CHAPTER 2

LITERATURE REVIEW

2.1

Introduction

This chapter will describe the knowledge acquired from literature reviews to the scope of
research. These reviews includes what is human resource, human resource management,
human resource functions and advantages, the concepts of system dynamics, model, systems
thinking and finally the comparison of the web-based simulation as well as the related work
for the research.

2.2

Human Resource

2.2.1

Human Resource Definition

Long-term Human Resource (HR) planning is a strategic and very important part in a process
of preparation and realization of such a complex organizational system also for the sake of
cost reduction. Many organizations describe HR as the combination of traditionally
administrative personnel functions with performance management, employee relations and
resource planning. HR has at least two meanings depending on context. The more common
practice within corporations and businesses refers to the individuals within the firm and some
organization that deals with hiring, firing, training and other personnel issues. The main
objective of HR is to maximize the return of investment from organizations human capital
and minimize financial risk. HR manager is the responsible person to conduct these activities
in an effective, legal, fair and consistent manner.

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In economics, HR in the beginning was known as 'human capital. From wikipedia, human
capital refers to the stock of productive skills and technical knowledge embodied in labor.
Then it was later realized that humans are capitals which can be run through a particular time
in fact they are social beings and things change day to day for them. The socialist parties
have played a role of working the human rights. They explained that humans themselves are
not assets for a company but the work they produce are the asset for them. And that they
should be treated on the basis of their potentials and hard work. This act of their started the
hiring and firing in a better manner. This argument of 'human capital' and 'HR' began until
the United Nations recognized the same and supported the developing countries for this view.

Today's organizations are continuously changing. Organizational change impacts not only the
business but also its employees. In order to maximize organizational effectiveness, human
potential individuals' capabilities, time, and talents must be managed. Human resource
management works to ensure that employees are able to meet the organization's goals. In an
organisation with high HR value, employees are considered to be a source of competitive
advantage and this will be reflected in the organisations strategy, mission statement and
operating practices. Valuing human resources will enable the organisation to take advantage
of the benefits of diversity brought by internationalization (Welbourne and Cieri, 2001).

2.2.2

Human Resource Management

What is Human Resource Management (HRM)? And why HRM is important in human
resource field? HRM is a demanding and on going process. HRM is responsible for how
people are treated in organizations. It is responsible for bringing people into the organization,

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helping them perform their work, compensating them for their labors, and solving problems
that arise (Cherrington, 1995). There are several roles that can be played by HRM. First,
HRM should help the organization articulate the purpose of the knowledge management
system. For example, organizations embrace technologies to solve problems before theyve
even identified the problem they are trying to solve. Then, once they realize the error, they
find it difficult to discard the original solution and difficult to gather the resources needed to
invest in a solution to the real problem. Second, HRM must ensure alignment among an
organizations mission, statement of moral principles and policies. Furthermore, HRM must
nourish a culture that embraces getting the right information to the right people at the right
time. Third, HRM should create the ultimate employee experience by transforming tacit
knowledge into explicit knowledge, build employee skills, competencies and creating bench
strength. Fourth, HRM can assimilate effective knowledge sharing and usage into every day
life. It has the capabilities for creating, measuring and reinforcing a knowledge-sharing
expectation. Fifth, HRM must controls and allow behaviors that in the clockwork world of
industrial efficiency, never would have been tolerated. Organizations should selectively
recognize and reward, rather than universally discourage and penalize these bad types of
behaviors. Sixth, HRM must take a strategic approach to helping firms manage everything
regarding the uses of technology. So that the technology will be fully utilize for the right
purposes by the employees. Certainly, some control is needed but the larger question for
HRM is determining appropriate boundaries. Lastly, HRM must champion the low-tech
solutions to knowledge management. Although it should not ignore the high-tech knowledge
management tools, HRM contains the expertise to develop low-tech knowledge management
strategies. However, HRM system is a solution to business problems that including positive

14

and negative complementarities rather than individual HRM practices in isolation (Becker
and Huselid, 2006). Moreover, through all facets of HRM functions, how can the motivation,
commitment and other organisational relevant favourable attributes of employees are ensured
in the interests of optimal organisational performance? Such driving forces were important in
helping transform personnel management into HRM, and more recently, HRM into
strategic human resource management (SHRM), providing recognition that the effective
management of human resources is a strategic function (Brewster, 1994), not a service or
support activity in organisations (Stening, 2006).

Encyclopedia of Business and Finance has stated that HRM has seven key
functionalities. The seven management functions are staffing, performance
appraisals, compensation and benefits, training and development, employee and
labor relations, safety and health, and human resource research.

Nowadays, the HRM profession is developed enough for competent, experienced HR

professionals to be out there, offering their services externally (Eleanna & Nancy, 2007) but
the obstacles to effective HRM needs to be overcome to better identify the future approach to
and effect of HR practice on the management of organizations. The over all success of HR
practitioners and the profession will therefore only be enhanced, if there is a willingness to
manage the HR function in a visionary manner and if there is earned recognition forthcoming
in future of their contribution by organisations top level leadership cadre ( IFSAM, 2006).
To overcome the problems in human resource management, a good human resource planning
system need to be developed.

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2.2.3

Advantages of Human Resource

HR is an essential part of any organization, doesnt matter either the organization is big or
small. Great pressure is laid on implementing an effective HR system in an organization.
Driving HR efficiently can contribute more value to the business (Bruce et al., 2006).
Efficient HR can make overall costs for HR reduce, improve efficiency of HR
administration, reduce manual processing, improve consistency and compliance, make fixed
costs variable and reduce capital investments in HR.
There are many advantages that HR provides in an organization some of them include:
i.

One of the advantages of HR in an organization is the assistance it provides

in recruiting staff and in training employee. The HR department is mostly
responsible to develop the systematic plan according to which they hire the
staff, depending on the financial of the organization and helping
organization to build a professional work team.

ii.

HR system implements series of strategies in employment appointing which

includes allocated training sessions for employee develop test plans for
employee, to manage and analyze employee interviews and to create
internship opportunities.

iii.

HR provides consultancy. HR is a medium which provide all the consulting

that an employee needs and also

answer general queries. HR is very

effective in an organization to settle down any managerial disagreement or

employee problem in a professional and proficient manner.

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iv.

On more advantage of HR is that these departments actively participate in

business and marketing decision. The HR system comprises of highly
dedicated professionals who have the ability to develop new plan and
implement marketing strategies that would bring more business and capital
to the organization.

v.

HR also deals with the long-term management of the business. This

department evaluates the future scope of the business and devises strategies
which would be profitable to the organization in the longer run and bring in
stability to the business and provide it an established medium to stand on in
the future.

vi.

HR helps the business and commerce to make public relations and built a
proper referral system. It is very necessary that the business develops an
association with other businesses in the market so it could propel its earning
through collaboration with other business sectors. The HR department
arranges seminars, business meetings and official gathering for the company
so that it gets acquainted with the market and other businesses.

These advantages therefore clearly illustrate how important the HR is for an organization.
Whether the business is small or it's a big budget industry, building and maintaining a high
profile HR system is very necessary if the business wants to avoid disputes and problems in
the longer run. The HR can be deployed in a small organization at a low scale by hiring
minimal staff and growing it gradually as the business progress. While all this is easily
possible in a small business organization, it is very difficult to accomplish in big businesses.

17

The reason behind this is that big companies have very little direct contact between their top
management executives and their regular employees. This is where the HR department
comes into play. The HR department of a business not only helps to maintain the most
important asset of the company but it also helps in protecting employees rights as well.

2.2.4

Human Resource Planning

Human resource planning (HRP) is the term used to describe how companies ensure that
their staffs are the right staff to do the jobs. Several definitions have been given by different
writers what planning is all about. HRP links people management to the organization's
mission, vision, goals and objectives, as well as its strategic plan and budgetary resources. A
key goal of HRP is to get the right number of people with the right skills, experience and
competencies in the right jobs at the right time and at the right cost. Vetter (1967) has
defined HRP as the process by which management determines how the organization should
move from its current manpower position to its desired position. Via planning, management
struggles to have the right number and the right kinds of people, at the right places, at the
right time, doing things right and give benefit to both the individual and the organization. All
the definition of HRP was explaining and stress out about people.

The function of Human resource planning are to assists organizations to recruit, maintain,
and optimize the deployment of the personnel needed to meet business objectives and
respond to changes in the external environment. The process involves carrying out a skills
analysis of the existing workforce, carrying out manpower forecasting, and taking action to
ensure that supply meets demand. This may include the development of training and
retraining strategies. Human resource planning has traditionally been used by organizations

18

to ensure that the right person is in the right job at the right time. Generally, HRP involves
gathering of information, making objectives and making decisions to enable the organization
achieve its objectives.

HRP give a lot of benefits to organizations. HRP makes the organization move and succeed
by assisting the organization to manage its staff strategically. Poor HRP and lack of it in the
organization may result in huge costs and financial looses. It may result in staff posts taking
long to be filled. This will increase costs and reflect the effectiveness of work performance
because employees are requested to work unnecessary overtime and may not put more effort
due to exhaustion.

Planning for HR consists of planning for staff retention, planning for candidate search,
training and skills analysis and much more. HR planning is a relatively traditional discipline
(Amarendra Bhushan, 2005) but the world of business is changing rapidly and new tools are
necessary if people in HR are to meet these new challenges. Amarendra has suggested that
people might consider adding HR planning tools to their HR toolkit. HR planning plays a
very important role in the achievement of an organisations overall strategic objectives and
visibly illustrates that the human resources fully understands and supports the direction in
which the organisation is moving. HR planning will also support other specific strategic
objectives undertaken by the marketing, financial, operational and other departments in the
organisation.

The parallel growth in both the research literature and interest among practicing managers is
a notable departure from the more common experience, where managers are either unaware
or simply uninterested in scholarly developments in HR field. As the field of HR planning or

19

strategy begins to mature, Becker and Huselid believe that it is time to take stock of where it
stands as both a field of inquiry and management practice (Becker and Huselid, 2006).

In essence, an HR planning should aim to capture the people element of what an organisation
is hoping to achieve and ensuring that the organisation has the right people in place, the right
mix of skills, employees have the right attitudes and behaviors and employees are developed
in the right way. The HR planning will need to show that careful plan of the people issues
will make it substantially easier for the organisation to achieve its wider strategic and
operational goals. The human resources practitioner should ensure that the HR planning is
integrated with broader organisational objectives. To achieve the objectives, HR practitioners
should ensure that the rest of the organisation accepts the plan.

There is no single approach to developing a Human Resources Planning. The specific

approach will vary from one organisation to another. An excellent approach towards an HR
Strategic Management System is evident in the model presented in figure below. This
approach identifies six specific steps in developing an HR Plan:-

i.

Setting the strategic direction

ii.

Designing the Human Resource Management System

iii.

Planning the total workforce

iv.

Generating the required human resources

v.

Investing in human resource development and performance

vi.

Assessing and sustaining organisational competence and performance

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The six broad interconnected components of this system consist of three planning steps and
three execution steps. The top three components represent the need for planning.
Organizations must determine their strategic direction and the outcomes they seek. This is
usually accomplished with some form of strategic planning. However, the scope or boundary
of this research study only focused on planning the total workforce for researcher based on
number of project approved in the organisation and that was lead to determine the quality and
quantity of human resources the organizations needs for its total force. Once strategic
planning is under way, a process must be undertaken by the organization to design and align
its HRM policies and practices to provide for organizational success.

Strategic Direction

HRM System

Planning the Total Workforce

The strategic direction &

outcomes that the
organisation seeks to

Shaping HRM
for organisation
success

Deciding the numbers and

competence of personnel the
organisation requires

Assessing & Sustaining

Organisational Competence &
Performance
Measuring the organisations
progress towards its desired
outcomes and adjusting the system

Generating Required Human Resources

Attracting, accessing and initially assigning the
people needed in the organisations total
workforce

Investing in Human Resource Development & Performance

Developing & reinforcing competence and performance in individual groups and teams in the
organisations total workforce

Figure 2.1
A Strategic Human Resource Management System for the 21st Century. Naval Personnel
Task Force, September 2000

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2.3 System Dynamics

What is System Dynamics (SD) and why researcher decided to apply system dynamics
approach in her research? The main reasons why researcher has been applying System
Dynamics approach because it is a powerful methodology and computer simulation modeling
technique for structuring, understanding, and discussing complex issues and problems
(Robert A. Taylor, 2008). SD is a methodology also developed for studying, managing
complex feedback systems, analysis, problem solving, and simulation development. The
concept had been formulated and developed by Professor Jay W. Forrester in the early 1950s
at the Massachusetts Institute of Technology (MIT) as a tool for managers to analyze
complex problems. In 1956, Forrester accepted professorship in the newly-formed MIT
School of Management. Forrester initial goal was to determine how his background in
science and engineering could help the university in some useful way, on the core issues that
determine the success or failure of corporations. Forrester is near into the common
foundations that trigger engineering and management, which led to the creation of system
dynamics.

In some country, SD has been used for modeling purposes in various aspects such as
modeling of complex business models in a strong competition environment, modeling of
physiological processes for simulating the effects of different drugs administration patterns to
patients, health systems modeling in particular for planning telemedicine and hospital
services, modeling of regional economies, modeling of ecological systems and etc.

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In SD, the word dynamic means continuous change and that is what dynamic systems do.
The systems continuously change over time. It uses computer simulation to take the
knowledge that already have about details in the world around to show why our social and
physical systems behave the way they do. SD demonstrates how most of people own
decision-making policies are the cause of the problems that they usually blame on others, and
how to identify policies they can follow to improve any situation (Jay Forrester, 2005). The
position or state of the systems is not the same today as it was yesterday and tomorrow it
would have changed yet again. A SD simulation allows modeller to see the events and
patterns of behaviour over time. SD simulations are good at communicating not just what
might happen, but also why. This is because system dynamics simulations are designed to
correspond to what is, or might be happening, in the real world.

System Dynamics is a unifying approach for the ample analysis of complex organizations.
SD is based and more on the computer mathematical modelling of organizations and on the
consequential study of the behaviour over time through simulation runs. A simulation run is
the dynamic study of the computer model for a given set of mathematical equations defining
the problem or the business process. SD is a universal method to study complex systems and
it is universal because it uses the comprehensive discipline of Systems Thinking. A Systems
Thinking is the ability to understand the interconnectedness of our social systems as defined
by human decisions. In a more generalized way, Systems Thinking is the ability to see things
or systems as wholes rather than made up of different individual parts. One of the practises of
Systems Thinking is The Learning Organization. The Learning Organization is where
learning is practised in order to enhance human capacity. It is used to create and where

23

learning is appreciated as an essential need of being human. The practice of the discipline of
Systems Thinking is invaluable for learning the complex behaviour of social dynamic
systems. However, Systems Thinking by itself cannot overcome cognitive limitations to keep
track of the looping behaviour of the huge amount of events and variables making up the
systems. And this is why Jay Forrester developed the field of System Dynamics (Jay
Forrester, 1956). SD is the only answer in the search for a unifying and systemic framework
to restructure our compartmentalized educational systems (Mario deSantis, 1999). SD is very
similar to Systems Thinking and creates the same causal loop diagrams of systems with
feedback. However, SD typically goes further and utilises simulation to study the behaviour
of systems and the impact of alternative policies.

2.3.1

What is a System Dynamics?

System Dynamics is a methodology for the construction of simulation models of dynamic

systems and it is also a field for understanding how things change through time. The central
concept to SD understands how all the objects in a system between them. Objects and people
in a system interact through "feedback" loops, where a change in one variable affects other
variables over time, which in turn affects the original variable. What SD attempts to do is
understand the basic structure of a system, and thus understand the behavior it can produce.

These systems and problems are analysed by building a simulation model on a computer. To
develop a model, there are so much available software in the market such as Stella, Vensim,
Dynamo, iThink and so forth. In these studies, researcher has been decided to use Powersim
Studio for development of the model. SD takes advantage of the fact that a computer model

24

can be of much greater complexity and carry out more simultaneous calculations than can the
mental model of the human mind. Computer simulation models are used to achieve better
understanding of system behavior over time. With a better comprehension of systems, one
can redesign structure or policies to improve the behavior (Road Maps: A Guide to Learning
System Dynamics, 2003).

The behavior of a system often arises out of the structure of the system itself, and behavior
usually changes over time. Sometimes the simulation looks backward, to historical results. At
other times it looks forward into the future, to predict possible future results. Understanding
patterns of behavior, instead of focusing on day-to-day events, can offer a radical change in
perspective. It shows how a system's own structure is the cause of its successes and failures.
This structure is represented by a series of causally linked relationships. The implication is
that decisions made within an organization have consequences, some of which are intentional
and some are not. Some of these consequences will be seen immediately while others might
not be seen for several years.

Kim Warren ( 2003) states that a strategic challenge faced by managers is how to tackle
dynamic problems of performance, whether stated in terms of financial or other objectives,
for example market potential, growth rate, limit to growth, revenue etc. In general, they are
faced with three basic dynamic challenges:
i.

Why has performance followed the time path it has.

ii.

Where is performance heading into in the future under current policy decision.

iii.

How can we act to alter the future for the better.

25

There are fundamental structures at work within a business situation that determine how
performances evolve overtime. These structures can be understood and captured by formal
analysis. For most company, the trajectory of future performance is highly dependent upon
their recent strategic history. To understand resource changes properly, they must be defined
and measured. Rate of gain and loss are the critical drivers of future source level that must be
identified and understood to determine their influence. Resources are developed from
potential resources in the outside pool. Resources are plentiful at initial stage of a firm
development but drains as it becomes exploited thus reducing the growth in the captured
resources.

Growth of resources is also limited by the availability of other resources required or by its
own potential. Attempts to push the business beyond its limit will trigger a balancing
feedback that will hold back the firms growth. Delays in time to notice or react to changes in
the business environment will cause the performance to oscillate from over-stretched to
under-loaded. As a result, the true state of the firm is difficult to interpret thus hampering the
management decision making.

The rate of growth and retention of each resource depends on the existing level of other
resources (customer-acquisition rates depend on current quantities of sales staff, product
range and reputation, for example). The performance outcomes that derive from current
resource-levels (earnings derive from revenues minus costs, revenues reflect customer
numbers, and costs reflect quantities of staff and production capacity, for example). To

26

account for competitive effects, the model must recognize that any particular firm can win
resource not only from potential sources, but also from rivals. Competitive performance thus
depends on the firms success at persuading customers, skilled staff and other contestable
resources to switch to the firm and remain with it into the future. These relationships are
extended to reflect important attributes of resources, such as customer-size, staff-skills and
product functionality.

2.3.2

Why System Dynamics approach and its benefits

System dynamics models are not deliberate to predict future values or get exactly the past
system data. There are no predictions or confidence intervals in system dynamics. There is
general confusion over System Dynamics models because they are not stochastic in nature.
System dynamics offers a unique way of capturing experts opinions. Basically development
of the model followed a four-step process of conceptualization, formulation, testing and
implementation (John J. Dubelko, 2002). These processes called SD methodology and will
be explained more detail in the next chapter. In developing such structural models, Newman
and his team have founded that a SD approach is useful, since rarely is a result due to a single
action. Even in simple cases, results depend on a multitude of policy actions each with its
own dynamic path that affect outcomes within that system. Modelling tools developed within
the SD approach can be useful in developing the underlying structural models linking policy
actions to results (Newman et al., 2003). The terms model stands for a representation,
essentially a simplification of some slice of reality. SD modeling has been employed to
understand a broad range of systemic issues including, for example new product
development (Repenning, 2001), business planning for network services (Dutta, 2001) and so

27

forth. A SD model is a laboratory tool. It allows repeated experimentation with the system.
Testing assumptions or altering management policies. The purpose is to gain understanding.
So that the problem to which the model is addresses may be solved or minimized
(Udompanich, 2002).

The fundamental concept to SD understands how all the objects in a system interact with one
another. A system can be anything from a human population, to a bank account, to a
basketball team. The objects and people in a system interact through "feedback" loops, where
a change in one variable affects other variables over time, which in turn affects the original
variable, and so on. What system dynamics attempts to do is understand the basic structure of
a system, and thus understand the behavior it can produce. Many of these systems and
problems which are analyzed can be built as models on a computer. The article by Dr.
Michael J. Radzicki below describes how system dynamics are being used to teach the
economics of sustainable development at the university level.
During the past five years, the daily news has become increasingly filled with stories of
economic stagnation and environmental destruction. As a result, student interest has
rekindled in an area of economics known as "sustainable economic development." Simply
put, sustainable development involves the design of policies that balance economic activity
and environmental preservation. It is thus an area that attempts to address a question that
has intrigued economists for more than 200 years: How can the needs of the present
generation are met without compromising the needs of future generations?
By Dr. Michael J. Radzicki

SD allows modellers to include sequence of events in the model structure. Time delays can
be incorporated in the simulation of the system. However, it is not refer to the occasional
time-shift incorporated in some economic models to obtain a lagged variable for correlation
purposes. Instead, these delays refer to an organic delay in one of the flow channels in the

28

model, e.g. the time required for processing new staff recruitment. SD also allows the
modeller to include effects into the model. An effect can be explained as the build up of a
level of which the effect is only seen later, e.g. the level of interval between an innovation
being considered a luxury versus a necessity. Lastly, SD allows the modeller to connect the
flow of different resources to each other, e.g. the flow of HR into and out of the system is
connected to the flow of tacit knowledge and skills through the system. SD was invented to
give managers a tool to understand the complex systems that they were charged with
controlling.

System dynamics is closely related to Systems Thinking (ST). The methodology uses
computer simulation models to relate the structure of a system to its behavior over time.
Viewed in this way, SD can translate the understanding gained by ST into a computer
simulation model. By experimenting with this prototype of the system at hand, user can gain
further knowledge about the system. SD is capable of creating a learning environment which
is a laboratory that acts like the system in miniature. Even if building a learning organization,
an organization with a high degree of shared understanding and knowledge about how the
organization works isn't the goal, ST can be a very valuable tool (Shagufta, 2006) at the
outset of a SD study. It helps bring together the people necessary to the success of the SD
study, and get them in a frame of mind that is open to new ideas, and allow an evolution of
mental models.

2.3.3

Example of using System Dynamics as Problem Solving

SD is widely used in problem solving. Many organizations or individual will be using SD as

a decision making tools or planning tools. There is one case study by students from Fudan

29

University, Shanghai, China where they were using System Dynamics approach to know the
influence of schedule target on project performance (Xiaoqian N., Qifan W., Bing W., 2005).
Many organizations or project managers set schedules of product development projects to
gain competitive advantages. Project performance usually measured in time, cost and quality.
The SD approach to project management is based on a holistic view of the project
management process. The primary objective of this case study model is to capture the major
feedback processes responsible for the project system behaviour with less concern about the
detailed project components. There is a strong focus on human factors and managerial
policies as these are considered to control that feedback structures. The model simulates
phase by phase, which consists of work such as preparation of construction drawings, the
writing of software code or testing of product prototypes.

The model of project performance disaggregated into project process, labor sector
management and productivity, quality of practice, quality of project as well as schedule. The
result by the stocks involved in project process is the probability of a task being flawed and
the probability of a flawed task being found if the tasks influenced by schedule pressure
which determined by target schedule. Labors are allocated to each activity and productivities.
Management should determine the maximum labors to avoid available working conditions.
The larger the schedule pressure, the more willingness of management to hire labor and
shorter of new hiring delay. Nominal productivity represents the maximum level of base
work productivity that can occur when the labor employs the available resource and
information to perform the tasks. The factors that make the actual productivity are labor
experience level, project familiarity, communication complexity among project and labor

30

fatigue. More fatigue in labor will decreases the productivity. Increasing in schedule pressure
will decrease the Quality of Practice. Schedule pressure is assumed to only hurt and never
help Quality of Practice. Professional developers will return some Quality of Practice even
under extremely high schedule pressure conditions. Schedule pressure reflects the impact of
current project schedule conditions on managers. A larger than one schedule pressure
represents behind of schedule, while a smaller than one schedule pressure represents ahead of
schedule.

The simulator is used to demonstrate project performance. The project is measured in time,
cost and quality under different target schedules. The impacts of relax schedule target is
small, while difficult to determine schedule target will decline the project performance. The
tighter the difficult determined schedule target is, the more declined the project performance
is. In the project, three policies are adopted which are hiring more labor, overworking and
allocating more labor to base work. Hiring more labor to relieve schedule pressure has an
impact. More labor will speed up project progress. However more labor will lead to difficult
communication among project member which productivity will be reduce. The results of the
simulator have shown that management must understand the structures that drive project
behaviors before setting target schedule. This case study proves that System dynamics can be
applied as a useful tool to analyze feedbacks, delays and other relationships in project.
System Dynamics model also can be used to study the organization factors impact on project
performance, such as the cost of turnover, effectiveness of difference project and quality of
project.

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2.3.4

Systems Thinking

Systems Thinking (ST) is a buzzword that is found in fields ranging from education to
engineering, from biology to business, from psychology to physics. Actually what ST is all
about? Is ST a cutting-edge idea or just the latest passing trend? ST is an idea that has
permeated both popular culture and numerous scientific fields including education, business
and management, public health, planning and evaluation, sociology and psychology,
cognitive science, human development, agriculture, sustainability, environmental sciences
and etc. ST is an idea that has the potential to transform any of the various concepts, theories
and knowledge in any of these fields.

The methods of ST provide a valid tool for better understanding complex problems and
perspective for understanding current reality. ST involves changing paradigms about the way
the world works, the way corporations function, and the human role in each (J. Forrester,
1961). ST looks for interrelationships among the elements of the system. ST has been
identified as an effective resource of helping organizations follow a correct learning path. If
people do not understand the strength of ST, it may represent a significant barrier to the
application of ST to improve organizational learning (Tsuey-Ping Lee, 2007).

The approach of ST is fundamentally different from that of traditional forms of analysis.

Instead of focusing on the individual pieces of what is being studied, ST focuses on the
feedback relationships between the things being studied and the other parts of system.
Therefore instead of isolating smaller and smaller parts of system, ST involves a broader
view, looking at larger and larger numbers of interactions. In this way, ST creates a better

32

understanding of the big picture (Daniel Aronson, 1999). SD is closely related to ST. The
relationship between them is ST looks at the same type of problems from the same
perspective as does SD. SD also can translate the understanding gained by ST into a
computer simulation model. Therefore the two techniques share the same causal loop
mapping techniques. Systems Thinking, by helping people in an organization see what the
problems are and how their mental models contribute to the problems, sets the stage for a
successful SD study.

One fundamental concept in ST is that learning is part of a process containing multiple

feedback loops. All systems contain feedback processes, and the interaction of positive and
negative loops profoundly impacts system behavior (Sterman, 2000). Positive (or
reinforcing) feedback loops amplify the behavior of a system, often leading to exponential
growth or decline. Negative (or self-correcting) feedback loops refer to process that
counteract change and work to offset or balance the growth or decline of a system. Positive
and negative feedback loops will be discussed further in chapter five.

A ST study usually produces Causal Loop Diagram (CLD) to map the feedback structure of a
system, and generic structures to illustrate common behavior. SD takes the information about
a system's structure that normally remains hidden in mental models and formalizes it into a
computer model. The behavior generated by that particular structure is revealed when the
model is simulated. It constitutes a powerful tool for understanding complex problems.
Instead of trying to relate pieces of information in our heads, computers can be use to
formalize the ideas and assumptions and then simulate them through time. That is the beauty
and power of system dynamics models.

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2.4

Web-based simulation

A web-based simulation is typically used to indicate the invocation of simulation programs

over the internet and specifically through a web browser. A web-based simulation or on-line
simulation is a simulation that interacts in real-time with a physical system. The main
purposed of developing a web-based simulation is to make it available to everyone and
everywhere. Online accessibility will enable the simulator with concurrent users at different
geographical location to use the simulator anytime they want and anywhere.

There are a few ready to run web simulations available in the internet. Forio Business
Simulation website is a good example of web-based simulation. From this website researcher
had taken three examples as comparison and one web simulation that are using computer
simulation not using SD methodology. Below are an example of web-based simulator that
are available in the internet.

URL: www.forio.com

2.4.1

Service Quality Management Simulation

One of the examples of web-based simulation system provided by Forio Business

Simulations is Service Quality Management Simulation. This web-based simulation is
available for sale from Forio. However user can play around with the simulation before buy
or subscribe it. Figure 2.2 illustrated below is overview page in Service Quality Management
Simulation website. The main purpose of the website is developing operational
understanding of service quality through a simulation environment (Oliva R. & Bean M.).

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The model of service quality management simulation fully validated and calibrated based on
System Dynamics model (Forrester 1961, Sterman 200).

Figure 2.2
The Service Quality Management Simulator

Service means act done for the benefit of other. Service organizations are typically harder to
manage than companies that offer products because service quality cannot be measured and
tested as easily as quality can be tested in manufacturing. The long-term results are mediocre
levels of service quality, low customer loyalty, and ultimately higher-than-necessary total
costs. The simulator contains sophisticated information system such as monitor firms
performance and monitor market evolution. Firms performance contains of operational
indicators, financial indicators and human resource indicators. All information displayed in
graphical and tabular form. Before start the simulation users must decide which information

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is important and useful to support their decision-making process because as in many real
situations, users will be flooded with information.

2.4.2

Price Strategy Simulator

The second example from Forios website is Price Strategy Simulator. The Price Strategy
Simulator illustrates the difficulties in developing an effective pricing strategy against an
aggressive competitor. The price strategy simulator is tuned to represent the PC industry, and
users can change the simulation to represent their own company. In the starting scenario,
users play a company that is about the size of HP or Compaq (pre-merger) and its competitor
is about the size of Dell. They compete on price and the market perceives their computers as
being of roughly equal quality. Figure 2.3 illustrated below shows the main page of the price
strategy simulator.

Figure 2.3
Price Strategy Simulator

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Pricing strategy simulator allows users to create their own scenario instead of playing the
game based on HP/Compaq versus Dell default simulation model. If users choose to click on
HP/Compaq versus Dell scenario they will get what already created which is a simple
simulation that is tuned to roughly represent Dell, HP and Compaq. The page illustrated
below shows the result of cumulative profit. Set the price for users own prices and
cumulative profit will appear. The goal of this simulation is to maximize cumulative profit
over six month. From the result page users will get the result of market share between
HP/Compaq market share and competitor market share.

Figure 2.4
Price Strategy Simulator- Setting Price

If users click on the view simulation assumptions button, the page illustrated below will
appear. In this page, users will enter value for market assumptions, their own assumptions
value for their business and also value for competitors business. This is the page where users

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can play around. Users enter assumption value and the simulation will run based on the new
input by the users.

Figure 2.5
Price Strategy Simulator- Model Assumptions

The result of the simulation also can be display in a graph. Figure 2.6 below is example of
the accumulated profit page which represents the result in a graph.

Figure 2.6
Price Strategy Simulator Custom Simulation
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Each competitor has its own strategy and can respond to a strategic change of any other
competitor. From the simulation users can alter the simulation assumptions, turn themselves
into Dell and their competitor into IBM, if they like. They can even alter the assumptions to
make the simulation look like their own business.

The difficulty with price wars is that they look deceptively simple: lower prices and sales go
up. Changing prices affects cost per unit sold because fixed costs are spread across all units
sold and the number of units sold should increase if prices drop. Also, competitors are
affected by and will respond to any price changes.

2.4.3

B&B Enterprises Management Flight Simulator

The simulation of B&B enterprises flight simulator has been developed by Professor John
Sterman from MIT Sloan School of Management. Sales of new products often grow
explosively as word of mouth, advertising, and falling prices attract new buyers. New
producers tend to enter the market. But eventually the market saturates and sales fall, often
just as capacity is growing the most rapidly. An interactive computer game has been used for
the experiment of B&B Enterprises Management Flight Simulator (Sterman, 1991). The
flight simulator embodies a model representing a firm, its market and its competition.
Subjects manage a new product from launch through maturity, making price, capacity and
marketing decisions each quarter year through a ten-year simulation (McKinsey, 1998).

Users take the role of top management of B & B Enterprises, a fictitious firm based on a
variety of real cases. The game begins as a new product is launched. Users are responsible

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for marketing, pricing, and capacity expansion decisions to maximize their cumulative profit
over the next 40 quarters. The potential market is large, but as in real life key attributes of the
market, including its size and price elasticity, consumer responsiveness to word of mouth,
repurchase behavior, and other customer attributes, are unknown. The player also faces a
simulated competitor whose pricing, marketing, and capacity expansion strategies are
likewise unknown. The game illustrates fundamental principles of corporate strategy
including the learning curve, time delays in capacity expansion, competitive dynamics, and
market saturation.

The page displayed below is the main page for user to start play with the simulation. Users
need to enter their own decision before press the button simulate. The simulation will run
and show the result according to the users decision either by monthly, quarterly, half yearly
or yearly.

Figure 2.7
B&B Enterprises Management Flight Simulator

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The page illustrated above shows the step how to pilot B&B Enterprises web-based
simulation. In step three users have to make their own decisions. Users will enter their own
value according to their assumptions or based on their own analysis in order to get good
results. Figure 2.8 below display the summary page of the simulator. The simulation result
was shown in a graph and the result also available in a graph. The report of B&B enterprises
management flight simulator consist of six report which are breakdown analysis, competitive
analysis, finance, market research, production and summary for the whole report as shown in
the page illustrated below.

Figure 2.8
B&B Enterprises Management Flight Simulator Summary

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Through the process of developing a SD model, the modeller has created a complex map of
interrelationships and a better understanding of how the system will behave over time under
different policy scenarios. In a management flight simulator, users of the model are placed in
the position of managing the system. Each year (or month, or quarter) they must make
decisions to try to meet some goal in the system. Generally, in web simulation there are four
kinds of information presented which are decisions, reports, graphs and initial conditions.

2.4.4

The train brain

The train brain is a computer program that simulates rail transport operation. The train brain
program also using simulation concept but it is not using SD method. From the wikipedia,
simulation is an imitation of some real thing, state of affairs or process. The act of simulating
something generally entails representing certain key characteristics or behaviours of a
selected physical or abstract system. The program will have a graphical interface that
displays the transportation system in motion. The user will also be able to plan a trip by
pointing to a departure and destination station. The program will then search all possible
combinations of train and bus connections to present the user a custom schedule. The
program will also calculate the fare between any two points. The program will display or
print schedules for specific routes, and station information such as street address, connecting
buses, local area maps, and even a photo of the station. Figure 2.9 below show the main page
of the train brain website.

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Figure 2.9
The Train Brain

How the train brain works? The train brain is working differently compared to others web
simulation that are using SD method. The train brain not necessarily present information like
decisions, graphs, tables or initial conditions but it will display information depending on the
system requirement. The page illustrated below is one of the examples in the train brain
website.

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Figure 2.10
Los Angeles Metrolink Schedule

From figure 2.10 there is a small box at the bottom of the screen. The box contains of
appropriate function in order to display the train schedule in Los Angeles. The information
available in the system/program is accelerated time/real time, adjust time, adjust speed,
schedules and station information. The two radio buttons which represent accelerated time
and real time allow the user to toggle from "Accelerated Time" to "Real Time". In
Accelerated Mode, time runs fast so the user can watch as the trains rapidly flow in and out
of downtown. In Real Time mode, the trains slowly move according to their actual positions.
A scroll bar labeled Adjust Time pointer moves from left to right as the time of day
advances and it can also used to adjust the time of day by sliding its pointer to the left or
right. The second scroll bar labeled Adjust Time can be used to adjust the animation speed.
Slide the pointer all the way to the left to bring time and the animation to a halt. However,
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when users slide the pointer to the right the trains will barely stay on the tracks. A button
labeled Schedules is used to view the actual schedule. Once user clicking on this button
there will be another button to push and map labeling various routes will appear. Users enter
and select the direction of travel for the route and schedule will appear. Figure 2.11 below
show the display schedule.

Figure 2.11
Example of Train Schedule

Another one button labelled Station Info leads to information about a specific station. Click
this button and a message will appear to prompt a message for user to choose a station by
clicking the mouse directly on the stations location. Once a station is selected, a window will
appear with the stations street address, connecting transit routes and a local area map of the
station as display in Figure 2.12.

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Figure 2.12
Station Information

This kind of simulation provides a valuable tool in both the design of new infrastructure
coupled with assisting in the process of translating a railway's business aspiration into a
technical specification. The simulation system can be used in many forms such as a single
train run to assess traction performance over a given infrastructure or assumptions of the
physical characteristics of a new line, to assess a range of signalling systems in order to
identify the optimum solution to meet a service aspiration, or to evaluate proposed timetables
and the interaction between the trains at a complex junction or in major terminals.

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2.4.5

Comparison between existing web-based simulator

Table below shows the comparison between the existing web-based simulators that are
currently available in the market.

Table 2.1: List of features, strengths and limitations of existing system.

Service Quality

Price

Strategy

Management

Simulator

Management

The

Train

Flight Simulator

Brain

Simulation
Features

Online simulation

Using SD methodology

Using computer simulation

Strengths

Information presented Decisions

Information presented Reports

Information presented Graph

Information presented Initial

Conditions

Easy to play around with the

simulation

Give

benefit and

information

needed by the users for planning

purposes

Give

benefit and

information

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needed by the users daily

information.

Allow user to play and save the

game
Limitations
-

only focus on quality management

only focus on pricing strategies

only focus on flight simulator

only focus on train simulation

does not allow user to set their

simulation time

2.5 Common Features of Web-based Simulation

Basically, the features of web-based simulation are slightly the same. Based on the summary
given in the table above all the simulators are having common features and the different only
the scope or boundary of the modelling. How big the scope of the modelling is depends on
the requirement of the simulator. This study has proved that a simulator must have four main
features in presenting information such as decisions, initial conditions, graphs and reports.
For a general web based simulator the features that researcher have mention before is very
sufficient. The common features that have been included in the prototype of Human
Resource Planning Simulator are:-

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Developing a model using SD method.

Password authentication.

Setting simulation time.

Presenting information for initial conditions, decisions, assumption and

policies.

Display result in a graph and table.

However, there are some limitations in the current products that are available in the market
such as:

Limited trial period

Not allow user to run and stop the simulation.

Some of the simulator does not allow user to set their own simulation time

Most of the services require user to buy the simulator after trial period is over

Data are stored at provider server

To overcome above limitations, researcher has developed a web-based Human Resource

Planning Simulator as a free web-based simulator for specific organization and. By using this
simulator HR staff can plan their number of hiring new staff and see the impact in financial.

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2.6 Conclusion
This chapter described the conceptual view of the research under study in Systems Thinking,
System Dynamics and Human Resource. It started with the background of systems thinking,
system dynamics method, human resource, human resource management as well as human
resource planning. Researcher also has given an example of current web simulations which
are available in the internet and made some comparisons for each simulator. Furthermore,
researcher came out with the proposed framework of the Human Resource Planning
Simulator that is going to be developed throughout this dissertation. Finally, studies and
works have been done by reading a few journals which are related to the scope of this thesis
are reviewed and discussed.

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