URAYAN, Djohamie Denise V.

September 06, 2019

118-0040 – Block 23 BME 14

Reflection No. 6: THE PRINCIPLE OF LEVERAGE

As a new business in the 1960s, WonderTech made its way to top but rapidly slow down
because its management failed to recognize the root cause of the problem. At first,
WonderTech's products were on a high demand. People wanted and ordered, because of its
quality features. The number of orders grew which means more revenues. Increased sales also
mean hiring more sales force to advertise its products. Thus, increased sales force means more
orders and higher demand from consumers. This process represents the reinforcing process of
the limits to growth structure of WonderTech's story. On the other hand, this amplifying process
will gradually slow down and something would stabilize its growing sales. As the number of
orders increases, the size of the backlog also increases because of the long delivery time of the
products. This is probably the root cause of the problem which gave top management
confidence because they thought that customers are willing to wait and don't care about the
long delivery time. There must be something that causes delay why there is a long delivery time,
and that is, the company lacked facilities to utilize in the production process. This, in turn,
causes sales to go down.
The shifting the burden structure is also applicable to the story. As stated earlier, the
problem symptom is the long delivery time. To improve the delivery time, the fundamental
solution formulated by the company is to add facilities. Of course, in building new facilities, there
will be a delay because it takes time. The company actually didn't take an action or a
symptomatic solution. The customers solved the problem by just walking away or cancelling
their orders. The problem here is, the management failed to address the problem, what
weakens the fundamental solution.
The two structures were combined or integrated. The customers' orders were affected by
the long delivery time. That is why, the management diverted their attention to adding
production capacities but were stuck there because of delays. The management did not
correctly respond to the needs of the customers, which is also the reason why the company got
bankrupt.