Systems Concepts for Executives

By Clark, Rolf | Strategic Forum, August 1998 | Go to article overview

Systems Concepts for Executives


Clark, Rolf, Strategic Forum


Conclusions

Transforming Defense: National Security in the 21st Century, the December 1997 final report of the National Defense Panel, discusses a "strategy of transformation" and emphasizes systemic change in procurement plans. It refers to "lock-ins" for equipment purchases, "short technological life cycles," and "changing the defense structure." Several conclusions may be drawn from the report.

* The Information Age changes the dynamics of systems. Networks, flexible manufacturing, just-in-time inventories, and "increasing returns" all influence the way systems will respond.

* Systems concepts that are relevant to defense policy and planning include: accelerators, lagged feedback, transient states, stocks and flows, and discontinuous change.

* The dynamics between reducing inventories and the resulting effects on production are not proportional--reductions are more severe in the production sector than in inventory.

* Education in the dynamics of systems is needed within the Department of Defense to accommodate strategic planning for procurement.

Information Age Aspects

Rapid communications and networking characterize the Information Age. Combined, they allow flexibility--in manufacturing, logistics, and information processing itself. Resources are diverted to computers and car phones and video systems. Consumption interests have shifted somewhat, from travel and movies to computer games and net surfing. National security leans less on material and manpower delivery and more on information control and precision targeting.

Flexibility in logistics and production affects the dynamics of defense systems. To understand how, we need to explore the dynamics of systems in change.

Production Swings More than Force Levels

Consider the dynamics that occur when a defense system changes--when it is in a transient state. If each aircraft in a fleet of 100 has an average life expectancy of 10 years, then 10 aircraft--one tenth of the fleet--must be replaced each year to maintain a steady state fleet of 100 aircraft.

To reduce the fleet by 20 percent in 5 years means buying 20 fewer aircraft during that time, or 4 fewer each year. Instead of buying 10 per year, we buy 6 during the transition period. When the fleet reaches 80 aircraft after 5 years, we increase the annual buy to 8 to remain at the new steady state of 80.

Aircraft stock assets dropped by 4 percent per year for 5 years, leading to a 20 percent reduction over the 5-year transition period, while the procurement of new aircraft abruptly fell 40 percent, from 10 to 6. Then, 5 years later, procurement suddenly increased by 33 percent, from 6 to 8. Although this captures the primary "first order" effects, the actual dynamics will not be quite so crisp because attrition, delivery adjustments, and renovations will smooth the transition somewhat.

The flow of procurement--which essentially means production jobs--experiences severe dynamics compared to changes in the stock of assets. A "systems" distinction between stocks and flows emerges. Stocks are accumulations. Flows change the stocks. To alter a stock, the flow must change rather dramatically. Stocks and flows are essential to understanding the dynamics of system change. As a real world example, while military aircraft stock levels fell by 26 percent from 1991 to 1995, orders for aircraft engines fell by 48 percent--almost twice as much.

This demonstrates the accelerator, a crucial system principle. Changes to stocks lead to accelerated changes in flows. Assets change gradually while production swings widely. When force levels are reduced, production jobs fall severely, and then rebound somewhat once a new steady state is reached. Executives testifying to Congress will want to communicate that job sensitivity when discussing defense changes.

The Longer the Asset Life, the More Severe the Dynamics

Suppose the 100-aircraft fleet had been made up of units lasting 20 years each instead of 10. …

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