Journal of Operations Management 39-40 (2015) 1e5
Contents lists available at ScienceDirect
Journal of Operations Management
journal homepage: www.elsevier.com/locate/jom
Editorial
System dynamics perspectives and modeling opportunities for research
in operations management
1. Introduction
It is an exciting time to work in operations management. Ad-
vances in theory and methods, including behavioral operations, dy-
namic modeling, experimental methods, and field studies provide
new insights into challenging operational contexts. Yet the world
of operations continues to change rapidly, creating new and diffi-
cult challenges for scholars. Increasingly, operations management
requires theory, models and empirical methods to address the
cross-functional, interdisciplinary character of modern operational
systems and the complex nonlinear dynamics these systems
generate.
The OM research community has a long tradition of dynamic
modeling, going back at least to the pioneering work of Forrester
(1958) and Holt et al. (1960). These innovators recognized that
even core processes in organizations, such as production and sup-
ply chain management, involve critical feedbacks with other orga-
nizational functions and with other organizations and actors
including customers, suppliers, workers, competitors, financial
markets, and others. They recognized that these interactions and
feedbacks often involve significant time delays, nonlinearities, in-
formation distortions, and behavioral responses that often cause
dysfunctional, suboptimal behavior and slow learning and process
improvement. The challenge, however, has been to develop, articu-
late and test parsimonious theories to explain the behavior of com-
plex systems, to test policies for improvement, to implement these
in real organizations, and to assess their impact over time.
Forrester’s insight was to use ideas from control theory to map
and explain industrial problems (Forrester 1958; 1961; Richardson
1991 traces the history of feedback control and systems theory from
the Greeks through the development of nonlinear dynamics). For-
rester’s first system dynamics model explained persistent oscilla-
tions of production and sales in a manufacturing supply chain.
Forrester’s model integrated aspects of operations that had not pre-
viously been considered d e.g., limited information flow across or-
ganizations and functions within organizations, delays in gathering
information, making decisions and in the implementation and
impact of those decisions, and the behavioral, sometimes subopti-
mal decision rules managers used to make inventory and produc-
tion decisions at each level of the supply chain. Forrester (1961)
also integrated advertising and consumer behavior into the model,
expanding the boundary of analysis beyond conventional inventory
theory at the time. Forrester’s goals were broader than explaining
an important operations issue; rather, he created a general
http://dx.doi.org/10.1016/j.jom.2015.07.001
0272-6963/Published by Elsevier B.V.
approach to dynamic modeling any management system, indeed,
any dynamic system, along with the conceptual and software tools
to develop, test, and improve behavioral, dynamic models of hu-
man systems, and implement the recommendations arising from
them. Soon after the publication of Industrial Dynamics, these con-
cepts were applied to a variety of contexts, first in management,
and soon after to ecological, urban, and societal problems, among
others. By the late 1960s the breadth of the field led to a name
change, from industrial dynamics to system dynamics (SD), and
the growth of a vibrant field of study, taught around the world
(see e.g. http://systemdynamics.org).
There are many conceptual overlaps and synergies between OM/
OR and SD; these can be traced to the origins and stated goals of
both fields (see Lane, 1997; and Gro € ßler et al., 2008). Here we focus
on the methodological elements of SD that are most distinctive and
relevant to the OM community.
First, system dynamics models are structural, behavioral repre-
sentations of systems. The behavior of a system arises from its
structure. That structure consists of the feedback loops, stocks
and flows, and nonlinearities created by the interaction of the phys-
ical and institutional structure of a system with the decision-
making processes of the agents acting within it (Forrester, 1961;
Sterman, 2000). The physical and institutional structure of a model
includes the stock and flow structures of people, material, money,
information, and so forth that characterize the system. The decision
processes of the agents refer to the decision rules that determine
the behavior of the actors in the system. The behavioral assump-
tions of a simulation model describe the way in which people
respond to different situations, for example, the way managers
perceive inventory, forecast demand, assess the delivery time for
materials, and use these perceptions and expectations to schedule
production, hire workers, adjust prices, and so on. Accurately por-
traying the physical and institutional structure of a system is rela-
tively straightforward. In contrast, discovering and representing
the decision rules of the actors is subtle and challenging. To be use-
ful, simulation models must mimic the behavior of the real decision
makers so that they respond realistically, even when they deviate
from optimality, and those decision rules must be globally robust
so that the simulated actors behave appropriately, not only for con-
ditions observed in the past but also for circumstances never yet
encountered. SD models therefore have much in common with
models in the behavioral operations tradition (See Bendoly et al.,
2010a,b for a partial review): in both communities, decision makers
are boundedly rational, rely on heuristics, and are often influenced
2 Editorial / Journal of Operations Management 39-40 (2015) 1e5
by emotion and stressors that affect physiological arousal.
Second, SD models capture disequilibrium. Since different deci-
sion processes govern the inflows and outflows to the stocks that
characterize the state of the system, disequilibrium is the rule
rather than the exception (Sterman, 2000). For example, the rate
at which customers arrive at a hospital emergency department,
or place orders for new products, differs from the rate at which
they are treated, or orders fulfilled, leading to queues and delays
in medical treatment, or wait lists of unsatisfied customers. The re-
actions of actors to these imbalances create feedbacks, both nega-
tive and positive, that then alter the rates of flow. If the negative
feedbacks are strong and swift, the system may quickly settle to
an equilibrium. If, however, there are long delays in the negative
feedbacks, the system may oscillate; if there are positive feedbacks,
the system may become locally unstable (for example, if a wait list
triggers fear of shortages people may order more, lengthening the
wait list still further; see Sterman and Dogan in this issue). Mod-
elers should not presume that a system has an equilibrium or
that any equilibria are stable. Instead, SD modelers represent the
processes through which decision makers respond to situations
in which the states of the system differ from their goals. Model
analysis then reveals whether these decision rules, interacting
with one another and with the physical structure, result in stable
or unstable behavior. Equilibria, and the ability of a system to reach
them, are emergent properties of the dynamic system, not some-
thing to be assumed.
Third, SD stresses the importance of a broad model boundary.
Research shows decisively people’s mental models have narrow
boundaries, omitting most of the feedbacks and interactions that
generate system behavior (see e.g., Sterman, 2000 and the law of
pra€gnanz, a fundamental principal of gestalt perception, reinforcing
our tendency to simplify the world, e.g., Sternberg, 2003). We tend
to assume cause and effect are closely related in space and time,
ignoring the distal and delayed impacts of decisions. The result is
policy resistance d the tendency to implement policies that fail,
or, more insidiously, that work locally or in the short run, only to
worsen performance elsewhere or later (Meadows, 1989;
Sterman, 2000). Although the sensitivity of model results to uncer-
tainty in parameter values is important, and system dynamics uses
a wide range of tools to assess such uncertainty, both model
behavior and policy recommendations are typically far more sensi-
tive to the breadth of the model boundary than to uncertainty in
parametric assumptions. SD modelers are therefore also trained
to challenge the boundary of models, both mental and formal, to
consider feedbacks far removed from the symptoms of a problem
in space and time. For example, models of traffic flow with exoge-
nous trip origination, destination and departure times typically
show that expanding highway capacity (adding lane-miles, opti-
mizing traffic light timing, etc.) will relieve congestion. Expanding
the model boundary to include endogenous changes in the number
and type of trips, trip timing, transport mode choice, and settle-
ment patterns will show that expanding highway capacity is inef-
fective as people respond to lower initial congestion levels by
taking more trips, driving instead of using mass transit, and moving
farther from their jobs (Sterman, 2000; Chapter 5).
Fourth, SD models are developed and tested through grounded
methods. SD and operations management modelers strive to cap-
ture the interactions among the elements of a system as they exist
in the real world. The resulting models should reflect operational
thinking (Richmond, 1993), that is, they should capture the physical
structure of the system, the institutional structure that governs in-
formation flows and incentives, and the behavioral decision rules of
the actors. These must all be tested empirically. Grounded methods,
in this context, refers to empirical methods spanning the spectrum
from ethnographic work for theory development, to experimental
studies, to formal econometric estimation of model parameters
and confidence intervals, hypothesis testing, and other statistical
tests.
The application of these methodological principles often results
in complex models with dozens of interactions and significant time
delays that integrate multiple data sources of different kinds (e.g.,
quantitative data such as panel datasets, archival data, interviews,
surveys, participant observation, laboratory experiments, and so
on). The result is both a better theory of the structure of the system,
and a formal model. Usually that model cannot be solved in closed
form so must be simulated. Simulation enables rigorous tests of the
ability of the theory to explain the problematic phenomenon and
can be used to evaluate and rank policy options, carry out wide-
ranging parametric and structural sensitivity tests, and optimize
performance.
Much of the leading edge research in operations management is
evolving along similar lines. Increasingly, OM scholars are expand-
ing the boundaries of their models to include behavioral decision
making, explicit consideration of dynamics, and broader model
boundaries including multiple decision makers and organizations
(e.g., supply chain coordination; interactions of operations, market-
ing and pricing) and performance criteria beyond profit maximiza-
tion (e.g., working conditions and environmental sustainability).
With this special issue we highlight relevant developments in sys-
tem dynamics and empirical studies in operations management,
focusing on the increasing alignment between them and comple-
mentarities that may lead to mutual benefit in new research. In
the next sections we single out those areas of collaboration
informed by the articles in this special issue.
2. Supply Chain Management
As discussed above, Forrester (1958, 1961) developed the first
integrated supply chain model, showing how limited information
and bounded rationality interact with the physics of production
and distribution to explain the persistent oscillation in supply
chains and the amplification of disturbances up the chaindpheno-
mena that continue to vex operations managers today. Sterman
(1989) used an experimental setting (the Beer Distribution Game)
to estimate empirically a simple, behaviorally grounded decision
rule, showing how “misperceptions of feedback” d mental models
with narrow boundaries and short time horizons, specifically the
failure to recognize feedbacks, time delays, accumulations and non-
linearities d led to the oscillations and amplification seen in real
supply chains, thus articulating an endogenous behavioral theory
of the causes of the bullwhip effect. Later experimental studies
including Croson and Donohue (2006), Wu and Katok (2006),
Croson et al., 2014, Paich and Sterman, 1993, Diehl and Sterman,
1995; to name just a few, have demonstrated how dysfunctional
behavior arises endogenously through the interplay of human deci-
sion making heuristics with systems characterized by feedbacks,
accumulations, time delays, limited information and other struc-
tural features of supply chains. Others have explored the interac-
tions between feedback and behavioral response to empirically
examine the evolution of trust, or its breakdown, among supply
chain players, for example, Autry and Golicic’s (2010) analysis of
relationship-performance spirals.
In this issue, three papers expand on this experimental tradition.
The paper by Sterman and Dogan uses a laboratory experiment
with the beer game to explore the causes of hoarding (endogenous
accumulation of excessive safety stock) and phantom ordering
(endogenous accumulation of excessive on-order inventory) often
seen in real supply chains as managers seek to defend themselves
against erratic customer demand and poor supplier performance.
The authors analyze the data collected in the experiment of
 Editorial / Journal of Operations Management 39-40 (2015) 1e5
Croson et al., 2014 which showed significant oscillation and ampli-
fication in a supply chain even when customer demand was both
completely constant and that fact was common knowledge. They
use online questionnaire responses, econometric estimation, and
analysis of outlier behavior to generalize the ordering heuristic
used in such work since Sterman, 1989 to show when endogenous
hoarding and phantom ordering are likely to emerge.
Similarly, Weinhardt, Hendijani, Harman, Steel and Gonzalez
use a lab experiment to explain people’s difficulties with the stock
management problem (Sterman, 1989). Prior work (e.g., Booth
Sweeney and Sterman, 2000; Cronin et al., 2009) demonstrates
that even highly educated elites with substantial STEM education
do not understand the basic principles of accumulation (stocks
and flows). This result has been broadly replicated. The challenge
now is to understand why such “stock-flow failure” occurs and
how it can be overcome. Weinhardt et al. build on recent empirical
work examining the importance of alternative cognitive styles in
managing complex systems (e.g., Bendoly, 2014; Moritz et al.,
2013). The authors draw on the psychology literature to consider
how different cognitive styles including global- vs. local-thinking
and analytical orientation (both measured by a cognitive reasoning
test) affect performance in widely used stock-and-flow tasks. They
find that subjects scoring higher in analytical thinking exhibit bet-
ter performance, while the global vs. local orientation had no
impact. These results provide some guidance into educational
and other interventions that may improve understanding of accu-
mulations. They also note that performance remained rather low
even among those scoring well in analytic thinking, consistent
with prior work suggesting that the failure to understand accumu-
lation processes is deeply embedded in human cognition, similar to
the problems people have in understanding probability even after
extensive schooling.
The paper by Liu, Mak and Rapoport examines the evolution of
coordination in a complex system, specifically a traffic network. The
cover story for their experiment is traffic flowing through a road
network (a directed graph). Such networks exist not only in trans-
portation systems but in many common operations contexts such
as jobs flowing through a factory, or orders flowing among different
suppliers in a supply web. The work is grounded in the observation
that many such networks benefit from coordination due to the ex-
ternalities an individual imposes on others by using particular arcs
in the network that may create congestion for others, along with
opportunities for collective gains through shared use of arc capac-
ity. The experiment not only considers how different conditions
affect steady state performance, but the behavioral dynamics of
learning and improvement as participants respond to outcome
feedback, which then alters their behavior in the next round and
thus the state of the system they and other actors experience.
The authors find that the existence of an intermediate equilibrium
choice greatly benefits performance. They also find evidence sug-
gesting that “strategic teaching” by farsighted players helps shift
group decision making towards the socially efficient equilibrium
(consistent with the group-wise system-thinking effects found in
Bendoly, 2014).
While these studies help illuminate the behavioral operations
literature, it should be noted that the role of system dynamics
studies in supply chain are not limited to the consideration of deci-
sion failures by planners. Recent studies such as Sawhney (2006)
argue that flexibility built into a supply network can foster a
virtuous cycle of improved supply chain relationships. Related
work by Holweg et al. (2005) and Cooke and Rohleder (2006) use
case-data driven feedback simulations to explore the benefits of
flexibility. Choi et al. (2012) examine a “decoupling points” strategy
proposed for use in conjunction with postponement tactics to
accommodate certain types of variability in demand and
3
production.
3. Project management
Project management, a core area of operations management, re-
mains troubled. Despite decades of research and the proliferation of
widely-used tools and approaches to project management (e.g.,
Gantt, PERT, CPM, PRINCE(2), spiral, adaptive, agile, lean, etc.), pro-
jects are routinely LEWdLate, Expensive and Wrong; that is, deliv-
ered late, go over budget, experience low quality and fail to meet
customer requirements. LEW afflicts projects large and small, soft-
ware and construction; standard and unique; private sector and
public. System dynamics has long been applied to understand
and improve project management, beginning with the path-
breaking work in the dispute between Ingalls shipbuilding and
the US Navy (Cooper, 1980; Sterman, 2000; Chapter 2; Lyneis and
Ford, 2007 review the extensive SD literature on project manage-
ment). System dynamics models of projects provide endogenous
explanations for LEW dynamics, including the impact of common
disruptions such as: late customer changes; delays in design or con-
struction approvals; labor and materials bottlenecks; inadequate
coordination and communication between supplier and customer
and across phases of the project; and others. Project dynamics
are conditioned not only by the “Physics” such as delays in discov-
ering rework as prototypes are built and testing carried out, but,
importantly, by behavioral processes such as “the liars’’ club” in
which known defects are concealed from others and from manage-
ment (Ford and Sterman, 2003). These phenomena and many feed-
backs in projects often amplify apparently small and innocent
scope or schedule changes to cause large ripple effects leading to
delay and disruption. SD models capturing a wide array of such
behaviorally grounded feedbacks are now widely used both in
dispute resolution and in proactive management improve project
performance and avoid disputes (e.g., Godlewski et al., 2012). In
the operations management literature, the role of exogenous
shocks (Bendoly and Cotteleer, 2008) and feedback mechanisms
(Bendoly and Swink, 2007; Bendoly et al., 2010a,b) have similarly
been shown to have short and long-term implications for resource
allocation in projects (see also Bendoly et al., 2014).
In this issue, Parvan, Rahmandad and Haghani expand our un-
derstanding of project dynamics by empirically estimating for the
first time the strength of critical feedback processes conditioning
project outcomes using a sample of design and construction pro-
jects. They use half their sample to estimate the parameters that
govern the feedback interactions between the design and construc-
tion phases of project model, including error rates, productivity,
and delays in discovering errors leading to rework. They find that
error rates are typically higher in the design phase than in construc-
tion and that it takes longer to discover the design errors. They also
find that these factors explain up to 20% of project cost variability
and that the estimated model does a good job of estimating cost
and schedule outcomes beyond the estimation sample. Their find-
ings provide clear managerial guidelines for effort allocation, a
rigorous representation of project risk, and a method that can be
applied in other project domains.
4. Human resources, process management and the dynamics
of improvement
Service operations and the challenge of continuous improve-
ment have long been core concerns of operations management
scholars and practitioners. A number of studies examine the moti-
vating role of workloads (e.g., Schultz et al., 1998, 1999). In some
cases authors have been able to empirically identify strong non-
linear relationships between workload shifts and performance
4 Editorial / Journal of Operations Management 39-40 (2015) 1e5
over an extended timeframe of activity (e.g., Linderman et al., 2006
in quality improvement contexts; Bendoly, 2013 in revenue man-
agement). Still others have focused on the role of learning opportu-
nities can have on evolving performance capabilities over time. In a
healthcare context, Kc et al. (2013) provide such an example. At the
intersection of these findings is research that has shown the com-
plex interplay between evolving capabilities and workload, illus-
trating the dynamics of optimal performance over time and
management influence (Bendoly and Prietula, 2008).
Similarly, system dynamics scholars have explored the dy-
namics of service delivery and quality and process improvement
in settings where stress, interruptions and other conditions affect
the motivation of front-line workers and the productivity and qual-
ity of their work. The literature is large: Levin et al., 1976, Oliva and
Sterman, 2001, 2010, Oliva, 2001 and Martinez-Moyano et al., 2014
explore the determinants of service quality. A major line of work on
“capability traps” (beginning with Repenning and Sterman, 2001,
2002) explores self-reinforcing dynamics whereby short-run pres-
sure for output leads to longer hours, corner-cutting, less mainte-
nance, safety, training, and investment in process improvement to
build the capabilities required for long-run success. Capability traps
arise in diverse settings, including high-hazard operations such as
the oil and chemical industries (Repenning and Sterman, 2001,
2002), energy efficiency and sustainability (Sterman, 2015; Lyneis
and Sterman, forthcoming), product development (Repenning,
2001), aviation safety (Rudolph and Repenning, 2002), organiza-
tional growth (Perlow et al., 2002), health care (Rudolph et al.,
2009; Homer and Hirsch, 2006), corporate strategy (Gary, 2010;
Rahmandad, 2012) and others.
In this issue, Chuang and Oliva work in this tradition to explore
the impact of labor availability on retailer inventory record inaccu-
racy (IRI). They show how poor record quality can trigger a reinforc-
ing feedback that might cause progressive deterioration in product
availability, sales, and resources for improvement. Their empirical
study estimates the strength of these effects; the results inform
the development of a dynamic model, which they use to assess
the impact of different operational errors and policies for improve-
ment on record accuracy and organizational performance. The last
section of the paper explores the strength of the feedback between
the extra work created by IRI and the possibility of a death spiral.
Finally, Morrison builds on the capability trap literature to
explore the tension between innovation by front line workers and
process improvement. Through an extensive ethnographic study,
Morrison examines the process improvement initiative of a
manufacturing firm. As is standard in improvement programs, the
firm sought to engage front-line employees in the improvement
process. However, the improvement program increased time pres-
sure on workers and created bottlenecks for the engineers and
other specialized personnel needed to implement the improve-
ment suggestions. Faced with these pressures, the employees
improvised well-intentioned workarounds to address the resource
shortages. Many of these, because they were successful, eased the
pressure for improvement and masked the underlying process
problems that impeded sustainable productivity gains. Morrison
uses his detailed field work to develop a parsimonious model inte-
grating resource allocation, the demands of the improvement pro-
gram, and the workarounds created by employees. In a series of
elegant experiments he uses the model to uncover the sources of
resource shortages, the role of workarounds as a solution to front
line problems and their unintended role in masking weaknesses
in the underlying system. Like previous work in the capability
trap literature, Morrison’s model shows how the well-intended ac-
tions of different actors can interact with each other and with the
physical operating system to trap the system in low performance
and thwart improvement.
5. Conclusion
This special issue necessarily spans a small subset of the work at
the intersection of operations management and system dynamics.
We believe there is much to gain for members of both fields in addi-
tional work to explore the complementarities and synergies illus-
trated by the papers here. Yet this special issue also has a
broader, and possibly even more important objective: to expand
the way we think and theorize about operations management.
Most empirical research in operations has taken a variance-based
theory approach to understand operations management. This
approach “examines relationships between contextual variables,
the use of practices and the associated performance outcomes”
(Sousa and Voss, 2008; p. 698). OM scholars have drawn on contin-
gency theory to better understand how context influences the per-
formance benefits and implementation of well-established
practices (e.g. Zhang et al., 2012; Sousa, 2003). This “comparative
statics” approach (Pettigrew et al., 2001) suppresses the dynamics
that are central to the performance of operations and persistently
vexing to practitioners and theorists alike. Static analyses help us
understand what works but not how things work.
In contrast, the methodological principles outlined above and
illustrated by the papers in this special issue focus on the develop-
ment of process-based theories that explicitly incorporate the
physical and institutional structure of operational systems and
the behavioral decision rules of the actors in those systems, that
adopt a broad boundary incorporating multiple feedbacks, time de-
lays, nonlinearities and accumulation processes, and that use
grounded methods to develop and test the models. The resulting
theories provide empirically tested, robust models in which to
design policies for improvement, interactive virtual worlds to cata-
lyze learning among the actors needed to implement those policies,
and methods to assess the results.
It is our hope that the articles in this special issue motivate addi-
tional collaboration between scholars and practitioners in opera-
tions management and system dynamics.
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John Sterman
MIT Sloan School of Management, United States
Rogelio Oliva
Texas A&M University, Mays Business School, United States
Kevin Linderman
University of Minnesota, Carlson School of Management,
United States
Elliot Bendoly*
The Ohio State University, Fisher College of Business, United States
*
Corresponding author.
E-mail address: bendoly.2@osu.edu (E. Bendoly).
Available online 29 July 2015