System dynamics modeling deals with real-world challenges that statistical and spread-sheet approaches simply cannot handle, because it deals properly with accumulation and threshold effects, delays, interdependence and feedback. But the process often takes too long, costs too much, and demands too much time from busy people. It can also be hard to anticipate the likely benefits that will result from policy changes that eventually emerge.

An "agile" approach focuses first on creating the simplest possible working, quantified model, then building out in incremental steps. The model is continually validated and continually delivers insight and value. The process is strikingly similar to agile development processes now widely used in the information-systems world, and has the added advantages of being more reliable and easier for young professionals to implement.

In spite of a half-century of effort, formal methods for developing and implementing strategy (for all kinds of organisations and issues) remain inadequate - abstract, qualitative, subjective and unreliable. It is therefore little surprise that most such methods are neglected, leaving 'strategy' to be driven either by fads and fashions or by financial methods that reflect nothing of what is happening in the enterprise 'system'. This poor state of affairs persists because the strategy field is built on desperately weak theory, largely derived from statistical methods. These simply cannot handle real-world mechanisms - accumulation and threshold effects, delays, interdependence and feedback - that have long been acknowledged, but neglected. Every enterprise is, in reality, a designed system (whether consciously or otherwise), which is precisely what the principles of engineering exist to handle. This article explains in highly summarised form how these principles apply to the design and management of strategy, in terms that well-informed executives, analysts, students and consultants can readily understand and use.

Kim says: "I’ve fumed about the strategic errors that have got so many firms into the mess in which they now find themselves, but I guess you might like some idea how to get out of a hole? I recently gave a short session on one approach to this with a class of 50 senior execs, and was reminded about a project I did to help a company dig itself out of trouble last time round, after the 2001/02 debacle.

In summary, the principle is that - like Starbucks [see blog post] - management rushes into over-expansion in good times, chasing more of those high-spending customers, launching more products and services to sell them, and adding capacity and staff to make it possible. In the process, they add quantity to these four resources, but don’t notice the falling quality - especially lower-spending customers, and products that don’t add sufficient truly incremental sales and margin.

The end-result is a bloated business that just about stays in the air while market conditions are good. When things get tough though, the chickens come home - marginal customers and products collapse into loss-makers and you are left carrying the heavy staffing and capacity costs. How to dig out of the hole?

Well - not by across the board cost-cuts and sackings [a friend told me of a star exec at HSBC fired at the cost of 18 months' salary, when his expertise will be desperately needed within 9 months!]. You need to ‘re-architect’ the business back to a healthy core that is both profitable and capable of re-energising its growth. That’s what the article explains [only in simple terms of course - there's much more detail to doing it in practice].

So it’s not a question of cutting back, so much as cutting out - gardeners amongst you might think in terms of ‘pruning’ - cutting out weak and diseased branches so the plant can put all its energy into its strongest limbs."