A company with a new innovative product, well received by the market, generates increased sales. The sales, if the company believes they are a result of the product innovations, result in additional r & d investment. And, the r & d investments should then result in additional product innovations, or at least that's what the hope was for the investment. The new product innovations should then add even further to sales supporting the company's growth, and further r&d investment. This description represents a Reinforcing Loop (R1) as is depicted in Fig. 1. For information on the diagram notation please refer to the Causal Loop Diagram page.
This is the type of virtuous Reinforcing Loop every company is probably looking for, though we know from studying Systems that nothing grows forever. Growth quite often rapidly runs into a limit somewhere. As sales grow, and the company grows, the pressure on management to coordinate the operations of the organization also grows. Sooner or later this pressure will run up against the management capacity of the organization. When this happens customer service quality is likely to suffer, which will lead directly to a decline in customer satisfaction. The decline in customer satisfaction will, in time, impact the growth of sales, and may even cause it to decline. This Limits to Growth is depicted as Balancing Loop (B2) in Fig. 2.
Note that r & d investment to develop product innovations is one of several avenues to improve sales, and declining service quality and customer satisfaction represent only two of several sources of sales decline.
- Diagram created with MapSys
- Systems Thinking: The Essence of AND
- Kim, Daniel and Anderson, Virginia (1998) System Archetype Basics: From Story to Structure. Pegasus Communications
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