Dynamic limits of growth

One of the common limits of business growth is the lack of strategy design or strategic decision-making. It is usually caused by the leaders´ day-to-day workload, that keeps them focused on “events” instead of the causes of the problems. Being able to make successful business decisions only requires the understanding of why the business behaves in the way it does. This is possible through Systems Thinking, which allows the visualization of business behaviour and identifies the leverage points to improve with minimum effort.

This chart shows a simplified example of how the market acquisition would evolve over time in a hypothetical business situation where leaders are overloaded with work. The loop on the left shows the direct relationship between results and market acquisition. The bigger the results, the bigger the effort the business has to make to get a greater market share, and the greater the market share the bigger the results. This reinforced feedback loop provokes an exponential growth or decrease over time. But no system can grow forever and, if nothing else affects this reinforced feedback loop, the size of the market would limit its growth.

But results are influenced by the leaders´ ability to make sense of their business and its environment, designing the right strategic decisions to keep the profit up. These strategic decisions could be internal (supply chain, resources allocation, talent retention, etc) or external (suppliers, investment, marketing strategy, etc.). Here, time is the limited resource. Every action or decision should be made at a determined time to run the business smoothly. Day-to-day workload puts pressure on leaders´ disposal time and to more results, more actions to keep them up, and more actions taken, mean less available time to design a business strategy.

This situation explains the gap between short-term and long-term goals. The more we focus on short-term goals, the more the deviation to achieving the long-term goals. It creates layers of complexity in managing the business because, usually, we face “events” as fundamental problems but they are just symptoms of structural and deeper issues. For instance, imagine the leader of a successful restaurant who is not aware of the interdependencies between results, market acquisition, and strategy design. He or she has started an expansion through franchises to replicate the original business in various locations, but franchises weren´t successful because of mismanagement. The problem here is that the nature of the business changed from a running a restaurant to scale production, training, and management. Focusing on short-term goals, running the day-to-day restaurant work, prevented the manager from thinking strategically, focusing on the left feedback loop without considering the right one.

This lack of strategic thinking limits the growth of the business over time. The chart shows how the business grows in the first stage due to the market acquisition. It is the lack of strategic decisions conditioned by the leaders´ workload and the time limitation which stops growth. As limits affect results, market acquisition slows down, creating a vicious circle that decreases business results and its capacity to operate.

Strategy design can be easy if it is focused on understanding the business as a system. Its behaviour is caused by the structure of the business and the relationships among its elements, not by isolated events or obscure forces outside the business.

Systems Thinking is the right tool to make sense of SMEs´ business environment. It reduces business complexity allowing leaders to think about their business in a simple and straightforward way.

An easy strategy design gives you the chance to create a successful future for your business.

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