The feedback view of business policy and strategy

A combination of administrative theory and traditional system dynamics modeling promises a flexible model-based tool to assist businesses in designing policies and programs to support new strategic moves.

Abstract

Abstract A combination of administrative theory and traditional system dynamics modeling promises a flexible model‐based tool to assist businesses in designing policies and programs to support new strategic moves. Administrative theory helps clarify the firm's organization and decision‐making structure. System dynamics highlights feedback loops in the decision‐making structure and shows how structure is related to business behavior. With this dual conceptual framework, a business policy modeling project divides into two distinct phases, each of which has a value in policy analysis. Phase 1 is a descriptive survey of the firm's decision‐making structure, rather like traditional conceptualization but made richer by use of administrative theory. Phase 2 is conventional simulation modeling that builds on the phase 1 survey. Several business cases illustrate the kinds of policy insights that a phase 1 survey can provide. The article also comments on the value that a full‐fledged simulation model adds to the phase 1 analysis.