This paper considers the problem of managing process improvement when resources are constrained. The paper develops a system dynamics model that formalizes the critical interaction between first- and second-order improvements as options for governing production. Both first- and second-order improvement are effective in boosting short-term organizational performance, whereas only second-order improvement builds sustainable capability. Analytical results characterize the optimal trade-off between these options (working harder and working smarter). Simulation results show how pressuring the workforce to work harder can set off a vicious cycle of deteriorating process capability that squeezes out improvement activity. Results also highlight the key role of process capability as a form of organizational slack and demonstrate tipping points in the dynamics of process improvement. By moving from causal loops to a simulating model, this paper provides an example of how formal quantitative modeling can lead to important insights not discovered with causal loop diagramming alone. Copyright © 2012 System Dynamics Society.