In the realm of systems and strategic thinking, one of the most powerful tools we can use to understand complex dynamics is the stock and flow model. While the name might sound abstract, the concept is remarkably intuitive—and once grasped, it transforms the way you see everything from cash flow to climate change, from project timelines to personal productivity.
What Are Stock and Flow Models?
At its core, a stock is anything that can accumulate or deplete over time. Think of it as the “reservoir.” It could be:
- Water in a tank
- Money in a bank account
- Inventory in a warehouse
- Knowledge in a team
- Trust in a relationship
A flow is the rate at which a stock increases or decreases. There are two kinds:
- Inflow: What adds to the stock (e.g. income, recruitment, learning)
- Outflow: What depletes the stock (e.g. expenses, attrition, forgetting)
Together, stocks and flows form a dynamic system. Stocks change only through flows—and this temporal delay between action and result is what makes managing systems so tricky.
Why Do Stock and Flow Models Matter in Strategy?
Most strategic missteps occur not because of poor intent, but due to misreading how stocks and flows interact over time. Leaders often act on symptoms (the flows) rather than the root causes (the stocks), or they underestimate the lags between interventions and observable results.
Let’s take a few practical examples:
1. Cash Flow Management
In business, cash is a stock. Revenue (inflow) adds to it; expenses (outflow) subtract from it. A company may be profitable on paper but still go bankrupt if outflows exceed inflows at the wrong time. Strategic decisions—like hiring or capital investments—must be made with the trajectory of these flows in mind.
2. Project Delivery
In construction or capital projects, work-in-progress (WIP) is a stock. Labour hours and materials are flows that move work through the pipeline. Poor scheduling or supply chain misalignment causes imbalances—too much inflow without outflow leads to bottlenecks. Too much outflow without replenishment leads to idle teams.
3. Talent and Knowledge Management
A high-performing team is built on the stock of institutional knowledge and capability. Training programs, mentoring, and hiring are inflows. Attrition, burnout, or silos are outflows. Leaders who fail to recognize this balance often suffer from a “brain drain” without knowing until it’s too late.
Key Strategic Insights from Stock and Flow Thinking
- Stocks change slowly. Even with rapid flows, you can’t instantly transform a system. Whether you’re building a savings account or a culture of innovation, patience is key.
- Flows are leverage points. Adjusting inflows and outflows is how you control the system. Want more innovation? Increase inflows (R&D, experimentation) and decrease outflows (bureaucratic blockers, idea rejection).
- Delays matter. Often, there’s a time lag between changing a flow and seeing the result in the stock. Leaders must hold their nerve and plan for delayed feedback loops.
- Overshoot and collapse can occur. If inflows exceed outflows too quickly, you can exceed capacity (e.g. onboarding too many customers without support resources). Similarly, rapid outflows without replenishment (e.g. cost-cutting) can crash the system.
Applying It: A Simple Mental Model
Whenever you’re faced with a strategic decision, pause and ask:
- What is the stock I’m trying to build, maintain, or reduce?
- What are the inflows and outflows?
- Are they balanced?
- Where are the delays or lags?
- What interventions would change the flows most effectively?
Closing Thought: Systems Over Snapshots
Stock and flow models invite us to stop thinking in snapshots and start thinking in movies. They force us to see patterns over time, to appreciate that what we observe today is the result of yesterday’s flows, and what we do today will shape tomorrow’s stock.
As strategist Donella Meadows said, “Stock and flow structures are the least visible, but most powerful influences on system behavior.” In other words—what’s accumulating in the background matters more than what’s flashing in the foreground.
Missed out on the over all series?
Murray Slatter
Strategy, Growth, and Transformation Consultant: Book time to meet with me here!
