Systems Dynamics: Joining the dots

in Looping the Loops I introduced the idea of reinforcing and balancing loops, and some basic Systems principles, Now I feel I should try and put what I have learned into practice:

FYI: I used InsightMaker to create these diagrams after drafting them out (and moving things around a lot!) on a whiteboard! I haven’t even scratched the surface of what this piece of freeware can do – frankly the mathematics simulations options scare me! It is still great at laying out nice neat diagrams.

Looking at Reputation

To set a bit of context, I decided to use a scenario I am fairly familiar with: a retail company. I will try to look at this through the lens of a consultant looking at the high level ways that brand reputation impacts business growth.

Reinforcing: Growth through Reinvestment

My natural starting point for this loop was in thinking about Projects. I work on Projects every day. No project can work without funding. Therefore:

More Investment Funding = More Potential Projects

OR

Less Investment Funding = Fewer Potential Projects

I then went on to think about where that investment funding came from, and what those projects did in terms of business growth. This is the resulting loop:

R-cycle1

 

System Archetype: Limits to Growth

This type of loop is ripe for a ‘Limits of Growth’ systems archetype. This loop shows – in isolation – exponential growth. What it doesn’t show are the outside factors that could impact these variables.

If an unexpected variable changed from positive to negative due to a outside force – perhaps a new innovation from a competitor reverses Demand –  it is quite possible to see how exponential growth could turn into exponential decline if the business does not adapt with a new offering.

Lets look at the idea of adding some of those variables more closely…

Balancing: Being a victim of your own successB_cycle1

In a consumer culture, brand – and reputation – is the lifeblood of the business. You need to stand out from the crowd with a unique proposition. However, the higher you set the bar, the more your customers tend to expect from you.

For example – if a retailer’s brand is based on a reputation for excellent customer service, and then your customers can’t get a satisfactory resolution to a customer service query, the customers expectations have not been met. The result is the business reputation is damaged for that customer, thereby causing the customer to lower their future expectations (which may mean the customer goes to a competitor next time instead.)

Joining it together

Lets join these loops together and investigate a few more variables:

Multi-Loops

This diagram shows 3 reinforcing loops,:

  • growth through reinvestment of capital
  • business decisions taken through quality customer insights
  • improving value for customers

There are also 2 main balancing loops:

  • reputation impact on level of customer expectations
  • market share impact on perceived reputation

There is also a 3rd balancing loops (not noted on the diagram as I only noticed it afterwards!) that ties the previous two together:

  • market share impact on customer expectations.

Reflections on mental models

I will say right now that this is not exhaustive – working through this exercise has demonstrated to me really clearly that these diagrams could very easily get out of hand and turn into something enormous and unreadable if you don’t set yourself some boundaries and decide upon your perspectives.

At the start, I did set myself a perspective – but I am not entirely sure I stuck to it when mapping this out. On reviewing this piece before posting, I wondered to myself whether a Consultant would really start with the Projects that a company was running, or whether I only did that because that was familiar territory for me. Would a Consultant start with Sales or Profit instead perhaps? On reflection I suspect this was  probably my own mental model and understanding overlaying the subject – something I will have to be more wary of when trying to look at other peoples perspectives in exercises like this.

Systems Dynamics: Looping the Loop

A simplified idea of Systems Thinking is that there are consequences to every action; some predicted, and some unexpected. In Systems Dynamics this reaction is known as feedback.

A potted history of Systems Dynamics

System dynamics was created during the mid-1950s by Professor Jay Forrester of the Massachusetts Institute of Technology. In 1956, Forrester accepted a professorship in the newly formed MIT Sloan School of Management. His initial goal was to determine how his background in science and engineering could be brought to bear, in some useful way, on the core issues that determine the success or failure of corporations.

From hand simulations (or calculations) of the stock-flow-feedback structure of the industrial and corporate structures, Forrester was able to demonstrate how the instability of employment in a firm was due to the internal structure of the firm. These hand simulations were the start of the field of system dynamics.

Since this time, SD has gone continued to develop and refine through students of Forresters original principles; such as Donella Meadows and Peter Senge.

Reinforcing Loops (R)

A Reinforcing link indicates a situation where an increase in one variable, leads to an increase in another variable, On a diagram this is notated by the inclusion of a + sign on the linking arrow,

A Reinforcing loop (amplification) indicates a self perpetuating trend. A positive feedback loop demonstrates an acceleration of growth, a negative feedback loop indicates the opposite – an accelerated decline or reduction.

It is possible to spot a reinforcing loop because the outcome of the loop will include either zero or an even number of negative links (-).

Balancing Loops (B)

A Balancing loop operates whenever there is a goal-oriented behavior – it acts like a self-correction force.

  • If the goal is to be not moving, then balancing feedback will act the way the brakes in a car do.
  • If the goal is to be moving at hundred kilometers per hour, then balancing feedback will cause you to accelerate to hundred but no faster.

What makes balancing processes so difficult in management is that the goals are often implicit, and no one recognizes that the balancing process exists at all – this is frequently down to  corporate culture (‘something we have always done.’). Identifying these balancing processes is crucial for system dynamics modeling. 

It is possible to spot a balancing loop because the outcome of the loop will include a odd number of negative links (-).

A few tips for drawing feedback loops:

  • + indicates increase creates increase, or decrease creates decrease
  • – indicates increase creates decrease, or decrease creates increase
  • Use curved lines: it is easier to ‘see’ a loop if it looks like a loop. Rectangles are more difficult to ‘see.’
  • Minimise crossed lines; this may mean you will need to draw and redraw a diagram to find the best layout.
  • Keep it clean and uncluttered with extra stuff. It will just distract the message,
  • I use a notebook / whiteboard to draw out (and rub out) feedback loops before transferring it to paper – it is unlikely to be right first time around.

I found the following video online which uses an unexpected topic – Love – to describe some of the common Systems themes. its worth a watch to help visualise the themes:

Review of: The Fifth Discipline by Peter Senge

“[…] vision without systems thinking ends up painting lovely pictures of the future with no deep understanding of the forces that must be mastered to move from here to there.”

Peter M. Senge, The Fifth Discipline: The Art & Practice of The Learning Organization

The Fifth Discipline is pretty much on the required reading list for Systems Thinkers. It proposes a vision of a organisation as a group of people who are continually enhancing their capabilities to create what they want to create to the benefit of all.

In the book, Peter Senge provides his description of Systems Thinking, and the disciplines he believes are required to support a Learning Organisation approach.

  • Personal mastery; looking at reality objectively, and acknowledging our personal vision.
  • Building shared vision; ensuring the organisation has one shared goal that was created by the people; deals with the difference between commitment and compliance.
  • Mental models; the epistemological constructs created by our experiences and understanding..
  • Team learning; adoption of open dialogue over discussion or being told what to do.  Letting the team decide the best way forward as a entity and through suspension of assumptions.
  • Systems thinking; the concept of looking at the entire picture and how behaviors and actions feed back into the system and cause effects.

I particularly liked the description of the MIT Beer Game. This game brings into sharp focus the ‘What You See Is All There Is’ notion described in a previous post. 

This book is a classic – used and referenced by management studies the world over. Having listened to it now on Audible I fully understand why.

It is vital that the five disciplines develop as an ensemble. This is challenging because it is much harder to integrate new tools than simply apply them separately. But the payoffs are immense.

This is why systems thinking is the fifth discipline. It is the discipline that integrates the disciplines, fusing them into a coherent body of theory and practice. It keeps them from being separate gimmicks or the latest organization change fads. Without a systemic orientation, there is no motivation to look at how the disciplines interrelate. By enhancing each of the other disciplines, it continually reminds us that the whole can exceed the sum of its parts.

Peter M. Senge, The Fifth Discipline: The Art & Practice of The Learning Organization

The bugbear of being Back Office

The recent hoohah over the WannaDecrypt / WannaCry ransomware debacle, and the subsequent shamefaced admittance from a number of institutions that they have not been maintaining and /or future-proofing their systems properly, has once again brought one of my personal ‘bafflements’ into sharp focus.

My background in the IT space has most often been supporting the backroom admin functions. You know? The un-sexy necessities of any large-scale organisation; systems which pay the employees or suppliers, which keep records, that calculate tax, book leave or track the never-ending annual appraisal cycles. These are systems that frequently have to run regression-based Waterfall methodologies due to heavy customisation and monolithic architecture. The ones that look longingly at DevOps Agile approaches, sigh melodramatically, and then pragmatically just get on with the job. Giving credit where it is due, some companies are slowly, slowly! moving towards modernising these unwieldy applications as an inability to migrate these type of customised services into the Cloud highlights some pretty deep cost inefficiencies.

Maintenance of these type of older systems is easily brushed under the carpet; ‘we haven’t been hacked so far, why should we feel any urgency now?’ Or in some cases it is not brushed under the carpet and it is scoped, but then it has to ‘wait’ for a suitable opportunity to test it before it can be put live.

I am not taking a Systems Thinking course for nothing though – so I thought it would be an interesting thought experiment to step away from my own perspectives and look at some others.

In the private sector, budgets are shaped by the bottom line – what is going to MAKE the business money. The company has a finite amount of money to invest and it wants to do so with the biggest return it can get. In this environment, back office systems that handle internal data and files are inevitably going to be low on the pecking order when up against the survival image of the business in its sector. Customer systems are going to get a lot of TLC because of the absolute necessity of a good customer experience. I find this a bit of a catch 22 situation – you need the customers to make the money, but how good will the customer experience be if all of your staff disappear due to a payroll error.

In the public sector the problem is bigger than just back office systems; the constant squeeze from government leaves everyone competing for a piece of an ever shrinking pie. (An ever shrinking pie that seems to pay some pretty incredible sums of money to contractors for their IT systems as well I might add. I have been witness to a few public sector ‘contracts’ and colour me utterly bamboozled by the procurement process!) Taking the beleaguered NHS Trusts as a prime example, choosing between replacing some antiquated systems that seem to be working okay, or paying to keep the lights on and patients moving through their appointments appears to be a no-brainer (especially in view of the ever tightening hospital waiting list targets). But this approach just defers the problem. And defers it. And defers it. And then something goes …ka-boom!  Also – who on earth would hack a hospital… amiright?

Still – the kerfuffle will bring some much needed attention to these darkened corners. No bad thing. However the cynic in me asks – will we learn from it? Or after the buzz has died down, will those bad habits start creeping back in? I would be interested in hearing some other opinions and thoughts about this mess – feel free to post if you feel so inclined.

Quote

Systems thinking is both a mindset and particular set of tools for identifying and mapping the interrelated nature and complexity of real world situations. It encourages explicit recognition of causes and effects, drivers and impacts, and in so doing helps anticipate the effect a policy intervention is likely to have on variables or issues of interest.

Furthermore, the processes of applying systems thinking to a situation is a way of bringing to light the different assumptions held by stakeholders or team members about the way the world works.

Cabinet Office, 2004