REPLY Definition of exogenous (SD6946)

[SDMAIL John Morecroft]

Posted by  "John Morecroft" <jmorecroft at london.edu>

I enjoyed the exchange of ideas stemming from Jean-Jacques' question
about the definition of exogenous.  George (Richardson) provided
succinct definitions of exogenous and endogenous variables and also
referred to Jay Forrester's market growth paper, which prompted me to
the following additional thoughts:

Consider a much-simplified market growth model in which delivery delay
is treated as a constant - an exogenous influence on customer orders.
One is left with a single reinforcing loop (in which delivery delay
controls the loop gain) capable of explaining exponential growth or
decline in sales.

Now suppose that delivery delay is made endogenous (by adding loops for
capacity expansion and the effect of backlog on 'delivery delay
recognised by the customer'). A new concept called 'delivery delay
operating goal' now appears in the capacity expansion policy.  Imagine
this internal standard for delivery delay is exogenous. One now has a
more subtle multi-loop model capable of explaining fluctuating growth or
decline in sales.

Finally, consider that delivery delay operating goal is endogenised by
making it a function of the historical 'delivery delay recognised by the
firm' and a new exogenous variable called 'delivery delay management
goal'.  One now has Forrester's full multi-loop model capable of
explaining fluctuating growth in sales that transforms, surreptitiously
over time, into stagnation and terminal decline.

The point, as George says, is where (in modelling) to draw the line
"between thinking about things as externally caused or internally
caused, that is, thinking that problems come from 'fate' or they come
from feedback dynamics". The creative choice of where to draw the model
boundary depends on the dynamic phenomenon you are trying to explain.

I have always found the market growth model to be a tangible source of
inspiration for the philosophy of feedback systems. More information
about the model and its fascinating repertoire of dynamics can be found
in:

Forrester JW 1968. Market growth as influenced by capital investment,
Industrial Management Review 7(1), 5-17.

Morecroft JDW 2007. Chapter 7 of Strategic Modelling and Business
Dynamics, Wiley, Chichester.

Sterman JD 2000.  Chapter 15 of Business Dynamics: Systems Thinking and
Modeling for a Complex World, Irwin McGraw-Hill, Boston.               

_________________________________

John Morecroft | Senior Fellow
Management Science and Operations
London Business School
Posted by  "John Morecroft" <jmorecroft at london.edu>
posting date  Sun, 20 Apr 2008 13:03:01 +0100