Strategic Modelling and Business Dynamics: A Feedback Systems Approach

5.2. Employment and Production Instability – Puzzling Performance Over Time

To illustrate the modelling process, consider the following dynamic puzzle facing a manufacturer of major household appliances. The company has been experiencing fluctuating employment and production in its refrigerator division. The employment level has varied over a ratio of about two:one with peak-to-peak intervals of two years. Conventional event-oriented thinking might suggest that economic upturns and downturns are responsible for this costly and disruptive behaviour over time. However, the evidence in this case is that the economy has been stable. Something else is going on, but what? Feedback systems thinking will often (though not always) look to internal factors, the way the division is organised, coordinated and managed, to explain dynamic behaviour. Interactions among the firm's operating policies and the practical constraints of production may in themselves explain the puzzling behaviour and also hold the key to future improvements.

The situation is expressed dynamically in Figure 5.5. There are two time charts, both with a timescale of three years. The workforce is on a scale of 100–300 workers and production is on a scale from 0–2 000 refrigerators per week. Both trajectories are strongly cyclical. How could these dynamics arise? A feedback systems thinker knows that a balancing loop with delay is capable of generating such oscillatory behaviour. That is a useful structural clue, but where ...