Repeated Overshoot and Collapse Behavior : An Example from the Petroleum Industry

Abstract

Repeated overshoot and collapse behavior is commonly observed both in manufacturing and service industries, as well as in other social and ecological systems. This paper uses an example from the petroleum industry to illustrate a causal structure that can give rise to such behavior. Increasing business unit performance repeatedly erodes and overshoots the capacity of the business to continue to produce increasing performance. When business unit performance falls due to eroded capacity, the capacity gradually recovers, eventually enabling a new spurt of business growth. Changing the capacity acquisition policy shifts business performance behavior from repeated overshoot and collapse to desired exponential growth. Model extensions, including balancing capacity acquisition against the risk of having too much capacity in a market downturn, are discussed.