Daniel (and SD colleagues in general),
Sometimes the simple questions are the most profound and interesting.
Youre quite right that typical answers to your questions would be either a
plethora of abstract statements of the general form "use dynamic models when
the situation is dynamic" or specific statements of the form "it should be
used here because it has been used here."
Ill propose a somewhat different answer below.
Both types of answers you identify are rooted in the present, but the spread
of dynamic modeling (and its younger sister, systems thinking) are following
their own technology diffusion dynamics. Suppose twenty years ago we had
asked "in what situations should we use discounted cash flow (DCF) instead
of the easier time to break even, or other evaluation methods? We would
have gotten answers along the lines "use it in special circumstances X, Y,
and Z because its tricky and nobody knows how to do it." But even at that
time, there would have been "lead users" of the technique, in Eric Von
Hippels sense of organizations whose needs anticipate (often by many years)
the trends in the needs of the broad market, and whose economic incentives
cause them to investigate and adopt the technique on their own.
And indeed, such the current answer given about both dynamic modeling and
real options, in, e.g. Courtney, Hugh, Jane Kirkland, and Patrick Viguerie,
"Strategy under Uncertainty," Harvard Business Review, Nov-Dec 1997, 67-79:
its useful for only situations known to be very difficult (uncertain, in
their case). But System Dynamics consultants do deal all the time with
"lead users", whose needs for dynamic analysis are more pressing (or more
precisely, are perceived more clearly as pressing) relative to the broad
mass of corporate organizations.
With all that as a preamble, let me give my partial answer to your question,
rooted in a vision of the future based on PAs (the former Pugh-Roberts)
years of dealing with one class of "lead users". Ill be blunt, as I think
its important to be clear about the direction at least one part of the
field is headed:
System dynamics is the most appropriate technique from which to initiate
strategy formulation and execution for corporations with multiple lines of
business ("product/market combinations") and market capitalization of
several billion dollars.
Thats not to say numerous other strategic analysis tools will be
inappropriate, but I am saying that a system dynamics model of the
corporation is the one thing a corporation should always have, and that
should be guiding and informing use of other techniques. Anything less than
a high-quality, well-validated system dynamics model leaves the corporation
vulnerable to being blind-sided by the gaps and shortcomings of simpler
approaches. (Ill be writing more about this topic in due course.)
The paper by myself and Carlos Ariza on allocating marketing resources (to
appear in this summers SD conference) reports on one such model and use
(along with the shortcomings of standard approaches). The reports past and
forthcoming by Rick Park, Donna Mayo, and Bill Dalton of PA on London
Undergrounds privatization are another example. Warren and Morecrofts
corporate model conceptualization and insight approach, based as it is on
the "resource-based view" of strategy, which in turn rests on solid
microeconomic foundations, offers an extremely generic approach to
initiating such corporate strategy models.
There will many more examples forthcoming, and I expect to see an
ever-increasing body of both cases and theory (i.e. abstract frameworks)
that support this thesis.
Note that this is a ten- to twenty-year proposition. For DCF to move from
something that only financially sophisticated analysts or consultants did,
to something a manager is expected to understand and do (at least simpler
applications), it took an expanded treatment of DCF in MBA training, and the
graduates working their way into corporate life. For system dynamics, the
academic infrastructure (read: professors teaching SD courses) and the body
of written knowledge continues to expand, and the software continues to
become more and more supportive. Consultants continue to rack up cases
among lead users of SD at the corporate strategy level. But these are all
longer-term processes. Like so many other innovations ("broadband to the
home"), theoretical demand will exist long before the infrastructure can
deliver economically to the broad market.
Now why is this a partial answer? Because there are doubtless other market
niches where the technology diffusion pattern has become clear. Certainly
PAs (and others) work on dynamics of managing complex projects is one area
where theres both a clear track record of lead users, and every reason to
believe usage will expand over time. And the question of how smaller
organizations can benefit from SD/ST is still very much uncertain. (Some
may remember that ST arose as a research topic to see what benefits could be
derived without the resource comitment of quantitative modeling.) This is
an active research topic for Carmine Bianchi and colleagues
(
http://www.mailbase.ac.uk/lists/sme-lea ... ng-growth/)
I dont know of parallels for track records in systems thinking (as distinct
from quantitative system dynamics modeling). You may find the paper by
myself and Sharon Els from the 1999 system dynamics conference (New Zealand)
relevant to this question, as it discusses a variety of different niches for
the variety of system dynamics-related disciplines being practiced today.
cheers,
alan
Alan K. Graham, Ph.D.
Business Dynamics Practice
PA Consulting Group
Alan.Graham@PAConsulting.com
Direct phone (US) 617 - 252 - 0384
Main number (US) 617 - 225 - 2700
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