Strategic Modelling and Business Dynamics: A Feedback Systems Approach

6.5. Conclusion

Dynamic processes of adoption and diffusion are widespread. As we have seen, the underlying feedback structure involves at least one reinforcing feedback loop that generates growth and at least one balancing feedback loop that exerts a limit to growth. Business and industry offer many variations on this basic feedback structure that apply not only to the adoption of new products and services but also to the adoption of new technologies such as hybrid engines and hydrogen fuel cells (Struben, 2006). In society the same (or very similar) structure applies to the spread of rumours and new ideas and to the spread of diseases such as HIV/AIDS (Dangerfield, Fang & Roberts, 2001) and avian flu.

The transition from growth to saturation is often of strategic importance to organisations but can be hard to detect in practice. Nothing grows forever, but exponential growth that gradually encounters a limit (through a non-linear saturation effect) can easily create an illusion of sustainable growth. A common result is that firms over-expand capacity and suffer a sharp decline in profitability as revenue levels off while costs continue to rise. In these situations, awareness of the underlying feedback structure can be useful in recognising the early warning signs of stagnation and implementing changes that restore growth or pre-emptively cut costs. Organisations facing suspected limits to growth should beware of doing more of what worked in the past. For example, as we saw in ...