University of Southern Maine

School of Business

Fall 2010

MBA 649: SYSTEM DYNAMICS (15374) Prerequisite: BUS 340

Meeting Time: Thursday, 7-9:45 p.m.

Blackboard website: available at www.courses.maine.edu

Text: Sterman, J. (2000). Business Dynamics: Systems Thinking and Modeling for a Complex
World. Irwin/McGraw Hill. ISBN 0-07-231135-5. (Please make sure to buy a copy that has the
CD in the back cover.)

COURSE RATIONALE

Why do so many business strategies fail? Why do so many others fail to produce lasting results?
Why do many businesses suffer from periodic crises, fluctuating sales, earnings, and morale?
Why do some firms grow while others stagnate? How do once-dominant firms lose their
competitive edge? And how can a firm identify and design high-leverage policies, policies that
are not thwarted by unanticipated side effects? Accelerating economic, technological, social,
and environmental changes challenge managers to learn at increasing rates. We must
increasingly learn how to design and manage complex systems with multiple feedback effects,
long time delays, and nonlinear responses to our decisions.

Yet learning in such environments is difficult precisely because we never confront many of the
consequences of our most important decisions. Effective learning in such environments
requires methods to develop systems thinking-to represent and assess such dynamic
complexity-and tools managers can use to accelerate learning throughout an organization.

This course introduces you to system dynamics modeling for the analysis of business policy and
strategy. You will learn to visualize a business organization in terms of the structures and
policies that create dynamics and regulate performance. System dynamics allows us to create
"microworlds," simulators where space and time can be compressed, slowed, and stopped so
we can experience the long-term side effects of decisions, systematically explore new
strategies, and develop our understanding of complex systems. We use role playing games,

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simulation models, case studies, and management flight simulators to develop principles of
policy design for successful management of complex strategies. Case studies of successful
strategy design and implementation using system dynamics will be stressed. We consider the
use of systems thinking to promote effective organizational learning.

The principal purpose of modeling is to improve our understanding of the ways in which an
organization's performance is related to its internal structure and operating policies as well as
those of customers, competitors, and suppliers. During the course you will use several
simulation models to explore such strategic issues as fluctuating sales, production and earnings;
market growth and stagnation; the diffusion of new technologies; the use and reliability of
forecasts; and the rationality of business decision making.

Students will learn to recognize and deal with situations where policy interventions are likely to
be delayed, diluted, or defeated by unanticipated reactions and side effects. You will have a
chance to use state of the art software for computer simulation and gaming. Assignments give
hands-on experience in developing and testing computer simulation models in diverse settings.

COURSE OBJECTIVES

This course will expose students to all aspects of systems thinking, including an introduction to
quantitative modeling of the dynamics of systems. The two overarching goals are to get
students to think in the systems thinking paradigm and to transmit specific systems thinking
skills.

Goal 1: To learn the systems thinking paradigm:

a. Seeing how causes are linked in circular processes, called feedback loops, to effects and
to other causes.
b. Seeing the world as an ongoing, interdependent, self-sustaining and dynamic process.
c. Thinking in terms of ongoing, interdependent relations whose strengths vary over time.
d. Understanding that correlation is not enough for true explanation. Operational
explanations of how phenomena occur are also needed.

Goal 2: To learn the seven systems thinking skills

Skill 1 Dynamic thinking: The ability to see and deduce behavior patterns rather than focusing
on, and seeking to predict, events.

Skill 2 Closed-loop thinking: Seeing the world as a set of ongoing, interdependent processes,
with the loops seen as responsible for generating the behavior patterns exhibited by a system.

Skill 3 Generic thinking: Appreciating the similarities in the underlying feedback relations that
exist in many, seemingly different, contexts.

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Skill 4 Structural thinking: Moves beyond dynamic thinking in a very disciplined way by
distinguishing between stocks and flows, maintaining dimensional consistency, and rigorously
adhering to physical conservation laws.

Skill 5 Operational thinking: Thinking in terms of how things really work--not how they
theoretically work.

Skill 6 Continuum thinking: By using continuous, as opposed to discrete, modeling, "us versus
them" thinking is replaced by continuum thinking.

Skill 7 Scientific thinking: Being rigorous in quantification (which is not the same thing as being
rigorous in measurement), having a hypothesis to test, and testing the hypothesis in a
systematic, rigorous way.

CLASS FORMAT

This course will meet once per week for the fourteen weeks of this semester. In some sessions,
the first portion of a given class will be lecture/discussion, and the second hour or so will be
spent in a computer classroom working on problems.

ATTENDANCE POLICY

At each class session I will take attendance. Early on, this may be cumbersome and awkward,
but later in the term, once I have gotten to know everyone, I will be able to do this very quickly
and easily. If you know that you have to miss a class and you let me know in advance (my
recommendation is to leave a message in my voice mailbox by calling my extension, 780-4597),
or if you miss a class and can produce evidence of a good excuse, I will give you credit for
attending. Poor attendance will affect your course grade.

CONFORMANCE WITH SCHOOL MISSION STATEMENT

Written communications skills are developed through several papers. Oral communications
skills are developed through group presentations and class participation. The course stresses
analytical and critical thinking skills throughout, but especially through the consideration of
how cutting-edge ideas in strategic management can be applied in "real" organizational
experiences. Lastly, the ethical context of practice in this area is discussed in the context of
several cases.

SPECIAL NOTE

If you need course adaptations or accommodations because of a disability, or if you encounter

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 ASSIGNMENTS AND GRADING

Assignments: These assignments must be handed in individually, but feel free to form study
groups to work on them:

1. Challenge, "Problem Definition and Model Conceptualization" (website). Due Sept. 30.
2. Challenge, " Stock and Flow Structures" (website). Due Oct. 14.
3. “Understanding Business Fluctuations: The Causes of Oscillation” (will be posted on
website at the appropriate time.) Due Dec. 16.

Project: Working in a group, you must apply the methods of this course to some significant
business problem, or to a business-related public policy problem. You should feel free to apply
the methods to problems at your place of employment. In any case, please let me know no
later than mid-September what you plan to do for your project.

Projects should have the following sections:

1. Verbal description of the problem.

This project will be due no later than December 20.

GRADING

Item Weight
Assignment 1 30%
Assignment 2 10%
Assignment 3 30%
Project 30%
Total 100%

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 Course Outline

Sep 2 Introduction and Overview

Reading: Ch. 1, Ch. 2

Sep 9 The Modeling Process and System Dynamics Tools I: Reference Modes

Reading: Chs. 3 and 4

Sep 16 System Dynamics Tools II: Causal Loop Diagrams

Reading: Ch. 5

Systems Archetypes

Sep 23 System Dynamics Tools III: Stocks and Flows

Reading: Chs. 6, 7 (skim 6.2.7, 6.2.8, 6.2.9, 6.3.4, and 6.3.6)

Sep 30 System Dynamics Tools IV: Linking Feedback with Stock-and-Flow Structure

Reading: Ch. 8

Assignment #1 Due

Oct 7 Non-Linear Systems and Modeling Growth Processes

Reading: Ch. 9

Oct 14 Delays

Reading: Ch. 11

Assignment #2 due

Oct 21 Co-Flows and Aging Chains

Reading: Ch. 12

Oct 28 Modeling Decision Making

Reading: Ch. 13

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Nov 4 Formulating Nonlinear Relationships

Reading: Ch. 14

Nov 11 NO CLASS (Veteran’s Day)

Nov 18 Modeling Human Behavior

Reading: Ch. 15

Nov 25 NO CLASS (Thanksgiving Day)

Dec 2 Supply Chains and Oscillation

Reading: Ch. 17

Dec 9 Validation and Model Testing

Reading: Ch. 21 (up through end of Table 21-4 on p. 861)

Dec 16 Project presentations due

Assignment #3 due

Aug 20 Projects due (to Group File Exchange)