The paper develops insights into how the feedback structure of process improvement presents challenges to people in a system facing the dual pressure to produce output and to build capability.  To explore this phenomenon, the paper constructs a dynamic mathematical model building on the feedback structure presented in Repenning and Sterman’s (2002) study of two business process improvement initiatives.  The model formalizes the critical interaction between first- and second-order improvements as options for governing production.  Analytical results characterize the optimal tradeoff between working harder and working smarter.  However, practitioners generally make choices lacking adequate knowledge of the parameter space to find the optimum.  Results demonstrate tipping points in the dynamics of process improvement and identify perverse behaviors that are likely to thwart the good intentions of practitioners.  By moving from causal loops to a simulating model, the paper also provides an example of how formal modeling yields more nuanced understanding.