Making Sense With Facilitated Systems

What is progress?

2008-05-09T10:22:00.000-07:00

It's easy to think progress is measured by GDP, trade balances, or the number of things we have; that's what we read and hear about in the news. Yet there's an undercurrent that suggests such views have it all backwards.

The Glaser Progress Foundation has a program area devoted to measuring progress. Go there to see a video or hear an audio of a 1968 speech by Robert Kennedy suggesting that GDP measures all the unimportant things or to research articles they've assembled.

Thanks to Joost Bonsen's Maximizing Progress for the link. Thanks, too, to Cliff Havener and his Meaning : The Secret of Being Alive. I read that years ago, and I'm pretty certain he makes the point that Lord Kelvin was wrong: all the important things—love, peace, faith, art, ...—share the attribute that they can't be measured by numbers. I've looked, though, and can't find the reference; if anyone can provide me the page number, I'd appreciate it.

Food and fuel in the news

2008-04-25T17:57:00.000-07:00

DrumBeat: April 25, 2008 offered two particularly interesting links.

First, Time offered How to End the Global Food Shortage, their suggestion on three actions we can take in the short term. I'm not sure I see a long-term solution there, for I sense that global population is still growing exponentially, while their solutions seem focused on taking current food production to a new level, not creating matching exponential growth in the production and distribution of food. Put in systems terms, I sense population is still driven by a reinforcing loop, while the three Time proposals seem driven by goal-seeking loops. The short-term effects do seem beneficial, as long as we don't forget the longer term.

Second, oil financier Matt Simmons has published more presentations. Check out The 21st Century Energy Crisis Has Arrived. Slides 9-10 should not be a surprise to any who took IMT 586 at the University of Washington last winter or who have worked the challenge on pages 212-213 in John Sterman's Business Dynamics: Systems Thinking and Modeling for a Complex World with CD-ROM.

While you're there, also see his Are We Nearing The Peak Of Fossil Fuel Energy? Has Twilight In The Desert Begun? He does offer optimism, but only if we act well and only after some, um, "transitional" times. If anything, I wonder if his estimate of the rate of decline of production is optimistic, for, with the high raw demand for petroleum these days, I suspect we will deplete available reserves at a rather rapid rate.

Followup to Bush and greenhouse gases

2008-04-25T09:59:00.000-07:00

One of the claims about working on greenhouse gas emissions is that it costs too much. Business Week tries to put that in perspective.

Fooled by Randomness: some thoughts

2008-04-24T11:27:00.000-07:00

I read and wrote about Nassim Taleb's The Black Swan some time ago; now I'm reading his Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.

I'm struck by the application of his ideas to environmental and ecological issues. It seems as if we're placing most of our societal bets on growth, a bet that has played well for centuries. Given the current news, though, those seem like some of the investment bets Taleb describes as foolhardy. A prudent "investor" (citizen or business person) at this stage in the Earth's development might place most or all money on bets that can't lose much. Betting on the ability of the planet to absorb more growth, on nonrenewable energy sources to remain plentiful, or on technology to increase efficiencies sufficiently yet again seems like a risky bet, given the news of the day (and year and decade).

That's consistent with the precautionary principle; do check out THE YEAR IN IDEAS: A TO Z.; Precautionary Principle from The New York Times.

What do you think?

For more on Taleb's book, see words by Andrew Gelman, Wikipedia, and James Glassman.

Business, Earth Day, and other thoughts

2008-04-21T14:29:00.000-07:00

After teaching at my first Bainbridge Graduate Institute Intensive, I am very impressed. The administration, faculty, and student body seem, in person, even more focused on and effective with both words in "sustainable business" than they say they are. I confess that this MBA program truly excites me, and I am glad to play a small part in its work.

That led me to think about business, business practices, and Earth Day tomorrow (there is another Earth Day that passed last month). A bit of looking turned up Nice Guys Don't Finish Last, a Business Week article that indicates that international executives seem to think being green helps them. You can see more in The Economist's report.

A bit more looking turned up Climate Counts, which promises to help us as consumers and as investors, think about which companies have made more strides than others. If you're in business, see their scorecard to think about various dimensions to climate impact. While we might quibble about the weighting of the various dimensions and the focus on climate alone instead of also including usage of nonrenewable resources, social justice, and other issues of corporate social responsibility, we can probably learn from reviewing their measures. Even though I think my overall footprint as a company is quite small, it's prompting me to make an assessment and to think about additional factors that I think might be important.

If you're looking for other thoughts for Earth Day, check out the Donella Meadows Archive at the Sustainability Institute. After being part of the team that did the research and produced the original Club of Rome report, she wrote the weekly Global Citizen, which you can peruse in that archive. There's plenty of food for thought there.

What suggestions and thoughts do you have?

President Bush and greenhouse gases

2008-04-16T20:06:00.000-07:00

I haven't been a political blogger, and I'm not about to start now. Yet the news of the past few days does offer ways to illustrate systems concepts I've mentioned before, and so I thought I'd point out what I hope is obvious to all here.

For but one example, take US President Bush's goal of having greenhouse gas (GHG) emissions stop growing by 2025, which is stirring up comment world-wide.

In system dynamics terms, GHG emissions (largely CO₂) are a flow, and the amount of CO₂ in the atmosphere is a stock. If you recall what I've written before on stocks and flows, you'll see that stopping the increase of a flow does not mean that the stock will decrease; it simply means that it will increase less rapidly.

In other words, even if we do meet this goal, things may well continue to get worse well after 2025, but they will at least get worse less rapidly after then.

I want to show you a little model that demonstrates that behavior, but, to publish it here, I'd like to get the numbers at least close to right, and that would take a bit of research time I don't have tonight. Let me try an analogy, instead; those of you who studied and remember the calculus can probably make a more elegant argument, and those who do system dynamics models can create one on your own in a few minutes (if you have the needed parameters, let me know, or post a pointer to your model).

In the real world, we are emitting CO₂ into the atmosphere by breathing, burning fossil fuels, and the like. That stock of CO₂ in the atmosphere is growing and threatening climate havoc.

Some of that CO₂ is taken out of the atmosphere each year through the action of photosynthesis and perhaps other mechanisms.

According to the science I read, we have too much CO₂ in the atmosphere at present, and our global CO₂ emissions per year, already above what the environment can naturally purge, are increasing. If that weren't the case, there would be little reason for President Bush's call to action.

Let's look at an analogous situation. For example, let's say you have a bathtub that's three-fourths full of water. The drain is open, but it's partially clogged, and so it's draining slowly.

In addition, the faucet is turned on, putting more water in the tub. It so happens that the water is currently coming into the tub faster than the partially-stopped drain can take it out, so the water level is rising, causing fears for the well-being of the bathroom floor.

The person controlling the faucet is opening the faucet as we speak, letting water come into the tub at an ever faster rate. That person, realizing the risk to the floor, promises to stop opening the faucet anymore in about 15 minutes.

What do you think will happen to the floor?

Even with the rough data I supplied, I hope you can see that the water will rise increasingly rapidly for the next 15 minutes. If the person takes their hand off the faucet in 15 minutes, the water will continue to rise until it overflows the tub (assuming it doesn't overflow sooner). The only way to save the floor is to reduce the flow of water from the faucet to below the flow of water out of the drain before the tub overflows. Even if they started reducing the flow of water out of the faucet now, the water in the tub would still rise until the inflow was less than the outflow.

Of course, this is a silly little example; the real world of GHG emissions is much more complex. Yet the general principle of stocks and flows holds: as long as the inflow exceeds the outflow, the stock will rise.

I'm not about to use this short, informal essay to argue for or against specific GHG or climate proposals or to try to balance climate stability against economic stability. I am suggesting that we all remember the lesson of stocks and flows when we are thinking about or evaluating policies such as these.

PS: Thanks to colleague Wayne Wakeland for, in a totally different situation, reminding me of the effectiveness of simple bathtub models (and I hope it worked here!).

All but blind

2008-04-14T06:50:00.000-07:00

I stumbled upon "All but blind," a poem by Walter de la Mare, and I thought it might have a good message for those of us who work in organizations. You can find it as number 16 in this online collection. What do you think?

Incidentally, de la Mare started out his professional life as a statistician, but I don't think that qualifies this as another "Making sense with numbers" entry.

A sense of urgency and a great opportunity

2008-04-11T07:23:00.000-07:00

Glen Hiemstra posted Peak Oil and Global Warming - the Cross Matrix linking to important material by Jeremy Leggett, Dr. James Hanson, and Al Gore. The Jeremy Leggett clip is about 10 minutes long and seems to be an excerpt of a longer talk; the Al Gore segment lasts about half an hour and seems complete.

All of the links in Glen's posting are worth checking out, but you may not find too much new in Leggett's lecture if you're familiar with basic arguments about climate change and peak oil.

I do encourage you to watch the entire Al Gore segment, though. What I find important there is his careful, passionate, and, yes, somewhat optimistic reframing of the issues we face. Do check it out, and then let me know what you think.

Making more sense with numbers, part 4

2008-04-09T11:26:00.000-07:00

This could be called Monty Hall and cognitive dissonance. John Tierney just published And Behind Door No. 1, a Fatal Flaw, a brief review of the Monty Hall problem and a report on its potential application to psychology, including its potential to invalidate some prior claims about subjects such as cognitive dissonance.

I'll leave the psychological arguments to others; the point is that thinking carefully isn't always as easy as it seems. If you're not convinced, read the start of that article down to "Before I tell you the answer, I have a request," and then write down your answer before proceeding. Then try out the online version to see if you got the right answer, to get a visceral feel for the game, and to see the reasoning.

Once you get the hang of those, try out Monty Hall’s Other Problems.

Do you now think you've got the hang of it? Just to confuse things a bit more, read Behind Monty Hall's Doors: Puzzle, Debate and Answer?, Tierney's 1991 report of playing the game with Monty Hall. By the end, you may have an even deeper appreciation of the challenge of making sense with numbers.

And if you wonder what this might have to do with business, remember that the impetus for Tierney's column was Yale economist M. Keith Chen's application of the Monty Hall problem to psychology. Are similar gotcha's waiting for us in business?

PS: Yes, there is a Making more sense with numbers, part 3.

LTG redux

2008-04-07T11:00:00.000-07:00

Just one more short posting on LTG (Limits to Growth), at least for now: in looking for something else, I found The Limits to Growth: Abstract established by Eduard Pestel. A Report to The Club of Rome (1972), by Donella H. Meadows, Dennis l. Meadows, Jorgen Randers, William W. Behrens III, which is well worth the time it takes to read, especially if you haven't read one of the original versions of LTG. It summarizes in very readable prose the essence of the entire LTG argument in just eight short pages.

Even though this was written 36 years ago, it seems very up-to-date. Or, perhaps better put (as Ugo Bardi did), because it was written 36 years ago and we've learned more, it seems more pertinent today than it did then. For a review of the changes since the original publication, see Limits to Growth: The 30-Year Update or Matthew Simmon's review linked from my prior posting.

Grow or die

2008-04-04T20:30:00.000-07:00

The title is a rough quotation from an interview I read by a CEO recently. It doesn't matter who it was; it's a common business notion, I sense.

I understand the sentiment, really I do. There is a real fear that, if we don't grow, we'll be overtaken by those who do grow. Or that we'll become stagnant and stale.

Yet I'm mindful that, if we all grow, we'll surely die (or at least suffer), too. Read Limits to Growth, if you're uncertain about my statement. Note that "limits to growth" in that book is not a statement of an environmentalist's hope; it's a statement of fact. We will face limits to growth. We can choose the nature of those limits (or at least we have had the chance), but stop growing we will. You can't exceed the carrying capacity of an environment forever.

So, if it's true that we all (or most all) want to grow (our companies, our houses, ...), and if it's true that we will face (and are already facing) real limits to that growth, what do we do?

I've written about growth a number of times, but I admit that I don't have all or even many of the answers yet. Perhaps I'll find out more in the next few months, for I'm co-teaching a systems thinking course at Bainbridge Graduate Institute.

If you're not familiar with BGI yet, their vision is "To infuse environmentally and socially responsible business innovation into general business practice by transforming business education," and they've got a good reputation in this area.

As I did when I taught system dynamics at the University of Washington, I suspect I'll learn a lot here, this time with a distinct focus on sustainability and business. I'm really looking forward to this experience. (And, as I did last time, I will refrain from telling you anything that goes on in class unless I have explicit permission, but I may tell you a bit about how I grew.)

The importance of a focus on disconfirmation

2008-04-02T07:32:00.000-07:00

Here's a lesson from John Sterman's Business Dynamics: Systems Thinking and Modeling for a Complex World section 1.3.7: we gain little to no new insight by observing cases where data supports our hypotheses. We gain much from testing cases where data might disconfirm our hypotheses.

For more on that, see Raymond Nickerson's Confirmation Bias: A Ubiquitous Phenomenon in Many Guises, Bob Dick's Rigour and relevance in action research, the Skeptic's Dictionary entry on confirmation bias, Wikipedia's entry on the same subject, or one of my prior essays on skepticism.

System dynamics in practice: lessons learned

2008-04-01T09:24:00.000-07:00

Drew Jones, Don Seville, and Dana Meadows of the Sustainability Institute wrote Resource Sustainability In Commodity Systems: The Sawmill Industry In The Northern Forest. That provides a good example of a way to use system dynamics models (it's of course not the only way).

I like that paper for several reasons. The model seemed good (at least from the explanation; I haven't explored the model yet), and the explanation of the model and its implications seemed good. What may be especially interesting to some is that they spent the last third of the paper talking about what they learned about the human side of the equation: how people responded to their work, and what they learned from that. The top of page 26 seems noteworthy, although you'll probably have to read the preceding 25 pages to make good sense of it.

Management theory, management practice

2008-03-31T07:50:00.000-07:00

For some now-forgotten reason, I printed out a copy of Sumantra Ghoshal's Bad Management Theories Are Destroying Good Management Practice some time ago to read. Last night, I discovered it and took the time to read it.

If you are a manager or a management educator, I encourage you to do the same. It's not something to force yourself to read today, for it likely won't tell you anything you need to do a better job on your current project. It is something to read and not ignore. It will, I hope, make all of us think.

Here's an example of his ideas (pp. 79-80). It's often said that the job of a public company is to make the maximum profit for the owners. As he notes, stockholders don't really own a corporation; they simply contribute capital in exchange for a share of certain cash flows. Employees contribute their work in exchange for their livelihood. If we were to maximize the gains of a corporation to benefit those who have invested a stake in its success, we would have to focus those gains in service of a much wider group of people. Employees would seem to have a much bigger influence than stockholders, for they typically can't change jobs nearly as easily as stockholders can buy and sell stock, and their contributions are typically much more individualized than the fungible resources stockholders provide (cash).

For another, he claims that much management theory (and thus practice) today is based on an assumption that people will try to take advantage of companies (pp. 82 ff.). Yet, he claims, experiments and evidence shows that such a belief is incorrect and tends to create a self-fulfilling prophecy (which makes me glad to have been part of the company Bill and Dave founded).

His concerns focus on two areas. First, management theories have focused (out of "physics envy") on "a narrow version of positivism together with relatively unsophisticated scientific methods" (p. 86). Second, for ideological reasons, management theory has focused efforts on "containing the costs of human imperfections" rather than on working with the broader, more complex, true nature of people.

The challenge in management sciences lies in what he calls a "double hermeneutic" (p. 77). While bad theories in physics don't change the path of electrons (they can't read, and, if they could, they wouldn't change simply because elite scientists said they should), bad theories in the social sciences (of which management is one) are read by practitioners and turned into practice.

Finally, he notes (pp. 86 ff.) that falsification, which is fundamental to to the positivism to which some aspire, is very hard to apply in the social sciences. As "many different and mutually inconsistent theories explain the same phenomenon ... nothing can be weeded out."

He has explained his ideas much more effectively than I have in this brief summary, and I do encourage you to read it and consider how it might apply to your practice of management. If you deal in any of the social sciences, I also encourage you to think about the nature of falsification as he describes it and how that applies to how one knows what one knows.

Focusing on the symptom or the cure?

2008-03-16T16:20:00.000-07:00

I recently read Jay Forrester's "Churches at the Transition Between Growth and World Equilibrium," a paper prepared for the National Council of Churches and published as part of Toward Global Equilibrium: Collected Papers, ed. Meadows and Meadows and published in 1973 (also available from Pegasus Communications).

Forrester emphasized two points that may be worthwhile today to some of you reading this:

When fundamental changes happen in the environment in which we operate, old rules of thumb likely no longer appply.
Trying to fix problems by focusing on symptoms is highly risky, for, even in static times, our intuitions don't always work as well as we need. In times of transition and turbulence, it's especially important to ensure one understands the dynamic causes of the problem being faced before engaging in actions that could be counterproductive.

Forrester was a bit more direct than I was in my paraphrase. "One should never attempt to find a solution without first establishing the dynamic causes," he wrote, and system dynamics was his tool of choice for testing whether one had found the underlying causes or not.

Today we face increasing energy costs, increasing population density, increasing effects on climate and on the inhabitants of the Earth from the by-products of our industrial and private activity, fundamental shifts in the distribution of production and wealth, a scarcity of resources that were abundant in the past, and the fall-out from overextended financial markets. No matter your type of organization, the complexity of these changes taxes our understanding.

In a time of such changes, how do you make sense of the challenges your organization faces? How do you determine which actions to take to achieve the sustainable successes you want?

If you'd like to discuss ways in which you might make more sense of those issues, ways you might understand the likely causes of the dynamics you face, and ways you might test your proposed actions faster and at less risk than by just trying them, get in touch. Perhaps I can be of help as you seek to fix problems and not just reduce symptoms. Of course, there's no charge or obligation from such an initial discussion.

How It All Ends and John Sterman

2008-03-12T07:42:00.000-07:00

Some time ago, I posted a note linking to a John Sterman comment about global climate change. This morning, thanks to a randomly found posting, I discovered How It All Ends, a video that says something quite similar.

Greg Craven, the creator of the video, has put together a monster series on risk management, our role in the world, and global climate change. The first video is not quite 10 minutes long, and it presents the basic idea. It leads to an index video, which presents a few more ideas and leads to the menu video. While those last two seem like they might be boring and useless, you might find they add more value and are thus worth watching (perhaps the index more than the menu), even if you eventually find Wondering Mind 42, his Web site that has the list with links to each of the videos.

So at least go watch the first and perhaps the second video now, and see what you think. You might discover it's worth watching more. You might learn new ways of thinking ... and acting. Learning new things is almost always good, right?

And don't forget to read John Sterman's comment, if you haven't already.

More on LTG

2008-03-09T16:55:00.000-07:00

I'll try to stop writing about LTG for a bit, but, before I do, I did find one other interesting paper that some of you might want to read. Matthew Simmons of Simmons & Company International wrote Revisiting The Limits to Growth: Could The Club of Rome Have Been Correct, After All?" back in October 2000. It appears to be a very readable, data-rich analysis of the changes in key parts of the world by someone who has been active in the energy business for decades. Check it out.

Simmons is a prolific writer; he has published a series of speeches and papers online (check the archives and the Oldies but Goodies, too). I'll have to come back and read more later.

Postscript: While I should be doing other things, I'm reading more of his articles. I encourage you to read his PEAK OIL: Is It Real? When Might It Occur? from February 25, 2008. While you need to start at the beginning to get context, check out his recommendations starting on slide 48:

Only viable solution that can work now:

The solution: TRAVEL LESS

Less long distance commuting
Grow foods at home
Make goods locally

What do you think?

Cassandra's curse and LTG

2008-03-07T19:42:00.000-08:00

Almost two years ago, I posted about Limits to Growth: The 30-Year Update. Whether you saw that posting or not, I suspect you know Limits to Growth, often referred to by its initials as LTG.

Now Ugo Bardi has written Cassandra's curse: how "The Limits to Growth" was demonized in The Oil Drum: Europe. It's his view how LTG started to stimulate true dialog about a major challenge for the planet and how it then became "everyone's laughing stock" (well, perhaps not everyone's).

That's changing. As Bargi notes,

Climate studies have also brought back the limits of resources to attention; in this case intended as the limited capability of the atmosphere to absorb the products of human activities. In this field, the LTG study can be seen as having taken the right approach from the beginning; modeling for the first time the interaction of the environment with the human industrial and agricultural system.

If you've not read LTG, I encourage you to read it now. If you'd like, you can buy Limits to Growth: The 30-Year Update online, or you can find it in your favorite library (you can change the country or specify the location more precisely).

Tipping points

2008-03-06T12:37:00.000-08:00

A few years ago, thanks to a lead by John Sterman, I posted a note about a Proceedings of the National Academy of Sciences (PNAS) article that attempted to quantify the carrying capacity of this planet. The concept of carrying capacity is important; if you try to exceed the carrying capacity of an ecosystem, you will eventually be brought back. What's even more worrisome is the potential that you might eat up carrying capacity while you're in overshoot: if you do that, the equations suggest you'll eventually suffer a collapse.

There's another concept that's discussed both in the systems literature and the popular press: the tipping point. That's the claim (loosely) that systems may reach a point where a slight addititional change will lead to a qualitatively different state. Often the definition includes something about irreversibility (you can't go back) or at least about the difficulty of reversing a change due to the reaching of a tipping point.

Now John Schellnhuber and his colleagues have published Tipping elements in the Earth's climate system in the February 12, 2008 issue of PNAS. They've also published appendices, not in the printed version, that provide their formal definition of a tipping point, evaluate other potential tipping elements, and describe how they elicited the information for the main article.

Those of you interested in tying systems concepts to the real world (hopefully that's just about anyone doing systems work, although some may be more interested in some applications than others) might find this of real interest. Those of you wondering about the risks of climate change might find it informative.

For a report on Schellnhuber's lecture at the annual meeting of the AAAS, see John Schellnhuber’s Third Industrial Revolution, a New Approach to Addressing the Hazards of Global Warming by Julia Whitty in Mother Jones.

One way to lose focus

2008-02-09T09:43:00.000-08:00

Losing focus can be so easy. I understand. When I was growing up, I used to play the horn and didn't stop until I was well into my twenties. When I focused on making music, I really enjoyed it, but, if I ever paid attention to the presence of an audience or the state of my performance, I would get lost in a mild case of the nerves. Professionals know how to deal with such things; I was not a professional musician.

In Unschlüssigkeit bei Toyota?, Paul Bayer wonders about Toyota's president Katsuaki Watanabe's recent speech at the Detroit auto show. He translates part of Chet Richards' Ford: Faint signs of life, in which Richards wonders if that's a sign that Toyota has taken its focus away from making the best cars to being the biggest company.

My purpose here is not to criticize (or even analyze) Toyota (or Ford or any other company); as Bayer notes, there are other explanations for Watanabe-san's speech that don't bode ill for Toyota. My purpose is to use those comments to note how easy it is to shift one's focus from that which brought success to the trappings of that success and the risk that such a shift might destroy both the success and its trappings.

How to get ahead

2008-02-07T07:53:00.000-08:00

"I love a challenge!" Those are the words of a young boy quoted by Dr. Carol Dweck, the Lewis and Virginia Eaton Professor of Psychology at Stanford University, words typical of the mindset that, according to her research, helps people achieve more, a mindset, she claims, we can learn and we can teach.

I found Attribution theory and Shreddies today, that led me to Guy Kawasaki's "The Effort Effect", which led me to The Effort Effect and to an interview with Dweck at Tech Nation. A bit more Googling turned up How Not to Talk to Your Kids.

If you manage people, if you teach students, if you raise children, or if you have responsibility for your own contribution and results (there: that should cover everyone who reads this!), read and consider her ideas. If her research is good (and, while it seems to be, I do encourage skepticism as part of learning), consider how you can apply her ideas in your work and life.

Charles Handy on growth

2008-02-05T11:24:00.000-08:00

I've written about growth multiple times; now Charles Handy comments on growth in Finding Drucker's vision in all that stuff.

Thanks to the TP! Wire Service for the tip.

System dynamics, black swans, and the management of business

2008-01-31T10:51:00.000-08:00

I'm currently reading Nassim Nicholas Taleb's The Black Swan: The Impact of the Highly Improbable. While I intend to tell you more of what I think when I'm finished, I have an early impression, based on stories such as what he calls "Hume's problem" (or the turkey problem). That's a problem in which everything seems to be getting better and better, only to change direction suddenly and drastically for the worse. In his example, the turkey sees life as a daily succession of friendly humans offering food, only to have it cut short in a manner seemingly quite out of character for life as the turkey has perceived it. (As Taleb points out, it all makes eminent sense to the butcher.)

I think that's part of the reason for system dynamics as yet another tool for thinking and working. As Geoff Coyle points out in his System Dynamics Modelling: A Practical Approach, top management is concerned about things such as the consequences of actions, the likely future, and robustness against uncertainty (p. 15). One of the basic parts of the system dynamics approach is to challenge preconceived notions of the extent of the system causing the current situation: are we looking over a broad enough time span, are we including enough of the actors and actions, and are we paying attention to feedback effects (what Taleb calls recursive effects on p. xxii), where something we do today might come back and affect the situation we face tomorrow?

While there are no guarantees, that unfortunate turkey, had she had good training in system dynamics (or a competent system dynamicist at her side), might have been inspired to look at life over a 5-10 year time span, not just the few months she had experienced. That might have surfaced the fate that led to her demise as part of a regular pattern (albeit one that occurred rarely compared to her lifespan). Had she looked not only at the friendly human feeding her and the other turkeys eating with her, she might have noticed the butcher looking eagerly over the fence from time to time and asked about his role in her life. Had she realized the implications of those observations, she might have decided not to become quite so friendly with her "caretaker," she might have decided not to eat nearly as much (if she were scrawny, might her fate have been different?), and she might even have encouraged the other turkeys to join her in an escape attempt.

Now I don't think that the use of system dynamics conveys infallibility; in fact, that's why I'm reading Taleb's work, to figure out more places my insights may be fallible so that I can make them more robust.

Taleb advocates tinkering as a way to make progress; I see system dynamics as a way to tinker faster and think more effectively in support of your (and my) goal of more effective action.

While my comments may be out of the main focus of Taleb's thesis (system dynamicists tend to focus on the deterministic, not the random, even as they seek to help you be able to respond better in the presence of the random), I don't yet see them in contradiction. I offer them to you in the hopes they are of use to you. Now it's my (and your) task to try to disconfirm them; the longer we can't, the greater the likelihood there's something worth attending to!

If you want to tinker faster with the situation you find yourself in but don't want to risk your business each time you tinker, let's talk.

Thanks to Andrew Gelman for his posts that led me to Taleb's work.

Looking from the outside in...in English

2008-01-21T08:23:00.000-08:00

Realizing that the majority of those reading this blog may not read German, I put together a quick summary of Henrik Müller's arguments to which I pointed last Friday.

In his most recent article, he claims that, in a somewhat healthy economy, we have three feedback loops that would stabilize our economy and dampen out our current problems:

People and the government would spend more to stabilize consumption.
Government would borrow more in order to support its temporarily increased spending.
The Fed would lower rates to encourage consumption (and, presumably, investment).

He claims all three are at their limits here. He quotes an OECD number that says our savings rate is -1.0%, and housing values are dropping, so we have nothing left to spend.

He says our Federal budget deficit is only 3% of the GDP, and our debt, at 60% of the GDP, is 60% beneath the norm in Europe, so we could increase the debt to try to pull us out. Unfortunately, because we save so little, the only people who can buy that debt are foreigners.

Finally, while the Fed has room to lower the rate, he sees banks as ready to absorb any excess cash rather than loan it out, and he worries about inflationary pressures that may present, thanks in part to an ever-weakening dollar.

In the current political scene, he sees candidates pushing protectionist agendas and hope, while he sees our real hope as lying in global product and capital markets. In fact, the only good news he sees is that the devalued dollar has increased exports and that foreign governments seem ready to invest huge sums in US banks, and he's worried that we don't see that for the good news it is.

What do you think? If you read German (especially if you read it natively), what important points do you think I missed from the two articles?

Looking from the outside in...

2008-01-18T14:35:00.000-08:00

One of the things that doing enough system dynamics work teaches one is the benefit of perspective. Sometimes when you're in the middle of something, it's hard to see the forest for the trees. Standing back a ways and, just for a moment, trying to drop any emotions that are tied up in one's current situation can give one better insights.

That's what system dynamics modeling can often do: change a situation in which you're an intimate part to a situation you and your colleagues can look at with a bit of perspective. It also gives you the ability to test ideas on the model before you test them on the real situation.

When we can't get that perspective ourselves, either because of time limitations or because we can't figure out how to do it successfully, reading or hearing what others say about us can sometimes provide us similar perspective. Sure, those outsiders may not understand our situation as well as we do, at least in the details, but they may help us find a better perspective into which to place our more detailed understanding.

If you live and work in the USA, you've no doubt read much about our economic situation recently. I've suggested before that it's healthy to see how others see us. Recently Henrik Müller of the German business magazine manager magazin posted an article entitled Amerika steht mit dem Rücken zur Wand ("America stands with its back to the wall"), a follow-up to an earlier and more data-filled Nach der Orgie ("After the Orgy"). If you read German, or if Google Language Tools suffices, I encourage you to read these articles. He may not be correct in all his assessments, but he may give a better perspective than the headlines in the nightly news about sub-prime mortgages, foreclosures, and other problems. Certainly his earlier article does something I like to see: he gives graphs of at least some key data over a five-decade span, which is more useful for seeing patterns and gaining perspective than merely seeing what has happened this century.

How do your mental models compare with his? What are you doing in your company to adapt? What should you be doing?