance outcomes may dictate the future performance of neighboring divisions as well as their own.
Returning to the topic on policy resistance, it occurs because of instinctive reactions to a single variable responsible for the outcomes if all other variables are not considered. Sometimes these can be viewed as mere assumptions because, as long as a system partiality works, then the remaining dynamic system shall work. In more of a layperson’s terms, the saying “if is not broken, don’t fix it” observation controls all other factors. Sterman’s description in Table 2 (Page 2) cannot be expressed more accurately. Each element defined does inadvertently connect with all other elements listed. However, human nature often dictates that changes shall not occur if the dynamic system already possesses its functional merits. But even the most perfect system can be unnoticeably altered in plain sight even if not documented in an accepted business model. As an analogous example, if a new law is passed to reduce highway speed limits, over time, the majority of drivers decide to ignore these newly posted speed limits, even if they are aware of the consequences of receiving speeding tickets. What is the outcome? Many speeders are ignored or only a few will be flagged with speeding tickets. Sterman’s definition holds a similar action with a number of possible outcomes but end result is inconclusive and matches Sterman’s prediction of policy resistance.
3.0 Disagreements with Sterman’s Studies
In spite of Sterman’s effective study of business modelling, a few counterpoints have been perceived. He emphasizes that some decisions provoke unforeseen reactions known as policy resistance. If following an elaborate example of research to support this claim, he would normally be correct. However, his statement is too general and does not capture whether decisions are followed efficiently by actions to resolve problems. All of Sterman’s analyses are based upon his personal working experience which can be reliable sources. This being the case, much of his paper presented one-sided explanations on his part, and acknowledges more if his subjective rather than objective illustration, although the ratio between the two illustrations are in close proximity. Much of his system dynamic studies are based upon the feelings of stakeholders which seemingly play the most influential factors of production. Surely an organization’s performance reflects upon its personnel, but his writings do not specify the internal framework of an organization and who are involved in the overall decisions other than management.
As much as Sterman’s graphical and pictorial illustrations are accurate for generic analyses of system dynamics, they require more simplicity meaning, they need to be presentable to all levels of personnel instead of management. The reason being is management will at some point need to present and compare an organization’s business model between the past and present. The illustrations on Pages 8 and 9 appear to be esoteric (management and related groups). But what about those for who management makes decisions for? What Sterman neglects is management is not confined to the corporate framework which is often a fallacy perceived by corporate and financial strategists. Decisions and management also entail production and manufacturing personnel where they are essentially the lifeblood of major organizations.
Sterman idealizes that all systems are incorrect or inconclusive and based upon perceptions supported by rudimentary studies. This can only be an assumption because he neglects to point out exactly which systems are incorrect. If any studied are conducted with raw and rudimentary data, why can it not be an acceptable model? Many theories, scientific, business or otherwise, have acted as springboards to experimentation, discovery and the shaping of organizations, as well as societal formation. Every concept can be questionable unless the concept itself has its own supporting theory and data. For every accepted system, there can also be a counter system. But if a newly developed system is to be indoctrinated, it has to provide counter evidence that its predecessor cannot support. Hence for every business model proposed, it shall promote favorable results that the former cannot. Sterman instead declares outright every system has its flaws. While this may be true, any system cannot prosper without its flaws which genuinely define its character. Aside from a non-perfect system, it is its designers that have created the system and may have deliberately incorporated flaws to study the outcome (Brothers & Pavlov, 1996).
Sterman indicated growth limitations which is common knowledge when pursuing higher levels of production and performance. However, he fails to specify what affects growth limitations causing negative feedback. Launching a production campaign without insufficient knowledge about growth limitations is nonsensical. Perhaps they are intertwined with feedbacks loops cited on Page 20 (multiple time delays, nonlinearities, and accumulations), but they are not compared to any practicality. While Sterman makes references to a comparison of students based on their teachers’ perspectives, he does not mention where these studies were conducted. In the case of psychologists Robert Rosenthal and Lenore Jacobson (Page 6) selecting the Intelligence Quotient of random students does not specify the grade or college level of students, curriculum or major of these students in order to conduct their potential. Without pre-application research on any occupational level, it is virtually impossible to identify the current performance level of personnel as similarly as students who perform testing at random. This is similar to failing to account for all personnel in an organization subject to periodic performance reviews. If they are neglected, they are unaware of their potential goals and will not receive any assistance from management to attain their goals.
4.0 Recommendations for Further Study
The average business person, professional, or manager often announces that changes are impossible to avoid. But why should they be? And why should there be additional stakeholders involved when it is not required? His findings are based upon his own experiences as director of MIT Systems Dynamics Group and the Sloan School of Management. What Sterman shall identify to improve system dynamics is to retrace a few steps and incorporate all occupations into an extensive survey from all levels of personnel and stakeholders. Before any changed are proposed, what Sterman shall address is what already efficiently functions and evaluate the credentials any organization has. This can determine which components of a business model are strong or weak. If the majority of a business is efficient and satisfactory to management and personnel, then it only needs to be fine-tuned minutely. Blindly launching a stock and flow diagram may only function as current operational models, but not as proposed models because most personnel may not be familiar with such models.
Sometimes an existing business model can emulated which is what Sterman neglected to investigate here. Competition is inevitable among companies and they shall be weighed against other usable models to select the most expedient model. This can be useful for new market entrants. If a successful organization has an implemented model, they can set as examples of new entrants. Whether a business is utilizing a model that is inferior or superior to others, this does not necessarily mean the model is at fault, but the personnel who exercise the model. Comparison with other models may help shape up an organization regardless of how interdependent variables may affect others (Sterman & Morecroft, 1994). As long as excellence is achieved with upward results, a company within a single industry cans still compare its model and use of it with other companies to locate improvements.
Sterman’s theories shall incorporate actual models that have not proven too effectively which is why it can be difficult to compare his concepts with other models. Surely he provides his own rigorous principles. With no mention of other models for comparison, how then does Sterman derive what it takes to be an effective systems thinker? His simplistic economic models require clarity and need solid connect pictorially, otherwise the mere denotation of casual loop diagrams imposed upon his illustrations lack meaning. They only state that the more persistent the policy making the more problematic issues result. What shall be recommended is for Sterman to visualize beyond the captured elements for what they are at face value, and discover the under structure or foundations upon which all interacting factors are supported. Consecutively those foundations need to be examined to see what other or larger entity supports them. If most, if not all, components of a system can be discovered and their dominant functions understood, any business model pertaining to any organization, industry, system dynamic can operate as close as possible to ideal forecasts.
References
Sterman, J.D. (2005). Operational and Behavioral Causes of Supply Chain Instability. Sloan School of Management, Massachusetts Institute of Technology.
Sterman, J.D. & Morecroft, D.W. (1994). Modeling for Learning Organizations. Systems Dynamics Series.
Brothers, A. & Pavlov, O.V. (1996).Using System Dynamics to Model Risk Perception and Communication in Response to Threat. Pacific Northwest national Laboratory.
