What is Strategy Dynamics?

Strategy Dynamics explains how business performance has developed up to the current date, and how to develop and implement strategies to improve future performance. The approach emphasises building and sustaining the resources and capabilities needed to succeed.

Strategy Dynamics focuses on performance over time. The ultimate concern of strategic management is to quantitatively improve performance through time, sustainably. This can apply to the enterprise as a whole, or for a key function of interest [e.g. sales]. This means answering some challenging questions:

• Why is performance following its current path?
• Where will performance go if we continue as we are doing today?
• How can we design a robust strategy to radically improve that performance into the future?

The chart shows how these questions might look for Starbucks in 2008.

The trajectory that performance is following at any time depends, strongly and unavoidably, on what has occurred over the organization's history. The method therefore starts from a time-chart of the organization's performance over its relevant history, and into the future, as measured by one or more conventional indicators [e.g. revenue or profits].

Starting from the view of looking at how performance is changing over time, the method works logically through three stages. (Click each for more info)

When combined, the principles create an integrated diagram that depicts the 'physics' of the system, known as the 'strategic architecture' and how this system determines performance through time. These pictures are very similar to the flow-charts found in chemical process plants or power-transmission systems, for example. These display not only a diagram of the system, but also where material or objects are located, how quickly they are moving and what human controls are acting on to make the system perform as we want.

Once this core architecture is complete, whether for a business, a part of a business, or any other organization, additional factors can be added by extending the same principles. These include:

• the role of 'potential' resources [e.g. likely customers]
• the various development-states of resources [e.g. junior, middle, senior staff, or products in research, development and launched]
• the impact of intangible factors - how reputation affects customer acquisition, or how morale influences staff turnover.
• competitive rivalry for resources, such as the likely rate at which rivals may win a newly-developing customer segment.
• the impact of organizational capabilities, and how they can be developed.

The underlying science of the method is System Dynamics originated by Prof Jay Forrester at MIT in the 1960s.

The three stages outlined above (identify resources -> identify flows -> identify the causes of in- and out-flows to the resources) apply far more widely than to businesses or other organizations. They explain how many kinds of situation behave over time - in ecology, economics, biology, and so on.

What strategy dynamics does is focus on them primarily in business contexts, although governmental and non-profit issues can also benefit - recent examples we have worked on being Quality of Life indicators in London (Video: 33 mins) and cross-border trade in a developing country (Video: 8 mins).

Business is one of the largest and most valuable domains where system dynamics can make a big impact. This is because the most important business challenges are about how to improve performance over time AND System Dynamics can

• tackle operational or strategic issues
• answer one-time questions or provide a continuing plan
• deliver answers for any type of organisation, of any size, at any level

So: "Strategy Dynamics" is simply a translation of system dynamics into business, in terms business people can understand and exploit.

Strategy dynamics also differs from 'Systems Thinking' approaches [Peter Senge, 1990, The Fifth Discipline, Doubleday] in emphasizing resource-accumulation and the importance of quantifying change-through-time, in contrast to the qualitative, feedback orientation of systems thinking.

For more on the theory of the method see the Wikipedia page on strategy dynamics.

• The method works for every kind of enterprise - commercial, public-service, or voluntary - as well as to every function within an enterprise.
• It is also applicable to not yet existing enterprises, such as new ventures or voluntary initiatives.
• The method is strongly evidence-based and rigorous, offering a solid understanding of what causes current performance and confidence in the future performance.
• Being evidence-based, it can solve differences of opinion amongst team-members. It also allows each individual, both amongst the management team and in the wider organization beyond, to see where their activity contributes to the whole, and on whom they depend.
• Since it highlights exactly where management actions and decisions exert control, it provides clear and specific strategies and action plans, that can be adapted as the future unfolds.
• The method provides a solid foundation for methods such as the Balanced Scorecard and Value Based Management, and is a means of integrating other established strategy frameworks and approaches, such as PEST, Core Competence and Value Chain.
• The method is supported by the accessible browser based software - Silico.

These benefits do not come for free, however. The method takes time and effort, but not excessively so, given the value that can be had from improved strategies and decisions. There are significant limits to the reliable measurement of some items that limit the certainty the method can offer, e.g. measures for reputation or capability, and to some important causal relationships, e.g. to what extent reputation influences the rate of customer acquisition.

To have the greatest impact, the method needs extensive factual evidence, including history, about many aspects of the enterprise and its performance. Frequently, these key numbers are unknown, in which case the team must be prepared to exercise its judgment in estimating what those missing values might be, and what impact they may have. The approach also depends on management's willingness and ability to be quantitative in their decision-making, which not all cultures find easy.

Like many powerful frameworks strategy dynamics can be described as "simple but not easy". Reading the outline above the process appears straightforward but it is necessary to understand the approach in a lot more detail before being able to apply it.

We have a variety of resources to help you develop understanding of the approach including: