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Key Words: systems dynamics, transitional economy, multicriteria decision making
Abstract
Eastern European countries are undergoing a transition from centralized economic planning to more open economic systems. A team of Bulgarian and U.S. researchers have collaborated to study this problem, using a real Bulgarian winery as the focus of their research. System dynamics modeling was selected as a tool to provide better understanding of management issues, a framework for future objective research, and as a pedagogical tool.
This system dynamics model generates output on a number of measures. This paper presents initial output from the model, reporting profitability, risk, and market share measures. These multiple measures create the need for multiple criteria analysis. Three multiple criteria techniques are demonstrated, and their value in the system dynamics simulation modeling process is discussed.
Transition Economies
The breakup of the communist bloc around 1989 has led to radical disruption in the economic systems of a number of Eastern European countries (Dryzek and Holmes, 2002). In Bulgaria, after initial destructive reaction to the new system, followed by financial difficulties, there has been a slow recovery of economic institutions. Managing business operations during this chaotic period has been very demanding.
This paper presents the use of subjective system dynamics modeling of a Bulgarian winery, with the intent of providing a tool allowing Bulgarian management to simulate the expected impact of various business decisions, such as product promotion, pricing, capital replenishment and labor force development on business operations. The model allows consideration of a variety of criteria, to include expected profit, market share, perceptions of product quality, and risk of various levels of cash flow.
System Dynamics
System dynamics was developed by Jay Forrester (1961; 1971 and others). It has its roots in general systems theory (von Bertalanffy, 1968) and the work on cybernetic systems of Staffer Beer (1967) and others. Open systems theory views organizations relative to their environments, with a continuous flow of information between the organization and the environment. System dynamics models can reflect interaction between dynamic markets, uncertain production systems, and cash flow features of operating businesses. Cybernetic systems are complex, probabilistic, and purposive, with feedback and control. This feedback and control is a characteristic of system dynamic simulation models. More recent books in system dynamics include...