To learn more about the McKinsey Quarterly, please click here.

* * *

Modeling afforded a number of insights about why high-technology companies fail. It is much harder to change decision-making procedures than we realized when system dynamics started. Whether in school or management education, the focus will be on “generic structures.”

In the last few years, ideas from a field of engineering instrumental to advances in radar, aircraft simulators, and defense systems have increasingly been applied to management problems. Both managers and consultants have used system dynamics and its principles of feedback and secondary effects to think through how a strategy might or might not work, depending on how competitors react, how organizational changes are received, and what kinds of consequences—intended and unintended—emerge. Many believe that system dynamics has helped them become skilled at inventing the future, either by sketching out causal loops on the back of an envelope, or by assembling equations of cause and effect in a computer model. Both approaches work.

Adapted from a speech given in 1989 by the inventor of system dynamics, Jay Forrester, the following article is both a short history and a helpful primer. Forrester describes how the ideas he used to uncover the real causes of cyclicality in industry could be adopted to explain why low-cost housing has failed to renew inner-city neighborhoods. At the end of the article, a postscript sums up developments that have taken place in system dynamics in the past six years.

Many managers who went to business school fifty or even ten years ago suspected that much of what was being taught about strategy and organization was essentially static in its perspective: the world stood still while we analyzed and fixed it. It is hardly surprising that these managers, having had their suspicions confirmed by their experience in complex, dynamic markets, are now quick to see the relevance of the ideas of Jay Forrester and his colleagues.

Two threads run through the story of how I came to develop the field of system dynamics. First, everything I have ever done has converged on system dynamics. Second, at many critical moments, when opportunity knocked, I was willing to walk through the open door to what was on the other side.

Early days

Life must be practical. At high school, I built a wind-driven electric plant that provided our first electricity.
I grew up on a cattle ranch in Nebraska in the middle of the United States. A ranch is a crossroads of economic forces: supply and demand, changing prices and costs, the pressures of agriculture. In such a setting, life must be practical; one works to get results. While I was at high school, I built a wind-driven electric plant that provided our first electricity.

When I finished school, I had a scholarship to go to agricultural college, but just before I was due to enroll, I decided it wasn’t for me. Instead, I went to the engineering college at the University of Nebraska. Electrical engineering, as it turned out, was about the only academic field with a solid core of theoretical dynamics. And so the road to the present began.

Research and application

After my degree, I became a research assistant at Massachusetts Institute of Technology, where I was commandeered by Gordon S. Brown, a pioneer in feedback control systems. During World War II, we worked on developing servomechanisms for the control of radar antennae and gun mounts. Again, this was research toward an extremely practical end; it ran from mathematical theory right through to the operating field itself.

At one stage, we had built an experimental radar control for an aircraft carrier, to direct fighter planes against enemy targets. It was meant to be redesigned for production a year or so later. The captain of the carrier Lexington came to MIT and saw the experimental unit, and said, “I want that, I mean that very one—we can’t afford to wait for the production models.” He got it.

About nine months later, the experimental control stopped working, and I volunteered to go to Pearl Harbor to find out why. I discovered the problem, but didn’t have time to fix it before the ship left port, so when the executive officer asked if I would like to go along and finish my job, I said yes. I had no idea what I was letting myself in for. We were off shore during the invasion of Tarawa, and then took a turn through the Marshall Islands, which were occupied all around us by Japanese fighter-plane bases.

The Japanese didn’t like having a US Navy taskforce wrecking their airports, so they kept trying to sink our ships. After dark, they dropped flares along one side of the taskforce and came in with torpedos from the other. Finally, they succeeded in hitting the Lexington, cutting off one of the four propellers and setting the rudder in a hard turn. Again, this gave me a very practical idea of how research and theory are related to field application.

At the end of World War II, my mentor Gordon Brown showed me a list of projects he thought might interest me. From the list, I picked the building of an aircraft flight simulator. This was to be rather like a pilot trainer, but so precise that it could take wind tunnel data for a model airplane and predict the behavior of the new plane even before it was built.

It took a year to decide that a machine of that complexity could do no more than solve its own internal idiosyncrasies. The aircraft simulator was planned as an analog computer. It took us only about a year to decide that an analog machine of that complexity could do no more than solve its own internal idiosyncrasies. Through a long sequence of changes, we came to design the Whirlwind digital computer for experimental development of military combat information systems. This eventually became the SAGE (semi-automatic ground environment) air defense system for North America.

The SAGE system was another practical job where theory and ideas were only as good as the working results. It had 35 control centers, each 160 feet square, four stories high, and with 80,000 vacuum tubes. Installed in the late 1950s, these centers were in service for about 25 years. Records show they were operational 99.8 percent of the time. Even today, such reliability is hard to match.

* * *

Here is a direct link to the complete article.

Jay Forrester is the founder of system dynamics, Germeshausen Professor, Emeritus at the Sloan School of Management, and the author of a number of books including Industrial Dynamics, Urban Dynamics, and World Dynamics. This article is adapted from a talk he gave at an international meeting of the System Dynamics Society.