CCIS Systems Thinking IM As of April 1 2021

Principles of
Systems Thinking
Compiled by:
Domingo, Iluminada Vivien R.

Moñeza, Teresita G.
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Course Code : INTE20049
Course Title : Principles of Systems Thinking
Course Description :
This course introduces students
Systems thinking is the art and science of linking structure to performance, and performance to
structure - often for the purpose of changing structure so as to improve performance.
The final project of the course is the evaluation of a business system available in specific
business category industries.
Course Objectives:
At the end of the semester, students must be able to:
1. Understand and appreciate the meaning of systems thinking in electronic business

processes.
2. Be guided in their consideration of the business systems available among business
companies.
3. Appreciate the uniqueness and nuances of implementing business systems processes on the
web.
4. Be familiar with the infrastructure and technologies affecting the efficiency and effectiveness
of systems on the web.
5. Be aware of the different management and technical issues in the
development and implementation of a business systems.
6. Develop teamwork and cooperation among students in the evaluation of specific business
systems.
7. Be aware of personal values as they affect their business objectives.
8. Evaluate an existing business system.
TABLE OF CONTENTS: Page/s

Chapter 1: Introduction
1.1 What are Systems: Identifying Systems
1.2 Reflecting System Characteristics
1.3 The Five Basic Disciplines of the Learning Organization
Personal Mastery
Mental Models
Shared Vision
Team Learning
Systems Thinking
1.4 Understanding System Feedback
1.5 System Evaluation: Case Problems
1.6 Characteristics of simple and complex systems
Chapter 2. System Thinking as a special Language
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2.1 What is Systems Thinking: Principles of systems thinking: Stretching the timeline
2.2 Systems Thinking as a special language: The Shape of the Problem
2.3 Is Time on your side?
2.4 From short term to long term
2.5 In the midst of a problem
2.6 Systems Problem identification
2.7 Solving issues of business systems
Case Analysis of Selected Business Systems
Chapter 3: Systems Thinking as a Special Language
3.1 Uncovering Systemic Structures: Drawing Behavior over Time Graphs Identifying the
problem: The problem with price promotions
3.2 Identifying the Variables: The case of energy drain
3.3 Drawing behavior over time graphs: The case of audio – electronic roller coaster
3.4 The what, why, when, where, and how of Systems Thinking
3.5 The Eleven (11) Laws of Systems Thinking
Chapter 4: Guides to Systems Thinking
4.1 The Building Blocks of Systems Thinking
4.2 Uncovering Systemic Structures Building Causal Loop Diagrams: Anatomy of Causal Loop
Diagram: The case of plateauing profits
4.3 Building a causal loop diagram: The case of collapsing banks
4.4 About multi loop diagrams:
The ―organic to go‖ story
The case of the restricted revenues.
More Case Problems: The All for one cooperative
The Problem with used Cds
Chapter 5: Designing Systemic Interventions
5.1 Characteristics of complex systems
5.2 The strengths and weaknesses of complex systems
5.3 System Archetypes as Structural Pattern Templates
Chapter 6: Value Creation and Business Success
6.1 The Dos and Don‘ts of systems thinking on the Job
6.2 Practicing Life-Long Systems Thinking: Palette of System Thinking tools
6.3 The Learning Journey: System Archetypes
Appendices:
Appendix A: Additional Learning Activities
Appendix B: Learning Activity Key Points And Suggested Responses
Appendix C: A Palette of Systems Thinking Tools
Appendix D: The Systems Archetypes
Appendix E: Additional References
Required Readings :
1. Systems Thinking Basics, Virginia Anderson and Lauren Johnson, eBook published by
Pegasus Communication Inc. 1997.
2. Introduction to Systems Thinking, Antonio Perez, Asian Institute of Management, 2012
3. Systems Thinking for Social Change by Peter Stroh, 2015
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4. Systems Thinking Made Simple by Dereck Cabrera, 2014
Course Requirements :
1. Lecture/Classroom discussion
2. Assignment/Seat works
3. Chapter presentations
Evaluation Techniques :
1. Lectures/Class Discussion
2. Presentations
3. Quizzes
4. Case Analysis
5. Evaluation Examination
6. The course will have no final written exam and will be 100% based on the following
continuing assessment components:
Course Grading System :
MidTerm FinalTerm
Class Standing 70% Class Standing 70%

• Quizzes • Quizzes
• Class Recitation • Class Recitation
• Seatworks • Seatworks
• Case Studies • Case Studies
• Assignment • Assignment
Major Examination 30% Business Plan Presentation 30%
FINAL GRADE = (MidTerm + Final Term) /2
Suggested Teaching Methodologies/Strategies :

1. Group Dynamics
2. Lecture/Class Discussion
3. Class Presentation se Samples/Analysis
4. Film Showing
Required Readings :
5. Systems Thinking Basics, Virginia Anderson and Lauren Johnson, eBook published by
Pegasus Communication Inc. 1997.
6. Introduction to Systems Thinking, Antonio Perez, Asian Institute of Management, 2012
7. Systems Thinking Case Problems via google search
8. Systems Thinking You Tube videos
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Class Policies:
Aside from what is prescribed in the student handbook, the following are the professor‘s
additional house rules:
1. No make-up quizzes shall be given for missed quizzes, regardless of
circumstances, unless extremely meritorious, to be determined on a case-to-case
basis, upon the sole discretion of the course facilitator. Per College Policy,
students who failed to take their midterm and/or final examination(s) on the
scheduled date(s) may be given make-up examinations. The lesson coverage of
said make-up examinations shall be the same as that of the regularly scheduled
examination, but the make-up examination questions are designed to be more
difficult and challenging. All make-up examinations must be taken no later than
the prescribed deadline specified by the College.
2. All assignments, projects and other requirements must be submitted on the

specified date provided by the course facilitator. Late submission of course
requirements shall merit a corresponding deduction in points. The course
facilitator reserves the right to determine the acceptability of reason(s) presented
by the student.
3. Plagiarism is highly prohibited.
4. Cellphones must be on a silent mode or turned off inside classroom.
5. Student should seek permission from the professor before going out of the
classroom. Observe classroom cleanliness and orderliness. Make sure that the
classroom is clean every start and end of the class.
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CHAPTER 1
What Are Systems?
W
elcome to the world of systems and systems
thinking!
You may be asking yourself, why is it important to
explore systems? One reason is that we live in and are
influenced by systems all around us, from the natural
environment to healthcare, education, government, and
family and organizational life. Understanding how these
systems work lets us function more effectively and
proactively within them. The more we build our
understanding of system behavior, the more we can
anticipate that behavior and work with the system to shape
the quality of our lives.
This chapter introduces you to the idea of systems and
what makes them unique. In the learning activities at the
end of the section, you will have the opportunity to identify
some major systems in your own work life and to think
about typical system behavior.
At the end of the chapter, the students would be able to:

1. Internalize the processes of a system into day to day activities.
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2. Identify principles of business information systems
3. Recognize and enhance traits and skills in reflecting system characteristics
4. Identify and suggest system ideas for viable business systems.
CONTENTS:
Chapter 1: Introduction
1.1 What are Systems: Identifying Systems
1.2 Reflecting System Characteristics
1.3 The Five Basic Disciplines of the Learning Organization
Personal Mastery
Mental Models
Shared Vision
Team Learning
Systems Thinking
1.4 Understanding System Feedback
1.5 System Evaluation: Case Problems
1.6 Characteristics of simple and complex systems
WHAT IS A SYSTEM?
A system is a group of interacting, interrelated, or interdependent components that form a complex

and unified whole. A system‘s components can be physical objects that you can touch, such as the
various parts that make up a car. The components can also be intangible, such as processes;
relationships; company policies; information flows; interpersonal interactions; and internal states of
mind such as feelings, values, and beliefs. In an organizational setting, for example, the R&D group is a
system made up of people, equipment, and processes that create new products to be manufactured by the
production system and sold by the sales system. The components of the R&D group have to interact with
one another to perform their function and thus are interdependent. In turn, the R&D group interacts and
is interdependent with other systems within the company. A system such as the R&D group always has a
specific purpose in relation to an even larger system—in this case, the entire organization (Figure 1.1,
―Interdependent Systems Within Interdependent Systems‖).
FIGURE 1.1
Interdependent Systems Within Interdependent Systems
Sales
C p y
R&D
People
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Your body is another example. Within it, your circulatory system delivers oxygen, nutrients,
hormones, and antibodies produced by other systems and carries waste to the excretory system. The
circulatory system is made up of the heart, veins and arteries, blood, and a host of supporting elements.
All of these components interact to carry out their purpose within the larger system—your entire body.
Both of these examples raise an intriguing point about systems: We can think of all systems as
nodes embedded in a giant network in which everything is connected. For example, the company
described above, with its interdependent R&D, production, and sales systems, is itself a large system that
is interdependent with an even larger system—industry as a whole.
And industry is interdependent with an even larger system—the economy—and so on. The more we
widen our view in this way, the more we see that everything—from the tiniest subatomic particle to the
universe (and maybe beyond!)—is intertwined.
We can also distinguish between natural systems and human-made, nonliving systems. Natural
systems—a living being‘s body, human societies, an ecosystem such as a prairie—have an enormous
number and complexity of components and interactions among those components. They also have virtually
an infinite number of connections to all the systems around them. Human-made systems—cars, for
example—can also be quite complex, but these nonliving systems are not as intricately linked to systems
around them. If a car breaks down, the impact of this event is not nearly as far- reaching as if a species
were removed from a prairie ecosystem (although you may disagree if it‘s your car that breaks down!). Put
another way, human-made nonliving systems are more self-contained than natural systems, which we can
think of as more open in their connections to surrounding systems.
Defining Characteristics of Systems” Systems have several essential characteristics:

1. A system‘s parts must all be present for the system to carry out its purpose optimally.
If you can take components away from something without affecting its functioning and its
relationships, then you have just a collection, not a system. For example, if you remove a cashew from a
bowl of mixed nuts, you have fewer nuts, but you have not changed the nature of the collection of
components. Therefore, a bowl of mixed nuts is not a system.
Similarly, if you can add components to a collection without affecting its functioning and
relationships, it‘s still just a collection. So, if you add pistachios to your bowl of mixed nuts, you have more
nuts and you have a different mix, but you still have just a collection of nuts.
However, if you assign new tasks to an R&D group or redefine the job descriptions of its staff, you
will likely change the group‘s functioning and relationships—whether for the better or worse. The R&D
group is not just an assortment of people, equipment, and processes; it is a system.
2. A system‘s parts must be arranged in a specific way for the system to carry out its purpose.
If the components of a collection can be combined in any random order, then they do not make up a
system. For example, in a bowl of fruit, the oranges can go at the bottom, in the middle, or on the top
without changing the essential nature of the collection of fruit.
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However, in a system such as a company, imagine what would happen if the parts shifted around
randomly—if, for instance, the accounting specialists suddenly decided to work on the production line, and
the production specialists decided to write marketing copy. Of course, people do change jobs within their
companies, but only after training and much transition time. Most companies function best when people are
working in jobs that match their skills and experience, and when the staff is organized according to a
specific plan.
3. Systems have specific purposes within larger systems.

All systems have a specific purpose in relationship to the larger system in which they‘re embedded,
as we saw in the examples of the R&D department and human circulatory system above. Because each
system has its own purpose, each is a discrete entity and has a kind of integrity that holds it together. In
other words, you can‘t force two or more systems together and get a new, single, larger system. Nor can
you subdivide a system and automatically end up with two smaller identical, functioning systems.
As the saying goes, if you divide an elephant in half, you don‘t end up with two smaller elephants.
And if you put two small elephants together, you don‘t have a new, single, larger elephant (although some
day you may end up with a new system—known as a herd!).
4. Systems maintain their stability through fluctuations and adjustments.

Left to themselves, systems seek to maintain their stability. Your organization does its best to
maintain a designated profit margin just as most human bodies work to maintain a temperature of about
98.6 degrees Fahrenheit. If you examined your organization‘s revenues against expenditures every week or
graphed your body temperature every five minutes, you would probably draw a wobbly, fluctuating line
that nevertheless holds steady overall. Margins appear and disappear as a company pays its suppliers and
collects checks from customers. Your body temperature rises and falls depending on your mood and your
level of physical exertion. On average, however, your body temperature remains stable. And, with
reasonable management and no cataclysmic change, your organization‘s margin also remains stable
overall.
Systems achieve this stability through the interactions, feedback, and adjustments that continually
circulate among the system parts, and between the system and its environment. Let‘s say a corporation
receives an unusually large stack of suppliers‘ invoices (external stimuli) in the mail. The accounts
payable department responds by paying the bills. As the checks go out the door, the accounting
department, alarmed, compares revenue versus expenditures and gives feedback to management:
Expenditures are up and revenues aren‘t covering them. Management then adjusts the system by
reminding key customers to pay overdue invoices. Similarly, if you go for a run, your exertion warms your
body. The sensation of heat is fed back to your sweat glands, which begin to work. Over time, sweating
readjusts your temperature back to the norm.
5. Systems have feedback.

Feedback is the transmission and return of information. For example, imagine that you are steering
your car into a curve. If you turn too sharply, you receive visual cues and internal sensations that inform
you that you are turning too much. You then adjust correct the degree of your turn. The most important
feature of feedback is that it provides the catalyst for a change in behavior.
A system has feedback within itself. But because all systems are part of larger systems, a system
also has feedback between itself and external systems. In some systems, the feedback and adjustment
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processes happen so quickly that it is relatively easy for an observer to follow. In other systems, it may take
a long time before the feedback is returned, so an observer would have trouble identifying the action that
prompted the feedback. For example, if you sunbathed a lot in your teens, you may develop skin problems
after age 40—but because so much time passed between the two events, you may not recognize the
connection between them.
Finally, feedback is not necessarily transmitted and returned through the same system component—
or even through the same system. It may travel through several intervening components within the system
first, or return from an external system, before finally arriving again at the component where it started.
For instance, imagine that the company you work for is suffering financially and decides to lay off
20 percent of the work force. That quarter, the layoff does indeed improve the looks of the financial bottom
line. On this basis, the upper management might decide that layoffs are a reliable way to improve the
financial picture.
However, let‘s say you survived the layoff; how would you describe your state of mind and that of
your other remaining colleagues? Besides cutting costs, layoffs are also famous for damaging morale and
driving people to ―jump ship‖ in search of more secure waters. Eventually, as low morale persists, you and
your colleagues might start coming to work late and leaving early, and caring less and less about the quality
of your work. Productivity could drop. In addition, everyone who leaves—whether voluntarily or by being
laid off—takes valuable skills and experience with them, so the overall capability of the work force goes
down, further hurting productivity. Lowered productivity leads to expensive mistakes and lost sales from
dis- gruntled customers. All these eats away even more at the company‘s revenue, tempting management to
think about having even more layoffs to cut costs.
In this example, the feedback that made layoffs look like good policy was returned quickly—
probably within one quarter. The feedback about the long-term costs of layoffs went through more steps
and took a lot longer to return. Yet this information was essential for the management team to see the full
impact of their decisions.
EVENTS, PATTERNS, STRUCTURE
In reading all this information, you may be wondering what actually gives rise to systems. Systems
are built on structures that leave evidence of their presence, like fingerprints or tire marks, even if you can‘t
see them. But what is structure, exactly? The concept is difficult to describe. In simplest terms, structure is
the overall way in which the system components are interrelated—the organization of a system. Because
structure is defined by the interrelationships of a system‘s parts, and not the parts themselves, structure is
invisible. (As we‘ll see later, however, there are ways to draw our understanding of a system‘s structure.)
Why is it important to understand a system‘s structure? Because it‘s system structure that gives rise
to—that explains—all the events and trends that we see happening in the world around us. Perhaps the best
way to grasp the role of structure is to explore the Events / Patterns / Structure pyramid, shown in Figure 1.2.
Events
We live in an event-focused society (Figure 1.3, ―The Tip of the Pyramid‖). A fire breaks out in
the neighborhood; a project misses a deadline; a machine breaks down. We tend to focus on events rather
than think about their causes or how they fit into a larger pattern. This isn‘t surprising; in our evolutionary
development as a species, this ability to respond to immediate events ensured our very survival.
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But focusing on events is like wearing blinders: You can only react to each new event rather than
anticipate and shape them. What‘s more, solutions designed at the event level tend to be short lived. Most
important, they do nothing to alter the fundamental structure that caused that event. For example, if a
building is burning, you would want local firefighters to react by putting out the fire. This is a necessary
and essential action. How- ever, if it is the only action ever taken, it is inadequate from a systems thinking
perspective. Why? Because it has solved the immediate problem but hasn‘t changed the underlying
structure that caused the fire, such as inadequate building codes, lack of sprinkler systems, and so on.
By uncovering the elusive systemic structure that drives events, you can begin identifying higher-
leverage actions. The next step to comprehending systemic structure is to move from thinking at the
event level to thinking at the pattern level.
Patterns
Whereas events are like a snapshot, a picture of a single moment in time, patterns let us understand
reality at a deeper level (Figure 1.4, ―Moving from Events to Patterns‖). Patterns are trends, or changes in
events over time. Whenever you see a pattern of events—for example, sales have been declining over the
past few years, or two-thirds of the department‘s projects have gone over budget in the last year, or several
senior engineers have left the company recently, most of them in the last six months—you‘re getting one
step closer to grasping the systemic structure driving that pattern.
FIGURE 1.2 FIGURE 1.3 FIGURE 1.4
The Events / Patterns / Structure The Tip of the Pyramid Moving from Events to Patterns
Pyramid
Events
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In each of the above examples, you could draw a simple graph to represent the trend (Figure 1.5,
―Graphs of Patterns‖). What is the advantage of thinking at the pattern level, as opposed to the event level?
Detecting a pattern helps you put the most recent event in the context of other, similar events. The spotlight
is then taken off the specific event, and you can focus on exploring how the series of events are related and
begin thinking about what caused them. In the end, to anticipate events and ultimately change a pattern, you
need to shift your thinking one more time: to the level of structure (Figure 1.6, ―The Complete Pyramid‖).
F I G U R E 1. 6
The Complete Pyramid
Structure To move to this deeper level of understanding, let‘s reconsider the above example of the
senior engineers‘ exodus. You might begin digging for the structure behind this pattern by asking, ―What‘s
causing more and more senior engineers to leave?‖ In this case, suppose a change in corporate policy has
cut both the budget and the number of administrative assistants for the engineering group. The engineers‘
workloads have ballooned, and they‘ve begun grumbling more and more about their job pressure. Worse
yet, as some of them leave, those left behind get even more upset as their workloads expand further. It‘s a
vicious cycle that you might sketch as shown in Figure 1.7, ―The Engineering Exodus,‖ p. 8.
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FIGURE 1.7
The Engineering Exodus
X$ X$ $
budget cuts lead to
Budget for
Administrative
Assistants Laid Off
which adds
even more to
which leads to
Whenever we ask questions like, ―Why is this pattern happening?‖ or ―What‘s causing these
events?‖ we are probing at structure. Thinking at the structural level means thinking in terms of causal
connections. It is the structural level that holds the key to lasting, high-leverage change. Let‘s return to our
example about a house catching fire, to see how this works. To fight fires at the event level, you would
simply react to quell the fire as soon as possible after it broke out. You would probably then repair any
smoke and water damage, and put the incident out of your mind.
A NOTE ABOUT DIAGRAMMING SYSTEMS
As we saw earlier, all systems are part of larger As you will see later in this book, there is no
systems, so it‘s impossible to capture any system in its one right way to draw a causal loop diagram or even
entirety on paper. Nevertheless, there are ways of to describe an entire system. Any diagram that you
depicting parts of systems in a diagram, in order to draw reflects your own assumptions about the system,
glimpse how a system works and how you might alter and is limited to what you define as the most
its behavior. One such way is to create a causal loop pertinent part of the system you‘re studying. This is
diagram, or CLD. (Figure 1.7 is an example of this why working in groups is so beneficial—you gain
kind of drawing.) These diagrams provide a starting insights from the multiple perspectives.
place for discussing and thinking about problematic Later in this book, you‘ll have the opportunity to
events or patterns, and for opening the door to practice drawing CLDs. As with all the activities in
addressing problems differently. In particular, they this book, we encourage you to work as a group
help you gain insight into systemic structures, and whenever possible in creating CLDs. A causal loop
they identify ways you might change the system‘s diagram generated by a group is especially valuable
behavior. After all, it is changes made at the system because it reveals the interplay of each group
level, rather than at the pattern or event level, that member‘s perspective on the system in question. The
often prove to be the most long-lasting and self- process of constructing the drawing encourages group
sustaining. members to share their assumptions and under-
It‘s important to remember, however, that graphic standings about the issue at hand. The more this kind
representations of systems are just that: of sharing happens, the more insights get sparked.
representations.
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How would you fight fires at the pattern level? You would begin anticipating where
other fires are most likely to occur. You may notice that certain neighborhoods seem to suffer more
fires than others. You might locate more fire stations in those areas, and staff them based on past
patterns of usage. By doing these things, you would be able to fight fires more effectively by
adapting to the patterns you have observed.
However, your actions haven‘t done anything to reduce the actual occurrence of fires. To
address the problem at this level, you need to think about the structure that gives rise to the pattern
of fires. At the systemic structure level, you would ask questions like, ―Are smoke detectors being
used? What kinds of building materials are least flammable? What safety features reduce
fatalities?‖ Actions that you take at this deep level can actually cut down the number and severity
of fires. Establishing fire codes with requirements such as automatic sprinkler systems, fire-proof
materials, fire walls, and fire alarm systems saves lives by preventing or containing fires.
Here‘s where the real power of structural-level thinking comes in: Actions taken at
this level are creative, because they help you to shape a different future, the future that you want.
Does this mean that high-leverage actions can be found only at the structural level? No—leverage
is a relative concept, not an absolute. Our ability to influence the future increases as we move from
event-level to pattern-level to structural-level thinking, but sometimes the best action we can take
must remain focused on the present, at the event level—for example, when a building is aflame, the
highest leverage action in the moment is to react by putting out the fire. Any other action would be
downright inappropriate. But, if that‘s all we did, the actions would be considered low leverage
from a long-term perspective. The art of thinking at the systemic structure level comes with
knowing when to address a problem at the event, pattern, or structural level, and when to use an
approach that combines the three.
Figure 1.8, ―Levels of Understanding,‖ depicts the richness of these three levels of
understanding.
FIGURE 1.8
Levels of Understanding
Action Time Way of Questions You

Mode Orientation Perceiving Would Ask
Events React! Present Witness event
―What kinds of trends

Measure or track
Patterns Adapt! patterns of events
or patterns of events
―What structures are in

Future and other systems place that are causing
thinking tools these patterns?‖
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The Five Basic Disciplines of the Learning Organization
Mental Models
Personal Mastery
Shared Vision
Team Learning
Systems Thinking
Peter Senge‘s Fifth Discipline precepts boil down to these assertions that people should put aside their old ways
of thinking (mental models), learn to be open with others (personal mastery), understand how their company
really works (systems thinking), form a plan everyone can agree on (shared vision), and then work together to
achieve that vision (team learning). Let us describe each discipline.
1. Mental Models
―Mental models‖ are deeply ingrained assumptions, generalizations, or even pictures or images that influence
how we understand the world and how we take action …
The discipline of working with mental models starts with turning the mirror inward, learning to unearth our
internal pictures of the world, to bring them to the surface and hold them rigorously to scrutiny. It also includes
the ability to carry on ―learningful‖ conversations that balance inquiry and advocacy, where people expose their
own thinking effectively and make that thinking open to the influence of others.
2. Personal Mastery
―Personal mastery is the discipline of continually clarifying and deepening our [the members of the
organization‘s] personal vision, of focusing our energies, of developing patience, and of seeing reality
objectively.‖
3. Shared Vision
The practice of shared vision involves the skills of unearthing shared ―pictures of the future‖ that foster genuine
commitment and enrollment rather than compliance.
4. Team Learning
The discipline of team learning starts with ―dialogue,‖ the capacity of members of a team to suspend
assumptions and enter into a genuine ―thinking together.‖ The discipline of dialogue also involves learning how
to recognize the patterns of interaction in teams that undermine learning. The patterns of defensiveness are often
deeply engrained in how a team operates. If unrecognized, they undermine learning. If recognized and surfaced
creatively, they can actually accelerate learning.
5. Systems Thinking
Senge (1994) describes systems thinking as a ―discipline that involves approaching problem solving and
addressing issues, not by focusing on isolated events or parts of the whole but rather by looking at the patterns
and events as interrelated parts that effect and are affected by each other and that collectively make up a unified
and inseparable whole.‖
https://leadtogether.org/tag/principles-of-learnign-organization/
A School as a Living Entity by Rea Gill
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To build an organization that can truly learn, that can continually expand its capacity to create its future, we/you
need to master these five disciplines.
Table 1. The Five Discipline of the Learning Organization
DISCIPLINE What it means? What you need to do?

Deeply ingrained assumptions that Bring assumptions to the surface and
Mental influence actions question them. Develop alternative
Models assumptions.
The continuous personal growth Be a model. Commit yourself to your
Personal
and learning of individuals in the own personal mastery.
Mastery
organization
A common aspiration among Encourages people to have their own
Shared people in the orgazation personal visions and to share them.
Vision
Developing extraordinary Master the practices of dialogue and
Team capacities for coordinated action. discussion among team members
Learning
A framework for seeing the See wholes instead of parts. See the
Systems
interrelationships rather than forest and the trees.
Thinking
things.
1.2. Principles of systems thinking (Concepts & Laws)
Systems thinking is a discipline used to understand systems to provide a desired effect; the system for
thinking about systems. It provides methods for ―seeing wholes and a framework for seeing interrelationships
rather than things, for seeing patterns of change rather than static snapshots.‖ The intent is to increase
understanding and determine the point of ―highest leverage‖, the places in the system where a small change can
make a big impact.
According to Kinshau Rogers, there are six foundational principles that drive systems thinking methods, such
as:
1. Wholeness and Interaction. The whole is greater than the sum of its parts (the property of the whole,
not the property of the parts; The product of interactions, not the sum of actions of the parts)
2. Openness. Living systems can only be understood in the context of its environment.
3. Patterns. To identify uniformity or similarity that exists in multiple entities or at multiple times.
4. Purposefulness. What you know about how they do what they do leads to understanding
WHY they do what they do.
5. Multidimensionality. To see complementary relations in opposing tendencies and to

create feasible wholes with infeasible parts.
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6. Counterintuitive. That actions intended to produce a desired outcome may generate
opposite result.
1.3. The Systems Thinking View of Simple, Complicated, Chaotic, and Complex
https://portal.netobjectives.com/pages/flex/systems-thinking-view-of-simple-complicated-chaotic-complex/
Understanding the challenges present in changing behavior is important. There are many models about
complexity in the world of software development and what that means. simple, complicated, chaos and
complex events. While discussed by many, some of these discussions ignore three salient points:
• The relationships are often not inherently the way they are but are that way because of limited
understanding
• Chaos is a result. We should be discussing ‗chaotic events.‘
• All of this needs to be taken from a system thinking point of view.
Some quick definitions
There are different types of relationships between different entities. These relationships are more or less easy to
understand. The behaviors between the entities also change based on these relationships. While it is not really
possible to define a relationship as specifically this or that, it is possible to define aspects of these relationships.
We will use the following definitions:
Simple means there is a well-defined relationship between an event and the resulting action from that. Dropping
a pen and seeing that it will fall is a simple relationship. Or, if one wants more accuracy, there may be other
factors (such as wind velocity) taking it out of the simple domain. Doing this in space may be a more
complicated relationship. Hence, relationships may be simple but not in all contexts.
Chaos is a result, not an event. Its definition is ―complete disorder and confusion‖ as in ―snow caused chaos in
the region.‖ It can result from behavior so unpredictable as to appear random, owing to great sensitivity to small
changes in conditions.‖
Chaotic event is an event that is unpredictable even if there is an underlying science. The ―straw that broke the
camel‘s back‖ and the ―butterfly effect‖ where a butterfly flapping it‘s wings in Asia can theoretically cause a
typhoon on the west coast of the US. These are often called ―non-linear‖ events since a small change may cause
a large change.
Complicated systems are when there are several well-defined relationships between cause and effect. If all of
these relationships are known then we can predict the outcome of the actions. Launching a rocket is an example
of complicated.
Complexity means that the exact relationships between things are neither known and possibly unknowable.
Complexity does not mean general predictions can‘t be made, but that exact predictions cannot. For example,
weather is complex, but there are patterns to weather we can learn. Raising a child is a complex endeavor.
Difference between inherent nature and what we understand
Many things that appear complex in the past were really just events for which we had no understanding. For
example of what appeared to be complex, was solved by someone, but couldn‘t get it adopted because of the
lack of understanding.
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Taking a Systems Thinking point of view Systems Thinking provides us with two main tenets:
1. We must recognize that all of the parts of a system are interrelated and that changing part of the system
affects it all. Furthermore, the system is not the sum of the whole but exhibits its own behavior. Please
read "What if Russ Ackoff Gave a TED talk."
2. The system affects the behavior of the people in it in a very significant manner.
What this means is that a system likely exhibits all 4 types of events: simple, complicated,
chaotic, and complex. And definitely all four if people are present in it as people‘s behavior is complex.
Please read: ― People Are Complex, Software Development Isn‘t."
How to manage chaos and complexity Chaos from chaotic events and complexity
While chaotic events and behavior of complex systems, by their very definition, can‘t be predicted, they can be
controlled. In the case of business development where a goal is intended, feedback is essential. This enables the
unplanned for actions that occur, such as misunderstandings and creating errors, to be attended too quickly. The
negative impact of these unplanned actions can thereby be mitigated. Reducing delays between the incident and
its mitigation is critical. Particularly in knowledge work and software development where a delay in detecting an
error can cause a great amount of additional unplanned work.
This is the driving force for quick feedback. We can always introduce errors into our system. If we can find
them quickly, we can eliminate most of the impact of the error.
Chaos from simple and complicated systems
Chaos can result from simple and complicated systems as well. When systems are overloaded, that is, they have
more work in process (WIP) than they should, this will introduce delays in workflow, feedback and using
information. This alone will cause problems (new unplanned work) as well as exacerbate any challenges from
the chaotic and complexity described above. Managing WIP is therefore very important. Two related articles
are:
• Manage Work-in-Process
• Controlling Work-in-Process
Predictability vs. repeatability in complex systems
There is a difference between predictability and repeatability. But before discussing those, let‘s look at two
types of predictability – micro and macro. Micro-predictability refers to a particular event while macro-
predictability refers to the result over time. Consider that one can‘t accurately predict the result of a coin flip but
can predict that over time a fair coin will come up heads as often as tails. If the coin isn‘t fair, it‘d be a good bet
that the results of the second thousand flips will match the results of the first thousand flips – hence macro-
predictability.
While complex systems are inherently unpredictable, it is possible to constrain them so as to increase
predictability of an aspect of the system. This can result in repeatable results. For example, automated testing
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and lowering technical debt can greatly increase the predictability of changing code. Repeatability of results in
complex systems requires:
• explicit workflow
• full visibility of work
• managing work-in-process
• alignment across the value stream
• attending to feedback
It is important to understand that achieving repeatability is one thing and maintaining it is another. It is easy to
fall back into past habits before predictability was achieved. This is why management and teams must work
together with regular retrospectives to ensure the continued predictability. As understandings change so must
systems. These retrospectives must be geared toward continued improvement – systems are either improving or
decaying, there is no stasis.
It is also important to remember that achieving repeatability does not mean the system is predictable when new
changes are attempted. Complex systems by their nature are not predictable. We can work with them, but when
people are involved, complexity will always be present.
When a transition to new methods is attempted, the actions being attempted become part of the system. This is
why one should consider the effect of following a particular approach will have on your organization. That is,
include people‘s reaction to Scrum, Kanban, Kanban Method, SAFe, FLEX, DAD, LeSS, etc. The method you
are using becomes part of your system. This should be accounted for in the design of your approach. Many
approaches take a different attitude about how they will/should affect the system. For example, Scrum suggests
that impediments to doing Scrum should be removed. This works in some contexts, but not so well in others.
Lean suggests taking a systems thinking point of view so that any adjustments to your workflow must consider
the value streams being affected.
These activities can be done either by yourself or with a group. For self-study, you might consider starting a
systems thinking journal, and doing the following learning activities over the course of a week or two. However, you
approach them, take plenty of time to think about each activity. Be honest, too. No one else will see your notes or
your journal!
If you are helping a group to do the activities, have them read and think about the material ahead of the meeting
time. Then go over it when you meet, answering questions and looking for additional examples to help illustrate key
points.
ACTIVITY 1 I D E N T I F Y I N G SY S T E M S
Purpose: To identify systems and their components To recognize interrelated systems
Outcome: Recognition of systems within your organization, their interrelationships, and their
purposes Insights about intangible and possibly powerful components of systems that
affect what hap-
pens in your organization.
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Instructions: Identify three systems in your organization, including at least one that includes some
important but intangible components.
Example  Informal information system
Purpose: To supplement the ―official‖ information system so people feel they

can make more informed decisions. The informal system may also help defuse
tension by offering an avenue for chatting or gossiping.
Components: People, the electronic mail system
Intangible components: Information or ―gossip,‖ time to communicate,
motivation to share information
Larger system: The overall information system, which also has a formal
communication system
1. List your three systems below:
2. In the spaces provided below, fill in the following information:
• The name of your system
• The purpose that your system fulfills within the larger system
• The components that make up your system
• The intangible components of your system
• The larger system of which your system is a part
Your First System:

Purpose:
Components:
Intangible components:
Larger system:
Your Second System:

Purpose:
Components:
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Larger system:
Purpose:
Components:
Larger system:
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ACTIVITY2 R E F L E C T I N G ON SY S TE M C H A R A C T E R I S T I C S
Purpose: To think about the behavior of the systems you see around you
To identify patterns of behavior over time, and think about what causes that behavior
Outcome: Simple graphs of observed behavior patterns

Awareness of the forces that drive behavior patterns
Instructions: Write your answers to the following questions in the space provided.
QUESTIONS
1. Identify a chronic problem or ongoing issue that you wrestle with at work (for example, ―Sales do well for a
while, then drop, then pick up again‖; or ―Every year more and more people get laid off‖).
2. Try drawing a graph of what seems to be happening. (Tip: Ask yourself, Is the pattern going up? Going
down? Oscillating over time? Going up or down and then leveling off?)
3. Looking at your graph, what do you see?
4. Is there any way that actions taken to solve the problem might actually be making things worse?
If so, how?
ACTIVITY3 U N D E R S T A N D I N G SY S T E M F E E D B A CK
Purpose: To begin using simple diagrams to show how components of a system are related and how
feedback is returned through the system
Outcome: Diagrams of the three systems you identified in Activity 1
Instructions: For each system you identified in Activity 1, draw a map or diagram of how the parts are related
and how one part gives feedback to another. You may find there are many or only a few feedback connections. You
may also find that some feedback travels through multiple steps before arriving back at its original source.
Example Figure 1.9, ―The Informal Information System,‖ shows the system discussed in Activity 1.
FIGURE 1.9
The Informal Information System
In this diagram, the dotted arrows represent feedback. The number of people who want to share information, the amount
of information to share, and the amount of time available are all related to the level of information sharing. The amount of information sharing or
its value to people can determine how much interest everyone has in using the electronic mail system to share information. This level of interest
then influences how many people share information and how much time they spend doing it.
Information
information
sharing
In sharing
nfo
mation
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Now try diagramming your three systems:
Your First System:

Your Second System:
Your Third System:
Finally, try trading diagrams with someone else. Take turns explaining the diagrams and your
understanding of the systems you drew.
References:
1. https://us02web.zoom.us/j/82206269624?pwd=WHNPRjN4YUhtbXhOZ0dSV3RiWDEvdz09
2. https://bigthinking.io/6-principles-of-systems-thinking/ Kishau Rogers
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What Is Systems Thinking?
here are many ways of looking at systems thinking. It offers not only a
Tset of tools, but also a framework for looking at issues as systemic

wholes. For some people, it can even become a way of life! Systems
thinking is a language, too, that offers a way to communicate about
dynamic complexities and interdependencies. Most Western languages
are linear—their basic sentence construction, noun-verb-noun,
encourages a worldview of ―x causes y.‖ Because of this, we tend to
focus on linear causal relationships rather than circular or mutually
causative ones. Yet many of the most vexing problems confronting
managers and corporations today are caused by a web of
interconnected, circular relationships. To enhance our understanding
and communication of such problems, we need a language and a set of
tools better suited to the task. This is where systems thinking comes in.
In this chapter, we examine the foundational principles of systems
thinking in more detail, and explore the special qualities of systems
thinking as a language. The learning activities at the end of the section
will let you begin actually practicing systems thinking.
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At the end of the chapter, the students would be able to:
1. Enumerate and relate principles of systems thinking to daily business activities

2. Integrate principles of systems thinking to business processes
3. Recognize and issues and concerns in business problems
4. Identify and suggest system ideas for viable business systems.
Chapter 2. System Thinking as a special Language

2.1 What is Systems Thinking: Principles of systems thinking: Stretching the timeline
2.2 Systems Thinking as a special language: The Shape of the Problem
2.3 Is Time on your side?
2.4 From short term to long term
2.5 In the midst of a problem
2.6 Systems Problem identification
2.7 Solving issues of business systems
Case Analysis of Selected Business Systems
THE PRINCIPLES OF SYSTEMS THINKING

In general, systems thinking is characterized by these principles:
• thinking of the ―big picture‖
• balancing short-term and long-term perspectives
• recognizing the dynamic, complex, and interdependent nature of systems
• taking into account both measurable and non measurable factors
• remembering that we are all part of the systems in which we function, and that we each influence
those systems even as we are being influenced by them
The ―Big Picture‖

During stressful times, we tend to focus on the immediate, most pressing problem. With this narrow focus, we can
perceive only the effects of changes elsewhere in the system. One of the disciplines of systems thinking, however,
involves being able to step back from that immediate focus and look at the bigger picture. As you know, whatever
problem you‘re involved in right now is part of a larger system. To discover the source of a problem, you have to
widen your focus to include that bigger system. With this wider perspective, you‘re more likely to find a more
effective solution.
For example, imagine that you work for a regional appliance distributor that is experiencing growing delays in
providing timely service to its customers. As a manager in this company, you might be tempted to focus first on the
service technicians, perhaps on the service order-taking system, or even on service-order dispatching. But take a
step back. What if you knew that about six weeks before the service crisis started, the sales group had implemented
an incentive program that included free set-up and installation of new appliances? To sell more appliances, the
sales force encouraged customers to make service appointments as soon as their delivery dates were set. Then a
service person could come out to install the appliance and make all the electrical and water connections. However,
because the customer service department had not been informed of the incentive program, it had no opportunity
to add staff to handle the installation incentive. With this wider view, you might conclude that the delays in
providing customer service do not come from the customer service department, and you might choose a different
path to solving the problem.
Long Term, Short Term

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How often does your organization expect to see results of its activities? In a year? A quarter? A week? In addition
to checking the health of the company at these kinds of intervals, some businesses also make major strategic
changes—such as cost-cutting campaigns, layoffs, new hiring, production increases—every time they check how
the business is doing.
Yet systems thinking shows that behavior that leads to short-term success or that is prompted by short-term
assessments can actually hurt long- term success. However, the point is not that the long-term view is ―better‖ than
the short-term view. After all, if a little boy runs out into traffic, grabbing him by the arm at risk of injuring his
shoulder or startling him makes far more sense than moving slowly or speaking softly while a bus speeds down the
street. In thinking about any decision, the best approach is to strike a balance, to consider short-term and long-term
options and to look for the course of action that encompasses both. At the very least, try making your decisions by
first thinking through their likely ramifications—both short term and long term.
Here‘s an example: As a business grows, it may use consultants to handle its human resource and training functions.
In the short run, this sensible business decision can bring in a high level of professional exper tise. If the company
decides that consulting help is getting too expensive, however, it will eventually move to develop its own in-house
HR and training department. To balance the long and the short term, the company could phase in internal expertise
at certain levels of revenue, sales volume, or staffing, and overlap internal and outside resources while the new staff
members get their bearings.
Whether you‘re focusing on the long term or the short term, the key is to be aware of all the potential impacts of
whichever strategy you choose.
Dynamic, Complex, and Interdependent

When you look at the world systemically, it becomes clear that everything is dynamic, complex, and interdependent.
Put another way: Things change all the time, life is messy, and everything is connected.
We may know all this. However, when we‘re struggling with an over- whelming problem or an uncertain future,
we tend to want to simplify things, create order, and work with one problem at a time. Systems thinking doesn‘t
advocate abandoning that approach altogether; instead, it reminds us that simplification, structure, and linear
thinking have their limits, and can generate as many problems as they solve. The m ain point is that we need to be
aware of all the system‘s relationships—both within it and external to it.
Measurable vs. Non-measurable Data

Some organizations value quantitative (measurable) over qualitative (non- measurable) data. Others are just the
opposite. Systems thinking encourages the use of both kinds of data, from measurable information such as sales
figures and costs to harder-to-quantify information like morale and customer attitudes. Neither kind of data is
better; both are important.
Systems thinking also alerts us to our tendency to ―see‖ only what we measure. If we focus our measuring on
morale, working relationships, and teamwork, we might miss the important signals that only statistics can show us.
On the other hand, if we stay riveted on ―the numbers,‖ on how many ―widgets‖ go out the door, we could overlook
an important, escalating conflict between the purchasing and the production departments.
We Are Part of the System

One of the more challenging systems thinking principles says that we usually contribute to our own problems.
When we look at the big picture, over the long term, we often find that we‘ve played some role in the problems
facing us.
Unintended consequences. Sometimes the connection is simple—the problem plaguing us today is an

unintended consequence of a solution we implemented yesterday. For example, to control costs, a bank manager
decides to limit the number of tellers on Thursday evenings and Saturday mornings. Eventually, the manager
notices that—surprise! —other banks seem to be getting all the customers who rely on having access to the bank
during evenings and weekends.
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Assumptions. Sometimes our assumptions are what get us into trouble. Imagine, for example, that you‘re the
manager of Frank‘s Steak House, a restaurant that specializes in affordable family dining. You‘ve noticed that
business at the restaurant has flagged a bit for two or three months in a row. You conclude that this is an enduring
trend, because you‘ve read essays in the newspapers about a possible resurgence in the health of the national
economy. People are feeling freer to dine at more expensive restaurants, you decide. To prepare Frank‘s to weather
the new trend, you lay people off. However, demand bounces back a few months later, and you‘re forced to
scramble to bring workers back. Some of these workers are rehired at higher pay than before, some on overtime.
These kinds of assumptions about how the world works (also known as mental models) are powerful drivers of the
decisions we make.
Values and beliefs. Deeply held values and beliefs can lock us into counterproductive ways of making decisions.
The Cold War is a perfect example: As long as the U.S. and the former U.S.S.R. each firmly believed that the other
was intent on annihilating its ideological enemy, the arms race was inevitable. Even worse, the longer the conflict
continued, the harder it was to call it off. Both nations were highly invested in justifying their ―saber -rattling‖ in the
past, present, and future. In this case, too, mental models played a major role.
SYSTEMS THINKING AS A SPECIAL LANGUAGE

As a language, systems thinking has unique qualities that make it a valuable tool for discussing complex systemic
issues:
• It emphasizes looking at wholes rather than parts, and stresses the role of interconnections. Most important,
as we saw earlier, it recognizes that we are part of the systems in which we function, and that we therefore
contribute to how those systems behave.
• It is a circular rather than linear language. In other words, it focuses on ―closed interdependencies,‖ where x
influences y, y influences z, and z come back around to influence x.
• It has a precise set of rules that reduce the ambiguities and miscommunications that can crop up when we talk
with others about complex issues.
• It offers visual tools, such as causal loop diagrams and behavior over time graphs. These diagrams are rich in
implications and insights. They also facilitate learning because they are graphic and therefore are often easier to
remember than written words. Finally, they defuse the defensiveness that can arise in a discussion, because they
emphasize the dynamics of a problem, not individual blame.
• It opens a window on our mental models, translating our individual perceptions into explicit pictures that can
reveal subtle yet meaningful differences in viewpoints.
To sum up, the language of systems thinking offers a whole different way to communicate about the way we see the
world, and to work together more productively on understanding and solving complex problems.
Language has a subtle, yet powerful effect on the way we view the world. English, like most other Western languages, is
linear—its basic sentence construction, noun-verb-noun, translates into a worldview of ―x causes y.‖ This linearity
predisposes us to focus on one-way relationships rather than circular or mutually causative ones, where x influences y, and
y in turn influences x. Unfortunately, many of the most vexing problems confronting managers and corporations today are
caused by a web of tightly interconnected circular relationships. To enhance our understanding and communication of such
problems, we need a language more naturally suited to the task.
Elements of the Language
Systems thinking can be thought of as a language for communicating about complexities and
interdependencies. In particular, the following qualities make systems thinking a useful framework for
discussing and analyzing complex issues:
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• Focuses on “Closed Interdependencies.” The language of systems thinking is circular rather than
linear. It focuses on closed interdependencies, where x influences y, y influences z, and z influences x.
• Is a “Visual” Language. Many of the systems thinking tools—causal loop diagrams, behavior-over-
time diagrams, systems archetypes, and structural diagrams —have a strong visual component. They
help clarify complex issues by summing up, concisely and clearly, the key elements involved. Diagrams
also facilitate learning. Studies have shown that many people learn best through representational images,
such as pictures or stories. A systems diagram is a powerful means of communication because it distills
the essence of a problem into a format that can be easily remembered, yet is rich in implications and
insights.
• Adds Precision. The specific set of ―syntactical‖ rules that govern systems diagrams greatly reduce the
ambiguities and miscommunications that can occur when tackling complex issues. Example: In drawing
out the relationships between key aspects of a problem, causal links are not only indicated by arrows,
but are labeled ―s‖ (same) or ―o‖ (opposite) to specify how one variable affects another. Such labeling
makes the nature of the relationship more precise, ensuring only one possible interpretation.
• Forces an “Explicitness” of Mental Models. The systems thinking language translates ―war stories‖
and individual perceptions of a problem into black-and-white pictures that can reveal subtle differences
in viewpoint. Example: In one systems thinking course, a team of managers was working on an issue
they had been wrestling with for months. One manager was explaining his position, tracing through the
loops he had drawn, when a team member stopped him. ―Does that model represent your thinking about
this problem?‖ he asked.
The presenter hesitated a bit, reviewed his diagram, and finally answered, ―Yes.‖
The first man, evidently relieved, responded, ―After all of these months, I finally really understand your
thoughts on this issue. I disagree with it, but at least now that we are clear on our different viewpoints,
we can work together to clarify the problem.‖
• Allows Examination and Inquiry. Systems diagrams can be powerful means for fostering a collective
understanding of a problem. Once individuals have stated their understanding of the problem, they can
collaborate on addressing the challenges it poses. And by focusing the discussion on the diagrams,
systems thinking defuses much of the defensiveness that can arise in a high-level debate. Example:
When carrying on a systems discussion, differing opinions are no longer viewed as ―human resources’
view of our productivity problem‖ or ―marketing’s description of decreasing customer satisfaction,‖ but
different structural representations of the system. This shifts the focus of the discussion from whether
human resources or marketing is right to constructing a diagram that best captures the behavior of the
system.
• Embodies a Worldview that looks at wholes, rather than parts, that recognizes the importance of
understanding how the different segments of a system are interconnected. An inherent assumption of the
systems thinking worldview is that problems are internally generated—we often create our own ―worst
nightmares.‖ Example: At systems thinking courses, participants often play a board game known as the
―Beer Game,‖ where they assume the position of retailer, wholesaler, distributor, or producer. Each
player tries to achieve a careful balance between carrying too much inventory or being backlogged.
When things go wrong, many people blame their supplier (, ―I kept ordering more, but he didn’t
respond‖) or the buyers (, ―fickle consumers—one day they’re buying it by the truckload, the next day
they won’t even touch the stuff‖). In reality, neither the buyers nor the suppliers are responsible for the
wide fluctuations in inventory—they are a natural consequence of the structure of the system in which
the players are functioning.
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• The systems thinking worldview dispels the ―us versus them‖ mentality by expanding the boundary of
our thinking. Within the framework of systems thinking, ―us‖ and ―them‖ are part of the same system
and thus responsible for both the problems and their solutions.
Learning the Language
Learning systems thinking can be likened to mastering a foreign language. In school, we studied a foreign
language by first memorizing the essential vocabulary words and verb conjugations. Then we began putting
together the pieces into simple sentences. In the language of systems thinking, systems diagrams such as causal
loops can be thought of as sentences constructed by linking together key variables and indicating the causal
relationships between them. By stringing together several loops, we can create a ―paragraph‖ that tells a
coherent story about a particular problem under study.
If there were a Berlitz guide to systems thinking, archetypes such as ―Fixes that Backfire‖ or ―Shifting the
Burden‖ would be listed as ―commonly used phrases.‖ They provide a readymade library of common structures
and behaviors that can apply to many situations. Memorizing them can help you recognize a business situation
or problem that is exhibiting common symptoms of a systemic breakdown.
Of course, the key to becoming more proficient in any language is to practice—and practice often. When
reading a newspaper article, for example, try to ―translate‖ it into a systems perspective:
• take events reported in the newspaper and try to trace out an underlying pattern that is at work,
• check whether it fits one of the systems archetypes, or if it is perhaps a combination of several archetypes,
• then try to sketch out a causal loop or two that captures the structure producing that pattern.
Don’t expect to be fluent in systems thinking right away.
When sitting in a meeting, see if you can inform your understanding of a problem by applying a systems
perspective. Look for key words that suggest linear thinking is occurring— statements such as ―we need more
of the same‖ or ―that solution worked for us the last time this happened, why not use it again?‖ You can also
create low key practice sessions by working with a small team of colleagues to diagram a particular problem or
issue.
Becoming Fluent
We say that someone is fluent in a language when they begin to think in that language and no longer have to
translate. But fluency means more than just an ability to communicate in a language; it means understanding the
surrounding culture of the language—the worldview. As with any foreign language, mastering systems thinking
will allow us to fully engage in and absorb the worldview that pervades it. By learning the language of systems
thinking, we will hopefully change not only the way we discuss complex issues, but the way we think about
them as well.
The Language of Systems Thinking
Linear Thinking
Focuses on the immediate cause and effect of events. Cause and effect are assumed to occur together.
Systems Thinking
Focuses on the interrelationship and dynamics among system components. Cause and effect are
separated in time and space.
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Detail Complexity
Characterized by many variables and complex arrangements. Cause and effect occur together. It is the
basis for linear thinking.
Dynamic Complexity
Created by system structural interrelationships and dynamics. Cause and effect are separated in time and
space. It is the basis for systems thinking.
Convergent Problems
A quantified and optimal solution is possible. Linear thinking usually provides acceptable solutions to these
problems.
Divergent Problems
No best solution can be determined and many solutions are possible. Long-term solutions to these
problems usually require a systems approach.
Circles of Causality
Every event or happening is both a cause and an effect.
Examples of circles of causality:
CAUSE EVENT EFFECT
Government
Unemployment Poverty
Spending
Government Consumer
Taxes
Spending Spending
Feedback
Observed patterns of behavior or results of actions taken.
Leverage
Highly focused actions that can change system structure.
In this section, each learning activity focuses on one or two systems principles. As with the Section 1 learning
activities, the exercises here can be done either by yourself or with a group. If you are working with a group, focus
on the activities that highlight principles you consider the most valuable for your organization. Keep in mind that
some of the activities are active exercises; some are meant for individual reflection and group discussion—try to
use a mix. Finally, remember that there is no one right response to the exercises. The idea is to use your
imagination, and to have some fun!
ACTIVITY 1 S T R E T C H I N G TH E T I M E L I N E
Purpose: To think in ―big picture‖ terms

To consider both short-term and long-term perspectives on a problem
To practice seeing patterns and trends in a problem
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To identify the roots of a current problem
Outcome: A timeline showing the history of a current problem

Insights about recurring patterns in an organization
Number: Minimum 1; maximum about 15
Equipment: For self-study: A white board or a couple of flip-chart pages and colored markers
For a group: Colored yarn, pushpins or tape, several pairs of scissors, and a large wall or floor
space OR long sheets of flip-chart paper, three or more colored markers for each person
Space: For a group, enough wall or floor space so that pairs or trios of people have at least six feet to
themselves
STEPS
1. Lay your flip-chart paper on its side, horizontally, and position yourself near the far-right end of the
page. (You might even want to tape two flip-chart pages together horizontally, to give yourself lots of
writing space.) If you are working at a white board, adapt the directions accordingly.
2. Identify a current problem or issue facing your immediate work group or department. If nothing
comes to mind, use a problem within your family or community. Choose a moderate-size issue with
which you have direct personal experience.
3. Make a mark on the paper to symbolize the present, and name the issue in one or two words.
For example:
P0RESENT
X
Sales
dropping
4. To the best of your knowledge, when did this problem start? Pick a distance to the left across the
paper that represents the amount of time you think has elapsed since the problem began. Mark
the beginning point with your marker. Draw a line between the beginning point and the present.
Write in the time span.
BEGINNING PRESENT
X
Sales
dropping
5. Now project yourself back in time to the ―Beginning‖ point. To the best of your knowledge, what
was happening around that time to cause the beginning of the problem? Write your answer as a
brief phrase, as shown in the example below.
BEGINNING PRESENT
X
New product Sales
late to market dropping
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6. With a new marker color, extend your timeline even farther back in time, as shown below. Add a
time span between ―Earlier beginning‖ and ―Beginning.‖
EARLIER BEGINNING BEGINNING PRESENT
6 months X
New product Sales
late to market dropping
7. Now project yourself back once more, to ―Earlier beginning.‖ Think of what was happening at
that point that led to the problem you wrote under ―Beginning.‖ Name it and mark it on the
timeline in a third color.
EARLIER BEGINNING BEGINNING PRESENT
6 months X
Mistakes made New product Sales
in product late to market dropping
development
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8. Continue the process one more time, by adding ―Earliest beginning‖ as shown below. Add what
was happening at that time, and fill in a time span between ―Earliest beginning‖ and ―Earlier
beginning.‖
9. Now imagine yourself present at any of the three beginning points you have identified. Is there
anything else going on at that time that resembles the original problem you chose? Or is there
another kind of problem that alternates with yours? Is there another problem going on in
parallel to yours right now? (In the timeline boxes above, for example, maybe there was a hiring
difficulty going on at the ―Earliest beginning‖ stage of the problem.) If you can identify a parallel
problem, add it to your timeline as a parallel line, using a distinctive color.
10. Now try one more step with your timeline. Instead of projecting backward in time, project for -
ward. Given the sequence of events you‘ve drawn, what do you expect to happen in the future if
nothing is done about the problem? Add another piece of flip-chart paper if necessary, and
extend your timeline to the right. Using a new marker color, add your thoughts about the future
to this new part of your timeline.
QUESTIONS
1. What was it like to create a visual image of the time and events surrounding the current problem
you identified? Any surprises? Any insights? Write your thoughts below. If you worked on this
activity with a group, discuss your insights together.
2. What did you learn?

3. If you were able to identify parallel problem timelines in Step 9, what did you learn?
4. If you were not able to trace back to earlier beginnings, what did you learn?
5. What helps you to see the ―big picture‖ of your problem?
6. What obscures it?
ACTIVITY2 TH E S H A P E O F TH E P R O B L E M
Purpose: To explore the connections and interdependencies among the components of a problem
To discover the intangible aspects of a problem
To practice widening your view of a problem
To see the complexity within a problem
Outcomes: A map of the connections and interdependencies of a problem

Insights about the structure of the problem
Number: Minimum 1; maximum 20
Equipment: Flip-chart paper and three or four colored markers per person
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Space: For groups, enough wall, floor, or table space for everyone to lay out a flip-chart page
and draw
STEPS
1. Identify a problem or an issue currently facing you or your immediate work group. (Your work
group might be your department, division, unit, and so forth.) In the center of your flip-chart
paper, draw a circle and write in the name of your group. Write one or two words to identify the
issue you chose, as shown in the example in Figure 2.1, ―The Center Circle.‖
FIGURE 2.1
The Center Circle
Work
2. Who else outside your group is directly involved in or affected by this issue? Write your answers
within their own circles in a ring around your central issue. Connect each outer circle with the
middle circle, similar to Figure 2.2, ―The Circle Expands.‖
FIGURE 2.2
The Circle Expands
Workers
Work
Administrators
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3. Who is touched by each of the individuals or groups you identified in Step 2? Who is indirectly
connected to your issue or problem? Don‘t forget families, friends, and other groups that can
be affected when people are stressed, working overtime, excited by their successes, or receiving
bonuses. Draw these people or groups into the picture and connect them to the appropriate
circles, as in Figure 2.3, ―Even More Connections.‖
FIGURE 2.3
Even More Connections
New Departments
Production Hires
Workers Managers
Customers
Training:
Sales Group
People Overload Instructors
Other
Courses
Administrators
Developers
Maintenance Accounting
Department Department
4. If there are any other connections beyond what you‘ve already drawn, map them in. The
connections are not limited to human beings. They can include items such as ―Revenues‖ or
―Other Groups‘ Work.‖ Your map can have as many circles or layers as make sense to you, as
shown in Figure 2.4, ―The Final Picture.‖
FIGURE 2.4
The Final Picture
Quality
Departments
Workers
Managers
Group
Revenues
Other
Administrators
Department
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QUESTIONS
1. In your diagram, what happens to the outer circles when things are going well in the center
circle? When they‘re not going well? Examples?
2. What happens to the center circle when things are going well in the other circles? When they‘re
not going well? Examples?
3. Looking at the interconnections, can you see any ways in which something you do in the center
circle causes a change in a connected circle that then comes back and affects the center circle?
Examples?
4. Did you find it difficult to add many circles to your original circle? If so, what are some possible
reasons for this difficulty?
5. If you worked on your map with others, discuss your insights together. If you worked with
others, but each of you made your own map, exchange your maps and share the insights about
the maps.
ACTIVITY3 I S TI M E O N Y OU R S I D E ?
Purpose: To think about how your organization sets goals, and how frequently it measures results
To explore the impact of the time cycles involved in setting goals and measuring results
Outcome: Insights about how time frames influence what we pay attention to and what we accomplish
Number: Minimum 1; maximum as many as desired
Equipment: Flip chart and markers (optional)
Instructions: Reflect on the following questions, and discuss them with others if possible.
QUESTIONS
1. What is your organization‘s stated goal or mission? What is it trying to achieve? (State the mission
as simply as possible. ―Organization‖ can refer to your immediate work group, your division or
department, or the overall organization.)
2. Is there a desired time frame for achieving the goal or mission? If so, what is it?
3. What results does the organization measure or pay attention to? (Examples: sales volume,
revenue, meals served, passenger miles, return on assets, return to shareholders)
4. How often does the organization measure those results? (Examples: sales volume per quarter,
meals served per week, passenger miles per vehicle, return on assets per year)
5. What goals does the organization have regarding what it measures? (Example: 2 percent sales
growth per quarter)
6. How long does the organization take to produce, create, or deliver what is measured? (Examples:
selling groceries takes 5–10 minutes; selling a car takes 1 hour–2 weeks; selling a house takes 1
day–1 year; selling a large management-information system takes 6–18 months)
7. What do you notice about the time frames for your organization‘s mission; for its target results;
for its measurements; and for production, service, or delivery?
8. What do you think are the effects of those time horizons?
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ACTIVITY4 F RO M S H O R T T E R M T O L ON G T E R M
Purpose: To discover which aspects of your work are short term and which are long term
Outcome: Timelines of short-term and long-term events or outcomes
Equipment: Flip-chart paper, tape, and markers OR lined paper and pens or pencils
Round 1: Your Organization—Short Term or Long Term?

Instructions: Write your answers to each question in the accompanying box.
QUESTIONS
1. What is the shortest-term discrete product, service, or other deliverable from your organization?
How long does it take to produce or deliver it?
Examples A soft drink / 90 seconds to fill and serveA
tank of gas / 5 minutes to fill
A consultation / 1 hour
An express package / 15 hours from pick-up to delivery
A house / 4 months from ground-breaking to finished siding
Shortest-term deliverable: How long?
2. What is the longest-term product, service, or other deliverable from your organization? How long
does it take to produce or deliver it?
Examples  A bridge / 3 years

A communication system / 18 months
A new management competency / 12 months
Longest-term deliverable: How long?
3. What, if anything, falls into a middle-term length of time? How long does it take to produce or
deliver it?
Middle-term deliverable: How long?
4. How much of your routine work is spent on the short-term end of the spectrum? At the long-
term end?
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% Short-term: % Long-term:
5. Looking at your answers, how would you define ―short term‖ and ―long term‖ in your
organization?
6. How do you think your organization‘s sense of short and long term compares to other
organizations‘? How does this sense differ? How is it similar?
7. Where is the emphasis in your organization—long term or short term? Why? What drives
that focus?
Round 2: You—Short Term or Long Term?
Instructions: In the space provided, jot down your responses to the following questions.
1. What do you want to accomplish today?

2. This week?
3. This month?
4. This year?
5. Within five years?
6. Within 10 years?
7. By the time you‘re very old?
8. Looking at your answers to the above questions, how would you define ―short term‖ and ―long term
in your own life? At what point is short term differentiated from long term?
9. How do you think your sense of short and long term compares to your organization‘s? How does this
sense differ? How is it similar?
10. What do you emphasize in your own life—long term or short term? Why? What drives that
focus?
11. When you made your list, was there a point at which your vision of what you want to
accomplish shifted? If so, where, and how?
12. Do you think this kind of shift happens within your organization, too? If so, at what point in the
timeline?
ACTIVITY5 I N TH E M I D S T O F A P R O B L E M
Purpose: To gain familiarity with the concepts of interconnectedness or interdependency

To recognize the human tendency to assign blame
Outcome: Insights about our role in the problems we experience
Instructions: Write your answers to the following questions in the space provided.
QUESTIONS
1. Briefly describe a situation in which you knew that an individual or group having a problem was
contributing to the problem, but wasn‘t aware of their contribution.
Example 
I used to work with someone, Valerie, who swore a lot at the office—really rough language. One
day, she came in upset because her eight-year-old daughter, Nina, had been sent home from
school for swearing. Valerie couldn‘t understand where Nina picked up this behavior! It was so
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obvious to the rest of us, but she just couldn‘t see it.
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2. Now describe a situation in which you or your work group turned out to be contributing to your
own problem.
Example 
I was experiencing deteriorating communications with a senior project team leader, Alan. I tried
to clarify the relationship—I left him voice mails and got no response. I sent him memos and
heard nothing back. Projects came up that I was perfect for, but Alan didn‘t include me. I was
furious with him. When I finally managed to meet with him, I discovered that he was
communicating less with me because he felt confident about our relationship and had other
problems to take care of. My deluge of voice mails and memos made him think I was under a lot
of stress, so when it came time to staff demanding projects, he decided to give me a break and
leave me off. At the same time, though, Alan was beginning to wonder if I was becoming
unreliable.
3. Consider a persistent, recurrent, or chronic problem you are experiencing now. Tell or record the
story of the problem very briefly:
4. Now ask yourself:
A. Is there any way you or your group may be causing or contributing to the problem?
If so, how?
B. Is there anything you did in the past that has generated an unintended consequence?
If so, what?
C. What might happen if you were to focus on the short-term aspects of the problem and
ignore the longer term?
D. Sometimes feedback comes to you slowly or in roundabout ways. What, if any, aspect of the
problem might stem from delayed or indirect feedback?
5. Do you now have any new insights into your problem? If so, what are they?
6. What, if any, difference does it make to see the part you are playing in a problem?
References:
https://www.thoughtexchange.com/blog/the-11-laws-of-systems-thinking-and-stakeholder-engagement/Jamie
Billingham
https://thesystemsthinker.com/author/michael-goodman/
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Uncovering Systemic
Structures:
Drawing Behavior Over Time Graphs
n Chapters 1 and 2, we introduced the idea that systemic

structures generate patterns of behavior and are therefore at
the root of many of our problems. In this section, we explore
several steps for uncovering these
structures:
1. Formulating the problem
2. Identifying the key variables in the situation; in other
words, the main actors in the systemic structure
3. Graphing the behavior of those variables over time
It takes you through the next step in identifying systemic
structure: building causal loop diagrams.
As you read Chapter 3, remember that thinking systemically
is an experimental process involving trial and error. The
guidelines and the examples in this book may look orderly and
straightforward, but applying systems thinking in real life is
often messy and leads to lots of twists and turns. Thinking
systemically always involves an iterative process of
formulating problems with care, creating hypotheses to explain
what is going on, tracking and revising the reasoning behind
your explanations, testing possible solutions to problems, and
reformulating the problem based on new understandings.
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At the end of the chapter, students must be able to:
1. Experience formulating a problem
2.
3.
Contents:
Chapter 3: Systems Thinking as a Special Language
3.1 Uncovering Systemic Structures: Drawing Behavior over Time Graphs Identifying the problem: The
problem with price promotions
3.2 Identifying the Variables: The case of energy drain
3.3 Drawing behavior over time graphs: The case of audio – electronic roller coaster
3.4 The what, why, when, where, and how of Systems Thinking
3.5 The Eleven (11) Laws of Systems Thinking
FORMULATING A PROBLEM
Let‘s say you‘ve just finished a course on systems thinking and have identified a problem you want to
address. Could you apply systems thinking tools to figure it out? Of course! All problems have systemic
origins; the key is to choose one that is appropriate and significant to you. Here are some tips:
Guidelines for Identifying Systemic Problems

1. The problem is chronic and recurring.
2. The problem has been around long enough to have a history.
3. You or someone else may have tried to solve this problem, but your attempts either did not work at all or
stopped working after a while.
4. You haven‘t been able to identify an obvious reason for the pattern of behavior over time.
5. The pattern of the problem‘s behavior over time shows one of the classic shapes in Figure 3.1, ―Patterns
of Problem Behavior.‖
Another reason for doing a systems thinking analysis is that the problem is important to you or to your
organization, and is worth spending time and
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effort on solving it. Maybe the problem is currently under discussion, or you have a hunch that an old
problem is about to strike again.
Here are some examples of problems that show typical systemic behavior:
 We‘ve been having trouble getting our refrigerators assembled fast enough to fulfill custo mer orders.
So, we reconfigured the flow of materials on the manufacturing floor to try to improve the assembly
process. However, after we made this change, the assembly process actually took more time than
before. Somehow, the change seems to have made everything worse.
 We introduced a line of high-grade investment portfolio products two years ago, but our agents
continue to sell the older products. We‘ve tried changing the incentive schemes, and we‘ve put out
stacks of marketing and information materials, but nothing seems to motivate agents to focus on the
newer line.
 Every six months we go through another round of cost-cutting campaigns, from laying off workers to
lengthening maintenance intervals to simplifying marketing. Costs go down for a while but then start
rising again.
Guidelines for Formulating the Problem

Once you‘ve targeted a problem for a systemic approach, work on developing a clear, succinct statement of
the problem. This is often the toughest part of systems thinking, but it‘s very worthwhile. The more clearly
and specifically you can state your issue, the more focused your systemic analysis will be. Be sure to
brainstorm with other people who can contribute their views of the issue as well as their knowledge of its
history. If necessary, proceed with two or three formulations of the problem and learn from the different
views.
Don‘t get discouraged! It‘s natural—even beneficial—for this stage of the process to take a while. You and
your group will generate the most insights into the problem by taking the time to ask lots of probing
questions, share your perspectives on the issue, and revise your problem statement several —sometimes
many—times.
Here are some examples of problem statements:
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 In our blood lab, errors in sample analyses have doubled over the last eight months.
 Customer-service problems have increased 25 percent over the last year.
 Before our last two training conferences, we failed to return one-third of the registration
confirmations to our customers on time.
Problem statements often include the following components (though they don‘t have to):
 the behavior (example: customer-service problems)
 a description of the behavior over time (example: the problems have increased) a
measurement of how the behavior has changed over time (example: the problems have
increased 25 percent)
 the time frame of the behavior
(example: the problems have increased 25 percent in the last year)
IDENTIFYING VARIABLES
Once you formulate the problem, it‘s time to identify its key variables. (Remember, variables are the
components of the problem whose value can vary over time; that is, go up or down.) To begin this
process, tell the story of the problem briefly. Telling the story means building on your problem
statement—fleshing out some of the details so that you have a fuller picture of the issue and the variables
involved.
Example The Case of A-to-Z

At A-to-Z, a semiconductor company, we‘ve been puzzling over a series of events that occurred in our most
recent quarter. We posted record sales for the quarter, with the majority of our sales force meeting or exceeding
sales quotas. All products scheduled for release were launched, with additional products ready for early release
in the next quarter. At the same time, however, our profits actually declined for the first time in our company‘s
history, as overhead costs as a percentage of sales reached an all-time high.
What are the pertinent variables in A-to-Z‘s story? Here‘s the list that A-to- Z‘s managers identified after
some discussion:
Sales
New product
releases
Profits
Sales force
Guidelines for Identifying Variables

Deciding which variables to work with is as important as clearly defining the problem, because your choice
of variables shapes the rest of your analysis. As with formulating the problem, identifying variables is
usually an iterative process. You might start off listing several, and then after much discussion and
thought, decide to delete some or add new ones, or go back and rework your story of the problem.
Here are some guidelines for starting out:
 List all the variables that could reasonably be included, both quantitative and qualitative. For
example, your list could include measurable variables such as ―Sales‖ and ―Size of sales force,‖ as
well as hard-to-measure variables like ―Morale‖ and ―Commitment to company goals.‖ Again, do
this as a group if possible, to get input from a wide variety of viewpoints. The idea is to start off
with a big list of variables.
 Narrow your list down to the most important variables. You can do this by combining some
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variables because they represent roughly the same kind of information—for example,
―Morale‖ and ―Job satisfaction.‖ You can also remove some variables from your list
because you and your group decide that they‘re not as firmly linked to the central
problem as other variables. To determine the most relevant variables, identify which
variables seem to play the most prominent roles in the central issue you described in
your problem statement. These variables will likely have a relationship to each other that
you either can describe or want to explore. For example, in the case of A-to-Z‘s declining
profits, the variables ―Profits,‖ ―Sales,‖ and ―New product releases‖ are related to what
the company defined as the central problem—and they have a significant dynamic
relationship to each other.
As with every stage of the systems thinking process, you may decide to go back and revise your problem
statement if your list of variables gives you new ideas about the nature or scope of your problem.
Guidelines for Naming Variables

After choosing your variables, it‘s time to refine their names precisely. The guidelines below will be
especially important when you move on to creating causal loop diagrams in Section 4.
 Use nouns or noun phrases, not verbs or verb phrases.

Example New products in the pipeline
Revenues
Experience level of engineers
Not:
Developing new products Being profitable
Sell Produce
 A well-named variable fits into phrases such as ―the level of,‖ ―the amount of,‖ ―the number
of,‖ ―the size of‖.
Example  The number of new products in
the pipeline The amount of
revenues
The experience level of the
engineers The size of the
profit margin
 Use a neutral or positive term whenever possible to name a variable.


Example  ―Job satisfaction‖ rather than ―Job
dissatisfaction‖ ―Morale‖ rather than
―Bad feelings‖
That way, you‘ll be able to describe the way the variable
changes (―increases,‖ ―decreases,‖ ―improves,‖ ―worsens‖)
without introducing confusing double-negatives. For
example, the phrase ―Job satisfaction declined‖ is much easier
to grasp conceptually than ―Job dissatisfaction declined.‖
 Keep in mind that variables can be concrete entities such as memory chips, buildings, or
production workers, as well as intangibles such as morale, job satisfaction, or alignment with
company values.
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DRAWING BEHAVIOR OVER TIME GRAPHS
Once you‘ve formulated your problem and chosen and named its variables, the next step is to
graph the variables‘ behavior over time. You can then use the graphs to hypothesize about the
variables‘ interrelationships, and to generate additional graphs that lead to deeper understanding
of the problem. To draw behavior over time graphs (BOTs), we recommend the following three
steps:
1. Select a time horizon.
2. Sketch the graph.

3. Build theories about how the graph‘s
variables are interrelated.
Selecting a Time Horizon

Choosing a time horizon for your graph is an important decision,
because the time horizon affects the amount and kind of
information your graph will ultimately depict. Here are some
guidelines:
1. Pick the variable with the longest time cycle—for example, new
product development, production, or sales cycle—and extend
the time horizon to cover three or more of those cycles, if
possible.
2. Try to work with a minimum of two years, and experiment

with five or more years. If you need to work with a much
shorter or much longer time horizon, check your reasoning
with your colleagues.
3. Sketch a timeline as shown in the example below, in which:

Now is the present moment in which you are analyzing the problem.
Earlier is the point earlier in time, two to five years ago,

where you will begin tracing the behavior of the variables.
Earliest is a point even earlier in time, where

something that happened may have started the
problem.
Earliest Earlier Now Future
Look again at your list of variables. Visualize the behavior over time of each variable between the
―Earlier‖ point and ―Now.‖ Then reconstruct each variable‘s ―Earliest‖ behavior, if possible. Finally, imagine
how the variable will behave in the future if nothing around it changes. These ―thought experiments‖ can
help you visualize the behavior of your variables over a broad span of time —to get the ―big picture‖ of how
they changed.1
Keep in mind that BOTs may be more free-form than other graphs you are used to seeing, especially
if you work primarily with quantitative data. The lines are intended to indicate qualitative patterns over time
rather than precise values. Of course, these patterns may eventually need to be verified by quantitative data
later in the process.
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Sketching the Graph
Here are some guidelines for drawing a BOT graph once you‘ve selected a time horizon:
1. Graph your key variables together on the same graph. That way, you can see the variables‘
interrelationships—parallel variations, opposite variations, and delayed effects.
Even though the variables are measured in different units, BOTs reveal how variations in
behavior of variables might be dynamically related.
2. Label the lines clearly. If possible, use different colors to draw each variable.
3. On the horizontal axis, write the time horizon, either the number of years covered or the
dates.
4. Optional: If a significant event occurred during this time frame—for example, a massive
marketing campaign that directly preceded a jump in sales—draw and label a vertical line on the
graph to show when it occurred.
N OTE : If you find that a series of significant events associated with variables in the graph have
occurred, you may have identified another variable to include in your graph. For example,
suppose your graph showed that about every three years, a large percentage of people left the
company voluntarily. In this case, you might add ―Resignations‖ as a new variable and graph it
alongside your other variables.
Using Your BOT Graph to Build Testable Hypotheses

Once you‘ve sketched your initial BOT graph, the next step is to hypothesize about how the
variables‘ behavior might be interrelated. This step often leads to ideas for new variables, additional BOT
graphs, and yet more theories about how all the variables are connected. As with earlier stages of this
process, at times you may feel as if you‘re ―going backwards,‖ but in fact it‘s this iterative quality of systems
thinking that makes it so valuable for generating insights.
1. See Appendix F: Additional Resources for information about computer simulation. These programs can
actually simulate the behavior over time of your chosen variables—much faster and more accurately than
you can draw them out on paper!
In the A-to-Z semiconductor story, the managers selected a time horizon, set up their first graph,
and drew lines representing the behavior of each variable (Figure 3.2, ―A-to-Z‘s Performance Over Time‖).
Then, as they continued examining the problem, they asked questions, hypothesized about relationships
among the variables, and drew additional graphs.
A-to-Z‘s initial graph depicted the behavior of sales, the sales force, profits, and new product
releases. Observing that while sales were rising, profits were falling, the A-to-Z managers hypothesized that
the problem might lie in the relationship between the total number of new products and the unit cost of
carrying new products. Their second hypothesis theorized that the problem might stem from the re lationship
between the number of low- revenue new products and the level of the average selling price. These new
hypotheses led them to create their second graph, shown in Figure 3.3, ―Pressure on New Product
Development.‖
Notice that the variables in this second graph are subsets or refinements of the original variables.
These new variables were identified as the managers collected data, discussed the problem among
themselves, and created their first graph.
As you try your hand at drawing BOTs in the learning activities that follow, be aware that it can take
more than one attempt to identify the problem and the variables and to create a graph. The effort will pay
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off, however. Once you‘ve completed these steps, you‘ll be ready to draw a picture of the system structure
that has been generating the patterns you see on your BOTs: the causal loop diagram, discussed in Section 4.
2.2. The 11 Laws of Systems Thinking and Stakeholder Engagement
Systems thinking as a way of looking at the world. It’s the only way to look at and navigate a complex adaptive
system like the the education system. Peter Senge identified 11 Laws, or truths, that leaders can use to guide the
way through the rough waters that so often plague education. This post describes how community engagement
can be used reduce the unintended consequences of decisions and ensure clear sailing.
1. Today’s problems come from yesterday’s solutions.
We love to solve problems. There is feeling of satisfaction that occurs when we lay that last puzzle piece, reach
a decision or solve a difficult problem. The problem is that every ―problem‖ we face today, in education, in the
environment, even in our personal lives owes it very existence to a well-meaning step we individually or
collectively, took yesterday. Decisions we make today often become tomorrow’s problems. The solution –
engage your community to help identify, frame and solve the problem. A large, diverse group will see the
problem from all angles is more likely to anticipate unintended consequences.
2. The harder you push, the harder the system pushes back.
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This is, in systems thinking parlance, ―compensating feedback‖. This happens in conversation, government
programs, business and personal wellness efforts. In conversations we often try to argue our point by
disagreeing with the other person. Our ―push‖ helps them strengthen their position. We make them think and
fight harder. Social programs are rampant with examples of community improvement initiatives that resulted in
worse conditions. Government aims to improve the living conditions for a group in one part of town result is
more people moving into the area, placing an unsupportable burden on the systems in place. Beware of the
word ―intervention‖. If you see it or hear it know that what it really means is ―we will push hard‖ and be ready
to experience the consequence. To avoid this, let the system find its own solutions. Heed Margaret Wheatley
counsel:
… a living system forms from shared interests, all change results from a change in meaning, every living system
is free to choose whether it changes and, systems contain their own solutions.
The role of leadership is to invite people in, engage the community and create a safe environment where ideas
can grow.
3. Behavior grows better before it grows worse.
The best depiction of this concept is from the Arnie Levin’s cartoon of the man about to knock over a circle of
dominos. As the dominoes begin to fall there is a release as immediate pressure is relieved but after a delay the
problem returns. Sometime this is seen when organizations are more concerned with impression control than
dealing with the actual problem. Engaging stakeholders in problem solving and solution finding can virtually
eliminate this, provided the arena for engagement reduces bias and allows ideas and potential solutions to rise
above personalities and politics.
4. The easy way out usually leads back in.

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Kaplan called this the law of the instrument saying‖ Give a small boy a hammer, and he will find that everything
he encounters needs pounding‖. Maslow reframed this saying ―If all you have is a hammer, everything looks
like a nail‖. This is a comfort zone challenge. When something works we like to reuse it. This happens when we
try to apply ―best practices‖ to complex problems. Engaging your community members provides much needed
insight and a diverse set of tools to apply to the problem.
5. The cure can be worse than the disease.
This is also called ―shifting the burden‖ and is easy to confuse with the push/push back law. It’s slightly
different though and can occur at the same time. The ―cure‖ in this case is an intervention that is enabling and
becomes addictive. As dependence on the intervention increases the system’s ability to cure itself lessens. This
is about the difference between giving a man a fish and teaching him how to fish. If an intervention is needed
then we have to make sure the intervention doesn’t weaken the entire system causing more and more
dependence. In some ways public education shifted the burden of teaching children from parents to teachers.
Engaging stakeholders in defining problems and finding solutions keeps the burden where it belongs, shared
across the entire system and not just on one part of it.
6. Faster is slower.
The story of the tortoise and the hare suggests that when we try to move too fast we can get left behind. Every
system has its own unique and optimal speed. This kind of thinking is often articulated as ―fixing‖ things. When
you hear something like ―We’re bringing in a consultant (or hiring a new manager) to fix things around here‖,
be very wary. A fast fix often leads to a slow cure. Finding sustainable solutions can take time. Community
members may need time and space to absorb and adjust to new ideas or changes. The pay value of slowing the
pace is a more involved and supportive community.
7. Cause and effect are not closely related in time and space.
How many times do you push an elevator button? How often have you over compensated for the amount of cold
water in the shower? We tend to believe that when we do something there should be an effect that we can see
within a set amount of time. All of our testing, funding and business practices reflect this belief. The challenge is
that sometimes there is a clear and present relationship between cause and effect. Just not all the time. When you
actively inform, engage and include your community you provide them with an opportunity to see the real space
between cause and effect.
8. Small changes can produce big results – but the areas of highest leverage are often the least obvious.
Butterfly wings and hurricanes. This is the law of leverage. Small, focused actions at the right place in the
system can produce the biggest and best changes. The challenge is that the ―right place‖ is not obvious and can
seem counterintuitive. Donella Meadows describes 12 places of leverage in a system and close to the top of the
list is the goals of the system. Some say that the education system isn’t working. I think it works quite well
given the original goal of producing factory workers. Right now the goal is changing, in part because of changes
in technology that allow education system stakeholders to collaborate and cooperate and influence the goals of
the system. See #6 and 7 above. A great example of small, counterintuitive actions are the use of insects to
control insects. Wasps are introduced in many a greenhouse as a way to control other insects that feed on the
greenhouse crop. Brilliant, effective and not the most intuitive solution. The key to being able to use leverage in
a system is knowing the structure of the system. In education the structure is massive and very few people know
it well enough to intuit where the leverage points are. Here again including a large, diverse group of
stakeholders and using their collective intelligence can help find those points.
9. You can have your cake and eat it too – but not at once.
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Black and white, either/or thinking courtesy of Mr. Newton. In so many instances we think something is an
either/or problem when in fact its a dilemma that can become both/and if we change how we think of the
problem and allow time for solutions to work. Invite stakeholders into the process of imagining possible
solutions and potential long term outcomes.
10. Dividing an elephant in half does not produce two small elephants.
Inability to see the system as a whole can create world of problems. In the education system…well that’s one
BIG elephant and it’s almost impossible for one person to see the entire thing. The best approach is to have
more eyes looking at the elephant from different angles and vantage points. Chunking up the system and trying
to analyze the parts independently is possibly the worst solution. What works for the trunk will probably be the
worst possible solution for the tail. This doesn’t mean you can work within boundaries it just means that staying
aware of the whole, using multiple, diverse perspectives and attending to how the parts interact will be more
helpful and less messy.
11. There is no blame.
In a complex adaptive system there is no separate ―other‖. Everything and everyone is connected and together
we co-create the whole system. Sometimes we have difficulty with this. We reflex to blame, we deflect, and
deny. Its hard to take full responsibility for something that seems to be outside of our control without trying to
control everything. It can feel like two competing ideas and for many that feeling is uncomfortable. Senge
suggests:
The cure lies with the relationships with the very people we typically blame for the problems we are trying to
solve.
The challenge, in this century, is being brave and making the choice to invite those we see as adversaries, into
the process. Inviting community into problem solving and decision making won’t rock the boat as many fear.
Rather they will provide the ballast to keep an even keel in any storm.
After trying the learning activities below, compare your responses with those in
Appendix B. Don‘t worry if your responses look different from those in the
appendix; there‘s no one right ―answer‖ in a systems thinking analysis. These
activities are meant mainly to get you started thinking about formulating problems,
choosing variables, and graphing behavior over time.
ACTIVITY 1 TH E P R O B L E M WI T H P R I C E P R O M O T I O N S
Purpose: To identify the central problem in a complex situation
Outcome: A statement of the central problem in the case study

A description of a deeper problem that may lie beneath the central
problem described in the case
Instructions: Read the case below and then answer the questions that follow.
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CaseStudy  The Problem with Price Promotions
In the early nineties, a slowdown in U.S. population growth translated into smaller annual
increases in consumer consumption, particularly of food products. Moreover, manufacturers‘
product innovation slacked off, and companies had trouble distinguishing their brands in
meaningful ways other than through price. Their response: Offer price-cutting promotions to
boost sales.
Manufacturers and retailers acknowledged that continual promotions could erode brand
image and encourage consumers to shop solely on price. Also, companies could become
dependent on short-term promotions to pump up sales numbers. Furthermore,
manufacturers‘ promotions gave supermarkets especially great power, for they controlled the
promotions on food products. Supermarkets could demand a wide range of subsidies,
including fees for prime shelf space and money to pay for promotional material and
newspaper ads.
The focus on price promotions spawned practices such as ―forward buying,‖ in which a
supermarket bought more of a discounted product than it planned to sell during a promotion
and then boosted its profit margin by selling the rest of the product at the regular price. Some
supermarkets also ―diverted‖ some of their low-priced shipments at a slight markup (but still
well below the wholesale list price) to supermarkets outside the promotional area. For
manufacturers, this meant that a large percentage of discounts intended for consumers wound
up in retailers‘ pockets instead.
QUESTIONS
1. What are all the problems described in the case? List as many as you can.
2. From the point of view of the food manufacturers, what would you say is the
overarching problem that includes many of the specific problems you named in
Question 1?
3. Is there an even deeper problem behind the one you named in Question 2? If so, what is it?
ACTIVITY2 TH E C AS E O F TH E E N E R G Y D R A I N
Purpose: To practice drawing a behavior over time graph
Outcome: A statement of the overall problem In the story A list of key variables
A graph of those variables‘ behavior over time
CaseStudy  The Energy Drain

It‘s 6:00 AM on Monday. The alarm blares, jolting you out of bed. You shuffle down to the kitchen
to grab a cup of coffee. A few gulps and . . . ahhh. Your eyes start to open and the fog begins to
clear.
10:30 AM, time for the weekly staff meeting. ―I feel so groggy,‖ you think. ―I gotta have
something to keep me awake through this one.‖ You pour yourself another cup of coffee and
head for the conference room.
Noon, and you‘re chatting with your colleagues at a quick lunch break. Someone refers to an
article in the newspaper about fashion models‘ fitness routines. ―Honest, it said that those high-
priced runway models have to really watch it on caffeine. The way they keep their energy up is
daily exercise and lots of sleep . . . ‗beauty sleep,‘ I‘ll bet!‖ Comments fly about who has time
for daily exercise, getting paid to work out, and so on.
3:30 PM, you‘re feeling the mid-afternoon energy slump. You head to the crowded coffee
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cart to get another cup. ―I really ought to cut down on this stuff,‖ you comment to your friend
in line. He nods. ―I‘m a five-cup-a-day guy, myself,‖ he confesses. ―I just can‘t give it up.‖
QUESTIONS
1. What‘s the problem in this story?
2. What are the three or four most important variables in the case?
3. What is the behavior of those variables over time? Graph them in the space below.
4. What do you observe about the behavior of the variables? For example, do any of them increase or
decrease steadily over time? Are there dramatic changes (sudden upswings or plunges)? Do any of the
variables seem to go through a cycle, as indicated by up-and-down patterns? Do any of them hold
steady?
5. Do you observe any relationships among the behavior patterns of the variables? If so, what? For example, does
one variable seem to rise or fall, followed by another variable‘s rising or falling?
ACTIVITY3 TH E CAS E O F TH E AU D I O - E L E C T R O N I C R O L L E R COA S T E R
Purpose: To practice drawing a behavior over time graph
Outcome: A statement of the overall problem in

the story A list of key variables
A graph of those variables‘ behavior over time
CaseStudy  The Audio-Electronic Roller Coaster

AudioMax Corporation was on its way up. During the mid-1980s, the company enjoyed rapid
growth and rising revenues. A manufacturer of special audio-electronics products, AudioMax
served a growing core of clients who were willing to pay a higher price for better sounding,
better quality innovations. AudioMax‘s products were well received because experts said they
really did sound better. Initially AudioMax focused on maintaining a high degree of technical
innovation, and this strategy generated a steady stream of new products.
Unfortunately, problems associated with AudioMax‘s subsequent rapid growth soon led the
company into financial trouble. The company‘s CEO, Diane Schuster, had promised the
investment banking community that immediately after going public in 1990 the company would
beef up its man- management team. However, Schuster didn‘t bring in new people from the out-
side until 1991. When she finally added experienced management talent who could improve
AudioMax‘s corporate strategizing, Schuster found it increasingly difficult to keep the company
focused on R&D. Corporate expenses exploded, and productivity plummeted.
Meanwhile, the company began losing market strength, partly owing to its resistance to
introducing models with simple cosmetic changes. Because the company was not introducing
enough new products to keep customers interested, its dealer base began to deteriorate. In
1994, AudioMax had only 230 dealers, half as many as in 1990. Net income skidded sharply
after 1991, followed by a heavy sales slump in early 1993 (Figure 3.4, ―AudioMax‘s Income
Slide‖).
AudioMax‘s problems persisted. The company cut costs by laying off one - third of the work
force, but when sales rebounded, it could not rebuild staff fast enough to meet the new demand.
During the second half of 1994, AudioMax tried to get back on track by developing and
releasing 18 new products. But as these new product lines were developed, the core product s
became even more dated.
During 1995, AudioMax saw net income rebound and sales increase over 1994. This time the
CEO hoped the quality improvements would make a lasting difference. But the continuing cycle
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of ups and downs that followed AudioMax‘s rapid growth suggest an uncertain future for the
company.
FIGURE 3.4
AudioMax’s Income Slide
2500
2000
1500
1000
500
0
–500
–1000
–1500
–2000
'90 '91 '92 '93 '94 '95 '96
QUESTIONS
1. What was the long-standing, chronic problem facing AudioMax Corp.?
2. What two variables fed the initial steady growth in demand from AudioMax‘s customers?
3. Once AudioMax went public, what variable limited its ability to continue handling the growth in demand?
4. In the space below, graph the behavior over time of the two variables you identified in Question
2 and the one from Question 3. Then, add the behavior over time of two more variables:
―Demand‖ and ―Ability to meet customers‘ needs.‖
5. What do you observe about the behavior of the variables over time?
6. What relationships do you observe among the variables?
References
.Read Michael Goodman’s articles:
1. https://us02web.zoom.us/j/82206269624?pwd=WHNPRjN4YUhtbXhOZ0dSV3RiWDEvdz09
2. https://bigthinking.io/6-principles-of-systems-thinking/ Kishau Rogers
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Uncovering Systemic Structures:
Building Causal Loop Diagrams
N
ow that you can graph patterns of behavior over time, you‘re ready
for the next challenge: drawing a representation of the systemic
structure itself. A graphic depiction of the structure—such as a
causal loop diagram—lets you explore dynamic interrelationships
among your variables that you may not have considered before.
Sometimes, you can also see how parts of a system that are
separated by location or time nonetheless might interact to generate
problems. Finally, CLDs allow you to hypothesize about solutions to
your problem and then risk free. This chapter takes you through the
next step in uncovering systemic structures: drawing CLDs.
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At the end of the chapter, the students must be able to:
1. Identify building blocks of systems thinking

2. Analyze problems using causal loop diagram
3. Apply multi loop diagrams in solving problems
Contents:
Chapter 4: Guides to Systems Thinking
4.1 The Building Blocks of Systems Thinking
4.2 Uncovering Systemic Structures Building Causal Loop Diagrams: Anatomy of Causal Loop
Diagram: The case of plateauing profits
4.3 Building a causal loop diagram: The case of collapsing banks
4.4 About multi loop diagrams:
The ―organic to go‖ story
The case of the restricted revenues.
More Case Problems: The All for one cooperative
The Problem with used Cds
Systems are entities with consistent patterns of behavior. They are characterized by virtuous and vicious
cycles and oscillating movement toward a stabilizing state or goal. Systems thinking consists of identifying
the feedback processes and dynamics determining system behavior.
All systems can be modeled using reinforcing (amplifying) processes, balancing processes and delays.
Reinforcing Processes - engines of growth or decline. Small actions amplify themselves creating accelerating growth or
decline.
Example of a reinforcing loop:
Adapted from: The Fifth Discipline, Peter Senge
Processes - stabilizing processes that operate whenever there is goal oriented behavior at work.
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All balancing processes contain a self-correcting or governing function that attempts to attain some goal
or target. They are characterized by a gap between actual and desired behavior.
Example of a balancing loop:
Putting it all together, the building blocks in systems thinking are: circles of causality; reinforcing feedback;
balancing feedback; and delays.
REINFORCING
CIRCLES OF FEEDBACK-
CAUSALITY Discovering how
Realizing that small changes can
Reality is made grow
up of circles but
SYSTEMS
THINKING—
seeing the world in
NEW WAYS, a
DELAYS- BALANCING
realiz FEEDBACK—
ing when discovering the
things sources of
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Systems Thinking Levels of Understanding
The key in comprehending systemic STRUCTURE is to move at the EVENT level to thinking at the
PATTERN level. Systems thinking is thinking that it is the STRUCTURE that causes the PATTERN which
produces the EVENT.
EVENT
PATTERNS
STRUCTURE
How to see the “Structure”
These require an immediate response. But, if it is the only response that is

taken, it is inadequate from a SYSTEMS THINKING perspective. WHY?
EVENTS Because it has solved the immediate problem but it hasn’t changed the
underlying structure that caused the event.
These are trends or changes in EVENTS over time. Whenever you see a pattern
of events - i.e. sales have been declining over the past two years, project costs
have gone over budget in the last year - you’re getting one step closer to
grasping the systemic structure driving that pattern.
PATTERN
Detecting a pattern helps you put the most recent event in the context of other,
similar events. You begin thinking about what caused them. In the end, to
anticipate events and ultimately change a pattern, you need to shift your thinking
to the level of STRUCTURE.
Whenever we ask questions like, ―Why is this pattern happening?‖ Or ―What ’s

causing these events?‖ We are probing at STRUCTURE. It is at the structure
STRUCTURE level that holds the KEY to lasting, high leverage change.
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How to see the “Structure”
Like the submerged portion of an iceberg, underlying structure may be difficult to see. The “water line‖ divide
what’s easy to see(events) form what’s harder to see(the underlying structure that causes events). We can see
some patterns, but others aren’t as obvious.
Seeing Structure
The often referenced iceberg diagram is useful for moving from the events and patterns levels to the structural
level (see ―Seeing the Deeper Structure‖). But instead of thinking of the iceberg in terms of different kinds of
things that exist in the world, think of it as showing different ways of seeing the world. That is, focus on seeing
structures, causal connections, and relationships to start to explain what’s happening.
If we see the world in terms of events, then the best we can do to be effective is to react to an occurrence by
asking, ―What happened?‖ If we can see beyond individual events to patterns and trends, then we can
anticipate, plan, forecast, and adapt. To see patterns, we ask, ―What’s been happening? Where are there
differences, contrasts, or continuities overtime?‖ But if we are able to move to the third level of viewing the
world, we will be able to find structural explanations. By asking, ―What would explain these patterns?‖ we can
begin to see causal connections and make hypotheses about the underlying factors that created the observable
events and patterns.
Because structure is about the relationships among parts of a system, a structural observation must include a
causal connection, not just a list of the forces or elements of the system. So, to make structural observations, we
need to go beyond listing factors (for example, ―compensation systems‖) to articulating causal relationships
(for example, ―the compensation system is causing people to focus on short-term goals‖).
And because structure isn’t always directly observable, we often must make hypotheses about how it operates
and then test our theories. If you’re having trouble seeing structural relationships and making hypotheses, go
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back to the patterns level and look at data. Look for differences and changes over time. The answer to the
question ―What would explain these patterns?‖ often stimulates structural observations.
Seeing at the Patterns and Trends Level: There are always accidents on this highway. Also, there are daily
and weekly patterns of traffic, rush hours, and slack times. Drivers during rush hour are more stressed and have
more on their minds than drivers at other times of day. They are most concerned with getting someplace
quickly and avoiding traffic tickets; they don’t notice their own driving practices.
To
keep
track
of
complexity and see how structural elements operate together. Place your structural observations in a diagram
and add arrows to indicate causal relationships. This method usually leads you to discover even more
connections.
Seeing at the Structural Level:
A structural observation must include a causal connection.
1) This highway is old, narrow, and has poor sight lines, causing more accidents when traffic is heavy.
2) Most drivers heading north and south out of the city have to use this road, making the traffic even heavier.
3) Motorists are changing lanes because of the many ramps and exits.
4) Drivers think the state police won’t enforce speed limits because police cruisers would cause major traffic
tie-ups. So, drivers tend to drive faster, causing more accidents.
5) Because motorists are in a hurry and don’t notice their own driving practices, they do unsafe things (such as
cutting in, tailgating, and speeding).
To keep track of complexity and see how structural elements operate together to produce an overall result, you
can place your structural observations in a diagram and add arrows to indicate the causal relationships (see ―A
Bad Stretch of Highway‖). This method usually leads you to discover even more connections.
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The world we deal with is very much like our iceberg diagram. There’s a lot hidden beneath the surface, and
one of the aims of systems thinking is to help us discover it! The purpose of moving through the different levels
of the iceberg is to stimulate seeing, thinking, and insight. Of course, we don’t just want to see and understand
better, but to act and intervene differently for better results. However, seeing and understanding are the
essential first steps for taking more effective action.
Causal Loop Construction: The Basics
Tips on Drawing Causal Loops 57
1. Good loops are the result of understanding the story, and the insightful conversation between your mind and the
things that you draw on paper.
2. Begin by writing down variables, using language from the story as much as possible.
3. As you understand how one variable links to another, draw an arrow and label it as S or O.
4. Get a sense of loop in the story. Connect the links into a loop and label it as R or B.
5. Expect to go through many iterations. Starting again does not mean you are ―not getting it‖. rather, it means you are
―understanding it better.‖
6. Check if the causal loop tells the same story as you started with. The loop if done properly, should help you
understand what is really happening.
What is a Variable?
A variable is an element whose value changes during the time period of interest. A variable:
• may increase of decrease

• Has behavior that can be measured over time
• Measure the level or intensity of something
• May fluctuate or oscillate
When choosing variables:
• choose brief, one-to-two-word descriptions for each
• Try not to use adverbs or lengthy adjectives (your diagram will tell a more effective story if it is clear and to easy
understand; you can embellish the story verbally).
• When you have finished your diagram, talk yourself through each segment to confirm that it outlines the story you
wanted to tell.
What does a variable look like?
Issue Possible Variable
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Issue Possible Variable
Employment reaches 5 year high People employed

Hiring rate
Attrition rate
Inventory of snow blowers shrink as snow fails Inventory of snow blowers

Snow blowers sales rate
Morale decline as profits fall Level of morale

Profits of company
Impact of profits on morale
Starvation decimates monkey population Monkey population

Deaths from starvation
Monkey birth rate
English Language VS. Systems Thinking Language: ANALOGY
ENGLISH LANGUAGE SYSTEMS THINKING LANGUAGE
NOUN VARIABLE
VERB LINK
SENTENCE S or O = sign
Noun and Verb A -—-> B
Read as: A causes B
How to determine sign of link:

S = if effect B has the same direction as the cause A.
O = if effect B has the opposite direction as the cause A.
PARAGRAPH LOOP - tells a coherent story
- a link of sentences along a coherent Loop Notation: R = reinforcing

idea, like telling a story B = balancing
Count Os: if no Os or even count, it is R

NOte: insert diagram : if odd count of Os, it is B
NOTE: The loop is the structure that influences the dynamic behaviour of systems.
PRINCIPLES OF SYSTEMS THEORY
System structure causes its behavior.
System interrelationships cause their own crises. There are no villains.
Understanding these structural interrelationships is necessary to understanding system behavior.
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The ability to influence fundamental change comes from understanding the structures and relationships
controlling events and behavior.
Changing system output requires changing the system structure.
Human systems include the worldview and beliefs of their decision makers and participants.
Changing the output or behavior of human systems requires changing beliefs.
Learning is the process of changing beliefs.
Systems inertia creates resistance to change.
Complex systems have high inertia and are very resistant to change.
Efforts to alter system behavior without changing its underlying structure may create short-term
improvements but produce more long-term problems.
Example: Government elimination of substandard housing and replacing it with subsidized housing
projects.
Changing systems structure requires leverage - creating change through highly focused action.
Leverage comes from new ways of thinking. New ways of thinking include:
Learning to see structures rather than events.
Thinking in terms of processes of change rather than “snapshots.”
In human systems, changing the worldview and beliefs of their decision makers redesigns the
system.
This potential leverage often goes unrecognized because decision makers usually focus on their own
decisions and ignore their impact on others.
System performance must be optimized at the system level.
Sub-systems both influence and are influenced by the larger system of which they are a part (circles of
causality). This creates internal structural friction within every system.
Minimizing this structural friction requires performance trade-offs and compromise among subsystems.
When system performance is optimized some sub-systems will be performing at sub-optimal levels.
Since the entire universe is a system, systems theory applications must first define the
boundaries of the system being measured or managed.
Even in a perfect society, some social systems will be functioning at less than optimal levels of
performance.
Social responsibility means subordinating some individual desires for the good of society.
Only one performance measure can be optimized (maximized or minimized) when managing
system performance.
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All other performance measures become constraints that define the acceptable range of values they can
have.
This means that a business cannot maximize both profits and customer value.
It must choose one to maximize and set constraints on the other.
Example: Maximize customer value (defining how this will be measured) subject to operating profits that
provide a minimum after tax return on equity of 20%.
Determining the optimization measure is the first step in systems management.
APPLICATIONS OF SYSTEMS THINKING
Developing a systems perspective
There are multiple levels of explanation for any complex situation. All may be true but their usefulness is
different.
LEVELS OF EXPLANATION MODE OF ACTION
Event (Symptoms) Reactive
Patterns Of Behavior (trends) Forecasting
Systemic Structure (root cause) Proactive
Event explanations focus on cause and effect.
They are the most common level of explanation and explain why reactive management prevails.
Pattern of behavior explanations focus on trends and their implications.
They are an attempt to achieve more effective decisions.
Structural explanations are the most powerful and least common.
They address the root causes of problems where patterns of behavior originate and can be changed.
Creating systems models.
System models are simplified diagrams that capture the essential dynamic complexity of the system
under study.
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System models are constructed using combinations of reinforcing loops, balancing loops and delays.
Well designed systems models will suggest areas of high leverage and low leverage change.
Examples of system models.
Limits to growth model
The limits to growth model contains a reinforcing growth loop, a balancing loop that limits growth, and a
delay that masks problems. The following example reflects a growth limiting process that affects every
business organization at one time or another.
This model illustrates why organizations have a natural growth rate dictated by some limiting
condition. Problems occur when they try to grow faster than their limiting condition allows. The failure of
many technology companies in 2000 provides an example of organizational growth exceeding financing
capability.
Limits to growth situations can have multiple limiting conditions. In this example the availability of new
workers or excessive material lead times could also be limiting factors.
Leverage in limits to growth situations comes from discovering and addressing the limiting conditions or
delays.
In this example increasing cash or credit is the high leverage solution.
Increasing sales demand before addressing the financing limits will only make the problem worse.
More complex models may have several balancing loops each with their own limiting conditions and
delays.
Shifting the burden model
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This model represents a situation many nonprofit and government organizations encounter. It contains
two balancing loops and sometimes a delay that creates undesirable side effects. In this model one
balancing loop represents a quick fix while the second loop presents the long-term solution but contains a
delay which makes it less attractive. Here is an example of a shifting the burden model.
In shifting the burden models, the quick solution appears to make the situation better and removes the
pressure to pursue the long-term solution. The side effect makes it even more difficult to invoke the
long-term solution because it shifts responsibility for the problem and makes the long-term solution even
more difficult to attain. The result is an over reliance on the quick solution and diminished capacity for
the long-term solution.
This model explains why many well-intentioned efforts to solve a problem only make it worse by enabling
the behavior it is trying to correct.
The leverage in shifting the burden structures lies in limiting the quick solution and strengthening the
efforts to accomplish the long-term solution. Welfare reform legislation is an example of this.
Systems research has identified about 12 generic system models that can be adapted to most situations.
For a description of these refer to The Fifth Discipline by Peter Senge, or The Fifth Discipline
Fieldbook by Senge and others.
TECHNIQUES FOR BUILDING A SYSTEM MODEL
The simplest way to build a system model is to refer to The Fifth Discipline, Appendix 2 and select the generic model
that fits the situation under study and use it as a template for model construction. The Fifth Discipline
Fieldbook also provides excellent information on designing system models. Use the following process to fill in the
template and build the model.
Identify problem symptoms or the events creating these symptoms.
This process uses the event level of explanation.
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Look for patterns of behavior or trends that are evident.
This process uses the pattern of behavior level of explanation.
Patterns of behavior are identified by recurrences of the problem symptoms or related symptoms.
Use the “multiple why” process to identify the causes underlying these recurring problem symptoms. This
process is an adaptation of a Japanese quality technique. It consists of continually asking “why” to each
explanation and subsequent explanations for each of the problem symptoms until a common cause is
identified.
Patterns are identified when problem symptoms can be traced to common causes.
Look for structural relationships creating these problem symptoms.
This process uses the systemic structure level of explanation.
Continue the “multiple why” process used in identifying patterns of behavior until a fundamental or root
cause is apparent. Structural relationships are identified when the explanation for the problem symptom
changes from one system component to another, i.e., explanation for homelessness moves from society
(unemployment) to the individual (addiction) or when the explanation for a quality problem moves from
manufacturing (defective product) to procurement (improper material).
The system components identified in this process become the entries on the reinforcing and/or balancing
loops in the template selected at the beginning of this process.
Fill in the feedback loops and delays.
Reinforcing loops (virtuous spirals or vicious circles).
These will be indicated when activity reflects growth or decline or when problem symptoms get better or
worse.
Balancing loops
These are the most common and reflect a search for stability. These loops are present when activity or
problem symptoms involve capacity limitations, goals or targets. These loops will be characterized by
gaps between what exists and what is desired.
Combinations
Most systems involve combinations of reinforcing and balancing loops.
All reinforcing loops will have one or more balancing loops limiting growth or decline.
All balancing loops will have a limiting or governing function which regulates its output within the
parameters defined by some desired or limiting function. High leverage actions will involve changing the
parameters defining the limits regulating this balancing process.
Locate the delays separating cause and effect.
Understanding the delays in seeing the results of actions taken will prevent over-controlling or excessive
actions that create system instability rather than change.
Use the completed model to discover the points of leverage.
Page 63 of 141
The template selected at the beginning of this process will help identify the potential points of leverage.
ANATOMY OF A CAUSAL LOOP DIAGRAM

CLDs contain several components:
• One or more feedback loops that are either reinforcing or balancing processes
• Cause-and-effect relationships among the variables
• Delays Read on for more details about these anatomical features!
Links and Loops

A CLD consists of two or more variables connected by links, which usually take the form of arrows. A
closed circle of variables and links makes up a feedback loop, as shown in the two loops in Figure 4.1,
―Links and Vari- ables.‖
Relationships Between Variables: S’s and O’s

Not only does each link connect two variables, it has a sign that conveys information about the
relationship between the variables.
In a CLD, you‘ll see at least two kinds of relationships between variables:
1. When variable A changes, variable B changes in the same direction.
Examples When the level of rainfall increases, the rate at which the
grass grows also increases.
When hourly wages decrease, employee morale also goes down.
2. When A changes, B changes in the opposite direction.
Examples  When level of fatigue increases, concentration wanes.

When the price of gold drops, the volume of gold purchasing goes up.
These relationships are shown on the loop diagram as either an ―s‖ for a ―same direction‖ change, or an
―o‖ for an ―opposite direction‖ change (Figure 4.2, ―Links: Same or Opposite?‖).
We recommend that when you finish reading this book, you explore the more advanced tools of systems
thinking beyond BOT graphs and CLDs.
FIGURE 4.1
Links and Variables
(link)
St oping Bl t st d
el t tegies avin s A t Sa ings A
va ble)
Page 64 of 141
FIGURE 4.2
Links: Same or Opposite?
Stress Coping Balance in Interest

Level Strategies
When stress level rises, the use As your savings account balance
of coping strategies also rises, increases, the interest you earn on
ultimately reducing the stress level. the account also increases, further
adding to your account balance.
Familiarizing yourself with the full palette of systems thinking tools, listed in Appendix C, is the best way to grasp the
nuances and complexities of system behavior.
Reinforcing and Balancing Feedback Loops

Where do s‘s and o‘s lead us in interpreting feedback loops? We can think of feedback loops as closed circuits of
interconnection between variables, and as sequences of mutual cause and effect. The links between each variable
show how the variables are interconnected, and the signs (s or o) show how
A CLOSER LOOK AT S AND O NOTATION
The s and o notation method has some inherent ating even more interest, and so on. But what if the
peculiarities that require us to take a closer look at variables decrease? If the account balance goes down,
how we use causal loop diagrams. In this book, we interest payments go down, too. But as interest
use s‘s and o‘s, but in many other publications on payments go down, the account balance doesn‘t go
systems thinking tools, you‘ll see ―+‖ in place of ―s,‖ down, as the ―s‖ would indicate (change in the same
and ―–‖ in place of ―o.‖ A lot of people find the s and direction). Instead, the balance experiences what we
o method easier to grasp than + and –, because the call a ―proportionate‖ decrease in the rate at which it
idea of ―same‖ and ―opposite‖ seems less confusing increases. In other words, the account balance grows
than ―positive‖ and ―negative.‖ There is still much more slowly than before if interest payments go
debate within the field of systems thinking about down.
which notation method is more accurate. This is tricky, but to be as accurate as possible, we
Regardless of the notation method used, causal need to acknowledge a distinction between a propor-
loop diagrams are valuable because they help simplify tional change in the same direction, and a direct
the dynamics of the system they depict, and they change in the same direction. Because causal loop
make complex dynamics accessible for newcomers to diagrams present a simplified picture of system
the field. They provide an important starting place for behavior, the notation used cannot capture this
learning about systems behavior, and can inspire you distinction. This doesn‘t mean we should abandon
to go on and master other systems thinking tools. CLDs—they are a valuable tool for gaining insights
Any time you simplify something, however, you into a problem, especially when a group works
risk introducing inaccuracies, and CLDs are no together on them. However, we do need to pay
exception. To see what we mean, look again at the careful attention to when the signage of s‘s and o‘s
savings-account loop in Figure 4.2. The s‘s make the can lead to confusing dynamics, and address these
most sense if you imagine each variable increasing: As cases explicitly.
interest goes up, the account balance goes up, gener-
Page 65 of 141
FIGURE 4.3
Employee-Supervisor Reinforcing Loop
t eha i ver T m
ml
e forma Supervisor s
Supportive
Behavior
Superviso s
Unsupportive
Behavior
uppor Offe d
by Supe m
ei f ing oops mp h ge n di e t ith h ge o pl ,

gem t fr a pervi r c nh mploy ’s perfo m e, hil r tic l
ppor h i n p mpl y erfo m e
the variables affect one another. In this sense, CLDs are like simplified maps of the connections in a closed-loop
system of cause-and-effect relationships. Every feedback loop depicts either a reinforcing process or a balancing
process. In fact, these two kinds of loops are the building blocks of any dynamic system structure, and they
combine in an infinite variety of ways to produce the complex systems at work within and around us.
Reinforcing Loops: The Engines of Growth and Collapse

Reinforcing loops can be seen as the engines of growth and collapse. That is, they compound change in one
direction with even more change in that direction. Many reinforcing loops have a quality of accelerating movement
in a particular direction, a sense that the more one variable changes, the more another changes . For this reason,
these loops are known as virtuous or vicious cycles—depending on the impact of the change! In causal loop
diagrams, reinforcing loops are designated with an ―R.‖
Figure 4.3, ―Employee-Supervisor Reinforcing Loop,‖ shows how a reinforcing loop can create either a virtuous or
a vicious cycle.
Here‘s how the structure in Figure 4.3 works: Imagine that you‘re a supervisor who works with an employee named
Rex: The more you support Rex (giving advice when he asks, showing appreciation for his contributions, and so
forth), the more his performance improves. In some cases, the dynamic could start with improvements in Rex‘s
performance that motivate you to act more supportively.
On the other hand, the less supportive you seem to Rex, the more his performance may slump over time. And as his
performance erodes, your supportive behavior drops off even more.
In both of these scenarios, a reinforcing dynamic drives change in one direction with even more change in the same
direction.
Sometimes you can detect a reinforcing loop at work simply by sensing exponential growth or collapse. You can
also spot a reinforcing process in behavior over time graphs. When you see a steady upward or downward line, or
an exponential upward or downward curve, a reinforcing structure is likely involved.
Page 66 of 141
FIGURE 4.4
Employee-Supervisor Reinforcing Loop
o Layoffs
o
Employee
Performance R Confidence
o
Anxiety o
Increasing layoffs leads to a decrease in employee confidence. Dwindling confidence then

leads to an increase in anxiety, and a decrease in performance—which leads to even
more layoffs. This reinforcing loop has four o links.
A visual way to spot an R loop is to count the number of o‘s in a CLD. If there is an even number of o‘s (or no
o‘s), then the loop is reinforcing. Although this is a handy method, you should always read through the loop and tell
its story, to double-check that the label is accurate.
Note that reinforcing loops do not have to be made up of all, or even any, s links. In the loop in Figure 4.4,
―The Reinforcing Power of Layoffs,‖ for example, a company‘s increasing layoffs lead to decreasing employee
confidence. The dwindling of confidence in turn leads to a rise in employee anxiety, which leads to a drop in
performance, and then a further increase in layoffs. This diagram has four o links.
Balancing Loops: The Great Stabilizers

Nothing in life grows forever. There are other forces—balancing loops—that tighten the reins on those wild
reinforcing loops. Balancing loops try to bring things to a desired state and keep them there, much as a thermostat
regulates the temperature in your house.
Whereas the snowballing effect of reinforcing loops destabilizes systems, balancing processes are generally
stabilizing or goal seeking. They resist change in one direction by producing change in the opposite direc - tion. In
CLDs, balancing loops are designated with a ―B.‖
There is always an inherent goal in a balancing process, whether the goal is visible or not. In fact, what
―drives‖ a balancing loop is a gap between the goal (the desired level) and the actual level. As the discrepancy
between the two levels increases, the dynamic makes corrective actions to adjust the actual level until the gap
decreases. In this sense, balancing processes always try to bring conditions into equilibrium.
An example of a balancing loop at work in a manufacturing setting would be the maintaining of parts
inventory levels between production stages, as shown in Figure 4.5, ―Inventory Control Balancing Loop.‖ The system
maintains a desired inventory level by adjusting the actual parts inventory whenever there are too many or too few
parts in the warehouse.
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FIGURE 4.5
Inventory Control Balancing Loop
tr ur h i ve T
e s
n ry is p y
Actual
00
Widget
00
Actual
n ory Inventory
n ry 00–
Tim
l ng o ps try o ng y o e ir t d e p it h n
n ry ntr l y th de i n ry s i in by dju i g he
l nv ry he he h r ittl
The inventory control structure works as follows: The company wants to maintain a certain level of parts
inventory. When the actual inventory increases and exceeds the desired level, the gap between desired and actual
inventory levels increases. This gap sends a signal to the company to adjust inventory levels by holding back on
new parts orders. The adjustments bring the level of actual inventory back in line with the desired level, and the
discrepancy between actual and desired shrinks or disappears.
The level of actual parts inventory can also drop below the desired level. Once again, the discrepancy
between desired and actual increases, and the company orders more parts. Those adjustments bring the level of
actual inventory in line with the desired level, and the discrepancy between the two is once again reduced.
How can you detect a balancing loop at work? One way is to watch for the goal -seeking behavior that
characterizes a balancing process. In your organization, for example, if certain conditions keep coming back to
some kind of ―norm,‖ no matter what anyone does, then a balancing process is likely at work. Similarly, if
conditions seem to resist change, if growth falters or never quite starts, or if unproductive behavior never gets
dropped, then a strong balancing dynamic is likely present.
In a BOT graph, you can spot a balancing process by the tell-tale rising and falling lines that over time
always return to the center or ―norm.‖ You can also see it in growth or decline trends that eventually flatten.
A visual way to detect a balancing loop is simply to count the number of o links in the CLD. An odd
number of o‘s indicates a balancing structure. As with reinforcing loops, however, you should still trace the story of
the CLD in addition to counting o‘s, to ensure that the diagram is accurate.
Reinforcing and Balancing Loops Combining:

The Building Blocks of Complex Behavior
To see how reinforcing and balancing loops can combine to form more complex behavior, let‘s revisit the
employee-supervisor feedback loop in Figure 4.3. Clearly, Rex‘s performance will not improve indefinitely just
because you‘re supportive. For example, poor Rex may be putting in longer
Page 68 of 141
FIGURE 4.6
Employee-Supervisor Reinforcing and Balancing Loops
Number of
Employee Behavior Over Time

Supervisor’s
Expectations of
s ―Burnout‖
Positive
Returns
Amount of Time
Support Offered
by Supervisor
and longer hours in order to continue impressing you. Over time, Rex‘s long work hours may start wearing down his
energy level (Figure 4.6, ―Employee- Supervisor Reinforcing and Balancing Loops‖).
If this trend continues, the impact of your supportiveness will eventually be eclipsed by the drain of working
long hours. Rex‘s performance improvements will gradually be offset by the effects of ―burnout,‖ until finally the
balancing loop connecting energy level and hours worked dominates the structure. At this point, Rex‘s performance
will either hit a plateau or actually decline.
The key point to remember is that all dynamic behavior is produced by a combination of reinforcing and
balancing loops. Behind any growth or collapse is at least one reinforcing loop, and for every sign of goal -seeking
behavior, there is a balancing loop. A period of rapid growth or collapse followed by a slowdown typically s ignals a
shift in dominance from a reinforcing loop that is driving the structure, to a balancing loop.
Delays: The Hidden Troublemakers

FIGURE 4.7 In many systemic structures, delays play a hidden but important role.
Delay Delays themselves are neither good nor bad; it‘s how we humans handle
them that determines whether they‘ll cause trouble. There are several ways
in which we can fail to take delays into account: We can take too long to
perceive feedback, to measure results, to decide how to respond to results,
Strategies and to implement solutions. Two of the most insidious effects of delay stem
from misperception. People often fail to take delay into account at all, or to
realize that it even exists. We often have contrasting ideas, too, about how
things in an organization work and how long developments take to unfold.
In a CLD, delay is depicted as a pair of lines (//) or the word Delay cross-
It can take time for coping strategies ing the appropriate link (Figure 4.7, ―Delay‖).
to begin reducing stress. Delays are important to notice because they can make a system‘s behav-
ior unpredictable and confound our efforts to control that behavior. For
example, let‘s say consumer demand for sugar-free breakfast cereals is rising,
Page 69 of 141
resulting in higher prices for these kinds of cereals. This heightened demand presents the Good Eats company with
an opportunity to earn higher profits by producing more of the cereal and selling it at the new prices. The company
decides to take advantage of the situation by expanding its capacity to produce the cereal.
But it takes time to expand. The length of the delay depends on how close Good Eats already is to capacity
and how quickly it can grow. While the company is expanding, the gap between the overall supply of sugar-free
cereals and the demand for them widens, and prices shoot even higher. The spiralling increase in prices drives
Good Eats and its competitors to beef up their production capacity even more.
As the supply of the cereals eventually expands and catches up with demand, prices begin to fall. Supply
overshoots demand, driving prices down further. By this time, Good Eats and other cereal manufacturers have
overexpanded their production capacity. When prices drop low enough, sugar-free cereals will become even more
attractive to consumers, and demand will pick up once more, starting the cycle all over again.
By understanding the relationships between the length of time it takes to increase capacity and the delay
between changes in price and level of consumer demand, Good Eats and other cereal manufactur ers might gain a
better understanding of the implications of these delays. With this awareness, they could better prepare
themselves for the inevitable oversupply that results from this all-too-common dynamic.
BUILDING A CAUSAL LOOP DIAGRAM

To draw a causal loop diagram, you want to pick up where you left off in Section 3 (drawing behavior over time
graphs). To refresh your memory, here‘s how we recommend creating BOTs:
1. Formulate the core problem.
2. Tell the story of the problem behavior.

3. Choose the key variables you want to work with.
4. Name the variables precisely. Don‘t forget to: Use nouns or noun phrases.
Be sure your variable name fits into phrases such as ―level of‖ or ―size of.‖ Use a neutral or positive term
whenever possible. Include intangible variables, such as morale, where appropriate, as well as tangible variables.
5. Graph the variables‘ behavior over time.
6. Hypothesize about how the variables might be interrelated.
There are several methods for moving beyond these steps to draw a CLD. Let‘s start off with a new case and then
follow the steps up to drawing a BOT graph. Then, we‘ll describe three ways to use the graph to create a causal loop
diagram.
Page 70 of 141
CaseStudy  The Case of the Collapsing Banks
Throughout its history, the United States has suffered periodic rashes of bank failures. During these
episodes, depositors seemed to lose confidence in a bank and began withdrawing their funds. If word of this worry
got around, more and more depositors lost confidence, and more and more funds were withdrawn from banks.
Eventually, the volume of these withdrawals threatened the solvency of the bank, and when bank funds fell too low,
the bank failed.
Worse yet, the failure of one bank could trigger a rash of other bank failures. Over the course of several
months, depositors at other banks got nervous when they heard about the failure of the first bank, whether they had
any reason to worry about their own banks or not. So they withdrew their funds from their banks, and, if funds got
low enough, these banks, too, lost solvency and failed.
Here‘s how you might produce a BOT graph of this story‘s variables:
1. Formulate the Problem

To formulate the problem, ask yourself, What was going on? As we see it,
the problem is that many banks were failing over the course of several
months.
2. Tell the Story

The story, in brief, is that as depositors lost confidence in their banks, they
withdrew their funds, and the banks began failing in a kind of domino
effect. As more and more banks failed, depositors lost even more confidence
and withdrew yet more funds. Then, even more banks failed.
FIGURE 4.8
The Bank Story BOT Graph 3. and 4. Choose Your Key Variables, and Name Them Precisely
The significant variables that we detect in the story are:
Bank failures
Bank Solvency
Bank solvency
Funds withdrawals
Depositors‘ confidence
Funds 5. Graph the Key Variables’ Behavior Over Time
2 Years
Bank Failures
Figure 4.8, ―The Bank Story BOT Graph,‖ shows how we see the key vari-
ables behaving over time.
Drawing the Causal Loop Diagram:

Method 1—Begin at the Beginning
In this method, you draw the CLD by beginning at the start of the story. The Case of the
Collapsing Banks begins with depositors‘ loss of confidence. If you start with
―Depositors‘ confidence‖ as variable (A), what comes next? Which variable is directly
affected by the loss of confidence?
When depositors lost confidence, they withdrew their funds from the bank. Another
way of putting it is to say that when depositors‘ confidence
Page 59 of 141
FIG URE 4.9 FIGURE 4.10
The First Link The Second Link
A) A)
B) With r w ls B)
fF s
FIGURE 4.11 FIGURE 4.12

The Third Link The Final Link
A)
A)
ep ’
Confide
a B)
a B) F s
o v cy
(A) dropped, withdrawals of funds (B) increased. That‘s the first link in your CLD, as shown in Figure 4.9,
―The First Link.‖
When withdrawals of funds (B) increased, banks‘ solvency (C) decreased. Now there are two links (Figure 4.10, ―The
Second Link‖). Finally, when banks‘ solvency (C) declined, bank failures (D) increased (Figure 4.11, ―The Third
Link‖).
What‘s the final piece of the structure that illustrates what drove the rashes of bank failures? Check the link between
the increase in bank failures (D) and a further decline in depositors‘ confidence (A) (Figure 4.12, ―The Final Link‖).
This crucial connection is what set the vicious cycle spinning!

Method 2—Work Backward
With this method, you start with the problem symptom and work backward to assemble the loop diagram. In this
story, the problem symptom is bank failures (1). Of the identified variables, which one leads most directly to
increasing bank failures (1)? Our answer is: decreasing solvency (2), as shown in Figure 4.13, ―Link 2.‖
Page 60 of 141
Link 2 Link 3
(1) (1)
Bank Bank
(2) Banks’ (2) Banks’
of Funds
FIG UR E 4.1 5 FIG UR E 4.1 6

Link 4 The Final Link
(1) (1)
Bank Bank
o
(2) Banks’ Banks’
(2)
of Funds of Funds
Withdrawals of funds (3) then lead directly to decreasing solvency (2) (Figure 4.14, ―Link 3‖). Increasing funds
withdrawals (3) resulted from declining depositor confidence (4) (Figure 4.15, ―Link 4‖). Finally, what is the
connection, if any, between declining depositor confidence (4) and the rising number of bank failures (1)? Self-
evident, you say—the more bank failures, the lower depositors‘ confidence level (Figure 4.16, ―The Final Link‖).

Method 3—Go Back and Forth
Most real-life systems stories are not so neatly composed and simple. There- fore, you may find that using a ―back and
forth‖ method is most helpful for building causal loop diagrams. In this method, you move back and forth through
the sequence of the story, using bits and pieces of methods 1 and 2 to piece together your loop diagram. This method
is particularly useful in diagramming complex stories that have many variables and loops.
Page 61 of 141
You may also want to immerse yourself in several versions of the story. In a group effort, especially, just the
act of identifying the variables, graphing their behavior over time, and describing their causal relationships can
bring out the diversity of knowledge, perspectives, and opinions within the group. In some cases, building the
causal loop diagram becomes secondary to exploring the breadth of views among team members.
So, although the ―back and forth‖ method is time consuming and can seem messy, it is especially valuable
when you don‘t have full knowledge of the system. In the end, it may even turn out to be the most fruitful method
of all. Whichever method you use, the key is to stick with tracing a loop completely through before diverging onto
other branches of the diagram. Otherwise, you may quickly find yourself in a mess of partially connected links with
no clear focus. It takes discipline to stay with closing the current loop rather than pursuing what may look like
more interesting paths that can come up in the diagramming process. But be patient—you can get to the other ones
after you close the current loop.
Guidelines for Building Loop Diagrams

As you try the learning activities at the end of this section, keep the following guidelines in mind for building
CLDs:
1. Remember to:
• Use links and arrows to show the direction of the variables‘ cause-and- effect relationships.
• Mark the links with s‘s and o‘s to show the nature (same or opposite) of the link.
• Label the center of every loop with either an R for ―reinforcing‖ or a B for ―balancing.‖
2. If a variable has multiple consequences, try lumping them into one term while finishing the rest of the loop.
For example, increasing stress may lead some people to increase how much they exercise, others to increase
their alcohol consumption, and others to stay at work longer. All three of these consequences can be grouped
together as ―Use of coping strategies‖ (Figure 4.17, ―Grouping Variable Names‖). You can ―unpack‖ these later
when you‘re ready to explore the importance of specific strategies.
FIGURE 4.17
Grouping Variable Names
l of op ng s Cop ng
Stress gy
ooo
Page 62 of 141
Short Term and Long Term Inserting a Variable
o
Demand Quality
s o
Use Production
Demand Quality
Pressure
Productivity
s
3. Almost every action has differing long-term and short-term consequences. To show increasingly longer-term
consequences or side-effects, add new loops or links to your diagram. For example, in Figure 4.18, ―Short Term
and Long Term,‖ increasing stress may lead to more use of alcohol, which, in the short run, can diminish the
sense of stress. How- ever, over time, the increased use of alcohol begins to destroy health, which leads to reduced
productivity and worsens stress.
4. If a link between two variables is not clear to other people and requires a lot of explaining, try redefining the
variables or inserting an intermediate variable to clarify the connection.
For example, it may be clear to you that increasing demand for a consumer product could lead to reduced quality
of the product. However, this simple expression of the connection may not be obvious to others. If you show that
increased demand first raises production pressure, the resulting decline in quality becomes more
understandable (Figure 4.19, ―Inserting a Variable‖).
5. Check the reasoning behind your causal loop diagram by going around the loop and telling the story depicted by
the links and the s‘s and o‘s. For example, the loop in Figure 4.20, ―Telling the Story,‖ depicts the following:
―When the level of quality goes down, the gap between desired quality and actual quality gets larger. When that
gap gets larger, actions to improve quality intensify. Eventually, after actions to improve quality have intensified,
the level of quality goes back up.‖
FIGURE 4.20
Telling the Story
Quality
Desired
Quality
o
B
Actions Gap Between
Desired Quality
Quality and Actual Quality
Page 63 of 141
ABOUT MULTILOOP DIAGRAMS
Many CLDs contain multiple loops. In real life, most systems are so complicated that a diagram of even a
portion of them can look like a giant plate of spaghetti! We don‘t encourage you to tackle this level of complexity
just yet, but you may want to know a little bit now about how to interpret multiloop CLDs. The following tips are
meant to get you started interpreting complex loop diagrams. As you continue your adventure into systems
thinking after reading this book, you‘ll have lots more opportunities to play with multiloop CLDs.
To ―read‖ the story in a multiloop diagram, begin by tracing through one loop, usually the one c ontaining
the variables from the first part of the story that the CLD depicts. For example, in Figure 4.21, ―A Multiloop CLD,‖
the central loop contains the variables ―Use of outside supplier parts,‖ ―Costs,‖ ―Margins,‖ ―Net income,‖ and
―Financial pressure.‖
To read subsequent loops in the diagram, choose the variable in the central loop that first branches away
from the central loop (in this case, ―Use of outside supplier parts‖). Continue the story into the next loop
(―Premium brand image‖), then come back around to the joining point (―Net income‖). Finally, continue tracing
through until you get back to ―Use of outside supplier parts.‖
FIGURE 4.21
A Multiloop CLD
n l
s f u
upplier Pa s
Ma gins
r m ge
Page 64 of 141
After completing these learning activities, compare your responses with those in Appendix B.
ACTIVITY 1 TH E C AS E O F TH E PL AT E A UI N G P R O F I T S
Purpose: To learn to distinguish reinforcing and balancing processes
Outcome: Awareness of the distinguishing characteristics of reinforcing and balancing loops
Instructions: Read the case study below and then answer the questions that follow.
Case Study  Plateauing Profits

Medicorp, an HMO, opened its doors for business in 1985. During its first five years, it advertised heavily,
and its customer base climbed by an impressive 35 percent annually. Medicorp was the first HMO in the area to offer
its customers an unusually broad selection of physicians for the same price as other HMOs‘ policies, and as word of
mouth intensified, more and more customers flocked to Medicorp. At Medicorp‘s five -year-anniversary mark, the
management team celebrated in high spirits, confident that Medicorp‘s spectacular success was bound to continue.
In the early 1990s, however, a few other HMOs, attracted by Medicorp‘s success, moved into the area and
began offering similarly appealing coverage policies. As the mid-1990s rolled by, Medicorp noticed a slowdown in the
rate of growth of its customer base. The 35-percent annual rise began dwindling to 25 percent and then 15 percent,
and then it leveled off at a luke-warm—though respectable—10 percent.
QUESTIONS
1. Considering just the story, and without listing variables or drawing BOT graphs, which kind of process—
reinforcing or balancing—do you suspect was at play during Medicorp‘s early years? Explain your answer.
2. Do you sense a shift in process during Medicorp‘s history? If so, which kind of dynamic—reinforcing or
balancing—prevailed near the end of Medicorp‘s story? Explain your answer.
3. Draw a simple BOT graph that shows just the pattern of the growth of Medicorp‘s customer base. Based on
your graph, which kind of process—reinforcing or balancing—do you think describes the overall Medicorp
story?
4. What do you think made Medicorp‘s growth hit a plateau?
ACTIVITY2 TH E C AS E O F TH E C O L L A P S I N G B A N K S
Purpose: To learn to distinguish reinforcing and balancing loops
Outcome: Awareness of the defining characteristics of reinforcing and balancing loops
STEPS
1. Look again at The Case of the Collapsing Banks on page 59. By simply reviewing the story (don‘t count the
s‘s and o‘s in the finished CLD), what kind of dynamic—reinforcing or balancing—do you sense at work?
Page 65 of 141
2. Look again at the finished CLD for the collapsing-banks story (Figure 4.12 on page 60), and
count the o‘s in the diagram.
3. What kind of loop is the collapsing-banks CLD? Explain your answer here and label Figure 4.12
with the appropriate letter: R or B.
ACTIVITY3 TH E ―O R G A N I C T O GO ‖ S TO R Y
Purpose: To contrast nonsystemic and systemic perceptions of a problem

To recognize how we think, talk, and act differently when we have a systemic
view of a problem
Outcome: Insights into the possibilities offered by systemic thinking

Familiarity with tracing a story through causal loop diagrams
STEPS
1. Read ―Organic To Go: Part One,‖ below.
2. Answer the Part One questions, without turning to ―Organic To Go: Part Two.‖
3. Read ―Organic To Go: Part Two.‖
4. Answer the Part Two questions.
CaseStudy  Organic To Go: Part One

About two-and-a-half years ago, an organic food retailer opened a new line of business—Organic To Go—that
offered takeout health-food meals. Cus- tomers call or fax orders from a menu of snacks, salads, soups, sandwiches,
and entrees, and then pick up their orders at a designated time. Customers may also walk in and order at the
counter. Although there is a small eat-in area, most customers order takeout.
Organic To Go has grown vigorously, attracting lots of young employees. The entire staff has been amazed
at the volume of customers that responded to the new concept. Everything about Organic To Go has grown—
volume, customers, locations, staff, and menu. The owners are young, with a big vision, and they gladly make
room for employees to rise into management ranks. Because they have opened new locations all over the city,
employees have had many opportunities to learn about the business and to develop new skills. Just in the last
year, eight new sites were opened, including two in outlying suburban areas.
In the past few months, Organic To Go‘s top managers have noticed some hesitation in the business‘s
performance. The number of customers seems to be leveling off. Revenues are no longer booming. When site
managers are consulted, they report some increase in a variety of problems—botched filling of orders, sloppy
restocking, equipment and facility
maintenance problems, and employee absenteeism. FIGURE 4.22
There‘s no clear trend, and different locations are Organic To Go Over Time
struggling with different kinds of problems.
Figure 4.22, ―Organic To Go Over Time,‖ shows the

behavior of the story‘s variables over time. ai
us
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QUESTIONS
1. How would you explain the troubling trends at Organic To Go?
2. Is there anything else the managers should take into account?
3. In your opinion, what should the Organic To Go managers do?
4. What typically happens in your organization when sales volume, number of customers, or profit margin
slows down?
Note: In the story below, variables are followed by letter labels that match the variables in the accompanying
causal loop diagram (Figure 4.23, ―The Organic To Go Loop‖).
CaseStudy  Organic To Go: Part Two

Once Organic To Go was established and successful in its first location, its managers allowed themselves to
dream about the future. They knew they were onto a ―hot‖ idea. They could visualize how, as they opened new loca-
tions (A), copying the successful model created in the original ―mother store‖ would help them increase their
customer base (B). As growing sales volume (C) brought in more revenue (D), funds would become available for
investment (E) in more locations. Organic To Go could be another Star- bucks—bicoastal, maybe even international!
If we expand the loop as shown in Figure 4.24, ―The Bigger Picture,‖ however, we can see how problems began
to arise at Organic To Go. As the number of locations (A) increased, the number of new employees increased. Fewer
of those employees (2) had previously worked in the original ―mother store.‖ That meant that an increasing number
of new employees didn‘t know the policies, operating procedures, and behavior expectations that had made the
original business such a big hit with customers. As they tried to learn on the job, the new employees put an

The Organic To Go Loop
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The Bigger Picture % Employees
Familiar with
s Funds
s # of New
# of New s
(D) Load on
s Funds
s s
s # of New
(D)
Sales
Base (B) Employee
s
s
s
Sales and Order
Base (B)
increasing load (3) on their managers. Sometimes the newer employees got frustrated and upset, and came late, left
early, or took a day off without noti- fying their managers (4). In addition, occasional problems with late or
incomplete orders and with messy serving and eating areas (5) turned off some customers, who either came less
often or stopped coming in at all. Some of those customers com- plained to their friends, so Organic To Go stopped
attracting as much new business (B) as it had before.
QUESTIONS
1. Look again at the first Organic To Go causal loop diagram, in Figure 4.23 above. Does it represent
a reinforcing or a balancing process? Label the loop with an R or a B to show your decision.
2. Look at the second causal loop diagram, in Figure 4.24 above. Does the new section of the dia -
gram represent a reinforcing or balancing process? Label the section with an R or a B.
3. When you look at both the original vision and the expanded depiction of the story‘s actual out-
come, do you see the issues at Organic To Go differently than you did at first? If so, how?
4. What suggestions would you offer the Organic To Go managers?
5. What factors in particular do you now think the managers should pay most attention to?
6. Think about using causal loop diagrams in your own organization when sales volume, number of
customers, or profit margin slow down. In your opinion, how might you and your colleagues see
these problems differently by using CLDs?
ACTIVITY4 TH E C AS E O F TH E R E S T R I C T E D RE V E N U E S
Purpose: To follow the steps for discovering the dynamic structure behind the story
Outcome: A causal loop diagram of the story
Instructions: Read the case study below and then answer the questions that follow. (The underlined sec-
tions in the case study are intended to help you see the story‘s key variables.)
CaseStudy  Restricted Revenues
The year 1991 marked a series of firsts for PC-Plus, an established IBM-PC clone manufacturer. That year, PC-
Plus experienced its first quarterly loss ($20 million), its first round of layoffs (1700 people), and the first departure
of a chief executive. These were not the kinds of records PC-Plus was used to posting. In the late 1980s, the company
created a sensation in the business world by growing to $1 billion in sales faster than any other American firm in
history. But then the early 1990s saw PC-Plus losing market share to other clone makers and struggling to stay on
Page 68 of 141
top. PC-Plus‘s initial strategy had been simple: Build IBM-compatible computers that cost about the
same as the competition but that either performed better or offered extra features. PC-Plus‘s engineering
strength, combined with its marketing savvy, jump-started its early success. The company could command
premium prices by offering technologically sophisticated products. But in 1991, customers began
perceiving PC-Plus‘s products as over- priced, and questioned the company‘s leadership role in
engineering break- throughs. In 1986, PC-Plus had leaped ahead of its biggest rival by bringing out the
first IBM-compatible machine using a new, faster microchip. But in 1991, PC-Plus sat on the sidelines
while three other clone makers announced their own new machines with an improved microprocessor.
These competi-
tors asked customers why they should pay PC-Plus‘s high prices—and the FIGURE 4.25
customers listened. To the consternation of the PC-Plus management The Growth of PC-Plus
team, the company‘s revenue growth threatened to flatten during the late
1980s and early 1990s, as Figure 4.25, ―The Growth of PC-Plus,‖ reveals. 4000
3500
3000
To maintain its success, PC-Plus needed to approximate its competitors‘ 2500
prices without losing its reputation for quality. It also needed to explain in 2000
1500
its advertising and marketing why buyers should 1000
500
0
83 84 85 86 87 88 89 90 91
pay extra for a PC-Plus computer that boasted the same features as the competition. And it needed to get closer to
the customers it used to keep at arm‘s length. Management responded to each of those concerns with a variety of
measures: across-the-board price cuts up to 34 percent to compete more directly on price; expanded distribution
channels, including some computer superstores and third-party resellers to increase accessibility; a reorganization
into two semiautonomous divisions to speed product development; and a toll-free hotline to keep in touch with
customers.
Though each move addressed PC-Plus‘s major shortcomings, they also car- ried risks. Even with the cuts, PC-
Plus‘s prices remained high, and the lower margins ate into the company‘s profits, which might have hurt its ability
to invest in further research and development. Some analysts worried that PC- Plus‘s plan to keep costs down by
buying more parts from outsiders would hurt the company‘s premium-brand image, forcing it to slash prices even
more to remain competitive. Expanded distribution channels might also have sullied PC-Plus‘s image by making it
appear to be ―just another clone.‖
QUESTIONS
As suggested by the underlined sections in the story, the key variables we identified in the PC-Plus story are:
Costs
Margins and Net Income
Financial pressure
Use of outside suppliers‘ parts
Premium-brand image
Sales revenues
Figure 4.26, ―PC-Plus Over Time,‖ shows these variables‘ behavior

over time. To figure out what structure drove PC-Plus‘s response to
the financial pressure of a slowdown in revenues, we suggest that
you work with the first four variables from the above list, which we
highlighted in Figure 4.26:
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FIGURE 4.26
PC-Plus Over Time
Present
Sales
Costs
Margins and Net income
Financial pressure Margins and
Net Income
Use of outside suppliers‘ parts
Use of Brand
Outside Parts Image
In the space below build a causal loop diagram of the structure, using these steps as guidelines:
1. The problem seems to be PC-Plus‘s increasing financial pressure (A).
What variable (B) led to the increasing financial pressure? (Draw the link, and label it with an s
or an o.)
2. Which other variable (C) is associated with (B) and caused (B) to change?
3. Which variable (D) did PC-Plus decide to change in order to affect (C)? (In other words, PC-Plus
hoped that if they did more of (D), (C) would be reduced.)
4. To complete the loop, add a link between (A) and (D).
5. What process does this loop represent—reinforcing or balancing? Label your finished loop with an R or a B.
6. Check your loop for soundness. Be sure you drew all the links, with arrows to show the direction of
movement, and that you have labeled all your links with s‘s and o‘s, to show how each variable changes in
relation to the one that influences it. Go around the loop and tell the story.
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ACTIVITY5 TH E A L L - F O R - O N E CO O P E R A T IV E
Purpose: To practice the steps for discovering the structure behind a pattern of behavior
Outcome: A list of the story‘s key variables

A behavior over time graph of the key variables
A causal loop diagram that depicts the case story
CaseStudy  The All-for-One Cooperative

The All-for-One Cooperative is a stunning example of a community that has embraced and mastered business
collaboration. The cooperative was founded several decades ago with funds raised from local townspeople to open a
small factory that employed only 25 people. Today, All-for-One has more than 160 cooperative enterprises,
employing more than 23,000 members.
The member enterprises‘ actions are based on a single guiding principle: ―How can we do this in a way that
serves equally both those in the enterprise and those in the community, rather than serving one at the expense of
the other?‖
Interviews with members of the cooperative revealed the centrality of this shared vision between the
business and the community. Trusting in their shared beliefs and values had encouraged the founders to collaborate
closely to design the original cooperative. Reinforcement of their common beliefs had allowed newer, younger
members to propose the changes required for All-for-One to adapt as it grew.
The experience of collaborative design supported various joint experiments in profit sharing, diversification
of members‘ benefits, apprentice- ships, and exploration of new markets. Although some of the experiments failed,
the losses were spread across the entire association. As a result, the experimenters were encouraged to discuss their
ventures at cooperative gov- ernance meetings and to publicize the causes of both success and failure to all
cooperative members. Old timers and newcomers believe that this sharing of business knowledge has consistently
reinforced the sense of shared vision and beliefs.
QUESTIONS
1. Briefly sum up the All-for-One story.
2. Identify four or five key variables from the story.
3. Graph the variables‘ behavior over time.
4. Decide how the variables interrelate, and draw a causal loop diagram to show the connections.
Work in pencil, and don‘t be afraid to use that eraser! Label your loop diagram R or B.
5. Walk through the causal loop diagram, telling the story it depicts and checking it against the
original story.
ACTIVITY6 TH E P R O B L E M WI T H U SE D CD S
Purpose: To practice all the steps of discovering the structure underlying a pattern of behavior
Outcome: A list of the story‘s key variables

A graph of the variables‘ behavior over time
A causal loop diagram of the story
CaseStudy  Used CDs: What Now?

The compact disc, although quite expensive, has a huge advantage over the old LP: It lasts almost forever.
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This feature is highly attractive to consumers, but poses a concern for record companies because of the growth of the
used- CD business. Indeed, the popularity of CDs has triggered an inevitable con- frontation over the selling of used
discs—a clash that pits the giant record companies against retail outlets. LP retailers complain that much of their
used-CD inventory comes from record clubs or from free promotions.
Although not illegal, this practice, the retailers argue, cuts into the sales of new CDs, diminishes their value,
and deprives recording artists of royalties. At the heart of the controversy over the sale of used CDs is the decision
by a large record chain, SoundAlive, to carry half-priced used CDs alongside new ones. The issue is further
complicated by the fact that SoundAlive has always been viewed as an industry innovator, opening the possibility
that other large chains may start to carry used CDs to remain competitive.
Ironically, the actions of some record companies have actually con- tributed to the rise in used-CD sales. For
example, when SoundAlive offered its customers a no-hassle return policy on CDs, some suppliers stopped accepting
returns of opened CDs from retailers. Instead, they offered a 1-percent credit. With many returned CDs on their
hands, SoundAlive found it more profitable to resell the discs at a discounted price than to return them to the record
company.
QUESTIONS
1. What was the original problem that CDs posed for record companies?
2. What did the record companies do to overcome this problem?
3. What was the next problem or issue facing the record companies?
4. Identify a total of four key variables reflecting the original problem and the later problem.
5. Create a graph of the variables‘ behavior over time.
6. Draw a simple two-loop diagram that shows the original problem and the later problem, includ -
ing how the later problem is linked to the original problem. (See ―The Case of the Restricted Rev-
enues,‖ page 70, if you need help getting started.) Label your loops R or B.
HINT: Draw the loop that shows the original problem first. Then add the loop that shows the sub -
sequent problem.
References
1. Janice Molloy, ―Going Deeper: Moving from Understanding to Action,‖ November 1995.
2. Richard Karashi, Innovation Associates, Inc., an Arthur D. Little Company.
https://thesystemsthinker.com/how-to-see-structure/
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Complex Systems
n the earlier sections of this book, you focused on simple causal loop
diagrams, with one or two loops. These are fine for depicting relatively
basic systems and even for capturing the most fundamental dynamics
of a more complicated system. However, most systems we encounter
at work, in our communities, or in news of current events are large,
complex, and extremely difficult to diagram. For example, imagine
trying to create a causal loop diagram of an entire corporation, a city, a
national economy, or an ecosystem such as a forest. All of these are
complex systems, and their diagrams would contain vast numbers of
reinforcing and balancing
loops and complicated interconnections among the loops.
This section outlines some of the inherent characteristics of complex
systems1 and then presents the story of ComputeFast—a company whose
trials and challenges vividly demonstrate complex system behavior.
1. Adapted from Draper Kauffman, Jr.‘s, Systems 1: An Introduction to Systems Thinking (Future
Systems, Inc.), 1980.
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At the end of the chapter, the students must be able to:
1. Differentiate characteristics of complex systems

2. Compare and contrast complex systems in terms of their strengths and weaknesses
3. Discuss by examples the different system archetypes as structural pattern templates
Chapter 5: Designing Systemic Interventions

5.1 Characteristics of complex systems
5.2 The strengths and weaknesses of complex systems
CHARACTERISTICS OF COMPLEX SYSTEMS
Complex systems behave differently from simple systems and pose special challenges for systems
thinkers. In action, a complex system appears to have many variables, many factors at play, and many
semi-independent but interlocking components. In a diagram of a complex system, the dominance of the
different feedback loops shifts, and the timing and length of delays vary. The diagram may also depict a
number of structures that even seem to be in conflict with one another.
Here are some further defining characteristics of complex systems:
1. Complex systems tend to be self-stabilizing.

A causal loop diagram of a complex system is likely to contain a great many balancing loops,
each of which acts to keep some smaller component of the system in balance, or functioning close to
some desired level. Picture all the legs of a centipede moving the insect toward its goal. Even if a few of
the legs are broken or wobbly, the sheer number of them allows the creature to keep crawling forward
quite smoothly.
This characteristic suggests why so many complex organizations resist change or improvement
campaigns, and eventually return to status quo: All the balancing loops are designed to keep things the
way the system originally intended them.
2. Complex systems are or appear to be purposeful.
Complex systems contain numerous balancing loops, each of which attempts to maintain a desired
level of performance or a goal. A complex system may contain a number of reinforcing loops, too, each
of which serves to augment or diminish some kind of phenomenon within the system. In a complex
system such as an organization, sometimes the goals of both the growth and the balancing processes are
explicit and known to the people who make up the organization. But very often, they are contradictory,
ambiguous, or implicit, and the system appears to function with a mind of its own.
3. Complex systems, like simpler systems, are capable of using feedback to modify their
behavior.
All systems use feedback to modify their behavior. This ability provides a key opportunity for
change and growth within the system—especially if the feedback is explicit and accessible. For example,
an organization has a better chance of improving its performance if it seeks to gather information about
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problems such as shipping delays or procedural complexities. For anyone studying systems, a good
understanding of the structure and workings of a system makes it easier to take advantage of this
important capability so as to catalyze change within the system.
4. Complex systems can modify their environments.
Because systems seek to fulfill a purpose and can modify their own behavior, it‘s not surprising that
they can also modify their environments, the better to achieve their goals. These modifications may be
subtle, such as pedestrians‘ wearing a diagonal path across a square of lawn, or quite bold, such as a
development company‘s decision to build a suspension bridge or demolish a mountainside.
For anyone wishing to change their surrounding environment, a vital step is to identify the links
between the system in question and its environment. With this awareness of how each system is part of a
larger system, we can anticipate how changes we might make in one system will lead to changes in the
system‘s environment.
5. Complex systems are capable of replicating, maintaining, repairing, and reorganizing
themselves.
Franchises and branch offices are examples of how an organizational system replicates itself.
However, because systems also change in response to their environment, even apparent clone organizations
are likely to contain unique quirks or mutations.
In addition, organizations that are abruptly altered, let‘s say through a take-over or layoffs, often
find ways to carry on their essential functions or reorganize themselves to continue pursuing their essential
goals. All-natural systems have this power to invent, reframe, learn, and adjust to their environments.
THE STRENGTHS AND WEAKNESSES OF COMPLEX SYSTEMS
The more complex a system is, the greater its potential to process large quantities of information,
learn quickly, and act flexibly. However, complex systems also have many subsystems to coordinate, and
therefore more potential for things to go wrong. Complex systems often meet with four kinds of problems:
• Conflicting goals
• The centralization vs. decentralization dilemma
• Distorted feedback
• Loss of predictability
In a complex system, it is not uncommon for subsystems to have goals that compete directly with or
diverge from the goals of the overall system. For example, an organization may advocate local decision-
making, only to discover that some local decisions conflict with the goals of the overall organization. The
organization may react by swinging toward centralized decision-making. Feedback gathered from small,
local subsystems for use by larger subsystems may be either inaccurately conveyed or inaccurately
interpreted. Yet it is this very flexibility and looseness that allow large, complex systems to endure,
although it can be hard to predict what these organizations are likely to do next. Compare the endurance
and vitality of a market economy, for instance, to a controlled economy.
COMPUTEFAST: THE STORY OF A COMPLEX SYSTEM
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The story below—about a company that‘s thinking of expanding—highlights some typical
behavior patterns of complex systems. We‘ve also illustrated the ComputeFast case with several
examples of the graphs and causal loop diagrams discussed in this book, to give you a sense of what
more complicated CLDs look like. Perhaps most important, the story and diagrams show you how an
actual organization—a complex system—might use systems thinking tools to begin to gain insights into
its business issues and explore the many ramifications of its decisions.
Can ComputeFast Service Its Success?

In the world of mail-order computers, maintaining a balance between improving technology and
developing new markets has always been a challenge. ComputeFast is facing this issue, experiencing
increased competition at home while preparing to expand into new overseas and domestic markets. The
company must find a strategy that encompasses this expansion— while still keeping its service quality
high and its initial customer base happy.
ComputeFast took the lead in the U.S. mail-order PC computer business by combining low
production costs with a customer base of small businesses and technically knowledgeable users. A ―no-
frills‖ corporate style also allowed the company to undercut competitors on price. These benefits have
enabled ComputeFast to offer its customers an affordable, high-quality product along with good
customer service.
Yet the company has to keep growing its revenues while maintaining quality and service—and not
losing control of costs. For the first time since it opened its doors for business, ComputeFast suffered a
drop-in sales over the past year. The company‘s CEO attributes the decline to a backlog of orders from
last December that inflated first-quarter results. Future drops in sales, however, may hint at a larger
problem: declining customer service quality.
Finding and training local technical and assembly-line workers quickly enough to keep up with
customer demand has been difficult. This staff shortage has worsened customer complaints of delayed
deliveries and long waits on customer service phone lines. By adding 70 new phone lines and expanding
its cadre of 180 technical support personnel, ComputeFast has managed to halve the time that customers
must wait to speak to a technician. Still, some customers may spend up to six minutes on hold.
Improving Service vs. Expanding Markets: The Balancing Act

At the same time, it is facing these problems at home, ComputeFast is planning to create a
production facility in the Far East and market mail-order PCs in Europe. These expansion efforts mirror the
company‘s early U.S. strategy of finding a production base that will keep initial costs low, thus allowing
the company to provide quality service at a reduced cost. ComputeFast may find, however, that plans to
expand overseas are harder to implement with a dissatisfied customer base at home.
Another part of the company‘s strategy for increasing its competitive position involves marketing to
a broader domestic corporate base while expanding its market overseas, as shown in the reinforcing loop in
Figure 5.1, ―Expanding Markets.‖
Before it plunges into all these new plans, ComputeFast needs to ask itself some key questions:
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How fast should the company expand its technical support capacity compared to its revenue growth?
Once a growing company identifies a capacity shortfall, it‘s easy to anticipate acquisition delays—but what
are some of the hidden sources of delay that could catch ComputeFast by surprise?
In thinking about the possible erosion of its performance standards as ComputeFast expands, the company
also needs to acknowledge that standards may become obsolete. How might ComputeFast‘s current
standards of service become inadequate?
Is ComputeFast‘s goal of expanding into new markets, maintaining profit margins, and improving
service quality an achievable one?
FIGURE 5.1
Expanding Markets
Expansion to
for ComputeFast
Products
Sales
4As customer demand for ComputeFast‘s products increases, revenues also increase, providing the necessary capital to
expand into new markets and further spur demand.
The Problem of Success

In ComputeFast‘s situation, the current technical-support service problems stem directly from the
company‘s sales success. Revenues skyrocketed from a mere $100,000 in 1990 (its first year) to $70
million in 1994, and topped $1.11 billion in 1996. Estimated revenues for 1998 are around $1.7 billion.
As the number of units sold continues to climb, the number of customers requiring service also increases.
This trend suggests that the company should expand its service capacity at least as rapidly as the growth
in shipments. In terms of total number of employees, ComputeFast appears to have kept pace with
revenue growth. From 1994 to 1996, the employee ranks grew almost fivefold, from 400 to almost 1,860.
But, as ComputeFast has learned, simply adding workers is one thing; finding people with the
appropriate skills and experience is altogether different. In particular, acquiring and training service
technicians has proved more challenging than the company may have first realized. Consequently,
ComputeFast customers have been experiencing delivery delays and busy customer service phone lines.
Over time, these annoyances will dampen demand, according to the balancing loop B2 in Figure 5.2,
―Balancing Demand.‖
When a company experiences eroding service quality, halting the slide requires beefing up
capacity as quickly as possible. Yet in making the decision to invest in capacity, the company must
immediately recognize when performance actually falls off and when the needed capacity should be
added. In many cases, the delay between recognizing declining levels of service and adding needed
capacity widens because the company is unable or unwilling to face up to the inadequacy of its current
efforts to halt the quality decline.
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In addition, the challenge of keeping after-sales support on track is complicated by two unavoidable
facts: When sales are growing linearly, the installed base is growing exponentially; and when sales are
growing exponentially, the installed base is growing super-exponentially, as suggested in
FIGURE 5.3
Exponential Growth
1600
Installed Base
1200 (Super-exponential
growth)
800
400 les (Super-

ponential
growth)
0
1990 1992 1994 1996 1998
Figure 5.3, ―Exponential Growth.‖ This means that, to provide adequate after-sales support, the number of
service technicians may need to grow at a rate much faster than the organization as a whole.
If ComputeFast is going on the assumption that the number of service technicians should grow at
the same rate as sales, the company is likely to chronically underinvest and eventually will fail to provide
customers with the level of support it offered in the past. This delay in recognizing true capacity needs
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may, in a self-limiting way, control ComputeFast‘s growth by stifling technical support quality (and
keeping loop B2 in Figure 5.2 active). If the low service quality persists and depresses customer demand,
the company will find it easier to service the lower demand. Higher quality service will reduce the quality
gap, and the narrowing gap will likely lead to lower investments in capacity and, eventually, a lower
technical support quality, as shown in loop B3 in Figure 5.4, ―Underinvestment in Service.‖ In this
An increase in technical support quality will reduce the quality gap, which will ease the pressure to invest in capacity,
resulting in even lower technical support capacity (B3). Loops B2 and B3 together form a figure-8 reinforcing
loop of continual underinvestment in service capacity and declining customer demand.
diagram, loops B2 and B3 can spiral in a vicious figure-8 reinforcing loop that leads to lower demand
and lower service capacity. When caught in this dynamic, the company may even continue to believe it‘s
offering an ―acceptable‖ level of service.
Even if ComputeFast recognizes the need to expand its technical support at an accelerated rate and
is somehow able to hire and train all the people the company feels it needs, it can still fall victim to the
figure-8 dynamic. This scenario is likely to happen if ComputeFast‘s performance standards, which drive
its investment decisions, are not continually updated to fit the company‘s changing situation.
The value of a performance standard can still erode if the standard is never revised to meet current
market conditions. In this case, the company will never achieve adequate investments needed to support
the market‘s changing quality expectations. The result: Demand will decrease until it hits the number
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(and type) of customers who are satisfied with the company‘s traditional standard.
For example, the new corporate customers that ComputeFast is targeting will most likely have
higher service needs and expectations than the company‘s original core market of technically savvy users.
And people who are accustomed to the kind of service that other, larger companies offer may find
ComputeFast‘s service level inadequate, even at its best. A push into such new markets may require a
substantial redefinition of ComputeFast‘s notion of high service quality.
Investing to Expand
Improving customer service in the face of continuing rapid growth is a challenge in itself. Couple that
with a strategy for entering foreign markets and targeting more established corporate buyers, while still
preserving current profit margins, and the goals seem to be at cross purposes—at least in the short term
as shown in Figure 5.5, ―Pursuing Two Goals at Once.‖
Expansion into the overseas direct-mail market involves a complicated and costly web of
marketing and shipping arrangements that will require major investments. At the same time, the new
corporate buyers and the ever- expanding installed base at home will require further investment in
technical support capacity. Both investments will increase costs and squeeze profit margins, for sales are
not likely to rise very fast in the early stages of overseas expansion. If both investments are pursued
aggressively, profits will suffer and ComputeFast will feel pressured to cut back (loops B4 and B5 in
Figure 5.5). However, if the company pursues technical support investments less aggressively, it may still
be able to target the new markets and maintain profit margins. The risk, of course, is that service quality
may suffer.
Here‘s one possible scenario for ComputeFast to consider: proceed with its expansion plans while keeping
a careful eye on the bottom line. The company can strengthen its technical support incrementally, but only
after it receives complaints about inadequate service quality. When customers defect, ComputeFast can try
to shore up service while embarking on more expansion plans to maintain revenues. In the long run,
however, these choices could lead to a reputation for poor service, which may necessitate additional price
cuts to regain customers. Price cuts, in turn, would squeeze margins and create pressure to improve them,
perhaps by cutting back on service investments.
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Here‘s an alternative, possibly better scenario: ComputeFast might commit to the necessary investments in
tech support and overseas expansion plans, but expect lower profit margins in the short term. By relaxing
the profit margin goal in the short term, the company may be better able to sustain healthy profit margins in
the long run, once it has built the necessary infrastructure to support its new markets.
ComputeFast as a Complex System

The ComputeFast story displays several characteristics of a complex system:
At the company‘s highest levels, there‘s an ever-present risk of conflict between the goals of expanding
markets and the need to maintain adequate service quality.
To compound this conflict, there‘s the persistent possibility that feedback about current service-quality
levels will be distorted, delayed, or misinterpreted. On the other hand, the company has the power to
modify its behavior if it chooses to gather and track as much feedback as possible about service quality
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Service quality at ComputeFast tends to drift back to its previous norms—a sign of one or more balancing
processes at work.
ComputeFast has the potential to replicate itself elsewhere in its environment, as well as modify its
environment, if it succeeds in its expansion goals.
Understanding the special nuances of a complex system like Compute- Fast and being able to
diagram the system is not a ―quick fix.‖ However, if you were a manager at ComputeFast, you and your
colleagues could use causal loop diagrams, like those shown in the story, to better see the dynamics of the
company and design and test potential strategies. An even more effective exercise would be to use
computer modeling to simulate and test the various scenarios—this kind of software lets you explore the
impact of decisions much faster and more accurately than you can on paper. You would then have a better
chance of anticipating the consequences of your choices and preparing yourself for the inevitable delays
and side-effects of your policies.
System archetypes are commonly occurring combinations of reinforcing and balancing feedback. They consist of
two or more loops. Each archetype has a characteristic theme, story line, patterns of behavior over time, structure,
mental models and effective interventions. System archetypes are also known as ―classic system stories,‖
―generic structures,‖ and as ―templates.‖ They facilitate rapid understanding and diagramming of a system. By
applying them habitually, you will learn to ―see‖ structure when you hear one of these classic stories.
Why Study the System Archetypes?
The archetypes:
• Make Systems Thinking visible.
• Are well understood because they recur frequently.
• Are easily transferable.
• Shift focus from blame to inquiry.
• Naturally promote systems thinking when used in a group setting.
The system archetypes rapidly build systemic awareness and they provide a simple and engaging way to
communicate about systems to others who may have no Systems Thinking background. They are easy to
understand. Working with classic stories helps people shift their thinking to a more systemic perspective. The
classic stories are also an easy means of
transferring learning about systemic issues from one situation to another.
Mastering the Archetypes means …
• Knowing the story lines and typical patterns of behavior over time.
• Recognizing them in real world situations.
• Communicating about the structure you see and engaging others in conversation about how they see the
situation differently.
• Mapping out the structure visually.
• Going deeper and enriching the structure.
• Drawing out implications for leveraged intervention
Archetype Family Tree1
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This family tree is designed to show how the archetypes are connected to one another. You may find it helpful as
an orientation now or as a summary when you have studied the archetypes in1 This diagram is based on the work
of Michael Goodman, published in The Fifth Discipline Fieldbook. NY: Doubleday, 1994, pp. 149-150.1
1. Growth – Reinforcing Loop, Vicious/Virtuous Cycle: An accelerating, positively or negatively spiraling

process such as compounding interest at the bank or dropping
morale during lay-offs.
1 This diagram is based on the work of Michael Goodman, published in The Fifth Discipline Fieldbook. NY: Doubleday, 1994, pp. 149-150.
Page 83 of 141
2. Nothing Grows Forever – Limits to Success: As the reinforcing creates growth or success, it often triggers a
limit.
3. Up Against the Same Limit – Tragedy of the Commons: The limits to growth phenomenon on a mass scale,
typically with a shared resource that is available to everyone and which no one person or group feels responsible
to manage or steward.
4. My Capacity Isn’t Large Enough, My Customers Take Their Business Elsewhere, and I Let My
Standards Slip – Growth and Underinvestment: Growth is happening, and the limit is a capacity to respond;
typically capacity is insufficient because it is limited by decision criteria and investment to build capacity is
limited, delayed, or non-existent because standards change and investment can never be justified.
5. My Growth Leads to Your Decline – Success to the Successful: As one enterprise grows, expands, or
succeeds, resources and support are drawn away from a less successful venture. The less successful venture
continues to perform less well than the favored enterprise.
6. Partnership for Growth But End Up Feeling Betrayed As My Partner’s Fixes Backfire on Me –
Accidental Adversaries: Two or more entities join forces for mutual benefit, but unilateral actions by one entity
accidentally damage the other, and the partnership falters or fails.
7. Fixing Problems – Balancing Loop: A self-correcting process keeps performance close to an explicit or
implicit goal, making adjustments to fix or prevent problems.
8. My Fix Comes Back to Haunt Me – Fixes that Backfire: The corrective action produces one or more
unintended results that eventually cause more problems or exacerbate the original one.
9. Not Getting at the Real Underlying Cause – Shifting the burden: The unintended results of the original fix
distract me from noticing more fundamental solutions and may even siphon off the resources I need to implement
that approach.
10. I Become Satisfied With Less – Drifting Goals: If corrective actions are too difficult to implement for
whatever reason, a lower level of performance, one that creates less pressure for action, may be implicitly or
explicitly accepted.
11. My Fix Is Your Nightmare – Escalation: Attempts to maintain competitive advantage require each party to
match or beat the efforts of the other.
Classic Stories Summary
STORY THEMES PATTERNS GENERIC

TITLE OVER INTERVENTIONS
TIME
Reinforcing Spiraling growth Exponential Moderate or manage growth by
Feedback – Virtuous or decline growth or collapse adding a balancing process. Look
or Vicious Cycle for upcoming limits.
Link to other variables that can
turn the dynamic around.
Balancing Feedback Performance rises Movement on or Make goal and delay explicit.
and falls. around a desired Manage goal and delay.
level
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Fixes That Backfire Problems are Rise, dip, rise, and Increase awareness of unintended
solved promptly fall again, either consequences; i.e., open up mental
but eventually gently or rapidly, models of situation.
return again later. depending how Recognize, address problem
bad the longer- underlying symptoms.
term consequence Manage or minimize impact of
is longer-term consequences – cut,
weaken link between fix and
undesired consequences. Find
different solution to original
problem.
Shifting the Burden A ―temporary‖ Steady or growing Give greater value to longer- term,
solution to a number of quick fundamental solutions. Give them
problem becomes fixes while level enough time to work. Overlook
institutionalized; of long-term short-term solutions. Deal with
people end up change declines symptoms only to gain time.
dependent on a Pay attention to dependency on
"just this once" quick fix.
fix. If necessary, supplement
fundamental solution, but
withdraw supplement.
Sometimes the only way ―out‖ is
―cold turkey‖.
Limits to Success Dramatic growth Rises, sometimes Anticipate limits of growth
suddenly slowed dramatically, and process.
or turned around then levels off or Don‘t push harder on growth. Free
falls depending on up constraining or limiting
the strength of the process.
limiting structure. Beware of just working harder or
doing more of what ―worked‖ in
the past.
Tragedy of the Everyone takes Growth followed by Create explicit management of the
common resource Focus on the
Commons advantage for decline for each greater common good or vision.
individual individual.
benefit of a Escalating decline
resource that is in of the common
resource.
the common
domain and
doesn‘t
belong to any one
person or group.
Accidental Two entities want The partnership Get partners/adversaries together
Adversaries to cooperate, but may grow and to understand the whole picture.
each sees the then decline. The Strengthen your mutual
other individual entities understanding of each others‘
undermining their may show either needs.
success. steady or Reaffirm the intent of the
partnership.
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fluctuating
growth.
Escalation Typically a Escalating Create awareness of escalation.

competitive spiral intensity of Look for win/win structure. Ask
in which one competitive for mutual balance.
party does moves; little Slow the rate of escalation. De-
something in change in overall escalate unilaterally.
response to what relative positions
the other party of competitors.
does.
Drifting Goals When Actual and desired Hold the vision and keep the goal
performance is performance steady.
not up to levels gradually When current performance is
standard, the falling below standard, focus on
standard is improving performance - do NOT
lowered. In lower goal.
reverse, every
time you're about
to reach the goal,
it is set higher.
Success to the One of a pair of Growth in one Make people aware of the
Successful people, groups, or area or entity and situation; explicitly choose an
projects does well decline in an outcome.
at the expense of associated one Link the entities for a win-win
the other. Self- outcome.
fulfilling Break or weaken competitive link.
prophecy: Allocate resources on a different
Resources go to basis.
the successful Expand available resources.
entity,
guaranteeing its
success and
killing off the
other entity.
Growth & Dramatic Intermittent Pay attention to limits and
Underinvestment growth growth, invest in advance to be
suddenly slows remaining well ready to respond to future
or turns around. below demand. Recognize the
Increasing potential. critical performance
efforts renew standards and hold to them.
growth, but it
always slows
down and never
reaches its
potential.
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Chapter 5 Activities:
ACTIVITY 1 BUDGET BUGABOOS
To formulate the problem, briefly summarize the story.
If divisions‘ costs run over budget, the divisions feel pressure and respond by cutting costs. These measures
eventually make results look better.
1. What are the story’s key variables?

Target
budget
Budget
pressure
Cost-cutting
measures
Costs
Graph these variables’ behavior over time.
Target Budget
Draw a causal loop diagram that represents the variables’ interrelationships.
Target o
Budget
Budget Measures
Costs
ACTIVITY 2 MANAGING THE ELECTRIC COMPANY

Those in favor of deregulation of the electric utilities have a theory about how competition can lower electricity
prices. What is their theory?
Advocates for deregulation want to use competition to lower electricity‘s unit prices. Those who
promote deregulation feel that competition will stimulate increased productivity among energy
suppliers, and that this increased productivity will be transferred to consumers through lower
prices.
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To uncover the structure that underlies this story, begin by listing the key variables in the story.
Competition
Productivity
Unit electricity
costs
Electricity
prices
Graph the behavior of these variables over time.
Now draw a causal loop diagram that shows how the variables influence each other.
os
ACTIVITY 3 ADDICTED TO OIL

1. To build a causal loop diagram of this story, start by identifying the key variable that leads to everything else.
What prompts Americans to buy foreign oil and to look for alternate sources of energy?
Energy shortages
2. What kind of process do you sense here: reinforcing or balancing?

Balancing
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3. Draw a simple multiloop diagram that shows how energy shortages, oil imports, and development of
alternate energy sources influence each other.
il
s
n gy
Sh
A te at
n gy
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4. Think about the role that oil addiction—the craving for a short-term “fix”— plays in this scenario. What
kind of process does this part of the scenario sound like to you: reinforcing or balancing?
Reinforcing
5. Try adding an arrow that links “Addiction to Oil Imports” to the diagram you drew in Step 3. Add any
important delays.
Oil
s
Energy Addiction to
Oil Imports
Alternate s
Energy
6. What does the diagram suggest about the impact that an intense, short-term need can have on long-range,
more effective solutions to the original problem of energy shortages?
The Addiction to Oil Imports process is reinforcing, so over time it can take attention away from the
more effective solution of developing alternate energy sources. By doing so, it only worsens the overall
problem, because as efforts to develop alternate energy sources decrease, energy shortages rise even
more, further adding to the temptation to buy foreign oil as a ―quick fix.‖
References:
1. Michael Goodman, published in The Fifth Discipline Fieldbook. NY: Doubleday, 1994, pp. 149-150.
2. The Fifth Discipline: The Art and Practice of the Learning Organization, by Peter Senge (Doubleday,
1990)
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From Loops to Leverage:
Applying and Practicing Systems Thinking
N
ow that you have some familiarity with interpreting and creating causal
loop diagrams, and with complex systems and the idea of systems
thinking overall, what next? Systems thinking tools are useful only
if you can actually practice and apply them. Many people have com-
pared the process of learning to think systemically to that of
learning a new language—and no one expects to master Japanese by
reading a single workbook! As with any new language fluency in
systems thinking requires lots of study and practice. Don‘t get
discouraged yet, however: There are many ways of applying systems
thinking tools immediately—both individually and in your
organization. In this final section, we offer an array of practical
tips—from a list of ―do‘s‖ and ―don‘ts‖ for systems thinking on the
job, to ideas for making systems thinking an individual, life-long
practice.
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At the end the chapter, the students will be to:
1. identify value creation and business success

2. Differentiation various palette of system thinking tools
3. Internalize the learning journey on system archetypes
Chapter 6: Value Creation and Business Success

6.1 The Dos and Don‘ts of systems thinking on the Job
6.2 Practicing Life-Long Systems Thinking: Palette of System Thinking tools
6.3 The Learning Journey: System Archetypes
THE DO’S AND DON’TS OF SYSTEMS

THINKING ON THE JOB1
Besides using BOT graphs and CLDs to generate insights into problems, how else can you begin using
systems thinking on the job, especially if you want to introduce it to others? Your best bet is to approach
this endeavor in the spirit of ―learning to walk before you run.‖ Here are some suggestions:
General Guidelines
DON’T use systems thinking to further your own agenda.
Systems thinking is most effective when it‘s used to look at a problem in a new way, not to advocate a predetermined
solution. Strong advocacy will create resistance—both to your ideas, and to systems thinking itself. Present systems
thinking in the spirit of inquiry, not inquisition.
DO use systems thinking to sift out major issues and factors. Systems thinking can help you break
through the clutter of everyday events to recognize general patterns of behavior and the structures that
are producing them. It also helps in separating solutions from underlying problems. Too often we identify
problems in terms of their solution; for example, ―The problem is that we have too many (fill in
the blank: people, initiatives, steps in our process),‖ or ―The problem is that we have too little
(resources, information, budget).‖
DON’T use systems thinking to blame individuals.
Chronic unresolved problems are more often the result of systemic break- downs than individual
mistakes. Solutions to these problems lie at the systemic, not the individual, level.
DO use systems thinking to promote inquiry and challenge preconceived ideas.
Here are some clues that nonsystemic thinking is going on: phrases such as ―We need to have immediate
results,‖ ―We just have to do more of what we did last time,‖ or ―It‘s just a matter of trying harder.‖
Getting Started
DON’T attempt to solve a problem immediately.
Don‘t expect persistent and complex systemic problems to be represented, much less understood, overnight. The
time and concentration required should be proportional to the difficulty and scope of the issues involved. Your goal
should be to achieve a fuller and wider understanding of the problem.
This section was written by Michael Goodman and originally published in The Systems ThinkerTM Newsletter, Volume 3, No. 6. Michael Goodman
is a principal of Innovation Associates, an Arthur D. Little Company, and heads IA‘s Systems Thinking Group.
Page 88 of 141
Do’s and Don’ts of Systems Thinking on the Job 89
DO start with smaller-scale problems.
Don‘t attempt to diagram the whole system—otherwise you‘ll quickly become overwhelmed. Instead, try to focus on a
problem issue and draw the minimum variables and loops you‘ll need to capture the problem.
DON’T work with systems thinking techniques under pressure, or in front of a group that is unprepared for or
intolerant of the learning process.
If your audience is not familiar with the concepts and methods of systems thinking, they might not understand that
the process reveals mental models, can be controversial, and is highly iterative in nature. It is far more beneficial to
have the group engage in their own loop building after appropriate instruction and foundation have been given.
DO develop your diagrams gradually and informally, in order to build confidence in using systems thinking.
Look at newspaper articles and try to draw a few loops that capture the dynamics of a problem being described.
DON’T worry about drawing loops right away.
One of the strongest benefits of the systems thinking perspective is that it can help you learn to ask the right
questions. This is an important first step toward understanding a problem.
Drawing Causal Loop Diagrams

DO start with the process of defining variables, and encourage airing of assumptions.
This approach leads to a better shared understanding of a problem. Diagramming is a very effective tool for
promoting group inquiry into a problem or issue.
DO start with a central loop or process, then add loops to ―fill in‖ detail.
For example, the central loop may show how the system is supposed to work, and the additional loops can explore
what is pushing it out of whack.
DON’T get bogged down in details.

Start simply, at a high level of generalization, but with enough detail to sum up the observed behavior. For example,
if you‘re exploring the causes of missed delivery dates in a factory, lump together the types of products that are
experiencing similar delays.
DO begin by looking for generic structures that might clarify the problem. Generic structures such as archetypes
provide a focal point or a storyline to begin the process of understanding a problem.
DO work with one or more partners. Multiple viewpoints add richness and detail to the understanding of a
problem
DO check with others to see if they can add some insight or improve upon your
diagram.
Especially consult people in other functional areas who might have a different perspective on the problem. For
example, with a manufacturing delay problem, you might check with finance to see whether there are any
dynamics in the finance arena that are affecting the manufacturing delays (capital investments and purchases,
etc.). The same can be done for marketing, sales, and so forth.
DO work iteratively.
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There‘s no ―final‖ or ―correct‖ causal loop diagram. Looping is a learning process that should continue to evolve
with new data and perspectives.
DON’T present ―final‖ loop diagrams as finished products.

Instead, present a diagram as a tentative and evolving picture of how you are seeing things. To gain buy -in and
maximize learning, make sure your audience participates in the modeling process.
DO learn from history.

When possible, check data to see if your diagram correctly describes past behavior.
Designing Interventions
DO get all stakeholders involved in the process. This will help ensure that all viewpoints have been
considered, and will increase the chance that the stakeholders will accept the intervention.
DON’T go for vague, general, or open-ended solutions. For example, instead of proposing a solution such as
―Improve communications,‖ rephrase your thought as ―Reduce the information delay between sales and
manufacturing by creating a new information system.‖
DO make an intervention specific, measurable, and verifiable.
For example, ―Cut the information delay between sales and manufacturing down to 24 hours.‖
DO look for potential unintended side effects of an intervention. Remember the general principle: ―Today‘s
problems often come from yesterday‘s solutions.‖ Any solution is bound to have trade -offs, so use systems thinking
to explore the implications of any proposed solution before trying to implement it.
DON’T be surprised if some situations defy solution, especially if they are chronic problems.
Rushing to action can thwart learning and ultimately undermine efforts to identify higher leverage interventions .
Resist the tendency to ―solve‖ the issue, and focus on gaining a deeper understanding of the structures producing
the problem. Be wary of a symptomatic fix disguised as a long-term, high-leverage intervention.
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DO remember that, even for systems thinkers, it’s easy to fall back into a linear process.
Learning is a cycle—not a once-through process with a beginning and an end. Once you have designed and tested an
intervention, it‘s time to shift into the active side of the learning cycle. This process includes acting, seeing the results,
and then coming back to examine the outcomes from a systemic perspective.
PRACTICING LIFE-LONG SYSTEMS THINKING2

In addition to using systems thinking skills in the workplace, how can you incorporate the learning and practice of systems
thinking into everyday life? Happily, there are lots of opportunities to do this, not only as individuals but also as in
collaborative learning arrangements and in learning communities.
Individual Practice
Individual practice is a good starting point for applying the basic concepts of systems thinking that you‘ve learned
through a book or a workshop. By incorporating some of the basic tools and understanding of the systems approach
into everyday work situations, you can begin to build your confidence and competence—and gain a clearer sense of
where you need further practice. These practice methods need no equipment—just your brain, your curiosity, and
your enthusiasm. Here are some suggestions for everyday use of systems thinking skills:
Pay Attention to the Questions You Ask

Much of the value of systems thinking comes from the different framework that it gives us for looking at problems in new
ways. For example, the concept of the Events-Patterns-Structure iceberg (Figure 6.1, ―The Iceberg‖) lets us practice going
beyond event-oriented responses to look for deeper, structural causes of problems.
FIGURE 6.1
The Iceberg
Events
This section was written by Linda Booth Sweeney and originally published in The Systems ThinkerTM Newsletter, Vol. 7, No. 8. Linda Booth Sweeney
is an educator, researcher, and associate of the MIT Center for Organizational Learning. She is also the author of The Systems Thinking Playbook,
Volume I, and co-author of The Systems Thinking Playbook, Volume II.
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To practice moving from events to structure, start by simply paying attention to the questions you ask. Practice
asking questions that get at deeper meanings, that inquire into others‘ viewpoints, or that elicit additional
information. Examples include:
• Questions that look for patterns
(―Has this same problem occurred in the past?‖);
• Genuinely curious questions that enable new information to be shared (―What makes you say that?‖);
• Questions that push for a deeper understanding of the problem (―What structures might be
causing this behavior?‖);
• Questions that probe for time delays
(―What effect will project delays have on our resources?‖);
• Questions that look for hidden loops
(―What might be causing this feeling that we are ‗spinning our wheels?‘‖); and
• Questions that look for unintended consequences (―What would happen if we got
what we wanted?‖).
When probing for potential unintended consequences, the challenge is to ask the question without causing
people to feel threatened or having yourself labeled as the ―naysayer.‖ One organization came up with a clever way
to combat the negative labeling of those who raised concerns: The CEO and his senior team established a
―qualming‖ period during each team meeting. During this time, team members were encouraged and expected to
raise their concerns about the topic at hand. By setting aside a designated time for this activity, they turned the
practice of looking for unintended consequences into a positive and creative part of the group‘s process.
Sense and Notice the Systems Around You
The great poet and philosopher Rumi once wrote: ―New organs of perception come into being as a result of
necessity. Therefore . . . increase your necessity so that you may increase your perception.‖ We can increase our
ability to perceive and sense the three levels of events-patterns-structures operating simultaneously by actively
looking for feedback loops in everyday situations. How? We simply need to stop, look, listen, and sense.
For one colleague, the daily practice of thinking systemically comes with taking care of her house a nd
garden, as she reflects on how her actions are affecting the Earth, the water, the air, and all the other living
creatures. Little by little, that practice is leading her to use different cleaning agents, cut out most pesticides, let the
clover take over the lawn, and plant lots of shrubs and trees to provide a rich, varied habitat. For her, the
connection to systems thinking is to remember the Earth as a system, of which she is a part, and to try to imagine
the impact of her actions on that larger system.
Draw a Loop-a-Day (or one a week)
Try instituting a new morning ritual: Sit down with your cup of coffee, the newspaper, a pad of paper, and a
pen, and look for stories that can be explored through causal loop diagrams. Search for stories that describe
patterns of behavior over time (―The unemployment rate rose over the past 10 years, as did the number of families
seeking welfare assistance.‖) and sketch out the systemic structure that you think might have produced those pat-
terns of behavior. This is an excellent way to gain practice in recognizing systemic structures at work, and to master
the mechanics of drawing causal loop diagrams.
Collaborative Learning
When it comes to practice, we are each other‘s greatest assets. You can greatly enhance your understanding
and application of systems thinking by working in a group, in which you can offer feedback and learn from each
other‘s experience. Here are several ideas for creating group processes that can further your systems thinking
Page 93 of 141
practice:
Apprenticeship/Mentoring/Coaching
If you can find the right person or organization, try to establish an apprenticeship with someone who is more
skilled than you in the tools and techniques of systems thinking. As part of your ―training,‖ see if you can shadow that
person during the workday (if he or she is a manager) or on their next engagement (if he or she is a consultant).
You can also identify someone to be your coach or mentor. Fill a large file folder with causal loops from
newspaper and magazine articles and ask a colleague who is well versed in the field of system dynamics to act as your
coach. Pick one example a week from your daily coffee-and-causal-loop exercise and fax your coach both the article
and your causal loop diagram explanation. Then meet—even if by telephone—to discuss the loop and consider
alternative scenarios and possible interventions.
Book Group
Another possibility is to find a partner or group with whom you can connect on a regular basis (perhaps
monthly) to read a book on systems thinking or organizational learning. Perhaps you want to pick up a copy of a
seminal book, such as Limits to Growth or Principles of Systems, and agree with a colleague to read a chapter a week,
arranging a time to discuss that particular chapter (either in person, by phone, or via e-mail). You may also want to
convene a small group to work through exercises in experientially based books such as The Fifth Discipline Fieldbook
or The Systems Thinking Play- book—or even a workbook like this one! Even the president of a large nonprofit
recently revealed that she and her staff meet once a week for several hours to work through a different system
thinking–related exercise every week.
Learning Communities
Learning communities involve individuals from cross-disciplinary back- grounds who come together to learn
and practice in a group setting. There are currently several groups around the country that have formed to practice the
skills of systems thinking, and the number continues to grow. In addition to face-to-face gatherings, several electronic
forums have been created for people who want to exchange ideas and experiences in using the tools of systems
thinking (see Appendix F: Additional Resources).
For example, to create a practice field for local practitioners and members of organizations interested in
systems thinking, a colleague from Port- land, Maine, organized monthly meetings at the houses of different group
members. Group members brought stories from their business experiences—typically chronic problems that
persisted despite ongoing efforts to resolve them. After several members told their ―stories,‖ one would be selected
for the group to focus on. The rest of the meeting would be spent around a flip chart, exploring the roots of the
problem through thoughtful inquiry and the construction of causal loop diagrams.
THE LEARNING JOURNEY

The most important underpinning of life-long systems thinking practice, whether in your personal or
professional life, is an attitude of curiosity and mindfulness—that is, the ability to adopt a beginner‘s mindset and
to maintain a heightened awareness of your thought processes. Most of the tips and practice opportunities
described in this section provide a mirror that reflects your automatic responses in dealing with complex, systemic
issues. Do you find yourself responding with openness and inquiry, or do you lapse into defensiveness and a need
for ―absolute‖ answers?
As you experiment with the various approaches to practicing and applying systems thinking, keep in mind
that there is no one ―right‖ way to master these new skills. These guidelines are simply intended to get you
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started. Over time, you may discover additional approaches that work well for you. For those a dventurous souls
who are attempting to take an unknown route to their destination, a lovely quote reminds us: ―Traveler, there is no
path. We make the road by walking.‖
Reference:
The Systems ThinkerTM Newsletter, Vol. 7, No. 8. Linda Booth Sweeney ―The Systems Thinking Playbook,
Volume I, and co-author of The Systems Thinking Playbook, Volume II. 2015
The Systems Thinker, Vol. 1, No. 3, August 1991 (Pegasus Communications, Inc.).
Learning Activities:
Additional Learning Activities
This appendix offers additional practice in using the tools of systems thinking. Some of
these extra learning activities focus on the steps needed for uncovering systemic structures:
formulating a problem, identifying variables, drawing BOTS, and creating CLDs. Others
encourage you to stretch your thinking a little more by working with multiloop diagrams.
But don‘t stop here! As you saw in Section 6, there are lots of opportunities to practice
systems thinking in your everyday life. We hope you‘ll take advantage of them and become
a life-long systems thinker.
ACTIVITY 1 BUDGE T BUGABOO S
Purpose: To uncover the systemic structure at work in the story
Outcome: Insights into the systemic nature of the story

A behavior over time graph and causal loop diagram
Instructions: Read the story below and then answer the questions that follow.
 Budget Bugaboos
Budgets are great for tracking money as it flows through a company. But when they are used for other
purposes—long-range planning or gauging performance—they can distort reality and mislead managers. When
budgets become an end in themselves, the company suffers. The result: Managers end up managing the budget
rather than managing the company.
Here‘s what typically happens: As a result of the annual budgeting process, each division is given a budget, a
target level of spending. If actual costs exceed the budget, everyone in the division begins to experience bud - get
pressure. A division may respond in a variety of ways: laying off employees, cutting back the work week, dropping
―perks,‖ and eliminating expenditures for training and outside conferences. Eventually, to management‘s relief, the
monthly and quarterly results improve.
QUESTIONS
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1. To formulate the problem, briefly summarize the above story.
2. What are the story‘s key variables? (Hint: Try to look for four.) List them below.
3. Graph these variables‘ behavior over time.
4. Draw a causal loop diagram that represents the variables‘ interrelationships. Be sure to indicate
any important delays and to label each link with an s or an o. Label the overall loop with a B or
an R for balancing or reinforcing.
5. Trace around your diagram, telling the story, to test the soundness of your diagram.
ACTIVITY2 M A N A GI N G TH E E L E C T R I C CO MP AN Y

 Managing the Electric Company

Like other members of the American electric utility industry, Statewide Power Company faced fundamental challenges to its
core business. These challenges came from price pressures from large industrial customers, trends in deregulation, and state
regulation.
For companies like Statewide, large industrial customers competing directly or indirectly in the global economy were
pressuring electricity suppliers to match world standards of productivity and quality. By heightening expectations
for continuous improvements in these areas, these customers drew power companies into the global competition o f
the world market.
The industries competing in the global market had traditionally worked through the state regulatory system to gain
the electricity prices they needed to be competitive. For the most part, however, state regulation had not low - ered
prices enough, in these companies‘ opinion. Global competitors therefore advocated federal deregulation of electric
utilities and open access for consumers to choose among competing electricity generators. In addition, national and
international investment houses and the competitive business community saw the profit potential that could result
from freeing large companies from regulation.
All these developments put pressure on Congress to pass federal laws to promote competition through the open
access of existing electric utilities‘ transmission grids. This idea of electricity deregulation revealed a major shift in
the way electric utilities and regulators think about how the system should operate, and the kinds of results the
system should produce.
Despite federal interest in pursuing the kind of deregulation seen in the airline, telephone, and natural gas
industries, the American electric utility industry remained one of the few regulated U.S. industries until recently. In
1992, Congress passed the Policy Energy Act, which promoted competition between electric utilities.
QUESTIONS
1. Those in favor of deregulation of the electric utilities have a theory about how competition can
lower electricity prices. What is their theory?
2. To uncover the structure that underlies this theory, begin by listing the key variables in the
theory. (Hint: Try to list four.)
Page 96 of 141
3. Graph the behavior of these variables over time.
4. Now draw a causal loop diagram that shows how the variables influence each other. As with
Activity 1, make sure each link in your diagram has an s or an o. Label your loop with an R or a
A. Add any necessary delays. Finally, check the diagram‘s accuracy when you‘re finished.
ACTIVITY3 A D D I C T E D T O OI L

A multiloop causal diagram
 Addicted to Oil
In an effort to ease periods of energy shortages, Americans since the mid- 1980s have imported more and
more barrels of oil to ensure their daily ―fix.‖ Unwilling as a country to restrict use of our cars and other luxuries, we
have grown addicted to foreign oil supplies. The U.S. government has even engaged in a military buildup in the
Middle East to secure this short-term source of oil.
At the same time, American scientists have tried to develop options for alternate energy sources. Switching
from an oil-based economy to one based on multiple energy sources poses quite a challenge and requires a long -
term commitment to the strategy. It is difficult to focus on developing alternative solutions when, every day, the
country hungers for more and more oil and gives in to the temptation to buy foreign oil. As more attention is turned
toward obtaining foreign oil for short-term satisfaction, less is invested in developing alternative energy sources.
QUESTIONS
1. To build a causal loop diagram of this story, start by identifying the key variable that leads to everything
else. That is, what prompts Americans to buy foreign oil and to look for alternate sources of energy?
2. Without worrying about loops yet, think about the nature of this dynamic. As energy shortages increase,
Americans buy more foreign oil and develop other energy resources, and then the energy shortage gets
eased. What kind of process do you sense at work here: reinforcing or balancing?
3. Draw a simple multiloop diagram that shows how energy shortages, oil imports, and develop - ment of
4. Now think about the role that oil addiction—the craving for a short-term ―fix‖—plays in this scenario. Each
time the U.S. buys foreign oil, it becomes more and more dependent on that energy source. As this addiction
grows stronger, it diverts attention away from efforts to develop alternate energy sources. Neglecting
alternate sources in turn only forces Americans to become even more reliant on imports. What kind of
process does this part of the scenario sound like to you: reinforcing or balancing?
5. Try adding an arrow that links ―Addiction to Oil Imports‖ to the diagram you drew in Step 3. Add any
important delays.
6. What does the new version of your diagram suggest about the impact that an intense,
short-term need can have on long-range, more effective solutions to the original problem of energy
shortages?
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ACTIVITY4 TH E NA T I O N A L EC O N O M Y

Instructions: Read the story below (excerpted from Jay Forrester‘s description of the national economy as
studied through the National Model), and then answer the questions that follow.
 The National Economy

When consumer demand increases, as it did in the 1950s, after World War II, production rises. With
expanding production, the need for more workers means manufacturing wages rise. At the same time, increasing
production leads manufacturers to want to make even more profits. They need to expand, building more factories,
warehouses, and distribution facilities, and they need to invest in more labor and raw materials. They have an
insatiable demand for capital. With optimism high, banks are willing to finance a growing stream of loans, which go
into, among other things, wages for the workers who construct the new plant and build the new equipment. In gen -
eral, wages for both construction and production workers boom. This newly affluent middle class of workers satisfies
its desire for the ―good life‖ by spending ever more on cars, appliances, clothing, and electronics.
QUESTIONS
1. Write a brief synopsis of the story.
2. Identify the story‘s key variables. (Hint: Try to list seven.)

3. Graph these variables‘ behavior over time.
4. Draw the causal loop diagram. (Hint: The diagram contains two loops of the same type.)
ACTIVITY5 TH E R I S I N G C OS T O F H E A L T H C AR E

 The Rising Cost of Healthcare

In the business world, companies hoping to control the rising cost of healthcare benefits have begun
studying the ways in which healthcare services are used by employees. For a while, these studies helped businesses
to restrict unnecessary care. One study, for example, analyzed several hundred insured groups over a three-year
period and concluded that hospital admissions had decreased 13 percent. Overall, employers were able to cut
medical costs 3 percent through using such studies.
However, concerns arose about the financial benefits of these strategies because of the heavy administrative
burden they placed on doctors and hospitals. Indeed, some analysts estimated that as much as 20 percent of the cost
of healthcare could be attributed to excess paperwork and other administrative tasks that befall providers. By the
year 2020, they warned, such spending could amount to half of total healthcare dollars.
Page 98 of 141
Studying healthcare use had become popular because the cost savings far outweighed the insurance fees
charged to employers. Yet over the long term, the increased costs to healthcare providers would lead to higher costs
for services, further shifting costs to patients, and—in the end—to employers.
These increased costs were especially insidious because the extra time it takes for a physician to answer a phone
call or chase down information for a report is not measured.
QUESTIONS
1. To uncover the system at work in this story, begin by looking again at the first paragraph. What two variables
do you detect are being discussed in that paragraph?
2. Graph the two variables‘ behavior over time.
3. Now draw a simple loop that shows these variables‘ interrelationship. Is the loop reinforcing or
balancing? Label it with an R or a B.
4. Reread the second and third paragraphs of the story. What two additional key variables do these
paragraphs introduce?
5. Draw a new behavior over time graph that includes the variables you graphed in Step 2 and the
additional variables you listed in Step 4.
6. Now draw a new CLD that incorporates all four variables of the story. (Hint: This will be a dou-
ble-loop CLD.) Be sure all the links are labeled with an s or an o, and that each loop is labeled
with an R or a B. Add any important delays.
Before you become anxious comparing your responses to those in this section, remember that for many learning
activities, there‘s no one right answer. We offer the following suggested responses as guidelines, to invite you to
stretch your thinking about the various problems and scenarios presented in the learning activities. You may well
come up with your own original insights into the activities. After all, an important benefit of using systems thinking
tools is that they bring to the surface our assumptions about issues and problems and give us a starting place to
address them.
Note: For learning activities that asked for very subjective answers, we have not listed any
suggested responses.
SECTION3 U N C O V E R I N G SY S T E M I C S T R U C T U R E S : D R A W I N G B E H A V I O R O V E R T I M E G R A P H S
ACTIVITY 1 THE PROBLEM WITH PRICE PROMOTIONS

1. What are the problems described in the case?
Slowdown in U.S. population growth Smaller annual increases in consumption Promotions eroding brand image ,
Promotions encouraging price-based shopping Manufacturers and retailers getting hooked on promotions
Supermarkets‘ growing control over the promotions Supermarkets demanding subsidies Forward buying Diverted
low-price goods
2. From the point of view of the manufacturers, what is the overarching problem that includes many of the specific
Page 99 of 141
problems you named in Question 1?
Price promotions eroded brand image, encouraged consumers to shop on price only, and led supermarkets to
misuse promotions. The use of price promotions was a problem.
3. Is there an even deeper problem behind the one you named in Question 2? If so, what is it?
A deeper problem is that manufacturers are unable to create meaningful distinctions among their brands. An even
deeper problem is the slowdown in population growth and the rate of consumption.
ACTIVITY 2 THE CASE OF THE ENERGY DRAIN

1. What’s the problem in this story?
Your first thought might be that the problem is the amount of coffee the narrator is consuming. But why
does the narrator drink coffee? To wake up, to stay awake in the middle of the morning, and to perk up in the
middle of the afternoon. From that perspective, you could say the problem is that the narrator keeps running
out of energy.
2. What are the three or four most important variables in the case?
Energy level
Coffee or Drinking coffee or Use of coffee or caffeine Dependence on coffee or caffeine
3. What is the behavior of those variables over time? Graph them.
4. What do you observe about the behavior of the variables?

In this scenario, the use of coffee rises steadily, while dependence on coffee rises sharply. Energy level
fluctuates but declines overall.
5. What relationships among the behavior patterns of the variables do you observe?
Use of coffee and dependence on coffee seem paired in this situation. Also, the more the use of coffee and
dependence on it rises, the more energy level drops—exactly the opposite of what was desired!
ACTIVITY 3 THE CASE OF THE AUDIO-ELECTRONIC ROLLER COASTER

1. What was the long-standing, chronic problem facing AudioMax Corp.?
The apparent problem is that after a period of steady growth, AudioMax Corp. suffered from shaky financial
performance that started with a serious decline, and continued as a ―boom and bust‖ pattern.
AudioMax‘s uneven management quality was another problem. In fact, it looks as if the quality of the entire
management team was uneven. A strong focus on technological improvements at the expense of other business
processes could also lie at the root of the company‘s problems.
Page 100 of 141
(Resist the temptation to conclude simply that the problem lay with AudioMax‘s CEO!)
2. What two variables fed the initial steady growth in demand from AudioMax’s customers?
Technological innovation or Technological quality New products
3. Once AudioMax went public, what variable limited its ability to continue handling the growth of demand?
Management strength, Management depth, or Management skill
(This variable stands for the issues related to failing to strengthen management at the time the company went
public. It can include rising expenses and slumping productivity related to the new managers‘ lack of
understanding of AudioMax‘s basic processes.)
4. Graph the behavior over time of the two variables you identified in Question 2 and the one from Question 3. Then add
the behavior over time of two more variables: “Demand” and “Ability to meet customer demand.”
1987 1989 1991 1993 1995 1997
5. What do you observe about the behavior of the individual variables over time?
All the variables seem to rise steeply at first (except for Management skill, which dips early on). This is the
growth phase. The variables then drop sharply (as the company‘s troubles begin), and finally start picking up
again.
6. What relationships do you observe among the variables?

Management skill seems to drop first, then technological innovation, and finally the number of new products
and ability to meet customer demand. After the management skills graph begins to rise again, so do all the other
variables.
These relationships might lead you to hypothesize about the impact of management skill on success. For
example, customer demand might be affected not just by marketing but also by the company‘s ability to deliver
the product.
SECTION4 U N C O V E R I N G SY S T E M I C S T R U C T U R E S : B U I L D I N G C A US A L LOO P DI A GR A M S
ACTIVITY 1 THE CASE OF THE PLATEAUING PROFITS

1. Which kind of process—reinforcing or balancing—do you suspect was at play during Medicorp’s early years?
Reinforcing, as indicated by the accelerated growth of Medicorp‘s customer base
2. Which kind of dynamic—reinforcing or balancing—prevailed near the end of Medicorp’s story?
Balancing, as indicated by the leveling off of the customer base
Page 101 of 141

3. Draw a simple BOT graph that shows just the pattern of the growth of Medicorp’s customer base. Based on your
graph, which kind of process—reinforcing or balancing—do you think describes the overall Medicorp story?
Cust
985 987 989 991 993 995
Tim
This graph implies an overall balancing process, as the exponential growth eventually meets a limit and levels
off.
4. What do you think made Medicorp’s growth hit a plateau?
Other HMOs began offering similar coverage policies and attracted business away from Medicorp, putting
limits on its initial growth spurt.
ACTIVITY 2 THE CASE OF THE COLLAPSING BANKS

1. What kind of dynamic—reinforcing or balancing—do you sense at work in the story?
This is a reinforcing process, recognizable by its accelerating change.
3. What kind of loop is the collapsing-banks CLD? Label it with an R or a B.

The loop is a reinforcing process, and should be labeled with an R.
ACTIVITY 3 THE ―ORGANIC TO GO‖ STORY

Part One
We have not provided suggested responses for the Part One ―Organic To Go‖ questions; at this stage, the questions
ask you simply to speculate on the company‘s situation.
Part Two
1. Look again at the first Organic To Go causal loop diagram. Does it represent a reinforcing or a balancing process?
Label the loop with an R or a B.
This is a reinforcing process, and the loop should be labeled with an R.
2. Look at the second causal loop diagram. Does the new section of the diagram represent a reinforcing or balancing
process? Label the section with an R or a B.
This is a balancing process, and the loop should be labeled with a B.
3. When you look at both the original version and the expanded depiction of the story’s actual outcome, do you see the
issues at Organic To Go differently than you did at first? If so, how?
You might decide that the Organic To Go managers need to see beyond the initial ―flush‖ of success that is
depicted by the original reinforcing process of expansion. The high-energy growth during the company‘s early
stages is not enough to sustain itself indefinitely.
Page 102 of 141
4. Given what you can see from the loop diagrams, what suggestions would you offer the managers?
Perhaps they could invest time and funds in more training for new employees in policies and expectations,
before having them plunge into staffing the new stores. They might also think about slowing the pace of
their growth a bit, to let the new staff get ―up to speed.‖ Attending to order filling, stocking, and
maintenance problems is another idea.
Finally, they could take steps to support newer managers and boost employee moral e.
5. What factors in particular do you now think the managers should pay most attention to?
Training of new employees and pace of overall growth are two important possibilities.
ACTIVITY 4 THE CASE OF THE RESTRICTED REVENUES

3.
in cia in ia Fin
Pres (A) Pr (A) Pr (A)
M gin Ma gin d Ma gin d s f u ide

Net n (B) Net n (B) Net n (B) upp ie s’ Pa s D)
o (C) o
4 5.
Fin in ia
Pr (A) P A)
Ma gin d s f u de M gin d s f u e
Net n (B) upp ie s’ Pa s D) Net n (B) upp ie s’ a D)
o (C) o o s (C) o
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ACTIVITY 5 THE ALL-FOR-ONE COOPERATIVE
1. Briefly sum up the All-for-One story.
As the All-for-One vision was built and reinforced, it encouraged a growing level of collaborative design
among the members. Collaboration in designing the cooperative led members to work together on joint
business experiments. The shared nature of these experiments seemed to encourage members to share with
the rest of the cooperative what they learned, regardless of the success of the outcome. Sharing their learning
and insight deepened the shared vision and reinforced the whole process.
2. Identify four or five key variables from the story.

Shared vision Collaboration on design Joint experimentation
Shared cost
Shared learning and insight
3. Graph the variables’ behavior over time.
Time
4. Decide how the variables interrelate, and draw a causal loop diagram to show the connections. Label the loop with an R
or a B.
s Shared
Vision
s
Shared Learning and Insight Collaboration on
Cooperative Design
s R
s
Joint Experiments and Sense
Shared Cost of Shared Responsibility
s
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ACTIVITY 6 THE PROBLEM WITH USED CDS
1. What was the original problem that CDs posed for record companies?
Because CDs cost a good deal more than LPs, record companies‘ original problem was how to persuade
consumers to buy CDs.
2. What did the record companies do to overcome this problem?

Their strategy was to promote CDs in various ways, including cheap deals through record clubs.
3. What was the next problem or issue facing the record companies?
The next problem was a conflict with retailers over sales of used CDs. Record companies were concerned that
sales of used CDs would cut into sales of higher priced, new CDs.
4. Identify a total of four key variables reflecting the original problem and the later problem.
Record industry need to sell new CDs or Record industry pressure to sell new CDs
Record industry CD promotions Retailer sales of new CDs Availability and
sales of used CDs
5. Create a graph of the variables’ behavior over time.
6. Draw a simple two-loop diagram that shows the original problem and the later problem, including how the later
problem is linked to the original problem. Label the two loops with an R or a B.
Re o p ny ec rd omp y
Sale P B D r tions
sdD
vailab lity
Here‘s the story that this CLD represents: There is pressure within the record industry to sell CDs. In response
to this pressure, and to the need to overcome consumers‘ resistance, record companies run lots of low -price
promotions. In the short term, this strategy produces sales of new CDs and reduces sales pressure. However,
eventually the increasing number of new CDs in the hands of consumers leads to an increase in the sales of
used CDs. Sales of used CDs then cut into the sales of new CDs, and sales pressure on the record companies
goes up.
In this case, the short-term solution comes around again as a problem in the longer term.
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APPENDIXA A D DI T I O NA L LE A RNIN G ACTIV I TIE S
ACTIVITY 1 BUDGET BUGABOOS

1. To formulate the problem, briefly summarize the story.
If divisions‘ costs run over budget, the divisions feel pressure and respond by cutting costs. These measures
eventually make results look better.
2. What are the story’s key variables?

Target budget Budget pressure
Cost-cutting measures Costs
3. Graph these variables’ behavior over time.
Target Budget
4. Draw a causal loop diagram that represents the variables’ interrelationships.
Target o
Budget
Budget Measures
Costs
ACTIVITY 2 MANAGING THE ELECTRIC COMPANY

1. Those in favor of deregulation of the electric utilities have a theory about how competition can lower
electricity prices. What is their theory?
Advocates for deregulation want to use competition to lower electricity‘s unit prices. Those who
promote deregulation feel that competition will stimulate increased productivity among energy
suppliers, and that this increased productivity will be transferred to consumers through lower
prices.
2. To uncover the structure that underlies this story, begin by listing the key variables in the story.
Competition Productivity
Unit electricity costs Electricity prices
Page 106 of 141

3. Graph the behavior of these variables over time.
4. Now draw a causal loop diagram that shows how the variables influence each other.
os
ACTIVITY 3 ADDICTED TO OIL

7. To build a causal loop diagram of this story, start by identifying the key variable that leads to everything
else. What prompts Americans to buy foreign oil and to look for alternate sources of energy?
Energy shortages
8. What kind of process do you sense here: reinforcing or balancing?

Balancing
9. Draw a simple multiloop diagram that shows how energy shortages, oil imports, and development of
il
s
n gy
Sh
A te at
n gy
10. Think about the role that oil addiction—the craving for a short-term “fix”— plays in this scenario. What kind of
Page 107 of 141

process does this part of the scenario sound like to you: reinforcing or balancing?
Reinforcing
11. Try adding an arrow that links “Addiction to Oil Imports” to the diagram you drew in Step 3. Add any important
delays.
Oil
s
Energy Addiction to
Oil Imports
Alternate s
Energy
12. What does the diagram suggest about the impact that an intense, short-term need can have on long-range, more
effective solutions to the original problem of energy shortages?
The Addiction to Oil Imports process is reinforcing, so over time it can take attention away from the more
effective solution of developing alternate energy sources. By doing so, it only worsens the overall problem,
because as efforts to develop alternate energy sources decrease, energy shortages rise even more, further adding
to the temptation to buy foreign oil as a ―quick fix.‖
ACTIVITY 4 THE NATIONAL ECONOMY

1. Write a brief synopsis of the story.
When consumer demand increases, production rises, leading to higher wages. At the same time, manufacturers
seeking even higher profits desire to expand, and demand additional capital. Optimistic banks finance more
loans, which provide capital and increase wages further. Wages for both construction and production workers
boom, and these workers in turn spend more on luxuries.
Page 108 of 141

2. Identify the story’s key variables.
Demand (consumer demand, consumer buying) Production (manufacturing)
Need to expand or Demand for additional capital Borrowing (to buy capital plant) or Loans
Wages for construction
Wages for production (or manufacturing) All wages or Wages earned
3. Graph these variables’ behavior over time.
Production
Need for Capital

Borrowing
4. Draw a causal loop diagram.
Wage fo
ap l a
Wage fo
r ng G ods e d
s
A di i l
a l la
s
ACTIVITY 5 THE RISING COST OF HEALTHCARE

1. Look again at the story’s first paragraph. What two variables do you detect are being discussed in that
paragraph?
Healthcare costs for businesses Use of healthcare studies
2. Graph the two variables’ behavior over time.
Page 109 of 141

3. Draw a simple loop that shows these variables’ interrelationship.
Healthcare
Costs for o
Businesses
s
Studies
4. Reread the second and third paragraphs of the story. What two additional key variables do these paragraphs
introduce?
Administrative burden on providers Cost of administration
5. Draw a new behavior over time graph that includes the variables you graphed in Step 2 and the additional variables
you listed in Step 4.
ss
6. Draw a new CLD that incorporates all four variables of the story.
s
Healthcare
Costs for o Cost of
Administration
Businesses
s
B R De lay
Use of Administrative
s Healthcare Burden on Providers
Studies
s
Page 110 of 141

There is a full array of systems thinking tools that you can think of in the same way as a painter views
colors—many shades can be created out of three primary colors, but having a full range of ready -made colors makes
painting much easier.
There are a number of distinct types of systems thinking tools, all of which fall under several broad
categories: dynamic thinking tools, structural thinking tools, and computer-based tools. Although each of the tools
is designed to stand alone, they also build upon one another and can be used in com bination to achieve deeper
insights into dynamic behavior.
Dynamic Thinking Tools

Behavior Over Time Diagrams (BOTs) are more than simple line projec- tions—they capture the dynamic
relationships among variables. For example, say you wanted to project the relationship between sales, inventory,
and production. If sales jump 20 percent, production cannot jump instan- taneously to match the new sales
number. In addition, inventory must drop below its previous level while production catches up with sales. By
sketching out the behavior of different variables on the same graph, you can gain a more explicit understanding of
how these variables interrelate.
Causal Loop Diagrams (CLDs) provide a useful way to represent dynamic interrelationships. CLDs make
explicit your understanding of a system‘s structure, provide a visual representation to help communicate that
understanding, and capture complex systems in a succinct form. CLDs can be combined with BOTs to form
structure-behavior pairs, which provide a rich framework for describing complex dynamic phenomena. CLDs are
the systems thinker‘s equivalent of the painter‘s primary colors.
Systems Archetypes is the name given to certain dynamics that seem to recur in many different settings.
These archetypes, consisting of various combinations of balancing and reinforcing loops, are the systems thinker‘s
―paint-by-numbers‖ set—you can take real-world examples and fit them into the appropriate archetype. They serve
as a starting point from which you can build a clearer articulation of a business story or issue. The arche - types
include ―Drifting Goals,‖ ―Shifting the Burden,‖ ―Limits to Success,‖ ―Success to the Successful,‖ ―Fixes That Fail,‖
―Tragedy of the Commons,‖ ―Growth and Underinvestment,‖ and ―Escalation.‖
Reprinted from The Systems Thinker, Vol. 1, No. 3, August 1991 (Pegasus Communications, Inc.).
Page 111 of 141

DYNAMIC THINKING TOOLS
BEHAVIOR OVER TIME DIAGRAM

Can be used to graph the behavior of variables
over time and gain insights into any inter-
relationships between them. (BOT diagrams
are also known as reference mode diagrams.)
Tim
CAUSAL LOOP DIAGRAM

Used in conjunction with behavior over time
diagrams, can help you identify reinforcing (R) and
balancing (B) processes.
SYSTEMS ARCHETYPE
Helps you recognize common system behavior
patterns such as ―Drifting Goals,‖―Shifting the
Burden,‖―Limits to Growth,‖―Fixes That Fail,‖ and
so on—all the compelling, recurring ―stories‖ of
organizational dynamics.
Page 120 of 141

Structural Thinking Tools
Graphical Function Diagrams, Structure-Behavior Pairs, and Policy Structure Diagrams can be viewed as the building
blocks for computer models. Graph- ical Functions are useful for clarifying nonlinear relationships between vari-
ables. They are particularly helpful for quantifying the effects of variables that are difficult to measure, such as
morale or time pressure. Structure- Behavior Pairs link a specific structure with its corresponding behavior. Pol- icy
Structure Diagrams represent the processes that drive policies. In a sense, when we use these tools we are moving
from painting on canvas to sculpt- ing three-dimensional figures.
GRAPHICAL FUNCTION DIAGRAM

Captures the way in which one variable
affects another, by plotting the
relationship between the two over the full f(x)
range of relevant values.
STRUCTURE-BEHAVIOR PAIR
Consists of the basic dynamic
structures that can serve as building
blocks for developing computer
models (for example, exponential
growth, delays, smooths, S-shaped
Time growth, oscillations, and so on).
POLICY STRUCTURE DIAGRAM

A conceptual map of the decision-making process
embedded in the organization. Focuses on the factors
that are weighed for each decision, and can be used
to build a library of generic structures.
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Computer-Based Tools
This class of tools, including Computer Models, Management Flight Simulators, and Learning Laboratories, demands
the highest level of technical proficiency to create. On the other hand, very little advance training is required to use
them once they are developed. These tools let you practice making decisions and observing the impact of those
decisions—without actually risking your business. They also ―collapse time‖; that is, they let yo u see quickly how
events would unfold over the long run as you implemented your policies in real life.
COMPUTER MODEL
Lets you translate all relationships
identified as relevant into mathematical
equations. You can then run policy
analyses through multiple simulations.
COCKPIT
MANAGEMENT FLIGHT SIMULATOR STOCK
DECISION INFO
HIRING
Provides ―flight training‖ for managers through the
use of interactive computer games based on a HIRING
computer model. Users can recognize long-term
consequences of decisions by formulating strategies
and making decisions based on those strategies.
LEARNING LABORATORY
A manager’s practice field. Is equivalent to a sports team’s
experience, which blends active experimentation with
reflection and discussion. Uses all the systems thinking
tools, from behavior over time diagrams to MFSs.
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As a group, systems archetypes make up one of the 10 tools of systems thinking. The archetypes capture common
―stories‖ that recur in different settings. They‘re valuable because they let you dig below the surface-level,
distracting details of a complex situation to see the underlying systemic structure that drives a situation. Often,
problems or issues that may seem unique at first can turn out to be caused by the same systemic st ructure, and
therefore can be captured in the same systems archetype. The table below describes eight common archetypes and
depicts their characteristic causal loop structures.
Drifting Goals
o
The ―Drifting Goals‖ archetype states
that a gap between a goal and an actual condition can be resolved in two ways: by
taking corrective action to achieve the goal, or by lowering the goal. It B2
hypothesizes that when there is a gap between the goal and the actual condition,
the goal is lowered to close the gap. Over time, the continual lowering of the goal s
will lead to gradually deteriorating performance.
Escalation
The ―Escalation‖ archetype occurs when one party‘s actions are perceived by another party to be a threat, and the
second party responds in a similar manner, further increasing the threat. The archetype hypothesizes that the
two balancing loops will create a reinforcing figure-8 effect, resulting in threatening actions by both parties that
grow exponentially over time.
so
to A to B
1. The systems archetypes were first described in The Fifth Discipline: The Art and Practice of
the Learning Organization, by Peter Senge (Doubleday, 1990). The material in this appendix
was also treated in a number of issues of The Systems Thinker newsletter (Pegasus
Communications, Inc.).
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124 APPENDIX D  The Systems Archetypes
Fixes That Fail

The ―Fixes That Fail‖ archetype states
that a ―quick-fix‖ solution can have
unintended consequences that exacer-
bate the problem. It hypothesizes that
the problem symptom will diminish
for a short while and then return to its
previous level, or become even worse
over time.
Growth and Underinvestment

The ―Growth and Underinvestment‖ archetype applies when growth
approaches a limit that can be overcome if capacity investments are made.
If a system becomes stretched beyond its limit, however, it will compen-
sate by lowering performance standards, which reduces the perceived need
for capacity investments. This reduction also leads to lower performance,
which further justifies underinvestment over time.
“Limits to Growth”
s s
Standard
“Drifting
Goals”
to Invest
Limits to Success
The ―Limits to Success‖ archetype states that a reinforcing process of accel-
erating growth (or expansion) will encounter a balancing process as the
limit of that system is approached. The archetype hypothesizes that
continuing efforts will produce diminishing returns as one approaches the
limit.
Page 124 of 141

APPENDIX D  The Systems Archetypes 125
Shifting the Burden

The ―Shifting the Burden‖ archetype
states that a problem symptom can be
resolved either by using a symptomatic Solution
solution or applying a fundamental
solution. The archetype hypothesizes
that once a symptomatic solution is
used, it alleviates the problem symp- R3
tom and reduces pressure to imple-
ment a more fundamental solution.
B2
The symptomatic solution also pro-
duces a side effect that systematically
undermines the ability to develop a
fundamental solution or capability.
Success to the Successful

The ―Success to the Successful‖ archetype states that if one person or
group (A) is given more resources than another equally capable group (B),
A has a higher likelihood of succeeding. The archetype hypothesizes that
A‘s initial success justifies devoting more resources to A, further widening
the performance gap between the two groups over time.
of A of B
Instead of B
Tragedy of the Commons

The ―Tragedy of the Com-
mons‖ archetype identifies
the causal connections for A
between individual actions
and the collective results (in
a closed system). It hypothe- B3
sizes that if the total usage of
Total
a common resource becomes
too great for the system to
support, the commons will
become overloaded or
depleted, and everyone will
Net Gains s
experience diminishing for B
benefits.
Page 125 of 141

Systems thinking can serve as a language for communicating about com-
plexity and interdependencies. To be fully conversant in any language,
you must gain some mastery of the vocabulary, especially the phrases and
idioms unique to that language. This glossary lists many terms that may
come in handy when you‘re faced with a systems problem.
Accumulator Anything that builds up or dwindles; for example, water

in a bathtub, savings in a bank account, inventory in a warehouse. In
modeling software, a stock is often used as a generic symbol for accu-
mulators. Also known as Stock or Level.
Balancing Process/Loop Combined with reinforcing loops, balancing
processes form the building blocks of dynamic systems. Balancing
processes seek equilibrium: They try to bring things to a desired state
and keep them there. They also limit and constrain change generated
by reinforcing processes. A balancing loop in a causal loop diagram
depicts a balancing process.
Balancing Process with Delay A commonly occurring structure. When
a balancing process has a long delay, the usual response is to overcor-
rect. Overcorrection leads to wild swings in behavior. Example: real
estate cycles.
Behavior Over Time (BOT) Diagram One of the tools of systems think-
ing. BOT diagrams capture the history or trend of one or more vari-
ables over time. By sketching several variables on one graph, you can
gain an explicit understanding of how they interact over time. Also
called Reference Mode.
Causal Loop Diagram (CLD) One of the tools of systems thinking.
Causal loop diagrams capture how variables in a system are interre-
lated. A CLD takes the form of a closed loop that depicts cause-and-
effect linkages.
Drifting Goals A systems archetype. In a ―Drifting Goals‖ scenario, a
gradual downward slide in performance goals goes unnoticed, threat-
ening the long-term future of the system or organization. Example:
lengthening delivery delays.
Escalation A systems archetype. In the ―Escalation‖ archetype, two par-
ties compete for superiority in an arena. As one party‘s actions put it
ahead, the other party ―retaliates‖ by increasing its actions. The result
is a continual ratcheting up of activity on both sides. Examples: price
battles, the Cold War.
Feedback The return of information about the status of a process.
Example: annual performance reviews return information to an
employee about the quality of his or her work.
Page 126 of 141

Fixes That Fail A systems archetype. In a ―Fixes That Fail‖ situation, a fix
is applied to a problem and has immediate positive results. However,
the fix also has unforeseen long-term consequences that eventually
worsen the problem. Also known as ―Fixes That Backfire.‖
Flow The amount of change something undergoes during a particular
unit of time. Example: the amount of water that flows out of a bathtub
each minute, or the amount of interest earned in a savings account
each month. Also called a Rate.
Generic Structures Structures that can be generalized across many differ-
ent settings because the underlying relationships are fundamentally
the same. Systems archetypes are a class of generic structures.
Graphical Function Diagram (GFD) One of the tools of systems think-
ing. GFDs show how one variable, such as delivery delays, interacts
with another, such as sales, by plotting the relationship between the
two over the entire range of relevant values. The resulting diagram is a
concise hypothesis of how the two variables interrelate. Also called
Table Function.
Growth and Underinvestment A systems archetype. In this situation,
resource investments in a growing area are not made, owing to short-
term pressures. As growth begins to stall because of lack of resources,
there is less incentive for adding capacity, and growth slows even
further.
Learning Laboratory One of the tools of systems thinking. A learning
laboratory embeds a management flight simulator in a learning envi-
ronment. Groups of managers use a combination of systems thinking
tools to explore the dynamics of a particular system and inquire into
their own understanding of that system. Learning labs serve as a man-
ager‘s practice field.
Level See Accumulator.
Leverage Point An area where small change can yield large improve-
ments in a system.
Limits to Success A systems archetype. In a ―Limits to Success‖ scenario,
a company or product line grows rapidly at first, but eventually begins
to slow or even decline. The reason is that the system has hit some
limit—capacity constraints, resource limits, market saturation, etc.—
that is inhibiting further growth. Also called ―Limits to Growth.‖
Management Flight Simulator (MFS) One of the tools of systems think-
ing. Similar to a pilot‘s flight simulator, an MFS allows managers to test
the outcome of different policies and decisions without ―crashing and
burning‖ real companies. An MFS is based on a system dynamics com-
puter model that has been changed into an interactive decision-mak-
ing simulator through the use of a user interface.
Policy Structure Diagram One of the tools of systems thinking. Policy
structure diagrams are used to create a conceptual ―map‖ of the deci-
sion-making process that is embedded in an organization. It highlights
the factors that are weighed at each decision point.
Page 128 of 141

APPENDIX E  A Glossary of Systems Thinking Terms
Rate See Flow.

Reference Mode See Behavior Over Time Diagram.
Reinforcing Process/Loop Along with balancing loops, reinforcing loops
form the building blocks of dynamic systems. Reinforcing processes
compound change in one direction with even more change in that
same direction. As such, they generate both growth and collapse. A
reinforcing loop in a causal loop diagram depicts a reinforcing process.
Also known as vicious cycles or virtuous cycles.
Shifting the Burden A systems archetype. In a ―Shifting the Burden‖ sit-
uation, a short-term solution is tried that successfully solves an ongo-
ing problem. As the solution is used over and over again, it takes atten-
tion away from more fundamental, enduring solutions. Over time, the
ability to apply a fundamental solution may decrease, resulting in
more and more reliance on the symptomatic solution. Examples: drug
and alcohol dependency.
Shifting the Burden to the Intervener A special case of the ―Shifting
the Burden‖ systems archetype that occurs when an intervener is
brought in to help solve an ongoing problem. Over time, as the inter-
vener successfully handles the problem, the people within the system
become less capable of solving the problem themselves. They become
even more dependent on the intervener. Example: ongoing use of out-
side consultants.
Simulation Model One of the tools of systems thinking. A computer
model that lets you map the relationships that are important to a prob-
lem or an issue and then simulate the interaction of those variables
over time.
Stock See Accumulator.
Structural Diagram Draws out the accumulators and flows in a system,
giving an overview of the major structural elements that produce the
system‘s behavior. Also called flow diagram or accumulator/flow
diagram.
Structure-Behavior Pair One of the tools of systems thinking. A struc-
ture-behavior pair consists of a structural representation of a business
issue, using accumulators and flows, and the corresponding behavior
over time (BOT) diagram for the issue being studied.
Structure The manner in which a system‘s elements are organized or
interrelated. The structure of an organization, for example, could
include not only the organizational chart but also incentive systems,
information flows, and interpersonal interactions.
Success to the Successful A systems archetype. In a ―Success to the Suc-
cessful‖ situation, two activities compete for a common but limited
resource. The activity that is initially more successful is consistently
given more resources, allowing it to succeed even more. At the same
time, the activity that is initially less successful becomes starved for
resources and eventually dies out. Example: the QWERTY layout of
typewriter keyboards.
Page 129 of 141

System Dynamics A field of study that includes a methodology for
constructing computer simulation models to achieve better under-
standing of social and corporate systems. It draws on organizational
studies, behavioral decision theory, and engineering to provide a
theoretical and empirical base for structuring the relationships in
complex systems.
System A group of interacting, interrelated, or interdependent elements
forming a complex whole. Almost always defined with respect to a spe-
cific purpose within a larger system. Example: An R&D department is a
system that has a purpose in the context of the larger organization.
Systems Archetypes One of the tools of systems thinking. Systems arche-
types are the ―classic stories‖ in systems thinking—common patterns
and structures that occur repeatedly in different settings.
Systems Thinking A school of thought that focuses on recognizing the
interconnections between the parts of a system and synthesizing them
into a unified view of the whole.
Table Function See Graphical Function Diagram.
Template A tool used to identify systems archetypes. To use a template,
you fill in the blank variables in causal loop diagrams.
Tragedy of the Commons A systems archetype. In a ―Tragedy of the
Commons‖ scenario, a shared resource becomes overburdened as each
person in the system uses more and more of the resource for individual
gain. Eventually, the resource dwindles or is wiped out, resulting in
lower gains for everyone involved. Example: the Greenhouse Effect.
The above glossary is a compilation of definitions from many sources, including:

• Innovation Associates‘ and GKA‘s Introduction to Systems Thinking coursebooks
• The Fifth Discipline: The Art and Practice of the Learning Organization, by Peter Senge
• High Performance Systems‘ Academic User’s Guide to STELLA
• The American Heritage Dictionary and The Random House Dictionary.
Newsletters
The Systems Thinker® (Pegasus Communications)
Leverage Points® for a New Workplace, New World
Workbooks
Systems Archetypes Basics: From Story to Structure, Daniel H. Kim and Virginia
Anderson (Pegasus Communications, 1998)
Books
The Fifth Discipline: The Art and Practice of the Learning Organization, Peter M. Senge
(Doubleday, 1990)
The Fifth Discipline Fieldbook, Peter Senge et al. (Doubleday, 1994)
The Dance of Change: The Challenges of Sustaining Momentum in Learning
Organizations, Peter Senge et al. (Doubleday, 1999)
The Systems Thinking Playbook, Linda Booth Sweeney and Dennis Meadows
(The Turning Point Foundation, 1996)
Page 130 of 141
The Tip of the Iceberg: Managing the Hidden Forces That Can Make or Break Your
Organization, by David Hutchens (Pegasus Communications, 2001)
When a Butterfly Sneezes: A Guide for Helping Kids Explore Interconnections in
Our World Through Favorite Stories, Linda Booth Sweeney (Pegasus
Communications, 2001)
Billibonk & the Thorn Patch, Philip Ramsey (Pegasus Communications, 1997)
Frankl’s “Thorn Patch” Fieldbook, Philip Ramsey (Pegasus Communications, 1998)
Billibonk & the Big Itch, Philip Ramsey (Pegasus Communications, 1998)
Frankl’s “Big Itch” Fieldbook, Philip Ramsey (Pegasus Communications, 1999)
Modeling for Learning Organizations, John D. W. Morecroft and John Sterman
(Productivity Press, 1994)
Introduction to System Dynamics Modeling with DYNAMO, George P. Richardson and
Alexander L. Pugh III (Productivity Press, 1981)
Introduction to Computer Simulation: A System Dynamics Modeling Approach, Nancy
Roberts et al. (Productivity Press, 1983)
Short Volumes
Introduction to Systems Thinking, Daniel H. Kim (Pegasus Communications, 1999)
Systems Archetypes I: Diagnosing Systemic Issues and Designing High-Leverage
Interventions, Daniel H. Kim (Pegasus Communications, 1992)
Systems Archetypes II: Using Systems Archetypes to Take Effective Action, Daniel H. Kim
(Pegasus Communications, 1994)
Systems Archetypes III: Understanding Patterns of Behavior and Delay, Daniel H. Kim
(Pegasus Communications, 2000)
Systems Thinking Tools: A User’s Reference Guide, Daniel H. Kim (Pegasus
Applying Systems Archetypes, Daniel H. Kim and Colleen Lannon (Pegasus
Designing a Systems Thinking Intervention: A Strategy for Leveraging Change, Michael
Goodman et al. (Pegasus Communications, 1997)
The “Thinking” in Systems Thinking: Seven Essential Skills, Barry Richmond (Pegasus
From Mechanistic to Social Systemic Thinking: A Digest of a Talk by Russell L. Ackoff,
Lauren Johnson (Pegasus Communications, 1996)
Toward Learning Organizations: Integrating Total Quality Control and Systems Thinking,
Daniel H. Kim (Pegasus Communications, 1997)
The Tale of Windfall Abbey, Margaret Welbank (BP Exploration Operating Company
Limited, 1992)
Laminated Reference Guides

Systems Archetypes at a Glance (Pegasus Communications)
A Pocket Guide to Using the Archetypes (Pegasus Communications)
Guidelines for Drawing Causal Loop Diagrams (Pegasus Communications)
Page 131 of 141

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Principles of

Domingo, Iluminada Vivien R.

This course introduces students

At the end of the semester, students must be able to:

1. Understand and appreciate the meaning of systems thinking in electronic business

TABLE OF CONTENTS: Page/s

Course Grading System :

Class Standing 70% Class Standing 70%

Major Examination 30% Business Plan Presentation 30%

FINAL GRADE = (MidTerm + Final Term) /2

Suggested Teaching Methodologies/Strategies :

2. All assignments, projects and other requirements must be submitted on the

3. Plagiarism is highly prohibited.

4. Cellphones must be on a silent mode or turned off inside classroom.

What Are Systems?

At the end of the chapter, the students would be able to:

A system is a group of interacting, interrelated, or interdependent components that form a complex

Defining Characteristics of Systems” Systems have several essential characteristics:

3. Systems have specific purposes within larger systems.

4. Systems maintain their stability through fluctuations and adjustments.

5. Systems have feedback.

EVENTS, PATTERNS, STRUCTURE

A NOTE ABOUT DIAGRAMMING SYSTEMS

Action Time Way of Questions You

Events React! Present Witness event

―What kinds of trends

―What structures are in

A School as a Living Entity by Rea Gill

Table 1. The Five Discipline of the Learning Organization

DISCIPLINE What it means? What you need to do?

1.2. Principles of systems thinking (Concepts & Laws)

5. Multidimensionality. To see complementary relations in opposing tendencies and to

Some quick definitions

Difference between inherent nature and what we understand

Please read: ― People Are Complex, Software Development Isn‘t."

Chaos from simple and complicated systems

Predictability vs. repeatability in complex systems

Purpose: To identify systems and their components To recognize interrelated systems

Example  Informal information system

Purpose: To supplement the ―official‖ information system so people feel they

Your First System:

Your Second System:

Outcome: Simple graphs of observed behavior patterns

3. Looking at your graph, what do you see?

Outcome: Diagrams of the three systems you identified in Activity 1

Your First System:

Your Third System:

Tset of tools, but also a framework for looking at issues as systemic

1. Enumerate and relate principles of systems thinking to daily business activities

Chapter 2. System Thinking as a special Language

THE PRINCIPLES OF SYSTEMS THINKING

The ―Big Picture‖

Long Term, Short Term

Dynamic, Complex, and Interdependent

Measurable vs. Non-measurable Data

We Are Part of the System

Unintended consequences. Sometimes the connection is simple—the problem plaguing us today is an

SYSTEMS THINKING AS A SPECIAL LANGUAGE

Elements of the Language