The growth of service and the service of growth: Using system dynamics to understand service quality and capital allocation

Abstract

This paper discusses how system dynamics can help understand a service company's growth potential as well as its limitations. The model discussed here is being built for a European restaurant chain which grew from nothing to over 200 outlets in less than a decade. The model highlights two conflicting pressures: the need to spend on meeting customer expectations and hence build sales versus the need to meet profit targets from headquarters and thus win the capital to fund expansion. We use the model to study how management policies affect the achievable rate of growth. The issues discussed are relevant to any service based company facing the problem of maintaining and improving service quality against the pressure of performance expectations set by shareholders or corporate owners. We also briefly discuss the benefit of using such models for executive training. The model will be used as a basis for educating the emerging generation of managers who will have to cope with the tensions described in the model.