System Archetype 10: Growth and Underinvestment

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Aniket Deolikar
Consultant, India

System Archetype 10: Growth and Underinvestment

Description of Growth and Underinvestment

One of the System Archetypes is "Growth and Underinvestment". This archetype is based upon the archetype Limits to Growth which tells us to invest in a firm's resources and capabilities to grow. When growing action is there, it increases the demand, but the firm's performance level acts as a limit to that growth. So similar to limits to growth, if the performance level is the limiting factor, it will eventually stop to grow further.
The growth and underinvestment archetype tells us how the performance standard is related to investment and investment is related to the growth of the firm. If the performance standards are low, then it may lead to a low interest in the need to invest as people may feel that if currently we are not making enough profits, then why to throw away the money instead of investing it somewhere else. Most of the time, performance standards are lowered to justify the underinvestment. Which causes people to set lower goals which lead to lower expectations.

Early Warning Symptoms of Growth and Underinvestment

You may hear people say," We were growing very fast, but as of now we need to save our resources as we don't want to over-invest". Sometimes we try to find excuses for not investing. This is when you should know you may face growth and underinvestment archetype in near future.

Structure of Growth and Underinvestment


Management Principle (What to do?)

If you notice that there can be a growth possibility in a department, then build the capacity in advance as the demand is going to increase. You must focus on the long term and see if the performance standards are sufficient to accommodate the additional growth, if not then invest in getting more resources that would accommodate the demand. Estimating the growth is important because the delay in the system may cause a sudden demand in the future and you should be ready for it. Doing this will ensure that the growth and investment go hand in hand and the company flourishes.

Business Example of Growth and Underinvestment

An airline company is unable to improve service capacity to keep up with the increasing demand. Instead of training and hiring more staff, they believe they can handle the demand at the current capacity. But due to increased demand, the workload on the current people increases and it affects their performance, thus making customers increasingly dissatisfied. The service quality keeps deteriorating and fewer and fewer people prefer to fly with our airlines as competitors are providing better service.

Real-Life Example of Growth and Underinvestment

Nokia was a world leader in selling mobile phones, but they did not invest in technology. They had the market share and the reputation of a great mobile company. So, investing more in research and product development might have helped them to remain the market leader. But they underinvested and drastically went down from being the market leader in phones to being just a small player.

⇨ Feel free to add more management situations which you might have faced and what you did to tackle them...

Sources:
Peter Senge, "The Fifth Discipline Appendix 2: Systems Archetypes", 1990.
William Braun, "The System Archetypes", February 2002

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