This paper develops a simple model of a manufacturing firm in which a successful productivity improvement program is implemented. The model is used to show how a successful improvement program can fail to significantly improve a firm's financial performance. It is argued that the potential rates of improvement in the firm's capabilities can differ substantially based on the intrinsic complexity of those processes. The spread of improvement skills and commitment to the effort is modeled as a diffusion process among employees in a given area. The allocation of resources to support that commitment is represented as a dynamic adjustment process. The formulation, with the assumption of locally rational decision rules, results in the differential rates of improvement in the capacity and demand generating areas of the firm. If excess capacity results, interactions with traditional accounting, pricing, and human resources policies can create unanticipated side effects that result in sub-standard performance of failure of the program. Policies for mitigating these problems are discussed and analyzed.

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Date created

• 1996

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• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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Collection

System Dynamic Society Records

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• This collection is part of the University Archives