Strategic Modelling and Business Dynamics: A Feedback Systems Approach

Chapter 8. Industry Dynamics – Oil Price and the Global Oil Producers

• Problem Articulation – Puzzling Dynamics of Oil Price

• Model Development Process

• A Closer Look at the Stakeholders and Their Investment Decision Making

• Connecting the Pieces – A Feedback Systems View

• A Simple Thought Experiment: Green Mindset and Global Recession

• Using the Model to Generate Scenarios

• Devising New Scenarios

• The Oil Producers' Microworld

Previous chapters have dealt with firm-level dynamics of cyclicality, growth, stagnation and decline. In this chapter, we turn our attention to the dynamics of an entire industry, global oil, comprising thousands of firms and billions of consumers around the world. At first glance, this shift of perspective may seem ambitious, requiring an immensely large model to capture the vast web of interactions among so many players. What is really required is a shift in the unit of analysis, away from the individual firm and its functions to major groupings in the industry. Industries, as a whole, exhibit interesting and puzzling dynamics. The modeller's task is to discover feedback loops that explain observed dynamics. As always, the conceptual challenge is to adopt an appropriate perspective from which to view the situation and interpret its dynamic complexity. In this case, the model arose from a team model-building project with planners at Royal Dutch/Shell (Morecroft & van der Heijden, 1992).^[] The team wanted to develop a simulation model of global oil markets. The project ...