Refining a Diagram Submitted to the System Dynamics Review

Transcription

1 Refining a Diagram Submitted to the System Dynamics Review The original diagram, Diagram 0 Our first visual concern is that the loop(s) through Salary Level reverse direction, creating a corner at Firm Reputation, which makes the loops very hard to see. The result is that at first glance it looks like there are only two loops. As if to reinforce this observation, only two were labeled in the original; in fact, careful tracing shows there are actually four feedback loops. The diagram below is a Vensim version identical to the original above. The changes that follow will be made on this diagram, so it will be easiest to refer to this one to see the progression of changes. While structurally identical to the original diagram, this Vensim version has a slight stylistic improvement: it leaves out the positive signs on the positive links, while keeping the negative signs. We lose no information by leaving out the positive signs (as long as we tell the reader about it), and we gain visual simplicity. I will use that convention in the rest of these diagrams. - 1-

2 Diagram1 Here the corner in the original is fixed simply by pulling Salary Level and Price outside the other loops. Now all the loops flow in the same clockwise direction, making it easy for the eye to follow them as the author tells their stories. In this form one can actually trace out four feedback loops, even though I ve labeled only three of them. I haven t labeled the two others or given them names yet because there are serious problems with this diagram. In particular, the variables Excess of consultants and Need of consultants appear to be the positive and negative values of the same variable, the difference between Consultants Desired (to meet demand) and Consultants actually on hand. For clarity and something approaching structural correctness, these must be shown. Diagram2 Here Diagram1 is revised to fix the problem noted in the previous paragraph. We ve added an explicit stock of Consultants, and an explicit variable for the number of Consultants Needed, as a consequence of the Demand for Firm Services. The new variable Workforce Adequacy replaces Imbalance of the Workforce. Adequacy (or Sufficiency or Surplus or the like) is a better term because it has a direction. Imbalance does not, so we do not know what it means if it rises or falls. Positive Adequacy means more Consultants than needed, negative adequacy means fewer. - 2-

3 Including Consultants needed makes the arithmetic of Workforce adequacy clear. It is also worth noting that the positive term adequacy is easier to read in such a diagram than a negative term like shortfall. People have trouble thinking about an increasing (or decreasing) shortfall but seem to do better with an increasing or decreasing adequacy or some similar positively phrased variable name. Perhaps surprisingly, we now have only two feedback loops. The reason we lost two is that the original diagram had essentially the same variable twice, once as excess and once as need. Replacing those two with the one variable Workforce adequacy collapses the diagram to the two loops that are actually operating, a balancing loop that constrains the demand for services to match the number of consultants available, and a reinforcing loop. That reinforcing loop suggests that the firm might deliberately raise salaries (while keeping the workforce fixed) as a way of matching Demand to the number of Consultants on hand. The loop says raising salaries would raise price, thus reducing competitiveness and demand for service, thus reducing the number of consultants needed and increasing the adequacy of the workforce to meet demand, presumably bringing it in line with the number of Consultants on hand, thus increasing the firm s reputation allowing the firm to further increase salaries. Diagram3 But now that the diagram contains an explicit stock of Consultants, and a clear number of Consultants Needed, it cries out to close the loop that would adjust the workforce to the need. That s the change in Diagram3. I ve represented the adjustment of the number of Consultants by a single arrow from Consultants Needed to Consultants, implicitly suggesting some hiring process. I left it that simple to keep the diagram close to the simplicity of the original diagram. Now the picture has reached the level of clarity and structural correctness that enable us to try to label the loops with phrases identifying their meanings. That would be good practice in general, and especially here because what the B s and R s refer to is ambiguous here. - 3-

4 In fact, we have four loops again, two going through the link from Reputation to Competitiveness and two going through Salary. I was not sure how to name the fourth loop (it s an inner reinforcing loop), so I didn t try. The authors would probably want to try, as they tell the stories the diagram supports, and they d label the loops they want to talk about. Diagram4 One tiny further change helps to push the figure closer to best practice: Even in simple causal- loop diagrams, we usually ought to show important or obvious stocks because they clarify and help to tell dynamic stories emerging from system structure. We have Consultants as an obvious stock. Now in Diagram4 we identify the Firm Reputation as a stock, since here it is an enduring quantity in the system that evolves appropriately over time in the problem the author wants to talk about. I have also made the Workforce shortfall limits growth loop bold because my reading of the paragraphs accompanying the original figure suggests that is an important loop the authors want to focus on. Making this loop stand out (or another if I have picked out the wrong one) could dramatically help the visual impact and communication potential of the picture and make it a lot easier to tell the desired stories. If that bold loop is indeed a major part of what the author wants to focus on in this figure, he may want to emphasize that it comes into play only if the firm has trouble bringing on consultants to match the demand for the firm s services. Thus, he may want to put little - 4-

5 delay marks on the link from Consultants Needed to the stock of Consultants, to show the potential difficulty of timely hiring the necessary skilled consultants. As a consequence of a slow adjustment of the Consultant stock, the workforce can become too small to meet the demand for the firm s services and the firm s reputation and competitiveness could suffer. Conversely, if the firm has no trouble bringing on new skilled consultants, it would seem reasonable that the workforce shortfall loop would never come into play. Tying the Diagram4 figure to the text in the article So far, I ve just tried to make the figure conform to what I hope to be best causal- loop diagram practice. Now I ll try to be sure that the Diagram4 figure is appropriate for what the authors want to talk about. If we find it does not, then we ll have to go back the the drawing board(!) Here is the original text from the article, referring to the original figure, which we put beside our new figure to see how it fits. The letters in brackets, e.g., [a], refer to notes I ve put below to comment. This diagram reflects the overall issues faced by consultancy firms in managing the flow of professional staff. A growth in demand will increase the need for qualified consultants to deliver the projects contracted, leading to a growing difference between the desired workforce and the existing workforce [a]. A shortfall of the workforce is seen as one of the factors most negatively influencing the reputation of the company as a knowledge organization, since it reflects a lack of sufficient intellectual capacity [b]. In accordance with the opinion garnered from experts, the reputation of a consultancy firm is essentially conditioned by three factors: (1) the level of knowledge in place at the organization with regard to the sector; (2) the company s experience in the resolution of problems; and (3) any shortfall between the workforce and demand [c]. A reduction in the organization s reputation will reduce the competitiveness of the company and hence the future demand for its services. As a result, an initial growth in demand will tend to fall, returning to a balanced situation (negative loop) [d]. Meanwhile, a reduction in the demand for the company s services will lead to a drop in any workforce shortfall, increasing the company s reputation and raising its competitiveness. This will lead to a future growth in the demand for the services of the organization relative to the market (positive loop) [e]. The reputation of a company within the consultancy sector is the variable which, to the largest extent, determines the salary level of its consultants. Bearing in mind that salary costs represent the main component in the pricing of its services (United Nations, 1993), rising salaries will increase these prices, which has a negative influence on the company s competitiveness [f]. - 5-

6 [a] growing difference between the desired workforce and the existing workforce. The new diagram works well here, although one could change the wording slightly to workforce needed, or consultants needed to match the diagram more closely. (Or one could change the wording in the diagram to desired consultants. ) [b] a shortfall of the workforce is seen as one of the factors most negatively influencing the reputation of the company. Again the new diagram works well, since the label of the balancing loop uses the shortfall language, while the variables in the loop are phrased positively ( adequacy ) to make it easier to trace ups and downs. [c] Most of the sentence preceding [c] is about influences not represented in the diagram, but the sentence does end with the shortfall idea. Item 3 would probably be better phrased in the positive (matching the previous two influences on reputation), e.g., the adequacy of the number of consultants in the firm to meet demand. [d]...as a result an initial growth in demand will tend to fall... The sentence should probably read...will tend to taper off. It s not clear from the loop or the story that the limiting effect of the balancing loop would cause a decline, or that the combination of loops would cause an overshoot, thus justifying the decline language. [e] This will lead to a future growth in demand for the services of the organization relative to the market (positive loop). It s not a positive loop - - it s the same balancing loop discussed in the sentence before [d] just going in an increasing direction. The paragraph also needs to be rewritten to get rid of the potentially confusing phrase drop in shortfall. It could read something like the following: Meanwhile, a reduction in the demand for the company s services will lead to a drop in the number of consultants needed, thus increasing the adequacy of the consultant workforce, increasing the company s reputation and competitiveness, and thus restoring demand for the company s services (balancing loop). [f]... rising salaries will increase these prices, which has a negative influence on the company s competitiveness. It is perhaps worth noting that one of the most successful consulting firms in the world is McKinsey, which is also one of the highest priced. Switching the argument around here (much as mentioned above), it might be argued that McKinsey uses high prices to match demand to their ability to deliver high quality services, thus having a positive effect on the company s competitiveness. Here that positive effect would be represented by the link from reputation to demand, which in the case of firms like McKinsey would be stronger than the negative effect from price alone. With the few changes suggested, the new diagram seems to fit well the story (stories?) the author wants to tell. However, the comments at the end of the Diagram4 discussion, in the paragraph just before Tying Diagram4 to the text in the article, and the note [f] are probably important for the authors to consider. They suggest the balancing loop discussed in [d] and [e] may be easily - 6-

7 overcome by the reinforcing loop involving hiring, bringing the stock of Consultants up to the level needed and providing the resources that can yield compound growth in demand for the firm s services. The new figure and the original text in the article seem to imply that the authors want to talk about situations in such a company where hiring the right people in sufficient numbers is a problem, thus bringing into play the balancing loop. George P. Richardson gprichardson@albany.edu