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Tables of Contents for Business Dynamics
Chapter/Section Title
Page #
Page Count
Preface
vii
PART I PERSPECTIVE AND PROCESS
1
134
Learning in and about Complex Systems
3
38
Introduction
3
11
Policy Resistance, the Law of Unintended Consequences, and the Counterintuitive Behavior of Social Systems
5
5
Causes of Policy Resistance
10
2
Feedback
12
2
Process Point: The Meaning of Feedback
14
1
Dynamics of Multiple-Loop Systems
14
1
Learning Is a Feedback Process
14
5
Barriers to Learning
19
14
Dynamic Complexity
21
2
Limited Information
23
2
Confounding Variables and Ambiguity
25
1
Bounded Rationality and the Misperceptions of Feedback
26
2
Flawed Cognitive Maps
28
1
Erroneous Inferences about Dynamics
29
1
Unscientific Reasoning: Judgmental Errors and Biases
30
1
Hypothesis Testing
30
2
Defensive Routines and Interpersonal Impediments to Learning
32
1
Implementation Failure
33
1
Requirements for Successful Learning in Complex Systems
33
6
Improving the Learning Process: Virtues of Virtual Worlds
34
1
Pitfalls of Virtual Worlds
35
2
Why Simulation Is Essential
37
2
Summary
39
2
System Dynamics in Action
41
42
Applications of System Dynamics
41
1
Automobile Leasing Strategy: Gone Today, Here Tomorrow
42
13
Dynamic Hypothesis
44
4
Elaborating the Model
48
3
Policy Analysis
51
3
Impact and Follow-up
54
1
On Time and Under Budget: The Dynamics of Project Management
55
11
The Claim
56
1
Initial Model Development
57
1
Dynamic Hypothesis
58
3
The Modeling Process
61
3
Continuing Impact
64
2
Playing the Maintenance Game
66
13
Dynamic Hypothesis
67
7
The Implementation Challenge
74
2
Results
76
1
Transferring the Learning: The Lima Experience
77
2
Summary: Principle for Successful Use of System Dynamics
79
4
The Modeling Process
83
24
The Purpose of Modeling: Managers as Organization Designers
84
1
The Client and the Modeler
84
1
Steps of the Modeling Process
85
2
Modeling Is Iterative
87
2
Overview of the Modeling Process
89
15
Problem Articulation: The Importance of Purpose
89
5
Formulating a Dynamic Hypothesis
94
8
Formulating a Simulation Model
102
1
Testing
103
1
Policy Design and Evaluation
103
1
Summary
104
3
Structure and Behavior of Dynamic Systems
107
28
Fundamental Modes of Dynamic Behavior
108
10
Exponential Growth
108
3
Goal Seeking
111
3
Oscillation
114
2
Process Point
116
1
Identifying Feedback Structure from System Behavior
117
1
Interactions of the Fundamental Modes
118
9
S-Shaped Growth
118
3
S-Shaped Growth with Overshoot
121
1
Identifying the Limits to Growth
121
2
Overshoot and Collapse
123
4
Other Modes of Behavior
127
6
Stasis, or Equilibrium
127
1
Randomness
127
2
Chaos
129
4
Summary
133
2
PART II TOOLS FOR SYSTEMS THINKING
135
158
Causal Loop Diagrams
137
54
Causal Diagram Notation
137
4
Guidelines for Causal Loop Diagrams
141
16
Causation versus Correlation
141
1
Labeling Link Polarity
142
1
Assigning Link Polarities
143
1
Determining Loop Polarity
143
2
Identifying Link and Loop Polarity
145
2
Employee Motivation
147
1
Name Your Loops
148
2
Indicate Important Delays in Causal Links
150
2
Variable Names
152
1
Tips for Causal Loop Diagram Layout
153
1
Choose the Right Level of Aggregation
154
1
Don't Put All the Loops into One Large Diagram
154
1
Make the Goals of Negative Loops Explicit
155
1
Distinguish between Actual and Perceived Conditions
156
1
Process Point: Developing Causal Diagrams from Interview Data
157
2
Process Improvement
158
1
Conceptualization Case Study: Managing Your Workload
159
10
Problem Definition
159
1
Identifying Key Variables
160
1
Developing the Reference Mode
160
3
Developing the Causal Diagrams
163
3
Limitations of the Causal Diagram
166
2
Policy Analysis with Causal Diagrams
168
1
Adam Smith's Invisible Hand and the Feedback Structure of Markets
169
5
The Oil Crises of the 1970s
172
1
Speculative Bubbles
173
1
The Thoroughbred Horse Market
174
1
Market Failure, Adverse Selection, and the Death Spiral
174
3
The Medigap Death Spiral
176
1
Explaining Policy Resistance: Traffic Congestion
177
13
Mental Models of the Traffic Problem
178
3
Compensating Feedback: The Response to Decreased Congestion
181
4
The Mass Transit Death Spiral
185
3
Policy Analysis: The Impact of Technology
188
1
Compensating Feedback: The Source of Policy Resistance
189
1
Identifying the Feedback Structure of Policy Resistance
190
1
Summary
190
1
Stocks and Flows
191
40
Stocks, Flows, and Accumulation
191
6
Diagramming Notation for Stocks and Flows
192
1
Mathematical Representation of Stocks and Flows
193
2
The Contribution of Stocks to Dynamics
195
2
Identifying Stocks and Flows
197
13
Units of Measure in Stock and Flow Networks
198
1
The Snapshot Test
199
2
Identifying Stocks and Flows
201
1
Conservation of Material in Stock and Flow Networks
201
1
State-Determined Systems
202
1
Auxiliary Variables
202
2
Stocks Change Only through Their Rates
204
2
Continuous Time and Instantaneous Flows
206
1
Continuously Divisible versus Quantized Flows
207
1
Which Modeling Approach Should You Use?
208
1
Process Point: Portraying Stocks and Flows in Practice
209
1
Mapping Stocks and Flows
210
19
When Should Causal Loop Diagrams Show Stock and Flow Structure?
210
1
Adding Stock and Flow Structure to Causal Diagrams
211
1
Linking Stock and Flow Structure with Feedback
212
1
Aggregation in Stock and Flow Mapping
213
1
Modifying Stock and Flow Maps
213
1
Disaggregation
214
2
Guidelines for Aggregation
216
2
System Dynamics in Action: Modeling Large-Scale Construction Projects
218
4
Setting the Model Boundary: ``Challenging the Clouds''
222
3
System Dynamics in Action: Automobile Recycling
225
4
Summary
229
2
Dynamics of Stocks and Flows
231
32
Relationship between Stocks and Flows
232
9
Static and Dynamic Equilibrium
232
1
Calculus without Mathematics
232
2
Graphical Integration
234
5
Graphical Integration
239
1
Graphical Differentiation
239
2
Graphical Differentiation
241
1
System Dynamics in Action: Global Warming
241
9
System Dynamics in Action: The War on Drugs
250
12
The Cocaine Epidemic after 1990
258
4
Summary
262
1
Closing the Loop: Dynamics of Simple Structures
263
30
First-Order Systems
263
1
Positive Feedback and Exponential Growth
264
10
Analytic Solution for the Linear First-Order System
265
1
Graphical Solution of the Linear First-Order Positive Feedback System
266
2
The Power of Positive Feedback: Doubling Times
268
1
Paper Folding
268
1
Misperceptions of Exponential Growth
269
3
Process Point: Overcoming Overconfidence
272
2
Negative Feedback and Exponential Decay
274
8
Time Constants and Half-Lives
279
2
Goal-Seeking Behavior
281
1
Multiple-Loop Systems
282
3
Nonlinear First-Order Systems: S-Shaped Growth
285
5
Nonlinear Birth and Death Rates
286
2
Formal Definition of Loop Dominance
288
2
First-Order Systems Cannot Oscillate
290
1
Summary
290
3
PART III THE DYNAMICS OF GROWTH
293
114
S-Shaped Growth: Epidemics, Innovation Diffusion, and the Growth of New Products
295
54
Modeling S-Shaped Growth
296
4
Logistic Growth
296
1
Analytic Solution of the Logistic Equation
297
2
Other Common Growth Models
299
1
Testing the Logistic Model
300
1
Dynamics of Disease: Modeling Epidemics
300
23
A Simple Model of Infectious Disease
300
3
Modeling Acute Infection: The SIR Model
303
2
Model Behavior: The Tipping Point
305
3
Exploring the SIR Model
308
1
Immunization and the Eradication of Smallpox
309
1
The Efficacy of Immunization Programs
310
2
Herd Immunity
312
2
Moving Past the Tipping Point: Mad Cow Disease
314
2
Extending the SIR Model
316
3
Modeling the HIV/AIDS Epidemic
319
2
Modeling HIV/AIDS
321
2
Innovation Diffusion as Infection: Modeling New Ideas and New Products
323
23
The Logistic Model of Innovation Diffusion: Examples
325
3
Process Point: Historical Fit and Model Validity
328
4
The Bass Diffusion Model
332
1
Phase Space of the Bass Diffusion Model
333
1
Behavior of the Bass Model
334
1
Critiquing the Bass Diffusion Model
334
1
Extending the Bass Model
335
4
Fad and Fashion: Modeling the Abandonment of an Innovation
339
2
Modeling Fads
341
1
Replacement Purchases
342
3
Modeling the Life Cycle of Durable Products
345
1
Summary
346
3
Path Dependence and Positive Feedback
349
58
Path Dependence
349
5
Identifying Path Dependence
353
1
A Simple Model of Path Dependence: The Polya Process
354
5
Generalizing the Model: Nonlinear Polya Processes
357
2
Path Dependence in the Economy: VHS versus Betamax
359
5
Formulating a Dynamic Hypothesis for the VCR Industry
364
1
Positive Feedback: The Engine of Corporate Growth
364
21
Product Awareness
365
2
Unit Development Costs
367
1
Price and Production Cost
368
2
Network Effects and Complementary Goods
370
1
Product Differentiation
371
2
New Product Development
373
1
Market Power
374
1
Mergers and Acquisitions
375
1
Workforce Quality and Loyalty
376
2
The Cost of Capital
378
2
The Rules of the Game
380
1
Ambition and Aspirations
380
2
Creating Synergy for Corporate Growth
382
3
Positive Feedback, Increasing Returns, and Economic Growth
385
2
Does the Economy Lock in to Inferior Technologies?
387
2
Limits to Lock In
389
2
Modeling Path Dependence and Standards Formation
391
15
Model Structure
392
4
Model Behavior
396
6
Policy Implications
402
1
Policy Analysis
403
1
Extending the Model
404
2
Summary
406
1
PART IV TOOLS FOR MODELING DYNAMIC SYSTEMS
407
254
Delays
409
60
Delays: An Introduction
409
3
Duration and Dynamics of Delays
409
2
Defining Delays
411
1
Material Delays: Structure and Behavior
412
14
What Is the Average Length of the Delay?
413
1
What Is the Distribution of the Output around the Average Delay Time?
413
2
Pipeline Delay
415
1
First-Order Material Delay
415
2
Higher-Order Material Delays
417
4
How Much Is in the Delay? Little's Law
421
4
Response of Material Delays to Steps, Ramps, and Cycles
425
1
Information Delays: Structure and Behavior
426
8
Modeling Perceptions: Adaptive Expectations and Exponential Smoothing
428
4
Higher-Order Information Delays
432
2
Response to Variable Delay Times
434
3
Response of Delays to Changing Delay Times
435
1
Nonlinear Adjustment Times: Modeling Ratchet Effects
436
1
Estimating the Duration and Distribution of Delays
437
12
Estimating Delays When Numerical Data Are Available
437
8
Estimating Delays When Numerical Data Are Not Available
445
4
Process Point: Walk the Line
449
1
System Dynamics in Action: Forecasting Semiconductor Demand
449
13
Mathematics of Delays: Koyck Lags and Erlang Distributions
462
4
General Formulation for Delays
462
2
First-Order Delay
464
1
Higher-Order Delays
465
1
Relation of Material and Information Delays
466
1
Summary
466
3
Coflows and Aging Chains
469
44
Aging Chains
470
27
General Structure of Aging Chains
470
2
Example: Population and Infrastructure in Urban Dynamics
472
2
Example: The Population Pyramid and the Demographic Transition
474
6
Aging Chains and Population Inertia
480
1
System Dynamics in Action: World Population and Economic Development
481
4
Case Study: Growth and the Age Structure of Organizations
485
5
Promotion Chains and the Learning Curve
490
3
Mentoring and On-The-Job Training
493
2
The Interactions of Training Delays and Growth
495
2
Coflows: Modeling the Attributes of a Stock
497
14
Coflows
503
1
Coflows with Nonconserved Flows
504
4
The Dynamics of Experience and Learning
508
1
Integrating Coflows and Aging Chains
509
2
Modeling Design Wins in the Semiconductor Industry
511
1
Summary
511
2
Modeling Decision Making
513
38
Principles for Modeling Decision Making
513
9
Decisions and Decision Rules
514
2
Five Formulation Fundamentals
516
4
Finding Formulation Flaws
520
2
Formulating Rate Equations
522
23
Fractional Increase Rate
522
1
Fractional Decrease Rate
523
1
Adjustment to a Goal
523
1
The Stock Management Structure: Rate = Normal Rate + Adjustments
524
1
Flow = Resource* Productivity
524
1
Y = Y* * Effect of X1 on Y * Effect of X2 on Y *...* Effect of Xn on Y
525
2
Y = Y* + Effect of X1 on Y + Effect of X2 on Y +...+ Effect of Xn on Y
527
2
Multiple Nonlinear Effects
529
1
Fuzzy MIN Function
529
1
Fuzzy MAX Function
530
2
Floating Goals
532
1
Floating Goals
533
2
Goal Formation with Internal and External Inputs
535
1
Nonlinear Weighted Average
535
2
Modeling Search: Hill-Climbing Optimization
537
6
Finding the Optimal Mix of Capital and Labor
543
1
Resource Allocation
544
1
Common Pitfalls
545
4
All Outflows Require First-Order Control
545
2
Preventing Negative Stocks
547
1
Avoid IF ... THEN ... ELSE Formulations
547
1
Disaggregate Net Flows
547
2
Summary
549
2
Formulating Nonlinear Relationships
551
46
Table Functions
552
11
Specifying Table Functions
552
1
Example: Building a Nonlinear Function
552
10
Process Point: Table Functions versus Analytic Functions
562
1
Case Study: Cutting Corners versus Overtime
563
6
Formulating Nonlinear Functions
566
1
Working Overtime: The Effect of Schedule Pressure on Workweek
567
1
Cutting Corners: The Effect of Schedule Pressure on Time per Task
568
1
Case Study: Estimating Nonlinear Functions with Qualitative and Numerical Data
569
4
Refining Table Functions with Qualitative Data
569
4
Common Pitfalls
573
12
Using the Wrong Input
573
2
Critiquing Nonlinear Functions
575
1
Improper Normalization
576
1
Avoid Hump-Shaped Functions
577
6
Formulating the Error Rate
583
2
Testing the Full Model
585
1
Eliciting Model Relationships Interactively
585
10
Case Study: Estimating Precedence Relationships in Product Development
587
8
Summary
595
2
Modeling Human Behavior: Bounded Rationality or Rational Expectations?
597
34
Human Decision Making: Bounded Rationality or Rational Expectations?
598
1
Cognitive Limitations
599
2
Individual and Organizational Responses to Bounded Rationality
601
2
Habit, Routines, and Rules of Thumb
601
1
Managing Attention
601
1
Goal Formation and Satisficing
601
1
Problem Decomposition and Decentralized Decision Making
602
1
Intended Rationality
603
2
Testing for Intended Rationality: Partial Model Tests
605
1
Case Study: Modeling High-Tech Growth Firms
605
24
Model Structure: Overview
606
1
Order Fulfillment
607
2
Capacity Acquisition
609
6
Hill Climbing
615
1
The Sales Force
615
4
The Market
619
2
Behavior of the Full System
621
3
Policy Design in the Market Growth Model
624
5
Summary
629
2
Forecasts and Fudge Factors: Modeling Expectation Formation
631
30
Modeling Expectation Formation
631
7
Modeling Growth Expectations: The TREND Function
634
4
Behavior of the TREND Function
638
1
Case Study: Energy Consumption
638
5
Case Study: Commodity Prices
643
2
Case Study: Inflation
645
10
Implications for Forecast Consumers
655
3
Extrapolation and Stability
656
2
Initialization and Steady State Response of the TREND Function
658
2
Summary
660
1
PART V INSTABILITY AND OSCILLATION
661
182
Supply Chains and the Origin of Oscillations
663
46
Supply Chains in Business and Beyond
664
2
Oscillation, Amplification, and Phase Lag
664
2
The Stock Management Problem
666
9
Managing a Stock: Structure
668
3
Steady State Error
671
1
Managing a Stock: Behavior
672
2
Exploring Amplification
674
1
The Stock Management Structure
675
9
Behavior of the Stock Management Structure
680
3
Exploring the Stock Management Structure
683
1
The Origin of Oscillations
684
23
Mismanaging the Supply Line: The Beer Distribution Game
684
11
Why Do We Ignore the Supply Line?
695
3
Case Study: Boom and Bust in Real Estate Markets
698
9
Expanding the Real Estate Model
707
1
Summary
707
2
The Manufacturing Supply Chain
709
48
The Policy Structure of Inventory and Production
710
19
Order Fulfillment
711
2
Production
713
1
Production Starts
714
2
Demand Forecasting
716
1
Process Point: Initializing a Model in Equilibrium
716
2
Simultaneous Initial Conditions
718
2
Behavior of the Production Model
720
3
Enriching the Model: Adding Order Backlogs
723
2
Behavior of the Firm with Order Backlogs
725
1
Adding Raw Materials Inventory
725
4
Interactions among Supply Chain Partners
729
14
Instability and Trust in Supply Chains
735
5
From Functional Silos to Integrated Supply Chain Management
740
1
Reengineering the Supply Chain
741
2
System Dynamics in Action: Reengineering the Supply Chain in a High-Velocity Industry
743
12
Initial Problem Definition
743
3
Reference Mode and Dynamic Hypothesis
746
3
Model Formulation
749
1
Testing the Model
749
2
Policy Analysis
751
2
Implementation: Sequential Debottlenecking
753
2
Results
755
1
Summary
755
2
The Labor Supply Chain and the Origin of Business Cycles
757
34
The Labor Supply Chain
758
6
Structure of Labor and Hiring
758
2
Behavior of the Labor Supply Chain
760
4
Interactions of Labor and Inventory Management
764
18
Mental Simulation of Inventory Management with Labor
766
1
Inventory-Workforce Interactions: Behavior
766
1
Process Point: Explaining Model Behavior
767
1
Explaining Oscillations
767
4
Understanding the Sources of Oscillation
771
2
Policy Design to Enhance Stability
773
1
Adding Overtime
774
2
Response to Flexible Workweeks
776
2
Reengineering a Manufacturing Firm for Enhanced Stability
778
1
The Costs of Instability
779
1
The Costs of Instability
780
1
Adding Training and Experience
780
2
Inventory-Workforce Interactions and the Business Cycle
782
6
Is the Business Cycle Dead?
785
3
Summary
788
3
The Invisible Hand Sometimes Shakes: Commodity Cycles
791
52
Commodity Cycles: From Aircraft to Zinc
792
6
A Generic Commodity Market Model
798
26
Production and Inventory
801
1
Capacity Utilization
802
3
Production Capacity
805
2
Desired Capacity
807
3
Intended Rationality of the Investment Process
810
1
Demand
811
2
The Price-Setting Process
813
11
Application: Cycles in the Pulp and Paper Industry
824
17
Sensitivity to Uncertainty in Parameters
828
3
Sensitivity to Structural Changes
831
5
Implementing Structural Changes---Modeling Livestock Markets
836
4
Policy Analysis
840
1
Summary
841
2
PART VI MODEL TESTING
843
50
Truth and Beauty: Validation and Model Testing
845
48
Validation and Verification Are Impossible
846
5
Questions Model Users Should Ask---But Usually Don't
851
1
Pragmatics and Politics of Model Use
851
7
Types of Data
853
2
Documentation
855
1
Replicability
855
3
Protective versus Reflective Modeling
858
1
Model Testing in Practice
858
32
Boundary Adequacy Tests
861
2
Structure Assessment Tests
863
3
Dimensional Consistency
866
1
Parameter Assessment
866
3
Extreme Condition Tests
869
2
Extreme Condition Tests
871
1
Integration Error Tests
872
2
Behavior Reproduction Tests
874
6
Behavior Anomaly Tests
880
1
Family Member Tests
881
1
Surprise Behavior Tests
882
1
Sensitivity Analysis
883
4
System Improvement Tests
887
2
Model Testing
889
1
Summary
890
3
PART VII COMMENCEMENT
893
10
Challenges for the Future
895
8
Theory
895
1
Technology
896
3
Implementation
899
1
Education
900
1
Applications
901
2
Putting System Dynamics into Action
901
2
APPENDIX A NUMERICAL INTEGRATION
903
10
Choosing a Time Step
910
3
APPENDIX B NOISE
913
12
Exploring Noise
922
3
References
925
22
Index
947