System dynamics for business strategy: a phased approach James M. Lyneis a Abstract Detailed, calibrated system dynamics models oer an eective tool for supporting business strategy. They correspond to the business lines and planning approaches of the organization, serve as an important check on the adequacy of the model as a representation of the system, provide accurate assessments of the cost±bene®t tradeos of alternative strategies, and allow results to be more easily sold to others. However, detailed models also have disadvantages: they are complex, can be more dicult to understand, and run the risk of becoming ``black boxes''. This paper discusses a four-phased approach to consulting that, building from other system dynamics modeling styles (``systems thinking'' and small, insight-based models), oers an eective means of developing detailed models while simultaneously educating the client. The approach is illustrated with case examples from the credit card and aircraft industries. Copyright * c 1999 John Wiley & Sons, Ltd. Syst. Dyn. Rev. 15, 37±70, (1999) Over the past 20 years, covering more than 50 consulting engagements as the principal modeler, I have worked with my colleagues at Pugh-Roberts Associates to develop a unique modeling style and approach to business strategy consulting. This approach is premised on what we see as the primary purpose of our use of system dynamics modelsÐto aid managers in establishing strategy and tactics. We provide tools, analysis of strategic issues, and business advice. The education of managers in the ideas and concepts of system dynamics is a secondary purpose in some, but not all, engagements. Most corporate strategic analyses are episodic, often triggered by a crisis or the need to solve an urgent problem. The situation is analyzed, options evaluated, and decisions made. The result of these strategic analyses is usually a decision to take a certain set of actions, for example, to build a new plant, to enter new markets (and/or abandon others), to introduce a new product (and/or drop others), to engage in a price war, and so on. System dynamics models can play an important role in understanding the problem and its causes, deter- mining the consequences of alternative courses of action, and testing alterna- tives under dierent scenarios. 1 Our approach to business strategy consulting has evolved over time. In the early years, the approach was heavy on ``product'' and light on ``process''. Like many in system dynamics, and in management science in general, we took the view that as experts we would solve the client's problem for him, and present him with the solution. We gradually recognized that elegant solutions did not 37 System Dynamics Review Vol. 15, No. 1, (Spring 1999): 37±70 Received April 1998 Copyright * c 1999 John Wiley & Sons, Ltd. CCC 0883-7066/99/010037±34 $17.50 Accepted June 1998 a Pugh-Roberts Associates, 41 William Linsky Way, Cambridge MA 02142, USA James M. Lyneis is a Senior Vice President with Pugh-Roberts Associates, a Division of PA Consulting Group. He holds a Ph.D. in Business Administration from the University of Michigan and was an Assistant Professor at MIT's Sloan School of Management. He has applied system dynamics to problems of business strategy in the telecommuni- cations, electric utility, aerospace, and ®nancial services industries.