Are you feeling the limits to growth? Then it may be time to hollow out
January 11, 2015
Quickly: if 50kg of fertilizer can yield 1,000 kg of potatoes in a certain plot of land, how much potatoes can 100kg of fertilizer yield? If you said 2,000kg, well done! You have passed primary school math. However, you would not have done very well in systems mathematics. Would it surprise you that the answer might well be ZERO! 0 kg of potatoes! Why? Because you would have over fertilized the land and instead of providing it with more nutrients, you might have killed the ability of the soil to grow the potatoes.
Welcome to the real world of mathematics. Now, I know. You might be thinking that this question was unfair and that I had not given you all the information needed. But that was just the point. In the real world, the information is not “given” to you, you’d need to pry it from different aspects. But I digress. The issue here is not about information, or lack thereof; but of the fact that everything we do, we do within a system. And in a system, nothing is linear. When everything is linked to everything else, a tiny disturbance at one end, can magnify and cause a huge disruption at another. Such are the dynamics of a system. And as all systems go, there will be system archetypes.
A system archetype is simply a pattern of behaviour by the system. While the outcome of the system to a disturbance may not be accurately determined, the behaviours of a system are predictable. These are termed as system archetypes. In this article, I am not going to discuss all the different archetypes, only one: Limits to Growth.
In a system, there are reinforcing forces and balancing forces. Reinforcing forces makes the system accelerate and grow faster in exponential manner. Balancing forces kick in as the system moves faster and starts to impede further growth. The balancing forces increase in strength as the system grows, thereby causing the rate of growth to slow down until it grinds to a halt. In economics, we consider the point when the system starts to slow down as the point of diminishing returns.
So what has that got to do with business?
When you are in growth stage, you need to take in more resources, more people, more capital goods. These come in fast and furious as demand grows faster and faster. But then the market starts to mature, there are more competitors (see, the balancing forces) and your growth rate slows. Suddenly, you are unable to make in a month as you used to do in a week! You have been hit by the limits to growth archetype.
The solution? Start hollowing out. You will need to right-size your business. Reorganise your company so that you have just the right number of machines, for the right type of business. You might have to let people go; especially those who have not been able to catch up and who will have difficulty jumping onto the next wave. Or you could redeploy them into business units that are still experiencing rapid growth. Or you might have to move them to contract or on-demand work.
You might also have to identify new markets; and develop new products. In fact, by this time, it is actually rather late in starting to look for the next big thing. Yet, there is really no time like the present, and you’d be wise to try to sprint to the next innovation.
So, if you have been facing declining margins, if you have been having record sales and yet still struggling to make ends meet; if you have a burgeoning cost structure, you might just be experiencing the “limits to growth” archetype. Hollowing out may well be your solution.
If you need help in right-sizing your company, we have had ample experience doing just that for companies and we can certainly do that for you too! Simply drop me an email at firstname.lastname@example.org and we will get you going.