Improving strategic management with the fundamental principles of system dynamics

Abstract

Abstract A system dynamics perspective has a powerful logic that offers substantial improvements in dealing with issues in strategic management, whether one‐off challenges or the continuous direction of enterprise strategy. First, successful strategic management of business and non‐commercial organisations requires attention to how performance is changing through time. Since performance reflects the state of resources in any period, steering strategy requires policies and decisions that control the flow rates of those resources. Lastly, this is complicated by the additional dependence of these resource flows on the current state of existing and potential resources at each point in time—a dependence that gives rise to feedback. These principles can be organised into a rigorous approach to strategy that is grounded in solid evidence from the situation of concern. Important implications from this perspective include the unavoidable causal ambiguity caused by accumulating resources, and the value of explicit and quantitative examination of resource development prior to investigating feedback structures. Copyright © 2005 John Wiley & Sons, Ltd.