A System diagram is a work schematic that details the relationship between inputs, outputs, customers and related feedback.
It displays the forces that act upon a particular process and also the interactions of these forces with each other. This model may include important factors such as behavior, perception, and the method of decision making. This is usually used by solution definition teams for whom it creates a simple common model that they will need in order to examine some very complex system function.
It involves an elaborate process which includes the identification of the events, the behavior patterns associated with the said event, identification of activities that occurred due to the current behaviors and lastly review perceptions and attitudes within the organization that perpetuate the system in its current state (the obstacles that the design may face). All the process solutions must be made in a way as to withstand all of the above factors.
In order to create a system diagram, we follow the following steps: let’s keep in mind that our goal is to move away from managing events (reactive) to manage systems and mental models (proactive).
- We will first use a sales and profitability example of an appliance manufacturer who is continuously discounting prices in order to maintain the volume of sales.
- The first step that we have to perform is to identify the events which are: Sales shorter than expectations, and terrible profits.
- In the next step we look at the pattern of behavior. We can use a graph to demonstrate these factors as well.
- Now we identify the main activities that were involved. We draw the linkages to show the forces and feedback loops to show the results. This helps us identify the root cause of the behavior patterns. In this case we assume that midway through the month the revenue is less than expected. So in order to generate more revenue to meet the requirements, the prices are discounted at the end of the month. The customers then realize that they will get a “deal” at the end of the month. So they start to wait for the discount and don’t order before that. This is turn erodes the profit margins. Pricing discounts at the end of the month create uneven shipment volumes as orders are bunched at the end of the month. Premiums are paid to handle higher shipment volumes at the end of the month, leading to higher logistics costs. This further deteriorates the profit margins. With lower profit margins, pressure on revenue growth increases to offset the lower margins and preserve bottom-line profitability.
- In the end, all that is left to do is examine the perceptions and attitudes the perpetuate the systems
In short, process improvement is not a linear and time taking exercise. Processes improvement is naturally messy because of the attitudes and behavior of the people who drive the capability of many processes. System Thinking can contribute to an understanding of the inter-relationships at the root of the “disarray” that causes fixes to go wrong and other involuntary consequences.