Strategic Modelling and Business Dynamics: A Feedback Systems Approach

Chapter 7. Managing Business Growth

• A Conceptual Model of Market Growth and Capital Investment

• Formulation Guidelines for Portraying Feedback Structure

• An Information Feedback View of Management and Policy

• Policy Structure and Formulations for Sales Growth

• Policy Structure and Formulations for Limits to Sales Growth

• Policy Structure and Formulations for Capital Investment

• Simulation Experiments

• Redesign of the Investment Policy

• Policy Design, Growth and Dynamic Complexity

• Conclusion

• Appendix – Gain of a Reinforcing Loop

The limiting conditions on growth in the previous chapter were largely external to the firm or at least somewhat beyond the firm's control. However, some of the most interesting constraints on business growth are internal to the firm. They are self-imposed or self-induced limits that arise from the way that an organisation expands its resources in marketing, distribution and manufacturing. Specifically, managerial policies in different functional areas, though intended to stimulate growth, may instead create hidden conflicts that undermine growth and lead to premature stagnation or even decline in a promising market. This kind of self-fulfilling prophecy stems from a coordination problem known as 'growth and underinvestment', common in many firms and industries (Senge, 1990, Chapter 7).

Figure 7.1 shows typical feedback structure that lies behind growth and underinvestment. There are four interacting feedback loops, making this the most dynamically complex situation we have ...