“More” is not always better. Sometimes, it’s just more.
In strategy and systems thinking, one of the most misunderstood—and most misapplied—principles is the Law of Diminishing Returns. Popularized in classical economics but with profound implications for systems design, business strategy, leadership, and scaling, this law tells us a fundamental truth: At some point, adding more input yields proportionally less output.
Let’s unpack this.
What is the Law of Diminishing Returns?
In essence, the Law of Diminishing Returns states:
“If one factor of production (such as labor or capital) is increased while other factors are held constant, the overall returns will eventually decrease.”
In a farm, for instance, adding more fertilizer initially boosts crop yields, but beyond a certain point, the soil becomes oversaturated and productivity stalls—or even declines. In business, it’s the same: you can only throw so many people, dollars, or hours at a problem before the benefit plateaus or turns negative.
Strategic Implications in Business
This principle has real-world consequences across multiple domains:
1. Scaling Operations
In the early phases of growth, increasing your sales team, marketing spend, or customer service capacity may yield strong marginal gains. But over time, those gains diminish:
- Each new hire may add less net productivity than the one before.
- Marketing spend hits saturation in target audiences.
- New processes layered on old ones slow the system instead of speeding it up.
Strategic Response: Instead of pushing more input, identify bottlenecks, eliminate friction, or innovate on the system design itself.
2. Product Development and Features
Adding features may improve product value initially, but eventually:
- The interface becomes cluttered.
- The user experience degrades.
- Development resources are diluted.
Strategic Response: Practice minimalism and focus. Sometimes less is more. Maximize utility per feature, not quantity of features.
3. Information and Decision-Making
More data can lead to better decisions—until it doesn’t. At some point:
- The cognitive load overwhelms decision-makers.
- Decision latency increases.
- Analysis turns into paralysis.
Strategic Response: Use systems thinking to identify leverage points—the small bits of information or insight that offer the biggest clarity.
4. Work Hours and Productivity
Working 10 hours a day might feel heroic. But after a certain point:
- Errors increase.
- Creativity plummets.
- Burnout creeps in.
Strategic Response: Implement rhythm-based work practices—such as sprints, deep work blocks, and recovery cycles—to avoid falling prey to diminishing returns.
How Systems Thinkers Use This Law
Systems thinkers don’t just accept diminishing returns—they plan for them.
- They model return curves and identify when marginal gains begin to fall off.
- They identify non-linear effects and feedback loops that may disguise diminishing returns until it’s too late.
- They prioritize interventions that increase system capacity, not just inputs.
This means optimizing how the system works, not just feeding it more resources.
Real-World Analogy: The Gym Workout
In strength training, the first few sets deliver the majority of growth stimulus. But after several sets, your muscles fatigue, recovery lags, and risk of injury increases. You might feel like you’re doing more—but your gains are shrinking.
The elite athlete understands this and trains intelligently, not just intensely.
In business, the same rule applies.
Ask Yourself (or Your Team):
- Where are we seeing less bang for our buck?
- Are we mistaking activity for effectiveness?
- Where could we redesign the system rather than increase the input?
From Input-Driven to Insight-Driven Strategy
The Law of Diminishing Returns is a signpost. It doesn’t mean “stop”—it means change how you think. Instead of brute-forcing growth, step back. Observe the system. Innovate on how it works, not just how hard you push it.
Strategic thinkers don’t just do more—they do different. That’s the inflection point where diminishing returns give way to compounding insight.
Missed out on the over all series?
Murray Slatter
Strategy, Growth, and Transformation Consultant: Book time to meet with me here!
