xi-xii The purpose of designing and implementing strategy is to improve performance over time...
To move forward from this concern with performance over time requires a rigorous and quantitative
causal explanation for the direction and rate at which performance is changing. This analysis quickly identifies that accumulating
resources are the ultimate cause of current performance... Any desire to estimate how performance will change must
therefore depend on how those tangible resources will change.
The complicating issue is that accumulation and depletion of resources do not follow the straightforward
form of causality we usually hope to discover. The quantity of each resource at any particular point in time reflects the
organization's entire history... The accumulating asset-stock, or resource, is the fundamental component without which no
explanation of performance can be accurate... Our quest is to find adjustments to... strategies and decisions that
will redirect that trajectory [into the future] onto a better path... The time-based behavior of accumulating
resources and other asset-stocks lies at the heart of a method called system dynamics... These flow rates of resources
are fundamental to why performance is changing over time... The rates of change in resources reflect management decisions
and certain external factors, such as competitors' efforts or limited availability of those resources. Crucially, however,
as the strategy field has long known, the rate at which resources can be acquired depends strongly on the quantities
already in place. This gives rise to interdependence relationships, the capture and quantification of which generates
the organization's basic operating system - its core "strategic architecture."
p.1 Before trying to develop tools and frameworks for understanding and improving strategic performance...
it is helpful to clarify the question we need answered - that is, what exactly is the "performance" that we want to
improve? ... it will be difficult to have confidence in such advice if it is not clear what outcomes are expected,
or how exactly the recommended actions lead to those outcomes.
p.2 Ideally, we need tools and frameworks that are helpful to management in all cases, not just for business.
p.3 To evaluate a firm's strategy, we therefore need a way to estimate the future trajectory
of cash flows, not just a single period... we need a way to estimate what impact on that cash flow
trajectory may arise from any actions or decisions we may be considering.
p.4 Strategic management is about building and sustaining performance into the future.
p.5 Management often sets targets for measures that are not expressed in financial terms
- customer growth, market share, staff numbers, and so on... they focus on these other factors because they drive
financial performance.
p.46 a theory is simply an explanation for what causes what, and how. [Christensen,
C. and Raynor, M. (2003) Why hard-nosed executives should care about management theory. Harvard Business Review,
81 (9), 66-75.] Without such an explanation, there can be little confidence in the likely effect of any strategy we
develop or decisions we might take... The basic purpose of management research is to discover the mechanisms
that connect the causes over which management might be able to exert some control - price, for example - with the effects
that they want to influence - such as profitability... Theory is powerful when it fulfills three criteria - being
general (works in a wide variety of situation) useful (tells us something we can affect) and true.
p.91 As Chapter 3 will show, the true management challenge is to build and sustain resources,
not allocate them.
p.124 The accumulating asset-stock is as fundamental to the behavior of business and other organizations
as the aerofoil is to the behavior of winged objects. The math of each asset-stock's accumulation is vital to calculating
performance... The rate of gain and loss for any resource over time explains the quantity of that resource at any time, and
it does so by accumulating.
This second principle can be added to our emerging theory of performance:
1. Performance depends on resources, and
2. Resources accumulate and deplete
p.124 Since firms' performance derives directly from the resources that are available at any time,
the challenge for managers is how to build and maintain the quantity of each resource. To help understand
this problem, a resource can be thought of as behaving like water in a bathtub or tank.
p.124-125 This defining characteristic of resources - that they build and deplete over time,
so-called "asset-stock accumulation" - is well known to be critical to strategic performance.
p.166 Having identified that resources are a dominant factor "causing" performance outcomes over
time, it is critical to know what causes the quantity of any resource to be at a given level at a particular time.
It has long been understood that resources fill up, and drain away. Consequently,
the level of any resource today is the level it was yesterday, plus or minus any amount that has flowed in or out in the meantime...
Since resource flow rates are so critical to how performance changes over time, it is vital to understand
what drives those resource flow rates... Costs result from both having resources and by efforts
to build those resources.
p.178 Loss of a resource depends on its own current level and may depend on the level of other resources.
p.184 This section has added the third principle to the emerging theory of performance:
1. Performance depends on resources.
2. Resources accumulate and deplete.
3. Resource accumulation and depletion depend on existing resource levels.
p.189-190 The dependence of resource flow rates on the current levels of existing resources gives
rise to a critically important phenomenon: feedback. Feedback comes in two different flavors:
-
"reinforcing" feedback, in which an initial change in a resource has consequences that continue
to push change in the same direction - if the initial change is upwards, then further growth follows
-
"balancing" feedback, in which an initial change in a resource has consequences that act to counter
that change
p.191 Causal loop-analysis based on these principles has become popularized in an approach
to problem structuring known as "systems thinking." It is also established as a professional process for mapping
problem situations as a precursor to building system dynamics simulation models.
p.197 although the salesforce's success declines somewhat since the most promising prospects
are pursued first.
p.229 Powerful reinforcing feedback can arise when resources drive their own growth or the growth of other
resources. Conversely, balancing feedback that extinguishes growth can arise when limited resources prevent others from developing,
often as an unintended result of management policy. Extensive study of many feedback structures in an organization
gives rise to causal loop diagrams that provide a qualitative explanation for performance.
p.229 Completing the interactions amongst tangible resources, management decisions and external factors
gives rise to a quantified diagram of performance that forms the core of a "strategic architecture" for an organization. Intangible,
competitive and external factors will add to this core architecture
p.288 Chapter 4 described how an organization's set of resources are linked, both to sustain each other
and to generate performance, the resulting picture being described as its "strategic architecture."
p.334 imposing tight criteria at each stage in order to ensure that limited development effort can be focused
on the few most promising ideas.
p.352 It is not possible to make sound decisions about resource development without knowing the flows, in
both directions, of resources moving along a chain.
p.475 for game theory to be useful, management must be able to estimate the pay-offs from their
decisions... the dynamic performance consequences arising from the interdependent resource-systems of real organizations
make this requirement almost impossible to fulfill, unless that system is made explicit.
p.477 To assess a competitor's likely behavior one should understand the objectives it seems to
be pursuing... Different objectives imply different responses... the competitor's current strategy can provide strong
evidence about how it may behave.
p.527 Indeed, it is entirely possible for a promising set of initial choices to be entirely destroyed by
poor choice of the subsequent strategy implementation.
p.645 Since capabilities, like resources, are asset-stocks, they must accumulate and deplete
