Growth and Underinvestment

This is a systems archetype that describes how underinvesting in capacity can hinder growth, and it can be temping to use the resulting fall in performance to justify the underinvestment. This results in a self-fulfilling prophecy that looks to those responsible for it like good planning, but was really a missed opportunity. This pattern is unsustainable because eventually a competitor will come along who is willing to invest in capacity to meet this need more broadly and efficiently, and will outcompete you.

Example

For an example, consider a company that manufactures widgets. Suddenly, demand for widgets rises but the CEO is hesitant to hire more people, thinking the increase in demand may be temporary. Quality may suffer because the workers are stretched so thin. The order backlog might grow because the company can’t meet the demand and customers have to wait longer to receive the product. For either or both reasons, customer satisfaction falls and demand drops as they switch to other vendors. A naive CEO might pat themselves on the back for not overreacting to a temporary demand increase, when in fact their actions have hurt the company in the long-term. Perniciously, they’ll also be more likely to make this same decision in the future, remembering how it seemed to work out the last time.

Delays can place a large role here as well. Alternatively, the CEO might choose to invest in capacity but it takes so long to ramp up that the company fails to capture the increased demand before a competitor does. They might then see their investment as a strategic mistake, when in fact it was an appropriate strategy executed badly. In this case as well, they’ll be less likely to invest in the future.

To illustrate the effect of delays, run these two Loopy simulations. In the first, the perceived need to invest in capacity quickly results in increased capacity and reduced delivery delays, so customer orders remain high (click/tap the up arrow above “Customer Orders” to kick off an order):

While in the second, it takes longer for the perceived need to invest to lead to the necessary investments, and they take longer to have the desired effect on delivery delays, leading customer orders to fall off:

Strategies

• To address this, it’s important to understand what is driving your growth and how temporary it is like to be.
• Proactively invest in making it easier and faster to increase capacity. For example, build a network that makes it easier to hire, or make arrangements to lease needed equipment when circumstances call for it.