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Diagramming Systems [Business Models
Posted on May 9, 2014 @ 08:21:00 AM by Paul Meagher

To attain better mastery of systems theory, I thought that a good exercise would be to diagram a system in the way that Donella Meadows suggested they be diagrammed by using a "stock and flow" diagram. Donella's book, Thinking in Systems: A Primer, provides many examples of system diagrams for many different types of systems. This is one reason it is such a useful book - it provides many templates to get you started with. The system that I chose to develop my own diagram for is Donella's version of the "Ecomomic System" (she calls it the "heart of the economic system"). I chose to diagram this system for two reasons: 1) It is an simple diagram of a complex system that nevertheless provides useful insight, 2) it includes most of the basic devices used in stock and flow systems diagramming. Here is my diagram of the "Economic System" which just tries to copy Donella's version (i.e., learn by copying):

The exercise of copying Donella's systems diagram helped me to recognize some of the finer details of her diagrams. One thing to note is the labels "R" and "B" in the middle of the two loops. The label "R" stands for Reinforcing. In other words, it is a factor that makes the capital stock increase. The label "B" stands for "Balancing". It is a factor that diminishes capital stock. In any system, there is at least one reinforcing component and at least one balancing component. One lesson we might take from this is that when we think about business growth we often focus on the reinforcing component that produces the growth but we should keep in mind that there are also balancing forces preventing that growth from happening. The idea of viral growth suggests only reinforcing growth is at play, but at some point even viral growth gets balanced out. Yin and yang.

Another aspect of the diagram to note is the arrows that point to the two taps that are not part of a loop. These are "control variables" that have an influence on the level of your capital stock. In this case, one control variable on the input tap is the "investment fraction" (fraction of output that is reinvested into the economy) and the other control variable on the output tap is the "capital lifetime" (how quickly infrastructure starts to fail). It is important to note that control variables are not always under the control of someone. Nature can be the controller in some cases. If climate becomes more extreme, the capital lifetime of infrastructure can be reduced significantly. In the case of home heating, the flow of heat out of your building is controlled by the balancing loop of the temperature outside and is moderated by the level of insulation in your house. The control variable, temperature outside, is set by nature.

What distinguishes systems diagrams from other forms of modelling is the use of reinforcing, balancing, and control variables to depict how the entity being modelled works. Other forms of modelling that have arrows pointing from one part to another part might bear a resemblance to systems models, but if they don't conceptualize the arrows as control, reinforcing, or balancing, then they are probably not systems models per se.

According to Peter Senge, "systems thinking is not about fighting complexity with more complexity. It simply means stepping back and seeing patterns that are, when seen clearly, intuitive and easy to grasp". So a stylistic note for systems diagramming is not to get carried away with drawing loops, arrows, and boxes. In many cases, you are looking for the simplist diagram that provides useful insight into the system.

To design my systems diagram I used the http://www.draw.io website. It is a very powerful free online tool for drawing diagrams that I would recommend you try out. It took awhile to find the shape library that I wanted to use to represent the tap symbol. It also took awhile to get used to creating and editing the parts of the diagram but towards the end I found diagramming was happening at a good clip. You can save your diagram in various output formats from svg to png. Join the fun and use draw.io to create your own systems diagrams!

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