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: