These models and simulations have been tagged “Business”.
This model attempts to understand the behavior of average lifetime of companies in the S&P500 index. The reference mode for the model is a graph available at this link: https://static-cdn.blinkist.com/ebooks/Blinkracy-Blinkist.pdf (page 5) which was discussed in the System Thinking World Discussion forum.
Mergers & Acquisitions can be one of the reasons for older companies to be replaced with newer companies in the Index. With M&A of older companies, the empty slots are taken over by newer companies. However, overtime, these new companies themselves become old. With steady M&A, the stock of older companies decreases and stock of newer companies increases. The result is that average age of the companies in the S&P Index decreases.
The oscillations in the diagram, according to me, is due to oscillations in the M&A activity.
There are two negative feedback loops in the model. (1) As stock of new companies increases, the number of companies getting older increases which in turn decreases the stock. (2) As M&A increases, stock of older companies decreases which in turn decreases M&A activities.
Limits of the model
The model does not consider factors other than M&A in the increase in number of new companies in the Index. New companies themselves may have exceptional performance which will result in their inclusion in the Index. Changes in technology for example Information Technology can usher in new companies.
1. It is assumed that M&A results in addition of new companies to the Index. There could be other older companies too, which given the opportunity, can move into the Index. Emergence of new technologies brings in new companies.
Rich picture version of Causal loop diagram based on Jack Homer's paper Worker burnout: a dynamic model with implications for prevention and control System Dynamics Review 1985 1(1)42-62 See IM-333 for the Simulation model and IM-2178 for a related Causal Loop Diagram of Project Turnover
Dynamic system underlying project life cycles From Roberts Edward B The Dynamics of Research and Development p5 Harper & Row NY 1964
Model of growth from diffusion from John Morecroft's Strategic Modelling and Business Dynamics Book Ch6 p174-191. A discussion of a bigger model of People's Express is in http://bit.ly/HdaGy4 for a related You Tube video by John Morecroft on Reflections on System Dynamics and Strategy
Causal loop diagram based on Jack Homer's Worker burnout: a dynamic model with implications for prevention and control See IM-333 for simulation model and IM-641 for Rich Picture CLD
System Dynamics Review 1985 1(1)42-62