• Limits to growth



    I drove to my hometown, Guagua in Pampanga, on a Saturday. It took me less than two hours to get there from Alabang early morning but it took me four hours to get back late afternoon. Flashback the previous week, the Chamber of Automotive Manufacturers (CAMPI) reported increased September year-to-date sales of 261,370. Sales of CAMPI members alone is expected to ramp up to 350,000 for the year. This excludes sales of members of the Association of Vehicle Importers and Distributors (AVID). More than 50 percent of the sales are in Metro Manila. There are limits to (this) growth.

    The limits to growth, also known as limits to success combine growth with exogenous or endogenous limits. In the automotive case, the obvious exogenous limit is the infrastructure. The roads have to simply catch up. The systems archetype for limits to growth was formally identified in the book by Peter Senge, the Fifth Discipline (1990) but made its first prominent appearance in World Dynamics by Jay Forrester (1971) and then to the Limits of Growth by Meadows, Randers and Behrens (1972). The limits to growth were also the title of a (1972) book about a computer simulation of exponential economic and population growth with finite resource supplies.

    This was funded by the Volkswagen Foundation and commissioned by the Club of Rome. The book used the World3 model to simulate the consequence of interactions between the earth’s and human systems. It is almost like a sequel to the Malthusian theory of population but with hard computer models to predict the dire consequences of unfettered human expansion.

    The causal loop diagram is shown below:

    Real growth processes in business have inherent limits to growth. Identifying these limits can help avoid problems in the future whether the objective is increasing demand for a product that cannot be met or growing a business in a mature market when growth is desired but limited. It is important to find ways to increase the limit before pushing for more growth. Excessive growth in the face of a limit often leads to collapse or the rise of reputational risks that could lead to brand erosion.

    In the automotive case, if one were to pursue a growth strategy, one would have to establish multiple dealerships to capture market share. What would be the endogenous limits? An important consideration would be trained staff. To pursue this growth, it is important to identify and develop a pipeline of talents. This is essential for any business. It is also important to address this limit early on especially in a growing market because the increased interaction and reporting requirements would strain organizational capabilities. A system that fully utilizes capacity is inefficient and even in danger, because it does not have the reserve capacity to deal with surges. The balancing process is overwhelmed and cannot cope with abrupt demands.
    A recent report by the Diffusion Group, a broadcast research think tank concluded that original programing in television has peaked, if not close to peaking. Today’s content frenzy, they reported is nothing more than overfishing and will end just as predictably. This is the challenge of growing a business in a mature market.

    They explained that the TV audience is flat or declining and not as accessible as it seems. Adults in their US sample group watch TV 35 hours a week. This is probably equivalent to a sample profile of Philippine cable TV subscribers. Although this sample group watches this much TV, 80 percent of this is news, sports and re-runs which people already know and enjoy. That leaves the entertainment world with 7 hours per week to fight over.

    Throwing new TV shows at an audience already saturated with video choices may cause many potential viewers to simply shut down. The previous solution in the automotive case of training and deploying additional resources will not work in this case.

    In the mature market case, the limits to growth would be completely different. One has to develop technological or innovative breakthroughs that would significantly set you apart. The shows or the products that you have to develop have to be unique and should stand out above the rest in this crowded market. They also have to be delivered in the most convenient platforms or in the right packages. You will notice this shift in original programing, in anytime-anywhere scheduling or even in convenient sachet packaging. This is an approach for a product competing in a saturated market.

    We have to be aware of the limits to growth as businessmen, as citizens and responsible stewards of planet. This is the key to sustainability and survival.

    Ronald S. Goseco is EVP of the Financial Executives Institute and COO of IDI-Volkswagen, an Ayala company.


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