Accelerating economic, technological, social, and
environmental change challenge managers and policy makers to learn at increasing rates,
while at the same time the complexity of the systems in which we live is growing. Many of
the problems we now face arise as unanticipated side effects of our own past actions. All
too often the policies we implement to solve important problems fail, make the problem
worse, or create new problems.
Effective decision making and learning in a world of growing dynamic complexity
requires us to become systems thinkers--to expand the boundaries of our mental models and
develop tools to understand how the structure of complex systems creates their behavior.
This book introduces you to systems dynamics modeling for the analysis of policy and
strategy, with a focus on business and public policy applications. System dynamics is a
perspective and set of conceptual tools that enable us to understand the structure and
dynamics of complex systems. System dynamics is also a rigorous modeling method that
enables us to build formal computer simulations of complex systems and use them to design
more effective policies and organizations. Together, these tools allow us to create
management flight simulators--micro-worlds where space and time can be compressed and
slowed so we can experience the long-term side effects of decisions, speed learning,
develop our understanding of complex systems, and design structures and strategies for
The field of system dynamics is thriving. Over the past decade, many top companies,
consulting firms, and governmental organizations have used system dynamics to address
critical issues. More innovative universities and business schools are teaching system
dynamics and finding enthusiastic and growing enrollments. Hundreds of primary and
secondary schools, from kindergarten to high school, are integrating systems thinking,
system dynamics, and computer simulation into their curricula. Tools and methods for
system dynamics modeling, the library of successful applications, and insights into the
effective use of the tools with executives and organizations are all expanding rapidly.
Features and Content
University and graduate-level texts, particularly those
focuses on business and public policy applications, have not kept pace with the growth of
the field. This book is designed to provide thorough coverage of the field of system
dynamics today, by examining
- Systems thinking and the system dynamics worldview
- Tools for systems thinking, including methods to elicit and map the structure of complex
systems and relate those structures to their dynamics;
- Tools for modeling and simulation of complex systems;
- Procedures for testing and improving models;
- Guidelines for working with client teams and successful implementation.
You will learn about the dynamics of complex systems, including the structures that
create growth, goal-seeking behavior, oscillation and instability, S-shaped growth,
overshoot and collapse, path dependence, and other nonlinear dynamics.
Examples and applications include
- Corporate growth and stagnation,
- The diffusion of new technologies,
- The dynamics of infectious disease such as HIV/AIDS,
- Business cycles,
- Speculative bubbles,
- The use and reliability of forecasts,
- The design and supply chains in business and other organizations,
- Service quality management,
- Transportation policy and traffic congestion,
- Project management and product development,
and many others.
The goal of systems thinking and systems dynamics modeling is to improve our
understanding of the ways in which an organization's performance is related to its
internal structure and operations policies, including those of customers, competitors, and
suppliers and then to use that understanding to design high leverage policies for success.
To do so this book utilizes
- Process Points that provide practical advice for the successful application of
the tools in real organizations.
- Case studies of Systems Dynamics in Action that present successful applications
ranging from global warming and the war on drugs to reengineering the supply chain of a
major computer firm, a marketing strategy in the automobile industry, and process
improvement in the petrochemicals industry.
System dynamics in not a spectator sport. Developing systems thinking and modeling
skills requires the active participation of you, the reader, via
- Challenges. The challenges, placed throughout the text, give you practice with
the tools and techniques presented in the book and will stimulate your original thinking
about real world issues. The challenges range from simple thought experiments to
full-scale modeling projects.
- Simulation software and models. The accompanying CD-ROM and web site (http://www.mhhe.com/sterman) include all the models
developed in the text along with state-of-the-art simulation software to run them. There
are several excellent software packages designed to support system dynamics modeling.
These include ithink, Powersim, and Vensim. The CD and web site include the models for the
text in all three software formats. The disk also includes fully functional versions of
the ithink, Powersim, and Vensim software so you can run the models using any of these
packages without having to purchase any additional software.
- Additionally, the Instructor's Manual and instructor's section of the website
include suggested solutions for the challenges, additional assignments, PowerPoint files,
with the diagrams and figures from the text suitable for transparencies, suggested course
sequences and syllabi, and other materials.
The book can be used as a text in courses on systems
thinking, simulation modeling, complexity, strategic thinking, operations, and industrial
engineering, among others. It can be used in full or half-semester courses, executive
education, and self-study. The book also serves as a reference for managers, engineers,
consultants, and others interested in developing their systems thinking skills or using
system dynamics in their organizations.
A Note on Mathematics
System dynamics is grounded in control theory and the
modern theory of nonlinear dynamics, There is an elegant and rigorous mathematical
foundation of the theory and models we develop. System dynamics is also designed to be a
practical tool that policy makers can use to help them solve the pressing problems they
confront in their organizations. Most managers have not studied nonlinear differential
equations or even calculus, or have forgotten it if they did. To be useful, system
dynamics modeling must be accessible to the widest range of students and practicing
managers without becoming a vague set of qualitative tools and unreliable generalizations,
that tension is compounded by the diversity of backgrounds within the community of
managers, students, and scholars interested in system dynamics, backgrounds ranging from
people with no mathematics education beyond high school to those with doctorates in
If You Don't Have a Strong
Mathematics Background, Fear Not
This book presents system dynamics with a minimum of
mathematical formalism. The goal is to develop your intuition and conceptual
understanding, without sacrificing the rigor of the scientific method. You do not need
calculus or differential equations to understand the material. Indeed, the concepts are
presented using only text, graphs, and basic algebra. Mathematical details and references
to more advances material are set aside in separate sections and footnotes. Higher
mathematics though useful is not as important as the critical thinking skills developed
If You Have a Strong
Mathematics Background, Fear Not
Realistic and useful models are almost always of such
complexity and nonlinearity that there are no known analytic solutions, and many of the
mathematical tools you have studied have limited applicability. This book will help you
use your strong technical background to develop your intuition and conceptual
understanding of complexity and dynamics. Modeling human behavior differs from modeling
physical systems in engineering and the sciences. We cannot put managers up on the lab
bench and run experiments to determine their transfer function or frequency response. We
believe all electrons follow the same laws of physics, but we cannot assume all people
behave in the same way. Besides a solid grounding in the mathematics of dynamic systems,
modeling human systems requires us to develop our knowledge of psychology, decision
making, and organizational behavior. Finally, mathematical analysis, while necessary, is
far from sufficient for successful systems thinking and modeling. For your work to have
impact in the real world you must learn how to develop and implement models of human
behavior in organizations, with all their ambiguity, time pressure, personalities, and
politics. Throughout the book I have sought to illustrate how the technical tools and
mathematical concepts you may have studied in the sciences or engineering can be applies
to the messy world of the policy maker.
I welcome your comments, criticisms, and suggestions.
Suggestions for additional examples, cases, theory, models flight simulators, and so on,
to make the book more relevant and useful to you are especially invited. I will update the
web site to incorporate user feedback and new materials. Email comments to BusDyn@mit.edu.
This work benefited immensely from the advice, criticism,
and encouragement of many colleagues, students, and friends. I owe an immeasurable debt to
my first systems dynamics teachers, Dana Meadows, Dennis Meadows, and Jay Forrster, for
their integrity, high standards, and passionate commitment. I'm particularly indebted to
the exceptional students of the MIT Sloan School of Management. They constantly challenge
me to make the discipline of system dynamics relevant, useful, and exciting; I hope
they've learned as much form me as I've learned from them. In addition, I thank my
colleagues at the Sloan School and in the system dynamics community around the world, who
helped by providing data and examples, reviewing the draft, testing early versions in
their courses, and in countless other ways. This group includes (but is not limited to)
the following folks and institutions:
Tarek Abdel-Hamis (Naval Postgraduate School); David Andersen, George Richardson (SUNY
Albany); Ed Anderson (Univ. of Texas); Carlos Ariza, Sharon Els, Ken Cooper, Jim Lyneis,
Hank Taylor (Pugh-Roberts Associates); George Backus (Policy Assessment Corporation); Bent
Bakken (Norwegian Defense Research Establishment); Yaman Barlas (Bogazici University,
Istanbul); Michael Bean (Powersim Corp.); Eric Beinhocker, Damon Beyer, Andrew Doman,
Usman Ghani, Maurice Glucksman, Paul Langley, Norman Marshall (McKinsey and Company);
Laura Black, John Carroll, Vanessa Colella, Ernst Diehl, Steve Eppinger, Charlie Fine,
Mila Getmansky, Paulo Gonclaves, Janet Gould Wilkinson, Jim Hines, Nan Lux, Brad Morrison,
Tim Nugent, Nelson Repenning, Ed Roberts, Scott Rockart, George Roth, Ed Schein, Peter
Senge (MIT); Allen and Jane Boorstein; Steve Cavaleri (Central Connecticut State Univ.);
Geoff Coyle (Royal Military College of Science, UK retired); Brian Dangerfield (Univ. of
Salford); Pail Davidsen (Univ. of Bergen); Jim Doyle, Mike Radzicki, Khalid Saeed
(Worcester Polytechnic Institute); Bob Eberlein, Tom Fiddaman, Dan Goldner, David
Peterson, Laura Peterson (Ventana Systems); Daivd Foley and Judy Berk; Any Ford
(Washington State Univ.); David Ford (Texas A&M University); Nathan Forrester (A.T.
Kearney); Rich Goldbach (Metro Machine Corp.); Christian Haxholdt, Heather Hazard
(Copenhagen Business School); Jack Homer (Homer Consulting); Jody House (Oregon Graduate
Institute); Bill Isaacs (Dialogos); Sam Israelit (Arthur Andersen); Nitin Joglekar (
Boston Univ. School of Management); Drew Jones (Sustainability Institute); Christian
Kampmann, Erik Mosekilde (Technical Univ. of Denmark); Daniel Kim, Virginia Wiley (Pegasus
Communications); Craig Kirkwood (Arizona State Univ.); Elizabeth Krahmer Keating
(Northwestern Univ.); Don Kleinmuntz (Univ. of Illinois, Urbana-Champaign); David Kreutzer
(GKA, Inc.); Robert Landel (Darden School of Business, Univ. of Virginia); David Lane
(London School of Economics); Erik Larsen (City University, London); Winston J. Ledet,
Winston P. Ledet (The Manufacturing Game, Inc.); Ralph Levine (Michigan State Univ.);
Angela Lipinski (Society for Organizational Learning); Martin GroBmann, Frank Maier, Peter
Milling (Univ. of Mannheim, Germany); Ali Mashayekhi (Sharif Univ. of Technology,
Teheran); Nathaniel Mass (GenCorp); Paul Monus (BP/Amoco); John Morcroft, Ann van Ackere,
Kim Warren (London Business School); Erling Moxnes (Norwegian School of Economics and
Business Administration); Rogelio Oliva (Harvard Business School); Mark Paich (Colorado
College); Steve Peterson, Barry Richmond (High Performance Systems); Greg Petsch (Compaq
Computer); Nick Puder (General Motors); Jack Pugh, Julia Pugh, Roberta Spencer (System
Dynamics Society); Jorgen Randrs (World Wildlife Fund International); Nancy Roberts
(Leslie College); Jenny Rudolph (Boston College); Jorge Rufat-Latre (Strategos); Anjali
Sastry, Marshall van Alstyne (University of Michigan); Bob Stearns; Susan Sterman; Jim
Thompson (Global Prospectus, LLC); John Voyer (Univ. of Southern Maine); Lyle Wallis
(Decisio, Inc.); Jim Waters (Waters Business Systems); Jason Wittenberg (Harvard Univ.);
Eric Wolstenholme (Leeds Business School, UK); Pavel Zamudio Ramirez (Monitor Company);
The Copenhagen Business School, The International Network of Resource Information Centers
(aka the Balton Group), McKinsey and Company, the Norwegian School of Management,
Pugh-Roberts Associates, the Society for Organizational Learning, the Technical University
of Denmark, and of course, the MIT Sloan School of Management.
Special Thanks to High Performance Systems, Powersim, SA, and Ventana Systems--and
their great people--for providing their simulation software and translations of the models
for the CD and website.
The team at Irwin/McGraw-Hill deserves special mention for their enthusiasm, patience,
and editorial help, particularly Scott Isenberg, Carol Rose, Jeff Shelstad, and Gladys
Cara Barber and Kelley Donovan provided important secretarial support.
Kathy Sullivan went beyond the call of duty on library research, data collection,
editorial changes, and graphics.
Finally, the love and support of my family have been constant and essential.
Thanks, Cindy, David, and Sarah.