slide 1 the future of systems dynamics and simulation 1st international business dynamics congress...

The Future of Systems Dynamics and Simulation

1st International Business Dynamics Congress

Sociedade Brasileira de Dinâmica de Sistemas(The Brazilian Chapter of the System Dynamics Society)

21 October 2006Brasília, Brazil

Justin Lyon, Simudyne and Dr. Dante Suarez, Simudyne and Trinity University

Contents

One slide introduction to Simudyne!

What is the future market for simulation?

Why is it hard to sell simulation?

How can we increase the adoption of simulation by organizations?

Can you tell me more about Simudyne?

What is Simudyne?

Simudyne is a global organization committed to pioneering 21st century management science and simulation technologies, based on the discovery and expression of deep insights into the dynamics of complex adaptive systems and transformational technology.

Working around the world in every sector of today’s rapidly evolving societies, owning members of Simudyne are pathfinders developing, disseminating, and implementing new concepts that improve revenues, reduce costs, better deploy capital, and improve expected outcomes for our clients.

By employing the system-wide perspective of our products in conjunction with our technology platform, clients seamlessly link the strategy of their organization with the work done by the individual.

Our mission: Create the opportunity for increased success, security and enlightenment for corporations, governments, and the world.

Contents



Why is it hard to market and sell simulation products and services?



Simulation Science – Fifty Years in the Making and Growing Fast

1998 - 20051950 - 1998

SD

ABM

DES

Convergence‘Tipping

Point’

ABM

DES

2006• Simulation Science ‘Tips’• Explosive Growth• Hybrid Modeling• Paradigm Shift• Billions €, £, $

2006• Simulation Science ‘Tips’• Explosive Growth• Hybrid Modeling• Paradigm Shift• Billions €, £, $

SD

Simulation Science Market Reaches $20 Billion by 2010

15% growth projected by top industry analysts

Tipping point for Simulation Science occurs 2006 – 2007

Market Size

$-

$2,000,000,000.00

$4,000,000,000.00

$6,000,000,000.00

$8,000,000,000.00

$10,000,000,000.00

$12,000,000,000.00

$14,000,000,000.00

$16,000,000,000.00

$18,000,000,000.00

$20,000,000,000.00

2006 2007 2008 2009 2010

Software

ServicesMore than 50% of Gartner Group's clients using simulation & optimization

Market Trends Drive Adoption of Simulation Science by Global 2000

Simulation diffuses from natural sciences into social sciences

Less tolerance from Wall Street and the City for mistakes

Data-driven decision making with measurable ROI

Technology innovations

No strategy, only strategic execution

Press – Fortune, Forbes, Marketing, Strategy + Business

Simulation Science Growth - One Year

Ignite Scenario

£0.00

£5,000,000.00

£10,000,000.00

£15,000,000.00

£20,000,000.00

£25,000,000.00

2005 2006

Failure

Pessimistic

Likely

Optimistic

Graph shows the sub-market of SD + ABM

System Dynamics Growth: Two Years

Three Year Scenarios

£0

£25,000,000

£50,000,000

£75,000,000

£100,000,000

2005 2006 2007

Failure without H

Pessimistic without H

Pessimistic with H

Likely with H

Optimistic with H


System Dynamics Growth - Five Years

Five Year Scenarios

£0.00

£100,000,000.00

£200,000,000.00

£300,000,000.00

£400,000,000.00

£500,000,000.00

£600,000,000.00

£700,000,000.00

£800,000,000.00

£900,000,000.00

£1,000,000,000.00

2005 2006 2007 2008 2009 2010

Failure

Pessimistic

Likely

Optimistic


System Dynamics Collapse - Five Years

Failure Scenario

£0

£1,000,000

£2,000,000

£3,000,000

£4,000,000

£5,000,000

£6,000,000

£7,000,000

£8,000,000

2005 2006 2007 2008 2009 2010

Failure

Graph shows the sub-market of SD

Contents


What is the market for simulation?





Conflicting jargon of simulation experts is confusing

Economics and the myth of rational humans

Scientific ego and the arrogance of simulation experts

Ignorance is bliss

Making something easy and vital unnecessarily hard

All of these combine to create formidable barriers to adoption by the Global 2000, not to mention the rest of the world's corporations, governments and non-governmental organizations

Conflicting Jargon --> Non-linear Science = Complexity Science = Simulation Science = Good Business

Non-linear Science: Zoology is the science that mostly studies non-elephant species.

Agents are interrelated.

Solutions to the system are complex:

the algorithm is the shortest solution.

Emergence:

The whole can be greater (or lesser) than the sum of its parts.

Simulation Science(Non-Elephants)

Linear Science(Elephants)

Linear and Non-linear Science areComplementary and Used Together

Most economic science is based on linear models.

Linearity is based on independence of agents.

Under an assumption of linearity:The whole equals the sum of its parts.

Linearity works well with some systems

Nonlinear models quickly become intractable without computers.

Simulation Science: Enrico Fermi and the computer experiment.

Problems in the world amenable to simulation

Problems in the world amenable to linear-only approaches

Economics and its Realm of Action is Ready for an Update to 21st Scientific Principles

The Utility function represents the individual, and it is set to reflect her preferences. Economics embraces a paradigm based on the individual: an exogenous entity.

Key assumptions: markets exist for all possible goods, markets are perfectly competitive, and transaction costs are negligible.

Pareto Optimality: The optimum you get to where there is no way of making anyone happier without hurting someone else.

Economics is in dire need of a fundamental overhaul to bring it into alignment with 21st Century real world science!

Traditional approaches to modeling social systems in economics and other social sciences are based on patently false and overly simplistic models of reality as a historical result of their development during the age of limited computing capabilities. But, this is the 21st century, we can do better now!

Individual vs. Group Selection

History matters and individuals are not independent

The ‘Reductionism Nightmare’

Genes (Agents) do not make sense by themselves.Your children need a decent ‘pool of genes’ for them to preserve the

species.

Individuals (Agents) cannot survive by themselves.

Optimal species’ scales of environment exploitation.Many small and malleable individuals in species vs. large organized

wholes.

“I don’t really expect to convert them. The only option is to outlive them.”

- Jay Forrester

Arrogantly, we have tried to force managers to learn radically new thinking – and they resist it!

Overall SalesForceRate build sales

force

Attractiveness toinvest

+

Total ValueCreation

Shortfall in salesforce

Total sales forcerequired

+

-

Prioritised salesforce resources

+-

Available product salesforce resources

Product sales forceresource

Refine productstrategy

Shortfall

+

+

-+

+

Potential productvalue creation

Market drivers -

+

+ +

Balancing Loop

+

Almost no executives are interested in looking at these diagrams; even fewer want to learn how to understand them

This is a little better, but it still goes over the heads of 90% of business people.

Contents


What is the market for simulation?




We must improve our sales and marketing and integrate SD, DES and ABM

Simulation Science is facing a sales and marketing challeng It goes to the very heart of what many people hold dear It challenges individuals most cherished beliefs It makes it really hard to sell Perfume the pig!!

Create an integrated model that combines SD, ABM and DES into one hybrid solution We'll discuss highlights of the proposed model

Process for Educating the Global 2000 about System Dynamics and Simulation

Adaptation of Dr. Kim Warren and Lars Finskud’s work on the Customer Conviction Chain.

An approach lauded as “one of the top 10 marketing theories” in Marketing magazine in October 2005

“Inspiration for the next Coca-Cola or Unilever marketing campaign might come from a computer game that looks an awful lot like The Sims.” in Forbes, November 2005

Declare

1Contact Brand Directors at XXXX.

SIMUDYNE conducts research on the use of simulation for FMCG!

Next ObjectiveGet meeting with appropriate top executives – CFO, CTO, CIO, CEO

Meetings with Brand, Consumer Marketing and Finance

Convert

4

Develop proposal& close deal

£500,000

Meet face to face with XXXX and

convince them on System Dynamics

Convince

3

Confidentiality agreement signed

S + P + I

Educate XXXX for 15 minutes and secure next meeting

Educate

2

Telephone meeting with XXXX at XXXXX

As Always – The Community Must Focus on the Flows that Drive Accumulation of Apostles

Connect

Deliver great work

5

Simulation Science is a Great Tool for Harnessing Complexity to Achieve Results

Simulation Science is the study of how elaborate patterns and behaviors over time can: Emerge from very simple rules (policies, algorithms).Emerge from very simple structures (architectures).

Dynamics stem from the interactions of the agents over time, not necessarily the agents themselves.The neurons in the brain.The anthill as the organism.The humans in the corporation.

System Dynamics and Agent Based Modelling are great tools for harnessing complexity to achieve desired outcomes when managing and manipulating complex adaptive systems

Agents Accumulate into a ‘Level’: Bounded Agents Accumulate into a ‘Level’: Bounded and Binding. It is a ‘Stock’. A ‘Bathtub’. and Binding. It is a ‘Stock’. A ‘Bathtub’.

There are people in our System Dynamics simulations!!

The Basics of the Proposed Model Combines Agent Based Modelling with System Dynamics

Endogenous utility functions.Endogenous utility functions.

The agent is not clearly defined. The agent is not clearly defined. It possesses coordinated subcomponents.It possesses coordinated subcomponents.It is fuzzy.It is fuzzy.

What do we mean by Fuzzy Agents?

Hispanics in USA

Latina Americans share culture among themselves

NAFTA Joins Canada, USA and Mexico

The USA and Europe share historic alliance, but may struggle for world leadership

The European Union creates a more cohesive agglomerate

Resulting behavior over timeResulting behavior over timeAimsAims

Resulting Resulting forceforce

Intertemporal Intertemporal aimsaims

t1 t4t2 t5t3

A. The static decomposition of desireA. The static decomposition of desire B. The intertemporal decomposition of utilityB. The intertemporal decomposition of utility

Patterns of Behavior are the Results of Accumulation and Depletion over Time

Back in to Utility

Individuals are only one of the many levels where utility Individuals are only one of the many levels where utility maximization is happening.maximization is happening.

In lower levels, individuals are a composition of inter-temporal utility In lower levels, individuals are a composition of inter-temporal utility maximizations.maximizations.

To form higher levels, sets of individuals may decide to join and To form higher levels, sets of individuals may decide to join and form groups that maximize their joint utility.form groups that maximize their joint utility.

These sets of individuals, or of other subsets, have the incentive to These sets of individuals, or of other subsets, have the incentive to become cohesive and coordinated.become cohesive and coordinated.

Upper levels’ Upper levels’ realms of actionrealms of action

Individual’s Individual’s UtilityUtility

CollectiveCollective ForceForce

BehaviorBehavior

UUss

CountryFamily

Self

Instinct

UUff

UUii

UUcc

By Only Focusing on the Us People Ignorant of Simulation Science are Driving Us to Extinction

UUss

Realm of Action for the ‘Utility of Self’ function

Our utility functions are constrained by the ‘levels’ to which we belong.

UUff

UUcc

Country

Family

Answering “Whose Utility Am I Maximizing” Requires Moving Beyond the Individual

I maximize the utility of the one I am today.I maximize the utility of the one I am today.

I maximize the utility of all my “I’s”.I maximize the utility of all my “I’s”.

I maximize the utility of my family, of my group, of my country, I maximize the utility of my family, of my group, of my country, of my species.of my species.

The lines of who are my own, who is not, and who are my The lines of who are my own, who is not, and who are my enemies are not drawn, but are in constant change.enemies are not drawn, but are in constant change.

We must recognize the self interest of groups.We must recognize the self interest of groups.

Relative objects and subjects.Relative objects and subjects.

The World is Divided into Nested Levels of Agents

The agent in a social system simulation:The agent in a social system simulation:Represents strategic or non-strategic decision making;Represents strategic or non-strategic decision making;Is constrained by the upper level to which it belongs.Is constrained by the upper level to which it belongs.Created by the evolution of adaptability and responsiveness; Created by the evolution of adaptability and responsiveness; Confines the subcomponents that belong to it.Confines the subcomponents that belong to it.

The upper levels may be created by a conscious decision The upper levels may be created by a conscious decision OROR by a blind, algorithmic evolutionary force.by a blind, algorithmic evolutionary force.

Upper levels can represent coordination, identification with Upper levels can represent coordination, identification with others, institutions, implicit laws, religion, a credit bureau.others, institutions, implicit laws, religion, a credit bureau.

The lower levels seemingly disappear as the subcomponents The lower levels seemingly disappear as the subcomponents become more coordinated (like cells in a body).become more coordinated (like cells in a body).

Optimality in a Hierarchically Decomposed World

To describe reality . . . To describe reality . . . Create a benchmark position where all behavior is optimal, so Create a benchmark position where all behavior is optimal, so

long as we identify the true active agent.long as we identify the true active agent.

Suboptimal behavior is thus a product of too much:Suboptimal behavior is thus a product of too much:‘‘zoom in’ or zoom in’ or ‘‘zoom out’. zoom out’.

Can we find an upper level in which the subparts are better off Can we find an upper level in which the subparts are better off without destroying the upper level?without destroying the upper level?

Institutions represent a better exploitation of the environment.Institutions represent a better exploitation of the environment.

Markets to exchange behavior. Markets to exchange behavior.

Determinants of Behavior are Key Questions for the Future of Simulation Science

How can we simulate “fuzzy” agents?How can we simulate “fuzzy” agents?

How can we reproduce the appearance of agency in a simulation?How can we reproduce the appearance of agency in a simulation?

Why & how does evolution grant agency?Why & how does evolution grant agency?

How do we define agency? How do we define agency?

How do we define consciousness? How do we define consciousness?

Selfishness vs. Altruism.Selfishness vs. Altruism.

Contents






What are Simudyne's resources?

More than 300 people available for project staffing

Annual group revenues of more than $8MM USD

Software such as AnyLogic available for purchase by DIY teams

Advanced technologies suitable for licensing by the Global 1000

We've worked with . . .

Some of our results . . .

Lowered supply chain costs by $200 million a year

$100 million cost reduction

Lowered costs by $200 million over ten-year period

Increased delivery capacity by over 25%

ROI more than $20 million

6500 employees trained

Simulation used at 32 military bases in the United Kingdom

More than 500 managers trained over several years

Simulation in continuous use for more than 20 years

Reduced the average forecasting error by 38%

We have six product lines that range from mass-market products to CXO-level and mid-management IT and consulting services. Our premier service is our simulation service platform.

Workshops• Twenty-first century leadership• Globalization and your business • Improved decision support• New solutions to supply chain problems • Million-dollar insights through data mining• Improving your demand forecasting accuracy • Dynamic branding • Decision support through simulation

AnyLogic Training

Strategy for improved performance engagementsFast-track engagements

SimDev Stage 1 SimDev Stage 2 version 1SimDev Stage 2 version 2

We license our advanced technologies to Global 1000 firms with whom we partner

AnyLogic Simulation Software

Vision

To be the largest and most well-known simulation service provider in the world. Our intent is to be as pervasive as Visa is in the financial services industry. We are the key partner and system provider that every corporation and government has in its arsenal to make decisions and optimize success.

We do this by providing consultative services in creating simulations hosted in an encrypted internet-based environment that permeates all levels of an organization to virtually and collaboratively assess strategy, process and resource decisions.

We will radically change, improve and simplify the way in which strategy, process and resource decisions are made. Our clients literally see the future before it happens.

Thank You!

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Documents

simulation products

simulation technologies

adoption of simulation

members of simudyne

future market

sdsimulation science

future of systems dynamics

system dynamics society