Chapter 7: The Principle of Leverage Senge, Chapter 7 THE FIFTH DISCIPLINE

WonderTech: The Chapter 7 Scenario A lesson in Growth and Underinvestment What Senge gets out of this is the Growth and Underinvestment Archetype A combination of variants of the Limits to Growth Archetype and the Shifting the Burden Archetype 1 June 2002

The WonderTech Scenario WonderTech continues to invest in the growth side of the process. Sales grow but then plateau. Management puts more sales people into the field. Offers more incentives to sales force. But because of long lead times, customers wane. “Yes you have a great product, but you can’t deliver on your lead time promise of eight weeks. We know; we’ve heard from your other customers.” In fact, the company relaxed its lead-time standard out to twelve to sixteen weeks because of insufficient capacity. 1 June 2002

Prepared by James R. Burns The Reinforcing Loop 1 June 2002 Prepared by James R. Burns

The Balancing Loop: Following the LTG Archetype 1 June 2002 Prepared by James R. Burns

Prepared by James R. Burns The Growth Curve: Page 117 1 June 2002 Prepared by James R. Burns

Prepared by James R. Burns What’s happened? WT’s management did not pay much attention to their delivery service. They mainly tracked sales, profits, market share and return on investment. WT’s managers waited until demand fell off before getting concerned about delivery times. But this is too late. The slow delivery time has already begun to correct itself. The management was not very concerned about the relaxed delivery time standard of eight weeks. 1 June 2002 Prepared by James R. Burns

The WonderTech Scenario The firm decides to build a new manufacturing facility. But the facility comes on line at a time when sales are declining and lead times are coming back to the eight-week standard. Of every 10 startup companies, 5 will disappear within five years, only 4 survive into their tenth year and only 3 into their fifteenth year. 1 June 2002 Prepared by James R. Burns

The Shifting the Burden Component 1 June 2002 Prepared by James R. Burns

Put the whole thing together 1 June 2002 Prepared by James R. Burns

Comments on The Senge Methodology Sees many problems as conforming to a finite number of “archetypes” Formulates models based on combinations of the archetypes Addresses problem-driven situations What about situations and systems that are technology-driven, dynamics-driven, exogenously-driven, anything but problem-driven 1 June 2002 Prepared by James R. Burns

More Comments on the Senge Methodology But does this become sufficiently general to accommodate all dynamical “scenarios and situations”? It is difficult to translate his archetypes and causal models into running system dynamics simulations A lot of variables (RATE VARIABLES, specifically) get left out in terms of connections 1 June 2002 Prepared by James R. Burns

More Comments on the Senge Methodology The focus is on characterizing the dynamics, not on how to capture that in terms of stocks, flows and information paths He doesn’t label his edges with “+” or “-” signs 1 June 2002 Prepared by James R. Burns

Copyright C 2002 by James R. Burns All rights reserved world-wide. CLEAR Project Steering Committee members have a right to use these slides in their presentations. However, they do not have the right to remove this copyright or to remove the “prepared by….” footnote that appears at the bottom of each slide. 1 June 2002 Prepared by James R. Burns Prepared by James R. Burns