Study Guide: Chapter 7 — The Principle of Leverage

Core Idea

Real leverage is small, well-focused, and usually invisible to nonsystemic thinking, which fixates on the loudest symptom. WonderTech shows "growth and underinvestment" — limits to growth fused with shifting the burden — strangling a company with a genuine market lock.

Key Terms

Growth and underinvestment · eroding standard · economy of means · limits to growth (recap) · shifting the burden (recap)

Case Summary

WonderTech doubles sales for 3 years, delivery time drifts from 8 to 14+ weeks, management pushes sales harder instead of capacity, boom-bust repeats for a decade, ends in bankruptcy. Simulation holding the 8-week standard fixed shows sales growing rapidly throughout. Digital Equipment Corp's opposite case: renting a full floor ahead of need, filled productively within six months.

Application Checklist

• [ ] Check whether a service/quality standard has quietly eroded and been accepted as the new normal
• [ ] Before "pushing sales/output harder," check whether the real constraint is capacity/quality, not effort
• [ ] Compare capacity plans against potential demand ("if we were operating at our best"), not just current orders

Self-Test

1. Why did pushing the sales force harder make WonderTech's underlying problem worse, not better?
2. What delay hid the link between delivery time and lost sales from WonderTech's management?
3. How does "growth and underinvestment" combine limits to growth and shifting the burden?