Systemic Practice and Action Research

https://doi.org/10.1007/s11213-019-9480-4

REVIEW

System Dynamics and Learning Scenarios for Process

Improvement and Regional Resilience: A Study
in The Footwear Industry of Southern Brazil

Claralucia Prates Machado, et al. [full author details at the end of the article]

# Springer Science+Business Media, LLC, part of Springer Nature 2019

Abstract
By means of integrated and systemic resilience strategies, it is possible to reduce vulnerability and
risk, and at the same time increase the capacity to adapt to sustainable regional development
scenarios. On the other hand, industries that can develop learning skills may address critical
situations by adopting systemic thinking that is focused on problem-solving. In this study, our
objective is to analyze the dynamics of the footwear industry in the south of Brazil. The secondary
objectives are the development of a dynamic model that would a) explain the main processes of the
industry, b) chart the projection of learning scenarios that simulate the capacity of improvement in
these processes, and c) increase the regional resilience for a time horizon of 10. Action research
was used as research method, due to the cooperative and participative involvement that occurs
between the researchers and the participants in order to understand the situation and to construct the
systems dynamic model of the impact of the footwear-industry activity of a city in the south of
Brazil over the city resilience. The studied industry underwent a major economic change; it shifted
from the production of commodities to the production of differentiated specialties. From the
systemic analysis, five main learning scenarios were identified: (i) the AS IS, (ii) the uniform
distribution of investment, (iii) the labor training investment, (iv) the value-added marketing
investment, and (v) the solid waste treatment investment. Moreover, four scenarios of comparison
were identified as well, namely (i) the large exchange variation and low-level crisis, (ii) the large
exchange variation and high-level crisis, (iii) the small exchange variation and high-level crisis, and
(iv) the small exchange variation and low-level crisis. The systems dynamic model relied on input
data, the opinion of industry experts, performance equations, and graphical functions. The model
provided a learning environment that allowed a better understanding systemic filling the gap left by
the indexes that purport to measure the resiliency allowing a better understanding of the factors and
elements that interact and influence the regional resilience and of the improvements in productive
processes in the footwear industry. Thus, simultaneous business investment in determinants of
resilience factors contribute to increase resilience in the region where these companies operate? A
synergistic effect was observed; that is, resilience could be more easily achieved if the scenarios of
labor qualification, value-added marketing, and solid waste treatment were applied simultaneously.
These findings were compared to the principles of the BRICS index and were fully aligned. In
future studies, it is important to establish a performance index in order to generate models that
would be capable of controlling evolutionary paths toward process improvement and of increasing
the regional resilience of the industry.
 Systemic Practice and Action Research

Keywords Resilience. System dynamics. Productive processes

Introduction

The development of a management model aiming at the improvement of processes in production

engineering and regional resilience has become essential for business development planning (Day
2014). Organizations that adopt resilience strategies through integrated and systemic approaches
reduce vulnerability and risk, increase adaptive capacity in line with sustainable development,
and achieve improvement in productive processes (Ebner and Baumgartner 2006).
Organizations that can develop learning-oriented skills can transform critical situations faster
and more efficiently, hence, this allows them to visualize the world in a manner that is differentiated
and more reflective of the reality. This new manner of perception stems from the need to
understand the complexity around social organizations and the interrelations thereof using systems
thinking in solving problems (Ebner and Baumgartner 2006; Kay et al. 1999; Bhamra et al. 2011).
The object of this study is the footwear industry of a city in the southern Brazil. This case
was selected because of its relevance to our research, both in terms of the aspect of the economic
development of the region that hosts the industry and in terms of regional resilience and
improvement in the processes of production engineering. Both of the aforementioned factors
affect the results of the studied industry. In addition, this city in the south of Brazil is an example
of an increase in local resilience, having differentiated itself from other cities in the region by the
new business model implemented, becoming a reference for the study of resilience.
In this study, our objective is to analyze the process of this industry and its impact over the
city resilience, to develop a systems dynamic model, and to project the learning scenarios that
simulate the capacity of improvement in the processes of production engineering and the
regional resilience toward the following 10 years. The studied system comprised conjunctures
of past decades that transformed the productive focus of the “footwear commodity” (footwear
without added value), which competes exclusively for the price, for footwear with high added
value for the client, and for differentiation from the systemic analysis. Five main learning
scenarios were identified, considering the distribution of the organization investments: (i) the
AS IS, (ii) the uniform distribution, (iii) the labor training, (iv) the value-added marketing, and
(v) the solid waste treatment. Moreover, four scenarios of comparison were identified as well,
namely (i) the large exchange variation and low-level crisis, (ii) the large exchange variation
and high-level crisis, (iii) the small exchange variation and high-level crisis, and (iv) the small
exchange variation and low-level crisis.
The first five scenarios were proposed in order to assess the investment options that
companies would have and to verify which one would have the greatest impact on local
resilience. The other four scenarios (comparative scenarios) were designed to assess the
external driving forces, which generated critical business uncertainties (Schwartz 2000).
The system dynamic model was designed based on input data, industry expert opinions,
equations, and graphical functions. The model was constructed based on the systemic structure
- closed cycle diagram - and was developed with the purpose of evaluating the regional
resilience index and the improvements in the productive processes. Evaluating the interaction
between all the elements involved, this study aims to fill the existing gap in the indexes that are
proposed to measure resilience [the City Disaster Resilience Scorecard (CDRS), the Commu-
nity Resilience Index (CRI), the Baseline Resilience Indicators for Communities (BRIC)],
which are not dynamic and systemic. Thus, simultaneous business investment in determinants
Systemic Practice and Action Research

of resilience factors contribute to increase resilience in the region where these companies
operate? The model provided a systemic learning environment that allowed a better under-
standing of these elements and factors that interact and influence the local resilience and the
improvements in the productive processes.

Organizations, Resilience, Sustainability and System Dynamics

The concept of resilience applies to several fields of knowledge, including engineering,

psychology, anthropology, and ecology. Resilience was first considered as the ability of a
social system to withstand disruption and to reorganize itself after disturbance-oriented
changes (Folke et al. 2002; Walker et al. 2002). Later, a description was introduced from the
field of social sciences, where resilience was perceived as a consequence of the increase in
complexity, uncertainty, and insecurity in the search for new approaches to adaptation and
survival (Walker et al. 2002; Christopherson et al. 2010).
More recent studies (Jabareen 2013) have shown that the understanding of resilience is
often pursued through limited design, focusing on one single or a small number of resilience
factors. Such concentration may lead to the exclusion of important characteristics that affect
the performance of an organization from the broader perspective of resilience. Considering that
an organization has a variety of social, economic, cultural, environmental, and spatial dimen-
sions, a more general concept of resilience may enable learning from resilience past
experiences—both positive and negative—and identifying manners to improve planning and
to prepare for future disturbance (Perrings 1998; Aad et al. 2010), Resilience can create a better
adaptive capacity for adverse conditions, can develop responses to future conditions (Fiksel
2006), and may broaden the view on organization coordination (Cash et al. 2006).
In this study, we adopted the same broader concept of resilience as adopted by the United
Nations. Resilience is an ability of a system, community or society that is exposed to a danger of
resisting, absorbing, adapting, and recovering from the effects of a hazard in a timely and efficient
manner, which includes the preservation and restoration of their vital structures and functions
(UNEP 2009).
Already the sustainability of an organization is based on sustainable development, which
aims to meet current needs without compromising the needs of future generations (WCED
1987), and to respond to the needs of the stakeholders of a company (Dyllick and Hockerts
2002). Stakeholders are groups with distinct interests that interact with organizations. These
groups are present in society, customers, suppliers, employees, and governments (Elkington
and Hartigan 2013). Sustainability is defined at the macro level of societies; when incorporated
into the organization, it encompasses three pillars, namely the economic, the environmental,
and the social. These three dimensions interact with one another (Ebner and Baumgartner
2006; Bambara et al. 2015; Thomas et al. 2015). Thus, the sustainability of an organization has
become one of the main focal points of contemporary management (UNEP 2013; IPCC 2014).
Therefore, resilience is a key concept for operationalizing the sustainability of an organi-
zation. Although sustainability is a set of socially derived goals that combine social equity,
economic viability, and ecological integrity, resilience conceptual framework and a modeling
approach that indicates the phenomena that will facilitate or inhibit the achievement of
normative sustainability goals (Starr and De Oliveira 2003).
Thus, resilient organizations can absorb, adapt, and respond to changes in a system in
which they have been inserted. Therefore, resilience relates to the contemporary goals of
 Systemic Practice and Action Research

sustainability, governance, and economic development. Each of these issues is seen through
the lens of the ability of a system to convey information and resources. In these terms, the
resilience becomes the center of the reasonable planning efforts of an organization (Burnard
and Bhamra 2011; Ates and Bititci 2011).
In this way, organizations that adopt resilience strategies through integrated and systemic
approaches reduce vulnerability and risk by enhancing adaptive capacity in line with sustain-
able development (ICLEI 2015). Organizations and communities that can develop learning-
oriented skills can transform critical situations more quickly and efficiently, and efficiently;
hence, these skills allow them to visualize the world in a manner that is differentiated and more
reflective of the reality (Kay 2002; Walker et al. 2004; Walker et al. 2002; Forrester 1997).
Although several authors understand that strategic issues are dynamic in nature, most
approaches and methods follow linear criteria (Gröbler 2007). In fact, the system dynamics
approach was developed to assist the administration of complex industrial systems (Forrester
1997). However, the model proposed by Forrester (1968) fits urban, economic, organizational,
and environmental systems. The system dynamics approach seeks to facilitate the understand-
ing of the evolution of systems over time, based on the analysis of behavioral patterns and of
the structures thereof. It builds on the endogenous behavior of the system, conditioned by the
manner in which parties influence one another (Kay 2002; François 1999; Folke et al. 2002).
Thus, system dynamics is a discipline to improve learning in complex systems, such as
organizations. By improving the understanding of complex systems, we may improve resil-
ience. System dynamics analysis is applied to the behavior of human, physical, and technical
systems, and it is based on cognitive and social psychology, economics, and other social
sciences. System dynamic models are constructed to solve important real-world problems.
Successful approaches to learning about complex systems dynamic require (1) tools to trigger
and represent the mental models we advocate about the nature of difficult problems; (2) formal
models and simulation methods to test and improve our mental models, to design new policies,
and to practice new skills; and (3) methods to enhance scientific reasoning skills, improve
group processes, and overcome defensive routines for individuals and teams (Dekkers 2015).

Systems Thinking, System Dynamics, Scenarios Planning, and Resilience

System dynamics and systems thinking are applied to dynamic problems that arise in complex
systems, be they social, managerial, economic or ecological. Such systems are characterized
by the interdependence between their elements, by mutual interaction, by information feed-
back, and by circular causalities. (Richardson 2011; Senge 2006). The use of systems thinking
stimulates the change of mental models that lead to the establishment of more effective policies
and actions. (Lane 2016). The synergic use of systems thinking, scenario planning and system
dynamics has been helpful in supporting the strategic process of organizations, since it
generates, the understanding of the complex situation and the learning necessary to promote
profound changes in the system. (Morandi et al. 2014; Serrano et al. 2018; Souza et al. 2018).
Resilience is considered a complex problem since it involves the interaction of multiple actors
whose actions must be coordinated to treat the problem as a whole and not in a fragmented
way. (Blackman et al. 2017).
The systems thinking originated as a criticism of the comprehension of the whole and its
parts, encompassing a synergy of opinions, from the premise that the whole is greater than its
parts; thus, the world is the basis for understanding and interpreting interrelationships within
Systemic Practice and Action Research

systems (Bellinger et al. 2004). Interrelations are the links that are responsible for the
functioning of systems and are the result of behavioral patterns. The ability to perceive reality
is composed of four levels that act simultaneously, namely the events, the patterns of behavior,
the systemic structures, and the mental models (Kemeny 1994).
The events point to the first perceptions of occurrences; practically, they establish a reactive
action with a preventive approach, thus reacting to a situation and providing a fragmented
reality of the facts. However, they influence the changes in the more submerged patterns of
behavior of human perception. To accomplish this influence, an analysis of historical events
would help to understand apparently recent events, which may be older than one may think,
having already occurred in another time or situation (Senge 2006).
Systemic structures are perceived only when it is possible to correlate events in a controlled
environment of cause and effect; the results of this perception are obtained when the inter-
ventions of levering change. Mental models act within the structure and enhance the ability to
think more deeply. Through our mental models, we define constructs, create metrics, and
design systems. Mental models condition the perceptions we form. The changes in our mental
models are limited by what we have previously chosen to define, measure, and attend (Sterman
2000). ‘Seeing is believing and believing is seeing’ (Sterman 2000 p.24).
The concept of the mental model has been central to understanding the system dynamics.
Forrester (1961) emphasized that all decisions are based on models, which are often mental
models. In system dynamics, the term “mental model” includes our beliefs about cause-and-
effect networks that describe how a system works along with the model boundary (which
variables are included and which are excluded) and the time horizon we consider relevant—its
framing or articulation of a problem.
In this way, the system dynamic modeling offers the possibility to reassess the mental
models of the actors in a process, thus allowing obtaining safer experiential learning than that
obtained in the real world. Without interfering with a real system, by means of computer
simulation offers the ability to build a safe environment in which the adherence of the model to
the variables can be tested in a known context by using past data (Sterman 2000). The system
dynamics uses a qualitative model, for example the systemic structure (closed-cycle diagram),
to convert it in a quantitative model (computational model).
Simulation is the only practical manner to test these models. The complexity of our mental
models far exceeds our ability to understand its implications. Without simulation, even the best
conceptual models can only be tested and improved by relying on real-world learning
feedback; however, the feedback is too slow and often ineffective owing to dynamic com-
plexity, time delays, inappropriate feedback, ambiguity, weak reasoning skills, defensive
reactions, and the experimentation costs. Under these circumstances, simulation becomes the
only reliable manner to test hypotheses and evaluate effects (Forrester 1968; Sterman 2000).
Modeling is a continuous process of interaction between problematic articulation, hypoth-
esis generation, data collection, model formulation, testing, and analysis (Dekkers 2015). As in
all systems, the complex system is an interlocking structure of feedback loops. This loop
structure involves all public or private, conscious or unconscious decisions. The processes of
man and nature, psychology and physics, medicine and engineering occur within this frame-
work (Forrester 1968).
The feedback structure of a system generates its behavior. Most of the dynamics observed
in the real world are examples of a small set of basic patterns or modes of behavior. Three of
these modes are fundamental, namely the exponential growth, the goal seeking, and the
oscillation. Each of these modes is generated by a specific underlying feedback structure.
 Systemic Practice and Action Research

Exponential growth is generated by positive feedback processes, goal seeking is generated by

negative feedback, and the oscillation is generated by negative feedback with delays. More
complex patterns of behavior, such as the S-growth, overgrowth, and excess and collapse,
result from the non-linear interaction of these basic feedback structures. Every link in a
diagram should represent causal relationships between variables, without including correla-
tions between variables (Dekkers 2015).
Systemic structures aim toward the development of a rational model that would enable the
identification of the related key variables, thus revealing the main modules that would serve as
pillars for the dynamic modeling of the system. The current reality (AS IS), the uniform-
distribution reality of resources, the marketing investments, the investments in solid waste
treatment, and professional qualification have revealed modeling scenarios because they
support the systemic structure for the attainment of resilience.
Scenarios planning can be used together with systems thinking in order to visualise how the
analysed system would evolve in the future. This projection can be done in a qualitative way,
but the use of a system dynamics model lead to a computational simulation of the scenarios. It
is considered essential for the materialization of scenarios and contributes significantly to
organizational learning. The models are qualitative and quantitative and are essential to the
visualization of quality scenarios in terms of employing the appropriate logic in the studied
context (Schwartz 1996). This process generates a high degree of learning in patterns and
definitions because it allows confronting new presuppositions and specific actions. In this case,
these assumptions are tested qualitatively and quantitatively through the dynamic model. The
projection of scenarios seeks to visualize possible futures, and the decision makers take actions
to achieve the desired future based on the forces that shape the present (Schwartz 1996; Van
Der Heijden 2009).
In addition to using systems thinking, the system dynamics approach has been widely used
to contextualize scenarios (Suryani et al. 2010; Morschbacher 2009). In this manner, system
dynamics together with the projection of scenarios facilitate the understanding of the systemic
relations in the processes. Thus, it contributes to a more effective decision making for
organizations. Alternative scenarios can be tested in comparison with the mental models of
decision makers (Morecroft 2015).

Reference Indicators for Resilience

As a result of the review of the literature on resilience, three tools have been identified as ways to
assess the resilience of a region: a) the City’s Disaster Resilience Scorecard (CDRS), b) the
Community Resilience Index (CRI) and c) the Community Based Resilience Indicators (BRIC).
The CDRS is an evaluation tool that is aimed at establishing a measure of resilience levels
to identify priorities for investment and action and to monitor resilience over time (Unisdr
2012). The CDRS has 90 evaluation criteria, which are organized into 10 categories and are
scored within a range of 0 to 5. The indicator is detailed and can be used as a facilitating tool
for cities and organizations to engage with resilience (Stevenson et al. 2015). One of the
limitations of the CDRS is the high cost, which results from the amount of data required for the
application of the tool. In addition, the indicator requires that the city or organization have a
well-developed and structured risk assessment (Unisdr 2012). Special emphasis should be
placed on this requirement because CDRS is a tool that employs primary data; the obtained
results are subjective and are subject to the evaluation and perception of different people.
Systemic Practice and Action Research

The CRI is a composite indicator that uses secondary data to measure adaptive resilience
capabilities (Sherrieb et al. 2010). In a similar manner, Norris et al. (2008) developed a
community resilience framework, which was composed of four categories of resources,
namely economic development, social capital, information and communication, and commu-
nity. Although the CRI has statistically identified and validated 7 out of 10 indicators for the
categories of economic development and social capital. The CRI has statistically identified and
validated 7 out of 10 indicators for the categories of economic development and social capital;
however, it is limited to these two categories only. The indicator does not provide a complete
validation, and it appears to be only an initial part of the identification of resilience capacities
(Sherrieb et al. 2010).
Similar to the CRI, the BRIC is a composite indicator that employs individual variables to
measure resilience. The tool was developed by Cutter et al. (2010) and by Cutter et al. (2014).
The indicator stands out for to use data that is mostly publicly accessible, facilitating
replicability and adaptation to other contexts, reducing the cost of implementation. However,
the BRIC uses individual US-specific variables (Singh-Peterson et al. 2014; Frazier et al.
2013). This indicator stands out for the use of data that are mostly publicly accessible, thus
facilitating replicability and adaptation to other contexts and reducing the cost of
implementation.
However, none of the indicators for measuring resilience has the ability to articulate and
verify the interaction between the factors and elements that are involved in a living context (a
city, a region, a company) assessing the systemic impact of the actions of its actors. In order to
fill this gap and to evaluate the systemic impact of corporate investments on factors that
determine the increase of resilience, in this study we seek to develop a dynamic model capable
of showing these impacts. Thus using system dynamics, allied to the projected scenarios, and
application of the BRIC to facilitate the understanding of the systemic relations in the processes.

The Research Method

The studied system was that of a footwear industry located in a city in the south of Brazil. The
main source of economy of the city is the footwear sector. Up until 1995, the vast majority of
companies in the region produced exclusively for the foreign market. Production was mainly
based on the “footwear-commodity” (non-value-added footwear) business model and was
exported to more than 80 countries. At the time, the favorable exchange rate stimulated
industries to produce basic footwear without differentiation, design, and style, which were
quickly bought by the foreign market at very low prices in large quantities. After the
implementation of a new currency in Brazil in 1994, and the consequent devaluation of the
local currency (Real) against the US Dollar, the companies were no longer able to negotiate
their products with the foreign market because production costs remained the same and the
advantageous exchange rate disappeared.
Facing this conjuncture change, the alternative for the established companies in the city
(approximately 60 companies) was to migrate to the domestic market. However, the domestic
market demanded products with added value, and it was no longer possible to produce
footwear commodities. Based on this premise, the companies organized themselves through
the Employers’ Union in partnership with the Employees’ Union and the local City Hall to
reverse the critical situation because the footwear industry represents five thousand direct jobs
and approximately ten thousand indirect jobs in the region.
 Systemic Practice and Action Research

The chosen alternative was to pursue the intensive professional qualification for the development
and production of new products through the creation of footwear schools and school factories, as
well as for investments in industrial marketing, positioning, and value delivery to brands.
On the other hand, the production of footwear generates a great amount of solid waste;
throughout the golden years of the footwear-commodity model, waste was stored in a city-wide
waste dump. Owing to the use of new materials in production, the new business model that was
oriented toward the domestic market was a generator of waste as well. Thus, the involved
institutions and manufacturers were concerned with the treatment of solid waste as well.
A project for solid waste treatment was developed, involving the processing and transfor-
mation of the waste into an input for the production of cement; making it possible to sell the
waste (both stored and new waste) to cement companies. The efforts and the investment in the
treatment of solid waste resulted in the extinction of the environmental liabilities of the city in
December 2016.
Given the previously described evolutionary scenario, five main learning scenarios were
identified: (i) the AS IS, (ii) the uniform distribution, (iii) the labor training scenario, (iv) the
value-added marketing, and (v) the solid waste treatment. The objective of the present study is
to deepen the knowledge of generating a learning process that would allow a better under-
standing a better understanding of the factors that influence the regional resilience and the
improvements in production processes. In the present work, to deepen the knowledge of
generating a learning process that would allow a better understanding to draw comparative
results for situations, we have established four other scenarios, which will be referred to as
comparative scenarios in relation to the main scenarios: (i) exchange variation and low-level
crisis, (ii) exchange variation and high-level crisis, (iii) small exchange variation and high-
level crisis, and (iv) large exchange variation and low-level crisis.
Action research was the chosen research method, due to the need of a cooperative and
participative involvement between the researchers and the participants of the system in
analysis. (French 2009). According to Barton et al. (2009), action research allows then
interaction between the environment of the ‘experiment’ and the experiment itself, in which
values play a critical role. In this research this cooperation was primordial to access the tacit
knowledge of the participants and translate it into the systemic structure. Based on that
knowledge, a system dynamics model was generated, which focused on the problem of urban
resilience. The use of models allows a better understanding of reality, identification of
problems, formulation of strategies and opportunities, and of support to the decision-making
process (Forrester 1997; Morecroft and Sterman 1994; Tsujimura and Yamazaki 1997;
Sterman 2000). The model was quantitative, with mathematical and computational language,
because it was modeled in a specific simulation software (i-Think). In addition, graphical
functions were used based on the opinion of experts and stakeholders. The study was based on
a detailed empirical research, which was aimed toward the creation of a model that would
adequately describe the causal relationships that may exist with reality and that would lead to
an understanding of the real processes (Forrester 1997; Goodman 1974; Sterman 2000).

Work Method

Action research was the research method chosen to conduct this research. The first step was the
definition of the participants. The criterion to be part of the research group was the knowledge
of the participant of the system being studied. In this way, 3 representatives of the Employers
Systemic Practice and Action Research

‘Union, 2 representatives the Employees’ Union, the City Hall, and 35 entrepreneurs in the city
were invited and took part in the research.
In-depth interviews were conducted with the group members, in order to gather data and
information related to the past 30 years, such as billing with commodity shoes and value-added
footwear, final price of commodity shoes, value-added footwear for the domestic and foreign
markets, sale of treated waste revenues’ from the, solid waste treatment capacity, demand from
external and domestic markets, production capacity for value-added shoes and commodity footwear,
production cost of value-added footwear and commodity, cost of labor training, cost of marketing,
cost of solid waste disposal, cost of solid waste treatment, solid waste generation capacity, removal
cost of solid waste, and the cost of externalities. From these interviews it was possible to collect the
information about the relations between the several variables that were then transcribed in the form
of a casual loop diagram. The group members were also responsible for the scenarios definition.
Based on the potential investments identified during the interviews – labor training, value-
added marketing and solid waste treatment - five scenarios were defined, in order to evaluate the
impact of each investments over the resilience. The first scenario named (i) AS IS, considers the
current budget distribution; the (ii) uniform distribution considers an equal distribution, the (iii)
labor training, the (iv) value-added marketing and (v) solid waste treatment scenarios consider
that all the budget would be invested in only one of them. These scenarios represented the
leverage points for the attainment of resilience—thus constituting the five pillars of the
developed computational model—and highlighted the resilience indices within each context.
In order to characterize the scenarios, secondary data were collected from sources such as
the Central Bank of Brazil in order to determine changes in the exchange rate during the past
30 years. Furthermore, we obtained data on the demographic development of the region from
the Brazilian Institute of Geography and Statistics (IBGE) in order to build on the history of
learning scenarios for the next 10 years.
Based on the casual loop diagram and using the primary and secondary data, a quantitative,
computational, and mathematical model was developed in the iThink software, using a flow and
stock logic, for scenario simulation. Since there is no historical data for resilience and no
mathematical relation between the studied variables and the resilience, we decided to use quali-
tative relations named “graphical functions” in the iThink software. These qualitative relations
were built with the group members participation, in order to reflect their perception about the
influences. The following sections describe the process of construction and validation of the model.

The Systems Dynamic Model

The systems dynamic model was based on the casual loop diagram drawn from the interviews
of the stakeholders and the data obtained in the documentary research. The casual loop
diagram, shown in Fig. 1, consists of the transcription of the interviewees’ speeches, using
the systemic syntax. (Morandi et al. 2014; Serrano et al. 2018; Souza et al. 2018).
This diagram aims to represent how the different types of investments that can be done by
the organization, would impact over the city resilience. For example, investment in marketing
and product development brings new product to the portfolio, and require more qualified
workforce, which increase the income of the city population, reflecting in higher resilience.
Investments if labor training – shoe school – contributes to a more qualified workforce and
reflects on the organization competitiveness. Being more competitive, the organization market
share increases and the production, revenue and profits also increase. More profit means more
 Systemic Practice and Action Research

Fig. 1 Systemic structure. Source: Authors (2017)

tax payment, and more local government investments, leading to more resilience. By investing
in waste treatment and recycle, the organization crates a new source of revenue, but more then
this, it avoids solid waste disposal. Solid waste disposal, if not done in a correct way, can bring
ground pollution and can cause urban problems, reducing the city resilience.
Based on this casual loop diagram, the systems dynamic model was built (Fig. 2).
To represent the resilience index, we have used certain measurement factors that are
used in the BRIC as well, such as economic, social, and cultural data (obtained from
the research conducted with the IBGE), infrastructure data, and institutional data
(obtained from the interviews with the stakeholders). Moreover, as the investigation
was based on the progressive approximation of a given problem, we used the heuristic
to develop the model. For each of the flows/stocks of the main pillars (labor
capitation, value-added marketing, and solid waste treatment), a related index was

Fig. 2 Computational visualization model. Source: Authors (2017)

Systemic Practice and Action Research

generated, which was responsible for generating the resilience index for each of these
pillars. Together with the Action research group, weights of importance were attrib-
uted according to the perception and experience of the members of the group, and
from there, an indicator was developed It should be noted that this indicator devel-
oped by the Action Research group is not an indicator to compare the resilience
between cities, as is the case of the BRIC inducer, but rather, serve as a reference for
the evaluation of the learning scenarios addressed in this study.

Model Validation

Models are constructed through the consolidation of known facts in a single moment (Hodges
1991). When experimentally validated, each unique model can be used for analysis, as a
substitute for the real system. Unfortunately, for several cases, this validation is not possible to
be performed. This may be attributed to a multitude of factors, such as the impossibility of
obtaining accurate measurements, theoretical immaturity, unpredictable external interferences
or even non-linearity of systemic behavior (Bankes et al. 2010).
In this manner, no model is valid or verifiable in the sense of establishing its truth.
The question that the involved modelers face is not whether a model is true, but
whether it is useful (Dekkers 2015). The choice is not whether to use a model, rather
which model to use. Selecting the most appropriate model is always a judgment of
value to be made with reference to the purpose. Without a clear understanding of the
purpose for which the model is intended to be used, it is impossible to determine
whether to use it as a basis for action (Forrester 1997).
Models rarely fail because of modelers using the wrong regression technique or
because the model did not fit well with historical data. Models fail because no
additional basic questions are raised regarding the suitability of the model for its
specific purpose; this occurs because the model violates basic physical laws, such as
the conservation of matter because modelers have not included important stakeholders
in the modeling process (Forrester 1997).
To avoid such problems, in the present study, we prioritized the highest possible rigor
regarding the standards, the documentation, and the interview findings. Hence, the generated
model would be very accessible and available for critical review.
In situations where there is no historical data - as is the case of the present study -
it is not feasible to validate the model. (Walker et al. 2003). However, a model does
not lose its usefulness, because it can not be validated. (Sterman 2000). The model, in
these situations, allows to visualize how the system behavior would be if the assump-
tions adopted were correct, which is configured in the exploratory modeling (EMA)
analysis. (Bankes 1993). In these cases, a valid model is what is useful to those who
will use it, allowing better decisions to be made. (Sterman 2000; Forrester 1961).
Thus, in this research the outputs of the model were generate for each scenario and
were presented to the stakeholders so that they could evaluate the plausibility of the
results. The behavior of the resilience index was initially evaluated for the ASIS
scenario. Once validated, the other scenarios were evaluated in order to verify if the
behavior demonstrated by the model was compatible with that expected by the
specialists. For each scenario the results were discussed and an explanation was
formalized that is presented in the next section.
 Systemic Practice and Action Research

Analysis of the Scenarios

In this study, the main objective is to analyze the dynamics of the footwear industry
system in a region in the south of Brazil. The secondary objectives are the develop-
ment of a systems dynamic model in order to visualize the projection of learning
scenarios that would simulate the capacity for improvement and increase the regional
resilience for a ten-year horizon. It was verified that the dynamics of the footwear
industry system in this region followed a logic that was inverse to which was
practiced up until the mid-1990s. The unfavorable exchange situation caused the
industry to return to look at the domestic market, but this was preceded by radical
transformations in manufactured products, manufacturing processes, the relationship
with consumers (in both business-to-business (B2B) and business-to-consumer (B2C)
contexts), and the general marketing activity. Thus, a new system dynamics approach
was generated, including the production of footwear with high added value and the
development of new markets, which culminated in the development of new business
models.
From this systemic analysis, five learning scenarios were identified, which simulated the
capacity for improvement and for an increase in the resilience of the region.
a). Learning scenario AS IS

This scenario described the present state of the studied context, representing the investments,
costs, flows, and inventories that were effectively handled at the moment in which the pillars
were formed, namely the training of labor, the value-added marketing, and the solid waste
treatment.
b). Learning Scenario Uniform Distribution

This scenario described a situation that simulated the uniform distribution of investments,
costs, flows, and inventories in labor training, value-added marketing, and solid waste
treatment.
c). Learning Scenario Professional Qualification

This scenario highlighted the need for the continuous training of footwear professionals. The
new business model that placed a value-added product in the factories generated the need for a
skilled workforce, which until then was not required. The establishment of master shoemaker
schools and the training of young apprentices must be constant to contribute to the resilience of
the region.
d). Learning Scenario Value-Added Marketing

This scenario described the migration from the production of commodity footwear to the
production of value-added footwear. In this scenario, the investment in industrial marketing or
value-added marketing is the leverage link of the economy of the region, as it has enabled the
increase in industry revenues. The opening of new internal and external markets was essential
for the development of this new business model. In this sense, value-added marketing acts in
the formation of the concept of the new business model, in the dissemination and attraction of
the internal and external markets, thus transforming the maintenance of the fundamental
investment for the survival of the new business model. Local resilience is directly linked to
the level of corporate billing.
Systemic Practice and Action Research

e). Learning Scenario Solid Waste Treatment

This scenario showed the trajectory of solid waste treatment and its relation to the regional
resilience process because in order for a region to present resilience, corporate sustainability is
necessary. Corporate sustainability is based on sustainable development, which aims to meet
current needs without compromising the needs of future generations (Cash et al. 2006). Thus,
the process to achieve the desirable resilience triggers actions that inhibit harmful effects on the
environment. From the systemic analysis, four more scenarios were identified to be compared
with the aforementioned five learning scenarios.

Scenarios of Comparison

The comparison scenarios simulated four situations in an environment of appreciation or

devaluation of the Brazilian currency in relation to the US Dollar. In addition, they considered
the possibility of absence or presence of economic crisis in the country. These comparison
scenarios were confronted intersected with the aforementioned five learning scenarios to
identify the factors that influenced resilience.

Discussion of Findings

To analyze the results obtained through the computational model, several simulations were
created. In the first simulation, the situation of no investment in labor qualification, value-
added marketing, and treatment of solid waste was considered. As may be observed in Fig. 3,
the results of the analysis verify that the existing resilience is of medium level and tends to
decrease, ultimately reaching very low levels in the projected horizon of 10 years.

Fig. 3 Graphical representation of resilience without investments. Source: Authors (2017)

 Systemic Practice and Action Research

This result was expected, since in the model, resilience is supported by the organization’s
investments, not being considered other sources of increase. However, as may be observed in
Fig. 4, the prognosis changes if we consider the current pattern of investment (AS IS) which is
a non-uniform distribution between labor qualification, value-added marketing, and solid
waste treatment. In the current distribution, the value added marketing receives a greater
amount of investment, followed by labor qualification and solid waste treatment. In this case,
the resilience tends to rise rapidly and steadily, reaching its maximum point in 2021. The
second scenario analyses the projection of a uniform distribution of resources for investments
in labor training, value-added marketing, and solid waste treatment. Although at the end of the
period, the resilience reaches the same value as in the first scenario, it first slows down and
took many years to recover. The explanation for this behavior lies in the fact that investment in
value-added marketing has been reduced and this is the investment with more immediate
return to revenue and profit, allowing new investments.
When the training of labor is analyzed in isolation, in the third scenario, it may be verified that
in the current state, the resilience is of medium level and projects toward a gradual growth;
however, it still cannot reach full resilience after ten years. It means that, without investment in
value-added marketing, trained workforce cannot give the full contribution to the systems. In the
case of value-added marketing, if analyzed in isolation in the fourth scenario, there is a continuous
and steady growth, which almost reaches full resilience after 10 years, but the contribution of
other investments prevents the resilience of reaching higher levels. Finaly, the fifth scenario
analyses the impact of the investment only in solid waste treatment. In this scenario the starts from
a state of average resilience and tends to fall, reaching very low levels of resilience in the projected
horizon of 10 years. It means that this kind of investment contributes to the city resilience, but is
unable to sustain it. Without investing in value added marketing and training the organization
cannot bring the full contribution to the city resilience. This is because value-added marketing
investments present reinforcing elements, making the corresponding scenario more important to
increase region’s resilience. Investments in value-added marketing push demand, which in turn
leads to increased production and, consequently, higher financial returns.

Fig. 4 Overview of resilience. Source: Authors (2017)

Systemic Practice and Action Research

Thus, the remaining resources for investments could even re-feed the same scenario (value-
added marketing) by showing a reinforcing link, or be applied to the other scenarios.
Therefore, higher companies’ profits generate greater payment of taxes, and thus a larger
municipality budget for public investments. On the other hand, business growth leads to more
jobs, which increase the incomes in the region, thus causing the whole economy to boost. In
turn, public investments also heat up the economy, generating a virtuous cycle.
Out of the three scenarios treated in isolation, the one that points toward better results is the
value-added marketing scenario. The reason is that in this new business model, value-added
marketing is responsible for raising and maintaining billing. In its turn, labor training reflects
the new business model as well; however, investments for such professional qualification are
constant, which cause the resilience curve to receive lower values than those of the marketing
curve. On the other hand, when the solid waste treatment is treated in isolation—although
indispensable—it receives continuously low resilience values, thus presenting a decreasing
resilience trend.
These scenarios were then confronted with four other learning scenarios, which
simulated a situation of investments in AS IS, uniform distribution, training of labor,
value-added marketing, and treatment of solid waste within the following contexts: the
exchange variation was negative and the crisis was nonexistent, the exchange varia-
tion was positive and the crisis was nonexistent, the exchange variation was positive
and crisis existed, and the exchange variation was negative and crisis existed.
Regarding the AS IS scenario as may be seen in Fig. 5, the context of negative exchange
variation and existing crisis slightly affects the AS IS scenario in terms of the rate in which
resilience is reached; in general, however, it does not inhibit the attainment of resilience (2021).
As may be observed in Fig. 6, when the uniform distribution scenario is studied in isolation,
resilience is reached at a slower rate. Moreover, within the context of a positive exchange rate
and nonexistent crisis, the uniform distribution scenario reaches resilience at a higher rate, after
the year 2023. However, within the context of negative exchange variation and existing crisis,
the resilience suffers a fall and cannot reach high levels.

Fig. 5 AS IS context and exchange variation and crisis. Source: Authors (2017)
 Systemic Practice and Action Research

Fig. 6 Uniform distribution context and exchange variation and crisis. Source: Authors (2017)

The best scenario in the case of uniform distribution would be the scenario represented in
the graph of number 4 that simulates a situation of negative exchange rate variation and
inexistence of economic crisis. In this context, the internal market is strong and the chinese
competition is weak. By investing in a wide range of areas, the organization takes benefits of
this positive environment. Resilience would increase gradually and slowly from 2020 and this
could be a strategy to be used in the case of the uniform distribution of resources.
The labor-training scenario (Fig. 7) was sensitive to the context of negative exchange
variation and existing crisis, as well as to that of negative exchange variation and nonexistent
crisis. In these cases, the resilience suffers a significant fall. This is because when the dollar is
down, China’s competitiveness is strengthened and, in this context, labor training becomes
indispensable to face the market with differentiated products with higher added value.

Fig. 7 Context of exchange rate variation and crisis in relation to the training of labor. Source: Authors (2017)
Systemic Practice and Action Research

In Fig. 8, the scenarios related to value-added marketing remain practically unchanged

regardless of whether they are treated in isolation (no exchange variation context or crisis),
whether the exchange variation is positive or negative, and whether there is an economic crisis
or not. This means that the investment in marketing is robust, allowing the company to
position itself positively in any scenario.
The solid waste treatment scenario (Fig. 9) starts regardless of the scenarios of comparison
with a medium resilience, however, it can not maintain a significant drop due to the high costs
of maintenance and treatment of this waste. Even with the possibility of selling treated waste
the investments are very high and in isolation can not be sustained. Also in this context the
exchange rate variation or the economic situation does not influence the results.
In another simulation (Fig. 10), a synergistic effect may be observed because when the three
scenarios are applied simultaneously both without to compare with the scenarios of exchange
variation and economic crisis, the resilience is reached in the middle of 2019 (Fig. 11).
The contexts of synergistic effects present the best scenario for achieving resilience in the
region, regardless of whether exchange rate variation is positive or negative, or whether the
economic crisis exists or not.
According to the simulations presented, the synergistic effects contexts (AS IS Scenario)
present the best scenario to achieve resilience in the region, regardless of whether the exchange
variation is positive or negative, or whether the economic crisis exists or not. Moreover, the
investments with the greatest positive impact are those related to the labor qualification and
value-added marketing scenarios. However, investments in value-added marketing have
elements of reinforcement, making the corresponding scenario more important to increase
the resilience of the region. Investments in value-added marketing drive demand, which in turn
leads to increased production and, consequently, higher financial returns.
Since historical data were not available to validate the results of the model, we sought a way
to analyze them in greater depth to verify the plausibility of the findings. In order to do so, the
closed loop diagram originally constructed was expanded to include BRIC variables, as shown
in Fig. 12. From this new diagram it was possible, at least qualitatively, to verify that the
proposed investments in the scenarios effectively lead to greater resilience. In addition to this

Fig. 8 Value-added marketing and exchange variation and crisis. Source: Authors (2017)
 Systemic Practice and Action Research

Fig. 9 Solid waste treatment and exchange variation and crisis. Source: Authors (2017)

first conclusion, it was possible to verify that the investments in value-added marketing could
even feedback the same scenario (value-added marketing) showing a reinforcement link or be
applied to the other scenarios. Therefore, the greater profits of the companies generate greater
payment of taxes and, therefore, a bigger municipal budget for public investments. On the
other hand, business growth leads to more jobs, which increases incomes in the region, making
the whole economy grow. In turn, public investments also heat up the economy, generating a
virtuous cycle.
In addition, a qualitative analysis of the individual impact - positive, neutral or negative - of
each investment on each BRIC variable was also conducted. Once again, the investments in
labor training and in value-added marketing were those with the greatest positive impact, as it

Fig. 10 Synergistic effect. Source: Authors (2017)

Systemic Practice and Action Research

Fig. 11 Synergistic effect and exchange variation and crisis. Source: Authors (2017)

can be seen in Table 1. The negative impacts caused by marketing investment are related to
greater populational migration, since with the growth of the footwear sector it may be necessary
to bring in workforce from outside the city. Details of this analysis are available in Appendix.
The present study developed a systemic structure that identified the seven scenarios previ-
ously mentioned after introducing the five pillars and the thirty-six BRIC variables. From the
qualitative analysis of the systemic structure, it emerged that of all BRIC variables, only three
are not affected by the investments made in the community: social capital religion, civic
involvement, and political engagement. Instead, most variables are positively influenced by
investments. However, some investments may negatively affect the region’s resilience. Invest-
ments in marketing, for example, generate business growth, which may lead to migration, since

Fig. 12 Systemic structure with BRIC. Source: Authors (2017)

 Systemic Practice and Action Research

Table 1 Impacts of investments in the BRIC - Source: Authors 2017

Impact Type Labor Training Value-added Marketing Solid Waste

Negative 0% 6% 0%
Neutral 56% 47% 97%
Negative 44% 47% 3%

the need for more specialised labour may increase, thus directly impacting nearby locations. On
the other hand, the existing migration would also reduce the percentage of vacant rental units.
Investments in public safety affect life expectancy, which would increase the average population
age. Moreover, the safety of the city could also attract migration, again impacting nearby
locations. Thus, the analysis of the systemic structure showed the synergetic and systemic effects,
as well as the convergence of the pillars and variables with the scenarios identified in the study.

Final Remarks

The model utilized the learning scenarios to provide a better understanding of the factors that
influence the regional resilience and the improvements in production processes. It was possible to
verify, through the systemic evaluation that using the strategic actions that were produced by the
new business model the influence of the exchange variation was no longer a relevant factor and
that the discontinuity of investments in strategic issues, such as value-added marketing, solid
waste treatment, and labor training, could jeopardize the resilience capacity of the region in the
years to follow. Moreover, a synergistic effect was observed; that is, resilience could be more
easily achieved if the scenarios of labor qualification, value-added marketing, and solid waste
treatment were applied simultaneously. In addition, this case remains unaffected by exchange rate
variances and economic crises. The investments with the greatest positive impact relate to labor
qualification and value-added marketing. As investments in value-added marketing are charac-
terized by reinforcing elements, they are more relevant to achieve resilience. Thus, the qualitative
analysis of the systemic structure corroborated the results obtained in the dynamic system model,
which pointed to the value-added marketing scenario as the most important one to achieve and
maintain resilience. It was possible, through the proposed dynamic model, to evaluate the
interaction between the elements and factors that impact the resilience of a region, verifying that
the corporate investments in these determinants for resilience effected in a balanced and synergic
way over time contribute positively to increasing regional resilience.
The limitations of the present study were the lack of organization in the obtained data and
information, which restricted our results within the frame of the constructed model. However,
the model was structured in such a manner, that it would respond and deliver all the expected
results in relation to the projection of scenarios; therefore, it is necessary to provide as input all
the relevant information for the purpose of obtaining more accurate results.
For future studies, we suggest that the projection of new scenarios be such, that it would
deepen the understanding of the influence factors of the regional resilience and of the
improvement in the manufacturing processes, thus allowing the consideration of a greater
class of influence factors. Thus, we propose that the model be extended, including the
community and capital factors (which are provided in the BRIC) to broaden the field of
analysis. In addition, it is suggested that the proposed model be applied in other regions in
order to validate the concepts formulated herein.
Systemic Practice and Action Research

Appendix

Social Resilience labor training value- added solid waste

marketing treatment

Educational Ratio of the pct. Population with Negative Positive Positive Neutral
equity college education to the pct.
Population with
no high school diploma
Age Percent non-elderly population Positive Neutral Positive Neutral
Transportation Percent population with a vehicle Positive Positive Positive Neutral
access
Communication Percent population with a Positive Positive Positive Neutral
capacity telephone
Language Percent population not speaking Positive Positive Positive Neutral
competency English as a second language
Special needs Percent population without a Positive Neutral Neutral Neutral
sensory, physical, or mental
disability
Health coverage Percent population with health Positive Positive Positive Neutral
insurance coverage
Economic Resilience
Housing capital Percent homeownership Positive Positive Positive Neutral
Employment Percent employed Positive Positive Positive Neutral
Income and GINI coefficient Positive Positive Positive Neutral
equality
Single sector Percent population not employed Positive Positive Positive Neutral
employment in farming, fishing, forestry,
dependence and extractive industries
Employment Percent female labor force Positive Neutral Neutral Neutral
participation
Business size Ratio of large to small businesses Positive Neutral Positive Neutral
Health Access Number of physicians per 10,000 Positive Positive Positive Neutral
population
Institutional Resilience
Mitigation Percent population covered by a Positive Neutral Neutral Neutral
recent hazard mitigation plan
Flood coverage Percent housing units covered by Positive Neutral Neutral Neutral
NFIP policies
Municipal Percent municipal expenditures Positive Neutral Neutral Neutral
services for fire, police, and EMS
Mitigation Percent population participating Positive Neutral Neutral Neutral
in Community Rating System
for Flood (CRS)
Political Number of governments and Negative Neutral Neutral Neutral
fragmentation special districts
Previous disaster Number of paid disaster Positive Neutral Neutral Neutral
experience declarations
Mitigation and Percent population covered by Positive Neutral Neutral Neutral
social Citizen Corps programs
connectivity
Mitigation Percent population in Storm Positive Neutral Neutral Neutral
Ready communities
Infraestructure Resilience
Housing type Percent housing units that Positive Positive Positive Neutral
are not mobile homes
Shelter capacity Percent vacant rental units Positive Positive Negative Neutral
Positive Neutral Neutral Neutral
 Systemic Practice and Action Research

Social Resilience labor training value- added solid waste

marketing treatment

Medical Number of hospital beds per

capacity 10,000 population
Access/ Principle arterial miles per Positive Neutral Neutral Neutral
evacuation square mile
potential
Housing age Percent housing units not built Positive Positive Neutral Neutral
before 1970 and after 1994
Sheltering needs Number of hotels/motels Positive Neutral Positive Neutral
per square mile
Recovery Number of public schools Positive Neutral Neutral Neutral
per square mile
Community Capital
Place attachment Net international migration Negative Positive Negative Neutral
Shelter capacity Percent population born in a Positive Positive Positive Neutral
state that still resides in
that state
Political Percent voter participation Positive Neutral Neutral Neutral
engagement in the 2004 election
Social capital Number of religious adherents Positive Neutral Neutral Neutral
religion per 10,000 population
Social capital — Number of civic organizations Positive Neutral Neutral Neutral
civic involve- per 10,000 population
ment
Social capital — Number of social advocacy Positive Neutral Positive Neutral
advocacy organizations per 10,000
population
Innovation Percent population employed Positive Positive Positive Positive
in creative class occupations
Negative 0 2 0
Neutral 20 17 35
Positive 16 17 1
36 36 36
Negative 0% 6% 0%
Neutral 56% 47% 97%
Positive 44% 47% 3%

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and
institutional affiliations.

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Affiliations

Claralucia Prates Machado 1 & Maria Isabel Wolf Morandi 1 & Miguel Sellitto 1

* Claralucia Prates Machado

clara@claramachado.com

Maria Isabel Wolf Morandi

mmorandi@unisinos.br
Miguel Sellitto
Sellitto@unisinos.br

1
Production and Systems Engineering Graduate Program, Unisinos, Av. Unisinos 950, São Leopoldo, RS
93022000, Brazil