Abstract for: A Generic System Dynamics Model of Firm Internal Processes
This paper introduces a general system dynamics approach to simulate the internal organization of a typical for-profit firm in order to measure and predict the cumulative impacts of various managerial policies on the long-term financial performance. Through analyzing the causal linkages, we model the financial subsystem and then the operational and organizational subsystems affecting the financial variables. The outcome model consists of many stock and flow variables, which interact with various financial and non-financial managerial policies. Our causal structure is reminiscent of the cause and effect relationships among the Balanced Scorecard aspects, but somewhat from a more systematic viewpoint. Our model though being simple and general provides a systemic basis and reference to develop specific customized models for actual firms and then evaluate their managerial policies and decision rules using simulation. In each case, this model have to be re-configured and its parameters need to be discovered via proper field study. A simple numerical example shows how the model works.