These organizational changes have been swift and profound. Unfortunately, awareness and understanding of the implications that these have for how businesses should be managed have been lagging behind considerably. As a result, most of the managers in these networks do their jobs armed with the tools and theories of a past era, that of the single unified firm. Not surprisingly, performance is miserable. For instance, in the year 2000 many companies in the electronics industry reported considerable revenue losses due to inadequate supplies. Just one year later, record losses were reported because industry-wide demand suddenly did not just stagnate, but fell over thirty percent. In retrospect, it seems quite plausible that most of these demand-supply imbalances can be attributed to inadequate information sharing and decision making between the firms in these supply networks.

Clearly, we are in urgent need of a better understanding of how to manage complex supply networks in the face of increasing dynamic complexities in the marketplace. Most of my own work in the past years with companies and universities has been aimed at just this. From this work emerge seven different areas of complexity that are especially relevant today for businesses in innovation-driven industries. I have called them seven waves, since all of them involve maneuvering a business safely through periods of ups and downs, through cyclical behavior of some sort.

Riding the seven waves is what I call the art of being able to accommodate these cyclical changes in all seven different areas at the same time, a challenging task indeed. But, nevertheless, one that has to be tackled with vigor and persistence. The tools for doing so originate from the fruitful application of system dynamics to the field of supply chain management. In all cases, the wise lessons from Barry Richmond come forward again and again. For instance, making people think operationally, about how the process really works, is absolutely key in forging effective interorganizational arrangements. Going jointly through the process of mapping and modeling these operational flows is essential in creating the trust between people coming from different companies.

In the coming editions of this newsletter, I hope to describe each of these seven waves more in detail and with practical examples of real company settings. Here I will only highlight them briefly and in general:

• The 1st wave: Dynamics of product flows. Millions around the world have played "the beer game" and have noticed how a modest change in end customer demand gets amplified as this change travels upstream in the supply chain. Far more than millions have experienced this phenomenon in the real life of business, where it is best known as "the bull-whip effect." What is far less well known is that if it is our own production control policies such as those embedded in software packages as MRP and ERP that lead to this amplification, or if it is the structure of our own goods flows that leads to the oscillation that coincides with it.
• The 2nd wave: Dynamics of growth and underinvestment. We all have seen companies that are extremely successful initially, but that go down spectacularly in later years. Again, the fundamental drivers of this boom-bust behavior can be identified with system dynamics. Fundamentally, much comes down again to the operational processes, to the fact that it is easier and faster to sell more than to build up the capacity for making and delivering more.
• The 3rd wave: Dynamics of the business cycle. Why did half of the US machine-tool building industry disappear during the past two decades? To what extent was that due to the huge volatility in orders from one year to another that this industry has experienced? Reduction of orders asks for cost cuts and therefore leads to lay-offs. But, what most managers forget is that these lay-offs also foretell future scarcity of skilled workers, and hence help to keep this vicious business cycle going. System dynamics can help management to remember and to act counter-cyclical instead.
• The 4th wave: Dynamics of the PLC. In high-tech firms, managing the product life cycle (PLC) is an essential survival skill. Because innovation is so high here, product life cycles are very short. In fact, there is hardly any stable maturity stage left. A product moves from its development stage to introduction, growth and then almost immediately into decline again. Nevertheless, many companies still try to manage their product flows in the same manner throughout the PLC, as if they were mature products all along. Unsurprisingly, this creates havoc on supply chain and market performance. Understandably, system dynamics can help in doing a far better job.
• The 5th wave: Dynamics of buyer-supplier relationships. Many buyer-supplier relationships are characterized by low performance and low trust on both sides. The customers complain that their suppliers are unreliable and that they cannot share inside information with them as that would only be used to help their competitors. The suppliers accuse the customer of abuse of power and unwillingness to commit to closer forms of collaboration. Both parties are blind to the fact that it is their own behavior that generates the other party's actions. Again, System Dynamics can help.
• The 6th wave: Dynamics of market dominance and standardization. The more people use Windows software, the more applications are being developed for Windows, the more attractive Windows becomes as a standard. Also, the higher the revenues for Mr. Gates and hence the more room for investment in new and better versions of Windows. Economists label this logic "network externalities" or "increasing returns to scale". It can be applied to many settings inside and outside of the world of business. For instance, the impressive degree of standardization that has coincided with the rise of the Internet or the rising use of English in businesses world-wide follow the same logic. We all experience these market phenomena, but those of use that speak system dynamics understand them better.
• The 7th wave: Dynamics of organizational change. When major changes occur in organizations, they seem to be happening all at the same time, only to be followed by relatively long periods of apparent stability. The technical term here is "punctuated disequilibrium", and its persistence has baffled organizational scientists and managers alike for a long time. Armed with the analytical tools of system dynamics, we can explain why this type of behavior is with us to stay, not just in stable, but also in very volatile business settings.