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.

One thought on “Systems Dynamics: Joining the dots

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