Causal Loop Diagramming
Causal loop diagrams are a great tool for analyzing the behavior of complex, dynamic systems and for presenting this behavior in a very compact way. Thus causal loop diagrams are an essential part of the business prototyping toolkit.
Our video-series on causal loop diagramming is now available as part of the business prototyping methodology course.
We live in a world full of dynamic complexity: within society, in companies, in our personal life. Little changes here may have unexpected consequences somewhere else; we are full of energy today, yet exhausted tomorrow. One day you are making steady progress towards a deadline with time to spare; the next day you find a serious bug in your product and you are suddenly struggling to ship on time.
All these are examples of what are known as dynamic systems.
Causal loop diagrams are a great tool for analyzing the behavior of such systems and for presenting this behavior in a very compact way. They are very easy to understand and thus are very useful in communicating about complex systems.
In our video series on causal loop diagramming we introduce the notation and provide step-by-step tutorial on how to model the dynamics of customer acquisition using causal loop diagrams. We will start sketching the diagrams using pencil and paper but also illustrate how build causal loop diagrams using a professional modelling environment, Stella Architect from isee systems.
The model will not only help you to understand causal loop diagramming better, it it is actually useful in its own right: after all, customer acquisition is one of the most important processes any business has and understanding the process well is important.
The diagram shown above is actually a causal loop diagram of a model that has been widely used in marketing since the 1970’s, the Bass diffusion model. The model was developed by Frank Bass in 1969 and is one of the most cited empirical generalizations in marketing – the rapid growth in online social networks has led to an increased use of the Bass diffusion model.
Make sure you check the Wikipedia article on the Bass diffusion model, it contains a lot of valuable information and further links.
Next to instructional videos this chapter of the Business Prototyping Methodology course also provides a number of interactive models for you to experiment with and to practice thinking in quantitative terms – the interactive models are available both online and as spreadsheets for you to download.
We’ve provided you with an example simulation cockpit below. It contains all the necessary levers for you to experiment with different strategies:
- Advertising Budget
- Persons reached per Advertising Euro spent
- Advertising Success Rate
- Word of Mouth Contact Rate
- Word of Mouth Success Rate
- Target Market Size
View the cockpit in a separate tab.