The growth and underinvestment archetype is one of the common system archetype patterns defined as part of the system dynamics discipline. System dynamics is an approach which strives to understand, describe and optimize nonlinear behaviors of complex systems over time, using tools such as feedback loops in order to find a leverage point of the system. As part of this discipline, several commonly found patterns of system behavior were found, named and described in detail. The Growth and Underinvestment Archetype is one of such patterns.
Elements The system described in the Growth and Underinvestment Archetype consists of three feedback loops. Each feedback loop can be one of two types:
Reinforcing loop A reinforcing loop is a type of a feedback loop, where a positive increase of variable A causes an increase in variable B, which then in turn causes a positive increase in variable A. The behavior of such system in time is an exponential increase in both variables A and B. As an example, consider the behavior of a long-term bank savings account. As your savings accumulate, the more interest per time period you receive, further increasing the balance on your savings account. This is the crowning principle of retirement planning schemes, such as the American 401k pension system. In many cases however, there is a balancing loop to prevent the reinforcing behavior from occurring indefinitely. Balancing loop A balancing loop is a type of a feedback loop, where a positive increase of variable A causes a decrease in variable B, which in turn causes a positive increase in variable A. The behavior of such a system leads to the system finding stable state over time. Consider the behavior of a thermostat. The thermostat is a very simple device in its core. If the measured temperature exceeds a certain preconfigured value, the heating is turned off. Otherwise the heating is turned on. The heating in turn influences the temperature, forcing the thermostat to reevaluate its behavior periodically. Since there is a delay in the system (it takes a while for the room to heat up after the heating has been turned on), the temperature in the room will oscillate around the preconfigured value. This happens because when the heating is turned on, it doesn’t have an immediate effect (the body emitting heat must warm up first), causing the temperature to fall below desired level. The same effect is in play when the temperature exceeds the desired value and the heating is turned off, since it takes a while for the heating body to cool down, causing further undesired temperature increases. This behavior could be potentially mitigated by setting two separate temperature thresholds, a lower one as a signal for the heating to activate and a higher one as a signal for the heating to deactivate.
Reinforcing loop The reinforcing loop consists of a growing action, such as units of a specific product shipped to a customer, and a current state, such as current demand for a specific product. The growing action causes a positive increase in the current state. The increase of the current state then in turn causes a positive increase of the growing action, thereby creating the reinforcing characteristic of the loop. As discussed above, this reinforcing loop would have exponential behavior in time, if its growth wouldn’t be bound by the combination of the two balancing loops present in the system.
First balancing loop The first balancing loop is directly connected to the reinforcing loop via the current state variable. The first balancing loop consists of a current state and a slowing action (for example exceeding capacity limits). The growth of the current state causes the growth of the slowing action. The growth of the slowing action in turn reduces the current state, thereby creating a balancing loop. One example of this balancing loop is a situation where a number of units manufactured is increasing (current state), which causes the manufacturing utilization to increase (end eventually exceed capacity). This will make each additional unit of manufacturing more expensive, reducing the growth in units manufacture. One can note that a rubber-banding effect occurs, since the more units are manufactured, the more expensive the manufacturing is. This loop taken in isolation would eventually find a stable state, independently of its beginning state.
Second balancing loop The second balancing loop is what differentiates the Growth and Underinvestment Archetype from other archetypes. It is directly connected to the first balancing loop via the slowing action variable. The balancing loop consists of several elements:
A slowing action A performance standard – represents a pressure on upholding a certain standard of the system's output (e.g. the manufactured product) A perceived need for investment – the first step toward an actual investment An investment A delay in investment – represents the time needed for the system to go from a perception of an investment need to actually making the investment. In the real world this element is often caused by hesitation of management to invest in additional capacity. First, the growth of the slowing action causes growth of the perceived need for investment (e.g. building additional manufacturing capacity). Another factor that can positively contribute to the perceived need to invest is the failure to uphold the performance standard (for example manufacturing error rate). The perceived need to invest positively translates into actually making the investment. The investment made then negatively influences the slowing action (e.g. removal of capacity limits). The last element of the second balancing loop is the delay in investment, which happens for a variety of reasons, for example hesitation of management to invest in additional capacity.
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