Abstract for:The Growth-Profitability Efficacy Syndrome
Successfully implementing strategic plans for revenue growth has proven difficult due to unanticipated interactions of process constraints and managerial decision making. We develop an initial dynamic growth model that explicitly examines these interactions to investigate causes of the “growth-profitability efficacy syndrome,” a phenomenon in which the efficacy of the relationship between growth and profitability scales non-linearly in strategic planning. We observe that the decision to increase production capacity initially decreases productivity, triggering the syndrome and degrading profitable growth performance. This performance then increases as production capacity is brought online, until the next capacity growth. We explore different management policies to improve profitable growth performance.