Mapping a Business System
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When an element of a system indirectly influences itself, the portion of the system involved is called a feedback loop or a causal loop. Causal loop diagram presents relationships that are difficult to verbally describe be- cause normal language presents interrelations in linear cause-and-effect chains, while the diagram shows that in the actual system there are circular chains of cause-and-effect (Kim, 1992, pp.5-6).
We are going to be discussing a car dealership organization which has a causal loop embedded in their system. This car dealership has been growing continuously for last few years. They started out as a small scale business but they started hiring more salesmen who will pitch the idea to public and they started advertising aggressively to target everyone in the town. However recently they have noticed that the sales are fluctuating from month to month, mostly flat and sometime even declining. The primary system is like this: # of cars sold: More cars the dealership sells, higher the revenue they generate and given the same profit margin, higher the profit. Profit: Higher the profit, the more available cash they have that, they can afford to spend on advertising. Which in generate knowledge and appeal to the dealership and which will reflect in the number of cars sold.
However, with time they figured the problem was that there are only a limited number of people who needed a new car as the cars now last longer and due to bad economy and other factor, they didnt need to buy it soon. And most of the people now own a car so there was a limiting factor introduced to this growing cycle.