REPLY Future Development Directions (SD6267)

[System Dynamics Mailing List]

Posted by  Edward Anderson {andersone} <Edward.Anderson at mccombs.utexas.edu>

 
In response to the argument about politics should play a role in business 
decisions, and its implications for the future development of SD:
 
In principle, we can agree that business (at least publicly-held ones) 
should be about maximizing profit returned to the shareholders.  However, 
publicly-held firms are managed by individual agents (managers), each with 
his or her own interests.  Some of these agents' interests are a desire 
to maximize their individual profits, in which case agency theory applies; 
some of these agents' interests are a desire to maximize indvidual status 
or "build empires" or even take care of their own "people," in which case 
what organizational theorists term "institutional theory" (e.g. Meyer and 
Rowan 1977 AJS or Dimaggio and Powell 1983 ASR) applies.  (We won't even 
start with the complicating factor of these agents' cognitive limitations 
both individually and collectively.)  However, in either case, uncountable 
studies in the organization management literature--including a number by SD 
researchers--have shown that these interests very often do not result in 
decisions that completely coincide with the best interests of the 
stockholders.  
 
Furthermore, the shifting relationships among these agents (essentially 
managers) that result in decisions for the firm (as is documented by 
researchers in corporate governance) have the look and smell of what most 
people term politics, which after all is by definition the "process by 
which groups make decisions" (Wikipedia).  While politics in a firm setting 
may not be precisely the same as that governing sovereign states, it 
resembles it enough that the study of business governance primarily relies 
upon techniques borrowed from sociology, which is also the mother discipline 
of political science.  Hence, the idea of separating politics, in the sense 
of the process by which self-interested individual agents interact to make 
decisions, from businesses, which are run by such self-interested agents, 
is absurd.
 
So what does all this have to do with the future development of system 
dynamics?   In essence, it simply means that we can't rely on the self-evident 
usefulness of our models to guarantee their acceptance in the board room.  
Jay Forrester always said that his arguments worked well at DEC, not because 
he had SD models to back them, but rather because he was the only person 
present who could tell a coherent story for at least 20 minutes without 
logically tripping himself up.  So we have two choices as a field: (1) 
Accept the fact that SD-inspired policies have to compete in a political 
environment filled by actors with numerous cognitive limitations whose 
primary interests will differ somewhat from those of the firm that the SD 
model or policy were designed for; or (2) Wait for Jay Forrester's K-12 
program (or similar initiatives at higher levels of education) to create a 
large number of SD-literate managers.  Fortunately, there is no reason we 
can't pursue both avenues simultaneously.
 
Edward G. Anderson Jr., Ph.D.
Associate Professor of Operations Management - IC2 RGK Centennial Fellow
University of Texas McCombs School of Business 
Posted by  Edward Anderson {andersone} <Edward.Anderson at mccombs.utexas.edu>
posting date  Wed, 14 Feb 2007 15:51:00 -0600