Advances in Systems Science and Application(2015) Vol.15 No.2 119-133

Obsolescence of Organizations: a Modeling Approach
in System Dynamics

Didier CUMENAL1,2
1 Dynamic Systems, Group AFSCET the French Association of Systems

Sciences
2 System Dynamics Society

Abstract

Economic crisis as well as human crisis is well alive. Bankruptcy filings, the
collapse of financial/capital markets, strategy failures, the death of some orga-
nizations accuse the turbulent economic environment. But what about their
potential activities, their internal capacities that change over time. It is unfor-
tunate that some literature areas dealing with the decline of organizations focus
on their disease at a specific time by giving importance to factors related to age,
size and performance. This is wrong to underestimate the evolutionary aspect of
tangible and above all intangible resources. The purpose of this communication
is to highlight that before the decline and death of an organization, there is a
preliminary stage, often misperceived: the obsolescence.Obsolescence defines a
condition that prevents the organization to perform correctly its vital functions
and that without her being fully conscious. Our model of system dynamics has
the primarily objective of defining the state of obsolescence and secondly to high-
light the importance of two strongly linked subsystems meaning: organizational
capacity and managerial ability. These two dimensions, coupled together, are
often misidentified or misunderstood by the top management, whereas they may
be able to characterize and anticipate an emergency situation.
Keywords Managerial Capacity; Organizational Capacity; Dynamics; Obsoles-
cence; Model; System

1 Why, what field and what subject for this research?

1.1 Why this study

Our past experience has led us to lead a group of “SME”, to straighten firms in
distress as a senior consultant and, many years, to conceptualize these achieve-
ments with a thesis PhD at the Sorbonne in the field of organizations dynamics
(evolution and change of state). It was during this career and after in becoming a
full Faculty member and Researcher that we often asked ourselves some questions
about the future of organizations.

The sole ambition of this study is to identify and teach the concept of obsoles-
cence as a general phenomenon often unknowed for executives and managers of
the company. Yet it is a step often announcing the decline or disappearance of the
organization. Our research on the phenomenon of obsolescence is trying to reach
an understanding which is not limited to specific cases, but that is applicable



120 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

across time and space and to different types of organization.

1.2 The research question

Is there a persistent step which would herald the decline and death of organiza-
tions? What would this step? Is it possible to identify the precursor weak signals
of the organization collapse?

Can we model this prior step announcing disaster? While there are many
researches on organizations mortality, yet few qualitative studies have been con-
ducted about symptoms often considered marginal, but harbingers of economic
and social tragedy. Because the model is based on concepts such as the orga-
nizational capacity or the managerial capacity (cognitive factors) it belongs to
qualitative areas. We then discard ourselves from quantitative parameters such
as the age of the organization, of the staff, the size, the strength of the company
that abound in the studies.

1.3 The problem

The above questions can be synthetized by the finding and the question that
follows, giving rise to thought and discussion:

Some organizations becoming mature lock themselves increasingly into their
adaptations and are pushed inexorably such ”lava”, unable to change course,
heralding a likely senescence index. Therefore, how to spot early enough the
gradual slowing of vital functions of an organization? What are the warning
signs?

To address this problem, we will define semantically the concepts of complex
organization, organizational capacity and obsolescence.Then we will depict the
literature on our research field. Finally we will present our model, the methodolo-
gy underlying it and results of simulations will be debated during the ”discussion”
which will close this presentation.

2 Definitions and foundations of the model on the obsolescence

2.1 Organization

This is an intangible concept. For the organization is a myth[1], “it exists only
events linked by causal loops” that creates meaning (’sense-making’). It is the
interactions between the components of the organization that create a coherent
and stable set. It is also a system of collective problem solving. In this spirit, the
organization is the product of the choices of leaders and of their social representa-
tion. This collaborative system attempts to combine, to arrange the components
of the work to be done to achieve the best organizational capacity, concept we
will define below.

Organizations move, change over time1. The uncontrolled change creates asym-

1This topic has previously been the subject of dynamic simulations. Cumenal D[3,4].



Advances in Systems Science and Application(2015) Vol.15 No.2 121

metry, disrupts the harmony and curbs the progression of the organization. This
one changes shape both structurally and in terms of the functional organization
due to its history, its environment, internal resources and its management. Thus,
we enter in a field named “dynamics of organizations”. We think we can charac-
terize this one by different stages:

A conservative state where the weight of history, customs of the past pushes
the organization to inertia despite active economic context; an adaptive state
due to the pressure of the environment causing the competitive intelligence, to
imitation; a cooperative state characterized by the maintenance of cohesion, the
desire to avoid conflicts, the development of inter-organizational networks; Fi-
nally, a state called progressing state which is defined by the desire to innovate
and operate the organizational inimitable assets. Of course, these states may be
overlapped or juxtaposed. To move from one state to another, there is always
energy dissipation, a cost of change.

2.2 The organizational capacity

The end of 20th century saw the development of a school of thought based on or-
ganizational resources and on organizational skills named Resource Based View.
Organizational capacity is defined as a collective ability.

We explain that the performance of the company benefits from a human capital
(knowledge, skills) but also from a good organizational architecture (optimized
process, formal and informal network of relations and communications, etc.) and
from technologies. Thus, the results can be explained by the presence of intan-
gible resources shared by the players in the organization, but also difficult to
imitate by competitors.

According to Laurent and Gilles Renard E St-Amant “The concept of orga-
nizational capacity defines the ability or the skill of the organization to deliver
activities with efficiency and effectively in deploying, combining and coordinating
its resources and its expertise across various processes creating value, depending
on the objectives defined previously [2].”

2.3 The definition of obsolescence

From “obsolere”, “to fall into disuse”, in Latin, the obsolescence reflects a be-
havior, an processing that is no more adapted to needs, to current and desired
methods and to changing desired by the management . It turns out, over time, by
slowing the functions and vital activities of the company (the unsuitable routines
and processes business and support, etc.).

The behaviors, the actions of an organization are no longer adapted to envi-
ronmental change because the processes, routines, professional reflexes that have
developed during the learning have become rigid or unable to agree to new situ-
ations.

Symptoms of obsolescence are often veiled, because they grow moderately over



122 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

time. For example, a product loses slowly market share; a business process is
becoming more expensive and less efficient than a new process developed by
competitors; staff engagement in the Business of the company gradually becomes
weak; the indifference of the staff for customers is becoming more marked; the
leaders do not move in order to avoid achanges; information flows less and less.
In general the reactions are increasingly inadequate and unsuitable for external
events and circumstances.

3 Literature review

Existing approaches for understanding the decline and death of organizations are
fertile, although empirical studies on the spot are leaner. However, works on the
obsolescence are not common and do not define properly the concept.

Seventy five percent of the literature on the decline of the firm were written
during the last decade of the 20th century.

We can mention books and papers by David A. Whetten and Kim S. Cameron,
authoritative on the subject of decay and mortality of the organizations[5][6].

Most recently, Yitzhak Samuel describes in his book, models for predicting
bankruptcy[7]. It also addresses the age, size and niche factors, performance
and even corruption. Stewart Thornhill and Raphael Amit in an article named
”Bankruptcy, Firm Age, and the Resource-Based View conducted a literature
review on organizational mortality[8]. Through the number of publications, it is
clear for many researchers, that the age of the organization is a critical factor in
mortality. However, Stewart Thornhill and Amit Raphael, Learning , establish
that the firms failure is also caused by a lack of managerial knowledge and in
general by the lack of tangible and intangible resources (such as skills and or-
ganizational capacity)[9]. These firms are often paralyzed by a change in their
environment.

Barry M. Staw, Lance E. Sandelands, Jane E. Dutton show how organizational
rigidity evolves faced with a challenge[10]. Faced with a threatening environment,
the organization tends to respond based on past experience deemed relevant, but
unfortunately inappropriate given the new circumstances. Moreover, in an ur-
gent and tense situation, policymakers can hide certain information by discarding
solutions they consider abnormal with regard to the opinions and beliefs of the
group they belong to. Somehow, filtered information must be in resonance with
the unique thought of the Leaders!

Erik Larsen and Alessandro Lami operate a systems dynamics model by demon-
strating how the causal relationships and feedbacks between variables, simulate
over time, evolution of organizations inertia[11]. These authors show the opposi-
tion between resistance to change and the ability of organizations to develop new
capacities to generate performance. The model, rather schematic is, according to



Advances in Systems Science and Application(2015) Vol.15 No.2 123

these authors, based on ecological theories and evolution of organizations. Inertia
is mentioned and briefly explained by the following factors: size, age, cumulative
experience. Figure 1 shows their model. It will be seen that size is correlated
with age, which is an exogenous (external) variable to the system.

Fig.1 the organnization evolution model

4 Model

4.1 Methodology

The model we have developed is not intended to generate assumptions to be test-
ed. It seeks to show the stages of evolution of an organization to explain the
causes of obsolescence thereof. It is therefore not limited to analyze each step
separately considered. Our model generates situations, rather than describing
them. It strives to provide an pedagogical insight into the obsolescence onset.
The model aims to study the evolution of organizational behavior and to identify
early signs of wear and the weakening of main functions and activities of the
organization.

Our approach is keyed on systems dynamics that studies how things, objects
evolve and change state over time. John D Sterman , in his book“Business Dy-
namics ”, sets principles2 of this approach[12] The approach is structured around
the concept of causal network that establishes a cognitive diagram highlighting
structural feedback loops. These are the relationships between the variables that

2For a criticism of the system dynamics, we carefully read the book by David Berlinski[12].



124 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

explain the system behavior over time, and not the system parameters consid-
ered separately. System dynamics highlights the counter-intuitive effects in the
medium and long term, related to decisions taken in the short term, taking into
account the effects of random events that can occur within, or in the environment
of, the system.

The model breaks down the system in state variables (reservoir) and flow vari-
ables (transit rules from one state to another). Delayed effects and adjustment
time are integrated into the model structure. The model uses numerical algo-
rithms to produce simulated results. We can present the results as time series
plots and measure the sensitivity of a variable to evolution of other one.

System dynamics can be modeled using a set of equations with that standard
form:

x(t+∇t) = x(t) + x(t) • ∇t (1)

in which is the model integration time step. However, the choice of value greatly
influences the results of the numerical simulation as shown with the three graphs
below (Figure 2 : the population development; time on x-axis and quantities on
y-axis). Clearly, there are analytical solutions, but as soon as the model becomes
complex, it is difficult to solve the equations in a conventional way.

Fig.2 the population development

We will simulate our organization over several years to observe the evolution
of the properties that characterize obsolescence. But for that, and before its use,
we must expose the assumptions that characterize the structure of the model.



Advances in Systems Science and Application(2015) Vol.15 No.2 125

4.2 The causal structure of the model

Our model is structured into two subsystems or two causal diagrams:
1) the organizational capacity (C.0),
2) the cognitive ability of management (CCM).

The following properties are not included in our model, voluntarily: age of
the organization, age and size of staff. These attributes are often considered
by the authors as exogenous variables. We believe that there is not necessarily a
correlation between size and age of the firm, for example. Likewise, these variables
influence very little the inertia of the organization as we think sometimes. Rather,
we focus on capabilities of the organization, i.e. the potential3 and cognitive
factors of the “top management” that ensure organizational transformation. It
is the hypothesis that we assume.

4.3 The causal diagram of organizational capacity

We defined above the organizational capacity. We modeled it (see Figure 3) using
the following properties:

Fig.3 Organizational capacity causal diagram (O.C.)

-organizational learning4 i.e. collective acquisition of skills by recurrent ac-
tions,

-the skills produced by both organizational learning and training
Croutines5 built and distributed by internal collaboration within the orga-

3Tangible and intangible resources provide the firm a competitive benefit.
4For a study on organizational learning, reference may be made to Argyris, C[14].
5Routines represent individual and collective, repetitive work habits which may be driven by
operational capitalized modes.



126 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

nization - the flow of information and communication that contribute to this
synergy between actors.

This causal diagram shows many feedback loops that explain the results that
we will comment during the presentation of results and discussion.

For example, the more the widely disseminated (and unfiltered) information
in the organization, the more it contributes through exchanges, to enhance co-
ordination between employees or vice versa (direct relationship). On the other
hand, the more the turnover is increasing, the more organizational skills6 are
diminishing, due to departures and overall impact the organizational capacity.

4.4 The causal diagram of the managerial capacity

Collective rationalization is a cognitive process of sorting and selection of infor-
mation, but this process also products resonance, answers already learned, as
consistent with prevailing views in the firm. This mental state generates a col-
lective logic that justify the decisions. Necessarily wanting to be in agreement
with the “others”, and especially with the “Top management”, can be a powerful
engine of collective errors.

This rationalization taken to the extreme, leads to a denial, an occultation of
the environment, filtering of information, but also a refusal to take a look on the
past and on current state of the organization. The strategic blindness with unre-
alistic goals, can lead the entire organization to a thought, a single depiction. We
have, unfortunately, observed this fact many times when a Department persists
in its judgment error. Therefore excess of hierarchical pressure (the authority)
was included as a variable in our model. Beyond a pressure threshold, it acts
to discipline, to structure responses of the organization. There is a “Mahatma”
effect by which governance behaves as a spiritual leader! Its possible that prob-
lem could be identifyed, but the illusion that what we’ve always done is the best
thing, trumps reality, generating actions that may be the wrong answers. Our
model in Figure 4, below, reflects this divergence of representation with a gap
that symbolizes a “cognitive dissonance”7 . With the latter, the information,
leading indicators of entrepreneurial tragedy are ignored because they are too
discordant with the successes until recently. The intensity of this difference is as
important to the overall performance8 of the organization. Moreover, poor re-

6Organizational skills are generally depicted as coordination of resources and capacity[15]. They
are linked to an accumulated experience (organizational learning).

7Pioneered the concept of cognitive dissonance is Leon Festinger.According to this theory, when
events lead a person or organization to act at odds with his beliefs, these acts produce a state of
discomfort andtensioncalleddissonance.To reduce this condition, the person or organization is
allowed to exculpate himself by constructing an argument near a deception! And management
can persist in his error justifying its decisions and actions despite the good sense of “field”[16].

8We define the concept of performance as a business development index value created by taking
into account the quality of the responses of the“top management” facing a problem.



Advances in Systems Science and Application(2015) Vol.15 No.2 127

sults reinforce hierarchical control by systematically operating (routines) modes,
but also impacting organizational agents behavior of the organization, themselves
sensitive to performance.

Fig.4 Managerial capacity causal diagram (M.C.)

4.5 Results and behavior of the model

It is interesting to study properties of all variables only on a qualitatively ba-
sis. We focused on the behavior, i.e. on shape of the curves rather than looking
numerical values hard to estimate when the concepts of organizational and man-
agerial capacity is mentioned. The range of variation of each variable extends
for most of them from 0 (minimum) to 1 (maximum). It corresponds to the as-
sumptions, and common sense “on the ground”. For instance, increased internal
information filtering reduces synergy, knowledge sharing or informal9 kills formal
knowledge and consequently performance.

The simulation performed using a system dynamics software (Stella, from Isee
Systems, V.10.0.6) produces a typical organization behavior over a period of 10
years. You can of course change the duration of the simulation. Watching graph-
ical patterns on Charts : 5, 6 and 7, we note a performance in sharp decrease.
The diagnosis of the curves shows a slowdown in performance from grade 8 (curve
4 in Chart 1 below) and then decreased. It can be seen also from the sixth year
a slowdown in the level of organizational skills (curve 3), that of organizational
routines10 (curve 5) and finally a breathlessness of organizational learning (curve
1). These are state variables which gradually accumulate flows acting as drivers

9It is, for example, short circuits in the official channels of communication in the organization.
10As a reminder, the routine reflects the regularity of collective behavior induced by procedures.



128 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

of change over time.Chart 2 below shows a bad fit between dominant and learned
responses that are an expression of “Top Management” thought and timely re-
sponses (curve 2) produced by the community in light of the problems identified.
The gap persists for many several years, peaking in the third year of the firm.
Then, the two curves are similar from grade 611 to deviate from each other the
7th grade. We believe this difference is a revealing leading indicator of future per-
formance degradation. Finally, it takes place in companies when some people say
that top management persists in his error by maintaining an axis of inappropriate
development.

Chart1

However, the entire management team adopts this guided behavior and looking
for one or several arguments to justify their position according to the cognitive
dissonance theory, which we mentioned earlier.

The chart 3 bellow, analyzes several behaviors:The impact of information fil-
tering (curve 1), the degree of formalization and rationalization of the weighted
procedures organization (curve 2) and intra-organizational synergy (curve 3).
The latter also depends on the information that flows and the level of technical
and managerial skills move through the organization.

These are also indicators revealing symptoms which anticipate possible re-
sources shortage and organization’s capabilities. Actually, we hear, for example,
that information does not flow, or the procedures are too heavy, reducing more
and more autonomy in the work of each.

11Is this rapprochement leads to the reason?



Advances in Systems Science and Application(2015) Vol.15 No.2 129

Chart 2

Chart 3

5 Discussion and conclusion

Our model consists of five stock variables12(levels) corresponding to five integra-
tions or state equations described as follows:

E(tk) = E(tj) +

∫ tk

tj

[input(t)− output(t)]dt (2)

E(tk)= thestateatktime.
E (tj) = thestateatpreviousjtime. (j = k − 1)∑

tj
tk = algebraic sum of inputs and outputs between t time and t time + in-

crement time step DT. Inputs and outputs over time depends on “auxiliary

12Skills-learning-behavior-routine sand performance variables that have been previously defined.



130 Didier CUMENAL: Obsolescenceof organizations:amodeling approachinSystem Dynamics

variables” that changes according to causality with other variables (stocks, flows
or auxiliaries). Auxiliary variables are expressed with mathematical functions
often based on non-linear correlations. Our systemic model is built on feedback
processes with, often, a delay between cause and effect.

Our model can help us to understand the emergent properties of the obsoles-
cence and to analyze the results of an a concept not easily accessible through
statistical interpretations of reality. We support the following proposal: analysis
of organizational capacity and of managerial ability, i.e. symbolic representations
and the answers given by the leaders facing a problem, can anticipate a resources
and vital functions slowdown of the organization. We did not cover theories
that emphasize the organizations ecology (size, age, etc.) to help us focus on
intangible properties. Of these ,we may recall the important role of learning
and organizational skills, filtering and retention of information, the coordination
and collaboration process(organizational synergy), collective rationalization of
responses from the leaders giving the illusion that what they do is the best thing
(further reinforced by the weight routines or past habits).

The simulations show that weakly filtered information combined with a normal
hierarchical pressure (more or less) can achieve a good level of performance. In
this case, the staff has the opportunity to provide possible answers to the context.
Obviously, these responses are determined by the skills level and by the received
or perceived information quality. Censorship or a bad collection of information
weakens staff responses and strengthens, conversely, the traditional answers pro-
vided by the “Top Management”. These are related to the rationalization of
produced responses and to the organizational routines that capitalize collective
behaviors generated by the procedures and by the taken decisions. In the lat-
ter situation, the operational process integrates finally the dominant responses
produced by the “Top Management”, in finding good reasons to accept (see the
concept of “cognitive dissonance”).

Our simulation explain the importance of the gap between the collective re-
sponses learned by staff and dominant responses supplied by the “Top Manage-
ment”. This gap is an important performance gear.

5.1 Model limitations

We may recall the important role of learning and organizational skills, filtering
and retention of information, the coordination an collaboration process (organi-
zational synergy), collective rationalization of responses from the leaders giving
the illusion that what they do is the best thing (the rest reinforced by the routines
weight or the habits of past).

The dynamics systems’ mathematics is widely used in physics. However, social
sciences resist using them.

Indeed, formalize mathematically organizational behavior is very optimistic!



Advances in Systems Science and Application(2015) Vol.15 No.2 131

The model quickly becomes a black box for an external observer who wants un-
derstanding the results produced (non-linearity is one of the reasons).

Another limit is the validation of the model. We don’t have neither historical
nor quantitative data about concepts presented. As we have previously stated:
our model is more generative than descriptive of existing situations. It suggests
events and behaviors. It allows us to anticipate, and to have a better understand-
ing.

In conclusion, we have been always convinced that an organization gets its best
performance when the representations of a problem, the supplied answers, aims
of employees and those of top management are similar.

Fig.5 Bayesian model outline

When societies and civilizations are becoming complex and prosperous, they
have difficulty adapting to their environment. Their potential assets appear to
be inadequate to move to their next evolution stage.

5.2 The potential model evolution

We are currently developing a Bayesian network based model (Figure 5) to an-
ticipate the phenomenon of obsolescence. We intend to test this tool on several
professional situations. The result will be the topic of a future communication.

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Corresponding author
Dr. Didier CUMENAL can be contacted at: cumenald@wanadoo.fr