Systems Thinking Guide

CONSULTING TOOLKIT

Consulting Skills:

Systems Thinking

© 2007-2012 IESIES Development Ltd. All Ltd. Reserved
© 2007-2012 Development Rights All Rights Reserved

Systems Thinking is a way to analyse complex systems

SYSTEMS THINKING:

A NEW TAKE ON CAUSE
AND EFFECT

© 2007-2012 IES Development Ltd. All Rights Reserved

Systems Thinking takes a new perspective on business

Thinking about
business holistically, as
a complete system

Understanding dynamic
complexity, not detailed
complexity

"We can't solve problems by using the
same kind of thinking we used when
we created them."

Albert Einstein


Dynamic complexity is hard for other management tools to
handle

•DYNAMIC COMPLEXITY

•Cause and effect are subtle
•Effects are delayed
•Short term effect different to long term effect
•Action produces side effects in another part of the business

Need systems
thinking

Inter-relationships not linear cause and effect
See processes not snapshots

Systems are everywhere in our lives

Your morning shower as a system

Get in, switch on

Jump out, Brrrrrr!

Turn up knob

Jump out, Brrrrrr!

Turn up more

Jump out, Yowww!

Turn down

Too cold!

Turn up a little

Ahhhhhhhhhhh!


You can show systems as feedback loops

Water
temperature
Perfect water
temperature

Balancing Perceived
loop
gap
Knob
position

Does the temperature control your hand, or your
hand control the temperature?

In a perfect world, the temperature will rise smoothly to reach the
perfect temperature

Temp

Time


In reality, the temperature rise is not smooth


Temp

Time

Why does this pattern exist?

The overshoot and oscillation are caused by the delays in the
system and are characteristic of systems
Water
temperature
Perfect water
temperature

Balancing Perceived
loop
gap
Knob
position

What business situations show
overshoot and oscillation?

What do you see?


People are pattern-seekers

We are continually trying to
make sense of the world by
finding direct cause and effect
relationships….

……even when they
don’t exist

What was the
cause of the
credit crisis?


Determining causality is harder than it looks

Imagine a people business – Hairdresser or management consultant
Sales are growing. What is causing the business to grow?

STAFF SERVICE CUSTOMER
SALES
MOTIVATION QUALITY SATISFACTION


Systems are build from feedback loops – as well as “balancing
loops” there are also “reinforcing loops”
+
STAFF MOTIVATION SERVICE
QUALITY
+

Reinforcing
loop
+
SALES CUSTOMER
SATISFACTION
+
What is another name for this “reinforcing loop”?

What direction does it operate?

How do you communicate it?

Communicate a “reinforcing loop” by telling a story around the
loop
……which means
The Barber Station they take care of
staff are very + their customers
very well…..
happy……
QUALITY
+
….and since the barbers
work on commission and
tips, increasing sales
increases their wages and
their motivation…… Reinforcing
loop
+
SALES CUSTOMER
SATISFACTION
…..and not only come + ……and the
customers are very
back regularly, but also
tell their friends, happy with their
increasing sales over experience……
time…… Can you tell the story in reverse?

Reinforcing loops have a standard pattern

What does a reinforcing loop look like over time?

Accelerating: Decelerating:
A virtuous circle A vicious circle

1
Time Time

There are many business examples of “reinforcing loops”

-
PRICING SALES
+
POLICY TO REINVEST
LOWER COSTS IN
PRICE
Reinforcing
loop
+
COSTS NEGOTIATION CLOUT
-


There are many business examples of “reinforcing loops”

+
NUMBER OF LISTINGS ATTRACTIVENESS TO
BUYERS
+

Reinforcing
loop
+
ATTRACTIVENESS TO NUMBER OF BUYERS
SELLERS
+


You will now be able to spot “reinforcing loops” in many
business situations

In your teams, identify and map 3 more
“reinforcing loops” for SPECIFIC
businesses

Be prepared to talk through ONE


“Reinforcing loops” also operate powerfully in organizations

THE “PYGMALION EFFECT”
+
TEACHER THINKS TEACHER FOCUSES
STUDENT IS SMART ON STUDENT
+

Reinforcing
loop +
STUDENT STUDENT
GETS BETTER LEARNS MORE
GRADES +

Will this affect how managers treat their employees?

“Reinforcing loops” also operate powerfully in your head

SELF-FULFILLING PROPHESIES
+
I get out of breath
climbing stairs “I’m not athletic”
+

Reinforcing
loop
+
I get less fit I stop exercising
+


You will now be able to spot “reinforcing loops” in many
personal situations

In pairs, identify when you experienced
your own self-fulfilling prophesy

Be prepared to share with the class


In reality, reinforcing loops don’t create exponential growth
forever

Time


Additional relationships kick in to brake reinforcing loops

+
QUALITY
+

Reinforcing
loop
+
SALES CUSTOMER
SATISFACTION
+

What brakes our barber’s “reinforcing loop”?


For example, a “staff burnout” balancing loop could brake the
reinforcing loop, creating a “limits to growth” pattern

- +
QUALITY
STAFF +
BURNOUT
+
Reinforcing
Balancing loop
loop
+
SALES CUSTOMER
SATISFACTION
STAFF
+
OVERTIME +
SERVICE
CAPACITY

A business with this “limits to growth” pattern will show clear
systems behaviour

What could the sales pattern look
like over time?
Sales

Time


The leverage is often in reducing the balancing loop, not driving
the reinforcing loop harder

- +
QUALITY
STAFF +
BURNOUT
+
Reinforcing
Balancing loop
loop
+
SALES CUSTOMER
SATISFACTION
STAFF
+
OVERTIME +
SERVICE If you are a consultant, asked to reignite sales
CAPACITYLtd. All Rights Reserved growth, where do you start?
© 2007-2012 IES Development

Every “reinforcing loop” has several “balancing loops” that will
act to brake it

Competitor reaction?

Segment saturation?

- SALES
PRICING
+
Taking short term Fragmented sales?
profit?
Reinforcing
+
loop
COSTS NEGOTIATION CLOUT
-
Supplier
policy?


As you get more experienced spotting loops, you will see them
everywhere

Class Exercise

For your “reinforcing loop”,
Identify “balancing loops”

Be prepared to talk through ONE


“Reinforcing loops” and “Balancing loops” combine to create
frequently recurring systems patterns

•BASIC SYSTEMS PATTERNS
•Limits to Growth
•Shifting the Burden
•Eroding Goals
•Escalation
•Success to the Successful
•Tragedy of the Commons
•Fixes that Fail
•Growth and Underinvestment

Systems Thinking is required up-front in consulting, to make
sure you are addressing the right problem

Shifting the Burden:

As a consultant, it is seductive to
implement solutions that address short
term symptoms, but make the
underlying problem worse


Short term fixes can create long term problems……..

What business examples can you think of?


A “Shift the Burden” pattern consists of two balancing loops
linked by a reinforcing loop
Symptomatic
“Solution”

Balancing
loop

Problem Side-effect
Symptom Reinforcing
loop

Balancing
loop

Fundamental Solution


A “Shift the Burden” pattern consists of two balancing loops
linked by a reinforcing loop
Promotion
Intensity

Balancing
loop
Shoppability
Sales and Image
Reinforcing
loop

Balancing
loop

Customer Value
Proposition If you are a consultant, asked to reignite sales
growth, where do you start?

Class Exercise

Identify and map your own example of
“Shifting the Burden”

Is there a “shift the burden” pattern
operating at your client?

Be prepared to talk it through, as if you are
explaining the problem to your client


There are many other examples of “shift the Burden” patterns in
business

•Pharmaceutical mega-mergers?

•Current Government deficit spending?

•Risk Management in banks?

•Using consultants?

Systems Thinking equips you to analyse dynamic complexity in
business
•Cause and effect are often widely separated in time and space

•Today’s solutions are tomorrow’s problems

•Solutions to symptoms give immediate gratification, but
make underlying problems worse

•The harder you push, the harder the system pushes back

•The cure can be worse than the disease

•Cutting an elephant in half does not produce 2 small elephants

•Small changes (in the right place) can produce big results

We are just scratching the surface of a major discipline

Learn More!

Read
“The Fifth Discipline”
by
Peter Senge


Systems Thinking Guide

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