Chapter 1: The foundation of the system - "Stock, flow, feedback"

Understand the dynamics of system behavior

"Stock" is the basis of all systems. The so-called inventory refers to system elements that can be observed, sensed, counted and measured at any moment. As its name suggests, in the system, inventory is the storage amount, quantity or accumulation of materials and information over a period of time. It could be the water in a bathtub, the population, the books in a bookstore, the size of trees, the money in a bank, etc. However, stock does not have to be material. Your self-confidence, good reputation in your circle of friends, or your beautiful hopes for the world, etc., can all be stock.

System thinking: Stock is a historical record of changes in the system.

The stock will continue to change over time, and what causes it to change is "flow". The so-called flow refers to the situation that changes over a period of time. For example, the amount of water poured into or out of the bathtub, the number of births or deaths, the number of purchases or sales, growth or decline, deposits or withdrawals, success or failure, etc.

Now, let’s think again about that bathtub filled with water. We pulled the plug again, but this time, when the tub was half full, we turned on the faucet and let the water flow into the tub at the same rate as the water flowing out. What will happen? Quite simply, the water level in the bathtub will remain constant, that is, it will be in a state of dynamic equilibrium.

●As long as the sum of all inflows exceeds the sum of outflows, the level of the stock will rise.

●As long as the sum of all outflows exceeds the sum of inflows, the level of the stock will fall.

●If the sum of all outflows is equal to the sum of inflows, the level of the stock will remain unchanged; in fact, in any case, when the inflows and outflows of the system are the same, the system It is in a state of dynamic equilibrium.

Systematic thinking: To increase the stock, it can be achieved by increasing the inflow rate or by reducing the outflow rate. Please note that there is not just one way to fill a tub. Similarly, you can increase the size of your company by hiring more people, or you can reduce the turnover or rate of employee termination; the costs of these two strategies can vary widely. A country's wealth can be increased by investing in more factories and machinery, or it can reduce the wear, tear, breakdown, or downtime of factories and machinery; generally speaking, the latter is likely to be cheaper.

Systematic thinking: Stocks generally change slowly, even when inflows or outflows change suddenly. Therefore, stocks can act as delays, caches, or shock absorbers in the system. Therefore, it can be said that changes in the stock set the speed of dynamic changes in the system. The progress of industrialization cannot exceed the speed of building factories and machinery and equipment, nor can it exceed the speed of training qualified workers to run these factories and control these machinery and equipment. Forests don't grow overnight. Once contaminants are deposited in groundwater, they can only be eliminated slowly as the groundwater is renewed, which may take decades or even centuries. In a system, time lags due to slow changes in stocks can cause problems, and at the same time, they are also the source of system stability.

Regarding the role of stocks in the system, there is a more important principle, that is: due to the existence of stocks, inflows and outflows can be independent of each other and do not have to remain constant within a certain period of time. Balance or consistency. This principle leads us directly to the concept of feedback.

System thinking: Due to the existence of stocks, inflows and outflows can be separated, independent of each other, and temporarily unbalanced. It is precisely because of the existence of these stocks that even if certain flows fluctuate greatly in the short term, people's lives can still maintain a certain degree of certainty, continuity, and predictability. In fact, humans have invented thousands of stock-maintenance mechanisms to ensure that inflows and outflows are independent and stable.

If the stock grows rapidly, drops sharply, or is maintained within a certain range regardless of changes in surrounding conditions, we can say with certainty that there is a control mechanism in the system. And it's working. In other words, if you see a behavior persisting for a period of time, there must be a mechanism at work that causes that behavior. This mechanism of action operates through a feedback loop. Therefore, consistent patterns of behavior over time are the first clue that a feedback loop exists. A feedback loop is formed when changes in a certain stock affect its associated inflows or outflows. Feedback loops can be very simple and direct. Imagine your savings account. Suppose the bank agrees with you to pay you interest in the form of compound interest (also known as "interest compounding"). The amount of interest depends on the balance in your account and the current interest rate. In this case, the balance (stock) in your account will affect the amount of interest, and interest, as an inflow, will also increase the account balance in the next year. According to this algorithm, the interest the bank pays you every year is not a fixed value, but will change with the increase or decrease in the account balance in the previous year. This creates a simple feedback loop.

System thinking: A feedback loop is a closed chain of cause and effect, starting from a certain stock and going through a series of decisions, rules, physical laws or actions according to the current situation of the stock, affecting the The flows associated with the stock, in turn, change the stock.

Feedback loops may cause the stock level to remain within a certain range, or they may cause the stock to grow or decrease. In either case, as long as the size of the stock itself changes, so will the associated inflows or outflows. Regardless of who or how the stock level is monitored, once there is a change in the stock level, the system will initiate a correction process that adjusts the rate of inflows or outflows (or possibly both at the same time), thus changing the level of the stock. This in turn generates a feedback signal that again initiates a control action, creating a chain reaction.

Not all systems have feedback loops. Some systems are relatively simple, open-ended chains composed of several stocks and flows. They may be affected by external factors, but the level of the stocks on the chain does not affect its flows. More common, however, are systems that include feedback loops, which are often simpler and more surprising.