Limits to Growth ver2
Limits to growth or limits to success is one of the system archetypes. This archetype is useful for gaining insight into patterns of behavior, which shows that growth cannot be continuous, there are always limits that eventually appear. This idea was introduced in the book “Limits to growth” by Donella Meadows, Dennis Meadows, Jørgen Randers and William Behrens in 1972.
Scientists from all over the world are worried about overpopulation of our planet. It is clear right now that resources of the planet are limited, and some people already feel lack of them. The question is for how long our planet will be able to feed exponentially growing popularity. Exactly this situation describes the book “Limits to growth”, based on five elements – population, food production, industrialization, pollution and consumption of non-renewable natural resources. All these five elements have exponential growth. To understand when the factor of limited resources will stop this growth the archetype Limits to growth is perfectly suitable.
Limits to growth archetype is system with reinforcing growth loops. The archetype is combination of two basic structures: reinforcing loop and balancing loop.
Reinforcing loop shows action and effect of its action. It is also known as positive feedback loop. This simple structure occurs in isolation from additional influences. The action from reinforcing loop produces result, which has influence on the same action. For example, number of births per year is growing and the population is growing too. If population is growing, number of birth per year is also growing. This cycle is continuous.
Balancing loop has also name of negative or goal-seeking loop. It represents the gap between current state and desired state. The current state is the way things are right now, the desire state is goal or objective. That loop got its name - goal-seeking. It represents the situation, when there is a goal and efforts are taken to achieve it. The gap is a motivation for action and the size of gap shows the tendency to produce action. When gap is 0, there is no more motivation for action. Same as reinforcing loop, balancing loop occurs in isolation from additional influences. For example, to fulfil pool 100 l of water is necessary (desire state). The current level is 10 l (current state). The gap is 90 l. Next action is to add 90 l of water, then the current state will be 100 l, gap will become 0. The goal will be achieved.
Limits to growth archetype
The limits to growth structure consists, as it was said above, of a reinforcing loop, the growth of which, after successful performance, is breaking by balancing loop. The limits to growth shows that there is no unrestricted positive reinforcing dynamic. There are always limits that will make influence on growth. From the reinforcing loop the growing action adds to result, which then adds to growing action. At the same time this loop is interacting with balancing loop. Balancing loop operating with slowing action. The slowing action then deduct from the result.
Behaviour over time
At the beginning, it is necessary to make effort to start the process of growth. That is why in initial stage the rate of effort is higher than performance. But it does not last long, soon it effects success, perhaps with exponential growth. However, in long term perspective the exponential growth is not continuous. As the limits are approached, the performance starts to lose its effectiveness and the rate goes down. At the end, even if the effort is still growing, the growth of performance rate stops and then reverses. Without eliminating limits, the system will be collapsed. The archetype shows that rapid success in short perspective not always lead to long-term success. By creating diagrams and mapping situation with architype, the risk points can be determined in advanced before they become a threat.
Even if the limit to growth systems at the end slow down any growth or even lead to collapse, there are some steps how to eliminate this destructive result. There are limits in the system, that need to be removed before continuing to drive the process of growth. To remove these limits or at least to minimize the effect, links between the growth and limiting factors should be identified to manage the balance between them. Always better to be proactive and identify limiting factors before they start to affect the process of growth. Seven Action Steps 
- Identify the growth engines.
- Determine the doubling time of those processes.
- Identify potential limits and balancing loops
- Determine change required to deal effectively with the limits identified.
- Assess the time needed to change. Is there a discrepancy between the doubling time and the changes required to support growth?
- Balance the growth. Identify strategies for achieving system balance.
- Reevaluate the growth strategy. Continuously challenge assumptions
In daily business life the limit to growth archetype can be also useful. It reminds to take a break and examine why there is no growth, when extra effort is added. Probably, in this situation there are some limits that pushing the result back against the effort. Usually, there are two sources from where counter-force can come: from external environment or from part of organization, that is not under manager control. Managers always have to be proactive to see risks and encourage people to make changes, when it is necessary. And by locating limits to growth and reducing or removing them, managers may increase their own performance and performance of the whole team.
There is a lake full of fish, that was discovered by fisherman. Fisherman is surprised about the place and starts fishing. Of course, he cannot keep it secret. He would like to boast in front of his friends. Next day already number of fishermen increased and amount of fish that was taken out of lake is higher. Every day there were more and more fishermen, which caused overfishing. At the end lake is empty. The fish population got collapsed.
2. Word of mouth
One of the most effective advertisement is “word of mouth”. When one satisfied customer tells his friend about the company or product and attract these friends as further customers. We can show growth of customers using limits to growths archetype. We begin with one customer that had positive experience with the product. This customer becomes satisfied customer and tells his three friends about the product. They also decide to buy the product. The demand is rising. The number of customers now 4. And let’s assume that all of them are satisfied with the product and also shared the information among their friends. In reinforcing loop number of customer adds to number of satisfied customer. Number of satisfied customer adds to “word of mouth” and “word of mouth” adds to demand. This reinforcing loop drives the growth of customers While the reinforcing loop drives the increase in number of customer, number of customer is subtracting from the addressable market. The addressable market has dependency on market size, that company has right now. Continue to interact with each other about the product customers make addressable market smaller and yet to a smaller and smaller extent as the addressable market decreases. At some point the decrease in addressable market will be such that there will no longer be a growth in demand. At this point the addressable market has been addressed, and word of mouth will not be useful anymore.
Now let us take a look at real situation of one company. A company was one of the first companies who understood how popular smartphones can be. Even if A was not the first company who invented smartphones, it was first company which smartphones became popular. The invention of the smartphone is often attributed to A, but they actually made the smartphone something mainstream due to the company's popularity in the world and they made popular the way that people interact with smartphones.
Then smartphone demand increased, and new competitors entered market with their own new models of smartphones. Of course, it had to make pressure on prices. Eventually, prices would be driven down. And A used its favourite strategy – product branding. Due to branding effect they can keep premium prices with some investments in product features.
- In the middle of the lake there is a beautiful island with forest. People from villages around usually go there for picnics. During one dry summer Mr. Smith left his cigarette with spark and fire started. Please create the diagram to illustrate this situation, if you know that there is no rain in the forecast and people have no resources for firefighting.
- How to address the situation from the second example “word of mouth” and make effective strategy?
- Limits of Growth is used when system has limited resources. This is example of countries with oil-based economy. Economy is growing while country has oil and may collapse without cheap oil or without demand on it. Please illustrate situation with two limits: oil availability and oil demand
1. When fire starts, it will take more and more territory until whole island will be burnt.
2. To make effective strategy management should work with limitation factor, which is in our case market size. To make market size lager, company should change product or add new product/service to force people to use again word of mouth and say again something new about the company, product or services.
3. Oil based economy
- MILDEOVÁ, Stanislava. Systémová dynamika: tvorba modelu. Vyd. 1. Praha: Oeconomica, 2011. 150 s. ISBN 978-80-245-1842-8.
- William Braun “The System Archetypes” 2002 https://www.albany.edu/faculty/gpr/PAD724/724WebArticles/sys_archetypes.pdf
- Donella Meadows, Dennis Meadows, Jørgen Randers and William Behrens “Limits to growth” Universe books 1972. 221 p. ISBN 0-87663-165-0
- Jenny Zhou "Exponential Business Growth: A Smartphone Case Study" https://systemsandus.com/2014/07/18/exponential-business-growth-a-smartphone-case-study/