We think in straight lines
Cause and effect. If I do this, then that will happen. If I make this change then I will get that outcome.
Unfortunately the world isn’t like that. An initiative might work for a while, but then it will stop or backfire. Unintended consequences and side effects bedevil us. Performance will plateau or spiral out of control. Systems balance and reinforce and decay, they do anything but move in straight lines.
Let me give you a couple of examples:
The balancing loop
A balancing loop happens when two actions work against each other. They keep things constant. Picture the water level in a toilet cistern. You can work as hard as you like to empty it, flush and flush and flush, but it will keep filling up. It self levels.
Now think about prohibition. U.S. law enforcement worked tirelessly to cut the supply of alcohol into the country. The mobsters worked just as hard to smuggle it in. The warring groups escalated their activity, but the amount of alcohol on the street remained constant.
Finally, an example that is a little closer to home.
Imagine you own a pizza delivery service. When it starts it has few customers and surplus capacity. Pizza delivery is fast. Word gets out and customer demand builds. Then it gets busy and there are delays. What happens next? Customers get fed up of waiting and go elsewhere. Demand falls, and surplus capacity increases, and then… I think you get the picture, supply and demand level each other out.
There are balancing loops everywhere. They are why we struggle to lose weight or gain market share.
The reinforcing loop
Different types of loop altogether. They are sometimes called virtuous cycles or the vicious spirals. It all depends on which way they are spinning.
The easiest example is interest on a bank account. If you keep paying money in then the amount of interest will take off. Eventually the interest you earn will be greater than the amount you deposit.
A rather less pleasant example was the collapse of Northern Rock. A rumour got out that the bank was short of money. Worried customers started to take their cash out and move it elsewhere. Then the rumour became a clamour. There were queues of people standing outside the door, pictures on national TV. Before we knew it the other banks got drawn in and there was a horrendous race to the bottom.
Fortunately things don’t spiral out of control that badly every day. But it can happen on a less dramatic scale. If you run a service centre you will know all about an abandon rate spiral:
- Something goes wrong, you mail a confusing letter, or a system fails. Suddenly you have more customer calls than staff. A queue builds.
- Customers get tired of waiting and hang up. They phone back the next day (along with the normal customer calls). The queue gets longer.
- When the customers finally get through they are more than unhappy and give the agent a hard time.
- The calls take longer to deal with, disgruntled customers take time to calm down.
- The agents get fed up and decide to pull a sicky. Who needs to work in an environment like that?
And all the while the queue gets longer and longer and longer.
Systems loops exist the world over
Think about your business, can you see a loop in..?
- The budgeting process
- The appraisal process
- Your pricing strategies
- Employee satisfaction, customer churn, stock levels…
All have a loop or two associated with them. Side effects and spin offs are ubiquitous.
The only straightforward cause and effect relationships you will see are short-term. Sooner or later a feedback loop will cut in.
So what can you do?
As a start I have three pieces of advice, two professional and one personal.
On a professional level:
- Take the time to stand back and look a little more widely at your problem. Don’t just worry about the process. Think about the customers and the employees and the incentives and the competitors and how they all interlink. You will never get to see the whole picture, but the more you understand the more likely you are to be able to fix it.
- Once you think you have a solution try it out. Run a test and see what actually happens. Don’t bet on what you think will work but what you have tested.
On a personal level:
- You don’t need that fancy new car. Buying a depreciating asset (spiraling down) on an interest bearing loan (spiraling up) is a spectacularly fast way to lose money.
P.S. I am in no way qualified to give financial advice.
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Image by DominicAlves
James, excellent article.
We need to look at zero complaints also in solving these system loop problems
Hi James
Very insightful article. Jay Forrester would be proud of you.
It reminds me of the Beer Game (http://www.beergame.org) I have played with clients on a number of occasions to help them understand they are part of a complicated system with stocks, flows, loops and delays, rather than a simplistic linear one.
Graham Hill
@grahamhill
PS. Great blog
Graham, I’ve heard about the beer game but never played it. I will have a look.
Glad you liked the blog. Thanks for reading
What you’re describing is an important iteration of the ‘correlation vs. causation’ argument that many analysts are faced with on a daily basis. Just because two different elements are correlated doesn’t mean they are connected. Correlation is a straight-line relationship and can be identified through basic analytical techniques such as simple regression. Causation requires more in-depth and actionable analysis to connect one situation to another, often employing advanced multivariate techniques.
Here’s an example from the world of customer experience. For those using NPS, there’s an expectation that, when scores become more positive, sales will accompany this movement. However, that often doesn’t occur. If NPS goes up, sales can go up, stay the same, or go down. Why? Because NPS isn’t a granular measure, and more intensive study is required to identify the real cause of improvement.
Michael, I hadn’t thought about your NPS point before but I think it is really valid. It demonstrates the problem of chasing numbers blindly.
James,
A great post.
Would it be helpful when stepping back and looking at the wider problem to also articulate and examine the assumptions that we make about how loops and systems work?
Adrian
I guess articulating assumptions is always a good thing Adrian, well said.
Hello James,
Great advice. Have you ever wondered why it is that folks do not embrace systems thinking? Here is what I have found:
1. Systems thinking does not come naturally to us;
2. Systems thinking takes time and effort – usually it is best to engage in systems thinking as a team of people;
3. The ‘insights’ and therefore courses of action suggested by engaging in systems thinking are usually counterintuitive and go against conventional values, practices, and the interests of the elites;
4. Effecting change is much much more risky and troublesome then doing doing the systems thinking including drawing diagrams that consist of stocks, flows, loops..
I remember being a consultant at Andersen in the late 1990s. Systems thinking and Senge were in fashion. I went on a five day course, we learnt about loops, built systems diagrams…. A few years later the whole thing died. Why? Clients didn’t want it. They want ready made conventional silver bullets. And most folks hired by Andersen excelled in analytical thinking not systems thinking. Worse, systems thinking punctured the cherish axioms and practices of analytical thinking.
All the best
maz